Investment and Risk Considerations

Depository Trust Company/Brokered CDs

Buy and Hold

CDs are most suitable for purchasing and holding to maturity. If your CD is callable by the Issuer, you should be prepared to hold it according to its terms. Though not obligated to do so, the Firm may maintain a secondary market in CDs after their Settlement Date. If you are able to sell your CD, the price you receive will reflect prevailing market conditions and your sales proceeds may be less than the amount you paid for your CD. If you wish to dispose of your CD prior to maturity, you should read with special care the sections headed “Additions or Withdrawals” and “Secondary Market.”

Compare Features

You should compare the rates of return and other features of the CDs to other available investments before deciding to purchase a CD. The rates paid with respect to the CDs may be higher or lower than the rates on deposits or other instruments available directly from the Issuer or through the Firm.

Liquidity Risk

As with other types of fixed income securities, secondary market prices for negotiable CDs are subject to market conditions which affect liquidity and can render the CD worth more or less than the initial investment if redeemed prior to maturity. However, CDs held to maturity or call (redeemed) by the issuer will furnish the full principal amount. Callable CD holders receive the return of original principal along with earned interest when the CDs are called. In the case of Structured CDs, interest paid in the event of call follows a predetermined schedule which is disclosed at the time of issuance.

Call Risk

Some CDs may be subject to redemption on a specified date or dates at the sole discretion of the Issuer (a “call”). These types of CDs are referred to as “Callable CDs”. If the CD is called, the issuer will pay down the outstanding principal amount (including accrued interest, up to but not including the call date) and cancel the remaining term of the CD. The dates on which the CD may be called will be specified in the trade confirmation, as a supplement to trade confirmation, or in the Term Sheet. Generally, the issuing institution will call your CD when interest rates have decline, particularly when they fall below the rate on the CD you purchased because the bank can obtain new deposits at a lower rates. Call provisions are usually attached to CDs with longer maturities and may or may not offer step-ups to the stated rate. A call provision only gives the issue the right to redeem; it does not give you the investor the right to redeem the CD. CDs with call provisions may be less favorable than traditional CDs without these features.

Reinvestment Risk

In the event that your CD is called, as a result of the Issuer’s insolvency, exercise by the Issuer of its right to call the CD, or a voluntary early withdraw by you the investor, you may not be able to reinvest your money at the same rate as the CD that was called. This risk is termed “reinvestment risk.” If it is not called, investors should be prepared to hold the CD until maturity.

Early Withdrawal

Issuers are not required to allow the investor to withdraw (redeem) their funds from a purchased CD prior to maturity; this is referred to as an “early withdrawal”. It is up to the investor to determine whether early withdrawal is permitted and, if so, the amount of the penalty that the issuer will impose if you withdraw your funds early. It is the investor’s responsibility to decide if the early withdraw penalty is a reasonable amount for their purposes before purchasing such CD. Though not required to do so, banks may permit early withdrawal without penalty in certain circumstances, such as your death or incapacity. Redeeming a CD prior to maturity may result in loss of principal due to fluctuations in the market interest rates, lack of liquidity, or transaction costs.

Deposit Insurance

Your CDs are insured by the FDIC, an independent agency of the U.S. Government, to the Maximum Applicable Deposit Insurance Amount (including principal and accrued interest) for all deposits held in the same insurable capacity at any one Issuer Issuer. Generally, any accounts or deposits that you may maintain directly with a particular Issuer, or through any other intermediary in the same insurable capacity in which the CDs are maintained, would be aggregated with the CDs for purposes of the Maximum Applicable Deposit Insurance Amount. In the event an Issuer fails, interest-bearing CDs are insured, up to the Maximum Applicable Deposit Insurance Amount, for principal and interest accrued to the date the Issuer is closed.

Under certain circumstances, if you become the owner of CDs or other deposits at an Issuer because another depositor dies, beginning six months after the death of the depositor the FDIC will aggregate those deposits for purposes of the Maximum Applicable Deposit Insurance Amount with any other CDs or deposits that you own in the same insurable capacity at the Issuer. Examples of accounts that may be subject to this FDIC policy include joint accounts, “payable on death” accounts and certain trust accounts. The FDIC provides the six month “grace period” to permit you to restructure your deposits to obtain the maximum amount of deposit insurance for which you are eligible.

