FOCUS Report Lincoln Financial Advisors Corporation

X-17A-5 [Paper] - FOCUS Report

Published: 2013-03-14 09:37:34
Submitted: 2013-03-01
Period Ending In: 2012-12-31
scanned.pdf Scanned paper document


                                                                         UNITED STATES                                                       0MB APPROVAL
                                                     SECURITIES         AND EXCHANGE COMMISSION                                          0MB Number     3235-01                     23

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           13031022
                                                                       FORM              X-1       7A-5             SOCtI                                SEC    FILE      NUMBER
                                                                              PART             III
                                                                                                                                                         8-   14685

                                                                          FACING PAGE                        Wash
                                                                                                                     1ngt
                  Information            Required           of Brokers and                 Dealers         PursuObo              tion       17 of the

                                 Securities         Exchange           Act of 1934 and Rule 17a-cThereunder


REPORT     FOR THE        PERIOD BEGINNING                                      01/01/12                         AND ENDING                      12/31/12
                                                                                MM/DD/YY                                                         MM/DD/YY


                                                      REGISTRANT                    IDENTIFICATION

                                             Lincoln         Financial           Advisors              Corporation
NAME     OF BROKER-DEALER                                                                                                                        OFFICIAL USE ONLY


ADDRESS      OF PRINCIPAL            PLACE OF BUSINESS                        Do   not     use P.O        Box   No                                     FIRM I.D           NO

     1300 South           Clinton         Street Suite 150
                                                                              No    and     Street




     Fort    Wayne           Indiana        46802-3506
                          City                                                             State                                         Zip Code


NAME AND         TELEPHONE      NUMBER OF PERSON                         TO CONTACT                  IN   REGARD TO          THIS    REPORT
      Elizabeth              Conover                                                                                                          336         691-3153
                                                                                                                                          Area    Code        Telephone    Number


                                                     ACCOUNTANT                      IDENTIFICATION


INDEPENDENT         PUBLIC ACCOUNTANT                        whose     opinion      is   contained in        this   Report


     Ernst         Youna          LLP
                                                               Name      if   individual     slate   last first middle    name



     Two Commerce Square                             Suite     4000 2001 Market                        Street            Philadelphia        PA          19103-7096

      Address                                                          City                                                      State                          Zip Code



CHECK ONE
            IX   Certified    Public     Accountant

            fl   Public    Accountant


                 Accountant       not    resident    in   United States or any of             its    possessions


                                                               FOR OFFICIAL USE ONLY




Claims for   exemption     from the requirement             that the   annual report         be covered         by the opinion    of an independent       public       accountant


must be supported by         statement     offacts    and    circumstances         relied    on as the basis for the exemption             See Section         240.1    7a-5e2




                                         Potential  persons who are to respond     to the collection   of

                                         information contained in this form are not required to respond
   SEC    1410   06-02                   unless the form displays currently valid 0MB control number


                                                                     OATH OR AFFIRMATION

                                                                                                                                                or                              the best    of
           Elizabeth                   Conover                                                                                         swear          affirm       that   to



                                                                                                 and                        schedules                         to   the firm      of
                       and    belief    the   accompanying          financial      statement               supporting                          pertaining
my   knowledge

          Lincoln             Financial            Advisors          Corporation                                                                                                             as



of        December                31                                                   2012                 are true      and     correct           further   swear       or    affirm     that


                                                                                         officer     or director          has    any proprietary         interest in      any account
neither   the     company nor any partner                 proprietor       principal

                                   of                                     follows
classified    solely as that               customer       except     as




                    Connie         Hill
                                                                                                       1Aibct                     Signature
                   Notary        Public
                Randolph          County
                   North Carolina                                                         AVP and              Interim            Chief Financial                  Officer

                                                                                                                                       Title




                                        Lu
                    Notary Public                         5711


This   report       contains        check      all   applicable      boxes
           Facing Page
Xl         Statement of Financial                  Condition

Xl         Statement of Income                Loss
Xl         Statement of Changes                in    Financial     Condition

             Statement of Changes              in    Stockholders         Equity    or   Partners      or Sole       Proprietors            Capital
Xl

             Statement of Changes              in    Liabilities Subordinated to Claims of Creditors

Xl         Computation           of Net Capital

                                  for   Determination        of Reserve         Requirements         Pursuant to Rule               15c3-3
           Computation
                                                    the Possession        or Control                            Under           Rule   15c3-3
IX           Information        Relating      to                                         Requirements
                                                                                            of the Computation              of Net Capital           Under    Rule    15c3-1      and the
El              Reconciliation including                appropriate       explanation

                                                                                                             Under     Exhibit           of Rule        5c3-3
             Computation          for   Determination        of the Reserve      Requirements
                                                                                                                                                        with respect             methods      of
El              Reconciliation          between       the audited     and    unaudited Statements of Financial                         Condition                           to



             consolidation

Xl           An   Oath or Affirmation

El              copy     of the SIPC Supplemental Report
                                                                                               exist or     found          have    existed      since the date      of the previous         audit
El                                                                               found    to                         to
                report   describing       any material       inadequacies



For conditions               of confidential         treatment     of certain    portions      of   this    filing     see section          240.1    7a-5e3


                                     Lincoln Financial            Advisors Corporation



               Consolidated Financial                Statements and Supplementary                  Information



                                       Years Ended December               31   2012 and 2011




                                                              Contents


                                                  Public                   Firm
Report of Independent             Registered                 Accounting



Audited        Consolidated       Financial     Statements



Consolidated           Statements     of Financial        Condition

Consolidated           Statements     of Income

Consolidated           Statements     of Stockholders         Equity

Consolidated           Statements     of Cash Flows

Notes     to   Consolidated       Financial     Statements




Supplementary            Information



Schedule                               of Net    Capital Pursuant to Rule         15c3-1   of the Securities
                       Computation
                                                                                                                 17
  and Exchange            Commission
Schedule        II     Computation      for   Determination of Reserve           Requirements

  Pursuant        to   Rule 15c3-3     of the Securities       and Exchange       Commission                     18

Schedule        III     Information     Relating     to   Possession   or Control   Requirements
                                                               and Exchange       Commission                     19
  Pursuant        to   Rule 15c3-3     of the Securities



Supplementary            Report


                                                                       Public                  Firm
Supplementary            Report of Independent            Registered            Accounting
                                                   SEC     Rule   17a-5g1                                        20
  on Internal          Control   Required by




1302-1024887


                                                               jjERtsISTYOUIG
                                                                                                                                             Suite          700
                                                                                                                                             2005           Market          Street
III
                                                                                                                                             Philadelphia                   PA 19103
U-L

