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Final Rule

Electronic Filing by Investment Advisers; Amendments To Form ADV

Overview

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 275, and 279

Release No. IA-1897; 34-43282; File No. S7-10-00

RIN 3235-AD21

Electronic Filing by Investment Advisers; Amendments to Form
ADV

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

SUMMARY: The Commission is adopting new rules and rule
amendments under the Investment Advisers Act of 1940 to require that
advisers registered with the Commission make filings under the Act with
the Commission electronically through the Investment Adviser Registration
Depository (IARD). The Commission is also adopting amendments to Forms ADV
and ADV-W that prepare those forms for electronic filing. The new rules
implement our statutory mandate to create a one-stop electronic filing
system for investment advisers and to provide investors with a readily
accessible database of information about investment advisers and persons
associated with investment advisers.

EFFECTIVE DATE: October 10, 2000. The transition to electronic
filing, beginning in January 2001, is discussed in Section I.B of this
Release.

FOR FURTHER INFORMATION: Visit the IARD page on our website at
www.sec.gov/divisions/investment/iard.shtml, or email
<IARDlive@sec.gov>. Or contact Jennifer B. McHugh, Special Counsel,
or Jennifer L. Sawin, Special Counsel, at (202) 942-0691, Office of
Investment Adviser Regulation, Division of Investment Management,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549-0506. We urge interested persons with access to the Internet to
review information about the IARD and the new rules on our website before
contacting our staff.

SUPPLEMENTARY INFORMATION: The Commission is adopting amendments
to rules 30-5 and 30-11 of the SEC's Organization and Program Management
rules [17 CFR 200.30-5 and 200.30-11], new rule 203-3 and Form ADV-H;
adopting amendments to rules 0-2, 0-7, 203-1, 203-2, 203A-1, 203A-2, and
204-1 [17 CFR 275.0-2, 275.0-7, 275.203-1, 275.203-2, 275.203A-1,
275.203A-2, and 275.204-1]; and Form ADV, Form ADV-W, and Form 4-R [17 CFR
279.1, 279.2, and 279.4] under the Investment Advisers Act of 1940 [15
U.S.C. 80b-1] (the Advisers Act or the Act). The Commission also is
withdrawing rule 204-5 [17 CFR 275.204-5] and Forms 5-R, 6-R, 7-R, and
ADV-Y2K [17 CFR 279.5, 279.6, 279.7, and 279.9] under the Advisers Act.

Table of Contents
EXECUTIVE
SUMMARY
I.
DISCUSSION
 
A. The
Investment Adviser Registration Depository
 
B.
Transition to Electronic Filing
 
 
1.
Applicants For Registration as an Investment Adviser
 
 
2. Advisers
Currently Registered with the Commission
 
 
3. Hardship
Exemptions
 
 
4. Setting
Up an IARD Account
 
 
5. Getting
Help.
 
C.
Amendments to Form ADV
 
 
1. Part 1
of Form ADV
 
 
2. Part 2
of Form ADV
II.
EFFECTIVE DATE
III.
COST-BENEFIT ANALYSIS
IV.
PAPERWORK REDUCTION ACT
V. SUMMARY
OF FINAL REGULATORY FLEXIBILITY ANALYSIS
VI.
STATUTORY AUTHORITY
Text of
Rule and Form Amendments
 Appendix
A: Form ADV
(in PDF format)Appendix B: Form
ADV-W
(in PDF
format
)Appendix C: Form
ADV-H
(in PDF
format
)Appendix D: Form ADV-NR
(in PDF
format

EXECUTIVE SUMMARY

The Commission is adopting new rules and rule amendments under the
Advisers Act to require registered investment advisers to make filings
with us electronically through the Investment Advisers Registration
Depository (IARD). The IARD, which will be operated by NASD Regulation,
Inc. (NASDR), will permit investment advisers to satisfy their filing
obligations under state and federal law with a single electronic filing
made over the Internet.

We are also amending Forms ADV and ADV-W to update the forms and
prepare them for electronic filing. The amendments to Form ADV primarily
affect Part 1 of the form. We are deferring, for later consideration,
adoption of amendments to Part 2 of Form ADV and related rules.

An applicant for registration as an adviser after January 1, 2001 must
submit its application electronically through the IARD using amended Form
ADV. Advisers registered with the Commission must transition to electronic
filing by submitting amendments to their Form ADVs through the IARD during
the first four months of 2001 in accordance with a transition schedule we
are today adopting. After April 2001, the Commission will no longer accept
paper filings of Form ADV unless the adviser has been granted a hardship
exemption.

I. DISCUSSION

In April, the Commission proposed amendments to the filing rules under
the Advisers Act as well as amendments to Forms ADV and ADV-W.1 We received over 70 comments on the proposed
rules.2 Commenters overwhelmingly supported electronic
filing by advisers. Today we are adopting those amendments, but are
deferring adoption of amendments to Part 2 of Form ADV for reasons we
describe below.3

A. The Investment Adviser Registration
Depository

The Commission and the state securities authorities have created an
electronic filing system, the IARD, through which investment advisers will
make filings with us and the states over the Internet. NASDR is building
and will operate the IARD under contracts with the Commission and the
North American Securities Administrators Association (NASAA).4 NASDR will be responsible for certain
ministerial tasks as operator of the IARD, but will not act as a
self-regulatory organization for advisers.5

The IARD will be "rolled out" in a series of releases beginning early
next year.

  • SEC-Registered Adviser Filings. Firms registered or applying
    for registration with us will use the IARD to file Forms ADV and ADV-W
    beginning in January 2001.6 We have approved a schedule of filing fees that
    NASDR will charge to support operation of the system,7 and are today adopting rules requiring all
    advisers to transition to electronic filing during the first four months
    of 2001.8 These rules and the transition schedule are
    described in more detail in Section I.B of this Release.

    SEC-registered advisers will be able to make notice filings to, and
    submit filing and other fees to, the states through the IARD after January
    1, 2001. The IARD will automatically calculate the amount of the fees due
    and will remit funds to the states.9 SEC-registered advisers will need to fund their
    IARD accounts with NASDR because the IARD will not accept filings if there
    are insufficient funds on account to pay IARD filing fees and state fees.
    We discuss setting up an IARD account in Section I.B.4 of this Release.

  • State-Registered Adviser Filings.10 In January 2001, the IARD will also be ready to
    accept filings of state-registered advisers. State-registered advisers
    will pay IARD filing fees based on the same schedule as SEC-registered
    advisers. We understand that all states will accept filing of Forms
    ADV and ADV-W through the IARD and that some states may require
    state-registered advisers to use the IARD. State-registered advisers that
    are unsure of the requirements of a state in which they are registered
    should contact the state securities authority.
  • Public Access. The information filed through the IARD will form
    a database of information on advisers. Investors will be able to search
    the IARD database using the name of the adviser or an individual and
    obtain access to current information filed on Form ADV. We expect the
    public disclosure component of the IARD to begin operating in mid-2001. In
    later system releases we hope to be able to expand the search capabilities
    of the public access system so that investors may be able to search for an
    adviser that meets certain other criteria, e.g., search for all
    advisers that provide financial planning services and have offices in a
    particular state.

    In the Proposing Release, we explained that we would block Internet
    access to social security numbers and sole proprietors' home addresses
    reported on Form ADV.11 As urged by some commenters, we will also
    block Internet disclosure of all private residence addresses identified in
    the form,12 as well as "contact employee" information
    reported on the form.13

  • Investment Adviser Representative Filings. Advisers will also
    be able to use the IARD for investment adviser representative license
    filings and renewals and to pay fees associated with those filings. This
    portion of the system will not be operational until later in 2001. Because
    we do not separately register or license advisers' employees, we have not
    been involved in development or deployment of this part of the IARD.
  • Part 2 of Form ADV. The IARD will, in a later system release,
    accept Part 2 of Form ADV. As noted above, the Commission is not now
    adopting amendments to Part 2. Until we adopt revisions, advisers must
    continue to deliver "old" Part II to prospective clients and annually
    offer them to clients under our brochure rule.14 As proposed, we will not require advisers to
    submit Part II of Form ADV to us until the IARD is able to accept
    advisers' brochures electronically.15 Under the rules we are adopting, however, Part
    II will be considered filed with us during this interim period.16 We discuss Part II and the interim rules in
    Section I.C.2 of this release.

