SWS Financial Services, Inc.
Anonymous Reporting Hotline


Report It

Have you noticed an issue of workplace misconduct such as theft, fraud, dishonesty, harassment, unethical behavior or improper accounting practices? Then we urge you to report it.

You are never required to provide any personal identifying information to access the system online or by telephone - it is all done by access code. The hotline and the Website link are completely confidential, and are administered by an independent third-party to ensure full anonymity for anyone who uses them. The toll-free hotline number, and the link to file a report online are both available 24 hours a day, 365 days a year.

Call the hotline number 877-778-5463, give your username (swsgroup), and password (swsgroup), and the operator with the reporting service will help you submit your report. The operator then files the report and sends it to the company for you so that you may maintain complete anonymity. You will never have to speak to anyone affiliated with SWS Group, and no one at the company will ever contact you, it will all be done through the reporting service.

You may also file a report from any computer with online access. Go to www.reportit.net and click on the Report it Online button, enter your username (swsgroup), and password (swsgroup). Simply type in your answers to the given questions to submit your anonymous report. Try to be as clear and complete as possible so that your concerns may be properly and thoroughly investigated.

Southwest Securities, Inc.
USA Patriot Act Customer Identification Program Notice

Important Information You Need to Know About Opening A New Account

To help the government fight the funding of terrorism and money laundering activities, federal law requires financial institutions to obtain, verify, and record information that identifies each person who opens an account.

What this means for you: When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask to see your driver's license or other identifying documents.

Types of Information You Will Need to Provide

When you open an account, our firm is required to collect information such as the following from you:

• Your name
• Date of birth
• Address
• Identification number:
  U.S. Citizen: taxpayer identification number (Social Security number or employer identification number)
  Non-U.S. Citizen: taxpayer identification number, passport number and country of issuance, alien identification card number, or government-issued identification showing nationality, residence, and a photograph of you.

You may also need to show your driver's license or other identifying documents. We may also screen your name against various databases to verify your identity. All information and documentation will be treated in a manner so as to protect your privacy.

A corporation, partnership, trust or other legal entity may need to provide other information, such as its principal place of business, local office, employer identification number, articles of incorporation, government-issued business license, a partnership agreement, or a trust agreement.

Securities and Exchange Commission, FINRA, and New York Stock Exchange rules may also require you to provide additional information, such as your net worth, annual income, occupation, employment information, investment experience and investment objectives.

If Your Identity Cannot Be Verified

In certain circumstances we may not be able to open an account or conduct any transactions for you until we have obtained and verified the necessary identification information. If we have opened an account for you, we may have to restrict trading or close it if you do not supply the necessary information or documents, or if we are unable to verify your identity.

We thank you for your patience and hope that you will support our firm's efforts to deny terrorists and money launderers access to America's financial system.

Investment Advisor Form ADV Part II

Contact the Southwest Securities Investment Management Group at (214) 859-6735

Southwest Securities, Inc.
Mutual Funds Breakpoint Discounts
Disclosure Statement

Before investing in mutual funds, it is important that you understand the sales charges, expenses, and management fees that you will be charged, as well as the breakpoint discounts to which you may be entitled. Understanding these charges and breakpoint discounts will assist you in identifying the best investment for your particular needs and may help you reduce the cost of your investment. This disclosure document will give you general background information about these charges and discounts. However, sales charges, expenses, management fees, and breakpoint discounts vary from mutual fund to mutual fund. Therefore, you should discuss these issues with your financial advisor and review each mutual fund’s prospectus and statement of additional information, which are available from your financial advisor, to get the specific information regarding the charges and breakpoint discounts associated with a particular mutual fund.

Sales Charges

Investors that purchase mutual funds must make certain choices, including which funds to purchase and which class share is most advantageous. Each mutual fund has a specified investment strategy. You need to consider whether the mutual fund’s investment strategy is compatible with your investment objectives. Additionally, most mutual funds offer different share classes. Although each share class represents a similar interest in the mutual fund’s portfolio, the mutual fund will charge you different fees and expenses depending upon your choice of share class. As a general rule, Class A shares carry a “front-end” sales charge or “load” that is deducted from your investment at the time you buy fund shares. This sales charge is a percentage of your total purchase. As explained below, many mutual funds offer volume discounts to the front-end sales charge assessed on Class A shares at certain pre-determined levels of investment, which are called “breakpoint discounts.” In contrast, Class B and C shares usually do not carry any front-end sales charges. Instead, investors that purchase Class B or C shares pay asset-based sales charges, which may be higher than the charges associated with Class A shares. Investors that purchase Class B and C shares may also be required to pay a sales charge known as a contingent deferred sales charge when they sell their shares, depending upon the rules of the particular mutual fund.