                                                                                                                                             Tel            12154485000
                                                                                                                                             Fax             12154484069
                                                                                                                                             www.ey.com




                                                                                        Registered Public                                                                  Firm
                                  Report of Independent                                                                        Accounting



      The Board of            Directors

      Lincoln Financial               Advisors Corporation


                                                                                                                                                              of Lincoln                                Financial
      We      have      audited           the        accompanying                    consolidated               financial       statements

      Advisors Corporation                          an        indirect         wholly       owned           subsidiary         of Lincoln                    National                    Corporation
                                                                                                                                        of financial                                                                     of
      the     Company                      which               comprise         the      consolidated              statements                                                       condition                    as

                                                                         and the related consolidated                       statements              of income                           stockholders
      December 31 2012 and 2011
                                                                                then      ended         that     are filed                             to         Rule 17a-5                           under the
      equity         and cash        flows           for the years                                                              pursuant

                                               Act of 1934 and the related notes                                   to   the consolidated                     financial statements
      Securities       Exchange



      Managements                   Responsibility                        for the     Financial          Statements



                              is                                   for    the preparation           and     fair   presentation             of these financial statements
      Management                    responsible
                                                                                                                                                                     includes                   the
      in    conformity             with        U.S            generally         accepted            accounting            principles             this                                                         design

                                      and           maintenance                 of      internal        control         relevant        to       the              preparation                                and        fair
      implementation
                             of financial statements                             that    are     free       from        material     misstatement whether                                                      due       to
      presentation

      fraud or error



      Auditors          Responsibility



      Our     responsibility              is   to    express              an opinion        on these financial statements                              based                 on our audits                              We
      conducted         our         audits          in    accordance             with       auditing           standards       generally                    accepted                  in        the            United

      States         Those     standards             require that              we    plan    and perform the audit                     to    obtain                  reasonable                        assurance

      about     whether the financial statements                                    are free        of material          misstatement



      An      audit     involves                                                               to     obtain        audit      evidence                about                 the        amounts                         and
                                               performing                  procedures

      disclosures            in     the        financial                 statements         The       procedures            selected             depend                       on        the                  auditors

                                                the           assessment of the                     risks       of material          misstatement                               of the                       financial
      judgment           including
                                                                                         In making             those     risk assessments the auditor                                                   considers
      statements         whether due                     to    fraud or error

                                                                                                                         and    fair                                                of the                   financial
      internal        control        relevant                 to    the     Companys            preparation                             presentation

                                                                                                    that       are appropriate              in   the circumstances                                            but       not
      statements        in     order to             design           audit procedures

      for the purpose of expressing                                      an opinion      on the effectiveness                  of the        Companys                               internal                  control


      Accordingly             we      express             no such opinion                   An      audit also includes                evaluating                          the appropriateness

      of accounting                                 used            and the reasonableness                     of significant accounting                                    estimates                        made by
                                  policies

                               as well          as evaluating                 the overall           presentation          of the fmancial                     statements
      management


      We      believe        that    the       audit           evidence        we     have      obtained           is   sufficient          and appropriate                                    to       provide

      basis for our audit opinion




      1302-1024887


                                                                                                                                                 rneiiber         fircri
                                                                                                                                                                            Ernst     Voting        Globdi    Limited


Opinion


                                                                                           above                      fairly in           all        material
In our     opinion          the financial statements                     referred    to                 present                                                                    respects

        consolidated                  financial                          of     Lincoln          Financial           Advisors                  Corporation                            as        of
the                                                      position

December 31 2012 and 2011 and                                   the consolidated           results      of    its   operations          and            its        cash        flows           for


the years       then       ended        in   conformity with              U.S    generally        accepted          accounting             principles




Supplementary Information


                                                                                                                       on the          consolidated                                financial
Our    audit      was conducted                 for the         purpose of forming                an opinion

                                              The                                                 Schedules                       and          III           is                               for
statements         as        whole                  information            contained        in                              II                                     presented

                                                            and           not                                 of the     financial                   statements                       but       is
purposes of additional                                                              required       part
                                                                    is
                                             analysis
                            information                            by Rule        17a-5    under the Securities                    Exchange                          Act of 1934
supplementary                                     required

Such     information             is   the responsibility               of management and was derived                             from and                         relates           directly

                                                          and other records            used       to                   the       financial                   statements                       The
to the         underlying          accounting                                                           prepare

information           has    been           subjected      to    the     auditing    procedures           applied       in       the    audit                of the                financial

                   and           certain       additional                                 including           comparing                and            reconciling                          such
statements                                                          procedures
                                                                                       and other records                used       to                                 the          financial
information           directly         to    the underlying            accounting                                                          prepare

statements         or       to    the        financial          statements        themselves            and         other    additional                           procedures                    in


                                                standards                                          in   the     United       States             In our opinion                                the
accordance         with auditing                                  generally       accepted

                                                    in    all    material                   in    relation to          the       financial                   statements                    as
information           is    fairly      stated                                  respects

whole




                                                                                                                                                         s47LLP
February         28     2013




1302-1024887


                                                                                                                             neibr      turn    of   Ernst        Young   Global    Limited


                                       Lincoln Financial           Advisors    Corporation



                                 Consolidated Statements of Financial               Condition




                                                                                             December   31

                                                                                      2012               2011

Assets

Cash and invested               cash                                                 36354489           41896559

Cash segregated               for regulatory   purposes                               6430000                6430000
Commissions             and fees receivable                                          42341171           37845709

Due from         affiliates                                                           2400808                 911132

Deferred tax asset                                                                    8166825                7277512
                                                                                      1316749                1136409
Prepaid        expenses
Other assets           cash    invested     with   affiliate                          9777329                9830763

Other assets                                                                          5393097                5487708

Net property           and equipment accumulated                depreciation

 2012           $4267155           2011      $4095584                                 1078122                 842821

Total assets                                                                        113258590           111658613



Liabilities        and stockholders            equity

Liabilities

                 to   vendors                                                           431331                567439
 Payable
 Due      to    affiliates                                                           16956161            14473468

 Deferred         revenue                                                             3246936                2951082
 Accrued          commissions                                                        25424977            23055181

 Accrued          compensation           and benefits                                 9514344                8025616

 Other         liabilities                                                            7598055                8566900
Total liabilities                                                                    63171804            57639686



Stockholders             equity

  Common              stock      $100 par value        5000    shares

    authorized issued and outstanding                                                   500000                500000

  Additional           paid-in    capital                                             19746694           16753317

  Retained earnings                                                                   29840092           36765610

