ADVANCED ADVISOR GROUP, LLC INVESTMENT ADVISER · rc9.06/9.06 revised: september, 2006 page 1 advanced advisor group, llc investment adviser compliance and procedures manual and code

RC9.06/9.06 Revised: September, 2006 Page 1

ADVANCED ADVISOR GROUP, LLC

INVESTMENT ADVISER

COMPLIANCE AND PROCEDURES MANUAL

AND CODE OF ETHICS

June 2007

CRD#140393

440 Emerson Street N. Ste. 2 Cambridge, MN 55008

© Geoffrey T. Chalmers, Esq., 2005

Geoffrey T. Chalmers, Esq. is sole owner of this Compliance and Procedures Manual and all updates, supplements and accompanying material, including Forms Section, which is protected by the copyright laws of the United States. Reproduction of the Manual or any component without the prior permission of the author is strictly prohibited. The owner, through the publisher BD Compliance, Inc., licenses use of the Manual and updates and supplements to firms and individuals for use in the securities business. The Manual is not intended to constitute legal advice on any matter and should not be relied upon for that purpose. Any legal issues arising in the implementation of these procedures should be addressed by the user’s legal counsel. Some material included in the Manual has been obtained from governmental and other sources. No representation is made as to its accuracy or currency and users are cautioned to check these sources for changes since date of publication. As this Manual is designed for a “generic” type of registered adviser and the regulatory authorities do not favor a “boiler plate” presentation users are urged to devote some time to customizing this Manual so that it addresses the compliance needs of the user’s particular business. In that way the Manual will achieve its maximum effectiveness as a compliance tool.

© Geoffrey T. Chalmers, Esq. All rights reserved.


GEOFFREY T. CHALMERS, ESQ Boston, Massachusetts (617) 523-1960 [email protected]

Geoffrey T. Chalmers, Esq. is an attorney and NASD licensed compliance supervisor. He is engaged in private practice in Boston, MA, as a securities law specialist and broker dealer – investment adviser compliance consultant. He is a member of the bar in Massachusetts and New York and also holds NASD Series 7, 24, 63 and 65 licenses. Mr. Chalmers specializes in legal aspects of public and private securities offerings, including hedge funds, venture capital firms and emerging companies. He counsels a number of brokerage firms, investment advisers, banking and other financial institutions on securities law and compliance issues. From October, 1992 through June, 1996 Mr. Chalmers held the position of Vice President, General Counsel and Director of Compliance for Commonwealth Financial Network, Inc., a NASD registered broker dealer and SEC registered investment adviser with approximately 2,000 registered representatives located throughout the United States. In that position he was responsible for overseeing compliance policies and procedures followed by the broker dealer/adviser and its registered representatives in the sale of a wide variety of financial products and services, including mutual funds, stocks and bonds, partnerships, annuities, managed accounts and other investment products. Included in his duties were the development of policies and procedures to determine suitability of investments and to report to customers on the value of investments made by them. Prior to Commonwealth, Mr. Chalmers served in a variety of counsel positions, including Vice President and General Counsel (1987-1992) to Liberty Real Estate Management, Inc., a subsidiary of Liberty Financial Services, engaged in the sponsorship of real estate limited partnerships and the management of partnership operations, partner (1980-85) of Gray, Wendell, Chalmers & Dahlen, engaged in securities law practice and General Counsel (1972-80), to Continental Investment Corporation a diversified financial services company. Before moving to Boston in 1972, Mr. Chalmers had practiced in New York City, starting with Cravath, Swaine & Moore (1961-66) and moving briefly to Washington, D.C. (1966-67) as an attorney in the Division of Corporation Finance of the U.S. Securities Exchange Commission. Mr. Chalmers is a graduate of Harvard College (BA cum laude, 1957), Columbia Law School (LLB, 1961) and New York University (MBA, Finance, 1971).


TO ADVANCED ADVISOR GROUP, LLC EMPLOYEES: As a registered investment adviser, Advanced Advisor Group, LLC is subject to federal and state laws and regulations governing its business of providing investment management and advisory services to individuals and companies. These laws and regulations stem principally from the Investment Advisers Act of 1940. Where it manages mutual funds, Advanced Advisor Group, LLC is also subject to the Investment Company Act of 1940. In response to recent developments in the regulatory climate and in our company we have developed a comprehensive set of rules and procedures governing the operation of Advanced Advisor Group, LLC. This Investment Adviser Compliance and Procedures Manual are designed to provide employees of Advanced Advisor Group, LLC, a registered investment adviser, with the basic rules and policies for operating the company. As you go through this Manual, I hope that you will be pleased to find it a readable, common sense source for the ground rules of our business. This Manual will be updated from time to time to reflect changes in the/our regulatory and business situation. Any questions you may have about the Manual should be directed to our Chief Compliance Officer. So please acknowledge your receipt of the Manual; that you understand its provisions and that you intend to comply with them. Sincerely, Kent Schutte Chief Compliance Officer


RECEIPT AND ACKNOWLEDGMENT

• THE UNDERSIGNED INDIVIDUAL ACKNOWLEDGES THAT HE/SHE

UNDERSTANDS THE POLICIES AND PROCEDURES CONTAINED IN THIS

MANUAL.

• THAT HE/SHE AGREES TO ABIDE BY THESE POLICIES AND PROCEDURES,

INCLUDING ANY FUTURE AMENDMENTS.

Name (Please Print):______________________________

Signature:_______________________________________ DATE:_________________________________________


TABLE OF CONTENTS SECTION 1: ORGANIZATION AND RESPONSIBILITIES

1.1 Written Supervisory Procedures – Annual Review and Reporting

1.1.1 SEC Registered Firms

1.1.2 State Registered Firms

1.2 Advanced Advisor Group, LLC Internal Controls

1.3 Staffing Chart

1.4 Investment Committee

1.5 Supervision

1.5.1 Supervisory Review System

1.5.2 Qualifications of Supervisory Personnel

1.5.3 Overall Supervision

1.5.4 Supervision of Personnel

1.5.5 Sub-Advisers

1.5.6 Associated Persons

1.5.7 Investment Adviser Representatives (IARs)

1.5.8 Dual Licensing

1.5.9 Hiring and Registration Process

1.5.10 Annual Personnel Review

1.6 Correspondence Review

1.7 E-Mail Review

1.8 Disciplinary Actions

SECTION 2: FILINGS AND DISCLOSURE TO CLIENTS; THE CLIENT AGREEMENT 2.1 Investment adviser (RIA) Registration and Reporting

2.1.1 Form ADV – Filing and Updating

2.1.2 Form ADV-E

2.1.3 Form ADV-W

2.1.4 Form U-4

2.1.5 Form 13-D

2.1.6 Form 13-G

2.1.7 Form 13-F

2.2 State Requirements; Net Capital and Bonding

2.3 Disclosure to Clients


2.3.1 Risk Disclosure

2.3.2 Financial and Disciplinary Disclosure

2.4 The “Brochure Rule

2.4.1 “Wrap Fee” Programs

2.5 The Client Agreement

2.5.1 Mandated by the Advisers Act of 1940

2.5.2 Other Suggested Provisions

2.5.3 Mutual Funds Contracts

SECTION 3: CLIENT RELATIONS; ESTABLISHING ACCOUNTS

3.1 Rules of General Conduct

3.2 Recommendations

3.3 Fiduciary Standard of Care

3.3.1 Avoid Self-Dealing

3.3.2 Consistency with Announced Strategies

3.3.3 Follow Individual Client Guidelines

3.3.4 Disclosure

3.3.5 Communication/Feedback

3.4 Discretionary/Managed Accounts

3.5 Contacting Prospective Clients

3.5.1 Federal Communications Commission “Cold Calling” Rule

3.6 Account Establishment

3.6.1 Account Establishment

3.6.2 Anti Money Laundering (AML) Rules

3.6.3 Initial Review

3.6.4 Ongoing Review

SECTION 4: MANAGING CLIENT SERVICES

4.1 Safeguarding Client Funds and Securities

4.1.1 SEC “Custody” Rules

4.1.2 SEC Requirements if Advanced Advisor Group, LLC Has Custody

4.1.3 Exceptions to SEC Requirements

4.1.4 State Requirements

4.1.5 Supervision of Custodians

4.2 Portfolio Valuation

4.3 Reporting to Clients


4.4 Fees

4.4.1 General Rule

4.4.2 Performance Fees/Contingent Fees

4.4.3 Arms Length Contract

4.4.4 “Fulcrum Fees”

4.4.5 Affiliated Investment Companies

4.4.6 ERISA Clients

4.4.7 Rebates and Waivers

4.4.8 Solicitation and Referral Fees

4.4.9 Sales Promotions and Allowances

4.5 Customer Complaints

4.6 Privacy of Consumer Financial Information

4.7 Voting Proxies

SECTION 5: INVESTMENT AND TRADING PRACTICES

5.1 In General

5.2 Allocation of Investment Opportunities

5.3 ERISA Clients

5.3.1 What Accounts are Covered

5.3.2 “Plan Fiduciary”

5.3.3 Standards

5.3.4 Fees

5.3.5 Prohibited Transactions

5.3.6 Specific Types of Prohibited Transactions

5.3.7 General Prohibition on Self-Dealing

5.3.8 Prohibited Transaction Exemptions

5.3.9 Liability for Breach of ERISA Rules

5.3.10 Proxy Voting

5.3.11 Custody of Plan Assets

5.3.12 Minimum Capital requirements

5.3.13 Bonding and Financial Statement Requirements

5.4 Use of Model Portfolios

5.5 “Mutual Fund” Status

5.6 Sub-Advisers

5.6.1 Supervision of Sub-Advisers


5.6.2 Due Diligence and Pre-Qualification

5.6.3 Agreements

5.6.4 Monitoring Adviser Qualifications

5.6.5 Monitoring Portfolio Operations

5.6.6 Monitoring Other Operations

5.6.7 Reporting and Disclosure to Clients

5.7 Other Securities Trading Practices

5.7.1 Selection of Brokers and Dealers

5.7.2 Best Execution

5.7.3 “Soft Dollar” and Directed Brokerage

5.7.4 Use of Affiliated Broker Dealer

5.7.4.1 In General

5.7.4.2 ERISA Clients

5.7.5 “Bunched” Orders and Allocation of Trades

5.7.6 Agency and Principal Transactions With Clients

5.7.7 Agency Cross Transactions

5.7.8 Proprietary Trading

5.7.9 Trading by Supervised Persons

5.7.10 Trading Errors

5.8 Restrictions on Trading in Securities

5.8.1 Use and Misuse of Research

5.8.2 Misuse of Material Inside Information

5.8.2.1 Material Nonpublic Information

5.8.2.2 Examples

5.8.2.3 Penalties for Misuse

5.8.2.4 Personal Securities Transactions

5.8.2.5 Restricting Access

5.8.3 “Chinese Wall” Procedures

5.8.4 Restricted and Watch Lists

5.8.5 Mergers, Tender Offers, etc

5.8.6 “Hot Issues” Restrictions

5.8.7 Exception Reports; Investigations

SECTION 6: SALES AND ADVERTISING

6.1 “Advertising” Defined


6.2 Advertising Approval

6.3. “Fraudulent, Deceptive or Manipulative”

6.4. Compliance Review - Specific Practices

6.5. Performance Advertising

6.5.1 “Clover” Rule

6.5.2 Fees and Expenses

6.5.3 Predecessor Advisers

6.5.4 CFA Institute (formerly AIMR) Standards

6.6 Fund Prospectus/Sales Material

6.6.1 Funds Offered by Others

6.6.2 Funds Offered by Advanced Advisor Group, LLC

SECTION 7: PARTICULAR PRODUCTS AND SERVICES

Not Applicable.

SECTION 8: RECORDS AND SECURITY

8.1 Records Retention Requirements

8.1.1 Federal vs. State Requirements

8.1.2 Journals

8.1.3 Auxiliary Ledgers

8.1.4 Brokerage Orders

8.1.5 Check Books

8.1.6 Bills and Statements

8.1.7 Financial Statements

8.1.8 Written Communications

8.1.9 E-Mail Retention

8.1.10 Discretionary Accounts

8.1.11 Powers of Attorney

8.1.12 Written Agreements

8.1.13 Circulars and Advertisements

8.1.14 Securities Transactions by Advanced Advisor Group, LLC and

Employees

8.1.15 Brochure Delivery, Receipt, Acknowledgment

8.1.16 Solicitor Disclosure Agreements, Statements, Receipts

8.1.17 Performance Advertising Records

8.1.18 Customer Account Records


8.1.19 Employee Records

8.1.20 Written Supervisory Procedures

8.1.21 Basic Documents

8.2 Security of Systems and Information

8.2.1 Policy

8.2.2 Access to Facilities, Electronic Systems and Data

8.2.3 Reports and Other Communications

8.2.4 Client Information

8.2.5 Corporate Policy and Procedures for Computer Security

8.3 Business Continuity Plan

EXHIBIT A CODE OF ETHICS

EXHIBIT B BUSINESS CONTINUITY PLAN

EXHIBIT C ANTI-MONEY LAUNDERING PROCEDURES

EXHIBIT D PRIVACY OF CONSUMER FINANCIAL INFORMATION


SECTION 1: ORGANIZATION AND RESPONSIBILITIES

1.1 Written Supervisory Procedures – Annual Review and Reporting

1.1.1 SEC Registered Firms. As of October 5, 2004 new SEC Rule 206(4)-7 became effective requiring all SEC registered advisers to (a) adopt and implement written policies and procedures reasonably designed to prevent and detect violations of the securities laws and rules by the adviser and its supervised persons, (b) review no less frequently than annually the adequacy of the policies and procedures and the effectiveness of their implementation and (c) designate a “Chief Compliance Officer” who is a supervised person responsible for administering the policies and procedures. The written supervisory procedures set forth in this Manual are designed to comply with the new Rule.

The Chief Compliance Officer should be someone who is both competent and knowledgeable regarding federal securities laws and empowered with full responsibility and authority to develop and enforce appropriate policies and procedures for the firm. This person must also have full responsibility for all compliance personnel as well as overall responsibility for the firm’s compliance program. Lastly, the Chief Compliance Officer must be vested with sufficient seniority and authority within the organization to compel others to follow the firm’s compliance policies and procedures.

Advanced Advisor Group, LLC hereby designates Kent Schutte as its Chief Compliance Officer (“CCO”).

Qualifications. The CCO must have one or more of the following professional qualifications:

•••• NASD Series 7 or 66 examinations, or

•••• NASD Series 65 examination.

Rule 206(4)-7 requires that the annual review of Advanced Advisor Group, LLC policies and procedures consider any compliance matters that arose during the previous year, any changes in the business activities of the adviser or its affiliates, and any changes in the Advisers Act or applicable regulations that might suggest a need to revise the policies or procedures.

Although the Rule requires only annual reviews it recommends that advisers consider the need for interim reviews in response to significant compliance events, changes in business arrangements, and regulatory developments.”

In addition to Rule 206(4)-7, Section 203(e)(5) of the Advisers Act has for some time contained a “safe harbor” for investment advisers and supervisors from SEC sanctions for “failure to supervise” if:

• The adviser establishes procedures that would reasonably be expected to prevent and detect violations of the federal securities laws;

• The adviser has in place a system for applying the procedures;


• The supervisor has reasonably discharged his or her supervisory responsibilities; and

• The supervisor has no reason to believe the person was not complying with the procedures and system.

1.1.2 State Registered Firms.

The securities laws and regulations of many states mandate that state registered advisers maintain a set of written supervisory procedures containing a detailed description of the supervisory system. Many States have adopted the language of SEC Rule 206(4)-7. Each firm which maintains a state registration or registrations should check the requirements of the state(s).

1.2 Advanced Advisor Group, LLC Internal Controls

In addition to the requirement of written supervisory procedures, Rule 206(4)-7 requires that SEC registered advisers have in place a set of internal controls to implement these procedures. The internal controls are designed to provide clear standards by which disciplinary measures may be taken internally in the event of a violation, including disciplinary interviews, special review or training, written communications that go on the employee’s record, fines or suspension/reassignment or termination of employment and/or referral to regulatory authorities.

The firm’s establishment and ongoing review and testing of its internal controls will be designed with the following objectives in mind:

• Meeting all relevant regulatory deadlines;

• Reviewing the firms compliance obligations from a “risk based” perspective;

• Documenting the actual work flows present in the firm’s operations;

• Demonstrating that the written supervisory procedures and internal controls that have been implemented properly address the risks present in firm operations and, upon testing and reviews, reasonably attempt to fill any potential gaps uncovered;

• Creation of books and records demonstrating compliance with Rule 206(4)-7 including testing methodologies and any issues detected and resolved (red flags);

The following chart summarizes the internal controls in effect at Advanced Advisor Group, LLC to address the areas identified in the Rule:

Area WSP Reference Responsible Person

1. Portfolio Mgt Sec.5 Chief Compliance Officer

2.Trading Practices Sec.5 Chief Compliance Officer

3.Personal Transactions Sec 5 Chief Compliance Officer

4.Disclosure to Clients Sec.2 Chief Compliance


Officer

5.Custody of Assets Sec. 4 Chief Compliance Officer

6. Record Keeping Sec.8 Chief Compliance Officer

7. Sales and Advertising Sec 6 Chief Compliance Officer

8. Fees and Calculation Sec. 4 Chief Compliance Officer

9. Consumer Privacy Sec. 4 Chief Compliance Officer

10. Business Continuity Ex. B Chief Compliance Officer

1.3 Staffing Chart The individuals currently responsible for exercising the responsibilities set forth in this Manual are listed in the Staffing Chart below.

ADVANCED ADVISOR GROUP, LLC STAFFING CHART

Name

Title(s)

Location(s) Where Person Regularly Conducts Business

Designated Supervisor

Kent Schutte Chief Compliance Officer


N/A

Jim Johnson Vice-President 440 Emerson Street N. Ste. 2 Cambridge, MN 55008

Kent Schutte

Josh Decker Vice-President 440 Emerson Street N. Ste. 2 Cambridge, MN 55008

Kent Schutte

Todd Opolahl Financial Advisor


Kent Schutte


1.4 Investment Committee The Investment Committee is responsible for reviewing and approving model portfolios and their contents, reviewing and approving new accounts and suitability of investments, requesting, obtaining and evaluating research on portfolio securities, initiating changes in portfolios and accounts and monitoring portfolio and account performance and reporting. Investment Committee members are disclosed on Schedule F. Advanced Advisor Group, LLC does maintain an Investment Committee the members of that Committee are: Kent Schutte President/Chief Compliance Officer; Jim Johnson, Vice-President; Josh Decker, Vice-President; and Todd Opolahl, Financial Advisor. 1.5 Supervision This Manual sets forth written procedures by which the Company supervises its activities. In addition, it describes the Supervisory System in place to oversee the implementation of the Procedures.

1.5.1 Supervisory Review System

The Company’s Supervisory System has the following general components:

• Designation of responsible supervisory personnel

• Description of review process

• Documentation of reviews

• Monitoring performance of automated compliance systems

• Monitoring effectiveness of supervisory personnel

• Monitoring adequacy of outside service provider compliance

• Description of steps to remedy deficiencies

• Procedure updates to reflect rule changes

• Retaining records of past procedures 1.5.2 Qualifications of Supervisory Personnel

When designating supervisory personnel and responsibilities, Advanced Advisor Group, LLC shall ensure that each Principal shall have proper licensing and employment qualifications. The CCO is responsible for hiring or appointing designated supervisors. In doing so, the CCO must determine that supervisors understand and can effectively conduct their requisite responsibilities. In this regard, the Company will consider the experience the supervisor possesses and determine that the individual is qualified by experience or that it is necessary to arrange training to ensure the person is qualified to supervise. In addition, the performance and effectiveness of supervisory personnel will be reviewed no less than annually to ensure continued qualification.

1.5.3 Overall Supervision

Each Associated Person of Advanced Advisor Group, LLC is assigned to an appropriate officer of the Company who shall be responsible for supervising that person's activities. The Compliance Department shall maintain a record of all such assignments.


The Chief Compliance Officer implements the following procedures:

• All Associated Persons have access to a current copy of this Manual;

• Periodic review and amendment of this Manual if and when applicable.

• Any new insertions are available to all Manual owners;

• Proper licensing of all personnel in the jurisdictions where required;

• Periodic compliance meetings to cover new topics and review areas of concern

• Periodic review of: � The adequacy and completeness of the supervisory procedures in the light of

current operational and regulatory climate; and � The compliance of advisory personnel with the supervisory procedures

1.5.4 Supervision of Personnel The CCO is responsible for supervising operations at the firm, including Licensing, Compliance, Cashier, Payroll, Financial Control, etc., including, but not limited to, the following functions:

• Determine that each person employed in the business is properly qualified, licensed and registered (if applicable) to perform the function assigned;

• Confirm that the licensing and registration requirements for the Company have been met and are being currently maintained;

• Report to the regulatory authorities all changes in Form U-4, IAR, and other filings required;

• Interview all prospective Associated Persons and review the required information prior to accepting them as Associated Persons of the Company;

• Periodically review all personal accounts and personal trading;

• Review and approve all communications with customers;

• Supervise access of personnel to Company and customer records and files;

• Review and approve advertising and electronic communications;

• Review outside business activities of Associated Persons; and

• Supervise compliance with SEC rules on solicitation payments. Details of these reviews are further described throughout this Manual in the sections related to oversight of specific activities.

1.5.5 Sub-Advisers

Advisers may utilize the services of third party sub-advisers to provide investment advisory services on a contract basis. The relationship with the sub-adviser will be properly disclosed in the adviser’s brochure and Form ADV. Where the sub-adviser performs management services for a client of the adviser, a copy of the Sub-Adviser’s Form ADV Part II or brochure will be delivered to the client prior to assigning the sub-adviser to manage the client’s account. Advanced Advisor Group, LLC does not currently utilize sub-advisers with regards to the asset management/supervisory services offered to clients, but will establish appropriate procedures to monitor them if used in the future. 1.5.6 Associated Persons


Section 202(a)(17) of the Advisers Act defines a “person associated with an investment adviser” (an “Associated Person”) as any partner, officer, director of the adviser and any person “directly or indirectly controlling or controlled by such investment adviser, including any employee of such investment adviser.”

Section 203(c)(1) of the Advisers Act imposes statutory disqualifications on advisers and Associated Persons, including willful false filings, convictions within 10 years prior for securities felonies or misdemeanors, violations of antifraud statutes, permanent or temporary injunction against service as an adviser, aiding or abetting in violations, failure to supervise, and SEC suspension or bar orders.

It is the responsibility of Advanced Advisor Group, LLC to make reasonable inquiry of prospective Associated Persons or to make sure that they are not subject to statutory disqualification and to disclose any adverse information to the regulators. The CCO will be responsible for making such inquiries and investigating any issues that may arise during the hiring process.

Schedule A of Form ADV requires additional disclosure for Associated Persons, including:

• an officer, director, “control person” or over 10% equity owner;

• a member of the investment committee that determines general investment advice to be given to clients; or

• an individual giving investment advice on behalf of the applicant in the jurisdictions in which the application has been filed.

Additions and deletions to Schedule A must be filed as amendments using Schedule C, when they take place. In addition, investment committee members must be described on Schedule F. The CCO is responsible for ensuring Form ADV Schedule A is accurate and up to date.

1.5.7 Investment Adviser Representatives (IARs)

Most State investment adviser laws and regulations require separate registration of “investment adviser representatives” (IARs). The SEC has no requirements for separate registration of IAR’s. State IAR definitions vary widely and state laws and regulations will be carefully checked prior to conducting advisory business in any new jurisdictions. In general, an IAR is any individual (whether or not an employee) who provides investment advisory services on behalf of an investment adviser. Typically states will require at least one IAR registration in addition to Advanced Advisor Group, LLC’ own registration before it can do business in that state. Advanced Advisor Group, LLC responsible for having procedures in place which require IAR’s to register in any jurisdictions where they do business. IAR’s are prohibited from conducting business in jurisdictions where the firm is not appropriately registered and/or notice filed. The CCO is responsible for ensuring that all Advanced Advisor Group, LLC IAR’s are appropriately qualified and licensed to offer advisory services in the jurisdictions in which Advanced Advisor Group, LLC is registered.


The rules imposed by the states for IAR registration vary. See www.nasaa.org for a directory of state addresses and websites. Most states require that the IAR obtain a NASD Series 65 or 66 qualification plus a demonstration of some prior industry experience. Registration of IAR’s is handled through the IARD system and most states use the NASD Form U-4 as a basic application form, Registrations require a fee as do the annual renewals. Some states require additional documents to properly register IARs.

Solicitors. Under many state laws and regulations persons who solicit customers for new accounts and receive referral or other compensation in this connection are required to register as IARs. Advisers should take care to verify the registration status of persons who do not themselves render investment advice but who do “solicit” on behalf of the firm. This generally includes professionals such as financial planners, accountants or attorneys that refer business to the adviser in exchange for compensation. These persons are not formally required to be disclosed in Form ADV Part II of the RIA, because they do not themselves render any investment advice. Many states, however, require that these persons register as IARs if they are receiving compensation for their solicitation efforts. The CCO will be responsible for ensuring that solicitors appropriately registered with the state (where applicable).

Administrative Personnel. Care should be taken with administrative and other personnel who have contact with clients to make sure that their activities do not require them to register as IARs. The CCO is responsible for drafting appropriate job descriptions for administrative personnel and ensuring that their jobs do not include duties or functions which may require IAR registration.

1.5.8 Dual Licensing

In some cases a person registered as an IAR of Advanced Advisor Group, LLC may also be registered as a registered representative (RR) of a registered broker dealer or as an IAR with another investment adviser. The laws of most states treat this as a “dual registration” requiring the consent of both companies and, in the case of some states, the consent of the state securities regulator. Some states strictly prohibit “dual registration” except when the companies with whom the person is registered are affiliated. Advanced Advisor Group, LLC will check applicable state laws to make sure rules pertaining to dual registration are being followed.

NASD Registered Representatives. Special rules apply to individuals who are registered representatives of NASD broker dealer firms and seek IAR registration with Advanced Advisor Group, LLC. According to NASD requirements (Notice to Members 94-44), IARs who are also registered with a NASD member are required to inform the member firm in writing that they are registered as, or affiliated with, an investment advisor. Written notice and approval must be given by the member firm to their representatives who are also registered as investment advisers and such firms must supervise all advisory activities of those representatives in which the representative is participating in securities transactions for advisory clients.

Other Licenses. Similarly, persons registered as IARs may also hold licenses with other entities to sell insurance related or other products. These licensing requirements should


be checked over carefully at the outset to make sure that regulatory requirements are being met. This extends to payment of fees and commissions to the proper entities as well as the licensing/consent issues.

1.5.9 Hiring and Registration Process

The CCO is responsible for obtaining and maintaining required Associated Person or IAR registration of personnel. New employees may not work in a capacity that requires registration until they successfully fulfill all registration requirements. The Chief Compliance Officer will be consulted in advance of each new position and will identify to the appropriate manager which positions require specific registration(s). The candidate will be provided with a job description including the NASD, IAR or insurance registration/licensing requirement and the allowable time frame to complete the requirement.

At the time of application for employment, Advanced Advisor Group, LLC will obtain the following for each person required to register:

• Application for Employment (includes authorizations)

• Reference checks (as needed)

• Personnel Questionnaire

• CRD/IARD record (if any).

1.5.10 Annual Personnel Review

The CCO is responsible for an annual review of each Associated Person or IAR contracted with Advanced Advisor Group, LLC.

The annual review may include any of the following:

• Ascertaining that applicable license information is current and that all licenses have been renewed;

• Review of qualifications/responsibilities to determine if changes/upgrades are necessary;

• Review of specific education, training and compliance issues; and/or

• Review of activities related to business conducted outside Advanced Advisor Group, LLC and personal securities accounts.

• Other items as relevant to the individual.

1.6 Correspondence Review

Business Correspondence to or from Advanced Advisor Group, LLC or any of its “Associated Persons” (employees or full time independent contractors) is subject to review by Advanced Advisor Group, LLC. Business Correspondence is correspondence relating to the following topics:

• Recommendations and other advice given or proposed to be given.

• The adviser must retain a memorandum describing any list (and the source thereof) of names and addresses of persons to whom offers of any report, analysis, publication or other investment advisory service were sent where the material was actually sent to the persons on that list.


• Instructions received from clients.

• Receipt, disbursement or delivery of funds or securities.

• Placing or execution of any order to purchase or sell any security.

Advanced Advisor Group, LLC prohibits Associated Persons from conducting any Business Correspondence other than through Advanced Advisor Group, LLC and requires that only Advanced Advisor Group, LLC e-mail systems will be used for any electronic Business Correspondence. Advanced Advisor Group, LLC requires that all outgoing Business Correspondence, including direct communications to clients, form letters and sales literature, memos, notes, etc. must be reviewed and approved in advance in writing by the person’s supervisor. The person sending out any form letter or advertising must maintain a list of the addressees and the date(s) the material was disseminated. Copies of this correspondence should be initialed by the supervisor indicating review and be placed either in the client file or in an “outgoing correspondence” file.

Similarly Advanced Advisor Group, LLC requires all incoming correspondence of any kind, including personal letters addressed to Associated Persons, to be opened and reviewed by the person’s supervisor before being distributed to the Associated Person. This review should focus particularly on the receipt of funds of securities by Associated Persons and on any customer dissatisfaction or complaints.

1.7 E-Mail Review

The SEC treats e-mails like other Business Correspondence. Advanced Advisor Group, LLC must review both incoming and outgoing e-mails on a regular basis. The supervisor will pre-review outgoing correspondence and periodically review incoming correspondence by electronic or manual approval notation, either directly or by means of a periodic download to a review file. Where review indicates a problem, the supervisor will immediately take it up with the person involved, or the Chief Compliance Officer where warranted, in order to correct it, including sending corrective communications where appropriate.

In certain situations, firms can assert attorney-client privilege with respect to certain emails which qualify for such protection to protect them from regulatory, legal, or other scrutiny. In such situations, the firm will maintain a privilege log which documents any such emails which the firm wishes to protect under the privilege rules. The log must not only list the emails to be protected by also document sufficient reasoning for invoking such privilege. Regulators seeking access to such documentation may challenge the assertion of privilege with respect to any emails in question. Typically, if the CCO is also the firm’s Chief Legal Counsel, he or she cannot assert “blanket” privilege with respect to compliance related emails without appropriate justification.

Dorothy Chlystek is responsible for periodically reviewing all internal and incoming email as described above. Reviewed emails are stored through Smarsh Financial Services with any applicable documentation pertaining to any additional inquiry or investigation, including any remedial action taken, as a result of the email review.

Dorothy Chlystek will be responsible for prompt retrieval of any email pursuant to regulatory requests.

Advanced Advisor Group, LLC strictly prohibits communication with customers via instant messaging technology. Discovery of such communication will result in disciplinary action.