    B. Transition to Electronic Filing

    The Commission is adopting, substantially as proposed, amendments to
    our filing rules to implement electronic filing and create a transition
    process for advisers currently filing with the Commission on paper. The
    following sections describe the revised requirements both for applicants
    for registration under the Advisers Act and for current registrants.
    Additional guidance may be found in the revised instructions to Form ADV
    and our web site.

    1. Applicants For Registration as an Investment
    Adviser

    Persons applying for registration with the Commission as an investment
    adviser after January 1, 2001 must file Form ADV, as amended, through the
    IARD.17 Paper filings on Form ADV will be accepted
    only if the person has obtained a hardship exemption, described
    below.18

    2. Advisers Currently Registered with the
    Commission

    Each adviser registered with the Commission on January 1, 2001 must
    re-file its Form ADV with us through the IARD, using amended Form
    ADV, during one of the first four months of 2001.19 All subsequent amendments must be made
    electronically, and if the adviser should withdraw its registration, Form
    ADV-W must be filed electronically.20

    To facilitate a smooth transition to electronic filing, we have
    assigned each adviser registered with us to one of four groups. Members of
    each group must file amendments to their registration forms by the end of
    one of the first four months of 2001.21 They must use revised Form ADV, and must file
    electronically through the IARD unless they have obtained a hardship
    exemption. We have assigned each adviser with a fiscal year ending in
    December to one of the first three months by reference to its SEC filing
    number,22 which will permit those advisers to use the
    transitional filing to also satisfy their annual updating requirement
    under our rules.23 We have assigned advisers having fiscal years
    ending in months other than December to the group that must file no later
    than the last day of April 2001.24

    3. Hardship Exemptions

    An adviser may request one of two types of hardship exemptions by
    submitting Form ADV-H (on paper) to NASDR.25 A temporary hardship exemption permits
    the adviser to extend the deadline for a filing for seven business days if
    unexpected difficulties, such as a computer malfunction or electrical
    outage, prevent it from filing.26 The temporary hardship exemption is available
    automatically upon filing Form ADV-H. A continuing hardship exemption
    is available only to an adviser that is a "small business" and can
    demonstrate that filing electronically would create an undue hardship
    (e.g., the adviser has no computer and is unable to afford a
    filing service).27 Although advisers requesting a continuing
    hardship exemption will submit Form ADV-H to NASDR, the decision whether
    to grant an exemption will be made by the Commission.28

    4. Setting Up an IARD Account

    In order to file electronically, an adviser must first request and
    obtain access to the IARD and set up an IARD account with NASDR. This
    fall, we will mail each SEC-registered adviser the forms and instructions
    needed to set up an IARD user account with NASDR. Advisers must complete
    these forms, sign them, and mail them back to NASDR. NASDR will then
    create the adviser's IARD account for fee payments, assign the adviser a
    CRD number,29 and issue passwords for the adviser's
    authorized personnel. NASDR will also provide the adviser with
    instructions on funding its IARD billing account; the adviser must fund
    its IARD billing account by check or wire transfer before it can make an
    electronic filing through the IARD.30

    5. Getting Help.

    We designed the IARD with the assistance of an advisory industry
    committee whose members represented different types of advisory firms. The
    committee helped us design the IARD to be easy for advisers to use. Under
    a pilot program, scheduled to begin next month, a small group of advisers
    will make filings through the IARD to test the system. Persons completing
    Form ADV on the IARD will be able to use an on-line help function that our
    staff will update from time to time with answers to frequently asked
    questions. We recognize, however, that the IARD and our rule amendments
    may raise questions for persons filing for the first time. Our staff and
    the staff of NASDR will provide assistance to advisers during this
    transition period. We have created a page on our web site to provide
    information to advisers about electronic filing.31 We will use the IARD web page to post copies
    of forms, instructions on gaining IARD access, instructions on how to make
    an electronic filing, and answers to frequently asked questions about the
    IARD and electronic filing. We have established a hot line to answer
    questions,32 and the NASDR will operate a help desk for
    advisers.33 Before calling, we urge advisers and their
    personnel to consult the instructions to Form ADV and our web site.

    C. Amendments to Form ADV

    Form ADV consists of two parts. The first part asks for information
    about the adviser and persons associated with the adviser, which provides
    us with information we need to make registration decisions and manage our
    regulatory and examinations program. The second part contains the
    requirements for a written statement that advisers must provide to
    prospective clients and annually offer to clients under our rules.34

    1. Part 1 of Form ADV

    We proposed substantial revisions to Part 1 to accommodate electronic
    filing, and to reflect changes in the advisory industry and the laws
    regulating investment advisers.35 We proposed to reorganize Part 1 using
    simpler language, and introduce the items with brief explanations of why
    we need the information. We proposed substantial revisions to the
    schedules to Part 1, on which advisers must provide information about
    control persons and details about disciplinary events. Finally, we
    proposed to divide Part 1 further into two parts, segregating those items
    to which all advisers must respond (Part 1A) from those additional items
    to which only state-registered advisers must respond (Part 1B).36

    Many of the commenters on Part 1A requested technical changes or
    suggested that we clarify some of the language. These comments have led us
    to make several minor changes to the Instructions, Glossary of
    Terms,37 and Items38 that we believe improve the form. The most
    significant changes we proposed to Part 1A involved Item 11, which
    requires disclosure of disciplinary information about the adviser and
    certain of its advisory personnel. We are adopting this item substantially
    as proposed with one change urged by commenters.

    Item 11 requires that each adviser responding affirmatively to a
    disciplinary question complete a Disclosure Reporting Page (DRP). Part 1A
    has three DRPs, one each for criminal, civil, and regulatory actions.
    Advisers must complete a separate DRP for each reported event; the DRPs
    elicit details regarding the disciplinary events in a structured format
    and replace current Schedules D and E. Item 11 includes an expanded list
    of disciplinary events that must be reported on a DRP. Advisers must now
    report actions of foreign courts and regulatory authorities,39 cease-and-desist orders issued by the
    Commission,40 and military court convictions, misdemeanor
    perjury convictions, and convictions for conspiracy to commit certain
    offenses.41 Advisers must only report disciplinary events
    occurring within the last ten years,42 and, by checking a box on the appropriate
    DRP, advisers can remove from their current Form ADV disciplinary events
    reported for advisory affiliates no longer associated with the firm.

    We proposed to expand the current requirement that advisers report
    certain pending criminal proceedings to require disclosure of any felony
    charges, and certain misdemeanor charges, brought against the adviser or
    an advisory affiliate during the preceding ten years. Many commenters
    opposed this change, pointing out that it would require disclosure even
    when the charges were later dropped or the person acquitted.

    We have decided to require SEC-registered advisers to disclose only
    pending charges, as currently required by the form.43

    2. Part 2 of Form ADV

    As noted above, we are deferring adoption of amendments to Part 2 of
    Form ADV. Deferment will allow us time to fully consider the many comments
    we received on our proposed revisions to Part II. We have left the (old)
    form, Part II, in place and are also retaining the current rules on
    delivery of old Part II. As a result, advisers must continue to provide
    prospective clients with (old) Part II of Form ADV or a brochure
    containing at least the same required information.44 Advisers also must maintain an updated copy
    of their (old) Part II in their files, and must provide it to the
    Commission staff upon request. However, we are not requiring advisers to
    submit these documents to us until we have acted on the Part 2 amendments
    and the IARD is ready to accept (new) Part 2 brochures
    electronically.45 We will notify advisers when the IARD is
    ready and will provide a grace period before advisers are required to file
    (new) Part 2 brochures.

    A consequence of our decision not to require an adviser to submit its
    old Part II of Form ADV to us during this interim period is that our
    updating requirements will no longer apply.46 However, under the Advisers Act's anti-fraud
    rules, advisers are prohibited from materially misleading their clients,
    and thus have an obligation not to provide their clients with a materially
    misleading Part II or brochure.47 Therefore, even though our updating rules may
    no longer apply, an adviser continues to have an obligation to update the
    disclosure it provides to clients to avoid misleading them.48

    II. EFFECTIVE DATE

    The effective date for the rules and rule amendments is October 10,
    2000. Under the Administrative Procedure Act, we may establish an
    effective date less than 30 days after the publication of these rules if
    we find good cause to do so.49 Mandatory filing through the IARD system will
    not begin until January 1, 2001. Until January 1, 2001, the rules will
    only affect the approximately 100 advisers that have volunteered to
    participate in the IARD's pilot program and submit their Form ADV through
    the system before mandatory filing begins. Due to the voluntary nature of
    use of the new system until January 1, 2001, no investment advisers will
    be disadvantaged by effectiveness of these rules with less than 30 days'
    notice.

