Although investments in some IPOs may offer potentially high returns, they are often by their very nature speculative. Consequently, investing through FBRIS’s Offering Marketplace^SM is generally appropriate if you are willing to assume a high degree of financial risk, or if you've set aside a portion of your assets for speculative investments.

Before investing in any IPO, you should carefully review the prospectus to ensure that the public offering is consistent with your investment objectives and risk tolerance. You should also not invest in IPOs unless you are prepared to lose money.

For additional information about investment objectives, please visit the FINRA Regulation website.

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INITIAL PUBLIC OFFERINGS
An initial public offering, or IPO, is a company’s first sale of stock to the public. Companies generally make an IPO for two principal reasons: (1) to raise capital, for example to finance existing operations, seek new business opportunities, or fuel future growth; and (2) to establish a public market for their stock.

Investment Bankers
Most companies hire investment bankers, such as FBR, to assist in the process of conducting an IPO. Investment bankers assist companies in structuring their IPOs and determining the price at which the securities will be offered to the public. Investment bankers that act as underwriters also facilitate the IPO process by providing underwriting services.

The Underwriting Process
An IPO has two distinct phases. The first phase involves the purchase of the IPO securities by the underwriters. The second phase involves the sale of the IPO securities to investors.

In purchasing the IPO securities from the company, the underwriters guarantee sale of a certain number of shares; this arrangement is commonly referred to as a "firm-commitment underwriting." Under this arrangement, underwriters such as FBR, not the company, assume the risk of bringing the new securities to market. In exchange, the company sells the shares to the underwriters at a discount (or spread) to the price at which the shares will be offered to the public.

To spread the risk of purchasing the entire new issue of IPO securities, the lead (or managing) underwriter often will be joined by co-managers, and will form a syndicate among other investment banking firms to help distribute shares. The managing underwriters work with the company to register the IPO with the Securities and Exchange Commission.

The Selling Group
In addition to the underwriting syndicate, the underwriters may invite other investment banks and securities dealers (such as FBRIS) to act as "selling group" members, who will use their best efforts to place shares with investors.

The Prospectus
IPOs are offered and sold by way of an offering document called a prospectus. The prospectus contains a detailed analysis of the company’s financial history, its products or services, and the background and experience of the company’s management. The prospectus also discusses various risks the company faces in carrying out its business plans.

The prospectus is filed with securities regulators as part of the registration statement which must be declared effective by the Securities and Exchange Commission prior to the issue. The securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. After the prospectus has been filed but before the offering is declared effective, offers to sell the securities can be made by using a preliminary prospectus or "red herring." The preliminary prospectus generally indicates a range of prices within which the IPO shares are expected to be sold to the public. Companies typically also make oral "roadshow" presentations during the period when the preliminary prospectus is available, but the registration statement is not yet effective.

Pricing of IPO Securities
The price at which the IPO securities will be sold to the public is determined by the underwriters and the issuer. After the registration statement has been declared effective the IPO securities may be sold as long as a final prospectus is delivered by the underwriter to each investor. Once the company’s securities begin trading, the price can rise or fall in "aftermarket" trading depending on whether investors agree with the valuation of the company.

Secondary and Follow-on Offerings
A secondary offering is the public sale by shareholders, usually large institutions, of previously issued securities that are trading publicly. A follow-on offering is a secondary offering that involves the public sale by an issuer of newly issued securities that already has publicly traded securities. A combination offering is an offering that is made up of both a follow-on offering and a secondary offering.

The underwriting process for a secondary offering is basically the same as for an IPO. Secondary offerings are sold by way of a prospectus, which must be filed with securities regulators as part of the registration statement and which must be declared effective prior to the issue. The price at which secondary securities are sold to the public is determined by the selling shareholders, the issuers and representatives of the underwriters. One factor considered in pricing a secondary issue is the demand for the securities in the market. Typically, these offerings are priced in close proximity to the last sale price of the security in its principal trading market prior to the terms of the offering being set. The public offering price frequently is at a small discount to the last sale price.