You are responsible for monitoring the total amount of deposits that you hold with any one Issuer, directly or through an intermediary, in order for you to determine the extent of deposit insurance coverage available to you on your deposits, including the CDs. The Firm is not responsible for any insured or uninsured portion of the CDs or any other deposits.

U.S. Sterling Securities, Inc. may offer CDs that are not FDIC Insured. Your representative will inform you if CDs are being offered that are not FDIC insured. In certain cases you may not be able to purchase these offerings through U.S. Sterling.

Insolvency of the Issuer

In the event the Issuer approaches insolvency or becomes insolvent, the Issuer may be placed in regulatory conservatorship or receivership with the FDIC typically appointed the conservator or receiver. The FDIC may thereafter pay off the CDs prior to maturity or transfer the CDs to another depository institution. If the CDs are transferred to another institution, you may be offered a choice of retaining the CDs at a lower interest rate or having the CDs paid off.

Payments Under Adverse Circumstances

As with all deposits, if it becomes necessary for federal deposit insurance payments to be made on the CDs, there is no specific time period during which the FDIC must make insurance payments available. Accordingly, you should be prepared for the possibility of an indeterminate delay in obtaining insurance payments.

As explained above, the Maximum Applicable Deposit Insurance Amount applies to the principal and accrued interest on all CDs and other deposit accounts maintained by you at the Issuer in the same insurable capacity. The records maintained by the Issuer and the Firm, or the Firm’s Clearing Broker, regarding ownership of CDs would be used to establish your eligibility for federal deposit insurance payments. In addition, you may be required to provide certain documentation to the FDIC and to the Firm before insurance payments are released to you. For example, if you hold CDs as trustee for the benefit of trust participants, you may also be required to furnish an affidavit to that effect; you may be required to furnish other affidavits and provide indemnities regarding an insurance payment.

In the event that deposit insurance payments become necessary for your CDs, the FDIC is required to pay the original par amount plus accrued interest (or the accreted value in the case of zero coupon CDs) to the date of the closing of the relevant Issuer, as prescribed by law, and subject to the Maximum Applicable Deposit Insurance Amount. No interest or accreted value is earned on deposits from the time an Issuer is closed until insurance payments are received.

As an alternative to a direct deposit insurance payment from the FDIC, the FDIC may transfer the insured deposits of an insolvent institution to a healthy institution. Subject to insurance verification requirements and the limits on deposit insurance coverage, the healthy institution may assume the CDs under the original terms or offer you a choice between paying the CD off and maintaining the deposit at a different rate. The Firm will advise you of your options in the event of a deposit transfer.

The Firm will not be obligated to you for amounts not covered by deposit insurance nor will the Firm be obligated to make any payments to you in satisfaction of a loss you might incur as a result of (i) a delay in insurance payouts applicable to your CD, (ii) your receipt of a decreased interest rate on an investment replacing your CD as a result of the payment of the principal and accrued interest or the accreted value of a CD prior to its scheduled maturity or (iii) payment in cash of the principal and accrued interest or the accreted value of your CDs prior to maturity in connection with the liquidation of an Issuer or the assumption of all or a portion of its deposit liabilities. In connection with the latter, the amount of a payment on a CD which had been purchased at a premium in the secondary market is based on the original par amount (or, in the case of a zero-coupon CD, its accreted value) and not on any premium amount. Therefore, you can lose up to the full amount of the premium as a result of such a payment. Also, the Firm will not be obligated to credit your account with funds in advance of payments received from the FDIC.

Questions About FDIC Deposit Insurance Coverage

If you have questions about basic FDIC insurance coverage, please contact the Firm. You may wish to seek advice from your own attorney concerning FDIC insurance coverage of deposits held in more than one insurable capacity. You may also obtain information by contacting the FDIC, Office of Consumer Affairs, by letter (550 17th Street, N.W., Washington, D.C. 20429), by phone (877-275-3342 or 800-925-4618 (TDD)) or by e-mail (dcainternet@fdic.gov) or visiting the FDIC website at www.fdic.gov.

Depository Trust Corporation

All negotiable CDs purchased through U.S. Sterling Securities Inc. and its Clearing Corporation (First Southwest Company) are registered with the Depository Trust Company (“DTC”).