Total     stockholders equity                                                         50086786           54018927

Total     liabilities     and stockholders equity                                    113258590          111658613



See accompanying                 notes




1302-1024887


                                       Lincoln Financial         Advisors   Corporation



                                          Consolidated Statements of Income




                                                                                 Year Ended    December    31

                                                                                   2012             2011

Revenues
 Commissions              and fees from       third   parties                    271532997        264264483

 Commissions              and fees from       affiliates                         117095965        114846416

 Other                                                                               555841           680000

 Interest                                                                             89353               70288

Total    revenues                                                                389274156        379861187



Expenses
 Commissions              and agency       expenses                              251445165        242624464

  Service       charges       from    affiliates                                  75310416         71125291

  Salaries                    and benefits                                        23843269         22615533
                 wages
 Licenses         and fees                                                         1564890           1739186

 Professional           and   legal                                                6818803          3976384
 Office        expenses                                                            3926152          2538376
 Other general            and administrative          expenses                     4837789           1707964

Total expenses                                                                   367746484        346327198
Income         before   income        tax expense                                 21527672         33533989


Income         tax expense                                                         8453190          13076653

Net income                                                                        13.074.482       20457336



See accompanying               notes




1302-1024887


                                  Lincoln Financial     Advisors   Corporation



                          Consolidated Statements of Stockholders           Equity




                                                                        Year Ended   December    31

                                                                          2012            2011

Common         stock

 Balance as of beginning            and end of year                         500000          500000


Additional      paid-in   capital

 Balance as of beginning            of year                              16753317         15826453

  Share-based      payment     expense                                    2993377           926864

Balance as of end of year                                                19746694         16753317



Retained earnings

 Balance as of beginning            of year                              36765610        41308274
 Net income                                                              13074482        20457336

 Dividends       paid                                                    20000000        25000000
Balance as of end of year                                                29840092        36765610

Total stockholders         equity   as of end of year                    50086786        54018927



See accompanying          notes




1302-1024887


                                              Lincoln Financial                     Advisors   Corporation



                                                 Consolidated Statements of Cash Flows




                                                                                                        Year Ended December    31

                                                                                                         2012           2011


Operating        activities

Net    income                                                                                            13074482      20457336

                   to      reconcile       net   income       to net   cash provided    by
Adjustments

 operating       activities

      Deferred tax asset                                                                                      581872     226007
      Depreciation          on property          and      equipment                                           171571      126778

      Share-based          payment          expense
                                                                                                             1522192    1360798

      Change     in   commissions             and      fees receivable                                   4495462       2965365
      Change     in   due     from      affiliates                                                       1489676         388150
      Change     in prepaid           expenses                                                               180340      130190
      Change     in other          assets    cash invested           with   affiliate                          53434   1608342
      Change     in other          assets                                                                      94611      367923

      Change     in   payable         to   vendors                                                           136108           4654
      Change     in   due     to    affiliates                                                               2482693   1150775
      Change     in deferred           revenue                                                                295854     411120
      Change     in   accrued         commissions                                                            2369796    2697982

                 in   accrued         compensation             and   benefits                                1488728    1703488
      Change

      Change     in   other        liabilities                                                               968845      384056
Net cash provided by operating                         activities                                        14864802      19445646



Investing activities
Purchase       of property          and     equipment                                                        406872      718111
Net    cash used in investing                activities                                                      406872      718111


Financing        activities

Dividends        paid to stockholders                                                                   20000000       25000000
Net cash used in fmancing                    activities                                                 20000000       25000000


Net decrease          in   cash and        invested       cash                                           5542070       6272465
Cash    and    invested        cash as of beginning of year                                              41896559      48169024

Cash    and    invested        cash as of end             of year                                        36354489      41896559



                           disclosure        of cash flow information
Supplemental

Income     tax                                                                                               8865538   11883267
                  payments



Noncash transactions

Executive        stock      option     tax benefit         expense                                           1469185     433934


See accompanying               notes




1302-1024887


                                          Lincoln Financial                  Advisors          Corporation



                                      Notes       to    Consolidated Financial                        Statements


                                                                December 31 2012




     Nature      of Operations             Basis        of Presentation and                Summary            of Significant          Accounting

     Policies



Nature         of Operations



Lincoln        Financial      Advisors Corporation                 LFA              or the    Company                which       also   may     be referred

to    as   we          our       or      us        is       registered         broker-dealer            and      investment           advisor        engaged

                  in   the    distribution of securities                                    certain    mutual        funds       limited      partnerships
principally                                                               including

and     equity     and       fixed       income         securities        LFA        is    licensed      to
                                                                                                                engage          in   broker-dealer           and

investment        advisor       activity        throughout         the    United          States     Our wholly            owned        subsidiary       LFA

Management             Corporation         LFAMC                  is      management company                     incorporated            in   2004     for the

                                  LFA       with executive                                    services        and corporate                              LFA
purpose of providing                                                   management                                                     governance

is     wholly owned subsidiary                   of The Lincoln National                     Life    Insurance         Company          LNL            which

is    wholly owned             subsidiary        of Lincoln National                Corporation         LNC
Basis      of Presentation



The accompanying                 consolidated            financial        statements         are     prepared        in   accordance          with     United

States     of America          generally        accepted        accounting          principles        GAAP                 Certain      GAAP policies
which                           affect     the    detennination            of financial position                results      of operations        and cash
           significantly

flows are summarized                  below


Certain amounts                                                     consolidated            financial statements                have been      reclassified
                             reported      in   prior years

to   conform      to   the    presentation            adopted     in   the    current       year These          reclassifications             had no    effect


on net income          or stockholders                equity    of the prior year



                                                                Policies
Summary           of Significant           Accounting



Principles       of Consolidation


The accompanying                consolidated            financial statements               include     the    accounts          of   LFA   and   its   wholly

owned subsidiary               LFAMC            All intercompany              accounts        and transactions             have been eliminated                in


consolidation



The Company              and     other      affiliated         entities      that    provide         services     to      the    Company         are    under

common          ownership        and management                  control       The        existence     of    this     control       could    result    in    the

                                                                                                                          different     from those           that
Companys           operating          results    or     financial      position           being significantly
would have been obtained                   if   the     Company        were     autonomous




1302-1024887


                                             Lincoln Financial                         Advisors             Corporation



                          Notes            to     Consolidated Financial                            Statements continued




     Nature      of Operations                  Basis         of Presentation and                   Summary           of Significant             Accounting