    III. COST-BENEFIT ANALYSIS

    In the Proposing Release, we carefully analyzed the costs and benefits
    of our proposals and requested comment and data regarding the costs and
    benefits of the rule and form amendments on individual advisers and on the
    industry as a whole. As noted above, most commenters strongly favored
    electronic filing and several asserted that electronic filing would result
    in efficiencies and would ease the regulatory burden on advisers. Others,
    however, disagreed with our cost-benefit analysis in the Proposing
    Release, and felt that the benefits of electronic filing would not justify
    the overall costs.50

    After reviewing the comments, and evaluating information about the
    potential costs and benefits that has come to our attention since we
    proposed these rules, we have concluded that the benefits of electronic
    filing and the related rule amendments justify their costs.

  • Costs. The amendments implement electronic filing through the
    IARD. As we discussed in the Proposing Release, electronic filing will
    impose certain costs on advisers. Advisers will need to become familiar
    with the IARD and will pay filing fees to NASDR. Since we published our
    proposals, we have approved NASDR's schedule of filing fees, and the costs
    our rules will impose on advisers have become clearer. Annual filing fees
    will range from $100 for advisers with less than $25 million of assets
    under management to $550 for advisers with more than $100 million of
    assets under management. We estimate that advisers registered with us will
    annually pay $2.5 million in filing fees.

    The amendments revise Forms ADV and ADV-W. We believe SEC-registered
    advisers will experience few additional costs in completing revised Part
    1. The only additional information that new Part 1A requires is
    information that should be readily available to an adviser. We do not
    believe the revisions to Form ADV-W impose additional costs on advisers.

  • Benefits. We believe that electronic filing will yield
    substantially greater benefits to advisers and to investors, including
    allowing us to establish the public access system that Congress mandated
    in NSMIA.51

    Electronic filing will eliminate many costs advisers currently incur in
    filing their Form ADV. Today, advisers must prepare registration materials
    on paper, copy them, and submit the paper copies to both the SEC and
    states. Many of these paper copies must be manually signed and notarized.
    Correcting a mistake requires the adviser to repeat the entire process.
    The IARD, in contrast, will permit the adviser to satisfy all of its
    filing obligations by submitting a single electronic filing prepared using
    a personal computer in its office. On the IARD, an adviser will be able to
    correct mistakes by simply typing over incorrect information and
    re-sending the electronic submission.52 Today, advisers must determine the amount of
    filing fees due to each state, prepare checks and mail them so that they
    are delivered in a timely manner.53 Errors can result in penalties or cause
    disruptions in business. The IARD, in contrast, will eliminate these costs
    by automatically determining the amount of filing fees owed and debiting
    the adviser's account when those fees are due. We believe these benefits
    will justify the filing fees and other expenses for advisers registered
    with the Commission.54

    Revised Form ADV and the IARD system also benefit advisers by offering
    additional ways to reduce costs. An adviser may save a partially completed
    form as a "draft" that the adviser can access and complete at a later
    time. An on-line glossary allows advisers' personnel to refer to
    explanations of key terms while completing Form ADV, and an on-line "help"
    function answers frequently-asked questions and provides guidance on
    completing the form.55 When an adviser prepares an amendment to its
    Form ADV, the IARD will fill in most of the items from the adviser's
    previous IARD filings, reducing the adviser's time (and therefore expense)
    in completing the amendment. Further, the IARD will allow advisers that
    also are registered as broker-dealers to complete schedules to their Form
    ADV by "linking" to parallel responses in their Form BD already on
    file.56 These firms should recognize additional cost
    savings by avoiding entering certain data twice.

    We have adopted a continuing hardship exemption, considering that not
    all advisers may have Internet access. We have provided the exemption for
    advisers that are small businesses and are unable to file through the IARD
    without undue burden and expense.57

    The IARD also has the potential to speed the registration process for
    investment adviser representatives of SEC-registered advisers.
    Registration of investment adviser representatives on the IARD will be a
    matter for state securities authorities; we do not register or license
    investment adviser representatives. Our experience with the CRD system,
    however, provides an analogy. Our understanding of how broker-dealer agent
    filings on the CRD system are processed suggests that electronic filings
    on the IARD for investment adviser representatives are likely to be more
    efficient and cost effective than the current system of paper filings.

    Electronic filing also will produce substantial benefits for investors.
    First, and most important, the information on these filings will be
    available for investors to view, quickly and without cost, on a web
    site.58 Investors will be able to determine, for
    example, whether a prospective adviser has reported disciplinary events,
    what types of fees it charges, and whether the types of advisory services
    it offers are designed to meet their needs. As a result, investors -
    clients and potential clients -- will be in a better position to make
    informed decisions.

    The added "sunlight" the web disclosure will shine on advisers may have
    additional, secondary benefits. Information from advisers' filings will be
    available through a web site, and easy availability of information about
    advisers and advisory affiliates may, for example, discourage advisers
    from engaging in certain practices or hiring certain persons (such as
    those with a disciplinary history or limited qualifications). Facilitating
    investors' access to information may also result in greater competition
    among advisers, which may in turn lower prices or encourage the
    development of different fee structures or different kinds of services
    that may benefit clients. These types of benefits are difficult to isolate
    or to quantify, but our experience is that they are real and are often the
    result of better disclosure.

    Electronic filing will also give us better access to information about
    advisers to administer our regulatory programs. We expect this information
    will permit us to increase both the efficiency and effectiveness of our
    programs and thus increase investor protection. The IARD will permit us to
    better monitor advisers' failure to make required filings, identify
    advisers whose activities suggest a need for closer scrutiny, and manage
    our regulatory programs. The IARD will generate reports on the industry,
    its characteristics and trends. These reports will help us anticipate
    regulatory problems, allocate and reallocate our resources, and more fully
    evaluate and anticipate the implications of various regulatory actions we
    may consider taking.

    The revisions to Form ADV are also likely to benefit advisers. We have
    re-drafted Part 1A in plain English, improved its organization, and added
    instructions to clarify some items. The revised schedules make it much
    simpler for an adviser to provide information about its control
    persons.59 While smaller advisers may find these
    benefits limited, larger advisers (particularly advisers that are part of
    a larger, more intricate corporate structure) should see cost savings from
    the changes. The new Disclosure Reporting Pages (DRPs) require
    substantially more detailed information about disciplinary events than is
    specified in the current form, but the DRPs should serve mainly to clarify
    existing disclosure obligations, which are worded more generally.60 Moreover, we are only requiring advisers to
    report disciplinary events occurring in the past ten years,61 and have removed information about the
    educational and business background of employees. We believe these changes
    will justify any additional costs associated with amendments to Part 1A.

    Advisers will also benefit from the revisions to Form ADV-W. In amended
    Form ADV-W, the adviser must complete only those items needed to process
    its withdrawal. Form ADV-W will also become effective immediately, rather
    than after a sixty-day "waiting period," thereby smoothing the transition
    period for advisers switching to state registration.

    IV. PAPERWORK REDUCTION ACT

    As explained in the Proposing Release, the rule and form amendments
    (including new rule 203-3 and new Form ADV-H) that we are adopting today
    contain several "collection of information" requirements within the
    meaning of the Paperwork Reduction Act of 1995. In the Proposing Release,
    the Commission published notice soliciting comment on the collection of
    information requirements. The Commission submitted the collection of
    information requirements to the Office of Management and Budget ("OMB")
    for review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11.62 An agency may not conduct or sponsor, and a
    person is not required to respond to, a collection of information unless
    it displays a currently valid control number. To correct an error in the
    proposed collection of information for Form ADV, the Commission has
    submitted a PRA change worksheet to OMB. Modifications made to the
    amendments as proposed do not affect the collection of information.

    We use the information we require from advisers to determine
    eligibility for registration with us, as well as in managing our
    regulatory, examinations, and enforcement programs. The information will
    also form a database, easily accessible to investors, about advisers and
    their personnel.

    Form ADV

    As amended, rule 203-1 requires every applicant for investment adviser
    registration with the Commission to file Form ADV through the IARD. Rule
    204-1 requires each registered adviser to file amendments to Form ADV
    through the IARD at least annually,63 and requires currently registered advisers to
    transition to the IARD and the revised form. We expect the efficiencies of
    filing through the IARD to, over time, reduce the initial burdens
    associated with completing the revised Form ADV.