1.8 Disciplinary Actions

Advanced Advisor Group, LLC takes its responsibilities seriously to review employee activities to detect and deter conduct which is, or could become, a violation of these Procedures. All employees are required to report any suspected violations of these Procedures to the Chief Compliance Officer. Employees should know that they may be asked to explain, informally or otherwise, their conduct or documentation with which they are associated. If further investigation reveals a problem Advanced Advisor Group, LLC may take further action, including placing the individual(s) involved under heightened supervision or restrictions, imposing internal penalties, including canceling an improper employee securities trade disgorgement of ill-gotten profits or, in extreme cases, suspension or dismissal.

In certain cases the existence of violations may need to be disclosed to the SEC and/or state authorities with the consequent requirement that Form ADV be amended as well as the CRD/IARD registrations on Form U-4 of the individuals involved. Corrective action may, in addition, involve unwinding improper client trades and other remedial action to make the client whole.

SECTION 2: FILINGS AND DISCLOSURE TO CLIENTS; THE CLIENT AGREEMENT

2.1 Investment Adviser (RIA) Registration and Reporting 2.1.1 Form ADV – Filing and Updating

The CCO is responsible for obtaining and maintaining RIA registration for Advanced Advisor Group, LLC. Registration is accomplished by filing SEC Form ADV, a copy of which can be found, together with filing instructions, on the sec website, www.sec.gov. State filings employ Form ADV as well and their forms and instructions can be found on their various websites (see www.nasaa.org, the NASAA website, for the names and addresses of the state regulators).

Criteria for Registration. Advisers must register with either the SEC or applicable state based on the following criteria:

SEC Registration is required if the adviser:

• Has $30 million or more in “securities portfolios” (see below) for which the adviser provides “continuous and regular supervisory or management services” (registration is optional if adviser has $25 million).

• Is adviser to a registered investment company under the Investment Company Act of 1940;or

• Is providing services in 30 or more states.

As Advanced Advisor Group, LLC currently has assets under management in excess of $25/$30 million, it has registered with the SEC.

State registration is usually required if the adviser:


• Has less than $25 million in “securities portfolios” receiving “continuous and regular management or supervisory services”.

• Provides only financial planning or other services that do not involve “continuous and regular” supervision of client’s assets.

• Solicits clients on behalf of other registered advisers but provides no advice to clients.

State registration requirements should be carefully checked in each jurisdiction where

the investment advisory services are being provided.

“Securities Portfolios.” Under the SEC regulations the “securities portfolios” for which an investment adviser provides “continuous and regular supervisory or management services” are defined in Section 203A(a)(2) of the Advisers Act. “Securities portfolios” are defined as accounts which derive at least 50% of their total value from securities. For purpose of this section, advisers can count cash and cash equivalents as “securities.” The adviser may also count as “securities portfolios” family and proprietary accounts, accounts for which the adviser does not collect a fee, and non-U.S. resident accounts.

The instructions to Form ADV currently state that a portfolio receives “continuous and regular supervisory or management services” if the adviser has discretionary authority and provides ongoing supervisory or management services. Non-discretionary accounts may meet this requirement if they have been assigned other responsibilities typically associated with a discretionary account, e.g., selecting or making recommendations as to specific securities or other investments and arranging for trade execution.

Generally, advisers should not count client assets for the purposes of calculating assets under management if:

• The adviser allocates assets among other investment managers, unless the adviser has discretionary authority to hire and fire that manager;

• The adviser does not provide ongoing supervision and management of the account (i.e. reviews the client account only periodically); or

• The adviser provides advice about a client’s account but does not arrange the client’s securities transactions (financial planning and consulting activities).

Improper counting of client assets will potentially lead to the SEC insisting upon withdrawal of the adviser’s registration if such assets are erroneously included in the overall figure and removing these assets brings the firm below the $25 million threshold for SEC registration. Conversely, state registered firms who fail to count assets which would ultimately bring the firm above the $25 million threshold will be required to transition to SEC registration status.

State Notice Filings. The National Securities Markets Improvements Act of 1996 (NSMIA) divided regulation of investment advisers between the Securities and Exchange Commission (SEC) and state securities authorities. In general, under NSMIA, a state cannot require the registration, licensing, or qualification of an investment adviser registered with the SEC. However, NSMIA does allow States to require, for notice purposes, that SEC-registered investment advisers file with the States any document that the adviser files with the SEC. Investment advisers registered with the SEC are generally required to provide states with a copy of Form ADV and any amendments filed with the SEC. These filings are called notice filings and are performed on the IARD system.


Advanced Advisor Group, LLC is registered with the SEC and made proper notice filings with any states where advisory services are offered and such notice filings are required.

Electronic Filing. Form ADV is in two parts. Part I contains general information about the adviser and is filed electronically with the SEC through the Investment Adviser Registration Depository (IARD) System. Instructions for this filing require the registrant to log on the SEC website (www.sec.gov ), obtain an IARD registration number and pay a filing fee. Part II is not currently filed with the SEC. Part II is a “disclosure document” containing information designed to be given to potential clients. Most states require that both Part I and Part II be filed.

IARD information is available to the public on the Investment Adviser Public Disclosure (“IARD”) website (www.adviserinfo.sec.gov.). The IARD Users Manual (http://www.iard.com/) is available for specifics and personal help can be obtained by calling the IARD help desk at (240) 386-4848.

State Registration. Advisers which do not qualify for SEC registration must be registered with the state where they do business. The National Securities Markets Improvements Act also requires that they comply with the registration laws in each state where they have an established place of business and/or more than six (6) clients. Most state laws require an adviser to register if it is providing investment advisory services in the state. However, each state has different de minimus exemptions which should be carefully checked. State filing requirements generally mirror Federal ones. Most states accept the Federal IARD electronic filing. Some states have additional requirements, including financial statements, bonds, registration of personnel, etc. States also offer various definitions, exemptions, disqualifications and other provisions which should be carefully examined before filing.

Most states require at least one investment adviser representative (IAR) registration where the adviser is required to be registered. Additional IAR registration is required for persons providing advisory services in the state on behalf of the firm. These registrations may be accomplished on the CRD/IARD system in most jurisdictions, however, as indicated above some states do not register IAR’s so no additional filings are required in these cases. In addition, some jurisdictions do not register IAR’s electronically, but do so via paper application. Firms should confirm filing procedures with the state(s) before making any state filing(s)

Advanced Advisor Group, LLC is registered with the SEC and therefore is required only to notice file with any states in which it conducts business, as required by the Adviser’s Act.

Branch Offices: Certain states require registration of all branch offices of an investment adviser. Depending on the jurisdiction, these filings may either be done in electronic format by filing Form BR through the NASD’s CRD/IARD system or via paper filings. In addition, notification of the establishment of a branch or termination of a branch (in addition to amending Schedule D of Form ADV Part I) is a requirement in a number of states. Notification is required within specific timeframes regarding opening or closing branch offices. Definitions of "branch office" vary from state to state, so if Advanced Advisor Group, LLC employs advisory person(s) outside the main office location it will review each state’s branch office definition and registration requirements.


Advanced Advisor Group, LLC has verified the regulations within each state where it conducts advisory business and has registered branch offices and made appropriate filings, as applicable to each state.

Annual ADV Updating Amendment. An Annual Updating Amendment to Form ADV Part I must be filed with the SEC and with any state which requires it, together with the required filing fees, within ninety (90) days of the end of each fiscal year. SEC and state registered advisers filed on IARD are required to amend Form ADV Part I electronically on IARD which now contains the eligibility information, formerly required by the annual Schedule I filing, for both new advisers applying for SEC registration and existing SEC advisers. Form ADV Part II or disclosure brochure amendments do not currently have to be filed with the SEC but may be required electronically or in writing in state jurisdictions where the firm is either a SEC registered adviser and must make notice filing(s) or is registered or has a registration application pending. State requirements vary as they phase into IARD.

In situations where an adviser crosses the $30 million threshold as part of the annual amendment process, the firm will have 90 days from the filing of the annual amendment to transition their registration to SEC status. Conversely, SEC registered advisers who fall below the $25 million threshold as a result of their annual amendment filing must immediately commence their filing for state registration status in all jurisdictions where registration will be required.

Prompt Form ADV Amendment is required for:

Part I – Any changes in Items 1, 3, 9 or 11 of Part IA or Items 1, 2.A through 2.F or 2.1 of Part 1B.

Part I – Material changes in Items 4, 8 or 10 of Part 1A, Item 2G of Part 1B Part II – Material Changes as required by the state where registered.

The CCO is responsible for making timely updates to Advanced Advisor Group, LLC’ Form ADV Part I and II as described above.

2.1.2 Form ADV - E

Form ADV-E must be completed by investment advisers who possess (directly or indirectly) or have “custody” of client funds or securities. The ADV-E must be completed by the investment adviser and then given to an independent public accountant who examines client funds and securities in the custody or possession of the investment adviser. The accountant then submits the ADV-E along with the certificate of accounting required under Rule 206(4)-2(a)(5) of the Advisers Act to the SEC and applicable state regulators. Two copies should be filed with the SEC's principal office in Washington, DC and another copy with the appropriate SEC Regional Office. Other copies may be submitted to appropriate state regulators, as applicable. Although Advanced Advisor Group, LLC has custody of client funds and/or securities due to the fact it liquidates fees directly from client accounts through the custodian, it is not required to file Form Adv-E since it utilizes a qualified custodian and is therefore not subject to the annual requirement for an audit by an independent accountant.


2.1.3 Form ADV-W

Form ADV-W is used to withdraw registration as an investment adviser with the SEC and states. SEC and state registered advisers must Form ADV-W filings electronically on the IARD system. Advisers may make either a “Full Withdrawal,” which terminates their registration with all regulators, or a “Partial Withdrawal,” which terminates registrations with certain, but not all, regulators; i.e., deleting state notice filings, state registration(s), or converting from/to SEC or state registration.

2.1.4 Form U-4

Advisory representatives must inform the CCO of all changes which may require an amendment to Form U-4. Typically, this will be a change of home address, a married name (versus a maiden name), outside business activity, and any disciplinary matter.

2.1.5 Form 13-D

SEC Rule 13d-2 requires this schedule to be filed for any person, including the adviser and its Associated Persons, who, after acquiring directly or indirectly a beneficial ownership of more than 5 percent of the outstanding shares of any equity security of a class registered pursuant to Section 12 of the Securities Exchange Act or any equity security of an insurance company relying on Section 12(g)(2)(G) or any closed-end investment company registered under the 1940 Act to report beneficial ownership with either the intent or effect of causing a change in control of an issuer. The Form must be filed within 10 days after such acquisition with (1) the SEC, (2) each exchange where the security is traded, and with (3) the principal office of the issuer. Form 13D must be filed on the SEC’s EDGAR Filing System. Advanced Advisor Group, LLC is not currently required to make FORM 13D filings as outlined above. Should these filings be required, the CCO is responsible for ensuring the filings occur on a timely basis.

2.1.6 Form 13-G

Form 13-G may be filed in lieu of a Schedule 13-D if such person has acquired more than 5% of the outstanding shares of a security in the ordinary course of business and not with purpose of changing or influencing control of the issuer and such person is a registered investment adviser or a specified type of institutional investor [Rule 13d-1(b)(1)(ii)(E)] under the Securities Exchange Act.

Form 13-G must be filed within 45 days after end of calendar year in which the obligation arose and following each year end thereafter to report a change in position as long as the person continues to own a five percent position or more. The Form need not be filed if the person does not own more than 5 percent at the end of the calendar year. If the person no longer holds such securities in the ordinary course of its business, and now holds it with the intent or effect of causing a change in control of the issuer, the person must promptly file a Form 13-D. An initial or amended filing is required within 10 days of the end of any month in which the person acquires more than 10% of the outstanding shares of an issuer or if a reportable position increases or decreases by more than 5%. Form 13-G must be filed on the SEC’s EDGAR Filing System.


Advanced Advisor Group, LLC is not currently required to make FORM 13G filings as outlined above. Should these filings be required, the CCO is responsible for ensuring the filings occur on a timely basis.

2.1.7 Form 13-F

This form must be filed electronically on the SEC EDGAR system by an institutional investment manager that exercises investment discretion with respect to accounts holding exchange traded or NASDAQ quoted equity securities having an aggregate fair market value of at least $100 million on the last trading day of any month. Any person subject to this provision must initially file within 45 days after the last day of the year in which $100 million is obtained and thereafter 45 days after the end of each subsequent quarter. Once an adviser is obligated to make a 13-F filing the adviser must continue to make quarterly filings for as long as the adviser continues to manage $100 million of the equity securities on a discretionary basis.

Advanced Advisor Group, LLC is not currently required to make FORM 13F filings as outlined above. Should these filings be required, the CCO is responsible for ensuring the filings occur on a timely basis.

2.2 State Requirements; Net Capital and Bonding State registered investment advisers must comply with any state requirements that it maintain minimum net capital or appropriate bond. Most states require bonding and filing of annual financial statements if the adviser has “custody” of investor assets under state definitions of “custody.” Since Advanced Advisor Group, LLC is registered with the SEC, they are not required to maintain a bond or minimum net capital. 2.3 Disclosure to Clients The following sections deal with required disclosures to clients. Many of the disclosures required below can be accomplished by electronic means with the client’s prior written consent, a copy of which must be retained in the client’s records.

2.3.1 Risk Disclosure

In managing or overseeing a portfolio of client assets, Advanced Advisor Group, LLC and its employees should exercise great care to make sure that the client is aware of the specific risks of each distinct investment practice that will be used to a significant degree. This is best accomplished by a clear, concise explanation of the various risks in written format which requires to client to sign or otherwise acknowledge receipt and understanding.

2.3.2 Financial and Disciplinary Disclosure

Rule 206-4(4) requires that an adviser “promptly” disclose to clients and prospective clients:

• A financial condition that is reasonably likely to impair the ability of the adviser to meet contractual commitments to clients.


• A legal or disciplinary event that is material to an evaluation of the adviser’s integrity or ability to meet contractual commitments to clients.

For Existing Clients: This disclosure must be made by an e-mail or written communication that can be archived. For New Clients: This disclosure may be included in the “brochure” provided to clients or prospects and in any case must be made “promptly” to clients and to prospects at least 48 hours before entering into any contract (or the time of entering into the contract if the client can terminate without penalty within five business days).

Financial Condition. The Rule requires this disclosure in each case where the adviser has discretionary authority (express or implied) or custody over client funds or securities or requires prepayment of advisory fees of more than $500 from each client 6 months or more in advance. Legal or Disciplinary Event. The Rule requires advance disclosure of any of the following events involving the adviser or a “Management Person:”

• Criminal or civil conviction in which the adviser or Management Person (a) was convicted or pleaded nolo contendere to a felony or misdemeanor or is the named subject of pending criminal proceeding and such action involved an investment-related business fraud, false statements or omissions, wrongful taking of property or bribery, forgery, counterfeiting or extortion or (b) was found to have been involved in a violation of an investment-related statute or regulation or (c) was the subject of any order, judgment or decree permanently or temporarily enjoining or otherwise limiting the adviser or Management Person from engaging in any investment-related activity;

• Administrative proceedings before the SEC or other agency in which such adviser or Management Person was (a) found to have caused an investment-related business to lose its authorization to do business or (b) was found to have been involved in a violation of an investment-related statute or regulation and was the subject of an order by the agency denying, suspending or revoking the authorization of the adviser or Person to act, or barring or suspending the adviser or Person’s association with, an investment related business or otherwise significantly limiting the adviser or Person’s investment-related activities; or

• Self-regulatory organization proceedings in which the adviser or Person was found to have been involved in a violation of the rules and was barred or suspended from membership or fining the adviser or Person more than $2,500 or otherwise significantly limiting the adviser’s or Person’s investment activities.

A “Management Person” is any person with the power to exercise, directly or indirectly, a controlling influence over the management or policies of the adviser or to determine the investment advice given to clients. The CCO is responsible for ensuring Advanced Advisor Group, LLC is in compliance with the disclosure and notification provisions of Rule 206(4)-4. Existing clients will receive such notification via email/regular mail.

2.4 The “Brochure Rule”


Rule 204-3 requires that at or prior to the time the prospective client signs an agreement for advisory services the adviser must provide the prospective client with a “brochure.” This may be Part II of Form ADV or a document containing at least the information required by Form ADV Part II. Many advisers choose to prepare this alternative document with text, charts and other graphics to aid in the selling effort. Advanced Advisor Group, LLC is required by Rule 204-2 to maintain a record of delivery of Form ADV Part II before the client signs the contract, together with a client receipt. The contents of the “brochure” are subject to overall advertising restrictions on exaggerated claims, testimonials, non-balanced presentation and, most importantly, presentations of prior investment performance. See Section 6: Sales and Advertising. If the brochure is not delivered at least forty eight (48) hours before the client enters into the

contract, then the client has the right to terminate the contract within five (5) business days

after entering into it.

Advanced Advisor Group, LLC currently does not utilize a separate brochure in lieu of Form ADV Part II to provide disclosure to clients.

Annual Offer. The Adviser’s Act also requires that an updated Form ADV Part II and or applicable wrap fee brochure be offered without charge to existing clients at least annually. Rule 204-2(a)-14 requires that Advanced Advisor Group, LLC must (a) provide the notice in a quarterly report or separate communication which can be archived (b) maintain a request log identifying the clients, date of request and date filled and (c) fill the request within seven (7) calendar days.

Jenny Kreft is responsible for ensuring that Advanced Advisor Group, LLC conducts its annual offer as required by the rule and maintains all required books and records pursuant to the annual offer.

Advanced Advisor Group, LLC is required by Rule 204-2 to maintain a record of delivery of Form ADV Part II before the client signs a contract, together with a client receipt. This list will be maintained by Jenny Kreft.

2.4.1 “Wrap Fee” Programs

A “wrap fee” program is formally defined as any program under which a client is charged a specific fee not based directly on transactions in a client's account for investment advisory services and execution of client transactions. Sponsors of “wrap fee” programs must provide clients with a “wrap account brochure”. The “wrap account brochure” (Schedule H) may also combine other disclosures required by Part II ADV into one disclosure document. The Rules provide an exemption for (a) asset allocation programs which invest exclusively in mutual funds and (b) “managed account programs” in which clients are provided with advice about portfolio managers. Advanced Advisor Group, LLC currently does not utilize wrap fee programs as part of its service offerings to clients. Should Advanced Advisor Group, LLC initiate a “wrap” program it will amend its Form ADV to reflect this activity and will implement policies


and procedures to insure that the “wrap account brochure” is delivered to clients at or prior to the time of signing.

2.5 The Client Agreement

Every contract for advisory services signed by Advanced Advisor Group, LLC must contain certain provisions, as follows:

2.5.1 Mandated by the Advisers Act of 1940 and Related Rules

• Contract cannot be assigned without client consent (NOTE: “assignment” includes a transfer of control of the adviser).

• No fees based on a percentage of capital gains or appreciation in the portfolio (with certain exceptions).

• Where prepaid fees are charged, the contract must clearly state that the client gets a pro-rata refund if the contract is terminated before the end of the relevant period.

• No provisions waiving compliance with the Act

• Contact must be in writing (including all material provisions of the arrangement).

• Where the adviser is a partnership or limited liability company it will notify the other party to the contract of any change in the membership of such partnership or Limited Liability Company within a reasonable time after such change.

• Where solicitation fees are being paid the contract must refer to this fact and be accompanied by a Disclosure Statement to be signed by the customer.

Limitations of Liability Clauses. Many states object to limitation of liability clauses in client agreements. State securities regulators often require registered advisers to include a provision that any such limitation of liability does not constitute a waiver of any rights a client would otherwise have under federal or state securities laws. Mandatory Arbitration Clauses. Similarly, if there is a mandatory arbitration clause many states require that the clause include a statement that the client is not waiving any rights provided under federal or state securities laws to pursue remedies by other means.

2.5.2 Other Suggested Provisions

• Scope of authority should be clearly spelled out, including nature of discretion, investment guidelines or restrictions, etc.

• Acknowledgment of fiduciary duties (required for ERISA “plan fiduciaries”) limited to actual assets managed by the fiduciary

• Clear description of fees and mechanics for fee debiting

• Term, renewal and termination – description of any applicable penalties.

• Standard of care, limiting liability of adviser for losses due to errors of judgment or by reason of any advice given or action taken or not taken in good faith, except in the case of ERISA or other law violations.

• Indemnification by client (or plan sponsor in the case of ERISA)

• Portfolio brokerage, disclosing that an affiliate may execute portfolio brokerage transactions, costs and expenses, that the client is free to request other brokers and who is responsible for negotiating commissions (states that the adviser is responsible for getting the most favorable terms).

• “Bunching” and “allocation” practices.


• Compliance with “brochure rule”.

• Bonding requirements, a representation that the adviser meets the basic requirements under ERISA, state statutes, etc.

• Handling of proxy and other shareholder action items.

2.5.3 Mutual Funds Contracts. Advisory contracts must contain as a minimum the following in writing:

• Approval by majority vote of fund shareholders

• Compensation must be precisely described

• Continuation for more than two (2) years after execution ONLY if approved annually by a MAJORITY of board and a MAJORITY of shareholders.

• Can be terminated at any time without penalty on not more that 60 days written notice

• Automatic termination in the event of an “assignment”. Advanced Advisor Group, LLC does not currently provide investment advice to mutual funds.

SECTION 3: CLIENT RELATIONS; ESTABLISHING ACCOUNTS

3.1 Rules of General Conduct Federal and state laws and regulations governing advisers contain no clear guidelines on client relations, such as the “know your customer” rule adopted by the NASD for broker dealers. Section 206 of the Advisers Act makes it unlawful for any investment adviser to “employ any device, scheme or artifice to defraud any client or prospective client” or “to engage in any transaction, practice or course of business which operates as a fraud or deceit upon any client or prospective client.”

3.2 Recommendations.

Advanced Advisor Group, LLC and its Associated Persons must have a reasonable basis for recommending an investment transaction. Before making a recommendation each Associated Person must (a) review and understand the client’s financial situation, objectives and risk tolerance (b) follow an investment strategy with respect to that client which is approved by Advanced Advisor Group, LLC and appropriate for the client in the light of the information obtained and (c) communicate to the client the basis for the recommendation and, (d) where the account is “non-discretionary,” obtain the client’s instructions. Any recommendations made by an Associated Person will be periodically reviewed by that person’s supervisor.

3.3 Fiduciary Standard of Care As a registered investment adviser Advanced Advisor Group, LLC has acquired and must observe toward its clients a fiduciary standard of care. This duty is akin to the “prudent man rule” applicable to a trustee, exercising that degree of care with respect to the client’s affairs that a


“prudent man” would observe with respect to his own. This duty is particularly evident where the client has given discretionary authority over his or her account to Advanced Advisor Group, LLC. Specifically, Advanced Advisor Group, LLC and each employee must observe the following general principles:

3.3.1 Avoid Self-Dealing Conduct which gives the appearance that Advanced Advisor Group, LLC or any employee has preferred Advanced Advisor Group, LLC and/or any affiliate or a personal interest over that of the client is to be avoided. There must be particular awareness of conflicts that can arise in the interrelation among Advanced Advisor Group, LLC and any broker dealer and other affiliates. If in any doubt about a given course of action, consult the CCO. 3.3.2. Consistency with Announced Strategies Advanced Advisor Group, LLC and its personnel must be conscious of the requirement that we review and evaluate our investment recommendations and decisions on behalf of our client so that they will at all times remain consistent with the strategies and guidelines by which we have generally or specifically agreed to with those clients. Advanced Advisor Group, LLC personnel should endeavor to follow the practice of asking and checking with the client in any cases where a proposed recommendation or decision may be perceived as inconsistent. 3.3.3 Follow Individual Client Guidelines Each client/account gets treated as an individual situation. Conduct which benefits the collective accounts at the expense of individual accounts is to be avoided. Care must be taken to study and follow any particular guidelines agreed to with the client, including restrictions on types of securities to be included in the portfolio or strategies to be preferred or avoided. 3.3.4 Disclosure Clients must be provided advance disclosure of investment strategies, fees, information about Advanced Advisor Group, LLC’ business and other data significant to clients and the decision to engage Advanced Advisor Group, LLC’ services.

3.3.5 Communication/Feedback Clients must be provided adequate opportunities to present their situation, evaluate recommendations, and express preferences on an ongoing basis.

3.4 Discretionary/Managed Accounts

Any account in which Advanced Advisor Group, LLC or an employee has the power to execute transactions without the prior consent of the client is a “discretionary account”. A “managed account” is a discretionary account in which the adviser has formally undertaken the responsibility to manage toward stated objectives.


Discretionary accounts require that the adviser to exercise and demonstrate a higher standard of care than that applicable to accounts in which the client initiates/approves the investment decisions. Discretionary accounts are subject to the following rules:

• All such accounts should be listed on a separate roster.

• The individual(s) responsible for managing each such account should be clearly identified, along with a description of his/her responsibility.

• Discretionary account trades should be separately identified as such.

• ERISA discretionary accounts should be separately identified and periodically reviewed by the CCO for compliance with ERISA requirements (see above).

Advanced Advisor Group, LLC currently manages advisory accounts on a discretionary basis and follows the above procedures with respect to its supervision of such accounts.

3.5 Contacting Prospective Clients The process of establishing a good client relationship starts with the initial client contact. Several policies and procedures must be observed in this area. These include the policies set forth below in addition to those governing advertising and sales communications with existing and prospective clients set forth elsewhere in this Manual.

3.5.1 Federal Communications Commission “Cold Calling” Rule In 2002 the FCC promulgated “cold calling” restrictions pursuant to Section 227 of the Federal Communications Act. If a person or entity making a call for telemarketing purposes (or on whose behalf such a call is made) receives a request from a residential telephone subscriber not to receive calls from that person or entity, the person or entity must record the request and place the subscriber’s name, if provided, and telephone number on the do-not-call list at the time the request is made. In addition, under the Rule there are detailed restrictions on the use of pre-recorded messages or fax communications. A person or entity making a call for telemarketing purposes must provide the called party with the name of the individual caller, the name of the person or entity on whose behalf the call is being made, and a telephone number or address at which the person or entity may be contacted. A person or entity making calls for telemarketing purposes must maintain a record of a caller’s request not to receive further telemarketing calls. A do-not-call request must be honored for 5 years from the time the request is made.

No person or entity shall initiate any telephone solicitation to:

• Any residential telephone subscriber before the hour of 8 a.m. or after 9 p.m. (local time at the called party’s location), or

• A residential telephone subscriber who has registered his or her telephone number on the national do-not-call registry of persons who do not wish to receive telephone solicitations that is maintained by the federal government. Such do-not-call registrations must be honored for a period of 5 years.


Advanced Advisor Group, LLC does not permit its representatives to engage in “cold calling.”

3.6 Account Establishment

An important part of the fiduciary process is the gathering of significant information about each client on a routine basis. The process then proceeds to an evaluation of the client’s individual needs. From a compliance standpoint, the record should as a minimum show:

• The gathering of basic financial information;

• A detailed discussion with the client;

• Evaluation of whether services offered are appropriate for this client;

• Evaluation of how much of client assets are appropriate for management;

• Development of recommendations 3.6.1 Account Establishment

The Associated Person assigned to the customer’s account must obtain certain basic information from the customer. The basic tool for doing this is the Investor Questionnaire or similar document. In addition the client will sign a Client Agreement. A relationship will not be established with the client unless all required documentation has been submitted and approved.

The Associated Person should interview the customer to discuss the client’s financial situation and the services provided by Advanced Advisor Group, LLC. Prior to the interview, the Associated Person must provide the client with Form ADV Part II of Advanced Advisor Group, LLC or a copy of their advisory services brochure and other required sales material. As well, the Associated Person will provide at or prior to the interview all the required account documentation provided by the broker dealer or custodial firm. Typically this would a new account form (NAF), limited power of attorney (for discretionary accounts), margin agreement, solicitor disclosure statement etc.

The Associated Person must exercise due care to make sure that Advanced Advisor Group, LLC has obtained this information and that it is complete and up to date. Care must be taken to discuss the options with the client and to make sure that the objectives, risk tolerance and investment strategy are not inconsistent.

Before any recommendation may be made for a new account opened by an Associated Person, the account and the proposed recommendations must be approved by the CCO. Such approval must be indicated by having the CCO sign and initial the applicable documentation. When a third party who is not the principal or named person on the account will give instructions regarding orders, disposition of funds, or other actions involving an account, the Company must have a signed third-party authorization. When the Company will be providing instructions to the broker/dealer, if applicable, regarding trades in the customer account, the Company must provide to the broker/dealer a signed authorization from the customer. Authorization documents include guarantee of accounts, powers of attorney and other evidence of the granting of any discretionary authority given in respect of any account, including copies of resolutions empowering an agent to act on behalf of a


corporation. The authorization is signed by the principal of the account and the third party, giving the third party authority to act on behalf of the principal. Once the advisory services contract and the account opening documentation have been completely filled out and signed, the Associated Person shall forward the advisory services contract and supporting documentation to Jenny Kreft who shall promptly perform a check on the data and make other provisions to process the documents and obtain signature by the CCO on behalf of Advanced Advisor Group, LLC. Once approved, copies of the advisory services contract plus any required supporting documents to the broker dealer and clearing firm are retained for the Advanced Advisor Group, LLC files. The Associated Person is responsible for executing all documentation in the customer records so that it is current within the last year. This requires periodic communication with customers to update their account documentation. 3.6.2 Anti-Money Laundering (AML) Rules

On May 5, 2003 the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued proposed AML regulations for investment advisers. These regulations to a large extent, parallel those now in effect for broker dealers. In addition FinCEN requires investment advisers to report on Form 8300 the receipt of cash totaling more than $10,000 in one transaction or two or more related transactions, including cashier’s checks, bank drafts, travelers’ checks or money orders. Although these proposed regulations have not yet been officially adopted and implemented by the SEC, Advanced Advisor Group, LLC has chosen to implement anti-money laundering procedures in anticipation of the pass final adoption of the regulations.

Before initiating a client relationship, representatives of Advanced Advisor Group, LLC takes steps to verify the identity of the prospective client and that the client’s use of the services provided by Advanced Advisor Group, LLC is not in furtherance of an illicit purpose. To that end, Advanced Advisor Group, LLC has established Anti-Money Laundering Policies and Procedures which are set forth in Exhibit C to this Memorandum. 3.6.3 Initial Review Once a client is pre-qualified and recommendations are developed, the adviser and its employees need to consider whether particular investments to be made are suitable for the client/account. This is true whether the account is a managed account or not. “Suitability”, while primarily a concept applied to brokers and representatives, also applies to advisers. While to a certain extent a client can “override” the suitability inquiry by specifying that a particular investment be made, in the case of an adviser there is a definite duty not to put (or keep) the client in investments which are not suitable, regardless of the client’s desires. If a client persists in requiring “unsuitable” investments, that client should go elsewhere for advisory services.