     Policies       continued


Accounting           Estimates         and Assumptions


The    preparation            of financial statements                      in    conformity with               GAAP requires              management                to    make

                 and                                                      the     reported         amounts           of    assets    and        liabilities         and        the
estimates                assumptions                   affecting

                     of contingent              assets        and       liabilities      as of the date of the financial statements                                  and the
disclosures

                amounts          of revenues                  and                         for      the   reporting          period            Those     estimates              are
reported                                                                 expenses
                               to    change            and actual         results      could       differ      from those estimates
inherently          subject



Cash and Invested               Cash



Cash and invested                   cash     is    carried         at    cost    and includes            all    highly      liquid investments                 purchased

with an original maturity                       of three months                  or    less   Cash of $6430000                      as of      December 31 2012

                        been                                 in                                     bank        account for the benefit                  of customers
and 2011        has                 segregated                      special restricted

under Rule 15c3-3               of the Securities                   Exchange           Act of 1934



Cash Invested            With       Affiliate




                                                                                                                                          an intercompany                  cash
In order       to    manage         capital        more           efficiently the          Company              participates        in


management program where LNC can lend to or borrow
                                                    from                                                             the    Company to meet short-term
                                                                                                                                of demand loans among
borrowing needs The cash management program is essentially
                                                                                                                           series


LNC      and    its    affiliates      that       reduces          the    overall      borrowing            costs    by   allowing        LNC         and    its   affiliates


                internal                               instead      of incurring           third-party transaction                  costs       Invested           cash    with
to   access                    resources

                                                                                   December 31 2012                       and   2011                                     and
LNC       was $9777329                     and         $9830763             at                                                                respectively                      is



included        in    other                     cash        invested       with       affiliate     on the       consolidated            statements          of financial
                               assets

condition



Commission             Revenue         and Expense


Commission revenue                     for      customer            securities         transactions            and related          commission              expenses           are

                                                                                                    deviate                          from             trade-date          basis
recorded        on       settlement-date                    basis which               does not                      materially

Asset-based            revenue         and         related         commission                                  are   recorded            as    earned based                on
                                                                                           expenses
contractual                                of customer                  deposits       Wrap        fee   income           also referred          to    as assets under
                      percentage
                                                                         one quarter                arrears on             number of programs                      in     which
management              fee    income             is   received                               in

                                                                                                                                                accrual             recorded
LFA      participates           An     accrual          is   recorded               income and
                                                                                for fee           corresponding                                               is



for the commission                                     to   be paid       based on the fee income
                                    expense




1302-1024887


                                                   Lincoln Financial                    Advisors           Corporation



                                Notes         to    Consolidated Financial                          Statements continued




   Nature                                           Basis       of Presentation and                 Summary            of Significant               Accounting
                     of   Operations
     Policies            continued


Income         Taxes



LNC      files            U.S        consolidated              income     tax return        that    includes        all eligible           subsidiaries      including

LFA     and         LNL         Pursuant           to   an intercompany              tax-sharing           agreement with              LNL LFA            provides     for


income         taxes                                    return filing      basis The tax-sharing                   agreement also provides                   that    LFA
                           on         separate
                                        for    net                                                  losses        and tax credits              which       may   not   be
will receive              benefit                        operating        losses        capital

                                                                                          such                          be        utilized    in    the   consolidated
usable         on         separate        return         basis to       the    extent               items     may
federal income                  tax returns of            LNC

                                                                           based        on enacted          rates      when         assets    and     liabilities    have
Deferred            income           taxes     are recognized

different           values           for financial             statement       and      tax reporting         purposes                 valuation          allowance      is



recorded            to    the    extent                         Considerable            judgment       and the use                of estimates        are required       in
                                             required

                          whether             valuation          allowance         is                  and        if   so    the     amount         of such valuation
determining                                                                             necessary

allowance                See Note            for additional          information



Property and Equipment


                     and                                owned       for                       use     is    carried          at     cost     less    allowances        for
Property                        equipment                                  company
                                                                                                            on the                                  method    over     the
                            Provisions              for depreciation             are     computed                           straight-line
depreciation
                                                                                 which            include         furniture          and      fixtures       leasehold
estimated                useful        lives        of     the      assets

                                data processing                equipment         and computer software
improvements


Deferred            Revenue



Cash received                   in    advance           for financial                         contracts      is    recorded          as deferred          revenue    until
                                                                              planning

delivery        of the financial plan                     to    the respective          customer



Deferred            Compensation


Certain  LFA employees participate in                                         deferred        compensation             plan       sponsored and administered

by    LNC LFA allocated appropriate
                                is                                         expenses        related to       the plan         by     LNC LFA            reports current

                                                                                              the consolidated               statements         of income      with the
period         expense          in    salaries          wages and         benefits       on
                          accrued                                    and       benefits        on    the     consolidated              statements          of financial
liability           in                    compensation
condition




1302-1024887


                                         Lincoln Financial                  Advisors                Corporation



                          Notes      to    Consolidated Financial                             Statements continued




     Nature      of   Operations           Basis    of Presentation               and Summary of                     Significant      Accounting

     Policies     continued


Stock-Based Compensation


Certain         LFA                        participate        in       stock-based             compensation             programs           sponsored          and
                        employees
administered           by   LNC LFA           is    allocated          appropriate            expenses        related    to   the   program          by    LNC
LFA                     current      period                       in     salaries        wages           and    benefits       on     the       consolidated
          reports                                  expense
statements        of income       with the nonexercised                   portion       in    accrued compensation                  and benefits on the

consolidated          statements      of financial condition



Loans      to   Registered     Representatives



In   2004       LFA     began         loan    program         to       attract    top-producing               representatives         to    join     the    sales


network         Assuming       the producers          could generate               gross       dealer     concessions          GDC              in   excess    of

  contracted          amount      LFA      would advance               the representative                 specified      dollar amount            that     would

be forgiven           over the    life     of the    loan    typically            two    to     seven years             The executed            contract      for

each      loan    stipulates      annual       GDC          requirements               that     must      be    met      in   order       for    that      years

proportion        of the      loan    to    be waived             Alternatively               if   at   the    end    of the    contract         period       the

cumulative         GDC       production       is    equal    to    or in excess               of the aggregate           contract     requirement the

entire     balance      of the loan        will be    waived The                 net   loan        receivable    is    reported      in    other     assets on

the consolidated            statements      of financial condition



     Income       Taxes



The income            tax expense      was    as follows



                                                                                                              Year Ended        December 31
                                                                                                                2012                        2011

      Federal      income      tax expense

          Current                                                                                               6342679                   11446085
         Deferred                                                                                                567175                         70626
      Federal      income      tax expense                                                                      6909854                   11375459