For additional information about IPOs, please visit the SEC web site and use Keyword "IPO".

General Exemptions
1. An investment company registered under the Investment Company Act of 1940.

2. A common trust fund or similar fund as described in Section 3(a)(12)(A)(iii) of the Securities Exchange Act of 1934, provided that: (i) the fund has investments from 1,000 or more accounts, and (ii) the fund does not limit beneficial interests in the fund principally to trust accounts of restricted persons.

3. An insurance company general, separate or investment account, provided: (i) the account is funded by premiums from 1,000 or more policyholders or, if a general account, the insurance company has 1,000 or more policyholders, and (ii) the insurance company does not limit the policyholders whose premiums are used to fund the account principally to restricted persons, or if a general account, the insurance company does not limit its policyholders principally to restricted persons.

4. An account, including a fund, limited partnership, joint back office broker-dealer or other entity, if the beneficial interests of restricted persons do not exceed in the aggregate 10% of the account.

5. A publicly traded entity (other than a broker-dealer authorized to engage in the public offering of new issues either as a selling group member or underwriter, or an affiliate of such a broker-dealer) that is: (i) listed on a U.S. national securities exchange, (ii) traded on the Nasdaq National Market, or (iii) a non-U.S. issuer whose securities meet the quantitative designation criteria for listing on a national securities exchange or trading on the Nasdaq National Market.

6. An investment company organized under the laws of a non-U.S. jurisdiction, provided that: (i) the investment company is listed on a non-U.S. exchange or authorized for sale to the public by a non-U.S. regulatory authority, and (ii) no person owning 5% or more of the shares of the investment company is a restricted person.

7. An ERISA benefits plan that is qualified under Section 401(a) of the Internal Revenue Code; provided that the plan is not sponsored solely by a broker-dealer.

8. A state or municipal government benefits plan that is subject to state or municipal regulation.

9. A tax-exempt charitable organization under Section 501(c)(3) of the Internal Revenue Code.

10. A church plan under Section 414(e) of the Internal Revenue Code.

Restricted Persons/Entities
1. A FINRA member firm or other broker-dealer.

2. An officer, director, general partner, associated person or employee of a FINRA member firm or any other broker-dealer (other than a limited business broker-dealer).

3. An agent of a FINRA member firm or any other broker-dealer (other than a limited business broker-dealer) that is engaged in the investment banking or securities business.

4. A person who has authority to buy or sell securities for a bank, savings and loan association, insurance company, investment company, investment adviser (whether or not registered as an investment adviser) or collective investment account.

5. A person listed, or required to be listed, on one of the following schedules to Form BD as filed, or required to be filed, with the SEC by a broker-dealer (other than with respect to a limited broker-dealer): (i) Schedule A, unless the person is identified by an ownership code of less than 10%; (ii) Schedule B, unless the person’s listing on Schedule B relates to an ownership interest in a person that is listed on Schedule A and identified by an ownership code of less than 10%; or (iii) Schedule C, unless the person would be excluded under the percentage ownership criteria for Schedule A or B above.

6. A person that directly or indirectly owns an interest, in the amounts specified below, of a public reporting company listed, or required to be listed, on Schedule A or B of Form BD relating to a broker-dealer (other than a limited business broker-dealer), unless the public reporting company is listed on a national securities exchange or is traded on the Nasdaq National Market: (i) 10% or more of a public reporting company listed, or required to be listed, on Schedule A; or (ii) 25% or more of a public reporting company listed, or required to be listed, on Schedule B.

7. A person acting: (i) as a finder in connection with any new issue in which the person is participating or (ii) in a fiduciary capacity to the managing underwriter(s) in connection with any new issue in which the person is participating.