    The total burden for all advisers filing current Form ADV is 19,448
    hours.64 There are currently approximately 8,100
    advisers registered with us, and, based on recent experience, the
    Commission staff has now estimated that each year we receive approximately
    1,000 new applications for registration as an adviser. As discussed in the
    Proposing Release, this increase in the number of respondents has
    increased the collection of information by 3,703 hours, independent of
    today's amendments.65

    The revised burden estimate for the collection of information on Form
    ADV reflects the amendments to the form as well as the requirement that
    currently-registered advisers re-file their Form ADV electronically in
    order to transition to use of the revised form and IARD system. The
    revised collection of information also incorporates the burden of current
    Schedule I to Form ADV.66

    The Commission staff had estimated an average burden increase for Form
    ADV of 1.47 hours per adviser per year for a 15-year period.67 This burden increase reflected new
    registrants' filings of revised Form ADV as well as currently-registered
    advisers' IARD transition filings. Several commenters expressed concerns
    that the estimates for initial completion of revised Form ADV were too
    low, particularly for large firms.68 The estimated hours are averages that take
    into consideration small advisers as well as those with thousands of
    employees.

    The Commission has submitted a PRA change worksheet to OMB to correct
    an error in the collection of information, which error may have
    contributed to commenters' concerns. The increase in burden due to the
    amendments was presented as the total burden of the collection of
    information, omitting reference to the current burden to which the
    incremental hours were added.

    As discussed in the Proposing Release, the Commission staff has
    estimated that advisers will file a total of 13,250 Form ADV amendments
    with us each year.69 We anticipate that electronic filing will
    reduce the information collection burden of filing an amendment to Form
    ADV by approximately thirty percent,70 and the estimated burden for Form ADV
    amendments is 9,938 hours per year.71

    The collection of information burden due to rulemaking for advisers to
    file and complete the revised Form ADV is approximately 23,315 hours per
    year.72 The total increase in the collection of
    information burden therefore is 27,018 hours,73 and the total collection of information
    burden for Form ADV is therefore 46,466 hours.74

    This collection of information appears at 17 CFR 275.203-1, 275.204-1,
    and 279.1. Responses are not kept confidential. The information collection
    requirements are required for all advisers registered with us or applying
    for registration after January 1, 2001.

    Form ADV-W and Rule 203-2

    The Commission is amending rule 203-2 to (i) require advisers to file
    Form ADV-W through the IARD and (ii) make adviser withdrawals effective
    upon filing.75 The Commission is also amending Form ADV-W to
    permit advisers filing for "partial withdrawals" to omit certain items
    that we do not need from an adviser continuing in business as a
    state-registered adviser. The Commission staff has estimated that
    approximately 50 percent of advisers filing for withdrawal will file for
    full withdrawal, incurring a burden of approximately 0.75 hours (45
    minutes) per response, and the remaining 50 percent will file for partial
    withdrawal, incurring a burden of approximately 0.25 hours (15 minutes)
    per response. The weighted average total time for each respondent to
    complete Form ADV-W as amended is estimated to be 0.5 hours (30 minutes),
    a decrease from the one hour required for the current form. Based on the
    Commission's recent experience in processing investment adviser
    withdrawals, however, the Commission staff has estimated that
    approximately 1,300 advisers withdraw from SEC registration each year,
    which is an increase from the current burden.76 The total collection of information burden is
    estimated to be 650 hours.77

    This collection of information is found at 17 CFR 275.203-2 and 17 CFR
    279.2. Responses are not kept confidential. The information collection
    requirements are required for all advisers registered with the Commission
    once the transition period to electronic filing is complete.

    Rule 0-2 and Form ADV-NR

    The Commission is amending rule 0-2, adding Form ADV-NR, and deleting
    Forms 4-R, 5-R, 6-R and 7-R. Rule 0-2 permits service of process on
    non-resident advisers and on non-resident general partners or managing
    agents of advisers by service on their agents. The amended Form ADV
    execution page for non-resident advisers incorporates the substance of
    Forms 4-R through 6-R, and designates the Secretary of the Commission,
    among others, as the adviser's agent for service of process; accordingly,
    the paperwork burdens of Forms 4-R through 6-R have been incorporated into
    the collection of information requirements for Form ADV, discussed above.
    The substance of Form 7-R is contained in new Form ADV-NR. Form ADV-NR
    designates the Secretary of the Commission, among others, as the
    non-resident general partner's or managing agent's agent for service of
    process.

    The Commission staff has estimated that approximately 380 respondents
    each year will be subject to rule 0-2. Of these, approximately 285
    respondents will be non-resident advisers that will now comply with rule
    0-2 simply by executing Form ADV. The remaining 95 respondents will be
    non-resident general partners or managing agents of SEC-registered
    investment advisers, and must file Form ADV-NR with the Commission.78 The staff has estimated that preparing and
    filing Form ADV-NR will continue to require approximately one hour of the
    non-resident general partner's or managing agent's time.79 The total estimated burden therefore is 95
    hours.

    This collection of information is found at 17 CFR 275.0-2 and 17 CFR
    279.4. Responses are not kept confidential. The information collection
    requirements are required for each non-resident adviser, and for each
    non-resident general partner or managing agent of any SEC-registered
    adviser.

    Rule 203-3 and Form ADV-H

    We are adopting new rule 203-3 and new Form ADV-H. Rule 203-3 requires
    advisers requesting either a temporary or continuing hardship exemption to
    submit the request on Form ADV-H. An adviser requesting a temporary
    hardship is required to file Form ADV-H, providing a brief explanation of
    the nature and extent of the temporary technical difficulties. Form ADV-H
    requires an adviser requesting a continuing hardship exemption to indicate
    the reasons the adviser is unable to submit electronic filings without
    undue burden and expense.80 A continuing hardship exemption will be
    available only to an adviser that is a small entity.81

    Commission records indicate that approximately 1,500 SEC-registered
    advisers are small entities. There are, therefore, approximately 1,500
    potential respondents that could apply for a continuing hardship
    exemption, and approximately 8,100 potential respondents that could apply
    for a temporary hardship exemption.82 The Commission staff has estimated that, each
    year, 50 advisers will request a temporary hardship exemption and 20 will
    apply for a continuing hardship exemption. Form ADV-H and rule 203-3 have
    been estimated to create a collection of information burden of
    approximately 60 minutes per respondent, for a total of 70 hours.83 This collection of information is found at 17
    CFR 275.203-3 and 17 CFR 279.3. Responses are not kept confidential. The
    information collection requirements are required only if the adviser seeks
    an exemption.

    V. SUMMARY OF FINAL REGULATORY FLEXIBILITY
    ANALYSIS

    We have prepared a Final Regulatory Flexibility Analysis (FRFA) in
    accordance with section 3(a) of the Regulatory Flexibility Act
    (RFA)84 regarding the amendments to Form ADV and
    other rules and forms under the Advisers Act. We prepared an Initial
    Regulatory Flexibility Analysis (IRFA) in conjunction with the Proposing
    Release and made it available to the public. We received no comments
    specifically on the IRFA.

    A. Need for the Rule and Form Amendments

    As discussed in more detail in the FRFA, and above, the rule and form
    amendments85 are necessary to: (i) facilitate the
    development of a system of electronic filing by investment advisers; (ii)
    update the registration forms for advisers to reflect recent legislative
    and regulatory developments; and (iii) develop a database of information
    about advisers that is easily accessible to investors.

    B. Significant Issues Raised by Public Comment

    The Commission received 70 comment letters in response to the Proposing
    Release. The commenters generally supported the proposal, although some
    expressed concerns with specific provisions, and some suggested
    alternative approaches for addressing particular issues. As discussed
    above, the Commission has concluded that certain suggestions from
    commenters are appropriate and has adopted the rule and form amendments
    with changes to reflect those suggestions.

    The Commission specifically requested comment with respect to the IRFA.
    No comments were received specifically on the IRFA, but one commenter did
    urge the Commission to disregard any comments from Wyoming advisers if the
    commenters argued that the rule and form amendments would be burdensome.
    We did not receive any comments from Wyoming advisers. Some commenters,
    however, did address aspects of the proposed amendments that could
    potentially affect small businesses. The comments received concerning
    those issues are discussed below.