      State income          tax expense

          Current                                                                                               1528639                    1843848
          Deferred                                                                                                    14697                 142654
      State income          tax expense                                                                         1543336                    1701194
      Total      income     tax expense                                                                         8453190                   13076653



                                                                                                                                                               10
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                                           Lincoln Financial          Advisors       Corporation



                           Notes      to    Consolidated Financial             Statements continued




   Income             Taxes    continued


  reconciliation              of the effective       tax rate   differences   was   as follows



                                                                                          Year Ended      December    31

                                                                                             2012              2011



      Tax      rate    times pretax        income                                           7534685           11736896
      Effect      of
         State tax expenses                                                                  1003168           1105776

         Other items                                                                             84663           233981

      Income          tax expense                                                           8453190           13076653


      Effective         tax rate                                                                 39.27%          39.00%



The    effective         tax rate     is   the   ratio   of tax expense   over pretax    income    loss   Other items include

corrections           of immaterial        errors in prior-period financial statements



The    income          tax asset    was     as follows



                                                                                          Year Ended December         31

                                                                                             2012              2011

      Federal          income    tax asset

         Current                                                                             1212605            100181
         Deferred                                                                            6410029           5860895

      Federal          income      tax asset                                                 7622634           5760714


      State income            tax asset

         Current                                                                                 121698          453025
         Deferred                                                                            1756796           1416617

      State income            tax asset                                                      1878494           1869642


      Total current income                 tax payable                                       1334303             352844

      Total deferred            income      tax asset                                        8166825           7277512




                                                                                                                            11
1302-1024887


                                              Lincoln Financial                    Advisors          Corporation



                           Notes         to    Consolidated Financial                             Statements continued




   Income        Taxes          continued


                                          of our deferred             tax assets were              as follows
Significant       components


                                                                                                                  Year Ended December                 31

                                                                                                                         2012                 2011

     Deferred         tax assets

     Employee compensation                           plans                                                          5506388                 3479417
     Accrued         liabilities                                                                                    1209926                 2594922
     Other                                                                                                          1450511                 1203173

     Total      deferred         tax assets                                                                         8166825                 7277512


     Deferred         tax liabilities

     Total      deferred         tax liabilities

     Net deferred              tax asset                                                                            8166825                 7277512


Current        income          taxes                     are    included           in   due   to    affiliates      on the       statements       of financial
                                         payable
condition



                                                                                          allowance        for any               deferred     tax assets that
The Company               is   required        to    establish         valuation                                         gross

                               reduce     taxes                       in   future        years      tax   returns        At    December 31 2012              and
are unlikely         to                               payable
                                    concluded                        was more                      than    not    that   its           deferred     tax assets
2011      the   Company                                 that    it                       likely                                gross

                                                                                              no valuation          allowance          was necessary         The
will reduce taxes payable                      in    future     years therefore
LNC      consolidated                         is               to    annual    tax examinations from the Internal                        Revenue      Service
                                  group             subject

IRS            and   state      taxing jurisdictions                 We     do not anticipate             that    any adjustments         that   might     result


from such audits would be material                              to    our   results        of operations          or financial condition             The   LNC
consolidated         group         is   currently       under audit by the IRS for years                          2009 2010 and 2011


There are no uncertain                   tax positions          related       to   the    Company         in     the current year




                                                                                                                                                               12
1302-1024887


                                                 Lincoln Financial                   Advisors                  Corporation



                            Notes           to    Consolidated Financial                              Statements continued




     Agreements and Transactions With                                       Affiliates



In   order      to    be compliant with                       the    Financial           Industry          Regulatory              Authority            FINRA                    rules

                                                                            and                                         agreements           and         to    better        match
regarding        proper          expense           recognition                      expense-sharing

                with related            securities            revenue           LFA      has    entered          into    various        cost-sharing             agreements
expenses
with     affiliates         Commencing                   in    January 2009                salary          benefit           and    travel        HR             costs           for


number of            affiliate    employees              who        provide        substantial            service       to    LFA     have been identified and

allocated       to    LFA LFA employees                             have    also been           identified            who     provide        substantial              service          to


affiliates      for   which HR costs were                       allocated          from     LFA           to   those     affiliates       The          net impact           to   LFA
           effort      was    additional                             of $2511192                in   2012        and 2011          which          is   reported        primarily
in this                                            expense
     salaries                    and benefits expense                      on the consolidated                      statements       of income
in                   wages


Service                       for      securities-related                                   are        allocated          pursuant          to          Master             Services
               charges                                                     expenses
                      and include but               are not          limited to          cost    related to           officer      compensation                 and benefits
Agreement
                                       home         and       field    office        and        administrative                expenses            These         expenses           are
compliance            services

identified       and       charged          to    LFA         on       monthly           basis        by       the    affiliated      agency            companies                LFA
                                       and $69296906                    of allocated            securities-related                 service        charges        in    2012        and
incurred       $73565439
                                    which                                  in    service        charges              from     affiliates          on    the     consolidated
2011       respectively                            is    reported

statements           of income



LFA       also has            similar Master                  Service        Agreement               with       LNLs          Retirement               Planning            Services


RPS             division          Costs          related       to    the    sale    of     RPS         products          that      result     in       LFA       revenue are

identified       and allocated               to    LFA         as    service       charges           on         monthly         basis    by       RPS LFA                  incurred

                      and $1824126                 of RPS-related                service                        in   2012 and 2011                 respectively              which
$1744977                                                                                        charges

                     in   service      charges          from    affiliates         on the consolidated                   statements          of income
is   reported



Service        charges        are      allocated          to        LFA     by     certain           affiliates         under      common               LNC       control              for

                 and        administrative               services           and     for    certain             securities-related             and        product-specific
corporate

                                       to        Master        Services            Agreements                   Service         charges            for        corporate            and
expenses             pursuant

administrative              services             include        but        are     not     limited             to     costs     related           to    human              resource

                                       and distribution                    legal    services           compliance               information              technology                and
administration              print

                             services            Total                                          and administrative                   service           charge     allocations
communication                                              affiliate        corporate

were                             and    $6708267                in    2012       and 2011             respectively              which        is    reported           in    general
          $7496842
and                                                                                                             and     benefits        professional                  and        legal
        administrative              expenses             including           salaries           wages
office expenses              and other general                  and administrative                    expenses          on the consolidated                     statements             of

income




                                                                                                                                                                                       13
1302-1024887


                                                     Lincoln Financial                        Advisors                 Corporation



                                Notes           to        Consolidated Financial                                Statements continued