“Portfolio Suitability” is a relatively new concept which says that the manager looks at the whole portfolio, not just a particular investment. It is not enough just to determine “in


a vacuum” that a particular investment would be a good idea. Taken together with the client’s whole risk/reward/liquidity situation that individual investment, in that particular amount, should be found to be “suitable.”

At a minimum, “suitability” would be observed for a particular investment or advisory strategy or program where there is evidence that the adviser evaluated:

• Client financial status

• Client tax status

• Client investment objectives

• Client current portfolio/investments

• Client risk tolerance

• Client liquidity/cash needs

• Frequency of review required “Suitability” from an investment advisory standpoint is significantly different from the transactional “suitability” rule administered by the NASD. To establish “suitability” an investment adviser has to demonstrate the development of portfolio objectives and a portfolio strategy for each client and that each individual transaction is consistent with those objectives and strategy. It is not enough that the particular transaction fits generally within the client’s risk tolerance and investment objectives. This is because investment advisory service is all about a relationship rather than a particular transaction. Accordingly it is extremely important that the adviser be able to document that it has obtained more than the “bare bones” of information usually found in the client’s brokerage account agreement. This is so because the adviser must be able to demonstrate that the account is being managed in accordance with this additional information. Advanced Advisor Group, LLC reviews the suitability of any investments and/or programs offered to the client at the time of account opening. Documentation of such reviews are maintained in the client file. 3.6.4 Ongoing Review

The supervisors will use the above information in reviewing client account performance on an ongoing basis. If it appears that an account is not being managed to the announced objectives and strategy or if it appears that the account is the subject of unusual or excessive transactions the supervisor will discuss this with the Associated Person. Where it appears that there is no adequate explanation the supervisor will contact the Chief Compliance Officer who will investigate the matter, including contacting the client if necessary, and determine whether further action is necessary, including corrective transaction(s), re-assigning the account or disciplinary action. If the investigation reveals any changes in the client’s objectives or strategy the client documentation should be corrected and re-signed.

At least quarterly, the client files will be audited for accuracy and completeness. If client suitability information requires updating, the IAR is responsible for promptly ensuring that this update occurs and that proper documentation pertaining to any changes in suitability data are documented in the client file.

4. MANAGING CLIENT SERVICES


4.1 Safeguarding Client Funds and Securities

4.1.1 SEC “Custody” Rules

Advanced Advisor Group, LLC does not have physical custody of client funds or securities other than to liquidate advisory fees from client accounts, all of which are held by third parties. However, the procedures followed by Advanced Advisor Group, LLC in obtaining payment for services may bring SEC “custody” rules into play.

Set forth below is a more detailed description of the “custody” rules, which should be carefully reviewed by firms that act as managers, general partners or trustees of accounts.

Under SEC Rule 206(4)-2 “custody” is now defined as “holding directly or indirectly client funds or securities or having the authority to obtain possession of them,” including:

• possession of client funds or securities ( but not of checks drawn by clients and made payable to third parties ) unless the firm receives them inadvertently and returns them to the sender promptly but in any case within three business days after receiving them;

• any arrangement ( including a general power of attorney ) under which the firm is authorized or permitted to withdraw client funds or securities maintained with a custodian upon the firm’s instructions to the custodian; and

• any capacity (such as general partner of a limited partnership, managing member of a limited liability company or a comparable position for another type of pooled investment vehicle or trustee of a trust) that gives the firm or a supervised person legal ownership of or access to client funds or securities.

Thus, Advanced Advisor Group, LLC will be deemed to have “custody” of client assets if, with respect to any client’s account, it has:

• physically in any way (i.e., bearer form) the ability to hold securities or cash of a client;

• receives checks made out to Advanced Advisor Group, LLC or checks and/or cash items that it does not forward to the custodian within 24 hours of receipt (NOTE: receipt and forwarding of checks made out to the custodian does not cause Advanced Advisor Group, LLC to have “custody”);

• the ability to receive directly the proceeds of redemption/liquidation;

• the ability to write checks on client accounts;

• unilateral ability to wire funds from client accounts;

• trustee powers held by the firm or an employee or a controlled affiliate under a trust agreement or other document giving authority to write checks or transfer funds or securities in or out of the account.

• an affiliate acting as an agent of Advanced Advisor Group, LLC in holding client assets;

• the firm or an affiliate acting as general partner of a limited partnership (or manager of a LLC) whose assets are managed by Advanced Advisor Group, LLC (unless certain procedures are observed);

• arrangements with a third party custodian for automatic fee debiting of customer accounts.

4.1.2 SEC Requirements if Advanced Advisor Group, LLC has Custody


SEC Rule 206(4)-2 requires Advanced Advisor Group, LLC to do the following if it is deemed to have “custody” under any of the above definitions:

• Use a “qualified custodian” to maintain the funds and securities either (A) in a separate account under the client’s name or (B) in an account that contains only clients’ funds and securities under the name of Advanced Advisor Group, LLC as agent or trustee for the clients. A “qualified custodian” is defined as a bank, broker dealer, futures commission merchant or foreign financial institution that customarily holds financial assets for its customers in segregated accounts.

• Notify the client in writing of the custodian’s name, address and the manner in which the funds or securities are maintained, promptly when the account is opened and following any changes to the information. The client may appoint an “independent representative” to receive the notice. This is defined as a person who acts as an agent for the client bound by law or contract to act in the client’s best interests, is not controlling, controlled by or under common control with the firm and does not and has not had in the previous two years a material business relationship with the firm.

• Provide a quarterly statement to the client either directly by the firm or through the “qualified custodian” identifying the amount of funds and each security of which the firm has custody at the end of the period and setting forth all transactions and fee deductions during that period. The client may appoint an “independent representative” to receive the statement. If the statement is sent directly by the firm, an independent public accountant must verify all those funds and securities by actual examination at least once during each calendar year and send a report to the SEC on Form ADV-E within 30 days of the completion of the examination stating that the accountant has examined the funds and securities and describing the nature and extent of the examination. Further, the accountant, upon finding any material discrepancies during the course of the examination, must notify the SEC within one business day of the finding by fax or e-mail followed by first class mail. In the case of limited partnerships, LLCs or other pooled entities the statement must be sent to all limited partners, members or beneficial owners.

As Advanced Advisor Group, LLC instructs the custodian to automatically deduct advisory fees from the client’s account, it is deemed to have custody over client assets. Therefore, it utilizes only qualified custodians to ensure that the custody rules are not violated and that clients are properly notified regarding any fees deducted from the client account.

4.1.3 Exceptions to SEC Requirements

• Mutual Funds. Where the client is holding a mutual fund the firm may treat the mutual fund’s transfer agent as a “qualified custodian.”

• Certain Privately Offered Securities. The requirements of Section 4.1.2 above are not applicable where the client is holding uncertificated securities acquired in


a private placement which are restricted by requiring prior issuer consent to transfer provided that if the issuer is a partnership or LLC, it distributes annual audited statements as set forth below.

• Limited Partnerships, LLC s and Pooled Entities. A Limited partnership, LLC or pooled entity does not have to comply with the requirements of sending quarterly statements if at least annually it distributes to its partners, members or beneficial owners its audited financial statements prepared in accordance with generally accepted accounting principles (GAAP) within 120 days of the end of its fiscal year.

• Investment Company Accounts. The requirements of Section 4.1.2 above are not applicable to the account of a client which is a registered investment company under the Investment Company Act of 1940.

Advanced Advisor Group, LLC does not rely on any of the above exceptions with respect to the Custody rules.

4.1.4 State Requirements

State “custody” rules must also be observed where an adviser is a state registered adviser. These rules vary from state to state and should be carefully checked. In some states advisers who have “custody” must file an annual audited balance sheet and are subject to bonding requirements.

Since Advanced Advisor Group, LLC is registered with the SEC, this section does not apply. 4.1.5 Supervision of Custodians

Whether or not it has “custody” the SEC rules require that Advanced Advisor Group, LLC exercise monitoring responsibilities over third party custodians of its clients’ cash and securities. Advanced Advisor Group, LLC maintains a system to monitor and review custodian activity, under the direction of the CCO, including some or all of the following:

• Periodic evaluation of custodian facilities to identify personnel, procedures, location of securities on deposit, etc.

• Requiring periodic physical inspection and securities count by custodian for each account (or mutual fund portfolio)

• Periodic review of custodian records of receipts/disbursements of customer cash and securities to reconcile with Advanced Advisor Group, LLC records

• Periodic review and verification of activity in custodian accounts in name(s) of clients

• Weekly reconciliation of records on customer account balances and transactions with those maintained by custodians

• Limiting authority/control over customer account actions

• Requiring regular account activity reports from managers

• Bonding all employees with access/control over customer account transactions 4.2 Portfolio Valuation

Securities traded on national exchanges are valued at the last quoted sale price on the principal exchange for that security or, if there are no trades there, then on a secondary exchange. Where


there are no trades at all, or the security is traded in an OTC market, Advanced Advisor Group, LLC uses the mean between the last highest “bid” and lowest “asked” quotations. Where the security is illiquid or there are no readily available quotations the Investment Committee will determine a “fair value” for the security after taking into account all relevant factors. According to SEC pronouncements “fair value” is the amount that the owner might reasonably expect to receive on sale. General factors to be considered include fundamental analytical data relating to the investment, the nature and duration of any restrictions on sale and an evaluation of market forces. Specific factors include the type of the security, financial statements, purchase price, effect of any restrictions, size of holding, analyst reports, information on offers or trades, merger or tender offer proposals, and price and trading data on comparable securities. Pricing methods will be consistent and “fair value” determinations will be reviewed periodically for currency and fairness by the CCO. 4.3 Reporting to Clients

Advanced Advisor Group, LLC prepares periodic reports to clients as described in its Form ADV Part II and sales material. The reports contain current portfolio valuation of securities held in accounts and performance reporting of results. Where advisers regularly issue reports to clients, the rules prescribe guidelines pertaining to those reports. Periodic statements or reports which are furnished directly, or through a qualified custodian MUST:

• Clearly set forth the basis of valuation of any securities

• Comply with CFA Institute (formerly AIMR) standards (see below) in reporting returns and comparing them with indices, model or other portfolios, past performance, etc.

• Disclose the amount and basis of any fees and charges where accounts are automatically debited.

Advanced Advisor Group, LLC does not currently issue regular reports to clients, but will follow the procedures outlined above, should such reports be issued in the future.

Furthermore, the advisory representative responsible for providing management services to the client’s account must do so in a professional manner, including periodic reviews of the account, communicating with the client on a regular basis and reporting results to the client. Such Communications include the following:

• An annual review of the account to review the client information, investment objectives and strategy in the light of the account’s performance.

• A periodic of whether there have been any changes in any client’s investment objectives or financial circumstances as per the client data in the file.

• Timely notice of all executed or pending transactions.

• Timely notice of relevant changes in economic, market, or sector conditions.

4.4 Fees

4.4.1 General Rule


SEC Rules do not specifically set out any specific fee levels that an adviser may charge. However, SEC rulings have made it clear that fees charged by an adviser substantially in excess of what similar advisers charge for essentially the same services can be considered a violation of the antifraud provisions of the Act (and probably state regulations) if it is not disclosed to the client that the services may be obtained elsewhere for less.

Where prepaid fees are charged, the contract must clearly state that the client gets a pro-rata refund if the contract is terminated before the end of the relevant period.

Advisers must disclose the receipt of compensation, direct or indirect, (such as commissions, 12b-1 fees, incentives, gifts or other compensation). Disclosure is required for such compensation received by the adviser, an advisory representative, control person or affiliate, related to client purchases, and the payment of referral fees. An investment adviser, unless also registered as a broker, cannot execute transactions in securities for commissions. This is to be distinguished from “wrap fee” arrangements under which registered investment advisers offer both advisory services, trade execution, and/or custody in a designated brokerage account for one “wrap fee” based on assets under management. “Wrap” accounts are subject to special brochure disclosure requirements set forth in Schedule H of Form ADV Part II. The CCO is responsible for periodically reviewing all fee and compensation arrangements with clients and/or third parties to ensure that they are reasonable, permissible, and properly disclosed.

4.4.2 Performance Fees/Contingent Fees

Unless falling within a “safe harbor” exception (see below) Section 205(1) of the Advisers Act prohibits an adviser from receiving a "performance fee" defined as a fee based on a share of the capital gains and appreciation of a client's funds. The SEC tends to view any fee that is contingent upon some level of performance as a performance fee. This prohibition does not include compensation based on the total value of the fund averaged over a definite period or as of definite dates or taken as of a definite date. Nor does it include fees payable by mutual funds or “fulcrum fees”.

State laws and regulations also govern fee payments. Some states prohibit performance fees entirely for state registered advisers so state laws should be checked where applicable.

SEC rulings indicate that the following practices are prohibited:

• Making the fee contingent upon the account either not decreasing in value or avoiding a specified amount of capital depreciation.

• Waiving/refunding fees if a specified level of performance is not achieved.

• Waiving the fee if securities recommended do not appreciate in value within a designated period of time.

• Making the fee contingent upon the account having sufficient capital gains or appreciation to pay the fee.


Safe Harbor. In Rule 205-3 the SEC has created a “safe harbor” exception that allows an adviser to charge performance-based fees to “qualified clients” under the following conditions:

• The client must have at least $750,000 of assets under the management of the adviser or the adviser must reasonably believe the client has a net worth of at least $1,500,000. The net worth may include assets held jointly by the client and his or her spouse; or

• The client is a “qualified purchaser” as defined in section 2(a)(51)(a) of the Investment Company Act of 1940 (person or company owning not less than $5 million in investments);or

• The client is an executive officer, director, trustee or employee of the adviser who has participated in investment decisions for at least 12 months.

Required Disclosures. In addition, the adviser must disclose to the client (or the client's agent) the following:

• The fee arrangement may create an incentive for the adviser to make riskier or more speculative investments than would be made under a different fee arrangement.

• The adviser may receive increased compensation with regard to unrealized appreciation as well as realized gains in the client's account.

• The periods which will be used to measure investment performance and their significance in the computation of the fee.

• The nature of any index which may be used to measure investment performance, the significance of the index, and the reason the adviser believes the index is important.

• How the value of securities for which market quotations are unavailable will be determined (if applicable).

Advanced Advisor Group, LLC does not currently charge performance fees with respect to any advisory services offered. Should performance fees be used in the future, the policies and procedures outlined above will be followed.

4.4.3 Arms-Length Contract.

The adviser and any person acting on the adviser's behalf must reasonably believe, immediately prior to entering into the contract, that the contract represents an arm's length agreement between the parties and that the client (and the client's agent, if any) understands the proposed method of compensation and its risks.

In addition the contract must provide that the adviser, if a partnership or Limited Liability Company, will notify the other party to the contract of any change in the membership of such partnership or Limited Liability Company within a reasonable time after such change.

4.4.4 “Fulcrum Fees.”

Section 205(3) allows “fulcrum fees” may be charged to registered investment companies and other specific entities with assets over $l million. A “fulcrum fee” is a fee measured as a percentage of the amount by which the portfolio outperforms (or underperforms) the investment record of an appropriate securities index over a specified period of time. Should “fulcrum fees” be charged, Advanced Advisor Group, LLC would need to comply with the Act’s requirement that prior to entering into the advisory contract there be full


disclosure of all details and Advanced Advisor Group, LLC would have to ascertain that the fees were negotiated on an “arms length” basis.

4.4.5 Affiliated Investment Companies.

The adviser may invest a portion of client assets in an affiliated registered investment company as an efficient way to increase client asset diversification. The terms of any such investment (whether or not in a discretionary account) must be disclosed in advance to, and agreed upon by, the client. The disclosures should point out that the client will pay “dual fees” (on the account and on the assets managed by the fund). The agreement should spell out the maximum investment allowed, the criteria used by the manager to allocate to the affiliated fund and give the client the right to revoke at any time. The SEC has taken the position that the adviser must “net” out the fees unless it is clear that the services provided by the adviser in its two capacities justified the fee.

4.4.6 ERISA Clients.

ERISA requires that fees charged by advisers be “reasonable” (for clients subject to ERISA. Based on an advisory opinion issued by the DOL it appears that an ERISA client can be charged a performance fee including a “fulcrum fee” under detailed conditions spelled out in the ruling. These conditions must be carefully observed should these arrangements be undertaken. ERISA prohibits any “dual fees” from investing client assets in affiliated management companies. Conditions under which these investments can even be made are subject to severe restrictions, including advance review by an independent fiduciary.

4.4.7 Rebates and Waivers

The SEC generally regards fee rebates and waivers as a violation of Section 205(1) as they create a “contingent fee” where the adviser is, in effect, compensated based on the performance of the account. The Adviser’s act does allow an investment adviser to “offset” advisory fees by the amount of any commission which the client incurs with respect to the purchase or sale of a security.

Advanced Advisor Group, LLC does rebate or waive fees.

4.4.8 Solicitation and Referral Fees

Advanced Advisor Group, LLC does not currently utilize solicitors for the purposes of marketing advisory services to potential clients. Should Advanced Advisor Group, LLC decide to do so in the future, it will adopt and follow the policies and procedures outlined below.

Rule 206(4)-3 under the Advisers Act provides a “safe harbor” from registration for persons who merely solicit the services of a registered adviser. The Rule permits persons who solicit business on behalf of the adviser to receive cash fees. Conditions under which these payments may be made are tightly controlled.

On the state level, advisers must license as “investment adviser representatives” (IARs) all persons who solicit new accounts and receive referral or other compensation in this respect.


Where Advanced Advisor Group, LLC pays a fee to anyone for “soliciting” advisory services Advanced Advisor Group, LLC is required to provide the client in advance of signing the client agreement with a Solicitor Disclosure Statement.

Rule 206(4)-3 allows the payment of solicitation fees under controlled conditions as follows:

• the adviser must be registered under the Advisers Act;

• the solicitor must not subject to statutory disqualification as set forth in Section 203 of the Investment Advisers Act;

• the cash fee is paid pursuant to a written agreement with the adviser, a copy of which is retained in compliance with Rule 204-2(a)(10), which:

• describes solicitation activities and compensation;

• obligates solicitor to comply with adviser's instructions and the Advisers Act and rules;

• obligates solicitor to provide client with adviser's brochure and a separate disclosure document which discloses the following:

� solicitor's name; � adviser's name; � nature of relationship between

solicitor and adviser;

• statement that solicitor is to be compensated by adviser;

• terms and description of compensation; and

• amount, if any, which will be charged to the client in addition to the advisory fee.

• the fee is paid to a solicitor for solicitation services regarding providing impersonal advisory services; or to a solicitor who is a partner, employee, etc. of adviser (or affiliate), and such status is disclosed to client; or other than above, if all the above conditions are met.

Prior to executing the advisory contract, the adviser must obtain a signed and dated acknowledgement from the client evidencing receipt of the adviser's brochure and the solicitor's brochure. The acknowledgement must be retained by the adviser in compliance with Rule 204-2(a)(15) of the Act.

Where the solicitation is being done by officers, directors and employees of the adviser, or an affiliated company, the solicitation agreement needs only to be in writing, for cash compensation only and kept as part of the adviser’s records. The adviser’s Form ADV and brochure must disclose the existence of these solicitation arrangements. Item 13(B) of Form ADV Part II requires a disclosure that the adviser pays solicitation fees and a Schedule F description of such fee arrangements.

Where the soliciting is being done by third parties, the agreement must be more elaborate, describing the solicitor’s activities, compensation and containing certain requirements, including undertakings to comply with the Act, deliver a brochure to the client, and deliver separate disclosures to the client as to the relationship of the solicitor, increased fees to the client, etc.


Where ERISA accounts are involved and Advanced Advisor Group, LLC has become a “plan fiduciary” (see above under ERISA Fiduciary Duties), Section 406(a)(1) of the ERISA statute prohibits self dealing in the furnishing of management services by a “plan fiduciary” to the plan client. Employees of Advanced Advisor Group, LLC are themselves “plan fiduciaries” subject to the rule where Advanced Advisor Group, LLC is a “plan fiduciary”. As long as there is no net increase in the dollars being paid by the ERISA account as a result of the soliciting arrangement and as long as the fees charged are “reasonable” in the first instance Advanced Advisor Group, LLC should be able to make these payments without a violation. Care should be taken to make sure that the arrangements are disclosed to the ERISA client in advance.

The CCO must be informed of any arrangements for providing referral or soliciting fees to persons obtaining clients for Advanced Advisor Group, LLC, including review and approval in advance of all disclosure documents and contracts

State rules also govern solicitation. The laws of some states require persons receiving solicitation fees to register either as advisers or as investment adviser representatives.

4.4.9 Sales Promotions/Allowances

All federal and state securities laws are involved in the regulation of mutual fund sales costs, expenses, and allowances. The receipt or utilization by Advanced Advisor Group, LLC personnel of any sales or promotional allowance or expense reimbursement, or the payment of any expenses in consideration of increased fund sales should be very carefully reviewed with the CCO to make sure that:

• Regulations prohibiting or restricting such payments are observed; and

• All appropriate disclosures are made in Form ADV, brochures, prospectuses, and other disclosure documents.

In particular, the allocation to Advanced Advisor Group, LLC by any controlled or managed fund of sales overhead expenses or allowances must be carefully reviewed in advance by the CCO to make certain that rules relating to incentives and excessive compensation are being observed.

Section 36(b) of the Investment Company Act of 1940 imposes a fiduciary duty on a registered adviser of a registered investment company not to impose fees and expenses that are excessive and unreasonable in the light of the services offered, industry standards, etc. Approval by outside “disinterested” directors of fee and expense arrangements is an integral part of the process of compliance.

4.5 Customer Complaints

Customer complaints most often result from misunderstandings about transactions, objectives or results. Most often that can be resolved by open communication, careful attention to the facts, and a focused response. For this reason, Advanced Advisor Group, LLC and its employees need to treat customer complaints with great care, allowing for an impartial examination of the basis for any complaint and an opportunity to resolve any misunderstandings by reference to facts and details of the specific situation in question.


Should Advanced Advisor Group, LLC or any employee receive a customer complaint, the following procedures must be followed:

• The complaint and any documentation should be immediately reported to the CCO.

• The CCO, after investigating the complaint, will take the appropriate action.

• Any employee(s) involved will refrain from all communications with the client, regulators, the press or any other persons unless specifically authorized by the CCO.

• If required, any official or public communication or response will come from, or be pre-cleared by, the CCO.

• Complaints involving specific investment products or IARs who are also registered representatives of a broker/dealer will also be forwarded to applicable broker/dealer and/or Investment Company for investigation and/or response.

4.6 Privacy of Consumer Financial Information

Effective November 13, 2000 the SEC adopted Regulation S-P covering Privacy of Customer Financial Information. Regulation S-P requires that Advanced Advisor Group, LLC adopt and maintain written supervisory procedures that comply with Regulation S-P and serve to protect the privacy of customer data.

Regulation S-P requires that Advanced Advisor Group, LLC provide each client with a Privacy Notice. See Forms Section. The Privacy Notice must be provided at the time the client becomes a client and thereafter at least annually. In addition, where Advanced Advisor Group, LLC discloses “nonpublic personal information” about clients outside of certain permitted exceptions (chiefly related to the needs of the business) Advanced Advisor Group, LLC must obtain the client’s prior written permission. The detailed Privacy Policies are set forth in Exhibit E, Privacy of Consumer Information.

4.7 Voting Proxies

Where a firm votes proxies on behalf of clients, the Advisers Act Rule 206(4)-6 requires Advanced Advisor Group, LLC to establish written policies and procedures regarding how it exercises proxy voting authority with respect to client securities Advanced Advisor Group, LLC does not vote proxies for clients.

SECTION 5: INVESTMENT AND TRADING PRACTICES

5.1 In General

The Advisers Act and state statutes require that Advanced Advisor Group, LLC describe to clients its investment policies and procedures and any changes as they occur. Further, they require that Advanced Advisor Group, LLC operate client portfolios in accordance with the stated objectives. It is the responsibility of the CCO to oversee the achievement of these objectives. Specifically, the CCO is responsible for monitoring all accounts for which Advanced Advisor Group, LLC provides investment management and supervisory services to analyze the investment and trading practices of Advanced Advisor Group, LLC personnel on a regular basis to detect any existing or potential violations. Indicators of possible violations would include, among other things, unusual portfolio turnover rate, unexplained variances from announced investment strategy, use of unusual securities, hedging strategies or other techniques, wide variations in


comparative performance of similarly managed accounts and evidences of favoritism, misallocation of investment opportunities or other breaches of fiduciary duty.

Advanced Advisor Group, LLC integrates information from Morningstar along with stock market, bond market and fund analyses to create a diversified portfolio of mutual funds, stocks, bonds, and other investments for each client to help the client meet investment goals with the least amount of risk. The investment policy and objectives are specifically tailored for each client’s portfolio. Advanced Advisor Group, LLC obtains investor objectives from a client questionnaire filled out by the investor at the time of initial contact. After a review of the questionnaire and other information obtained from the client, the IAR creates a portfolio tailored to that client’s needs.

5.2 Allocation of Investment Opportunities It is not always possible to provide clients similarly situated with equal investment opportunities. The opposite is not, however true: investment opportunities may be clearly allocated to clients in a way that benefits Advanced Advisor Group, LLC’ interests or those of its employees rather than the client. The appearance of unfairness can be as important as realities. The fact that different managers are in charge of different accounts may not always be a protection and Advanced Advisor Group, LLC personnel should be conscious of this. In addition, it is always important to stress in agreements and other communications to clients that Advanced Advisor Group, LLC may not provide the same investment opportunities equally to all clients. 5.3 ERISA Clients

The Federal Employee Retirement Income and Security Act (ERISA) contains a number of provisions affecting advisers engaged in managing or other advisory activities with respect to ERISA accounts. ERISA rules and regulations are quite complex and in cases of uncertainty Advanced Advisor Group, LLC personnel should seek expert advice before engaging in business dealings or signing contracts. The following paragraphs addresses major compliance issues deriving from the ERISA statute and rules; other issues are best addressed by consulting knowledgeable professionals.

5.3.1 What Accounts Are Covered ERISA covers all “employee pension benefit plans”, defined as any plan or program maintained by an employer, an employee organization, or both, that provides retirement income to employees or results in a deferral of income by employees for periods extending to the termination of covered employment or beyond. Thus, all pension, retirement, 401(k) or similar plans and IRAs and other individual accounts established pursuant to any such plans are covered by ERISA.

Not covered are non-employee plans such as “Keogh” type plans established under IRC Section 408(a), IRAs established by individuals, certain tax sheltered annuities or custodial accounts established pursuant to IRC Section 403(b) (public employees). 5.3.2 “Plan Fiduciary” Advanced Advisor Group, LLC becomes a “plan fiduciary” subject to ERISA rules where it exercises any discretionary authority or control with respect to managing plan assets OR renders investment advice for a fee or other compensation, direct or indirect,


with respect to any plan assets or has any authority to do so. “Plan assets” include assets held in separate employee accounts under “404(c)” plans (see below).

5.3.3 Standards Where Advanced Advisor Group, LLC is a “plan fiduciary” it must observe the following additional standards with respect to the “plan assets” managed by it:

• Investments must be reasonably designed to further the purposes of the plan.

• The portfolio must be adequately diversified.

• The liquidity and return must meet the Plan’s cash flow requirements.

• The projected return of the portfolio must meet the plan’s funding objectives.

• Investments of the portfolio or any sector must be diversified to minimize the risk of large losses, consistent with the objectives of the overall portfolio.

(NOTE: Advanced Advisor Group, LLC should get specific written instructions where it is asked to invest less than the entire portfolio.)

5.3.4 Fees Fees charged to a plan by an adviser who is a “plan fiduciary” must be “reasonable” in conformity with DOL regulations. 5.3.5 Prohibited Transactions

In order to prevent potential conflicts of interest, ERISA prohibits a “plan fiduciary” from causing a plan to engage in transactions with any “party in interest” with respect to the plan. Where Advanced Advisor Group, LLC is a “plan fiduciary” with respect to any client or account, Advanced Advisor Group, LLC and its employees must make sure that the plan avoids all such transactions.

• A “party in interest” is all “plan fiduciaries”, including all investment advisers to, and managers of, “plan assets” and all trustees, counsel, custodians or employees of the plan, any service Advisers (including brokers), any employer or employee organization whose employees or members are covered by the plan and any 50% or more owner of the employer, any entity owned 50% or more by any of the above and officers, directors and over 10% shareholders of any of the above.

• The standard is applied as follows: a “plan fiduciary” should avoid any transaction with a “party in interest” which it knows or should know directly or indirectly involves prohibited conduct. The rules apply whether or not the “party in interest” is acting as a principal or agent or not. A prohibited transaction cannot be justified on the grounds that it was “fair” or that it in fact benefited the plan.

5.3.6 Specific Types of Prohibited Transactions The following transactions between a “party in interest” and a plan are specifically prohibited:

• Sale, exchange or lease of any property. EXAMPLE: leasing computer or office equipment to the plan, charging for publications, etc.

• Lending money or extension of credit. EXAMPLE: margin credit from an affiliated broker dealer.


• Furnishing of goods, services or facilities. EXAMPLE: sale of research services to plan OR providing financial planning or counseling services to Plan participants WHILE at the same time managing Plan assets or offering optional management services or products to Plan participants (mutual funds or managed accounts).

• Transfer or beneficial use of Plan assets. EXAMPLE: borrowing plan assets to lend to short sellers.

• Ownership of plan employer securities or real property. NOTE: that plan cannot do this either (with certain exceptions).

5.3.7 General Prohibitions on Self-Dealing In addition to the specific prohibitions set forth above, a “plan fiduciary” is subject to certain more general prohibitions. A “plan fiduciary”:

• May not deal with “plan assets” in own interest.

• May not act in any capacity for any party with interests adverse to the plan, its participants or beneficiaries.

• May not receive any consideration from a party dealing with a plan in a transaction involving plan assets.

5.3.8 Prohibited Transaction Exemptions

ERISA rules have a long list of exemptions, including:

• A “plan fiduciary” may have reasonable arrangements for services (including investment advisory services) which benefit the adviser as “plan fiduciary” where the arrangements are made on behalf of the plan by someone other than the “plan fiduciary”

• A plan may pay incentive fees to a plan fiduciary adviser as long as the adviser cannot control the amount, timing or payment of the fees.

• Execution of plan transactions may be done for commissions by a registered broker dealer affiliated with a plan adviser.

• Certain “agency cross” transactions where discretion does not exist on both sides of the transaction, proper disclosures and authorizations are in place and the fiduciary renders reports on a periodic basis.

• A plan may invest “plan assets” in a registered mutual fund managed by a “plan fiduciary” adviser provided there are no sales charges or duplications of fees and certain other conditions are met.

5.3.9 Liability for Breach of ERISA Rules If a “plan fiduciary” breaches its fiduciary duty or any of the “Prohibited transaction” rules it becomes liable to the plan for any resulting losses including lost profits. The breaching fiduciary may be removed from its fiduciary role or subjected to other appropriate equitable or other remedies. NOTE: A “plan fiduciary” is JOINTLY AND SEVERALLY LIABLE to the plan for breach by any other “plan fiduciary”.