    C. Small Entities Subject to the Rules

    In developing the rule and form amendments, we have considered their
    potential effect on small entities that may be affected, which is
    discussed in the FRFA. The rule and form amendments will not affect most
    advisers that are small entities86 (small advisers) because those advisers are
    registered with one or more state securities authorities rather than with
    us. Congress amended the Advisers Act in 1996 so that small advisers
    generally are regulated by state regulators and not the Commission.87 Those small advisers that remain registered
    with us are located in Wyoming (which does not have an investment adviser
    statute), or are eligible for an exemption that permits SEC registration.
    Of the approximately 20,000 advisers in the United States, approximately
    8,100 (approximately 40%) are registered with us. Of those 8,100, the FRFA
    estimates that approximately 1,500 (approximately 18%) qualify as small
    advisers. We have based this estimate on registration information advisers
    file with the Commission.

    D. Projected Reporting, Recordkeeping, and Other Compliance
    Requirements

    The FRFA states that the rule and form amendments impose certain
    reporting and compliance requirements on small advisers, requiring them
    (i) to file electronically through the IARD and (ii) to use amended Form
    ADV when applying for registration (or amending an existing registration).
    These requirements are discussed more fully in the FRFA and Section II of
    the Proposing Release, and the burdens on small advisers are discussed
    below.

    1. Electronic Filing Requirements

    The FRFA explains that electronic filing is likely to impose two types
    of burdens on small advisers - filing fees and the time and expense of
    familiarizing themselves with the system.

    Filing Fees. The IARD system operator will charge filing fees to
    all advisers, including small advisers.88 Small advisers will pay substantially smaller
    fees than larger advisers. This sliding scale is designed to minimize the
    burdens of electronic filing on small advisers while maintaining the
    economic viability of the IARD. It also recognizes that larger advisers,
    which are more likely to have filing requirements in multiple states, will
    benefit more from the IARD than small advisers.

    Other Burdens. The FRFA explains that, to use the IARD, small
    advisers must also establish an account with NASDR, familiarize themselves
    with the IARD's filing rules, and obtain Internet access if they do not
    already have it. We believe that these burdens are small and that advisers
    will incur most of the costs when they first begin to use the IARD.
    Thereafter, using the IARD should actually reduce regulatory burdens for
    all advisers, including small advisers.

    Our information suggests that almost all investment advisers, including
    small advisers, currently have Internet access, and use the Internet for
    various purposes.89 Nonetheless, our rule and form amendments
    provide for a continuing hardship exemption, available only to small
    advisers. The exemption will permit the adviser to continue submitting
    paper filings if using the IARD would impose an "unreasonable burden or
    expense."90 The operator of the IARD will convert the
    paper filing to electronic format and charge the adviser an additional fee
    to cover conversion costs. The IARD will also accommodate advisers' use of
    commercial filing service bureaus, which we understand many small advisers
    currently use to make regulatory filings. We have included these
    alternative means of making filings to minimize the burdens the electronic
    filing rules will have on small advisers.

    Many small advisers today use filing services because they cannot hire
    professional compliance staff, and do not themselves have the knowledge,
    time, or expertise to understand the details of the various federal and
    state forms, deadlines, and fees. The IARD will have a number of features
    designed to make it easy to complete Form ADV, even if the user is
    unfamiliar with the form. We have written the new instructions in plain
    English and reorganized the form in a simpler manner. We have re-drafted
    questions that previously presented interpretive difficulties for small
    advisers, and have provided for an on-line "help" function that will
    provide easy access to answers to questions advisers frequently ask about
    the form. Advisers using the system will also have easy on-line access to
    the text of the Advisers Act and our rules. Together, these features
    should substantially benefit small advisers that may not have lawyers or
    other professional compliance personnel or staff.

    The FRFA concludes that, although small advisers will experience some
    modest start-up costs in using the IARD, over time the system will
    actually reduce overall costs. As advisers become more familiar with the
    IARD, use of the system should substantially reduce administrative costs
    associated with making regulatory filings, and improve advisers'
    compliance with regulatory requirements, allowing them to reduce their
    dependence, in more routine matters, on lawyers, compliance firms and
    others who assist them in meeting their regulatory obligations.

    2. Amendments to Form ADV

    Part 1. The FRFA explains that the amendments to Part 1A of Form
    ADV should have a minimal effect on small advisers. None of the new
    items requests information that should not be readily available to the
    advisers. For example, advisers must provide the e-mail address of a
    contact person (if she has one), and the address of any web site the
    adviser sponsors. Further, because small advisers tend to have simpler
    business arrangements, fewer control persons, and fewer employees, the
    burdens of completing Part 1A should be significantly less for small
    advisers than for larger advisers.

    The FRFA acknowledges that small advisers whose control persons have
    disciplinary histories will likely spend more resources than other
    advisers in completing the necessary DRPs for reporting of disciplinary
    events. Based on information filed on current Form ADV, we estimate that
    only approximately 14% of advisers will be required to report disciplinary
    information, and thus most small advisers will be unaffected by this
    requirement.91

    Part 2. The Commission proposed significant amendments to Part 2
    of Form ADV. These amendments would have imposed additional costs on
    advisers, including small advisers. The proposed amendments to Part 2
    would have required advisers to begin preparing and disseminating
    narrative brochures. The Commission has elected to defer adoption of Part
    2 and related rules until a later date.

    E. Agency Action to Minimize Effect on Small Entities

    The FRFA discusses the various alternatives that the Commission
    considered, in adopting the rule and form amendments, that might minimize
    the effect on small advisers, including (i) establishing different
    compliance or reporting requirements or timetables that take into account
    the resources available to small advisers; (ii) clarifying,
    consolidating, or simplifying compliance and reporting requirements for
    small advisers; (iii) using performance rather than design standards;
    and (iv) exempting small advisers from coverage of all or part of the
    amended rules and forms.

    Regarding the first alternative, the Commission considered establishing
    different compliance or reporting requirements for small advisers. As
    explained in the FRFA, establishing different compliance or reporting
    requirements would be inconsistent with our mandate to provide a system of
    public disclosure of investment adviser information. The FRFA states that
    a small adviser will, by the nature of its business, likely spend fewer
    resources in completing the new Form ADV, and will pay lower filing fees,
    than a larger adviser.

    Regarding the second alternative, it does not appear that the rules and
    forms can be formatted differently for small advisers and still achieve
    the stated objectives of the amendments. Nonetheless, the amendments
    clarify and simplify the form for all advisers, including small advisers.
    As discussed more fully in the FRFA, we are also adding a new item to Form
    ADV to identify small advisers so we can better assess the number of small
    advisers registered with us and the burdens our rules impose on them.

    Regarding the third alternative, the FRFA explains that the rules and
    forms would permit advisers to use performance rather than design
    standards in some instances. In other contexts, however, the use of
    performance rather than design standards would be inconsistent with our
    statutory mandate to protect investors, as advisers must provide certain
    registration information in a uniform and quantifiable manner so that it
    is useful to our regulatory and examination programs. Design standards,
    therefore, are necessary to achieve many objectives of the amended rules
    and forms.

    Regarding the fourth alternative, the FRFA states that it would be
    inconsistent with the purposes of the Advisers Act to exempt small
    advisers from the amendments. As discussed, the information advisers file
    will form a publicly-accessible database, allowing investors to obtain
    information about, among other things, the disciplinary histories of an
    adviser and its personnel. Clients and potential clients of small advisers
    are entitled to obtain the same information, with the same ease, as those
    of larger advisers, and exempting small advisers from any of the rule and
    form amendments would be inconsistent with a central purpose of the
    Advisers Act.

    We have incorporated several features, such as the "help" function,
    intended to minimize the burden on small advisers. Small advisers can also
    apply for a continuing hardship exemption from the electronic filing
    requirements, as discussed above.

    The FRFA states that, having considered the above alternatives in the
    context of the proposed rule and form amendments, and after taking into
    account the resources available to small advisers and the potential burden
    the rule and form amendments could place on investment advisers, the
    alternatives, except as noted above, would not accomplish the stated
    objectives of the rule and form amendments.

    A copy of the FRFA is available for public inspection in File No.
    S7-10-00, and a copy may be obtained by contacting Jennifer Sawin, Special
    Counsel, Securities and Exchange Commission, 450 5th Street,
    N.W., Washington, DC 20549-0506.