     Contingencies                    and Commitments


Contingencies



Regulatory              and     Litigation                Matters



Regulatory              bodies          such as the Securities and Exchange                                          Commission                  SEC FINRA                          and other

regulatory               bodies          regularly             make             inquiries          and          conduct            examinations                      or     investigations

concerning               our      compliance                  with                          other        things          securities              laws        laws           governing             the
                                                                          among
activities          of broker-dealers                      and registered investment                            advisors



LFA         is    involved         in    various            pending         or threatened                    legal     or regulatory              proceedings                 arising from

the conduct of business                             both      in    the ordinary             course           and otherwise In some of the matters very

large and/or                 indeterminate                amounts          including           punitive              and      treble     damages              are sought              Modem
pleading           practice        in    the        U.S      permits       considerable                 variation          in   the assertion of monetary                            damages
                                                                                 claimants              not     to                 the monetary                  damages            sought or
or other relief Jurisdictions                              may      permit                                            specif
                                                                         that    the    amount sought                           sufficient        to invoke               the jurisdiction
may     permit           claimants             to    state    only                                                       is


                                                                                                                                                                                                   in
of the       trial      court         In addition             jurisdictions             may        permit            plaintiffs        to     allege      monetary                damages

amounts            well                                                                      verdicts           in    the jurisdiction                 for similar matters This
                              exceeding reasonably                        possible

variability             in    pleadings together                     with        our    actual          experiences               in    litigating          or     resolving          through

settlement              numerous             claims          over an extended period                            of time          demonstrates                 to     management                  that


                                         which                      be specified              in         lawsuit           or    claim bears                little        relevance         to     its
the     monetary              relief                       may
merits or disposition                     value



Due     to       the unpredictable                   nature        of litigation the outcome                           of       litigation         matter          and the amount                  or

             of potential                                                              in   time                                difficult        to    ascertain             Uncertainties
range                                 loss     at    particular points                                  is    normally

can     include              how        fact        finders         will    evaluate              documentary                   evidence              and     the         credibility            and

effectiveness                of witness              testimony and                how        trial      and appellate courts                       will apply               the law        in     the

context           of the pleadings                    or     evidence presented                         whether          by motion               practice             or     at   trial    or      on

appeal            Disposition            valuations                are   also subject              to    the     uncertainty                of   how        opposing              parties        and

their    counsel             will themselves view the relevant evidence and applicable                                                             law


We      establish            liabilities            for   litigation       and regulatory                     loss    contingencies               when           information              related

to    the        loss   contingencies                     shows      both       that    it   is    probable             that           loss      has    been         incurred         and the

amount            of the       loss     can be reasonably                   estimated              It    is    possible         that     some          matters        could require us

to                               or     make          other        expenditures              or    establish            accruals            in   amounts             that    could        not      be
      pay        damages




                                                                                                                                                                                                   14
1302-1024887


                                              Lincoln Financial                         Advisors               Corporation



                            Notes        to    Consolidated Financial                                    Statements continued




     Contingencies               and Commitments                       continued


                            December 31 2012                          While        the                         future                   could      be material             in   the
estimated           as of                                                                    potential                    charges

                                  or annual          periods           in    which           they    are recorded              based on information                 currently
particular quarterly

known                                                                       does       not     believe         any     such     charges       are                  to    have
               by management                   management                                                                                               likely


material        adverse      effect      on    LFAs        financial position



For some matters the Company                               is    able to          estimate               reasonably        possible        range        of loss     For such

matters        in   which         loss    is   probable               an accrual             has been          made      For such matters                where           loss    is



believed         to   be reasonably              possible              but       not     probable              no     accrual     has      been     made           For other

matters         we    are not      currently          able       to    estimate          the    reasonably             possible     loss     or range            of loss        We
                                                                                        or range of loss               until                             in   such matters
are often unable to                                                                                                             developments
                                  estimate       the possible                   loss


have provided             sufficient        information               to    support          an assessment of the range of possible loss                                    such

                                                                demand             from                               discovery         from       other                        and
as    quantification             of         damage                                              plaintiffs                                                       parties


investigation          of factual             allegations              rulings          by     the       court       on motions         or   appeals             analysis       by
                and the progress               of settlement negotiations                                On        quarterly     and annual             basis     we     review
experts
                                                                                                                      and update our accruals                     disclosures
relevant        information           with respect           to       litigation         contingencies

and estimates          of reasonably             possible             losses       or ranges             of   loss   based on such reviews



Commitments


                                      LFA       entered                            loan        agreement              with        select
                                                                                                                                              group           of registered
In    September           2008                                    into


                            in   which         the    principal             balance           loaned          is     determined     by       specific         agreed-upon
representatives
                                  incurred           by   the group              while conducting                    business     over        period          of 36 months
operating           expenses
                                                                                                                                                                        the term
from the agreement                 date        In February              2013           the    loan       agreement was amended                     to    extend

                                  December 31 2013                              Under        the agreement              the borrower         may        obtain      advances
of the note through
               for expenses           incurred              to    but        not       exceeding           $3000000              The    principal         balance          of the
to   pay                                              up
                                      and      $2701898                         December 31                   2012      and     2011       respectively             which        is
loan     is     $2801127                                               at

                      other      assets                    consolidated                  statements                of fmancial      condition             The remaining
reported         in                           on the

commitment by               LFA to          advance        funds           is   $198873             at   December 31 2012




                                                                                                                                                                                 15
1302-1024887


                                              Lincoln Financial             Advisors         Corporation



                          Notes          to    Consolidated Financial                     Statements continued




   Net Capital Requirements


LFA                         to     the        SEC    Uniform          Net   Capital       Rule    Rule      15c3-1      which    requires        the
          is    subject

maintenance of minimum net                          capital        and requires    that    the   ratio   of aggregate   indebtedness        to   net


capital        both as defined            by Rule       5c3-         may not      exceed    15   to




                                                                                                         Year Ended December           31

                                                                                                            2012                2011



     Minimum net                capital       requirement                                                  3701847          3465212
     Net       capital                                                                                    14932553         18416611

     Excess net          capital                                                                          11230706         14951399



     Aggregate indebtedness                                                                               55527678         51978182


     Ratio       of aggregate         indebtedness            to    net capital                             3.72to1             2.82to1



   Subsequent             Events



The Company               has    evaluated          subsequent events             for recognition         and disclosure   through     the       date

the financial statements                  were issued




                                                                                                                                                   16
1302-1024887


               Supplementary Information




1302-1024887


                                            Lincoln Financial                Advisors          Corporation



                 Schedule                                             of Net Capital Pursuant                    to   Rule   15c3-l
                                            Computation
                                          of the Securities and Exchange                         Commission