Great care must be taken to identify when Advanced Advisor Group, LLC is acting as a “plan fiduciary” with respect to any ERISA client or account. That Advanced Advisor Group, LLC has discretionary control over any assets of an ERISA plan subjects


Advanced Advisor Group, LLC and its employees to heightened levels of responsibility to make sure that contract provisions are clear and fully explained and understood by plan executives/trustees:

• To provide prudent advice;

• To charge reasonable fees;

• To disclose and get the client to “sign off on” all conflicts of interest

• To avoid engaging in “prohibited transactions”. 5.3.10 Proxy Voting

Management of “plan assets” carries with it the obligation to vote the proxies at annual and special meetings of shareholders of companies (including mutual funds) in which the plan invests, unless otherwise specifically agreed.

5.3.11 Custody of Plan Assets

Custody and indicia of ownership of plan assets must be maintained within the jurisdiction of the U.S district courts. Foreign securities may be held abroad in a U.S. bank or licensed foreign custodian agent for the U.S. bank if certain conditions are satisfied.

5.3.12 Minimum Capital Requirements

State registered advisers may be subject to minimum capital requirements which vary from state to state.

5.3.13 Bonding and Financial Statement Requirements

In addition to the net capital requirement, many states also typically impose on their registered advisers a bonding requirement.

5.4 Use of Model Portfolios

Advanced Advisor Group, LLC has formed an Investment Committee which meets to discuss the use, composition, performance of, and other issues pertaining to model portfolios. The CCO is responsible for keeping detailed minutes regarding the issues discussed at these meetings, particularly as it pertains to policy decisions on how model portfolios will be structured and/or managed.

Prospective investors in Advanced Advisor Group, LLC managed portfolios are questioned as to their “investment philosophy”, goals, and objectives. Based upon this assessment, and investment objective for the client will be identified. Where applicable, Advanced Advisor Group, LLC’ Investment Committee, after evaluating the client information, will place the client’s investment assets into a “model” portfolio or portfolio specifically designed to meet the identified objective. Model portfolios are templates, which are usually altered slightly to fit the individual situation.

A member of the Investment Committee monitors the “model” portfolios and reports regularly to the Committee as to whether changes need to be made in composition or percentage allocations in order to preserve the general objectives. Should a change be warranted, the Committee then


directs individual account managers and trading personnel to execute transactions in the portfolios to reflect these changes.

Since client portfolios are individually designed and managed, Advanced Advisor Group, LLC must exercise care in the use of models for constructing and operating these portfolios. Too much standardization removes the individual element and creates a risk that the accounts being managed to the model portfolios will be aggregated and treated by the SEC as a “mutual fund” (see below). The Investment Committee must document the rationale for changes in each individually managed account portfolio. This is particularly important where a change is made to one or more portfolios, but not consistently throughout all portfolios.

5.5 “Mutual Fund” Status

There is a concern that an adviser’s managed accounts not be aggregated to form a de facto “mutual fund” required to register under the 1940 Act. As long as they are managed in accordance with SEC-established guidelines, this is unlikely to happen. The guidelines are contained in proposed Rule 3(a)-4 under the Investment Company Act of 1940 and may be summarized as follows:

• Each individual account must be managed on the basis of the client’s financial situation, investment objectives and instructions (no pro rata allocations).

• At the opening of each account, Advanced Advisor Group, LLC must obtain information concerning the client’s financial situation and investment objectives and give the client an opportunity to provide specific instructions about the management of the account.

• At least annually, Advanced Advisor Group, LLC must contact the client to determine whether there have been any changes in the client’s financial situation, investment objectives or instructions.

• At least quarterly Advanced Advisor Group, LLC must notify the client in writing that the client should contact Advanced Advisor Group, LLC if there have been any changes (per request in the quarterly account statement).

• Advanced Advisor Group, LLC portfolio managers are reasonably available to consult with the client concerning management of the account.

• Each client has the ability to impose restrictions on the management of the account.

• The client gets at least a quarterly a statement showing all account activity including transactions, fees and expenses and opening and closing balances.

• The client has the following indicia of ownership in the account: (a) ability to withdraw cash, (b) ability to pledge, (c) ability to vote, (d) receipt of timely confirmations and similar documents and (e) ability to individually assert any claims against the issuer.

• Advanced Advisor Group, LLC files a Form N-3a-4 with the SEC giving basic information on the program (once the SEC rule is actually adopted).

The CCO is responsible for ensuring that Advanced Advisor Group, LLC client accounts are managed on an individual basis so as to avoid being classified as an unregistered mutual fund.

5.6 Sub-Advisers

Advanced Advisor Group, LLC does not currently utilize sub-advisers with respect to asset management services provided to its advisory clients. If Advanced Advisor Group, LLC elects to


utilize sub-advisers in the future, it will follow the policies and procedures outlined below to ensure these activities are appropriately monitored and supervised.

5.6.1 Supervision of Sub-Advisers

Supervision of Sub-Advisers typically falls into five general categories:

• “Due Diligence” and Pre-Qualification

• Monitoring Adviser Qualifications

• Monitoring Portfolio Operations

• Monitoring Other Operations

• Reporting and Disclosures to Clients

5.6.2 “Due Diligence” and Pre-Qualification

Before entering into a Sub-adviser arrangement, a designated review person of Advanced Advisor Group, LLC may utilize any of the following “due-diligence” and pre-qualification activities:

• Review of the adviser’s Form ADV

• Review of the Schedule D and other information for principals

• Check SEC, CRD and other records for any disciplinary or other matters

• Review sales literature and other brochure material

• Obtain filled-in “Due Diligence” Questionnaire

• Check references

• Identify “style” and area of specialty

• Review performance record

• Review financial statements

• Review client agreement and other client documents

• Identify internal portfolio management procedures

• Review IT internal system and interface

• Review compliance procedures (See “Monitoring Other Operations” below)

• Check errors and omissions coverage

• Visit and interviews in TA office

5.6.3 Agreements

Where sub-advisory arrangements may be considered, Advanced Advisor Group, LLC will typically ask that each Sub-Adviser sign a Sub-Advisory Asset Management Agreement setting forth the terms and conditions under which the Sub-Adviser will manage a separate account or accounts for Advanced Advisor Group, LLC, including a description of the sub-advisers portfolio management style and discipline, the assets to be managed, accounting and reporting, fees, processing of client account documents and information, disclosures to customers, fees, custody and clearing relationship, indemnification, etc.

5.6.4 Monitoring Adviser Qualifications


As part of its agreement with Advanced Advisor Group, LLC each sub-adviser or third party manager must agree to update its information whenever there occurs a material change, such as a change in management personnel, change in style or overall performance, financial change, claims or litigation, etc.

At least once a year the CCO reviews all sub-advisory arrangements to evaluate whether to keep or modify the relationship. Each agreement contains language permitting either party to terminate the relationship with appropriate notice.

5.6.5 Monitoring Portfolio Operations

Each sub-adviser will typically provide portfolio composition, transaction, and other reporting information to the firm. This information is typically supplied on no less than a quarterly basis and may be included in quarterly reports provided by Advanced Advisor Group, LLC to clients. All performance reporting by sub-adviser or third party managers shall be CFA Institute (formerly AIMR) compliant.

The CCO periodically reviews the activity in each sub-account managed by the sub-adviser to determine whether the performance in that account is acceptable in the light of the client investment objectives, style, discipline and past performance of the sub-adviser. Based on this review, Advanced Advisor Group, LLC will either keep or modify the account arrangements as dictated by the situation.

5.6.6 Monitoring Other Operations

The Sub-Adviser’s compliance procedures and practices may be reviewed to determine that they cover at least the basic areas of supervision and control specified for SEC registered investment advisers. These areas would include (as applicable):

• Licensing

• Trading and execution practices

• Personal Accounts and Trades

• Inside Information

• Soft Dollars and Research

• Best Execution

• Principal Transactions

• Allocations of trades among portfolios

• Referrals and fee sharing

• Books and records

• Unethical practices

• Performance Reporting

• Disclosures to Clients

• Sales Literature

• Review of client contracts

5.6.7 Reporting and Disclosure to Clients

Clients are entitled to certain levels of disclosure associated with the provision third party advisory services. These disclosures include, among other things:

• A copy of the third party adviser’s Form ADV Part II or brochure


• A client disclosure document as to referral or other fee sharing

• An annual offer for an updated version of these documents

• Reporting on at least a quarterly basis as to account assets, performance and fees

Advanced Advisor Group, LLC undertakes to make certain in its practices that the appropriate disclosures are provided, whether by the third party adviser, the account custodian or Advanced Advisor Group, LLC itself. The responsibilities for these disclosures are usually spelled out in the agreement between Advanced Advisor Group, LLC and the third party adviser.

Advanced Advisor Group, LLC’ new account processing procedures are developed in cooperation with the custodian or clearing firm and with the third party adviser. They generally provide for a series of document reviews by review personnel to make sure that the proper disclosures have been provided to the client before the account is opened and that the updates are available where required on an ongoing basis.

5.7 Other Securities Trading Practices

5.7.1 Selection of Brokers and Dealers

Advanced Advisor Group, LLC does not require clients to utilize a specific broker/dealer to effect securities transaction as a condition of doing business. In addition Advanced Advisor Group, LLC must disclose any affiliations to the client in advance of the client agreement and give clients the option to utilize another broker-dealer to execute transactions.

If the client wishes Advanced Advisor Group, LLC to select the executing broker/dealer, Advanced Advisor Group, LLC has a fiduciary duty to select a broker dealer to execute a particular trade which will provide “best execution” for the client.

Securities transactions undertaken for clients by Advanced Advisor Group, LLC are typically handled through accounts at an affiliated broker dealer or custodian, or in the case of no-load or load-waived mutual funds, directly through the fund sponsors.

Advanced Advisor Group, LLC may utilize its own broker dealer for ERISA clients, but only under very controlled circumstances, including:

• Advanced Advisor Group, LLC may not be the administrator or trustee or employer under the plan

• Brokerage services must be provided under a written authorization executed in advance by a plan fiduciary independent of Advanced Advisor Group, LLC

• This authorization must be terminable at will

• Advanced Advisor Group, LLC must furnish the independent fiduciary with reports as to brokerage services.

5.7.2 “Best Execution”

Pursuant to SEC interpretations of the Investment Advisers Act of 1940 Advanced Advisor Group, LLC has a fiduciary obligation to obtain “best execution” of clients' transactions under the circumstances of the particular transaction. The adviser must execute securities transactions for clients in such a manner that the client's total cost or proceeds in each


transaction is the most favorable under the circumstances. The adviser must consider the full range and quality of the broker's services in placing a trade with that broker, including, among other things, the value of research provided as well as execution capability, commission rate, financial responsibility, and responsiveness to the adviser. The determinative factor is not necessarily the lowest possible commission cost but whether the transaction represents the best qualitative execution for the managed account.

Advisers should periodically and systematically evaluate the execution performance of broker-dealers executing their transactions. Advanced Advisor Group, LLC does not currently maintain a Best Execution Committee. The CCO will monitor and evaluate the execution performance of broker dealers whom execute securities transactions on behalf of their advisory clients.

The SEC has placed advisers on notice that they will be disciplined for "interpositioning", or directing an order through a broker-dealer (for a commission) who is then directed to place the order further with a market maker (for which a mark-up/down is charged), when the order could have been placed directly by the adviser with the market maker for no brokerage commission and with no loss of service. Although prohibited by Advanced Advisor Group, LLC policy, the CCO is responsible for ensuring that Advanced Advisor Group, LLC does not inadvertently violate these rules.

Typically, to achieve best execution, an adviser will "bunch" or block trade client orders (not including personal trades). If “bunch” trading is not available, the adviser must disclose this fact to clients and that clients may pay higher commissions as a result.

“Best execution” involves the best qualitative execution, taking into account a number of factors, including the following:

• Establishment of a broker review committee that:

• Evaluates broker dealer execution capacity on a regular basis

• Generates a listing of acceptable broker dealers

• Establishes any minimum capitalization requirements for executing broker dealers

• Establishes standards for the creation and maintenance of appropriate books and records pertaining to best execution reviews

• whether research services are provided (existence of “soft dollar” arrangements)

• execution capability and quality:

• ability to achieve price improvements

• speed of execution

• execution accuracy – frequency of errors

• size of order

• commission and execution costs

• financial responsibility

• responsiveness to special execution needs or instructions

• payment order flow The CCO will evaluate on a periodic basis whether Advanced Advisor Group, LLC’ clients are getting the best available execution with the broker-dealers currently being used by the firm. In early 2001 the SEC adopted Rule 11Ac12-6 requiring broker dealers to provide reports on a regular basis to their clients as to the quality of execution. It is the


responsibility of the above-named persons to obtain these reports from their executing brokers, to evaluate these reports and to discuss and use this information in placing and executing orders for advisory clients.

Where the client is directing execution of transactions away from Advanced Advisor Group, LLC or the recommended broker dealer, the directed executing firm assumes the responsibility for ensuring that the client is receiving “best execution.” The client’s instructions in this respect should always be documented.

Sponsors of Managed Account Programs (Wrap Fee). Where Advanced Advisor Group, LLC sponsors a managed account program, it must pay particular attention to the “best execution” practices of the managers. Areas of inquiry should include as a minimum the following questions:

• Do clients in wrap programs receive “best execution” on their trades as compared to best execution received on non-wrap accounts?

• Do portfolio managers utilize the “report cards” which should be available from executing B/D’s to document best execution?

• Are allocation instructions for bunched trades given by investment managers to the executing B/Ds at the time the trade is placed?

• Are allocation instructions given in such a way as to minimize the ability of the manager to favor certain clients over others?

• Are mark-ups included in the price paid by wrap-fee clients for OTC trades?

• Does the sponsor act as an agent or principal for OTC trades?

• Is the sponsor (B/D) a market-maker for any of these securities?

• Are recordkeeping procedures used to record trades of wrap clients adequate?

Advanced Advisor Group, LLC does not currently sponsor a wrap fee program, but will implement procedures addressing the above concerns should a wrap program be utilized in the future.

5.7.3 “Soft Dollar” and Directed Brokerage

Advanced Advisor Group, LLC does not manage assets on a discretionary basis and therefore does not follow a policy of obtaining services in exchange for directed brokerage business (i.e. soft dollars). The rules and procedures outlined below will be followed in the event that Advanced Advisor Group, LLC chooses to manage client assets on a discretionary basis and utilize soft dollar trades in the future. In accordance with the requirements of Section 28(e) Advanced Advisor Group, LLC:

• Conducts periodic reviews of all soft-dollar research products and services obtained with commission dollars to ensure they are within the safe harbor.

• Where applicable, the firm will objectively assess the value of any mixed-use products or services received to ensure that proper allocation of these services occurs between hard and soft dollars.

• Periodically assesses the value of the research received to ensure that client commissions only pay for research that is worthwhile and achieves an investment purpose that benefits the client.

The CCO is responsible for ensuring soft dollar practices are properly disclosed on Form ADV Part II and Schedule F, where applicable.


Under the “safe harbor” provisions of Section 28(e) an adviser can cause transactions to be executed by a more expensive broker-dealer if in return the firm legitimately receives “soft dollar” research products or services that it uses to make investment decisions for client accounts. These products or services include a wide variety as long as they are legitimately used to give lawful and appropriate assistance to the firm in carrying out its decision-making responsibilities. The broker-dealer may under controlled circumstances obtain the research product or service from a third party source. The adviser shall not be deemed to have acted unlawfully, or to have breached a fiduciary duty by reason of causing an account to pay more than the lowest available commission, if the adviser determines in good faith that the amount of the commission is reasonable in relation to the value of the brokerage and research services provided. Conduct outside of the safe harbor of Section 28(e) may constitute a breach of fiduciary duty as well as a violation of specific provisions of the federal securities laws.

SEC Release No. 34-23170 interprets Section 28(e) and sets out the disclosure obligations concerning brokerage allocation practices and the use of commission dollars. The controlling principle to be used to determine whether something is “research” is whether it provides lawful and appropriate assistance to the adviser in the performance of his or her investment decision-making responsibilities. Advisers should periodically and systematically evaluate the performance of broker-dealers executing their transactions.

Section 28(e) requires the adviser to make a good faith determination that the value of the research and brokerage services obtained is reasonable in relation to the amount of commissions paid. Where a product/research has a mixed use (research and non-research), a money manager should make a reasonable allocation of the cost of the product according to its use. The portion that provides assistance to a money manager in the investment-decision making process may be paid for in (soft) commission dollars, while those services that provide administrative or other non-research assistance to the money manager (such as computer hardware, management systems integrating trading, execution, accounting, recordkeeping and other administrative matters, such as performance measurement) are outside the section 28(e) safe harbor and must be paid for by the money manager using its own funds. The manager must keep adequate books and records concerning allocations so as to be able to make the required good faith showing.

“Directed Brokerage” takes place where a client instructs Advanced Advisor Group, LLC to utilize a particular broker-dealer in exchange for services furnished directly by that broker-dealer to the client. The “safe harbor” of Section 28(e) is not available for directed brokerage as it applies only to the adviser. In the event a client does direct brokerage away from Advanced Advisor Group, LLC’ usual broker dealers, Advanced Advisor Group, LLC must inform the client that it may forego any benefit from savings on execution costs that would otherwise accrue.

ERISA fiduciaries participating in directed brokerage arrangements must act prudently for the benefit of plan participants. Brokerage may be directed for the payment of proper ERISA plan expenses (such as research, performance evaluation or other administrative services, master trustee services and the like), discounted commissions or cash rebates.

The CCO is responsible for ensuring “best execution” issues pertaining to “client” directed brokerage situations are properly disclosed to clients on Form ADV Part II and Schedule F.


5.7.4 Use of Affiliated Broker Dealer

Advanced Advisor Group, LLC is currently affiliated with Advanced Advisor Group, LLC for the purposes of executing securities trades and/or otherwise conducting business on behalf of advisory clients. The CCO is responsible for ensuring all procedures outlined below in Section 5.7.4.1 are followed and that Advanced Advisor Group, LLC’ brochure and/or Form ADV Parts I, II, and Schedule F properly reflect any existing broker dealer affiliations.

5.7.4.1 In General

Advisers may utilize an affiliated broker dealer to transact business for its clients. The following basic rules must be observed in utilizing an affiliated broker dealer for client transactions:

• Advanced Advisor Group, LLC’ brochure or disclosure document must explain the relationship (including that clients may be charged commissions or transaction fees in addition to management fees, if so).

• The client must be given the option of choosing to execute transactions through another broker dealer. Doing business through the affiliated broker dealer must not be required as a condition of utilizing the adviser.

• Taken together, the fees/commissions/transaction charges in the customer’s account must be “reasonable” under general standards of “fairness” and within generally accepted industry norms for charges in similar accounts.

• The client must be made aware that the affiliated broker dealer may have the opportunity to benefit from markups/markdowns, volume discounts, etc. The client must understand that the affiliated broker dealer and/or its principals may have positions in securities recommended by the adviser.

• The affiliated broker dealer and its principals must never prefer their own trades over those in their client accounts.

• Any soft dollar arrangements which may benefit either firm as a result of client trading activity must be disclosed.

• A “Chinese wall” must be in place to prevent the affiliated broker dealer’s personnel from receiving or acting upon confidential information developed by the adviser’s research (as applicable).

5.7.4.2 ERISA Clients Advanced Advisor Group, LLC follows the guidelines listed below for ERISA clients, as applicable. Where an adviser has discretionary authority over ERISA “plan assets” ERISA rules flatly prohibit the adviser from causing the plan to use the brokerage services of its affiliated broker dealer, absent a “prohibited transaction exemption”. This exemption, if followed, allows an adviser to employ its affiliated broker dealer for the purposes of executing securities transactions for its ERISA clients. To qualify for this exemption, the following procedures must be observed:

• The firm must not be the administrator, trustee, or employer of any covered employees.


• The firm’s services must be provided under a written authorization executed in advance by a plan fiduciary, independent of the adviser.

• The independent fiduciary’s authorization must be terminable at will by the plan upon the adviser’s receipt of written notice and the adviser must provide the fiduciary with this termination form annually.

• The adviser must furnish the fiduciary with various reports mandated by the regulations relating to brokerage services rendered to the plan.

5.7.5 “Bunched” Orders and Allocation of Trades

At times it may be advantageous for an adviser to “bunch” orders in order to obtain better execution or more favorable terms for clients. With respect to this process all firm personnel should be working towards the goal of ensuring that clients are treated in a fair and equitable manner with respect to the firm’s trading practices and allocation procedures. Generally, a client would expect to receive some economic benefit when the firm aggregates trades. These benefits typically manifest themselves in lower per share execution costs as a result of the larger trade size involved. When bunching trades proper procedures must be followed regarding order execution and allocation of securities (or proceeds of sale) among client accounts involved. Basic rules are as follows:

• Allocation policies should be clearly disclosed to all clients in the firm’s Form ADV Part II and client contracts. This includes allocation priorities in situations where partial executions may occur (rotational, random, etc.).

• Orders may be bunched where it permits best execution and provides a clear benefit to the participating clients.

• Bunching must be consistent with the advisory contract signed by each client.

• Certain clients may not be favored over others who would equally benefit.

• Participating clients should be clearly identified in advance, along with the method of allocation (which should then be consistently applied). Any change in allocation methods must be pre-approved by the Chief Compliance Officer and communicated to any clients affected.

• Separate books and records must be kept reflecting the transactions for each client. In addition, books and records must be maintained evidencing the rationale for any deviations in the firm’s stated allocation policies.

• Cash and/or securities should not be held collectively.

• Advisers should not receive any benefit from bunched transactions.

• Clients must receive individualized advice as to their participation in bunched trades.

• The adviser must avoid including in the allocation, any accounts in which it or any of its principals has a proprietary interest, including general partner interests in investment partnerships.

Advanced Advisor Group, LLC has established bunching and allocations procedures, as described above, for the purposes of obtaining best execution on behalf of its clients.

5.7.6 Agency and Principal Transactions With Clients

In accordance with Section 206 of the Investment Advisers Act of 1940, an adviser may not directly, or through any affiliate (a) as principal buy any security from or sell any


security to a client account or (b) as broker for any person other than the client effect any transaction in a client account prior to the completion (settlement) of the transaction without making a full disclosure to the client of the capacity in which it is acting and obtaining the consent of the client. Authorization to undertake these transactions should be included in a written contract with the client which is revocable by the client. At a minimum the disclosure shall include (a) the capacity in which the principal or broker is acting, (b) the cost of any security proposed to be sold to the account or proposed resale price of any security to be bought from the account, (c) the best price at which the transaction could be effected for the account elsewhere if more advantageous for the account and (d) a genuine opportunity for the client to consent. The confirmation on each transaction should note whether it was an “agency” or “Principal” transaction. The client should receive annually a summary of all such transactions.

The notification and consent requirements under Section 206 also apply to principal transactions conducted by an affiliate of the advisor on behalf of the client. In addition, advisers who indirectly structure principal transactions through unaffiliated entities must also comply with the provisions of the section. Furthermore, principal transactions with ERISA clients are prohibited unless specifically exempted by the Department of Labor. Since cross-trading may give rise to potential conflicts of interest, such practices must be clearly disclosed on the firm’s Form ADV Parts I & II (and any other disclosure documents). The SEC has generally taken the position that if an investment adviser who engages in cross trades and does not receive any compensation for the transaction (other than advisory fees), the adviser would not be deemed to have violated the provisions of Section 206.

Although, Advanced Advisor Group, LLC does not currently engage in agency and/or principal transactions with clients, it will establish procedures (and responsible parties) for ensuring compliance with the above disclosure requirements, should it decide to engage in these types of transactions in the future.

5.7.7 Agency Cross Transactions

An “agency cross” transaction occurs where an adviser executes a transaction involving advisory and/or non-advisory clients. In this situation, the adviser acts as broker for both sides to the transaction, in order to provide better execution at a lower cost to the clients involved. Where the adviser or any person controlling, controlled by or under common control with any of them acts as broker (as defined below) both for an advisory client and for another person on the other side in any transaction in a client account (an “Agency Cross”) the following shall be observed.

• The advisory client has executed a written consent prospectively authorizing the investment adviser, or any other person relying on this rule, to effect agency cross transactions for such advisory client, provided that such written consent is obtained after full written disclosure that with respect to agency cross transactions the investment adviser or such other person will act as broker for, receive commissions from, and have a potentially conflicting division of loyalties and responsibilities regarding, both parties to such transactions;


• The investment adviser, or any other person relying on this rule, sends to each such client a written confirmation at or before the completion of each such transaction, which confirmation includes (i) a statement of the nature of such transaction, (ii) the date such transaction took place, (iii) an offer to furnish upon request, the time when such transaction took place, and (iv) the source and amount of any other remuneration received or to be received by the investment adviser and any other person relying on this rule in connection with the transaction, provided that, in the case of a purchase, neither the investment adviser nor any other person relying on this rule was participating in a distribution, or in the case of a sale, neither the investment adviser nor any other person relying on this rule was participating in a tender offer, the written confirmation may state whether any other remuneration has been or will be received and that the source and amount of such other remuneration will be furnished upon written request of such customer;

• The investment adviser, or any other person relying in this rule, sends to each such client, at least annually, and with or as part of any written statement or summary of such account from the investment adviser or such other person, a written disclosure statement identifying the total number of such transactions during the period since the date of the last such statement or summary, and the total amount of all commissions or other remuneration received or to be received by the investment adviser or any other person relying on this rule in connection with such transactions during such period;

• Each written disclosure statement and confirmation required by this rule includes a conspicuous statement that the written consent referred to in paragraph 1 above may be revoked at any time by written notice to the investment adviser, or to any other person relying on this rule, from the advisory client; and

• No such transaction is effected in which the same investment adviser or an investment adviser and any person controlling, controlled by or under common control with such investment adviser recommended the transaction to both any seller and any purchase.

Although, Advanced Advisor Group, LLC does not currently permit agency cross transactions involving its clients, it will establish procedures and responsible parties (consistent with those outlined above) for ensuring compliance with the above requirements, should it decide to permit these transactions in the future.

5.7.8 Proprietary Trading

When executing securities trades in proprietary firm accounts, advisers must be especially careful to make sure that such trading activities are:

• not favoring firm proprietary accounts over client accounts when allocating investment opportunities

• not conducted in advance of client transactions in similar securities.

• not in opposition to recommendations made for client securities transactions.

• properly disclosed to clients on the adviser’s Form ADV Parts I & II.


• Not based upon inside information or research analyst report that the adviser prepared.

• not involving any securities currently maintained on the firm’s “Restricted” or “Watch” lists (where applicable).

• Not otherwise in violation of applicable securities laws or fiduciary duties owed to clients.

All trading records maintained regarding proprietary accounts are done pursuant to Rule 204-2(a)(12).

Advanced Advisor Group, LLC does not maintain proprietary trading accounts through which securities transactions are executed. Should Advanced Advisor Group, LLC elect to establish such accounts in the future, a Best Execution Committee or otherwise responsible party will be designated to put appropriate compliance, trading, and disclosure procedures in place.

5.7.9 Trading by Supervised Persons

Advisory representatives and supervised persons executing securities transactions in their personal accounts have similar duties and responsibilities to those described above. When executing securities trades in personal securities accounts, IAR’s and supervised persons must be especially careful to make sure that such trading activities are:

• not favoring representative accounts over client accounts when allocating investment opportunities

• not conducted in advance of client transactions in similar securities.

• not in opposition to recommendations made for client securities transactions.

• properly disclosed to clients on the adviser’s Form ADV Parts I & II.

• Not based upon inside information or research analyst report that the adviser prepared.

• consistent with the IAR’s obligations under the firm’s Code of Ethics.

• Not otherwise in violation of applicable securities laws or fiduciary duties owed to clients.

See Code of Ethics, where applicable, for additional information pertaining to personal securities trading guidelines.

Advanced Advisor Group, LLC permits supervised persons to establish and maintain personal securities accounts. The CCO is responsible for ensuring appropriate compliance, trading, and disclosure procedures in place pertaining to these activities.

5.7.10 Trading Errors

The SEC has a long-held policy that “best execution” includes placing orders correctly for accounts. If an adviser makes an error while placing a trade for an account the adviser must bear any costs of correcting the trade. The SEC’s view is that because of this, the broker handling the trade provides no value to that advised account by simply offsetting the trade and carrying the loss. As part of a standard examination of an investment adviser, an SEC or state examiner will typically review trading errors to determine if the client was in any way disadvantaged in the error-correction process.


Advisers should follow these guidelines in correcting trading errors:

• When trade errors are identified and corrected after settlement, the client must be "made whole" (i.e. the client is in as good or better position than they were prior to the trade), which includes the payment of interest or reimbursement for margin interest for the time period the clients funds were tied up.

• When trade errors are identified and corrected prior to settlement (i.e. no client funds were at risk), the firm will work with the executing broker and their custodian to determine whether they or the executing broker will retain any resulting gain or absorb any resulting loss as a result of the correction of the trade error.

• Where multiple transactions are involved, gains and losses resulting from the trade correction process may be netted prior to determining what amounts may be required to restore the client to their original position.

• “Soft dollars” may not be used to pay for correcting trading errors.

• If an agency cross transaction is contemplated or created with respect to the correction of a trade error, the adviser should be sure that all proper disclosures are made and consents obtained, as required in Section 206(3)-2 of the Advisers Act.

• Advisers must periodically review their trade error correction policies and practices to determine that the firm's procedures are being followed.

• All trade errors must immediately be reported to the CCO or other appropriately designated person for review, investigation, and resolution.

Advanced Advisor Group, LLC’ CCO is responsible for developing, monitoring, reviewing, and modifying the firm’s trade error correction policies and procedures to ensure that clients are not disadvantaged by the process, and that any applicable procedures are followed. The CCO is responsible for maintaining records documenting the correction/resolution of any trading errors that may have occurred.

5.8 Restrictions on Trading in Securities

Restrictions on both firm and personal securities trading by IAR’s and supervised persons are found in Section 5.7.8 and 5.7.9 above and in the Advanced Advisor Group, LLC Code of Ethics (where applicable). These restrictions cover personal trading practices, use of “inside information”, and other conduct by individuals that would be deemed illegal or unethical.