    VI. STATUTORY AUTHORITY

    We are adopting new rule 203-3 under sections
    203(c)(1) and 211(a) of the Investment Advisers Act of 1940 [15 U.S.C.
    80b-3(c)(1) and 80b-11(a)].

    We are amending rules 30-5 and 30-11 of our Organization and Program
    Management rules under sections 4A and 4B of the Securities Exchange Act
    of 1934 [15 U.S.C. 78d-1 and 78d-2].

    We are amending rule 0-2 under section 19(a) of the Securities Act of
    1933 [15 U.S.C. 77s(a)], section 23(a) of the Securities Exchange Act of
    1934 [15 U.S.C. 78w(a)], section 319(a) of the Trust Indenture Act of 1939
    [15 U.S.C. 77sss(a)], section 38(a) of the Investment Company Act of 1940
    [15 U.S.C. 78a-37(a)], and sections 203(c)(1), 204, and 211(a) of the
    Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1), 80b-4, and
    80b-11(a)].

    We are amending rule 0-7 under chapter 6 of title 5 of the United
    States Code (particularly section 601 of that chapter [5 U.S.C. 601]) and
    section 211(a) of the Investment Advisers Act of 1940 [15 U.S.C.
    80b-11(a)].

    We are amending rules 203-1 and 203-2 under sections 203(c)(1), 204,
    and 211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1),
    80b-4, and 80b-11(a)].

    We are amending rule 203A-1 under sections 203A(a)(1)(A), 203A(c), and
    section 211(a) of the Investment Advisers Act of 1940 [15 U.S.C.
    80b-3a(a)(1)(A), 80b-3a(c), and 80b-11(a)].

    We are amending rule 203A-2 under section 203A(c) of the Investment
    Advisers Act of 1940 [15 U.S.C. 80b-3a(c)].

    We are amending rule 204-1 under sections 203(c)(1) and 204 of the
    Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1) and 80b-4].

    We are adopting new Form ADV-H under sections 203(c)(1), 204, and
    211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1),
    80b-4, and 80b-11(a)].

    We are amending rule 279.1, Form ADV, under section 19(a) of the
    Securities Act of 1933 [15 U.S.C. 77s(a)], sections 23(a) and 28(e)(2) of
    the Securities Exchange Act of 1934 [15 U.S.C. 78w(a) and 78bb(e)(2)],
    section 319(a) of the Trust Indenture Act of 1939 [15 U.S.C. 77sss(a)],
    section 38(a) of the Investment Company Act of 1940 [15 U.S.C. 78a-37(a)],
    and sections 203(c)(1), 204, and 211(a) of the Investment Advisers Act of
    1940 [15 U.S.C. 80b-3(c)(1), 80b-4, and 80b-11(a)].

    We are amending rule 279.2, Form ADV-W, under sections 203(c)(1), 204,
    and 211(a) of the Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1),
    80b-4, and 80b-11(a)].

    We are amending rule 279.4, Form 4-R, by replacing it with Form ADV-NR
    under section 19(a) of the Securities Act of 1933 [15 U.S.C. 77s(a)],
    section 23(a) of the Securities Exchange Act of 1934 [15 U.S.C. 78w(a)],
    section 319(a) of the Trust Indenture Act of 1939 [15 U.S.C. 77sss(a)],
    section 38(a) of the Investment Company Act of 1940 [15 U.S.C. 78a-37(a)],
    and sections 203(c)(1), 204, and 211(a) of the Investment Advisers Act of
    1940 [15 U.S.C. 80b-3(c)(1), 80b-4, and 80b-11(a)].

    We are withdrawing rule 204-5 under section 211(a) under the Investment
    Advisers Act of 1940 [15 U.S.C. 80b-11(a)].

    We are removing and reserving rules 279.5, 279.6, and 279.7 and
    removing Forms 5-R, 6-R, and 7-R under section 19(a) of the Securities Act
    of 1933 [15 U.S.C. 77s(a)], section 23(a) of the Securities Exchange Act
    of 1934 [15 U.S.C. 78w(a)], section 319(a) of the Trust Indenture Act of
    1939 [15 U.S.C. 77sss(a)], section 38(a) of the Investment Company Act of
    1940 [15 U.S.C. 78a-37(a)], and sections 203(c)(1), 204, and 211(a) of the
    Investment Advisers Act of 1940 [15 U.S.C. 80b-3(c)(1), 80b-4, and
    80b-11(a)].

    We are removing and reserving rule 279.9 and removing Form ADV-Y2K
    under section 211(a) of the Investment Advisers Act of 1940 [15 U.S.C.
    80b-11(a)].

    List of Subjects in 17 CFR Part 200

    Administrative practice and procedure; Authority delegations
    (Government agencies)

    List of Subjects in 17 CFR Parts 275 and 279

    Reporting and recordkeeping requirements; Securities.

    TEXT OF RULE AND FORM AMENDMENTS

    For the reasons set out in the preamble, Title 17, Chapter II of the
    Code of Federal Regulations is amended as follows:

    PART 200 - ORGANIZATION; CONDUCT AND ETHICS;
    AND INFORMATION AND REQUESTS

    1. The authority section for Part 200 continues to read in part as
    follows:

    Authority: 15 U.S.C. 77s, 78d-1, 78d-2, 78w, 78ll(d),
    78mm, 79t, 77sss, 80a-37, 80b-11, unless otherwise noted.

    * * * * *

    2. In Section 200.30-5, the introductory text of paragraph (e) is
    revised and paragraph (e)(7) is added to read as follows:

    § 200.30-5 Delegation of authority to Director of Division of
    Investment Management.

    * * * * *

    (e) With respect to the Investment Advisers Act of 1940 [15 U.S.C.
    80b-1 to 80b-22]:

    * * * * *

    (7) Pursuant to section 203A(d) of the Act [15 U.S.C. 80b-3a(d)], to
    set the terms of, and grant or deny as appropriate, continuing hardship
    exemptions under § 275.203-3 of this chapter.

    3. Section 200.30-11 is amended by revising paragraph (b)(2) to read as
    follows:

    § 200.30-11 Delegation of authority to Associate Executive Director
    of the Office of Filings and Information Services.

    * * * * *

    (b) * * *

    (2) Under section 203(h) of the Act [15 U.S.C. 80b-3(h)], to authorize
    the issuance of orders canceling registrations of investment advisers, or
    pending applications for registration, if such investment advisers or
    applicants for registration are no longer in existence or are not engaged
    in business as investment advisers.

    * * * * *

    PART 275 -- RULES AND REGULATIONS, INVESTMENT
    ADVISERS ACT OF 1940

    4. The general authority citation for Part 275 is revised to read as
    follows:

    Authority: 15 U.S.C. 80b-2(a)(11)(F), 80b-2(a)(17), 80b-3,
    80b-4, 80b-6(4), 80b-6a, 80b-11, unless otherwise noted.

    * * * * *

    5. Section 275.0-2 is revised to read as follows:

    § 275.0-2 General
    procedures for serving non-residents.

    (a) General procedures for serving process, pleadings, or other
    papers on non-resident investment advisers, general partners and managing
    agents. Under Forms ADV and ADV-NR [17 CFR 279.1 and 279.4], a person
    may serve process, pleadings, or other papers on a non-resident investment
    adviser, or on a non-resident general partner or non-resident managing
    agent of an investment adviser by serving any or all of its appointed
    agents:

    (1) A person may serve a non-resident investment adviser, non-resident
    general partner, or non-resident managing agent by furnishing the
    Commission with one copy of the process, pleadings, or papers, for each
    named party, and one additional copy for the Commission's records.

    (2) If process, pleadings, or other papers are served on the Commission
    as described in this section, the Secretary of the Commission (Secretary)
    will promptly forward a copy to each named party by registered or
    certified mail at that party's last address filed with the Commission.

    (3) If the Secretary certifies that the Commission was served with
    process, pleadings, or other papers pursuant to paragraph (a)(1) of this
    section and forwarded these documents to a named party pursuant to
    paragraph (a)(2) of this section, this certification constitutes evidence
    of service upon that party.

    (b) Definitions. For purposes of this section:

    (1) "Managing agent" means any person, including a trustee, who
    directs or manages, or who participates in directing or managing, the
    affairs of any unincorporated organization or association other than a
    partnership.

