SEC GRANTS TEMPORARY RELIEF
-PRINCIPAL TRADING RULE-

The Securities and Exchange Commission (SEC) voted (unanimously) on September 19, 2007 to provide limited and temporary relief from the principal trading restrictions for certain non-discretionary advisory accounts, including those that previously functioned as fee-based brokerage accounts (the "Interim Rule"). The Interim Rule provides limited relief from the prior consent and confirmation requirements for principal trades executed with advisory clients. This relief is available only to firms registered as both investment advisers under the Advisers Act and broker-dealers under the Securities Exchange Act of 1934 ("Dually Registered Entity").

The Interim Rule applies to any principal trade with a non-discretionary client, that does not involve (a) a security issued by the Dually Registered Entity (or by an affiliate of the Dually Registered Entity), or (b) a transaction in which the Dually Registered Entity (or an affiliate of the Dually Registered Entity) acts as underwriter, other than offerings involving investment grade, debt securities.

Pursuant to the Interim Rule, the Dually Registered Entity will receive the limited relief to consent and confirmation requirements of SEC Rule 206(3) if it (i) provides the client written prospective disclosure regarding the conflicts arising from principal trades; (ii) obtains written, revocable consent from the client prospectively authorizing the adviser to enter into principal transactions; (iii) makes certain disclosures either orally or in writing and obtains the client's consent before each principal transaction; (iv) sends (as opposed to delivers) to the client confirmation statements disclosing the capacity in which the adviser has acted and discloses that the adviser informed the client that it may act in a principal capacity and that the client authorized the transaction; and (v) delivers to the client an annual report itemizing the principal transactions.

It was noted that the written notice and blanket consent requirements may be part of the account application materials, or they may be provided to the client separately from other account documentation. Finally, it was stressed the written notice must inform the client in plain English that the written consent may be revoked at any time without penalty.

The Interim Rule has a 24-month sunset provision, which is consistent with providing the SEC with sufficient time to consider the results of the Rand Study and make any appropriate regulatory changes.