5.8.1 Use and Misuse of Research

Recent SEC pronouncements and prosecutions have made it clear that there be no perceived connection between research recommendations by an adviser’s personnel on particular securities and any investment banking, advisory or other business obtained by the adviser. In particular, the making of recommendations by an adviser’s research personnel while in possession of material nonpublic information, whether or not the adviser or any employee actually trades, can have dangerous consequences if it is apparent that (a) this information was obtained in exchange for some favor or benefit or (b) the information was used as part of a program to benefit Advanced Advisor Group,


LLC in obtaining additional business. Advisory personnel should be alert to discuss situations of this nature as they arise with the CCO. Advanced Advisor Group, LLC does not currently employ research analysts who may from time to time come into contact with material inside information. Should Advanced Advisor Group, LLC employ such individuals in the future, it will establish appropriate policies and procedures regarding the use of inside information obtained while in performance of their research functions. 5.8.2 Misuse of Material Nonpublic Information

The SEC rules governing “material nonpublic information” are aimed at issuers and set forth detailed guidelines requiring the timely release of such information to the marketplace in order to avoid fraud penalties based on “market manipulation.” The penalties for violating the rules fall not only on the issuers and their officers, directors or employees who may trade with knowledge of this “material nonpublic information.” They are also applicable to so-called “tippees,” persons not directly related to the issuer who obtain this information in advance of its release and then engage in market trades. The SEC monitors all trading in the securities of public companies. Where a ”market manipulation” using “material nonpublic information” is suspected, each and every trade maybe examined individually by the SEC, including interviews under oath followed by possible prosecutions, fines and jail sentences for those who are found to have profited from the misuse of this “material nonpublic information.”

As a registered investment adviser, Advanced Advisor Group, LLC and its employees as well as Advanced Advisor Group, LLC clients may potentially, through research or other means, come into possession of “material nonpublic information”. Therefore Advanced Advisor Group, LLC personnel must be alert and aware of the SEC rules and regulations to be observed in order not to be caught up in a regulatory investigation or prosecution. Regulation FD. In October 2000 the SEC adopted new Regulation FD (Fair Disclosure), which addresses selective disclosure. The Regulation provides that before an issuer, or person acting on behalf of an issuer, discloses “material nonpublic information” to certain persons (in general, securities market professionals – including investment advisers - and holders of the issuer's securities who may trade on the basis of the information), it must make public disclosure of that information. The timing of the required public disclosure depends on whether the selective disclosure was intentional or non-intentional. For an intentional selective disclosure, the issuer must make public disclosure simultaneously; for a non-intentional disclosure, the issuer must make public disclosure promptly.

See Also - Code of Ethics - where applicable 5.8.2.1 Definition

“Material Nonpublic Information” is information:

• Not generally available to the public,

• which the public has not had a reasonable opportunity to make an investment decision,

• Communicated in breach of a fiduciary duty owed by employee or person under contract or professional relationship,


• OR misappropriated from such a person,

• With “Substantial likelihood” that a reasonable investor would consider the information to be important in making investment decision.

5.8.2.2 Examples

• Special briefing information provided to analysts and other securities professionals by company officials,

• Plan to purchase or sell specific securities by fund;

• Change in fund manage, investment philosophy, or strategy;

• Merger, tender offer, joint venture or other acquisition or similar transaction;

• Stock split or stock dividend or other change in dividend practice;

• Significant earnings change;

• Litigation;

• Default in a debt obligation or a missed or changed dividend;

• Sale or redemption of securities or change in ownership of a significant block of securities; or

• Change in major product, customer or supplier.

Prohibited Disclosures. Rule 100(b)(1) of Regulation FD enumerates four categories of persons to whom selective disclosure of nonpublic information may not be made absent a specified exclusion. The first three are securities market professionals, including: (1) broker-dealers and their Associated Persons, (2) investment advisers, certain institutional investment managers and their Associated Persons, and (3) investment companies, hedge funds, and affiliated persons. These categories include sell-side analysts, many buy-side analysts, large institutional investment managers, and other market professionals who may be likely to trade on the basis of selectively disclosed information. The fourth category of person included in Rule 100(b)(1) is any holder of the issuer's securities, under circumstances in which it is reasonably foreseeable that such person would purchase or sell securities on the basis of the information.

Exemptions. Rule 100(b)(2) sets out four exclusions from the above prohibition: (1) communications made to a person who owes the issuer a duty of trust or confidence -- i.e., a "temporary insider" -- such as an attorney, investment banker, or accountant; (2) communications made to any person who expressly agrees to maintain the information in confidence; (3) disclosures to an entity whose primary business is the issuance of credit ratings, provided the information is disclosed solely for the purpose of developing a credit rating and the entity's ratings are publicly available; and (4) communications made in connection with most offerings of securities registered under the Securities Act of 1933.

Analyst Earnings Forecasts. In adopting the Rule the SEC made the following comment on “analyst earnings forecasts”:

“One common situation that raises special concerns about selective disclosure has been the practice of securities analysts seeking "guidance" from issuers regarding earnings forecasts. When an issuer official engages in a private

discussion with an analyst who is seeking guidance about earnings estimates,

he or she takes on a high degree of risk under Regulation FD. If the issuer


official communicates selectively to the analyst nonpublic information that the

company's anticipated earnings will be higher than, lower than, or even the

same as what analysts have been forecasting, the issuer likely will have violated Regulation FD. This is true whether the information about earnings is communicated expressly or through indirect "guidance," the meaning of which is apparent though implied. Similarly, an issuer cannot render material information immaterial simply by breaking it into ostensibly non-material pieces. At the same time, an issuer is not prohibited from disclosing a non-material piece of information to an analyst, even if, unbeknownst to the issuer, that piece helps the analyst complete a "mosaic" of information that, taken together, is material. Similarly, since materiality is an objective test keyed to the reasonable investor, Regulation FD will not be implicated where an issuer discloses immaterial information whose significance is discerned by the analyst.”

5.8.2.3 Penalties for Misuse

The law absolutely requires that an adviser and any Associated Person refrain from any “Personal Securities Transactions” until the material nonpublic information becomes public. Persons who are found to have abused the insider trading rules are subject to severe penalties, including loss of license, fines and damages.

5.8.2.4 Personal Securities Transactions

Inside information does not become “public” via special briefings, teleconferences or analyst handouts. It only becomes public when it has been officially and formally disseminated to recognized news media AND has been published by such media. A “personal securities transaction” MAY be safely undertaken AT THE TIME, BUT NOT BEFORE the information “hits the tape”.

See Code of Ethics where applicable for reporting requirements for personal securities transactions.

5.8.2.5 Restricting Access

Possessing “inside information”, in and of itself, is not a violation of the securities laws. It is often a necessary part of the investment management process. What is illegal is acting upon it, or willfully or negligently allowing others to act on it. Advanced Advisor Group, LLC employees who are in possession of such information must follow the procedures set forth below:

• Report the matter immediately to the Chief Compliance Officer;

• Do not share the information with anyone other than as directed by the Chief Compliance Officer; and

• Take no action on the information unless or until cleared by the Chief Compliance Officer.

5.8.3 “Chinese Wall” Procedures

The “Chinese wall” procedures are designed by advisers to minimize the possibility that Sensitive Information would be utilized by the firm or its employees in a fashion that


would benefit the firm, its affiliates, employees, or persons other than the firm’s clients. Examples of Sensitive Information would be:

• What the portfolio manager of a fund is planning to buy or sell or just did buy or sell.

• Changes in strategy in a particular fund.

• Personnel changes that could affect performance.

• Advance knowledge of results that a fund expects to report.

• A decision to add or drop a particular fund from a model portfolio.

• A decision to add or drop a fund or materially change the composition of certain client portfolios.

• Receipt or creation of a private research report or briefing to be shared with certain clients only or to be used in a newsletter only.

The procedures are as follows:

• The CCO will be responsible for all research and trading personnel on Sensitive Information, including: recognition of Sensitive Information, reporting procedures, utilization, etc.

• Should the Associated Person become aware of an item of Sensitive Information, he/she will not discuss it with anyone else and will immediately bring it to the attention of the CCO.

• The CCO will establish procedures for the treatment of the particular item, including: o Restricting access to the Information by non-authorized persons. o Identifying action to be taken (or not taken) in order to preserve a fair use of

the information for Advanced Advisor Group, LLC clients and managed mutual funds (as applicable).

o Placing certain securities or transactions on a restricted or “watch list”. o Requiring that particular persons or departments report as to further

developments or make disclosures to clients or others as to the Sensitive Information before further action is taken.

As stated above, Advanced Advisor Group, LLC does not currently employ research analysts who may from time to time come into contact with material inside and/or sensitive information. Should Advanced Advisor Group, LLC employ such individuals in the future, it will establish appropriate policies and procedures regarding the use of inside information and/or sensitive obtained while in performance of their research functions.

5.8.4 Restricted and Watch Lists

From time to time certain securities will be placed on one or both of two lists:

• A “restricted list” preventing any transactions in a security or group of companies by the firm or any of their employees until further notice. These lists typically contain securities with which the firm may have inside information; or

• A “watch list” identifying a particular company or group of companies whose securities are affected by sensitive information. This would include securities carried in client portfolios that are being followed by the firm’s analysts or whose securities are being actively traded by managers.


Trading activity within employee, employee-related, and firm accounts (where applicable) will be monitored to determine whether any securities on either of these lists have been purchased or sold while such security has been on either list. This monitoring will take place in conjunction with the firm’s supervisory obligations under Rule 204A-1 (Code of Ethics). Advanced Advisor Group, LLC does not maintain restricted or watch lists. 5.8.5 Mergers, Tender Offers, etc.

Information about impending corporate transactions which has not yet been publicly announced is Sensitive Information. Securities of both companies will normally be placed on the Restricted List and no trading should take place in securities of either company until removed from the List.

5.8.6 “Hot Issues” Restrictions

The NASD “hot issues” rules do not directly apply to registered investment advisers. However, it is appropriate to refer to the rules as from time to time Advanced Advisor Group, LLC and its personnel may have dealings which require compliance with the rules.

To avoid any potential conflicts of interest, Advanced Advisor Group, LLC does not permit its representatives to engage in the purchase or sale of IPO’s on behalf of either their clients or themselves. Advanced Advisor Group, LLC will modify its policies and procedures as noted below, should IPO trading be permitted in the future.

A “hot issue” is a new issue of securities which trades at a premium in the secondary market whenever such secondary market begins. The rules prohibiting “free riding” (holding securities without paying for them for later sale at a premium) and “withholding” (failing to sell or distribute securities provided as part of an underwriting or selling group allotment) are intended to ensure proper distribution of new issues of securities and are aimed at broker-dealers who are underwriting a new issue or are part of a selling group or who purchase from an underwriter or selling group member in the course of a public offering. Basically, the rules are as follows: a broker-dealer or “Associated Person” (including officers, directors and employees of the broker-dealer and/or a registered adviser under common control) are prohibited from holding securities of a “hot issue” in their accounts or selling such securities to other “Associated Persons” or to accounts in which these persons have a “beneficial interest” or selling the securities to another broker dealer at or above the public offering price. An exception exists where the persons or accounts have had a history (over 1 year) of buying such securities, the aggregate amount sold was “insubstantial” in relation to the entire offering, and the amount sold to any individual is insubstantial in relation to that individual’s portfolio.

As a result of these various restrictions advisers must be alert to the possibility that they or their clients and/or investment vehicles managed by them may be disqualified from purchasing a “hot issue”. A discovered violation may be avoided by cancellation before the end of the first business day following the date when secondary market trading begins and by reallocating the sale elsewhere.

5.8.7 Exception Reports; Investigations


The CCO will ensure that proper documentation of investigations of employee and other transactions or activities which may involve violations of Advanced Advisor Group, LLC policies on Sensitive Information” is maintained. The CCO will also be ultimately responsible for the appropriate resolution of any matters requiring investigation.

SECTION 6: SALES AND ADVERTISING

6.1 “Advertising” Defined SEC Rule 206(4)-1 defines “advertising” as “any notice, circular, letter or other written communication addressed to more than one person, or any notice or other announcement in any publication or by radio or television, which offers (1) any analysis, report, or publication concerning securities, or which is to be used in making any determination as to when to buy or sell any security, or which security to buy or sell, or (2) any graph, chart, formula, or other device to be used in making any determination as to when to buy or sell any security, or which security to buy or sell, or (3) any other investment advisory service with regard to securities.” Any written communication sent to, or oral presentation made to, a client or prospective client or any broadcast that could be viewed as promoting advisory products or services may be subject to regulations regarding advertising by investment advisers. A communication need not take the form of a mass mailing or a paid newspaper, radio or television ad to be considered an “advertisement” for regulatory purposes. Items such as client mailings and form letters containing performance information, may be subject to SEC advertising guidelines. 6.2 Advertising Approval The CCO must pre-approve all advertisements, including advertising copy, yellow page and trade magazine inserts, e-mail and Internet web pages, seminar scripts and the like.

6.3 “Fraudulent, Deceptive or Manipulative”

Section 206(4) of the Advisers Act prohibits registered advisers from engaging in any act, practice or course of business which is fraudulent, deceptive or manipulative, as more particularly specified by SEC regulations. This section defines “advertising” and sets forth certain prohibited practices, as well as the general prohibition on advertising “which contains any untrue statement of a material fact or which is otherwise false and misleading”. Use of the Terms "RIA" or "Investment Counsel" The SEC prohibits an adviser from representing or implying that it has been approved or endorsed by the Commission. An adviser may indicate that it is registered as an adviser and where applicable, as a broker. An adviser may not use the initials "RIA" (the adviser must spell out “Registered Investment Adviser”) after the name of an individual as the use of these initials implies an educational or professional designation and is, therefore, misleading.

An investment adviser may not refer to itself as an "investment counsel" or use the term to describe its business unless the principal business of the adviser is rendering investment advice and a substantial part of the adviser's business consists of rendering "investment supervisory services" as defined on Form ADV.

6.4 Compliance Review - Specific Practices


The SEC does not review advertising. All “advertising” materials must be submitted to the CCO for preliminary review and approval. The CCO will also ensure that copies of approved reviewed are maintained as required under Rule 204-2.

General Principles of Review

•••• Form and Content. An advertisement may be or become misleading because of the form of presentation, even though not substantively inaccurate.

•••• Inference. An advertisement is misleading if a client is likely to infer mistaken information from an advertisement. An omission to state a material fact necessary to correct a misleading impression will be considered a violation, even though all the statements made are accurate.

•••• Client Sophistication. This may be a factor in weighing the extent of required disclosures, typically in the area of performance information.

Specific Prohibited Practices:

A. Testimonials or Endorsements. Any statement concerning a client’s experience with an adviser or endorsement by a famous person is prohibited because such testimonials are selective by definition. An offer to provide a testimonial is also prohibited.

Advanced Advisor Group, LLC prohibits the use of testimonials or endorsements with respect to the marketing of its advisory services.

Indirect testimonials. There is no prohibition against using unsolicited articles appearing in independent publications as indirect testimonials and a marketing tool. However, an adviser must be careful to provide additional information which serves to balance the article with other unfavorable articles or to in some fashion put the article in perspective.

The SEC stated in Denver Investment Advisers (1993) that it will allow an adviser to provide a partial list of clients in its marketing materials provided that certain conditions are met. These conditions are:

• the adviser "will not use performance based criteria in determining which clients to include in the list";

• each client list will carry a disclaimer that it is not known whether the listed clients approve or disapprove of the adviser or the advisory services provided;

• each client list will include a statement disclosing the objective criteria used to determine which clients to include on the list.

Advanced Advisor Group, LLC does not utilize testimonials in any form with respect to any advertising materials distributed to the public.

B. Past Specific Recommendations. Selective use is prohibited. An advertisement may include

the entire list of recommendations over a past period of at least one year if sufficient backup information is also provided, including:

• Name of Each Security Recommended

• Date and Nature (Buy or Sell) of Recommendation

• Price of Security When Recommended


• Price at Which Recommendation was to be Executed

• Market Price on Most Recent Practicable Date

• Required Legend: “It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list.”

Advanced Advisor Group, LLC does not include references to past specific recommendations in its advertising materials.

C. Graphs “Asset Allocators” and Other Securities Picking Devices. Any suggestion that

such devices may be relied upon by an investor in making his decisions must be accompanied by a prominent disclosure of the limitations and difficulties regarding their use.

D. Free Reports, Etc. Any service or product offered free of charge must be without conditions

or obligations of any kind.

6.5 Performance Advertising

Registered advisers are not required to disclose their performance. However, Rule 206(4)-1(a)(5), prohibits advertising “which contains any untrue statement of a material fact, or which is otherwise false or misleading.” Generally, the SEC looks unfavorably on “performance” advertising from which “…a reader could infer …something… that would not be true had the

advertisement included all material facts.”

Advanced Advisor Group, LLC does not utilize performance advertising with respect to marketing its advisory services to the public. However, policies and procedures addressing the following concerns will be implemented should Advanced Advisor Group, LLC elect to use performance advertising in the future.

6.5.1 “Clover” Rule

In the 1986 ruling, Clover Capital Management, Inc. the SEC identified certain practices which it held to be inappropriate under Rule 206(4). The list identified advertising that:

•••• Fails to disclose the effect of material market or economic conditions on the results portrayed;

•••• Includes model or actual results that do not reflect the deduction of advisory fees, brokerage or other commissions and any other expenses that a client would have paid or actually paid. The SEC has since clarified that custodial fees do not have to be deducted from performance data (brokerage and advisory fees must, however, continue to be deducted from performance data);

•••• Fails to disclose whether and to what extent the results portrayed reflect the reinvestment of dividends and other earnings;

•••• Suggests or makes claims about the potential for profit without also disclosing the possibility of loss;

•••• Compares the model or actual results to an index without disclosing all material facts relevant to the comparison;

•••• Fails to disclose any material conditions, objectives, or investment strategies used to obtain the results portrayed;

•••• Fails to disclose prominently the limitations inherent in model results, particularly the fact that the results do not represent actual trading;


•••• Fails to disclose, if applicable, that the conditions, objectives or investment strategies of the model portfolio changed materially during the time period portrayed in the advertisement and the effect of the change on the results portrayed;

•••• Fails to disclose, if applicable, that any of the securities contained in or the investment strategies followed with respect to the model portfolio do not relate or partially relate to the type of advisory services currently offered by the adviser;

•••• Fails to disclose, if applicable, that the adviser's clients had investment results materially different from the results portrayed in the model;

•••• Fails to disclose, if applicable, that the results portrayed relate only to a select group of the adviser's clients, the basis on which the selection was made, and the effect of this practice on the results portrayed, if material.

Portability of Results. Regarding the issue of "portability" of managers' results from prior employment, the SEC has stated that while the use of prior performance results by a subsequent investment adviser may raise an issue under Rule 206(4)-1, the Adviser's use of manager's prior performance results is not necessarily misleading provided: (a) that no individual or entity, other than the manager, played a significant part in the performance of the accounts of the manager and (b) the results of the manager's accounts whose performance is advertised were not materially different from the performance of the manager's accounts which did not become accounts of the Adviser.

6.5.2 Fees and Expenses

As stated previously, the SEC takes the position that all performance results should be presented net of actual advisory fees, brokerage commissions and other expenses that a client would have paid if the client had owned the portfolio. The one exception is custodial fees on the theory that the client usually selects and pays for these fees. The SEC has no objection if gross fees are actually presented. The SEC has made several exceptions. In Investment Company Institute (1988), the SEC allowed the use of gross performance numbers in private “one on one” presentations to wealthy prospective clients under the following disclosure guidelines:

• Disclosure that the results are not on a “net” basis.

• Disclosure that the client’s return will be reduced by the fees and expenses.

• Reference to Part II ADV for a description of the adviser’s fees and expenses.

• A representative example (table. Graph, chart or narrative) showing the effect of compounded advisory fees over a period of years on a client’s portfolio. Furthermore, the SEC has said that for periods prior to May 27, 1990 the adviser may use a “model fee” provided that:

• IF the adviser offers more than one fee schedule for a given size account, the appropriate fee schedule is the one most often selected by clients.

• If the adviser includes performance from different size accounts, the appropriate fee for each period is the highest fee charged during the period to any account included in the performance portrayal.

• The following legend is included: “Performance figures do not reflect the deduction for investment advisory fees actually charged the account. However performance results do reflect the deduction of model advisory fees.”


Advanced Advisor Group, LLC follows the policy that all its published material which includes "gross" performance numbers be clearly designated "For use only in private meeting presentations to individual clients.”

6.5.3 Predecessor Advisers

The SEC permits inclusion of performance results of accounts of predecessor advisers if the person responsible for performance of the successor’s accounts was also responsible for the performance of the accounts of the predecessor. The Clover and other disclosure conditions described above must also be met.

6.5.4 CFA Institute (formerly AIMR) Standards

The CFA Institute (formerly the Association for Investment Management and Research - AIMR) has undertaken to provide the investment advisory community with a common set of principles to be used in presenting investment performance data to prospective clients. These standards promote the following principles:

• Total return is used to calculate performance;

• Accrual rather than cash accounting is used;

• Time-weighted rates of return are used, with at least quarterly valuations;

• All fee-paying discretionary portfolios are included in at least one composite

• There is no linking of simulated and model portfolios with actual performance;

• There is no portability of portfolio results where the portfolio did not have the same management; and

• At least a 10-year (or since inception) performance record is presented (periods prior to 1993 need not be CFA/AIMR compliant if so disclosed).

Although Advanced Advisor Group, LLC does not currently permit the use of performance advertising, CFA Institute (formerly AIMR) standards will be followed should the firm permit such advertising in the future. Advanced Advisor Group, LLC endeavors to conform its reporting to CFA Institute (formerly AIMR) standards. The CCO is responsible for reviewing the performance reports and advertising used by Advanced Advisor Group, LLC to ensure adherence to these standards.

6.6 Fund Prospectus and Sales Material

6.6.1 Funds Offered by Others

Where Advanced Advisor Group, LLC is recommending or purchasing third party managed funds for its client accounts, Advanced Advisor Group, LLC has an obligation to make sure that the client has obtained a current copy of the fund prospectus at or about the time the investment is made. In most cases, this obligation is satisfied by making sure that the fund sponsor mails a copy of the prospectus with the confirmation.


No client should be receiving “sales literature” regarding a fund which has not been reviewed for use by the NASD. Fund sponsors should be prepared to certify to Advanced Advisor Group, LLC that their sales literature has been reviewed.

In particular, MORNINGSTAR and similar reports on fund status and performance take on the character of “sales literature” if they are distributed with a fund prospectus or as part of fund sales efforts. These reports need to be reviewed by the NASD in the form in which they are intended to be used by the sponsor before they can be distributed to prospective investors.

The account representative is responsible for ensuring all prospectus information delivered to clients is current within the last 13 months. 6.6.2 Funds Offered by Advanced Advisor Group, LLC

Where an adviser is offering its own sponsored funds, the firm has responsibilities under the Investment Company Act of 1940 and the Securities Act of 1933 to:

• Provide prospectus and sales literature which complies with the Act and contains no material misleading statements or omissions.

• Submit all prospectus and sales literature with relevant SEC, NASD and state authorities for review.

• Ensure that a prospectus is provided to each purchaser at the time of sale (prior to the order in the case of sales to non-discretionary accounts).

Advanced Advisor Group, LLC does not offer its own sponsored funds to advisory clients.

SECTION 7: PARTICULAR PRODUCTS AND SERVICES Not Applicable.

SECTION 8: RECORDS AND SECURITY

8.1 Records Retention Requirement

General Rule. All books and records must be kept for a period of not less than five (5) years from the end of the applicable fiscal year. They must be retained in an appropriate office of the adviser during the first two (2) years and be accessible for the remaining three (3) years. Entity Formation Records. Articles of incorporation, partnership or limited liability company organization documents, minute books, stock certificate books of the firm and any or predecessor must be maintained in the principal office of the firm and preserved until at least three (3) years after termination of the enterprise. Performance Advertising Records. These must be maintained and preserved in an easily accessible place for a period of not less than five (5) years, the first two years in an appropriate office of the investment adviser, from the end of the fiscal year during which the investment adviser last published or otherwise disseminated, directly or indirectly, the notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication.


Electronic Records. SEC Rule 204-2 covers storage in electronic medium. The records required to be maintained and preserved pursuant to this rule must be immediately producible (within 24 hours) or reproduced by photograph on film or on magnetic disk, tape or other computer storage medium, and be maintained and preserved for the required time in that form. If records are produced or reproduced by photographic film or computer storage medium, the investment adviser shall:

• arrange the records and index the films on computer storage medium so as to permit the immediate location of any particular record,

• be ready at all times to provide, and promptly provide, any facsimile enlargement of film or computer printout or copy of the computer storage medium which the Commission by its examiners or other representatives may request,

• store separately from the original one other copy of the film or computer storage medium for the time required,

• with respect to records stored on computer storage medium, maintain procedures for maintenance and preservation of, and access to, records so as to reasonably safeguard records from loss, alteration, or destruction, and

• with respect to records stored on photographic film, at all times have such records available for Commission examination, maintain facilities for immediate, easily readable projection of the film and for producing easily readable facsimile enlargements.

Records Retention Matrix

Set forth below is a table showing the record required to be maintained, its general location, and the person(s) responsible for maintaining such records.

RECORD LOCATION PERSON MAINTAINING Journals 440 Emerson St. N.

Ste. 2 Cambridge, MN 55008

CCO

Auxiliary Ledgers 440 Emerson St. N. Ste. 2 Cambridge, MN 55008

CCO

Brokerage Orders 440 Emerson St. N. Ste. 2 Cambridge, MN 55008

CCO

Check Books 440 Emerson St. N. Ste. 2 Cambridge, MN 55008

Dorothy Chlystek

Bills and Statements 440 Emerson St. N. Ste. 2 Cambridge, MN 55008

Jenny Kreft

Financial Statements 440 Emerson St. N. Ste. 2 Cambridge, MN

Dorothy Chlystek


55008

Written Communications 440 Emerson St. N. Ste. 2 Cambridge, MN 55008

CCO

E-Mail 440 Emerson St. N. Ste. 2 Cambridge, MN 55008

Dorothy Chlystek

Discretionary Accounts 440 Emerson St. N. Ste. 2 Cambridge, MN 55008

CCO

Powers of Attorney 440 Emerson St. N. Ste. 2 Cambridge, MN 55008

CCO

Written Agreements 440 Emerson St. N. Ste. 2 Cambridge, MN 55008

Dorothy Chlystek

Circulars and Advertisements 440 Emerson St. N. Ste. 2 Cambridge, MN 55008

CCO

Securities Transactions by Advanced Advisor Group, LLC and Employees

440 Emerson St. N. Ste. 2 Cambridge, MN 55008

CCO

Brochure Delivery; Receipt and Acknowledgment


Jenny Kreft

Solicitors Agreements, Disclosure Statements, Receipts


N/A

Performance Advertising records 440 Emerson St. N. Ste. 2 Cambridge, MN 55008

N/A

Customer Account records 440 Emerson St. N. Ste. 2 Cambridge, MN 55008

Jenny Kreft

Employee Records 440 Emerson St. N. Ste. 2 Cambridge, MN 55008

Dorothy Chlystek

Written Supervisory Procedures 440 Emerson St. N. CCO


Ste. 2 Cambridge, MN 55008

Basic Documents 440 Emerson St. N. Ste. 2 Cambridge, MN 55008

CCO

8.1.1 Federal vs. State Requirements

Recordkeeping requirements for Federal registered advisers are mandated under Section 204 and Rule 204-2 of the Advisers Act. The detail of these requirements is set forth in the following sections.

States may mirror the SEC or also have their own recordkeeping regulations. A state’s recordkeeping requirements are applicable to an adviser registered in that state. State requirements can differ in material respect from Federal regulations and should be carefully consulted. Adviser’s registered in multiple state jurisdictions are responsible for maintaining books and records which are compliant with each states’ requirements – not just their home state.

Since Advanced Advisor Group, LLC is SEC registered, it maintains all books and records pursuant to Rule 204-2 of the Adviser’s Act.

8.1.2 Journals

Rule 204-2(a)(1) requires an adviser to keep a journal of cash receipts and disbursements and any other records forming the basis of entry in any ledger.

All journals required under Rule 204-2(a)(1) are maintained by the CCO.

Also Rule 204-2(c) requires the following additional records for investment managers:

• Records of the securities purchased and sold, the date, amount and price of each such transaction for each client.

• A securities position list showing the current amount of interest of each client in each security in which that client has a position.

• Proxy voting. As Advanced Advisor Group, LLC provides investment supervisory services subject to Rule 204-2(c), it maintains books and records as described above under the direction of the CCO. 8.1.3 Auxiliary Ledgers

Rule 204-2(a)(2) requires an adviser to keep general and auxiliary ledgers (or other comparable records) reflecting asset, liability, reserve, capital, income and expense accounts.


All ledgers required under Rule 204-2(a)(2) are maintained by the CCO.

8.1.4 Brokerage Orders

Rule 204-2(a)(3) requires an adviser to keep a memorandum of each order given by the adviser for the purchase or sale of any security, of any instruction received by the adviser from the client concerning the purchase, sale, receipt or delivery of a particular security and of any modification or cancellation of any such order of instruction. Such memoranda must show the terms and conditions of the order, instruction, modification or cancellation; shall identify the person connected with the adviser who recommended the transaction to the client and the person who placed such order; and must show the account for which the transaction was entered, the date of entry and the bank, broker or dealer by or through whom the transaction was executed where appropriate. Orders entered pursuant to the exercise of discretionary power must be so designated. Advanced Advisor Group, LLC executes securities transactions on behalf of its clients and therefore maintains records as required by Rule 204-2(a)(3) and Rule 204-2(a)(7) as described below. These records are maintained under the direction of the CCO.

8.1.5 Check Books

Rule 204-2(a)(4) requires an adviser to keep all check books, bank statements, canceled checks and cash reconciliation of the adviser.

All records required under Rule 204-2(a)(4) are maintained by Dorothy Chylstek.

8.1.6 Bills and Statements

Rule 204-2(a)(5) requires and adviser to keep all bills and statements (or copies thereof), paid or unpaid, relating to the business of the adviser.

All records required under Rule 204-2(a)(5) are maintained by Jenny Kreft. 8.1.7 Financial Statements

Rule 204-2(a)(6) requires an adviser to keep all trial balances, financial statements and internal audit working papers relating to the business of the adviser.

All records required under Rule 204-2(a)(6) are maintained by Dorothy Chylstek. 8.1.8 Written Communications

Rule 204-2(a)(7) requires an adviser to keep originals of all written communications received and copies of all written communications sent or received by the adviser and its “Associated Persons” (employees and full time independent contractors) to any client or any other person or firm relating to any of the following:

• Recommendations and other advice given or proposed to be given. The adviser must retain a memorandum describing any list (and the source thereof) of names and addresses of persons to whom offers of any report, analysis, publication or other


investment advisory service were sent to more than 10 persons where the material was actually sent to the persons on that list.

• Instructions from clients

• Receipt, disbursement or delivery of funds or securities.

• Placing or execution of any order to purchase or sell any security.

Documentation relating to any recommendations given or proposed to be given in the client file.

Instructions received from clients are memorialized in the client file.

Documentation relating to the receipt, disbursement, or delivery of client funds or securities, or the placing or execution of orders to purchase or sell securities in client accounts is maintained in conjunction with Rule 204(2)(a)(3) above under the direction of the CCO.