                                                                 December 31 2012




Computation                 of net    capital

Consolidated           stockholders equity                                                                                           50086786
Deduct         subsidiarys           stockholders equity                                                                               8521928

Total     stockholders equity qualified for net                          capital                                                     41564858


Less non-allowable                   assets

  Commissions                and fees receivable                                                                                     14365254
  Receivables             from       affiliates                                                                                        1925435
  Deferred           tax asset                                                                                                         2222898
  Prepaid                                                                                                                              1316749
                 expenses
  Other assets                                                                                                                         5121964
  Property           and equipment                                                                                                     1041546

Total non-allowable                  assets                                                                                          25993846

Other deductions                                                                                                                            12438

Net    capital       before     haircuts on         securities     positions                                                         15558574
Haircuts        on    securities                                                                                                        626021

Net    capital
                                                                                                                                     14932553



Computation                 of aggregate          indebtedness

Total aggregate              indebtedness                                                                                            55527678


                             indebtedness           to   net capital                                                                   3.72   to
Ratio     aggregate



Computation                 of basic      net    capital    requirements
Net    capital       requirement           greater of         2/3% of       aggregate         indebtedness       or

   $250000                                                                                                                             3701847


Excess net           capital
                                                                                                                                     11230706


Net    capital       less    the greater of         10%     aggregate      indebtedness          or   120% of $250000                  9379785


                                                                                         on           consolidated       basis    however            the
The       audited           financial       statements          are      presented

accompanying                 net     capital      calculation      is    presented       based        on    LFAs      unconsolidated        financial

information            No      material         differences      exist   between        the   above        computation     and the computation

included        in    the    Companys             corresponding          amended unaudited                 Form X-17A-5       Part     hA   filing    as

of December                        2012                       on                   27     2013        with       reconciliation      between         the
                          31                submitted               February

originally        filed     Part     II   and the amended version



                                                                                                                                                     17
1302-1024887


                                            Lincoln Financial               Advisors      Corporation



               Schedule          II      Computation             for Determination          of Reserve      Requirements

                Pursuant          to    Rule       15c3-3 of the Securities and Exchange                    Commission


                                                                 December 31 2012




Credit balances

Free    credit           and other     credit   balances                                                                  3555121

Total     credit         items                                                                                            3555121


Debit balances

Secured         customer debit balances
Less     1%                                                                                                        ______________
Total debit items                                                                                                  _______________
Excess         of   total   credits     over    total   debits                                                            3555121


Amount          held       on deposit      in   Reserve Bank Account                                                      6430000


No     material           differences      exist    between      the   above   computation     and the computation        included     in


the     Companys                 corresponding           amended       unaudited     Form    X-17A-5        Part   hA   filing    as   of

December 31 2012                                                            2013   with                      between    the
                                     submitted      on February        27                  reconciliation                     originally

filed   Part        II   and the amended version




                                                                                                                                       18
1302-1024887


                                           Lincoln Financial                Advisors      Corporation



       Schedule          III        Information Relating                    to Possession or Control Requirements

               Pursuant        to    Rule        15c3-3 of the Securities and Exchange                       Commission


                                                               December 31 2012




Market valuation              and number of items


                                                            and excess                              not in
     Customers           fully      paid    securities                       margin   securities


     LFAs        possession          or control       as of   December 31           2012 for which

     instructions        to    reduce       to   possession     or control     had been issued but

     for   which     the required            action   was     not   taken    by LFA      within   the time

     frames specified under Rule 15c3-3



               Number of items


     Customers                              securities      and excess       margin   securities    for
                         fully      paid

     which       instructions        to    reduce     to   possession       or control   had not been

     issued      as of   December 31 2012                   excluding       items   arising from

     temporary           lags    that      result   from normal business            operations

     as permitted         under Rule 15c3-3



               Number of items




                                                                                                                          19
1302-1024887


               Supplementary Report




1302-1024887


Ui
                                                          i1ERNsTYurG
                                                                                                                                     Suite
                                                                                                                                            nare    700
                                                                                                                                     2005           Market              Street
III
                                                                                                                                     Philadelphia                       PA 19103
U.L

                                                                                                                                     Tel12154485000
                                                                                                                                     Fax12154484069
                                                                                                                                     www.ey.com




                                                                                                                            Public                                                        Firm
               Supplementary                        Report of Independent                         Registered                               Accounting

                                     on       Internal Control Required                           by       SEC         Rule         7a-5g

      The Board of                Directors

      Lincoln Financial                  Advisors Corporation



      In                          and                            our    audit    of the          consolidated               financial               statements                            of Lincoln
             planning                    performing
      Financial         Advisors Corporation                        the      Company                  as     of and for the year                             ended                December 31

      2012       in     accordance              with           auditing      standards          generally            accepted         in            the            United                 States              we
                                   internal         control      over financial reporting                    internal        control as                            basis for                 designing
      considered            its


                                                                                of expressing                our opinion           on the             consolidated                                 financial
      our    auditing         procedures             for the purpose

                             but        not    for       the                   of expressing                 an    opinion         on      the               effectiveness                           of the
      statements                                                 purpose
                                                                                     we     do not                      an opinion                  on the effectiveness                                       of
      Companys internal control Accordingly                                                                express

      the Companys internal control



                                                                                            SEC we              have    made                                      of the practices and
      Also      as required              by Rule           17a-5g1             of the                                                    study

                                                                                                             consideration               of          control                       activities                 for
      procedures              followed              by     the     Company             including

                                  securities             The                 included          tests       of     compliance             with                     such            practices                   and
      safeguarding                                                study

                            that     we       considered          relevant      to    the      objectives          stated     in   Rule             17a-5g                         including                  the
      procedures

      following


                                     the                                              of aggregate                indebtedness           or              aggregate                        debits              and
                     Making                   periodic         computations
                     net capital         under Rule               7a-3a 11            and the reserve              required        by Rule                        5c3-3e


                                    the quarterly              securities     examinations counts                       verifications                      and comparisons                                    and
                     Making
                     the recordation                of differences          required by
                                                                                        Rule                 7a- 13



                                           with the requirements                     for prompt            payment          for securities                         under Section                               of
                     Complying
                     Federal        Reserve                                  of the Board of Governors                       of the Federal                              Reserve               System
                                                     Regulation



                                                                                                                or    control       of                                          paid      and         excess
                     Obtaining and maintaining
                                                                                                                                          all
                                                                          physical      possession                                                    fully


                     margin         securities        of customers as required by Rule                               5c3-3



