The following information is provided as a discussion of customer concerns about trading in fast markets, and what we do to support our customers during periods of market volatility.

Fast Markets
Fast markets are typically characterized by wide price fluctuations and heavy trading within a short period of time. They often come as a result of an imbalance of trade orders in one direction or another for example: heavy buy orders and few sell orders, and can be spurred by such events as a company news announcement, strong analyst recommendation, or a popular Initial Public Offering (IPO).

Inherent Risks
Price quotes may not be accurate.
Prices and trades move so quickly in a fast market, there can be significant price discrepancies between the quote you receive one moment and the price at which your trade is executed the next. Remember, in a fast market environment, even real-time quotes may be far behind what is currently happening in the market. In addition, the number of shares available at a certain price (known as the size of a quote) may change rapidly, affecting the likelihood of a quoted price being available to you.

Market order execution price may differ from your quote.
During a fast market, orders are submitted to market markers and specialists at such a rapid pace, there's likely to be a backlog that can create significant delays, sometimes exceeding thirty minutes. As a result when you place a market order under these conditions, the quote you receive is more an indication of what has already happened in the market than an indication of the trade execution price you will receive. Market orders are executed on a first-come, first-serve basis. In the short time between when your order is placed and when it's executed, other trade orders already in line ahead of yours can affect the stock price. Finally, when a stock is trading in a fast market, a market order normally cannot be changed or canceled once the stock begins trading.

Delays in trade executions and/or trade reports.
There may also be delays in trade execution and/or trade reports due to the sheer volume of trades being processed in a fast market. To avoid creating duplicate orders, you should consider these delays and the chance that your trade order has already been executed but not yet reported, before placing a change or change/cancel order. Change or change/cancel orders do not expedite trade reports when a stock is trading in a fast market. In fact, they have the opposite effect by cluttering the trading systems with more information to process.

Delays in electronic trading or reaching a broker.
Heavy volume may also affect investor's ability to access electronic systems for trading through the Internet or touch-tone (telephone) systems.Values Based Investor offers touch-tone trading at Internet rates through our VoiceBroker system which can be accessed at (800) 498-7121. Broker-assisted trading is available during normal business hours at (800) 498-7120. While every effort is made to ensure the availability of electronic systems and brokers, no guarantee of access can be made during periods of exceptionally heavy activity. In addition, system response and account access times may vary or service may be interrupted due to other conditions, including system performance, Internet traffic levels and other factors.

Special risks of short-term strategies.
Fast markets pose a special risk for investors who employ short-term strategies such as day trading. Such short-term strategies are inherently more risky than long-term investing, especially when employing highly-leveraged instruments such as options. Intraday price changes may be significant, and you risk loss of value, especially in time-sensitive issues. Delayed quotes and/or executions may make it extremely difficult for the investor to determine market value. In addition, temporary unavailability or delays in reaching brokers or placing electronic trades may lock the investor out of the market at critical times during especially high-volume trading days associated with volatile market conditions. Investors who adopt short-term trading strategies should do so only with funds they can afford to lose as the downside risk of such strategies is substantially greater during a volatile market.

Additional Risks Involved With Trading On Margin
There are a number of additional risks that all investors need to consider in deciding to trade securities on margin. These risks include the following:

You can lose more funds than you deposit in the margin account. A decline in the value of securities that are purchased on margin may require you to provide additional funds to the firm that has made the loan to avoid the forced sale of those securities or other securities in your account.

The firm can force the sale of securities in your account. If the equity in your account falls below the maintenance margin requirements under the law—or the firm’s higher "house" requirements—the firm can sell the securities in your account to cover the margin deficiency. You will also be responsible for any short fall in the account after such a sale.

The firm can sell your securities without contacting you. Some investors mistakenly believe that a firm must contact them for a margin call to be valid, and that the firm cannot liquidate securities in their accounts to meet the call unless the firm has contacted them first. This is not the case. As a matter of good customer relations, most firms will attempt to notify their customers of margin calls, but they are not required to do so.

You are not entitled to an extension of time on a margin call. While an extension of time to meet initial margin requirements may be available to customers under certain conditions, a customer does not have a right to the extension. In addition, a customer does not have a right to an extension of time to meet a maintenance margin call.

It is important that investors take time to learn about the risks involved in trading securities on margin, and customers should consult Values Based Investor regarding any concerns they may have with their margin accounts.

