CLIENT STATES HE INFORMED COFFEY HE WANTED TO PURCHASE VERY LOW RISK INVESTMENTS. CLIENT ALLEGES, BASED ON THE RECOMMENDATION OF COFFEY, HE PURCHASED MUTUAL FUNDS AND BONDS. CLIENT FURTHER STATES HE WAS INFORMED, BY COFFEY, THE MUTUAL FUNDS WOULD TYPICALLY EARN 20% AND THE BONDS WOULD EARN 7.15%, 7.40%, AND 7.65%. CLIENT CONTACTED COFFEY AFTER RECEIVING HIS FIRST STATEMENT AND NOTICING A DECLINE IN THE VALUE OF THE ACCOUNT AND CLAIMS HE WAS INFORMED THIS WAS NORMAL AND THE MUTUAL FUNDS WOULD TYPICALLY EARN 15%. CLIENT INDICATES, WHEN THE MARKET CONTINUED TO DECLINE, COFFEY THEN INFORMED HIM THE MUTUAL FUNDS WOULD EARN 10%. CLIENT STATES HE WAS MISLED AND THE INVESTMENTS PURCHASED WERE NOT SUITABLE. REQUESTS A RETURN OF THE PRINCIPAL AMOUNT INVESTED. LOSSES EXCEED $5,000.

$5,000.00

IR STATED HIS INITIAL DISCUSSIONS WITH THE CLIENT INVOLVED THE CLIENT'S FINANCIAL GOALS AND INVESTMENT OBJECTIVES, AS WELL AS AN EXPLANATION OF THE FIRM'S INVESTMENT PHILOSOPHY OF BUYING QUALITY INVESTMENTS AND HOLDING THEM FOR THE LONG TERM, AND THAT THE CLIENT SHOULD EXPECT TO SEE THE VALUE OF THE INVESTMENTS FLUCTUATE. IR STATED WHEN THE INITIAL PURCHASES WERE MADE, THE IR REVIEWED EACH INVESTMENT WITH THE CLIENT, INCLUDING THE RISKS ASSOCIATED WITH THE INVESTMENTS. IR STATED THAT THE CLIENT INQUIRED ABOUT PURCHASING SHARES OF ALLIANCE GROWTH FUND CLASS B, AS THE CLIENT BELIEVED THE FUND WAS REALIZING RETURNS OF APPROXIMATELY 20% PER YEAR. THE IR INDICATED HE EXPLAINED THAT THE CLIENT SHOULD NOT EXPECT A RETURN OF 20%, BUT THERE WAS POTENTIAL FOR RETURNS OF 10-12% WHEN INVESTING LONG TERM. THE IR STATED AFTER APPROXIMATELY ONE YEAR OF HOLDING THE INVESTMENTS, CLIENT CONTACTED HIM WITH INSTRUCTIONS TO SELL ANY INVESTMENTS THAT HAD INCREASED IN VALUE. THE IR STATED HE ENCOURAGED THE CLIENT TO CONTINUE HOLDING THE INVESTMENTS BECAUSE THE IR BELIEVED IF THE INVESTMENTS WERE SOLD THE ACCOUNT WOULD NOT BE AS DIVERSIFIED. THE IR INDIATED HE MET WITH CLIENT IN JUNE 2002, AT WHICH TIME THEY AGAIN REVIEWED DIVERSIFICATION AS WELL AS THE FIRM'S INVESTMENT PHILOSOPHY. AT THE TIME OF THE TRANSACTIONS, THE CLIENT WOULD HAVE RECEIVED TRADE CONFIRMATIONS AS WELL AS THE APPROPRIATE MUTUAL FUND PROSPECTUSES. THE CLIENT HAS ALSO RECEIVED STATEMENTS, WHICH PROVIDE INFORMATION REGARDING THE INVESTMENTS HELD IN THE ACCOUNT, AS WELL AS REFLECTING ACCOUNT ACTIVITY. BASED ON OUR REVIEW, IT APPEARS THE IR MADE HIS SUGGESTIONS BASED ON DISCUSSIONS WITH THE CLIENT AND THE TRANSACTIONS WERE AUTHORIZED. IT DOES NOT APPEAR THE INVESTMENTS PURCHASED AND/OR HELD IN THE ACCOUNT WERE OUTSIDE THE SCOPE OF THE INVESTMENT OBJECTIVES OF THE ACCOUNT. CLAIM DENIED.