    (2) "Non-resident" means:

    (i) An individual who resides in any place not subject to the
    jurisdiction of the United States;

    (ii) A corporation that is incorporated in or that has its principal
    office and place of business in any place not subject to the jurisdiction
    of the United States; and

    (iii) A partnership or other unincorporated organization or association
    that has its principal office and place of business in any place not
    subject to the jurisdiction of the United States.

    (3) "Principal office and place of business" has the same meaning as in
    § 275.203A-3(c) of this chapter.

    6. In § 275.0-7, the introductory text of paragraph (a) is republished
    and paragraphs (a)(1) and (b)(1) are revised to read as follows:

    § 275.0-7 Small entities under the Investment Advisers Act for
    purposes of the Regulatory Flexibility Act.

    (a) For purposes of Commission rulemaking in accordance with the
    provisions of Chapter Six of the Administrative Procedure Act [5 U.S.C.
    601] and unless otherwise defined for purposes of a particular rulemaking
    proceeding, the term "small business" or "small organization" for purposes
    of the Investment Advisers Act of 1940 means an investment adviser that:

    (1) Has assets under management, as defined under Section 203A(a)(2) of
    the Act (15 U.S.C. 80b-3a(a)(2)) and reported on its annual updating
    amendment to Form ADV [17 CFR 279.1], of less than $25 million, or such
    higher amount as the Commission may by rule deem appropriate under Section
    203A(a)(1)(A) of the Act (15 U.S.C. 80b-3a(a)(1)(A));

    * * * * *

    (b) For purposes of this section:

    (1) "Control" means the power, directly or indirectly, to direct the
    management or policies of a person, whether through ownership of
    securities, by contract, or otherwise.

    (i) A person is presumed to control a corporation if the person:

    (A) Directly or indirectly has the right to vote 25 percent or more of
    a class of the corporation's voting securities; or

    (B) Has the power to sell or direct the sale of 25 percent or more of a
    class of the corporation's voting securities.

    (ii) A person is presumed to control a partnership if the person has
    the right to receive upon dissolution, or has contributed, 25 percent or
    more of the capital of the partnership.

    (iii) A person is presumed to control a limited liability company (LLC)
    if the person:

    (A) Directly or indirectly has the right to vote 25 percent or more of
    a class of the interests of the LLC;

    (B) Has the right to receive upon dissolution, or has contributed, 25
    percent or more of the capital of the LLC; or

    (C) Is an elected manager of the LLC.

    (iv) A person is presumed to control a trust if the person is a trustee
    or managing agent of the trust.

    * * * * *

    7. Section 275.203-1 is revised to read as follows:

    § 275.203-1
    Application for investment adviser registration.

    (a) Form ADV. To apply for registration with the Commission as
    an investment adviser, you must complete and file Form ADV [17 CFR 279.1]
    by following the instructions in the Form.

    (b) Electronic filing.

    (1) If you apply for registration after January 1, 2001, you must file
    electronically with the Investment Adviser Registration Depository (IARD),
    unless you have received a hardship exemption under § 275.203-3.

    Note to Paragraph (b)(1): Information on how to file with the
    IARD is available on the Commission's website at www.sec.gov/divisions/investment/iard.shtml.

    (2) You are not required to file with the Commission a copy of Part II
    of Form ADV if you maintain a copy of your Part II (and any brochure you
    deliver to clients) in your files. The copy maintained in your files is
    considered filed with the Commission.

    Note to Paragraph (b)(2): The Commission has proposed, but not
    adopted, substantial changes to Part II of Form ADV. Thus, the rules for
    preparing, delivering, and offering Part II (or a brochure containing at
    least the information contained in Part II) have not changed. If you are
    an SEC-registered adviser, however, you no longer have to file Part II
    with the Commission. Instead, you must keep a copy in your files, and
    update the information in your Part II whenever it becomes materially
    inaccurate. If you are a State-registered adviser, State law may continue
    to require you to file Part II with the appropriate State securities
    authority on paper, regardless of whether you are filing Part 1 on paper
    or through the IARD.

    (c) When filed. Each Form ADV is considered filed with the
    Commission upon acceptance by the IARD.

    (d) Filing fees. You must pay NASD Regulation, Inc. (NASDR) (the
    operator of the IARD) a filing fee. The Commission has approved the amount
    of the filing fee. No portion of the filing fee is refundable. Your
    completed application for registration will not be accepted by NASDR, and
    thus will not be considered filed with the Commission, until you have paid
    the filing fee.

    8. Section 275.203-2 is revised to read as
    follows:

    § 275.203-2 Withdrawal
    from investment adviser registration.

    (a) Form ADV-W. You must file Form ADV-W [17 CFR 279.2] to
    withdraw from investment adviser registration with the Commission (or to
    withdraw a pending registration application).

    (b) Electronic filing. Once you have filed your Form ADV [17 CFR
    279.1] (or any amendments to Form ADV) electronically with the Investment
    Adviser Registration Depository (IARD), any Form ADV-W you file must be
    filed with the IARD, unless you have received a hardship exemption under §
    275.203-3.

    (c) Effective date - upon filing. Each Form ADV-W filed under
    this section is effective upon acceptance by the IARD, provided however
    that your investment adviser registration will continue for a period of
    sixty days after acceptance solely for the purpose of commencing a
    proceeding under section 203(e) of the Act [15 U.S.C. 80b-3(e)].

    (d) Filing fees. You do not have to pay a fee to file Form ADV-W
    through the IARD.

    (e) Form ADV-W is a report. Each Form ADV-W required to be filed
    under this section is a "report" within the meaning of sections 204 and
    207 of the Act [15 U.S.C. 80b-4 and 80b-7].

    9. Section 275.203-3 is added to read as
    follows:

    § 275.203-3 Hardship exemptions.

    This section provides two "hardship exemptions" from the requirement to
    make Advisers Act filings electronically with the Investment Adviser
    Registration Depository (IARD).

    (a) Temporary hardship exemption.

    (1) Eligibility for exemption. If you are registered with the
    Commission as an investment adviser and submit electronic filings on the
    Investment Adviser Registration Depository (IARD) system, but have
    unanticipated technical difficulties that prevent you from submitting a
    filing to the IARD system, you may request a temporary hardship exemption
    from the requirements of this chapter to file electronically.

    (2) Application procedures. To request a temporary hardship
    exemption, you must:

    (i) File Form ADV-H [17 CFR 279.3] in paper format with NASD
    Regulation, Inc. (NASDR) no later than one business day after the filing
    that is the subject of the ADV-H was due; and

    (ii) Submit the filing that is the subject of the Form ADV-H in
    electronic format with the IARD no later than seven business days after
    the filing was due.

    (3) Effective date -- upon filing. The temporary hardship
    exemption will be granted when you file a completed Form ADV-H with NASDR.

    (b) Continuing hardship exemption.

    (1) Eligibility for exemption. If you are a "small business" (as
    described in paragraph (b)(5) of this section), you may apply for a
    continuing hardship exemption. The period of the exemption may be no
    longer than one year after the date on which you apply for the exemption.

    (2) Application procedures. To apply for a continuing hardship
    exemption, you must file Form ADV-H with NASDR at least ten business days
    before a filing is due. The Commission will grant or deny your application
    within ten business days after you file Form ADV-H.

    (3) Effective date -- upon approval. You are not exempt from the
    electronic filing requirements until and unless the Commission approves
    your application. If the Commission approves your application, you may
    submit your filings to NASDR in paper format for the period of time for
    which the exemption is granted.

    (4) Criteria for exemption. Your application will be granted
    only if you are able to demonstrate that the electronic filing
    requirements of this chapter are prohibitively burdensome or expensive.

    (5) Small business. You are a "small business" for purposes of
    this section if you are required to answer Item 12 of Form ADV [17 CFR
    279.1] and checked "no" to each question in Item 12 that you were required
    to answer.

    Note to Paragraphs (a) and (b): NASDR will charge you an
    additional fee covering its cost to convert to electronic format a filing
    made in reliance on a continuing hardship exemption.

    10. Section 275.203A-1 is revised to read as follows:

    § 275.203A-1 Eligibility for SEC registration; switching to or from
    SEC registration.

    (a) Eligibility for SEC registration.

    (1) Threshold for SEC registration -- $30 million of assets under
    management. If the State where you maintain your principal office and
    place of business has enacted an investment adviser statute, you are not
    required to register with the Commission, unless:

    (i) You have assets under management of at least $30,000,000, as
    reported on your Form ADV [17 CFR 279.1]; or

    (ii) You are an investment adviser to an investment company registered
    under the Investment Company Act of 1940 [15 U.S.C. 80a-1].