8. An immediate family member of: (i) a person specified in items 2-7 that materially supports, or receives support from, that person; (ii) a person specified in items 2-3 that is employed by or associated with the FINRA member or its affiliate selling the new issue to the immediate family member, or that has an ability to control the allocation of the new issue; or (iii) a person specified in items 5-6 that is an owner of the FINRA member or its affiliate selling the new issue to the immediate family member, or that has an ability to control the allocation of the new issue.

FINRA Rule 2790 Definitions

Associated person or employee of a FINRA member firm. (1) Any natural person registered with FINRA and (2) any natural person, whether or not registered or exempt from registration with FINRA, who is a sole proprietor, partner, officer, director, or branch manager of a FINRA member firm, or any natural person occupying a similar status or performing similar functions, or any natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a FINRA member firm (for example, any employee).

Beneficial interest. Any economic interest, including the right to share in gains or losses, other than management or performance based fees for operating a collective investment account, or other fees for acting in a fiduciary capacity.

Collective investment account. Any hedge fund, investment partnership, investment corporation, or any other collective investment vehicle that is engaged primarily in the purchase and sale of securities, but not (1) a legal entity that is beneficially owned solely by immediate family members or (2) an investment club comprising a group of friends, neighbors, business associates or others who pool their money to invest in stock or other securities and are collectively responsible for making investment decisions.

Immediate family member. A person’s parents, mother-in-law or father-in-law, spouse, brother or sister, brother-in-law or sister-in-law, son-in-law or daughter-in-law and children, and any other individual to whom the person provides material support.

Limited business broker-dealer. Any broker-dealer whose authorization to engage in the securities business is limited solely to the purchase and sale of investment company/variable contracts securities and direct participation program securities.

Material support. Directly or indirectly providing more than 25% of a person’s income in the prior calendar year. Members of the immediate family living in the same household are deemed to be providing each other with material support.

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ONLINE TRADING

For additional information about investing and the internet please refer to the FINRA Regulation web sites at http://www.finra.org/InvestorInformation/InvestmentChoices/InvestorBrochureSeries/p011860

Trading and Market Conditions
In recent months, the market has experienced a dramatic increase in price volatility and volume, particularly in stocks involving companies that sell products or services via the Internet. In certain instances information concerning issuers, including analyst buy/sell ratings, distributed via the Internet and other media may contribute to these market conditions. Customers eager to trade in fast moving issues have flooded their brokers with large numbers of orders, and have even affected the way the marketplace performs. You should be aware of the way this change impacts your trading, and the risks it represents for you as an investor.

Deep discount commissions and Internet order entry have enabled investors to trade at a pace never before seen by the industry. As the volume has increased, market makers have found it necessary to take unusual steps in order to manage their risk in the marketplace, particularly in situations where one-sided orderflow results in dramatic imbalances. As the flow of orders reaches market maker capacity, order execution firms routinely disable normal automatic execution systems, resorting to manual executions which result in delays in order execution. Delays in execution can result in orders being filled at prices that are in some cases significantly different from the expected price, sometimes exceeding the investor's ability to pay. If you intend to participate in these markets, it is important that you take steps to protect yourself from unwanted surprises.

Entering Orders
One way you may be able to reduce your trading risk is by entering limit orders rather than market orders.

Delays
As market maker firms switch to manual executions and reduce their size guarantees, order queues swell into major backlogs. Quotes that are being displayed to the public begin to lag behind the actual trading prices, and trade reports may arrive long after the actual execution. These delays can lead to situations in which a purchaser is not sure that he owns the stock, even as the stock is moving against him. By the time a report is received, the investor has locked in a significant loss, with no opportunity to take protective action.

Access
In times of intense volatility, investors may have difficulty reaching their investment firm. Difficulty in accessing online accounts may result from high Internet traffic or other sources, sometimes unrelated to the online broker's capacity. The sudden influx of clients attempting to reach their broker by telephone may also result in significant delays in placing orders, resulting in losses. FBRIS's systems are subject to the same technical risks and failures that any such electronic system may experience.