Limiting Risks
When placing a trade in a fast market, choosing to place a limit order will establish the buy price at the maximum you're willing to pay, or a sale price at the lowest price you're willing to sell. Limit orders in a fast market will reduce your risk of receiving an unexpected execution price. What's more, a limit order allows you to place an order at the price level you're most comfortable with when buying or selling a security. Although a limit order does not guarantee your order will be executed, placing a limit order does guarantee you will not pay a higher price than you expected.

Limit vs. Market Orders
A limit order is an order you place to buy or sell a stock with a restriction (limit) on the maximum price you are willing to pay (in the case of a buy order) or the minimum price at which you are willing to sell (in the case of a sell order). A limit order allows you to set your price, but it does not guarantee that your order will be executed at that price. If the price moves above (or below) your limit, the trade will not be executed unless the price moves back within the limits you have specified.

A market order is an order to buy or sell a stock at the best price available at the time the order is executed in the market. Due to minute-by-minute fluctuations in price, these orders typically assure a fill, but not a specific price. Market orders are normally placed on a day-only basis, and because they are typically filled quickly, they generally cannot be canceled.

Segment Fills
When trading in a fast market, it's possible that your market orders - particularly large ones - will be filled in segments. Generally, the number of shares available at a given quote provides an indication of the price at which a market order might be filled.

For example, if you place a market order to buy 5,000 shares and the market quote indicates 10,000 shares at 15 ¼, you might expect your order to be executed at 15 ¼. However, even in the best of market conditions, there is no assurance that you will get the quoted price. In fast markets, however, due to the backlog of orders, as well as quotes that may not be current, there is a greater possibility that the shares will not be available at that price. You may find that by the time your order is received for execution, that only 1,000 shares remain available at 15-¼. If this is the case, only the first 1,000 shares of your order will be executed at 15 ¼. The market maker or specialist then executes the balance of your order at the next best price(s) available, depending on how many shares are offered at each price. In fast market conditions, with prices changing almost constantly, this can be a lengthy process and result in your order being filled at several different prices.

Opening Volatility
In a fast market, it's rare that the opening price for volatile securities matches the previous day's close. There are special circumstances involved in setting opening prices. Orders accumulated since market close the day before are not considered "normal" with respect to the open. Remember, on an average trading day, one-third of a day's trading occurs at the open. If there is a backlog of orders from fast market stocks execution prices may differ greatly from quotes and the process of clearing the backlog may result in lengthy delays in both executions and position updating. This opening volatility accounts for some of the recent substantial price differences between announced offering price and actual initial public trading of volatile Internet and high-tech issues.

Trading Restrictions
Due to the extraordinary volatility of certain securities and their derivatives, we have adopted the following trading restrictions as a protection for our clients:

IPO Market Orders
Effective immediately, Values Based Investor will not accept market orders for IPOs on the opening day of trading. We will continue to accept limit orders.

Former SEC Chairman Advises Caution
Investors should be cautious about using the Internet for online investing in stocks, former Securities and Exchange Commission chairman Arthur Levitt says.

"Online investors should remember that it is just as easy, if not more so, to lose money through the click of a button as it is to make it," he said. Levitt's comments, follow the recent wide swings on the technology-laden NASDAQ market.

"The SEC will do everything it can to protect and inform investors during this time of great innovation and change," Levitt said. But investor protection—at its most basic and effective level—starts with the investor," he said.

Levitt said there are three "golden rules" for all investors: They should know what they are buying; know the ground rules under which a stock, option, bond or other security is bought or sold; and know the level of risk to which they are exposing themselves.

Moreover, he said, there are some issues specific to online trading. Investors have complained to the SEC about delays in new systems, difficulty getting on line or receiving confirmations, and a lag between the prices investors see on their screens and real-time market movement.

For this reason, Levitt urged investors to rely more on limit orders when they want to buy a "hot" stock. Limit orders let investors specify a maximum price at or below which they'll buy a stock, enabling them to protect themselves from having to pay far more than they expected when a stock's value has risen while their order was being carried out. Limit orders also can be used to specify a minimum selling price.

The former Chairman also commented on day-trading which is increasing in popularity, especially in Internet and other high-tech stocks and options. "Strategies such as day trading can be highly risky, and retail investors engaging in such activities should do so with funds they can afford to lose," the former chairman said. "I am very concerned when I hear of stories of student loan money, second mortgages, or retirement funds being used to engage in this type of activity. Investment should be for the long run, not for minutes or hours."