8.1.9 E-Mail Retention

Rule 204-2 requires that e-mail records pertaining to the topics listed in Section 8.1.8 and all other Rule 204(2)(A)-11 records (such as advertising) be retained as if they were any other paper record, and include communications to or from Associated Persons that are sent or received in Advanced Advisor Group, LLC electronic communications systems or in personal e-mail. The SEC has taken the position that it is entitled to examine all relevant e-mail records, on whatever systems they may be located. Accordingly, its is the policy of Advanced Advisor Group, LLC (a) to require that all covered e-mail correspondence ( including communications among Associated Persons ) be conducted on the Advanced Advisor Group, LLC email system and (b) that all e-mail to or from Associated Persons be archived. The rules cited above also apply to firms who utilize instant messaging technology in their daily operations.

Advanced Advisor Group, LLC relies upon Smarsh Financial Services for offsite storage, archival, and retrieval of emails. Advanced Advisor Group, LLC currently prohibits the use of instant messaging.

8.1.10 Discretionary Accounts

Rule 204-2(a)(8) requires a list or other record of all accounts which give an adviser discretionary powers over clients’ funds, securities or transactions. Advanced Advisor Group, LLC retains discretionary authority over client accounts as evidenced on Form ADV and in each client’s advisory agreement. As such, the firm retains a listing of all discretionary accounts as required by the rule.

8.1.11 Powers of Attorney

Rule 204-2(a)(9) requires an adviser to keep evidence of all powers of attorney or any discretionary authority granted by any client to the adviser.


Advanced Advisor Group, LLC retains discretionary authority over client accounts as evidenced on Form ADV and in each client’s advisory agreement. A copy of each client’s signed agreement is kept in the client file.

8.1.12 Written Agreements

Rule 204-2(a)(10) requires an adviser to keep copies of all written agreements entered into by the adviser with any client or otherwise relating to its business of investment adviser.

Advanced Advisor Group, LLC retains copies of the following agreements (where applicable) pursuant to this paragraph:

• Client Agreements

• Referral Arrangements with 3rd Party Money Managers

• Agreements with advisory representatives

• Agreements with other service providers

8.1.13 Circulars and Advertisements

Rule 204-2(a)(11) states that an adviser must keep a copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication recommending the purchase or sale of a specific security, which the adviser circulates or distributes, directly or indirectly, to 10 or more persons (other than persons connected with the adviser). If any communication does not state the reasons for the recommendation, the adviser must also keep a memorandum indicating the reasons.

All advertising records required under Rule 204-2(a)(11) are maintained under by the CCO in a separate Advertising File.

8.1.14 Securities Transactions by Advanced Advisor Group, LLC and Employees

Pursuant to Rule 204-2(a)(12) Advanced Advisor Group, LLC maintains the following records relating to securities transactions in Advanced Advisor Group, LLC accounts as well as the personal securities transactions of its associated persons where direct or indirect beneficial ownership of such accounts has been obtained. The required records must state:

• The title and amount of the security involved

• The date and nature of the transaction

• The execution price

• The executing broker dealer All records must be obtained no later than 10 days after the end of the calendar quarter in which they occurred. Appropriate records are deemed to have been maintained if:

• The advisers receives and retains trade confirmations and/or account statements within the prescribed time period;

• The trade confirmations and/or account statements contain all of the required information;


• The adviser maintains trade the confirmations and/or account statements as prescribed by the rules; and

• The trade confirmations and/or account statements are easily accessible and retrievable

Excluded from the above are transactions effected in any account over which neither the adviser nor any advisory representative has any direct or indirect beneficial interest and transactions in securities that are direct obligations of the United States Government, bankers acceptances, CD’s, commercial paper, etc.

Advanced Advisor Group, LLC has developed and enforces a Code of Ethics which encompasses the requirements listed above.

8.l.15 Brochure Delivery, Receipt, Acknowledgment

Rules 204-2(a)(14) requires the adviser to retain copies of each brochure or other disclosure document(s) given to clients or prospects, together with a signed record of delivery of Form ADV Part II or brochure before the client signs the contract. The adviser must retain a record of the dates that it’s Form ADV Part II or applicable brochure was provided or offered to be provided and a list of clients requesting the document. See under Section 2.4, “Brochure Rule” and “Wrap Fee Programs” above for

requirement of initial delivery and annual offer to clients under Rule 204(3).

Jenny Kreft is responsible for ensuring that Advanced Advisor Group, LLC secures and maintains appropriate documentation relating to the brochure delivery requirements of Rule 204-3 and Rule 204-2(a)(14). Ms. Kreft also insures that the firm conducts its annual offer as required by the rule and maintains all required books and records pursuant to the annual offer.

8.1.16 Solicitor Disclosure Agreements, Statements, Receipts

Rules 206(4)-3 and 204-2(a)(15) require that the adviser retain a signed copy of each agreement with a solicitor who is paid a cash fee. In addition, the adviser must retain a copy of each disclosure statement provided to a client with respect to such solicitation, together with the client’s written acknowledgment of receipt.

Advanced Advisor Group, LLC does not currently utilize solicitors for the purposes of marketing advisory services to the public. Should Advanced Advisor Group, LLC decide to enter into solicitor relationships with non-affiliated third parties in the future, it will keep records as required by the above paragraph.

8.1.17 Performance Advertising Records

See “Performance Advertising” requirements under Section 6.5. Where the adviser has advertised performance of managed accounts or securities recommendations, Rule 204-2(a)(16) requires that it retain copies of all accounts, books, internal working papers and any other records or documents that are necessary to form the basis for or demonstrate the calculation of the performance or rate of return of any such accounts or recommendations. Where performance is of actual managed accounts the SEC will accept the account statements as long as they show all credits and debits in the accounts over the


period and the adviser keeps all worksheets necessary to demonstrate performance calculations. If particular accounts are chosen for performance reporting, the SEC requires that records of all accounts for the relevant periods be kept, not just those included in the calculations. The required records must be maintained for a period of five years from the end of the fiscal year in which the advertisement was last disseminated. Advanced Advisor Group, LLC currently does not utilize performance advertising within the scope of marketing its advisory services. Should Advanced Advisor Group, LLC decide to utilize performance data in its advertising materials in the future, it will maintain books and records pursuant to the above paragraph.

8.1.18 Customer Account Records

Advanced Advisor Group, LLC maintains the following records as applicable to each customer account:

• Investor Profile or Questionnaire

• Investment Advisory Contract

• Account Application and Client Agreement

• Backup Documentation (trustee/corporate authorizations, etc.)

• Portfolio Analyses

• Communications with clients

• Receipts/Disbursements

• Confirmations

• Account statements

• Accredited Investor Applications/Documentation

All customer account records are maintained by Jenny Kreft in separate Client Files. 8.1.19 Employee Records

Advanced Advisor Group, LLC maintains the following employee records as applicable to each employee:

• Application for employment

• Form U-4/Form U-5

• CRD registration records

• Annual questionnaire

• Personal transaction records

• Continuing education requirements

• Correspondence

• Other records (disciplinary, etc.)

All employee records are maintained under by Dorothy Chlystek in a separate Employee File.

8.1.20 Written Supervisory Procedures

Advanced Advisor Group, LLC maintains copies of its current and dated prior Written Supervisory Procedures and Code of Ethics, and any amendments thereto.


Advanced Advisor Group, LLC also maintains records documenting its annual review of its Written Supervisory Procedures conducted pursuant to SEC Rule 206(4)-7(b).

All such documentation is maintained under the supervision of the CCO.

8.1.21 Basic Documents

Advanced Advisor Group, LLC maintains copies of all documents pertaining to the formation of the business including (as applicable) its partnership agreement, membership agreement, articles of organization, by-laws, corporate minutes, stock agreements, etc., for the period indicted above.

8.2 Security of Systems and Information

8.2.1 Policy The systems and data owned and operated by Advanced Advisor Group, LLC are some of its most important assets. It is the policy of Advanced Advisor Group, LLC that, in order to preserve the confidentiality of information in the firm's possession, the firm's premises, electronic systems and all data relating to the firm's business be kept secure. All employees are charged with the responsibility to safeguard the firm’s physical premises and systems and all information in the firm's possession.

8.2.2 Access to Facilities, Electronic Systems and Data

It is the responsibility of the CCO to provide security for the firm’s physical premises and security and password protected assess to all on-site and remote electronic systems owned or utilized by Advanced Advisor Group, LLC. The CCO will provide policies and procedures for security and password protection and permission for authorized persons. No employee, consultant or other user shall have access to the physical premises or to such systems or data residing in such systems without proper authorization. All personnel must report immediately any suspected security breaches to the CCO for investigation.

8.2.3 Reports and Other Communications

All reports produced on the firm's computer equipment or produced on or from other equipment but using the firm's data, including, but not limited to, correspondence, spread sheets and profit and loss reports, are the property of the firm and are deemed to have been prepared for the firm. Such material may be distributed to clients, potential clients or others members of the public only with the prior approval of the CCO and only appropriate disclaimers printed on the material.

8.2.4 Client Information

Personal information about clients, including names, addresses, social security numbers, etc. is protected by Federal law. The law requires that the firm (a) inform each client in advance as to our information practices through an annual Privacy Statement (b) permit the client to prohibit release of any client information to any third party and (c) follow internal practices and procedures to safeguard this information. All personnel should be


aware of Advanced Advisor Group, LLC’ policies and procedures in this area. Protected information should be safeguarded. All persons should be alert to avoid business and other relationships which risk the unauthorized release of client information.

8.2.5 Corporate Policy and Procedures for Computer Security

Advanced Advisor Group, LLC depends upon its computers and the information they process to support our business and maintain our competitive advantage. The protection of our computers systems and data is so critical to the firm's success that every employee must be alert to possible risks and the security measures to protect against misuse.

Breaches of security and misuse of data are treated by Advanced Advisor Group, LLC as serious offenses. Persons involved in activities such as “hacking” into servers and databases, sabotage of web sites, malicious destruction of data or protocols, unauthorized programming, use of systems or data for non-corporate purposes will be swiftly disciplined and, if warranted, referred to appropriate authorities for further action.

Responsibility of Every Employee. Whenever an employee notices what appears to be improper use of our computers or data, he should notify his or her supervisor at once. No employee shall divulge information from the firm's computers to any unauthorized persons. No employee shall use our computers for any activity outside of firm business, unless approved in advance by their supervisor.

How Users Protect Their Passwords. Since users are responsible for all activities associated with their passwords, they must prevent other people accessing firm computer systems with their passwords. Therefore, all passwords must be kept secret.

Advanced Advisor Group, LLC computers will be configured so as not to allow access until the correct password is entered. This means that any activity on the computer is the responsibility of the owner of the associated password.

Ownership of Information. All information maintained, produced, or otherwise residing on Advanced Advisor Group, LLC computer systems and/or files are the property of Advanced Advisor Group, LLC. All computer systems, programs, data, and other information developed, for whatever purpose, by employees of the firm are deemed to have been prepared for the firm. All rights in such systems, programs, data and other information shall belong exclusively to Advanced Advisor Group, LLC and no employee shall have any rights whatsoever in them.

No employee is to be considered the owner of such material and may not treat it in any way which might adversely affect the firm. This includes revealing such information or disseminating it to unauthorized persons or in a manner which allows it to be accessed by unauthorized persons.

8.3 Business Continuity Plan Advanced Advisor Group, LLC has a Business Continuity Plan designed to deal with a major destruction or incapacity of its facilities and/or systems. The Business Continuity Plan can be found in Exhibit B of this Manual. The CCO is responsible for overseeing, implementing, and testing the plan.


EXHIBIT A

ADVANCED ADVISOR GROUP, LLC CODE OF ETHICS

1.1 In General

1.1.1 Standards of Business Conduct; “Supervised Persons”

1.1.2 Compliance with Securities Laws is Mandatory

1.1.3 Ethics Requirements Under State Securities Laws

1.2 Reporting Personal Securities Transactions

1.2.1 Who is an Access Person

1.2.2 What are Reportable Securities

1.2.3 What is a Direct or Indirect Beneficial Interest

1.2.4 Holding reports

1.2.5 Transaction reports

1.2.6 Review of Reports

1.2.7 Pre Approvals

1.3 Unethical Trading Practices

1.3.1 Frontrunning/Dumping

1.3.2 Improper Use of Information

1.3.3 Conditioning (Manipulating) the Market

1.3.4 Inducements

1.3.5 Short Term Trading and Market Timing

1.4 Misuse of Material Inside Information

1.5 Other Conduct

1.5.1 New Issue Purchase Restrictions

1.5.2 “Blackout Periods”

1.5.3 Pending Transactions/Allocation of Investment Opportunities

1.5.4 Public Commentary

1.5.5 Gifts, Entertainment, and Training Expenses

1.5.6 Service on Boards of Directors, etc.

1.6 Review and Further Actions

1.7 Books and Records


ADVANCED ADVISOR GROUP, LLC CODE OF ETHICS This Code of Ethics is intended to be utilized by all Advanced Advisor Group, LLC personnel in the conduct of Advanced Advisor Group, LLC business. The Investment Company Act of 1940, the Investment Advisers Act of 1940 and the rules adopted under these Acts prohibit certain investment advisers and “access persons” of these advisers from engaging in fraudulent and manipulative practices with respect to managed investment companies and other clients. The rules also require that each registered adviser adopt and promulgate a code of ethics designed reasonably to prevent “access persons” from engaging in the prohibited practices. The code is to be reviewed and approved at least annually by the board of directors of each managed fund and copies of each version are to be preserved for at least five years.

SEC Rule 204A-1 requires every investment adviser registered or required to be registered under section 203 of the Act to establish, maintain and enforce a written code of ethics that, at a minimum, includes:

• A standard (or standards) of business conduct that the adviser requires of each supervised person, which standard must reflect the adviser’s fiduciary obligations and those of its supervised persons;

• Provisions requiring the supervised persons to comply with applicable federal securities laws;

• Provisions that require all “access persons” to report, and the firm to review, their personal securities transactions and holdings periodically as provided in the Rule;

• Provisions requiring supervised persons to report any violations of the code of ethics promptly to the chief compliance officer or, provided the chief compliance officer also receives reports of all violations, to other persons designated in the code of ethics; and

• Provisions requiring the firm to provide each supervised person with a copy of the code of ethics and any amendments, and requiring the supervised persons to provide the firm with a written acknowledgment of their receipt of the code and any amendments.

“The Chief Compliance Officer is responsible for overseeing the Code of Ethics where applicable, providing any revisions and implementing its provisions. This oversight shall at a minimum include the following on a regular basis:

• Reviewing Access Persons’ personal securities reports

• Assessing whether Access Persons are following required internal procedures

• Evaluating transactions to identify any prohibited practices

• Assessing relative performance of personal accounts vs. customer accounts.” Each employee and associated person must date and sign the Acknowledgment on the last page of this Code of Ethics and return a copy of the signed Acknowledgment to the CCO. In addition, each employee or Associated Person must take personal responsibility to report promptly to the Chief Compliance Officer any suspected violations of this Code of Ethics where applicable.


Advanced Advisor Group, LLC is required to include in Schedule F of Form ADV Part II a reference to this Code of Ethics and that a copy of the Code of Ethics will be delivered to the recipient of Part II ADV upon request.

1.1 In General

1.1.1 Standards of Business Conduct; “Supervised Persons”

Federal and state securities laws and regulations make it clear that registered investment advisers and their employees, have a fiduciary duty to their clients with respect to the advice and management services provided. This is often expressed as the “prudent man rule.” A fiduciary is to approach his or her client’s affairs with the same prudence as would be used in the management of his or her own. Fiduciaries are expected to place the interests of the client before their own. Fiduciaries cannot withhold material information from a client that would affect the client’s investment decision.

1.1.2 Compliance With Securities Laws is Mandatory

Federal and state antifraud statutes set forth a number of basic principles which underpin the enforcement of ethical principles in adviser administration. Thus neither an adviser nor any employee may:

• Employ any device, scheme or artifice to defraud a client;

• Make any untrue statement of material fact or material omission in communications to clients or the public; or

• Engage in any act, practice or course of business that operates or would operate as a fraud or deceit upon a client.

Non- compliance with the provisions of this Code of Ethics will not be tolerated.

1.1.3 Ethics Requirements Under State Securities Laws

Since Advanced Advisor Group, LLC is registered with the SEC, it will comply with the Code of Ethics requirements under Rule 204A-1 therefore, this section does not apply.

The legal regulatory structure does not require every adviser to be state registered. However, state “anti-fraud” and ethics laws and regulations continue to apply to each

adviser doing business in the state. Accordingly, attention needs to be paid to the ethics requirements of each state where Advanced Advisor Group, LLC is doing business.

State securities administrators have their own code of ethics. In April, 2004 the North American Security Administrators Association (NASAA) updated its Statement of Policy Concerning Unethical Business Practices of Investment Advisers (Statement). The Statement is used by a number of state securities administrators in evaluating the ethics of regulated advisers. The Statement identifies a number of specific practices which the state administrators define as unethical:

• Recommending to a client to whom supervisory, management or consulting

services are provided the purchase, sale or exchange of any security without reasonable grounds to believe that the recommendation is suitable for the client on the basis of information furnished by the client after reasonable inquiry


concerning the client's investment objectives, financial situation and needs, and any other information known by the investment adviser.

• Exercising any discretionary power in placing an order for the purchase or sale of securities for a client without obtaining written discretionary authority from the client within ten (10) business days after the date of the first transaction placed pursuant to oral discretionary authority, unless the discretionary power relates solely to the price at which, or the time when, an order involving a definite amount of a specified security shall be executed, or both.

• Inducing trading in a client's account that is excessive in size or frequency in view of the financial resources, investment objectives and character of the account in light of the fact that an adviser in such situations can directly benefit from the number of securities transactions affected in a client's account. The rule appropriately forbids an excessive number of transaction orders to be induced by an adviser for a "customer's account."

• Placing an order to purchase or sell a security for the account of a client without authority to do so.

• Placing an order to purchase or sell a security for the account of a client upon instruction of a third party without first having obtained a written third-party trading authorization from the client.

• Borrowing money or securities from a client unless the client is a broker-dealer, an affiliate of the investment adviser, or a financial institution engaged in the business of loaning funds.

• Loaning money to a client unless the investment adviser is a financial institution engaged in the business of loaning funds or the client is an affiliate of the investment adviser.

• To misrepresent to any advisory client, or prospective advisory client, the qualifications of the investment adviser or any employee of the investment adviser, or to misrepresent the nature of the advisory services being offered or fees to be charged for such service, or to omit to state a material fact necessary to make the statements made regarding qualifications, services or fees, in light of the circumstances under which they are made, not misleading.

• Providing a report or recommendation to any advisory client prepared by someone other than the adviser without disclosing that fact. (This prohibition does not apply to a situation where the adviser uses published research reports or statistical analyses to render advice or where an adviser orders such a report in the normal course of providing service.)

• Charging a client an unreasonable advisory fee. • Failing to disclose to clients in writing before any advice is rendered any material

conflict of interest relating to the adviser or any of its employees which could reasonably be expected to impair the rendering of unbiased and objective advice including:

o Compensation arrangements connected with advisory services to clients which are in addition to compensation from such clients for such services; and

o Charging a client an advisory fee for rendering advice when a commission for executing securities transactions pursuant to such advice will be received by the adviser or its employees.

• Guaranteeing to a client that a specific result will be achieved (gain or no loss)

with advice which will be rendered.

• Publishing, circulating or distributing any advertisement which does not comply

with Rule 206 (4)-1 under the Investment Advisers Act of 1940.


• Disclosing the identity, affairs, or investments of any client unless required by

law to do so, or unless consented to by the client.

• Taking any action, directly or indirectly, with respect to those securities or funds

in which any client has any beneficial interest, where the investment adviser has

custody or possession of such securities or funds when the adviser's action is

subject to and does not comply with the requirements of Rule 102( e )(1 )-1. and

any subsequent amendments. 1.2 Reporting Personal Securities Transactions

The SEC Rules require reporting and monitoring of the investment activities of the firm’s employees. When investment advisory personnel invest for their own accounts, conflicts of interest may arise between the client’s and the employee's interests. The reporting regulations are designed to deter problem activity and to create a “level playing field.”

Advanced Advisor Group, LLC must maintain a record of all transactions in Reportable Securities in which an Access Person has a “direct or indirect beneficial interest.”

1.2.1 Who is an “Access Person” An Access Person is any person supervised by Advanced Advisor Group, LLC:

• who has access to nonpublic information regarding any client’s purchase or sale of securities, or information regarding the portfolio holdings of any Reportable Fund (see below); or

• who is involved in making securities recommendations to clients, or who has access to such recommendations that are nonpublic.

1.2.2 What are “Reportable Securities”

Reportable Securities are all securities as defined in Section 202(a)(18) of the Act, including listed and unlisted securities, private transactions (which include private placements, non-public stock or warrants), EXCEPT:

• direct obligations of the united States Government;

• bankers’ acceptances, bank certificates of deposit, commercial paper and high quality short term debt instruments including repurchase agreements;

• shares issued by money market funds

• open end mutual funds and exchange traded funds (‘ETF’s”) other than “Reportable Funds” closed end funds (e.g., unit investment trusts (“UIT’s”) – including closed end ETF’s organized as UIT’s)

• transactions in units of UIT’s that are invested solely in the shares of unaffiliated open end mutual funds (e.g., variable product sub-accounts)

1.2.3 What is a “Direct or Indirect Beneficial Interest”

A Direct or Indirect Beneficial Interest is any direct ownership or an indirect pecuniary

interest through any contract, arrangement, understanding, relationship or otherwise, including immediate family members (person who is supported directly or indirectly to a material extent by such person), partners in a partnership or beneficiaries of a trust. The


term pecuniary interest means the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the Reportable Securities.

1.2.4 Holding Reports

Each Access Person must submit to the CCO, a signed Holding Report within ten (10) days of the date the person becomes an Access Person AND annually at least once in each subsequent 12 month period.

All Holding Reports will be held in confidence by the CCO in a secure location, subject to review requirements by authorized officers of Advanced Advisor Group, LLC. Each Holding Report shall contain the following information, current within not more than 45 days of the date the person became an Access Person or the date of the Report as the case may be, for each Reportable Security in which the Access Person has a Direct or Indirect Beneficial Interest:

• title, exchange ticker or CUSIP number of the security involved;

• number of shares or principal amount and dollar value of purchase;

• date of acquisition;

• nature of the acquisition (purchase or other);

• nature of the interest ( direct or indirect and how held );

• price at which effected;

• name of each broker dealer or bank where the person maintains an account or where the securities are held.

• date of the report.

The firm retains copies of each access person’s brokerage account statements to satisfy these requirements.

1.2.5 Transaction Reports

Each Access Person must submit to the CCO, a signed Transaction Report within thirty (30) days of the end of each calendar quarter, containing the following information with respect to each transaction during the quarter involving a reportable security in which the Access Person acquired a “direct or indirect beneficial interest:

• title, exchange ticker or CUSIP number of the security involved;

• number of shares or principal amount and dollar value of purchase;

• nature of transaction ( purchase, sale, other type of acquisition, etc );

• price of the security;

• name of the broker, dealer or bank with or through which the transaction was effected;

• nature of ownership ( direct or indirect and how held );

• date of the transaction;

• date of the report; and

• copies of all confirmations.

The firm retains copies of each access person’s brokerage account statements to satisfy these requirements.


Exceptions from Reporting Requirements. Advanced Advisor Group, LLC does not require reports with respect to the following:

• any reports for securities in accounts over which the Access Person has no direct or indirect influence or control;

• transaction reports for transactions pursuant to automatic investment plans;

• transaction reports which would duplicate information contained in broker trade confirmations or account statements already held in Advanced Advisor Group, LLC’ records as long as the confirmations or statements are received by Advanced Advisor Group, LLC no later than 30 days after the end of the applicable calendar quarter;

• one-person advisor firms

1.2.6 Review of Reports

Upon receipt of each Holding Report or Transaction Report the CCO will review it to determine whether or not there are any questions about the contents, including the securities referenced, size, timing or other aspects of the holding or transaction that require further inquiry. In particular, access person reports will be reviewed for unauthorized trading relating (but not limited) to the following issues:

• Securities currently on the firm’s Restricted list;

• Securities currently on the firm’s Watch list;

• Initial public offerings;

• Private placements;

• Any securities which may be potentially affected by inside information that the firm or access person may possess;

• Market timing (if prohibited);

• Front Running;

• Participating in bunched trades to the disadvantage of clients;

• Trading activity in contravention to advice given to clients. Reports requiring no further inquiry are initialed and filed. Those requiring further inquiry will be the subject of “follow up” with the individual(s) involved and appropriate further action will be taken, if necessary, as described below.

1.2.7 Pre Approvals

Advanced Advisor Group, LLC requires that each Access Person obtain pre-approval in writing from the Chief Compliance Officer before he or she acquires direct or indirect beneficial ownership of any security in an initial public offering or in a limited offering.

1.3 Unethical Trading Practices

With respect to enforcing Advanced Advisor Group, LLC’ Code of Ethics, the firm will monitor the activities of its representatives and access persons to ensure the provisions of the Code are


followed and the various securities and non-securities related components of the Code are complied with. Any perceived violations of the Code will be immediately investigated, resolved, and documented as appropriate to the situation. The following practices are universally regarded as violations of SEC and/or state regulations and are subject to severe penalties if discovered:

1.3.1 Frontrunning/Dumping Purchasing or selling a security (including a mutual fund) in a personal account before purchasing or selling that security in a client account; OR purchasing or selling with advance knowledge of, and before, corresponding purchases or sales in portfolios of mutual funds owned by clients. In both cases, acting to obtain a more favorable price for a personal account than may be later available. 1.3.2 Improper Use of Information Generally using economic, market or other investment information obtained by virtue of one’s position with the adviser to advance a personal interest. SEE ALSO BELOW: “Inside Information”. 1.3.3 Conditioning ( Manipulating) the Market Utilizing one’s position or influence with a fund or clients to induce purchases or sales by these persons or entities of thinly traded securities in anticipation of profit from timed personal sales or purchases of these same securities.

1.3.4 Inducements The receipt of inducements or other benefits, including warrants or cash, from sponsors or others in return for selling or recommending certain mutual funds or other securities. 1.3.5 Short Term Trading and Market Timing Advanced Advisor Group, LLC prohibits Short Term Trading and Market Timing by Access Persons. “Short Term Trading” is the practice of purchasing and selling the same security and/or the options or convertibles in a security within a short period of time. The length of the time period can vary from as short as a single trading day to a period of weeks, depending on the volatility of the security, use of margin, discount transaction costs or methods, etc. “Market Timing” is the practice of placing purchase and sales orders in the same security or a related security in different markets in order to take advantage of price differentials. Transactions which have as their apparent purpose the obtaining of a short term trading and/or a market timing advantage will be regarded as a violation of Advanced Advisor Group, LLC’ Code of Ethics where applicable and dealt with severely. Persons who have engaged in these transactions may be subject to the requirement that they give up any profits obtained or otherwise subjected to disciplinary action.

1.4 Misuse of Material Inside Information


In situations where Advanced Advisor Group, LLC provides research services or securities analyses where it may come into contact with material inside information relating to a company, the firm will review (prior to assignment) the securities holdings and transaction activity of the access person to be assigned to conduct such research or analysis to ensure the access person:

• Does not currently hold the security in any brokerage account where they have actual or beneficial ownership;

• Does not have a prior trading history with respect to such security within the last 12 months;

• Does not have any other discernable conflict of interest which may impair their objectivity with respect to the assignment.

Material Inside Information is information:

• Not generally available to the public,

• About which the public has not had a reasonable opportunity to make an investment decision,

• Communicated in breach of a fiduciary duty owed by employee or person under contract or professional relationship,

• misappropriated from such a person,

• With “Substantial likelihood” that a reasonable investor would consider the information to be important in making investment decision (likely to have a substantial effect on the price of the company’s stock).

Examples of Material Inside Information

• Special briefing information provided to analysts and other securities professionals by company officials in the course of dealings with the investment community;

• Plan to change fund manager;

• Plan to purchase or sell specific securities by fund;

• Alteration in manager or fund philosophy or strategy;

• Merger, tender offer, joint venture or other acquisition or similar transaction;

• Stock split or stock dividend or other change in dividend practice;

• Significant earnings change;

• Litigation;

• Default in a debt obligation or a missed or changed dividend;

• Sale or redemption of securities or change in ownership of a significant block of securities; or

• Change in major product, customer or supplier. Employees of Advanced Advisor Group, LLC are absolutely prohibited from involving themselves in any way in any securities transaction undertaken with knowledge of material nonpublic information. The law absolutely requires that an adviser and any Associated Person refrain from any “Personal Securities Transactions” until the material nonpublic information becomes public. Persons who are found to have abused the insider trading rules are subject to severe penalties, including loss of license, fines and damages.

Should an employee acquire such information he or she should not share it with any unauthorized person. Do not just stand by and watch someone else do it. Your knowledge amounts to participation and you could be drawn into a serious situation if you know about it and take no


action. On a confidential basis, the Chief Compliance Officer will always be able to talk with you and/or the persons involved and can often act to avert trouble before it starts. Rules and procedures for handling situations involving material nonpublic information are set forth in the Compliance and Procedures Manual. If in doubt, consult with the Chief Compliance Officer. 1.5 Other Conduct

In addition to the “insider trading” rules and reporting personal securities transactions, Access Persons must observe specific substantive restrictions, as follows:

1.5.1 New Issue Purchase Restrictions No purchasing initial public offerings or private placements without prior written approval of the Chief Compliance Officer. 1.5.2 “Blackout Periods” No purchasing of initial public offerings or any other designated security for personal, family, or other beneficial accounts during the blackout period specified by the Advanced Advisor Group, LLC or otherwise by regulation, without prior written approval of the Chief Compliance Officer.

1.5.3 Pending Transactions/Allocation of Investment Opportunities

No personal trades in a security during a pending Client buy/sell order in that security. Investment opportunities must first be offered to clients before the firm or any access person is permitted to participate in the purchase or sale of such security. Furthermore, all trade allocations must be equitably made to clients first (not the firm or its access persons) and must not disadvantage the client to the benefit of the firm or access person under any circumstances. 1.5.4 Public Commentary Care should be taken in writing and publishing newsletters, analyses and other public commentary on markets, funds and other securities not to place the employee or the Company in a situation where a recommendation to buy or sell could be seen as conferring a personal benefit. If in any doubt, check with the Chief Compliance Officer.

1.5.5 Gifts, Entertainment, and Training Expenses Non-Cash Compensation, Defined: This term encompasses any form of compensation received by the firm or any employee in connection with the sale and distribution of securities that is not cash compensation, including, but not limited to, merchandise, gifts and prizes, travel expenses, meals, lodging and securities. The firm generally prohibits employees from accepting gifts and gratuities from vendors, sponsors, clients, or other business partners unless specifically approved by the CCO. Cash, Gifts, trips, entertainment and any other perks or financial remuneration from clients or business partners (other than the occasional meal or memento) should typically


be refused. The CCO should be immediately informed when a gift or gratuity is offered or received.