Should you experience system capacity problems or outage problems, you may contact FBRIS directly by calling us at 1-888-200-4350 (option 2).

Cancellations
Order cancellations and changes are always subject to prior execution. These orders are matched manually and are subject to delay. Execution of your order following receipt of a cancellation, but prior to being matched to the order is considered to be "too-late-to-cancel". It is the policy of FBRIS that any order for which we have received a cancellation order and that has been reported back as cancelled, will stand as cancelled, even if the order may have been entitled to an execution. In actively traded issues, it may be difficult, if not impossible to change or cancel a market order. Entering a cancel order and a separate replacement order may result in a duplicate execution.

For additional information about online trading, please visit the SEC and FINRA Regulation web sites.

Risks Associated with Use of Margin
Use of margin involves considerable risk, particularly when trading in volatile markets or trading volatile securities. Margin, by definition, involves the use of leverage and often results in larger losses and gains than would be experienced by investors who operate on a cash basis. During periods of volatile trading activity, use of margin may be restricted or prohibited by FBRIS or NFS. Further, rapidly changing prices may result in margin calls and the imposition of other margin requirements which investors may have difficulty meeting on a timely basis. Failure to satisfy margin calls and requirements promptly will result in the liquidation of positions—essentially converting unrealized losses to realized ones.

FBRIS does not recommend the use of margin to any investor, nor does it determine whether margin trading is suitable for investors.

Any investor who requests a margin account certifies that they understand the risks of margin, that they have independently determined that margin is suitable for them, and that they are able to bear the risk of losses resulting from the liquidation of positions in their account related to margin.

"Day-trading" is the purchasing and selling of the same security on the same day. A "day-trader" is defined as any customer whose trading shows a pattern of day trading. FBRIS and NFS are required by security regulations to impose additional margin requirements on accounts engaging in day trading activity. FBRIS and NFS will monitor accounts for day trading activity and may classify your account as a day-trading. Customers who engage in day-trading activity will be subject to additional margin requirements. Please click here for more information about day-trading and margin from the FINRA.

Please read this Margin Disclosure Statement for important information about the operation of your margin account.

Please click here for Margin Account Requirements, Interest Rates and Special Margin Securities.

For additional information about the use of margin, please refer to the SEC and FINRA Regulation web sites.

Electronic Documents
If you have selected the option to receive Electronic Documents, when a securities transaction executes in your account or a monthly statement is generated, you will receive an E-mail at the address you have supplied, as well as a message in the online message center when you are accessing your online brokerage account.

To avoid redundancy, you will only receive one E-mail notification and one message regardless of how many transactions have executed, if the following conditions are met:

• The same E-mail address is on record, regardless of the account numbers involved in the transactions, or
• Multiple trades occur on a given trade date for the same account

You can change your instructions regarding handling of Electronic Documents as frequently as you wish. Changes in instructions received before midnight (Eastern Time) will be applied to confirmations of trades that same day. For example, if you have a trade execute on Tuesday during market hours and then change your Electronic Confirm instructions before midnight, changes in the instructions will apply to the trade done earlier that day. Changes made prior to the last business day of the month (midnight ET) will be used for statements as well.

Notifications that confirmations are available for secure viewing are sent the day following a trade. All information available in the traditional printed trade confirmations and statements is also available on the Electronic Documents.

The E-mail that you will receive will indicate that you have a secure online document available for viewing. A link will also be included to return you to your trading site to retrieve the Electronic Document.

Electronic confirmations are available online for up to thirty (30) days following the trade date, and statements are available for 18 months. If you have not accessed a confirmation within thirty days following the trade date, your monthly statement will show the transaction.

Note:If you have elected not to receive an Electronic Document, a traditional printed trade confirmation or statement will be mailed to the address of record on the account the business day following the trade date, or at month end.