Breakpoint Discounts

Most mutual funds offer investors a variety of ways to qualify for breakpoint discounts on the sales charge associated with the purchase of Class A shares. In general, most mutual funds provide breakpoint discounts to investors who make large purchases at one time. The extent of the discount depends upon the size of the purchase. Generally, as the amount of the purchase increases, the percentage used to determine the sales load decreases. In fact, the entire sales charge may be waived for investors that make very large purchases of Class A shares. Mutual fund prospectuses contain tables that illustrate the available breakpoint discounts and the investment levels at which breakpoint discounts apply. Additionally, most mutual funds allow investors to qualify for breakpoint discounts based upon current holdings from prior purchases through “Rights of Accumulation,” and future purchases, based upon “Letters of Intent.” This document provides general information regarding Rights of Accumulation and Letters of Intent. However, mutual funds have different rules regarding the availability of Rights of Accumulation and Letters of Intent. Therefore, you should discuss these issues with your financial advisor and review the mutual fund prospectus to determine the specific terms upon which a mutual fund offers Rights of Accumulation or Letters of Intent.

• Rights of Accumulation – Many mutual funds allow investors to count the value of previous purchases of the same fund, or another fund within the same fund family, with the value of the current purchase, to qualify for breakpoint discounts. Moreover, mutual funds allow investors to count existing holdings in multiple accounts, such as IRAs or accounts at other broker-dealers, to qualify for breakpoint discounts. Therefore, if you have accounts at other broker-dealers and wish to take advantage of the balances in these accounts to qualify for a breakpoint discount, you must advise your financial advisor about those balances. You may need to provide documentation establishing the holdings in those other accounts to your financial advisor if you wish to rely upon balances in accounts at another firm.
• 
  In addition, many mutual funds allow investors to count the value of holdings in accounts of certain related parties, such as spouses or children, to qualify for breakpoint discounts. Each mutual fund has different rules that govern when relatives may rely upon each other’s holdings to qualify for breakpoint discounts. You should consult with your financial advisor or review the mutual fund’s prospectus or statement of additional information to determine what these rules are for the fund family in which you are investing. If you wish to rely upon the holdings of related parties to qualify for a breakpoint discount, you should advise your financial advisor about these accounts. You may need to provide documentation to your financial advisor if you wish to rely upon balances in accounts at another firm.
• 
  Mutual funds also follow different rules to determine the value of existing holdings. Some funds use the current net asset value (NAV) of existing investments in determining whether an investor qualifies for a breakpoint discount. However, a small number of funds use the historical cost, which is the cost of the initial purchase, to determine eligibility for breakpoint discounts. If the mutual fund uses historical costs, you may need to provide account records, such as confirmation statements or monthly statements, to qualify for a breakpoint discount based upon previous purchases. You should consult with your financial advisor and review the mutual fund’s prospectus to determine whether the mutual fund uses either NAV or historical costs to determine breakpoint eligibility.
• 
  Letters of Intent – Most mutual funds allow investors to qualify for breakpoint discounts by signing a Letter of Intent, which commits the investor to purchasing a specified amount of Class A shares within a defined period of time, usually 13 months. For example, if an investor plans to purchase $50,000 worth of Class A shares over a period of 13 months, but each individual purchase would not qualify for a breakpoint discount, the investor could sign a Letter of Intent at the time of the first purchase and receive the breakpoint discount associated with $50,000 investments on the first and all subsequent purchases. Additionally, some funds offer retroactive Letters of Intent that allow investors to rely upon purchases in the recent past to qualify for a breakpoint discount. However, if an investor fails to invest the amount required by the Letter of Intent, the fund is entitled to retroactively deduct the correct sales charges based upon the amount that the investor actually invested. If you intend to make several purchases within a 13 month period, you should consult your financial advisor and the mutual fund prospectus to determine if it would be beneficial for you to sign a Letter of Intent.