Training and Education. Since various products and services are continuously offered, it is particularly important that employees receive educational opportunities whenever possible. Should employees of the firm attend training or education meetings held by a product sponsor or business partner, any related reimbursement or payment of expenses must be made to Advanced Advisor Group, LLC (not the employee individually, unless approved by the CCO. Any such payment or reimbursement must not be conditioned by the offeror on the achievement of sales targets or other incentives, such as gathering a specific level of assets.

1.5.6 Service on Boards of Directors, etc. Service as a director or trustee of a public company or entity involved in the investment process should be avoided where “conflict of interest” issues might arise. Persons associated with Advanced Advisor Group, LLC are required to notify the CCO in writing and receive written permission prior to becoming a member of any board or a trustee of any entity.

1.6 Review and Further Action Advanced Advisor Group, LLC takes its responsibilities seriously to review employee activities to detect and deter conduct which is, or could become, a violation of this Code of Ethics where applicable. All employees are required to report any suspected violations of this Code to the Chief Compliance Officer. Employees should know that they may be asked to explain, informally or otherwise, their conduct or documentation with which they are associated. If further investigation reveals a problem Advanced Advisor Group, LLC may take further action, including placing the individual(s) involved under heightened supervision or restrictions, imposing internal penalties including canceling an improper employee securities trade disgorgement of ill-gotten profits or, in extreme cases, suspension or dismissal.

In certain cases the existence of violations may need to be disclosed to the SEC and/or state authorities with the consequent requirement that Form ADV be amended as well as the CRD/IARD registrations on Form U-4 of the individuals involved. Corrective action may, in addition, involve unwinding improper client trades and other remedial action to make the client whole.

1.7 Books and Records Advanced Advisor Group, LLC retains books and records related to the implementation of this Code of Ethics, in accordance with the provisions of SEC Rule 204-2. These include the following: Documents Person(s) Responsible

• Access Person listings CCO

• Receipts and Acknowledgments of this Code of Ethics CCO

• Holding Reports and actions taken CCO

• Transaction Reports and actions taken CCO


• Dated copies of this Code of Ethics and amendments CCO

• Documentation of any investigations, actions and remedies CCO

ACKNOWLEDGMENT I have read the above Advanced Advisor Group, LLC Code of Ethics and agree to comply with the provisions contained therein.

_________________________________________________________ _________________________

Signature Date

_________________________________________________________ Name Printed


EXHIBIT B

ADVANCED ADVISOR GROUP, LLC BUSINESS CONTINUITY PLAN

This Advanced Advisor Group, LLC Business Continuity Plan is designed to provide all personnel with guidelines to be followed in the event of a Major Disruption to our business.

FIRM POLICY Our primary objective is to ensure that everyone in the "Advanced Advisor Group, LLC’ Family" is safe. Advanced Advisor Group, LLC’ policy is to respond to a Significant Business Disruption (SBD) by safeguarding employees’ lives and firm property, making a financial and operational assessment, quickly recovering and resuming operations, protecting all of the firm’s books and records, and allowing our customers to transact business. In the event that we determine we are unable to continue our business, we will assure customers prompt access to their funds and securities. Advanced Advisor Group, LLC’ plan anticipates two kinds of SBDs, internal and external. Internal SBDs affect only the Company’s ability to communicate and do business, such as a fire or loss electrical power in the office or building. External SBDs prevent the operation of the securities markets or a number of firms, such as a terrorist attack, a natural disaster, or another event that causes a wide-scale, regional disruption to essential services. The Company’s response to an external SBD will rely more heavily on other organizations and systems, especially on the capabilities of product sponsors, federal emergency authorities, local officials and utility companies. One half of that objective is concerned with an Evacuation Plan, which lays out some "best practices" for everyone's safety. The other half is a Recovery Plan for the future success of Advanced Advisor Group, LLC even in the wake of a Major Disruption. Each of our jobs is dependent on Advanced Advisor Group, LLC being able to provide a continuous level of high quality service in spite of the Disruption.

The Company operates from the following locations:

Type of Location, Registered or Unregistered

Address and Main Phone Number

Located in a Personal Residence? (Y or N)

Means of Transportation Employees Use to Reach Office

Mission Critical Systems Taking Place at Office

Registered 440 Emerson St. N. Ste. 2 Cambridge, MN 55008

N Vehicle Investment Advisory Services

The following individuals are responsible for the duties of each position stated below:

Chief Executive Officer: Kent Schutte Chief Compliance Officer: Kent Schutte Disaster Recovery Coordinator (primary Contact): Kent Schutte


Disaster Recovery Coordinator (secondary Contact): Dorothy Chlystek

What Constitutes a Major Disruption? A Major Disruption is any event that renders us unable to provide our usual level of service without immediate recovery action. A Major Disruption can fall into one of three categories:

o During business hours, not requiring evacuation (e.g. major systems crash).

o During business hours, requiring evacuation (e.g. an unscheduled fire alarm).

o Outside of normal business hours, impacting future business activity. Disaster Relief Team (DR Team) The CCO has the overall responsibility for the Advanced Advisor Group, LLC response to a Major Disruption. This includes deciding what to do internally (evacuate or not), activating external support and backup and coordinating the recovery. In the absence of the CCO, Dorothy Chlystek will assume the duties of the CCO. Employee Title Phone Number Kent Schutte Disaster Recovery Coordinator (P) 763-689-9023 Dorothy Chlystek Disaster Recovery Coordinator (S) 763-689-9023 What Actions Will be Taken? Immediate Response: The Disaster Recovery Coordinator will make a preliminary assessment as to the Nature of the Major Disruption and action to be taken (evacuation, etc.). The Disaster Recovery Coordinator then organizes the response.

Evacuation: Where required, all employees will evacuate the company’s facilities and relocate to a back-up facility (see below).

Recovery: The Recovery Plan is implemented (see below).

Backup for Systems The Disaster Recovery Coordinator is responsible for maintaining backup systems. Our main Advanced Advisor Group, LLC location houses our key employees and an extensive amount of data that keeps us running. We operate the following systems and backups:

• Data/Computer Backups: All our databases, imaging, our shared drives and our individual networked drive are backed up nightly, ensuring that we would never lose more than a day's work. In addition, our client’s business activities will not be affected in the event of a computer data disruption at our Company. All vital account and customer


information is held by and with our fund administrator and custodian bank, TD Ameritrade, 4075 Sorrento Valley Blvd., Ste. A, San Diego, CA 92121; 1-800-895-0777.

• Battery Backups: These are in place to protect our servers and data during a power

outage.

• Alarm System: This is managed by an outside company that alerts the necessary authorities in the event of an unauthorized entry or a fire. The automatic fire detection system includes a building-wide sprinkler system.

Offsite Data Storage Advanced Advisor Group, LLC does store its firm’s data offsite. Chris Schutte is responsible for offsite data storage and can assist with what information is housed offsite and the location of the storage facility. Staff Relocation The Disaster Recovery Coordinator is responsible for staff relocation. In the event of an emergency, we have arranged to relocate staff to 3125 Airport Pkwy. Cambridge, MN. Evacuation Plan If the Coordinator determines that personnel should evacuate the affected location(s), he must make an announcement to all personnel as appropriate procedures. The announcement may be given via personal contact, e-mail, intercom or other methods as appropriate given the systems available and size of staff and building. This announcement should be short and concise, should calmly identify the situation and should provide instructions to employees on how to respond. This announcement should be repeated as often as necessary to avoid confusion and to ensure all employees are aware of the situation. After ensuring the physical safety of Company personnel, the Coordinator must then implement this BCP. If the situation does not merit evacuation, steps should be taken to alert designated persons of necessary actions to facilitate ongoing operations in the face of limited disruption. In this case, the Coordinator will determine which, if any, procedures in this BCP should be implemented. Once the Disaster Recovery Coordinator announces the decision to evacuate, the following general procedures will be observed. While much of this plan is common sense, if a dangerous situation exists in a facility - get out immediately, following fire exit procedures. We want to make sure that everyone is well informed to expedite a speedy and safe evacuation, accounting for all staff members' well being. While we hope that we will never need to use this plan, it is critical that everyone knows what action to take in the event of an evacuation. Please be sure to review this plan, locate all emergency exits, and direct any questions to your supervisor. When to Evacuate: Evacuate when you hear the overhead emergency alarm system sound, or when you are otherwise notified to leave the premises. Immediate Steps to Take Upon Evacuation:

DO: Terminate all phone calls immediately Take nearby personal items - purse, wallet, keys, coat, building key card, etc. Shut the door behind you if you are the last to leave an office / conference room Leave via the nearest emergency exit


Go directly to your outdoor designated department meeting place Report any emergency matters to Relief Team personnel

DON'T: Do not use the elevator Do not stop to use the telephone

Do not shut down your computer

Recovery Plan It is impossible to provide for every Major Disruption contingency. However, it is Advanced Advisor Group, LLC’ goal to assist customers and provide them with the necessary information and to help with any need to service and access the client’s accounts. In the event of an SBD: (1) If telephone service is available, our employees will make efforts to assist our customers in accessing their account, if so requested; and (2) If telephone service is not available, our firm will try other means and methods to assist our customers reach the necessary parties. In addition, in the event of an SBD, our Company will immediately identify any methods available that will permit personnel to communicate with customers, other employees, critical business constituents, critical banks, critical counter-parties, and regulators. Advanced Advisor Group, LLC will contact the Custodian to apprise them of the Company’s financial status. If the Company determines that it may be unable to meet its obligations to those counter-parties or otherwise continue to fund its operations, Advanced Advisor Group, LLC will request additional financing from our bank or from other credit sources to fulfill its obligations to our clients. If Advanced Advisor Group, LLC cannot remedy a capital deficiency, they will take appropriate steps accordingly, including. In the event there is suspension or termination of the Company’s business, the Company will attempt to notify clients regarding the situation and provide them with instructions for accessing their funds or securities, if applicable, for verifying transactions in process or for conducting future business. Notification will be in a form allowed based on the circumstances permitted by regulatory authorities and may include telephone calls, letters or a posting on the Company’s website. Order Taking Telephone. Critical Business Constituents, Banks, and Counter-Parties

Business constituents Advanced Advisor Group, LLC has contacted our critical business constituents (businesses with which the Company has an ongoing commercial relationship in support of its operating activities, such as vendors providing critical services), and determined the extent to which the Company can continue its business relationship with these businesses in light of the internal or external SBD. The Company will quickly establish alternative arrangements if a business constituent can no longer provide the needed goods or services when we need them because of a SBD to them or our firm.

Banks


Advanced Advisor Group, LLC has contacted its banks and lenders to determine if they can continue to provide the financing that the Company may need in light of the internal or external SBD. The Company’s accounts are currently with the following institutions:

If our banks and other lenders are unable to provide the financing, we will seek alternative financing immediately. Regulators

The Company is registered with the SEC and has notice filed in the following states: STATE of Minnesota Address: 85 7th Place East, Suite 500, St. Paul, MN 55101-2198 Phone: 651-296-2283 STATE of Iowa Address: 340 Maple Street, Des Moines, IA 50319-0066 Phone: 515-242-5310

Advanced Advisor Group, LLC communicates with applicable regulators using the telephone, e-mail, web site and U.S. mail as applicable to each situation. In the event of an SBD, we will assess which means of communication are still available to us, and use the means closest in speed and form (written or oral) to the means that we have used in the past to communicate with the other party. Disclosure of Business Continuity Plan The Company will disclose in writing a summary of our BCP to client at account opening or at the time a business relationship is established. The Company will notify clients in writing when material changes are made to the Plan that may affect their business relationship with the Company.

The summary addresses the possibility of a future SBD and how we plan to respond to events of varying scope. In addressing the events of varying scope, the summary:

• Provides specific scenarios of varying severity (e.g., a firm-only business disruption, a

disruption to a single building, a disruption to a business district, a city-wide business disruption, and a regional disruption);

• States whether we plan to continue business during that scenario and, if so, our planned recovery time; and

• Provide general information on our intended response.

Types of account

Name of Financial Institution

Address of Financial Institution

Telephone Number

Contact Name


Our summary also discloses the existence of back-up facilities and arrangements. A copy of the Company’s disclosure statement is included at the back of this Plan. Updates and Annual Review The Company will update this plan whenever there is a material change to its operations, structure, business or location. The Company’s BCP will be reviewed and modified, if necessary, at least annually, but no later than within 12 months of the date on which this Plan was put into effect or previously reviewed, to take into account any changes in the Company’s operations, structure, business, or location.


Client Disclosure Statement Advanced Advisor Group, LLC Advanced Advisor Group, LLC plans to quickly recover and resume business operations after a significant business disruption (SBD) and respond by safeguarding our employees and property, making a financial and operational assessment, protecting the firm’s books and records, and allowing our customers to transact business. In short, our company’s Business Continuity Plan (BCP) is designed to permit us to resume operations as quickly as possible, given the scope and severity of the SBD. The BCP addresses: data back up and recovery; all mission critical systems; financial and operational assessments; alternative communications with customers, employees, and regulators; alternate physical location of employees; critical supplier, contractor, bank and counter-party impact; regulatory reporting; and assuring our customers prompt access to their funds and securities if we are unable to continue our business. Our Fund Administrator and Custodian Bank backs up our important records in a geographically separate area. While every emergency situation poses unique problems based on external factors, such as time of day and the severity of the disruption, we have been advised by our Fund Administrator and Custodian Bank that its objective is to restore its own operations and be able to complete existing transactions and accept new transactions and payments within a resumption time period. Your orders and requests for funds and securities could be delayed during this period. In addition, the product sponsor maintains all records related to your investments and account holdings and backs up important records in accordance with their business continuity plan. For more information on their contingency plan, please contact the sponsor directly at the telephone number provided on your statements. Significant Business Disruptions: The Company’s plan takes into account two kinds Significant Business Disruptions, internal and external. Internal SBDs affect only the Company’s ability to communicate and do business, such as a fire or loss electrical power in the office or building. External SBDs prevent the operation of the securities markets or a number of firms, such as a terrorist attack, a natural disaster, or another event that causes a wide-scale, regional disruption in essential services. Internal SBDs: In the event of a disruption in the Company’s business operations due an internal SBD, the Company will attempt to continue to conduct business as usual by utilizing alternative communication methods (if available), such as the Internet, cell phones, etc., or by moving its operations to an alternative location. If personnel or operations must be moved to an alternate location, the Company anticipates that it will resume regular operations as soon as personnel can access the alternate site. External SBDs: In the event of a disruption in the Company’s business operations due to an external SBD, the Company will attempt to continue to conduct business as usual by moving its operations to an alternative location outside the effected area, if possible, or by providing customers with alternative communication arrangements, as indicated below, to conduct business or to access their funds and securities.


The Company will attempt to resume business and keep its customers informed regarding relevant events to the best of its ability based on the circumstances. In all cases, the Company will resume normal business operations as soon as it is able to do so, based on the type and the extent of the disrupting event. If the significant business disruption is so severe that it prevents us from remaining in business, we will assure our customer’s prompt access to their funds and securities. Communications: In the event you are unable to reach the Company at our main number, please proceed as follows:

• Contact the Company at the following alternate telephone number: [alt #].

• Access the Company’s website at [site]

• Contact the product sponsor directly at the number listed on your most recent statement. Contact information: Any questions regarding the Company’s Interruption Plans should be addressed to: Kent Schutte, 440 Emerson St. N. Ste. 2, Cambridge, MN 55008 763-689-9023.


EXHIBIT C This AML Program was designed for temporary use by SEC and State Registered IA’s, pending release of final SEC AML regulations. Once the SEC issues final guidance on AML requirements for investment advisers, this program should be updated to reflect any additional requirements included therein.

Advanced Advisor Group, LLC

Anti-Money Laundering Compliance Program

Table of Contents Summary Supervisory Table Commitment Statement Designated Supervisory Personnel Preliminary Risk Assessment Know Your Customer (Customer Identification Program)

A. Client Notification B. Necessary Account Information C. Verification of Identity D. Comparison with Government Lists E. Additional Due Diligence F. Suspicious Activity—Account Opening Stage G. Records/Retention H. Reliance on Another Financial Institution I. Resolution

Monitoring Transactional Activity A. Existing Transaction Monitoring B. Suspicious Activity—Transaction Stage C. Specific Activity Monitoring Reporting Process

A. Definite Suspicious Activity B. Supposed Unusual or Suspicious Activity C. Reporting Procedures—Internal D. Reporting Procedures—Official

Record Keeping Disclosure/Response to Authorities Independent Audit Employee Training

These anti-money laundering compliance procedures were approved by the Chief Compliance Officer. These procedures are effective from the date approved until the date of their authorized revision, update or replacement (see below). Authorized Approval Signature: _______________________ Date: ____________


Anti-Money Laundering Compliance Program

Name of Supervisor: Chief Compliance Officer: Kent Schutte Designated AML Program Supervisor: Kent Schutte Designated Supervisors

Frequency of Review: Daily, in the course of normal account/Representative supervision; Monthly review of monitoring devices; Immediate review of P-SARs and SAR-SFs

How Conducted: In accordance with Program described below, including: Completion and review of Preliminary Risk Assessment Report Review of Preliminary (internal) Suspicious Activity Reports (P-SAR) Review of Cash and Foreign Transactions Review transaction records related to suspicious activity Review of client files for names/entities on OFAC or SEC Control List File AML contact information with SEC; review information periodically and file changes as necessary.

How Documented: Notes to client files Preliminary Risk Assessment Reports Preliminary Suspicious Activity Reports P-SAR Review Form Account documentation Necessary filed reports (Currency Transaction Report; Suspicious Activity Report by the Securities and Futures Industry, etc.) Forward transmittal information when necessary (see below)

Source: SEC Rule 17a-8, USA PATRIOT Act; Bank Secrecy Act; NTM’s 02-21, 03-34

Comments:

In accordance with anticipated SEC regulation, and in an effort to comply with the requirements under the USA PATRIOT Act, Advanced Advisor Group, LLC has established the following policies and procedures for the purpose of attempting to deter and detect money laundering activities by clients. Every employee of the Company is expected to be familiar with these policies and procedures and to make reasonable efforts to comply with them. Failure to do so will result in disciplinary action and possible subsequent termination of employment. The Company, in following the enclosed policies, will also assist in detecting and deterring check fraud, ID theft, embezzlement, securities fraud, insider trading and other illegal activities not strictly related to money laundering. The anti-money laundering programs required by this Rule shall, at a minimum:

• Establish and implement policies and procedures that can be reasonably expected to detect and cause the reporting of suspicious transactions.

• Establish and implement policies, procedures, and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act and the implementing regulations thereunder;

• Provide for testing for compliance to be conducted by firm personnel or by a qualified outside party;

• Designate, and identify to the SEC, State, or other applicable regulatory bodies, individual(s) responsible for implementing and monitoring the day-to-day operations and internal controls of the program and provide prompt notification to the regulators regarding any change in such designation(s)


• Provide ongoing training for appropriate personnel.

COMMITMENT STATEMENT ADVANCED ADVISOR GROUP, LLC IS STRONGLY COMMITTED TO COOPERATING WITH ALL APPLICABLE RULES AND REGULATIONS DESIGNED TO COMBAT MONEY LAUNDERING ACTIVITY, INCLUDING THOSE RULES AND REGULATIONS REQUIRING REPORTING OF TRANSACTIONS INVOLVING CURRENCY, CERTAIN MONETARY INSTRUMENTS AND SUSPICIOUS ACTIVITY. IT IS THE RESPONSIBILITY OF EVERY EMPLOYEE OF ADVANCED ADVISOR GROUP, LLC TO MAKE EFFORTS TO PROTECT THE FIRM FROM EXPLOITATION BY MONEY LAUNDERERS. EVERY EMPLOYEE IS REQUIRED TO COMPLY WITH THE APPLICABLE LAWS AND FIRM POLICIES IN THIS REGARD. PROVEN ASSOCIATION WITH OR WILLFUL ENABLING OF MONEY LAUNDERING ACTIVITY WILL RESULT IN SIGNIFICANT CRIMINAL, CIVIL AND DISCIPLINARY PENALTIES. By certifying their receipt and understanding of this supervisory procedures manual, each employee of Advanced Advisor Group, LLC signifies that they intend to abide by them and this Commitment Statement.

DESIGNATED SUPERVISORY PERSONNEL The following individuals have been designated to oversee the implementation of the Company’s Anti-Money Laundering Program:

o The Chief Compliance Officer will act as the central point of contact for

communicating with the regulatory agencies regarding money laundering issues. He will act as the final point of authority in the process of determining whether or not certain unusual activities constitute reportable suspicious activities. He will also ensure that the requirements under proposed, relevant rules and regulations are implemented on a continuing basis. Where an adviser has minimal staff, the CCO will also be charged with acting in the capacity of the AML Program Supervisor.

o Where other than the CCO, The Designated AML Program Supervisor or “AML Supervisor” will act as an intermediary between the Chief Compliance Officer and the designated Supervisors who supervise the daily activities of Investment Advisor Representatives and non-registered employees. This individual will review and prioritize any account activities considered by the designated Supervisors to warrant further investigation. He will act as the initial point of authority in the process of determining whether or not certain unusual activities constitute reportable suspicious activities.

o The designated supervisors charged with the daily supervision of the advisory activities of Representatives receive notification from Representatives and employees of unusual or suspicious activity, and will also serve to detect such activity in his/her normal reviews. These Supervisors will determine which, if any, activities should be reported to the Designated AML Program Supervisor for further review/investigation.

The Company has designated the CCO as the AML Program Supervisor, who will implement and monitor the operation of the AML program. So that the Company can promptly receive alerts


from FinCEN and other entities, the Company’s CCO will provide the following information on each designated individual to the SEC, if required:

o Name and title of AML contact person, o Mailing address, o E-mail address, o Telephone number, and o Facsimile number.

The CCO will periodically review and confirm the accuracy of AML contact information and will notify the SEC promptly of any changes. Details of the processes by which unusual or suspicious accounts and activities are handled are described below.

PRELIMINARY RISK ASSESSMENT The Company provides advisory services to its clients: all client accounts are maintained by the custodian/sponsor and any securities transactions are executed through/by the custodian/sponsor. However, in conducting its business, the Company is committed to the “Know Your Customer” principle, reiterated below, and will complete a risk assessment for each of its clients. The purpose of this risk assessment is to determine, given the types of products or transactions in which the Company operates, the likelihood of suspicious or potentially illegal activity. Investment Advisor Representatives and their designated Supervisors are required to consider the following factors when conducting business with new or existing clients:

• Whether the client is an individual, an intermediary, public, private, domestic or foreign corporation, a financial/non-financial institution, or regulated person or entity;

• Whether the client has been an existing client for a significant period of time;

• How the client became a client of the Company;

• Whether the business of the client, or the particular type of account, is the type more likely to be involved in illicit activity (e.g., cash intensive business);

• Whether the client’s home country is a member of the Financial Action Task Force (FATF) or is otherwise subject to adequate anti-money laundering controls in its home jurisdiction; and

• Whether the client resides in, is incorporated in or operates from a jurisdiction with bank secrecy laws, or one that has otherwise been identified as an area worthy of enhanced scrutiny.

The “Preliminary Risk Assessment Report” must be completed by respective Investment Advisor Representatives and presented to their designated Supervisors for review and approval (evidenced by his/her initials). For each new client, the Preliminary Risk Assessment Report must be completed and approved as part of the account opening process. Should the Representative or designated Supervisor determine that a client could be considered prone to engage in suspicious activity, s/he must record this determination on the Form, to be maintained in the client’s file. The Representative and designated Supervisor should then continue to gain familiarity with the client by gathering all information in accordance with the Company’s internal procedures.


KNOW YOUR CUSTOMER (CUSTOMER IDENTIFICATION PROGRAM)

Advanced Advisor Group, LLC endeavors to accept or solicit only those clients (or investors) whose source of wealth and funds can be reasonably established to be legitimate. The Company will take reasonable measures to establish the identity of its clients and will only accept clients when this process has been completed. This Anti-Money Laundering Compliance Program incorporates Advanced Advisor Group, LLC’ various procedures related to “Know Your Customer” and suitability standards, new account approval, existing account information updating, and applicable SEC rules and regulations. Included in this section is the Company’s Customer Identification Program (“CIP”), which is designed to meet the requirements under Section 326 of the USA PATRIOT Act as well as other applicable provisions under the Act. Definitions. A “customer” (or “client” as used herein) refers to a person that opens a new account or an individual who opens a new account for an individual who lacks legal capacity or (for an entity) that is not a legal person. Not included are persons with trading authority over accounts or existing clients, provided the Company has a reasonable belief that it knows the true identity of such person. Also not included are: Federally-regulated financial institutions, banks, U.S. and State departments/agencies, and public companies with domestic operations. Representatives, if confused about whether or not a new client falls under the definition of “customer” for CIP purposes, must consult their designated Supervisors and/or AML Supervisor for clarification. In the context of this CIP, “account” refers to a formal relationship with the Company established to effect transactions in securities, including, but not limited to, the purchase or sale of securities, securities loan and borrow activity, and the holding of securities or other assets for safekeeping or as collateral. The following are excluded from the definition of “account”: (1) an account that the Company acquires through any acquisition, merger, purchase of assets, or assumption of liabilities, and (2) an account opened for the purpose of participating in an employee benefit plan established under ERISA. Transfers of accounts resulting from a change in clearing firm are also excluded. The firm, through daily oversight and periodic review of business activities (as described in the WSP Manual), will endeavor to detect any attempt to open a securities account at the firm. In addition all employees and registered persons must report to the CCO any perceived attempt, on behalf of a client or firm personnel, to open a suspicious securities account. Should such activities be detected, the CCO will investigate and follow-up with actions designed to halt the activities and discipline the subject employee, if applicable. This section, while devoted to procedures at the account opening stage, serves as a reminder to Investment Advisor Representatives to attain the highest level of familiarity possible with all clients, not only new clients. While transactions by existing clients will be monitored for potential suspicious activity, it is imperative that the clients themselves be scrutinized in light of the new legislation and regulations related to money laundering.


A. Client Notification BEFORE an account relationship is finalized, the Company will provide notice to clients (or investors) that it is requesting information from them to verify their identities. They will provide notification, making use of required language (see below), as follows: notice will be included on the Company’s fee contracts.

B. Necessary Account Information As part of its CIP standards, the Company requires its Representatives, prior to opening an account, to obtain the following minimum identifying information for each new client, whether a person, entity or organization name is on the account:

• A name;

• A date of birth, for an individual;

• An address, which will be:

• For an individual, a residential or business street address, or if neither exists, an Army Post Office or Fleet Post Office box number, or the residential or business street address of a next of kin or another contact individual; or

• For an account other than an individual (such as a corporation, partnership, or trust), a principal place of business, local office, or other physical location; and

• An identification number, which will be:

• For a U.S. person (individual or entity), a taxpayer i.d. number; or

• For a non-U.S. person, one or more of the following: o A taxpayer i.d. number; o A passport number and country of issuance; o An alien identification card number; or o The number and country of issuance of any other

government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard.

If a client has applied for, but has not received, a taxpayer i.d. number, Representatives are permitted to open the account; however, the Representative must make note of the missing identification number in the account file and must also record the date estimated by the client of the pending receipt of such number. Representatives are required to make efforts to obtain the i.d. number by contacting the client on or about the estimated receipt date and frequently thereafter, if necessary. All attempts to receive the number must be noted in the client file. Without seemingly authentic reasons for the delay, should the Company not receive the i.d. number within 90 days after the estimated receipt date, the account must be closed unless an exception is made by the AML Supervisor or CCO to extend this deadline. Representatives, in opening new accounts, must attempt to obtain the minimum information described above. In addition, certain other information, as described below and according to account type, should be gathered, when possible, in order to firmly establish the identity and source of funds for each client. Information gathered will vary according to the risks posed by the type of account. In the event Representatives are uncertain as to the extent of information required to verify the identity of any given client, they should immediately contact their designated Principals or the AML Supervisor for guidance prior to opening the account. Verifying documentation of all verification efforts must be maintained in accordance with the firm’s established procedures. In addition, throughout the information gathering process,


Representatives and designated Supervisors should make notes of their questions, concerns or suspicions, and include those notes in the respective account files.

Special Circumstances: 1) Non-Resident Alien Accounts—In addition to the minimum information required and

gathered, if the client is a non-resident alien, the Representative must obtain all necessary U.S. tax forms. OFAC lists should be consulted to determine if further due diligence is necessary; if deemed necessary, notes to the client’s files should made for future reference.

2) Domestic Operating or Commercial Entities—The Representative must obtain information sufficient to ascertain the identity of the corporate or business entity and the authority of its representative to act on its behalf.

3) Domestic Trusts and Omnibus Accounts— The Representative must obtain information in order to verify the identity of the named accountholder (not the underlying beneficial owners) and the authorized activity of the trust. Similarly, for omnibus accounts, the Representative must identify the intermediary of omnibus accounts, if the intermediary is the named accountholder (i.e., the Representative is not obligated to identify the underlying beneficial owners). Foreign Operating Commercial Entities, Personal Investment Corporations or Personal Holding Companies, Offshore Trusts and Private Banking Accounts—The Company does not permit the opening of any Private Banking Accounts for non-U.S. persons. All Company employees and registered persons must report to the CCO any perceived attempt on behalf of a client to open such an account with the Company. Should such an attempt be detected, the CCO will investigate and follow-up with actions designed to halt the activities and fulfill any and all reporting obligations. Institutional Accounts, Hedge Funds, Investment Funds and Other Intermediary Relationships—The Company does not permit the opening of any Accounts for Institutional Accounts, Hedge Funds, Investment Funds and Other Intermediary Relationships. All Company employees and registered persons must report to the CCO any perceived attempt on behalf of a client to open such an account with the Company. Should such an attempt be detected, the CCO will investigate and follow-up with actions designed to halt the activities and fulfill any and all reporting obligations.

4) Senior Foreign Government/Public Officials—The Company does not permit the opening of any Accounts for Senior Foreign Government/Public Officials. All Company employees and registered persons must report to the CCO any perceived attempt on behalf of a client to open such an account with the Company. Should such an attempt be detected, the CCO will investigate and follow-up with actions designed to halt the activities and fulfill any and all reporting obligations. Correspondent Accounts for Foreign Financial Institutions—The Company does not permit the opening of any correspondent accounts for foreign financial institutions. All Company employees and registered persons must report to the CCO any perceived attempt on behalf of a client to open such an account with the Company. Should such an attempt be detected, the CCO will investigate and follow-up with actions designed to halt the activities and fulfill any and all reporting obligations.

C. Verification of Identity The Company’s goal is to know, based on a reasonable belief, the true identity of its clients. Toward that goal, Investment Advisor Representatives are required to attempt to verify each client’s identity and document such verification efforts.


Documentary Means. Representatives must first attempt to verify clients’ identities through documentary means. Possible sources of information include:

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

• For entities, documents showing the existence of the entity: articles of incorporation, a government-issued business license, a partnership agreement, or a trust agreement.