                                                                                                for establishing             and maintaining                                     internal           control
      The management of                       the    Company           is   responsible

                                                                            referred                   the                                                                In                                  this
      and      the     practices              and    procedures                           to     in             preceding          paragraph                                       fulfilling

                                                                                                                     are                            to            assess            the            expected
      responsibility                estimates            and judgments               by management                           required

                                                           of controls          and     of the                          and                                             referred               to      in     the
      benefits        and related              costs                                                   practices                   procedures

                                                and       to    assess whether            those       practices        and procedures                              can be expected                              to
      preceding         paragraph
                                                                                                Two     of the objectives                of         internal                     control            and the
      achieve         the    SECs          above-mentioned                  objectives
                                                                                                                     reasonable          but         not                absolute              assurance
      practices and procedures                           are to    provide      management with
                                        which        the                        has                                   are    safeguarded                                against             loss         from
      that     assets         for                              Company                  responsibility




                                                                                                                                                                                                               20
      1302-1024887


                                                                                                                                         meriiber        tiriri    ot   Frost     Youn9   Global    Limited


                                                       iIERNsrYouNG
IIIIIIIII

                                                                             and      that          transactions                 are     executed                in          accordance                            with
 unauthorized                 use        or        disposition
                                  authorization                 and        recorded                               to        permit            the        preparation                         of            financial
  managements                                                                                  properly
                                                       with                               accepted           accounting                  principles                    Rule               17a-5g                    lists
  statements            in    conformity                             generally

  additional        objectives             of the practices and procedures                                  listed          in   the preceding                  paragraph


                                                                                          control          and the practices and procedures                                                       referred                  to
  Because          of inherent             limitations               in    internal


                                                       occur and not be detected                          Also projection of any                                       evaluation                           of them
  above          error or fraud               may
  to    future     periods          is    subject         to    the       risk    that        they    may become inadequate because                                                       of changes                        in


  conditions            or that     the effectiveness                     of    their    design          and operation                 may      deteriorate




                             in   internal          control          exists       when         the    design       or operation                    of          control               does not allow
        deficiency

                             or     employees                  in    the     normal            course       of performing                      their           assigned                    functions                        to
  management
                   or    detect          and       correct          misstatements                   on       timely              basis              significant                     deficiency                         is
  prevent
                                                                                                     internal control                  that          less       severe               than                  material
  deficiency            or        combination               of deficiencies                    in                                              is


                                                                          merit attention by those charged with governance
  weakness          yet important                   enough           to




        material        weakness                                             or combination                  of deficiencies                    in       internal             control                  such            that
                                              is     deficiency

  there    is       reasonable                possibility that                    material           misstatement of the entitys                                       financial statements

  will not be prevented                        or detected               and corrected               on     timely basis



                                         of                         control       was         for the        limited                                described                       in     the             first       and
  Our     consideration                        internal                                                                          purpose
                                                                                                                  deficiencies                 in    internal               control                that         might
  second paragraphs                      and was not designed                       to        identify      all


  be significant deficiencies                          or material               weaknesses               and     therefore               there can               be no assurance                                      that


                                                          deficiencies              or material              weaknesses                  have        been identified                                However
  all    deficiencies             significant

  we     identified           the     following             deficiencies                 in    internal control                   that        we     consider                  to         be               material

                              defined              above            These        deficiencies              were        considered                   in    determining                            the         nature
  weakness              as

                  and        extent       of the                                   performed                in    our audit                   of the           consolidated                                financial
  timing                                                    procedures

                         of the                                 as        of and         for the                       ended           December 31                             2012                 and            these
  statements                             Company                                                           year

  deficiencies            do not          affect       our report on the                        consolidated                financial           statements                      of the               Company
  dated     February              28 2013


  Internal        control         deficiencies              were          identified with regard                       to    the    Companys                     financial reporting                                        of

  its    December 31 2012                           reserve          requirement under                      SEC         Rule             5c3-3           and       its         determination                                of

                        balances          in       accordance              with                           accepted           accounting                  principles                      As                result           of
  receivable                                                                       generally
                                                                                                                                         2012 unaudited                              Form X-17a-5
  these     deficiencies                 adjustments                to    the    Companys December 31
  Part     hA      filing         were         required The                  adjustments                 included           the    identification                      of additional                            third-


  party checks               totaling          $2018576                  required        for inclusion            in        the    Companys                    free          credit              balances                   in


                          with        SEC           Rule            15c3-3        and         the     write-off              of an            accounts                 receivable                          asset            of
  accordance

  $2279601                The Companys                         determination                  of net       capital          in    accordance                   with         SEC                  Rule         15c3-1


  was      not     affected          as            result      of these           deficiencies              The Company                        is    reviewing                       its         controls               for

  financial                               to       ensure                   are    functioning              to    prevent                 recurrence                    of the                   deficiencies
                   reporting                                    they

  identified herein                 and       to   help     prevent          and detect              material      misstatements                         going forward




                                                                                                                                                                                                                            21
  1302-1024887


                                                                                                                                                     neITber    firm   of   Foist                 Globsi     Limited
                                                                                                                                                                                         Young


                                                                                                                                                                                          the
We     understand        that        practices      and procedures           that    accomplish              the   objectives                  referred                   to      in


second         paragraph        of   this   report    are considered           by        the    SEC     to    be adequate                  for          its
                                                                                                                                                                 purposes                  in


accordance        with the Securities                               Act of 1934 and related regulations                                        and        that            practices
                                                     Exchange
                                                                                                        material                               indicate                    material
and procedures           that    do not accomplish             such objectives                 in all                  respects

inadequacy for such purposes                        Based    on   this   understanding              and on our study                      we            believe                that       the

                                     and procedures           as described           in   the     second       paragraph of                    this       report                except
Companys           practices
                                                                                                    that   we       consider                   to        be                material
for the        matters       described         in    the    preceding        paragraphs

inadequacy           were     adequate        at    December 31 2012                to    meet the       SEC        objectives



This              is   intended        solely for the information              and use of the Board of Directors                                           management
        report

                                                                                          rely on Rule                                   under the Securities
the    SEC FD4RA                and other regulatory              agencies      that                               17a-5g
                                                                   of registered brokers                   and dealers             and                  not intended                       to
Exchange         Act of 1934           in   their   regulation
                                                                                                                                                is



be and should          not    be used by anyone              other than       these specified                parties




                                                                                                                                                                   7LLP
February        28     2013




                                                                                                                                                                                           22
1302-1024887


                                                                                                                                                                 Global         rnrrted
                                                                                                                        merirber   fir    of   Frrrst    Young



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