As you can see, understanding the availability of breakpoint discounts is important because it may allow you to purchase Class A shares at a lower price. The availability of breakpoint discounts may save you money and may also affect your decision regarding the appropriate share class in which to invest. Therefore, you should discuss the availability of breakpoint discounts with your financial advisor and carefully review the mutual fund prospectus and its statement of additional information, which you can get from your financial advisor, when choosing among the share classes offered by a mutual fund. If you wish to learn more about mutual fund share classes or mutual fund breakpoints, you may wish to review the investor alerts available on the FINRA Web site.

See http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/MutualFunds/p006022, and
http://www.finra.org/InvestorInformation/InvestorAlerts/MutualFunds/
MutualFundBreakpointsABreakWorthTaking/p006008
or visit the many mutual fund Web sites available to the public.

Southwest Securities, Inc.
Our Customer Protection

A summary explanation of the protection provided to our customers.

Reading the booklet "How SIPC Protects Investors" is an essential first step in becoming acquainted with the protection of securities accounts provided to our customers. It can be read and copied on the Website of the Securities Investor Protection Corporation at www.sipc.org or your investment executive can furnish you with a copy. In addition, we have purchased from underwriting syndicates at Lloyd's of London additional security protection to cover the net equity of customer’s accounts up to an aggregate of $100 million.

Our capital strength – approximately $200 million – also protects our customers. Historically, the firm has always maintained greater capital than required by any regulatory authority.

KEY PROVISIONS

The following presents a simplified summary of the most important provisions of the additional protection we have purchased. It does not contain the legal documents that actually govern coverage. The full policy terms, conditions and limitations always govern. This summary does not alter the terms of the excess securities policy in any way and cannot be used to support a claim in the event of loss.

There are several important conditions to the excess securities protection.

ADEQUACY OF COVERAGE

In the unlikely event of a liquidation process under the provisions of the Securities Investor Protection Act, all customers would share proportionately in any shortage in cash and securities belonging to customers. Here is a specific example: Southwest Securities typically holds $19.5 billion of customer assets - most are physically located at the Depository Trust Company, a central facility established to hold and deliver securities for brokerage firms and commercial banks.

For purpose of example, let's assume a failure with a very large initial shortage of $500 million. Although we believe our internal controls and safeguards would prevent such a shortage from occurring, it would be 3% of the $19.5 billion we hold for customers. A SIPC trustee would, therefore, return from customer property on hand 97% of each customer's account.

In addition, under SIPC* each customer would be entitled to replacement of any shortage up to $500,000 (including up to $250,000 in cash) and would share with other non-customer creditors in any remaining firm assets. The example of a $500 million shortage is illustrated in the table below.

Expressed in general terms, federal law requires broker/dealers to:

The law permits customer cash balances to be used to finance fully collateralized margin loans. Southwest Securities, Inc. is subject to periodic reviews by regulatory organizations, including the New York Stock Exchange, the Financial Industry Regulatory Authority, and the Securities and Exchange Commission. Southwest Securities, Inc. makes a diligent effort to comply with all securities laws, including those designed to safeguard customer assets.

*See SIPC booklet for all definitions. For example, the securities we hold in customer name without stock powers are returned separately without affecting the distribution shown in the table. All examples are assumed to be accounts with less than $250,000 in cash balances.

Southwest Securities, Inc.
Sweep Account Disclosure

For new accounts, if no selection of a money fund is made, your account will default to sweep cash balances to the Dreyfus General Money Market Fund. For existing accounts, please notify your Broker if you wish to sweep balances to the Dreyfus General Money Market Fund, the Bank Insured Deposit or other selection. The Bank Insured Deposit is an FDIC-insured account administered by Reich & Tang Insured Deposits that sweeps funds to participant banks in increments of $250,000, to achieve FDIC insurance coverage up to $2.5 million depending on the number of participant banks in the program. Deposits in these participant banks are generally insured up to $250,000 per depositor, while your IRA and other qualifying self-directed retirement funds on deposit are separately insured up to $250,000. Prior or additional bank accounts at any participant bank may affect insurance coverage. If your funds on deposit at the participant bank exceed the applicable FDIC insurance limit of $250,000 per depositor ($250,000 for qualifying retirement accounts), the FDIC will not insure your funds at that participant bank which are in excess of the limit. If you have a deposit with one of the participant banks that is separate from a balance in the Bank Insured Deposit, please notify your broker if the combined deposits are in excess of $250,000.

For a list of Bank Insured Deposit participant banks, please click here: Participant Banks

For the BID Terms and Conditions document, please click here: BID Terms and Conditions

It is important that you understand the unique nature, insurance coverage and risk associated with each type of account. SIPC coverage does not protect cash balances created and maintained solely for the purpose of earning interest, so funds in money market or CIP accounts must be intended for future reinvestment.

