Section 28(e) of the Securities Exchange Act of 1934 creates a safe harbor for persons who exercise investment discretion over clients' accounts, to pay for research and brokerage services with commission dollars generated by transactions for those accounts. Recognizing the importance of compliance, The Interstate Group is pro-active with legal and regulatory updates. Particularly relevant are interpretations and reinterpretations by the SEC of the 28(e) Safe Harbor, which may have impact upon investment managers. We keep abreast of proposed and enacted changes in the SEC, Congress and the Department of Labor, and, accordingly, provide this information to our clients.

Providing legal and regulatory reports is an important service to our clients, and allows our clients to conserve their resources.

Grady Thomas, President of Interstate, is very knowledgeable in regulatory matters pertaining to the provision of independent research. In this regard:

Mr. Thomas testified before the Senate Banking Committee in March 2004, pertaining to 28(e) and the importance of independent research. For text of the presentation, refer to the Senate Committee Link of Interest.

Mr. Thomas also meets with DOL, SEC staff members and SEC commissioners for input regarding proposed industry changes affecting 28(e).

Since 1977, The Interstate Group has worked closely with Lee Pickard, senior partner of Pickard and Djinis, a Washington law firm, specializing in securities and corporate law, including SEC and self-regulatory proceedings. They also specialize in issues, which pertain to the provision of independent research and commission recapture. From 1973 to 1977, he was Director of the SEC Division of Market Regulation, and was instrumental in the formulation of 28(e), released in 1975.

As regulatory issues arise which impact investment managers, Pickard and Djinis provide legal reports and opinions. These are distributed to clients in either written form through mailings, or through emails.

Reports are also posted in the client portion of Interstate's website.

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