LITIGATION CASE DESCRIPTION: ALLEGATIONS OF VIOLATION OF THE TEXAS SECURITIES ACT, VIOLATION OF FEDERAL SECURITIES LAWS, VIOLATION OF DTPA, FRAUD, NEGLIGENCE AND GROSS NEGLIGENCE AND BREACH OF FIDUCIARY DUTY IN THE SALES OF $650,000 OV CDS TO PURCHASE BONDS. (AMOUNT CLAIMED: NOT SPECIFIED BUT IN EXCESS OF $25,000 PLUS TREBLE DAMAGES, UNSPECIFIED PUNITIVE DAMAGES, ATTORNEYS' FEES, INTEREST AND COSTS)

$18,500.00

SETTLED FOR $18, 200.00

THE CLIENT CLAIMS THAT ALL PURCHASES MADE ON 5/19/99 WERE MADE WITHOUT HIS AUTHORIZATION. HE ALSO CLAIMS HE DID NOT RECEIVE TRADE CONFIRMATIONS FOR THE TRANSACTIONS., HE REQUESTS HIS ACCOUNT TO BE RESTORED TO THE POSITION IT WAS IN PRIOR TO 5/19/99.

$5,000.00

IR STATES HE MET WITH CLIENT ON 5/19/99 TO DISCUSS INVESTING $200,000.00. IR MADE RECOMMENDATIONS FOR THE INVESTMENTS AND THE AMOUNT INTO EACH BASED ON CLIENTS REPRESENTATION THAT THE INVESTMENTS WOULD BE LONG TERM. IR STATES CLIENT AGREED TO THE PURCHASES. ON 6/23/99 CLIENT INFORMED IR HE NEEDED $250,000 FROM THE ACCOUNT TO PURCHASE PROPERTY. IR OFFERED TO SELL STOCKS AT A DISCOUNT AND RECOMMENDED MOVING FUNDS TO US TREASURY MONEY MARKET TO REDUCE RISK OF MARKET FLUCTUATION SINCE FUNDS WERE NOW FOR THE SHORT TERM. CLAIM DENIED.

THE COMPLAINT IS AN ATTORNEY AND THE HUSBAND OF A CUSTOMER. HE CLAIMS THE $645,000 IN TAX FREE INVESTMENTS SOLD TO HIS WIFE BY IR EMPLOYED BY EDWARD JONES IN HER SINGLE ACCOUNT WERE NOT SUITABLE FOR THEIR FINANCIAL SITUATION. INDICATES THE TAX FREE INCOME WILL MAKE THEIR SOCIAL SECURITY BENEFITS TAXABLE & HE QUESTIONS WHY REVENUE BONDS AND BONDS SUBJECT TO THE AMT TAX WERE SOLD TO HIS WIFE. REQUESTS THE ORDERS BE CANCELLED AND THE $650,000 BE RETURNED. THE ACCOUNT IS DOWN APPROX. $16,000 IN VALUE.

CUSTOMER WAS ADVISED THAT IR CLAIMS HIS WIFE CAME INTO HIS OFFICE TO INVEST $650,000 THAT SHE WAS TO RECEIVE FROM A MATURING CD. THE IR CLAIMS CUSTOMER INDICATED SHE WANTED TO INVEST THE FUNDS TO PRODUCE INCOME & INQUIRED ABOUT TAX FREE BONDS. THE IR CLAIMS SHE ADVISED HIM SHE WAS IN THE 28% TAX BRACKET & WAS NOT SUBJECT TO THE AMT TAX. BASED ON THAT INFORMATION THE IR DETERMINED THAT TAX FREE BONDS WERE APPROPRIATE INVESTMENTS FOR THE CUSTOMER. OUR POSITION IS THAT THE IR ACTED APPROPRIATELY AND THE BONDS WERE WUITABLE INVESTMENTS SO THE COMPLAINANTS REQUEST THAT THE TRADES BE RESCINDED WAS DENIED.