Representatives are not expected to determine whether such documents are valid; however, if some obvious form of fraud is evident, Representatives should not accept the document as verification and should consult the AML Supervisor for assistance and to attempt to verify identity through other means (such as non-documentary methods). Non-Documentary Means. In some cases, non-documentary methods of verification will be necessary—either alone or in combination with documentary means. Representatives must use non-documentary methods in the following situations: (1) when the client is unable to present an unexpired government-issued identification document with a photograph or other similar safeguard; (2) when the Company is unfamiliar with the documents the client presents for identification verification; (3) when the client and Company do not have face-to-face contact; and (4) when there are other circumstances that increase the risk that the Company will be unable to verify the true identity of the client through documentary means. Non-documentary methods of verifying identity include:

• Contacting a client;

• Independently verifying the client’s identity through the comparison of information provided by the client with information obtained from a consumer reporting agency, public database, or other source;

• Checking references with other financial institutions;

• Obtaining a financial statement; and/or

• Any other reasonable means of attempting to verify the client’s identity, such as testing phone numbers or e-mail addresses provided.

Timing. Investment Advisor Representatives must attempt to verify the identities of new clients prior to account opening. When meeting face-to-face, i.d. documents should be viewed and noted. For instance, if new clients or investors are completely unknown to the Company and the Representative, or could be construed to represent higher risk, verification of identity should take place before the account is opened, or deal closed. If the Representative believes s/he knows the identity of the client, verification may take place after account opening. The Company is not required to verify the identities of individuals with authority or control over accounts on which they are not named as accountholders. However, in the event insufficient verification is available to identify such accounts, Representatives must attempt to obtain information on the individuals with authority or control over these accounts. If efforts to verify the identity of the client fail, the account should not be opened and the IAR should consult the AML Supervisor to determine further action. If deemed necessary a Preliminary Suspicious Activity Report should be completed and reviewed by the CCO.


D. Comparison with Government Lists In reviewing existing accounts or obtaining information in order to accept new clients, Representatives should consult certain lists in order to determine if such clients are “blocked” or subject to certain controls.

• OFAC. Under Department of the Treasury rules issued by the Office of Foreign Assets Control (OFAC) the Company cannot deal with certain individuals or in securities issued from certain identified countries. The Company must block or freeze accounts, assets and obligations of blocked entities and individuals when their property is in their possession or control (or, in certain cases, transactions must be rejected). “Blocking” is a legally enforceable freeze on the utilization of any account or asset without authorization from OFAC. The Company is prohibited from creating debits to blocked accounts although credits are authorized. Blocked SEC securities may not be paid, withdrawn, transferred (even by book transfer), endorsed, guaranteed or otherwise dealt in.

During the identity verification process described herein, the CCO is responsible for consulting updated lists of countries, entities and individuals published by OFAC and comparing them to the Company’s new accounts. OFAC “Specially Designated Nationals and Blocked Persons” (SDN) lists are located at http://www.nasdr.com/ofac/ or by visiting the OFAC website directly at www.ustreas.gov/ofac. Representatives with concerns about specific existing clients are encouraged to search these sites directly in an effort to expedite and enhance Company anti-money laundering efforts. In addition, the AML Supervisor or his or her designee is required to periodically check OFAC lists for the presence of existing client names. The OFAC website, www.ustreas.gov/ofac, should be reviewed frequently. The Company may register with OFAC’s e-mail subscription services to receive information and updates. By being familiar with OFAC’s website, the Company will enhance its ability to promptly detect possible client matches, thereby avoiding penalties for non-compliance. The Company must maintain some evidence of its efforts to check OFAC lists (for instance, a log or an electronic record of searches). During a search, if a match is found, internal due diligence must take place to determine that a number of similarities exist BEFORE calling the OFAC hotline (in other words, the Company must attempt to confirm that the match is a “true hit” and not a “false positive”). Similarities include such items as:

• Person versus organization;

• Same complete name spelling;

• Same first and last name (not just last name);

• Same country location;

• Same address, if known;

• Same or similar aliases, or former names;

• Same nationality; and

• Same date of birth or close age. If a search results in the client’s country being identified as under “limited” sanctions, the Company may continue without reporting to OFAC. In cases where questions remain after attempting to rule out a false positive, the Company should contact OFAC for assistance. If a match is confirmed, the CCO must immediately inform OFAC on its hotline: 1-800-540-6322 and must inform the client and other appropriate parties that the assets or accounts are blocked.


All required forms, such as the blocked assets form and rejected transaction form, must then be filed, as directed and supervised by the CCO. Other Lists. The Company may, from time to time, receive notice that a Federal government agency has issued a list of known or suspected terrorists. Within a reasonable period of time after an account is opened, the AML Supervisor will determine whether a client appears on any such list of known or suspected terrorists or terrorist organizations issued by any Federal government agency and designated as such by Treasury in consultation with the Federal functional regulators. The AML Supervisor will ensure that the Company follows all Federal directives issued in connection with such lists. E. Additional Due Diligence As mentioned above, there may be instances where more information is required in order for the Company to meet its “Know Your Customer” standard. Following the Company’s efforts to authenticate its clients’ identities, questions may remain. These questions should be brought by the Representative or his/her designated Supervisor to the AML Supervisor, who may decide to make use of the following to assist in verifying and/or providing client information:

• Business database searches,

• Media searches,

• Investigations by outside consultants,

• Contacts with international enforcement agencies (such as Interpol), and

• Reviews of all relevant lists (see below).

The purpose of such additional due diligence may be to explain discrepancies in a client’s SSN or TIN, date of birth, residential address, etc. To follow are some of the sources the AML Supervisor may consult in order to categorize the account as high-risk or a member of a non-cooperative jurisdiction:

• The Financial Action Network Task Force on Money Laundering (“FATF”),

• Patriot Act Section 311 Designated Countries,

• U.S. Immigration and Naturalization Service (INS),

• The Financial Crime Enforcement Network (“FinCEN”),

• The Organization for Economic Cooperation and Development (“OECD”) and

• The U.S. Dept. of State’s annual International Narcotics Control Strategy Report (“INCSR”) and CIA Fact Book.

In the event additional due diligence is conducted, the designated Supervisor must ensure that all information received will be kept in the client’s account file, and will remain confidential. This information, if indicative of suspicious activity, will be used in internal or official reporting, described below. The Company, in applying any such additional measures, will comply with all privacy requirements.


F. Suspicious Activity—Account Opening Stage While suspicious activity may occur in the course of servicing existing accounts, certain actions by a prospective client during the account opening stage may be indicators of money laundering intentions. Such indicators, which may include:

• Verification of identity proves unusually difficult and/or client is reluctant to provide full details with respect to his or her identity, type of business, assets, or furnishes suspect identification or business documents;

• A client who wishes to engage in transactions that lack business sense, apparent investment strategy, or are inconsistent with the client’s stated business and/or strategy;

• A client whose requirements are not consistent with the Company’s business and could be more easily serviced elsewhere;

• A client, or associate, has a questionable background;

Any such behavior noted in the account opening or reviewing stage must be noted in writing by the observer and maintained in the client’s file. These observations, if determined valid, will used in internal or official reporting, described below. G. Records/Retention When verifying the identity of clients, Representatives must record, and include in respective client files, a written description of any document relied upon to verify identity. If discrepancies arise during the verification process, records of the discrepancies and the resolution of such must be included in the client’s records.

The Company must maintain a record of all information for five years after the account is closed; records made about verification must be maintained for five years after creation.

H. Reliance on Another Financial Institution The Company may rely on one or more financial institutions, including TD Ameritrade to perform some or all of the elements of its customer identification program with respect to any client that is opening an account. The Company’s reliance is dependent on the following:

• The other financial institution is subject to anti-money laundering compliance program

requirements and is regulated by a Federal functional regulator; and

• The other financial institution has entered into a contract with the Company requiring it to certify annually that it has implemented its anti-money laundering program, and that it will perform specified requirements of the customer identification program.

MONITORING TRANSACTIONAL ACTIVITY

Monitoring transactions is essential to determining if unusual or suspicious activities are taking place, which may be related to money laundering.

A. Existing Transaction Monitoring Advanced Advisor Group, LLC is currently in the practice of monitoring its business activity by conducting reviews on a weekly basis. Such reviews may be either manual or automated. All Representatives, administrative personnel and their designated Supervisors, in conducting business with clients, processing business and in reviewing/approving such business, must make an attempt to identify unusual or suspicious activity. Because suspicious activity can occur long after an account has been opened and a relationship has been formed, all transactions should be viewed in the context of other account activity and whether or not a transaction is considered


suspicious will depend on the client and the particular transaction, compared with the client’s normal business activity. Transactions lacking a reasonable economic basis or strategy, in the context of the client’s historical activity, may be a “red flag” and warrant closer inspection.

B. Suspicious Activity—Transaction Stage While there is no definition of “unusual or suspicious,” certain indicators may evidence money laundering activity. Examples of these indicators are to follow:

• A client attempts to deal only in cash equivalents.

• A client engages in transactions involving cash or cash equivalents over $10,000 that appear to be structured to avoid reporting requirements.

• A client engages in multiple transfers of funds to and from countries that are considered bank secrecy or “tax havens” that have no apparent business purpose or are to or from countries listed as non-cooperative by FATF and FinCEN.

• A client purchases a long-term investment, followed shortly thereafter by a request to liquidate the position and a transfer of the proceeds out of the account;

• For no apparent reason, a client has multiple accounts under a single name or multiple names, with a large number of inter-account or third-party transfers;

• Client requests transaction processing that avoids normal documentation requirements;

• Client has repeated cancellations of variable annuity contracts during free-look period;

• A client deposits bearer bonds and immediately requests the disbursement of funds;

• Total lack of concern regarding risks, commissions, or other transaction costs; and

REPORTING PROCESS The procedures described above are intended to promote the detection and deterrence of money laundering and other illegal activities. Compliance with these procedures may lead to concerns about unusual activity or clear suspicions related to a client’s behavior or intentions. To follow are the steps Company personnel should take in order to resolve these concerns. A. Definite Suspicious Activity In the event any Representative, administrative personnel, designated Supervisor or other employee of the Company has clear evidence of suspicious activity, s/he must immediately report such to his or her AML Supervisor. In certain situations, the AML Supervisor or Chief Compliance Officer should immediately contact Federal law enforcement by telephone. Examples of such situations include:

• A client is listed on the OFAC list;

• A client’s legal or beneficial account owner is listed on the OFAC list;

• A client attempts to use bribery, coercion, undue influence, or other inappropriate means to induce the Company to open an account or to proceed with a suspicious or unlawful activity or transaction; and

B. Supposed Unusual or Suspicious Activity In following the procedures outlined above, a Representative or other employee may come to suspect a client of engaging in unusual activity that could feasibly be linked to money laundering. The employee may base his or her suspicions on any of the guidelines provided above—for instance, an existing account suddenly and inexplicably changes his investment strategy and deals in multiple dollar amounts below reporting thresholds.


Once suspicions exist, the employee should consult his or her supervisor and discuss them. Should the suspicion appear valid, the employee and designated Supervisor together must complete a Preliminary Suspicious Activity Report.

C. Reporting Procedures—Internal The Preliminary Suspicious Activity Report (P-SAR) is designed to provide for an internal review prior to official reporting, in order to avoid unsubstantiated (and embarrassing) official reporting. The designated Supervisor must forward the completed P-SAR to the AML Supervisor for review. The AML Supervisor will review the details related to the suspicious activity and will then recommend any of the following: dismissal of the suspicion, based on his or her own knowledge of the account or activity; focused monitoring of the account in question in order to confirm or dispel suspicions; investigation of the transaction or activity by another party such as General Counsel or internal legal professionals; or immediate official reporting. If accounts or activities are determined to require further monitoring or investigation, the AML Supervisor will implement such monitoring and track the results in order to later make another decision about the suspicious activity: to dismiss or officially report. Final resolution of all issues reported via P-SAR’s is required. The AML Supervisor will record the results of his or her reviews on the “P-SAR Review Form,” and provide a copy of this form to the CCO for final approval. If immediate official reporting is warranted, the CCO will conduct such reporting, as described below. Note that completed P-SAR and P-SAR Review forms must be maintained in the AML Supervisor’s files, and kept confidential (not to be disclosed to the client or any other unauthorized party). In the event an employee suspects violations committed by the AML Supervisor, the employee must report such suspicion directly to Dorothy Chlystek, the principal of the firm. Such reports will be confidential and will result in no retaliation to the employee. D. Reporting Procedures—Official Section 356 of the USA PATRIOT Act requires ALL broker-dealers to file Suspicious Activity Reports by the Securities and Futures Industry (SAR-SF or FinCEN Form 101), and pending regulatory changes are expected to mandate this reporting by SEC-registered investment advisors. The CCO, once having determined to file an SAR-SF, will complete and file the form with FinCEN within 30 days of being aware of the suspicious transaction(s). Reporting can also be done electronically through the Patriot Act Communication System at http://pacs.treas.gov/index.jsp. A copy of the form must be retained for five years, and kept confidential (not to be disclosed to the client, employees not involved in the filing process—including the Representative on the account--or any other unauthorized party). The Company is not required to close accounts that are the subject of a filed SAR-SF. The CCO and AML Supervisor must use their discretion in these cases. If account relationships are left intact, the designated Supervisor must monitor account activity carefully and wait for a response from FinCEN or other authority. Additional, related reporting may also be required of the Company, as follows:

• Currency Transaction Report. The Bank Secrecy Act requires the Company to file currency transaction reports (CTR or FinCEN Form 104). These regulations require the Company to file a CTR whenever a currency transaction exceeds $10,000 (whether in


one lump sum or aggregating amounts). This form must be filed even if the transaction is not suspicious; if it is suspicious, an SAR-SF must be filed in addition to the CTR.

• OFAC or SEC Reporting. Should a client be identified as an entity listed on current OFAC lists or the SEC Control List, the CCO must immediately contact these institutions in order to provide details and follow-up, if necessary.

• State Reporting. The CCO, upon filing forms with federal authorities must determine the firm’s obligations to the state where the Company is domiciled.

RECORD KEEPING

The Company will maintain records consistent with its established record keeping policies described in its Written Supervisory Procedure Manual. Records created as a result of compliance with this Anti-Money Laundering Compliance Program will include the following:

• Forms filed with federal and state authorities.

• Internal reporting documents.

• Notes and analyses of Company personnel.

• Results of testing for compliance with this Program.

The Company shall maintain these reports for a period of no less than five years (see above for requirements on CIP information). All SAR-SF’s filed with authorities must be maintained in the confidential records of the AML Supervisor, separate from the other books and records of the Company. The AML Supervisor is responsible for ensuring compliance with these record keeping policies.

DISCLOSURE/RESPONSE TO AUTHORITIES

Neither the Company nor its employees may notify any person involved in a reported transaction that the transaction has been reported on an SAR-SF. The Company and its employees are also prohibited from disclosing SAR-SF’s or the fact that they were filed, other than to law enforcement agencies or securities regulators. As noted above, the Company must also not divulge SAR filing information or circumstances to any employee not directly involved with the filing. In the event the Company receives a subpoena requesting an SAR-SF or related information, the request should be forwarded immediately to the AML Supervisor. The AML Supervisor must deny the subpoena request and inform FinCEN of any subpoena received. NOTE: Privacy policies under Regulation S-P do not apply to information provided to FinCEN in an SAR-SF and the Company and employees are protected from liability for required disclosures. The AML Supervisor is designated to respond to all requests made by FinCEN relating to money laundering or terrorist activity. The AML Supervisor should provide all requested information to FinCEN as soon as possible, either by e-mail to [email protected], or by calling the Financial Institutions Hotline (1-866-556-3974) or according to FinCEN’s instructions. After receiving a request, if a match is found, within two weeks the AML Supervisor must disclose to FinCEN that it has a match. The requesting law enforcement agency will then follow-up directly with the Company. The AML Supervisor must ensure that records are maintained to evidence the Company’s review of these FinCEN requests; the Company will not maintain the actual lists, but will maintain a log showing when and by whom each list was reviewed. Should the Company receive requests from other enforcement authorities, the AML Supervisor must respond to such requests within seven days of receiving a written request.


INTERNAL AUDIT

Compliance with this Program will be tested and audited periodically to determine its efficacy. The AML Supervisor will conduct these reviews at least once each calendar year. The audit procedures should:

• Confirm the integrity and accuracy of the procedures for AML reporting;

• Review of forms filed with authorities;

• Confirm the integrity and accuracy of the Company’s record keeping activities;

• Confirm compliance with “know your customer” policies by conducting a review of a sampling of new account documentation, account reviews and transaction reviews;

• Review the AML Supervisor’s records as they relate to specific monitoring of transactions or accounts, or follow-up on reported unusual activity;

• Confirm adherence to the Company’s internal reporting procedures;

• Confirm that all employees have been made aware of the Program, and have signed Attestations required by the Company;

• Ascertain that the Company is conducting an ongoing training program;

• Confirm that the Company’s Anti-Money Laundering Compliance Program incorporates changes required as a result of new legislation or regulation.

These reports shall be retained by the CCO and may be used as a basis for improving compliance with the Program. The CCO shall maintain a copy of the Findings for a period of five years.

EMPLOYEE TRAINING

Advanced Advisor Group, LLC maintains a training program designed to educate its employees on the identification and prevention of money laundering activities. The Company will appoint staff to train all employees who have account relationships, all supervisory personnel and back office personnel with applicable responsibilities. The training program will address, at a minimum, the following:

• The Company’s “know your customer” policy and procedures;

• Potential indicators of suspicious activity;

• Rules and regulations for reporting currency transactions and suspicious activity;

• The procedures for internal and official reporting of unusual or suspicious activities;

• Civil and criminal penalties associated with money laundering;

• Changes in applicable laws, regulations and Company policies; and

• Any specific areas of importance to the Company, given its business and client profiles.

This Anti-Money Laundering Compliance Program shall comprise a part of the training materials, and shall be presented to all new employees. The Company’s training program will be updated as frequently as necessary to reflect recent developments, techniques or money laundering trends identified by various government agencies


EXHIBIT D

PRIVACY OF CONSUMER INFORMATION

Effective November 13, 2000 the SEC adopted Regulation S-P covering Privacy of Customer Financial Information. Regulation S-P requires that Advanced Advisor Group, LLC adopt and maintain written supervisory procedures that comply with Regulation S-P and serve to protect the privacy of customer data.

Regulation S-P requires that Advanced Advisor Group, LLC provide each client with a Privacy Notice. In addition, where Advanced Advisor Group, LLC discloses “nonpublic personal information” about clients outside of certain permitted exceptions (chiefly related to the needs of the business) Advanced Advisor Group, LLC must obtain the client’s prior written permission.

1. Who Is Protected?

The regulation protects only individuals; thus, trusts, partnerships and corporations are not protected. Beneficiaries of trusts, 401(k) participants, shareholders of corporations or partners of partnerships are not protected. IRA beneficiaries are protected since they are individuals. Institutional investors are not covered by the regulation and no disclosures are required to be made to institutional customers or consumers.

The Regulation protects “Consumers” and “Customers.” A “Consumer” gets Notice protection if Advanced Advisor Group, LLC starts to disclose that Consumer’s “Nonpublic Personal Information” (NPI) to a “non-affiliated third parties” (NTP). A “Customer” always gets Notice protection.

“Consumer” is defined as any individual who obtains a financial product or service from Advanced Advisor Group, LLC for personal purposes. The Regulation clearly states that a Consumer includes any individual who provides NPI in requesting brokerage or investment advisory services. If the person is simply requesting a prospectus or brochure and has not actually applied, he/she is not a protected Consumer. Also that person is not a Consumer if his/her account is with another broker dealer who has set up an “omnibus account” with Advanced Advisor Group, LLC and doesn’t routinely provide information to Advanced Advisor Group, LLC. Or if that person has purchased shares in an investment company held in the name of a brokerage firm, he/she is not a Consumer of that investment company.

“Customer” is defined as a Consumer who has established a “continuing relationship” with Advanced Advisor Group, LLC under which Advanced Advisor Group, LLC provides one or more financial products or services, such as establishing a brokerage account or signing an investment advisory contract.

“Affiliate” is a term used throughout the Regulation. An “affiliate” of any person or firm is defined as an individual or entity (corporation, partnership, L.L.C., trust, or other entity, etc.): “controlled by, controlling or under common control with” the person or firm. “Control” is defined as the power to exercise a controlling influence over management or policies of another, whether by contract or otherwise. Ownership of over 25% of a company’s voting securities establishes a presumption of “control.”


The definition of “affiliate” is important because the Regulation permits sharing of information among “affiliated third parties” but restricts sharing with “non-affiliated third parties” (NTP’s).

2. What Is Protected?

With certain exceptions set forth below, Advanced Advisor Group, LLC is required to protect “Nonpublic Personal Information” defined as “Personally Identifiable Financial Information” (“PIFI”) acquired from the Consumer PLUS any list, description or other grouping of Customers derived from using any PIFI. Personally Identifiable Financial Information is defined as any information provided by a Consumer to Advanced Advisor Group, LLC in order to obtain a financial product or service OR information about that Consumer resulting from any transaction between Advanced Advisor Group, LLC and that Consumer OR information otherwise obtained by Advanced Advisor Group, LLC in connection with providing a financial product or service to that Consumer.

In general, PIFI would include all information of a personal nature supplied on account applications, questionnaires and other information provided in order to obtain accounts, obtain credit, enter into advisory or other relationships, etc.

NPI does not include information that Advanced Advisor Group, LLC has taken steps to verify and reasonably believes could lawfully be obtained from federal, state or local government records, widely distributed media (telephone book, television or radio program) or disclosures to the general public required to be made by federal state or local law.

NPI that can be lawfully obtained from a website available to the general public is not protected, even though the website operator requires a fee or password.

In addition, regulation S-P protects account number information. The Regulation (with certain exceptions) prohibits Advanced Advisor Group, LLC under any circumstances from disclosing to any NTP other than a consumer reporting agency, a Consumer account number or similar form of access number or access code for a credit card account, deposit account or transaction account if such disclosure is for use in telemarketing, direct mail marketing or other electronic mail marketing. It is the responsibility of Advanced Advisor Group, LLC to obtain the assurance of every NTP in advance of disclosure that any such account information is not being used for this purpose. The exceptions are as follows: (a) where the NTP is an agent or service Adviser engaged in these activities on behalf of Advanced Advisor Group, LLC, as long as the agent or service Adviser has no authority to initiate any charges in the account or (b) an account number of similar form of access number or code in encrypted form as long as Advanced Advisor Group, LLC does not provide the recipient with the means to decrypt the number.

Regulation S-P also controls “re-disclosure and reuse.” Any NPI received by Advanced Advisor Group, LLC from a “non-affiliated financial institution” may not be directly or indirectly disclosed by Advanced Advisor Group, LLC to any NTP unless that disclosure would be lawful if made directly by the “non-affiliated financial institution” to the NTP (including disclosures allowed by the Exceptions set forth below). Similarly the NTP may not re-disclose that information unless such re-disclosure would be lawful if made directly by Advanced Advisor Group, LLC.


Regulation S-P specifically requires the Privacy Notice to state that Advanced Advisor Group, LLC may disclose NPI about former Customers as well as current ones. The Regulation does not require that a Privacy Notice be provided to any former Customer.

ADVANCED ADVISOR GROUP, LLC AS A POLICY DOES NOT DISCLOSE ANY CONSUMER OR CUSTOMER NON-PUBLIC INFORMATION TO NON-RELATED THIRD PARTIES OTHER THAN IN CONTROLLED CIRCUMSTANCES AS SPECIFICALLY ALLOWED BY REGULATION S-P.

3. How Is It Protected?

With certain exceptions Advanced Advisor Group, LLC may not disclose NPI of any Consumer to any NTP without prior notice and consent by the Consumer. An NTP is any person, firm or corporation that is not controlled by, controlling or under common control with Advanced Advisor Group, LLC. NOTE: if any other government regulator treats Advanced Advisor Group, LLC as an “affiliate” of a company regulated by it, then Advanced Advisor Group, LLC is also an “affiliate” of that company for purposes of regulation S-P and may disclose NPI to that company.

Exceptions. There are Exceptions that allow Advanced Advisor Group, LLC to disclose Consumer NPI to persons or firms that are NTP’s without prior permission. The disclosure of NPI under any of the circumstances set forth below shall only be made by Advanced Advisor Group, LLC after review and approval by the CCO. The exceptions are as follows:

• The NPI is necessary to service or process a transaction or a financial product or service requested or authorized by the Consumer or Customer. The NTP must be under contract with Advanced Advisor Group, LLC designed to ensure that the NTP will (1) maintain confidentiality of the information to the same degree as Advanced Advisor Group, LLC and (2) will use the information solely for the purposes disclosed;

• The NPI is necessary to provide some ancillary recording or reporting of the transaction, product or service, account maintenance, confirmation, accruing fees or bonuses, etc.;

• The NTP has a legal or beneficial interest relating to the Consumer or Customer or is acting in a fiduciary or representative capacity;

• The disclosure is for the purpose of protecting the confidentiality or security of Advanced Advisor Group, LLC’ records, or to prevent potential or actual fraud, unauthorized transactions, claims or other liability, for institutional risk control or resolving customer disputes or inquiries;

• The disclosure is to provide information to insurance rate advisory organizations, guaranty funds or agencies, agencies rating Advanced Advisor Group, LLC, assessing compliance with industry standards, attorneys, accountants and auditors of Advanced Advisor Group, LLC;

• Subject to the Right to Financial Privacy Act, the disclosure is to a law enforcement agency, regulator, self-regulatory agency or in a public safety investigation;

• The disclosure is to a consumer reporting agency in accordance with the Fair Credit Reporting Act, or from a consumer report prepared by such an agency;


• The disclosure is in connection with a proposed sale, merger or transfer of a business unit, limited to NPI about Customers of such unit;

• The disclosure is to comply with federal, state or local laws, rules or regulations, including requirements of self-regulatory organizations or a subpoena or judicial process; or

• The NPI is provided under a contract with the NTP (a) requiring the NTP to maintain the same level of confidentiality as is required of Advanced Advisor Group, LLC and (b) limits any exceptions to those listed above.

4. Notice Requirements

Initial Privacy Notice Requirement. The Regulation requires Advanced Advisor Group, LLC to provide an Initial Privacy Notice to (a) every Customer at all times and (b) every Consumer where Advanced Advisor Group, LLC intends to disclose that Consumer’s NPI to any NTP under any non-exempt circumstances. Each recipient must also have been provided with a “reasonable” time to “opt out” or not. See the Forms Section for a sample Privacy Notice.

The Initial Privacy Notice must be provided to the Customer, with certain exceptions, AT OR BEFORE the time Advanced Advisor Group, LLC establishes the Customer relationship and to the Consumer BEFORE Advanced Advisor Group, LLC makes any disclosures of that Consumer’s NPI to a NTP. The Initial Privacy Notice may be provided in written or electronic form (if the Consumer or Customer is able to acknowledge receipt electronically).

The exceptions are as follows: The Initial Privacy Notice may be provided at a “reasonable” later time where (a) the Customer relationship has been established without the Customer’s knowledge or consent; (b) where to provide the Notice would substantially delay the Customer’s transaction and the Customer has agreed to receive the Notice at a later date; or (c) where the NTP establishes an account or purchases securities on behalf of the Customer.

Joint Notices. The regulation allows Advanced Advisor Group, LLC, if it chooses, to make arrangements with a third party such as a broker/dealer, affiliate, service or product Adviser or other financial institution to deliver a joint notice covering NPI obtained by the Company and the other notifying entity or entities. The Notice must clearly identify the Company as one of the Notice Advisers. Also, the Notice must clearly cover the kinds of NPI possessed by the Company. Advanced Advisor Group, LLC’ CCO shall note the use of any joint notice in maintaining records of individuals that “Opt Out”.

In the case of joint accounts, Notices need be provided only to one account holder. Each account holder must have the right to “opt out.” Also, individuals living in the same household can receive only one Notice as long as SEC regulations allow them to receive only one prospectus or other disclosure document.

Once provided to a particular individual, the Initial Privacy Notice does not have to be provided again every time a new product or service is obtained by that individual, as long as the Initial Privacy Notice and any subsequent Annual Privacy Notices (see below) are current and accurate as to that product or service.


Advanced Advisor Group, LLC requires that the Initial Privacy Notice be provided in writing and acknowledged in writing by each Customer at the time the account is opened or agreement is signed and that a copy of such acknowledgment be included with the Customer’s account records. In the case of Consumers who are not Customers, Advanced Advisor Group, LLC follows a similar procedure specified by the designated Principal.

“Opt Out” Provision. Advanced Advisor Group, LLC’ Privacy Notice advises each Customer or Consumer as to NPI that may be disclosed unless there is an objection. Included in the Privacy Notice is a place where the Customer or Consumer can object or “opt out” by notifying Advanced Advisor Group, LLC that he/she does not want all or part of the NPI to be disclosed. By signing the Privacy Notice the Customer or Consumer signifies that he/she wished to “opt out” of any disclosures by Advanced Advisor Group, LLC of any or all categories of NPI specified in the Notice. The “opt out” is ongoing and can be changed by the Consumer or Customer at any time in writing. Where Advanced Advisor Group, LLC changes any NPI category, a new Notice and “opt out” option must be provided to the Customer or Consumer.

Neither a Customer nor a Consumer may “opt out” of the exceptions to NPI disclosure described above. These exceptions are noted in Advanced Advisor Group, LLC’ Privacy Notice.

The Privacy Notice must include the disclosure that NPI may be shared among affiliated entities, in compliance with the notice requirements of Section 603 of the Fair Credit Reporting Act, and that the Consumer may “opt out” of this sharing provision.

Annual Privacy Notice. Advanced Advisor Group, LLC is required to provide an Annual Privacy Notice to each Customer every 12 months giving that Customer an opportunity to “opt out” within a reasonable time of receiving the Notice. The Annual Privacy Notice will be delivered to the Client in July. Once he/she ceases to be a Customer no further Notice is required.

5. Books and Records Requirement

The Initial Privacy Notice must not only be provided to the individual. In the case of Customers it must be furnished so that a copy can be retained or obtained at a later time, either by mailing or delivery in written form or electronically by access to a website. Advanced Advisor Group, LLC places a copy of the executed Notice in the Customer’s account records. Each “opt out” choice is perpetual unless affirmatively revoked by the recipient.

Where applicable, Advanced Advisor Group, LLC maintains records pertaining to customers’ “Privacy Choices” and records of all “opt out” choices. The record is maintained by the CCO. Further, Customer “opt out” choices are noted in that Customer’s account records.

6. Superceding Authorities

Regulation S-P does not supersede, alter or affect any state law or regulation which provides protection which is greater than that created by Regulation S-P. Accordingly, Advanced Advisor Group, LLC should be aware of comparable provisions in states


where it is doing business. Similarly, Regulation S-P does not modify, limit or supersede the Fair Credit Reporting Act (15 U.S.C. 1681), particularly Section 603 that allows companies to provide selected credit information to lenders.