SWST may temporarily suspend or discontinue the sweep arrangement, or change the timing or frequency of the sweep, anytime without advance notice to you. SWST may change your sweep account terms by giving you written notice. If SWST fails to sweep your uninvested funds in the manner described in the Customer Account Agreement, SWST's liability is limited to the actual amount of the dividends or interest you would have earned had the sweep been performed. SWST may automatically sweep funds from your sweep account to your brokerage account anytime without advance notice to you to pay for securities transactions and withdrawal requests, satisfy a debit balance, settle any other obligation you owe SWST, pay your margin loan, provide necessary collateral in your margin account, or for any other permissible purposes. Should you wish to access these funds or information regarding the fund rates, contact your Broker or registered representative. With ongoing changes to the rates of return for the available sweep options, your personal financial circumstances and market conditions, you should always consider all of your investment options.

Bank Insured Deposit

We anticipate receiving fees, including fees for administrative services, and other financial benefits for providing sweep funds on deposit with the Bank Insured Deposit. A portion of fees received may be paid to your Broker. The FDIC insures bank deposit accounts such as checking, interest-bearing checking and savings accounts, money market deposit accounts, and certificates of deposit (CDs) if an insured bank or savings association fails. Your bank deposits are generally insured up to $250,000 per depositor, while your IRA and other qualifying self-directed retirement funds on deposit are separately insured up to $250,000. The FDIC does not insure the money you invest in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if you purchased those products from an insured bank. Prior or additional bank accounts at the Bank may affect insurance coverage. If your funds on deposit exceed the applicable FDIC insurance limit of $250,000 per depositor ($250,000 for qualifying retirement accounts), the FDIC will not insure your funds in excess of the limit. Additional information regarding FDIC coverage is available at www.fdic.gov. Please consult your broker, as certain types of accounts may not be eligible to invest in the Bank Insured Deposit.

Interest on funds in a bank deposit account is accrued daily, compounded monthly and credited to your account monthly. Interest begins to accrue on the date of deposit in the Bank up to, but not including, the date of withdrawal. The daily balance method is used to calculate the interest on these accounts. The daily rate is 1/365 (or 1/366 in a leap year) of the interest rate. Account rates are set in accordance with other Bank products and may be changed at any time. The rate of return paid on Bank Insured Deposit funds may vary from the rates of return available to depositors making deposits with the Bank directly, through other types of accounts at your brokerage, or with other depository institutions in comparable accounts. The bank deposit account may be more profitable to SWST and its affiliates, than other available sweep options. You should compare the terms, rates of return, required minimum amounts, charges and other features with other accounts and alternative investments.

Money Market Funds

Money market mutual funds, which may also be available as customer selected sweep options, are treated as securities and are registered with the Securities and Exchange Commission (SEC), pursuant to the Investment Company Act of 1940. The Securities Investor Protection Corporation (SIPC) covers most customers of failed brokerage firms when assets are missing from customer accounts. If sufficient funds are not available to compensate customers fully, the reserve funds of SIPC are used to supplement the distribution. There is a limit of $500,000 per customer, including a maximum of $250,000 paid for cash claims. Additional funds may be available to satisfy the remainder of customer claims after the cost of liquidating the brokerage firm is taken into account. Additional information regarding SIPC coverage is available at www.sipc.org. Supplemental coverage by SWST through an Excess Securities Bond further additionally protects your securities, up to an aggregate of $20 million, against physical loss or misplacement. Certain types of accounts, including corporations, partnerships and employee benefit plans, are not eligible to invest in the funds, please consult your broker for additional information. We anticipate receiving fees or other financial benefits based on your sweep account balance. For money market funds, those benefits can include annual payments based on the amount you invest in the sweep account. A portion of fees received may be paid to your broker. Please note that shares in a money market fund are not FDIC-insured, not guaranteed by the Federal government, and are not deposits or obligations of any bank or guaranteed by any bank. There can be no assurance that a money market fund will be able to maintain a stable net asset value of $1 per share. Tax-exempt money market funds may be subject to the alternative minimum tax. See the money market fund prospectus for more complete information, including terms, management fees, prevailing rates and expenses. You can obtain a prospectus by contacting your registered representative. You should consider the fund's investment objectives, risks and expenses carefully before investing.