    (2) Exemption for investment advisers having between $25 and $30
    million of assets under management. If the State where you maintain
    your principal office and place of business has enacted an investment
    adviser statute, you may register with the Commission if you have assets
    under management of at least $25,000,000 but less than $30,000,000, as
    reported on your Form ADV [17 CFR 279.1]. This paragraph (a)(2) shall not
    apply if:

    (i) You are an investment adviser to an investment company registered
    under the Investment Company Act of 1940 [15 U.S.C. 80a-1 to 80a-64];
    or

    (ii) You are eligible for an exemption described in § 275.203A-2 of
    this chapter.

    Note to Paragraphs (a)(1) and (a)(2):

    Paragraphs (a)(1) and (a)(2) of this section together make SEC
    registration optional for certain investment advisers that have between
    $25 and $30 million of assets under management.

    (b) Switching to or from SEC registration.

    (1) State-registered advisers -- switching to SEC
    registration. If you are registered with a State securities
    authority, you must apply for registration with the Commission within 90
    days of filing an annual updating amendment to your Form ADV reporting
    that you have at least $30 million of assets under management.

    (2) SEC-registered advisers - switching to State registration.
    If you are registered with the Commission and file an annual updating
    amendment to your Form ADV reporting that you no longer have $25 million
    of assets under management (or are not otherwise eligible for SEC
    registration), you must file Form ADV-W [17 CFR 279.2] to withdraw your
    SEC registration within 180 days of your fiscal year end (unless you then
    have at least $25 million of assets under management or are otherwise
    eligible for SEC registration). During this period while you are
    registered with both the Commission and one or more State securities
    authorities, the Investment Advisers Act of 1940 and applicable State law
    will apply to your advisory activities.

    11. Section 275.203A-2 is amended as follows:

    (a) the introductory text is republished;

    (b) in paragraph (b)(3), the phrase "Schedule I" is revised to read "an
    annual updating amendment";

    (c) the introductory text to paragraph (d) is republished;

    (d) paragraphs (d)(2) and (d)(3) are revised;

    (e) the introductory text to paragraph (e) is republished; and

    (f) paragraphs (e)(2), (e)(3) and (e)(4) are revised to read as
    follows:

    § 275.203A-2 Exemptions from prohibition on
    SEC registration.

    The prohibition of section 203A(a) of the Act [15 U.S.C. 80b-3a(a)]
    does not apply to:

    * * * * *

    (b) Pension consultants.

    * * * * *

    (d) Investment advisers expecting to be eligible for SEC
    registration within 120 days. An investment adviser that:

    * * * * *

    (2) Indicates on Schedule D of its Form ADV [17 CFR 279.1] that it will
    withdraw from registration with the Commission if, on the 120th day after
    the date the investment adviser's registration with the Commission becomes
    effective, the investment adviser would be prohibited by section 203A(a)
    of the Act [15 U.S.C. 80b-3a(a)] from registering with the Commission; and

    (3) Notwithstanding § 275.203A-1(b)(2) of this chapter, files a
    completed Form ADV-W [17 CFR 279.2] withdrawing from registration with the
    Commission within 120 days after the date the investment adviser's
    registration with the Commission becomes effective.

    (e) Multi-State investment advisers. An investment adviser
    that:

    * * * * *

    (2) Indicates on Schedule D of its Form ADV that the investment adviser
    has reviewed the applicable State and federal laws and has concluded that,
    in the case of an application for registration with the Commission, it is
    required by the laws of 30 or more States to register as an investment
    adviser with the State securities authorities in the respective States or,
    in the case of an amendment to Form ADV, it would be required by the laws
    of at least 25 States to register as an investment adviser with the State
    securities authorities in the respective States, within 90 days prior to
    the date of filing Form ADV;

    (3) Undertakes on Schedule D of its Form ADV to withdraw from
    registration with the Commission if the adviser indicates on an annual
    updating amendment to Form ADV that the investment adviser would be
    required by the laws of fewer than 25 States to register as an investment
    adviser with the securities commissioners (or any agencies or officers
    performing like functions) in the respective States, and that the
    investment adviser would be prohibited by section 203A(a) of the Act [15
    U.S.C. 80b-3a(a)] from registering with the Commission, by filing a
    completed Form ADV-W within 180 days of the adviser's fiscal year end
    (unless the adviser then has at least $25 million of assets under
    management or is otherwise eligible for SEC registration); and

    (4) Maintains in an easily accessible place a record of the States in
    which the investment adviser has determined it would, but for the
    exemption, be required to register for a period of not less than five
    years from the filing of a Form ADV that includes a representation that is
    based on such record.

    12. Section 275.204-1 is revised to read as follows:

    § 275.204-1 Amendments to application for
    registration.

    (a) When amendment is required. You must amend your Form ADV [17
    CFR 279.1]:

    (1) At least annually, within 90 days of the end of your fiscal year;
    and

    (2) More frequently, if required by the instructions to Form ADV.

    (b) Transition to electronic filing.

    (1) If you are an investment adviser registered with the Commission on
    December 31, 2000, you must amend your Form ADV by electronically filing a
    completed Part 1A of Form ADV (as amended effective October 10, 2000) with
    the Investment Adviser Registration Depository (IARD) according to the
    following schedule:

    (i) If your fiscal year ends in December, and

    (A) your SEC registration number is 801-1 through 801-36806, you must
    file no later than January 31, 2001;

    (B) your SEC registration number is 801-36807 through 801-54145, you
    must file no later than February 28, 2001;

    (C) your SEC registration number is 801-54146 or higher, you must file
    no later than March 30, 2001.

    (ii) If your fiscal year ends in any month other than December
    (i.e., January through November), you must file no later than April
    30, 2001.

    Note to Paragraphs (a) and (b): Information on how to file with
    the IARD is available on our website at www.sec.gov/divisions/investment/iard.shtml

    (2) If you are an investment adviser whose registration application
    (filed on paper) was pending on January 1, 2001 and became effective after
    that date, you must amend your Form ADV by electronically filing a
    completed Part 1A of Form ADV (as amended effective October 10, 2000) with
    the IARD by April 30, 2001.

    (3) If you have received a continuing hardship exemption under §
    275.203-3, you must file a completed Part 1A of Form ADV on paper with
    NASD Regulation, Inc. (NASDR) when you are required to amend your Form ADV
    by the schedule in subparagraph (1) of this paragraph.

    (4) If you have filed Part 1A of Form ADV with the IARD under
    paragraphs (1) or (2) of this section, you must file all subsequent
    amendments to Part 1A of your Form ADV with the IARD.

    (c) Special rule for Part II. You are not required to file with
    the Commission a copy of Part II of Form ADV if you maintain a copy of
    your Part II (and any brochure you deliver to clients) in your files. The
    copy maintained in your files is considered filed with the Commission.

    Note to Paragraph (c): The Commission has proposed, but not
    adopted, substantial changes to Part II of Form ADV. Thus, the rules for
    preparing, delivering, and offering Part II (or a brochure containing at
    least the information contained in Part II) have not changed. If you are
    an SEC-registered adviser, however, you no longer have to file Part II
    with the Commission. Instead, you must keep a copy in your files, and
    update the information in your Part II whenever it becomes materially
    inaccurate. If you are a State-registered adviser, State law may continue
    to require you to file Part II with the appropriate State securities
    authority on paper, regardless of whether you are filing Part 1 on paper
    or through the IARD.

    (d) Filing fees. You must pay NASDR (the operator of the IARD)
    an initial filing fee when you first electronically file Part 1A of Form
    ADV pursuant to sub-paragraph (b) of this section. After you pay the
    initial filing fee, you must pay an annual filing fee each time you file
    your annual updating amendment. No portion of either fee is refundable.
    The Commission has approved the filing fees. Your amended Form ADV will
    not be accepted by NASDR, and thus will not be considered filed with the
    Commission, until you have paid the filing fee.

    (e) Amendments to Form ADV are reports. Each amendment required
    to be filed under this section is a "report" within the meaning of
    sections 204 and 207 of the Act [15 U.S.C. 80b-4 and 80b-7].

    13. Section 275.204-5 is removed and reserved.

    PART 279 -- FORMS PRESCRIBED UNDER THE INVESTMENT ADVISERS ACT OF
    1940

    14. The authority citation for Part 279 continues to read as follows:

    Authority: 15 U.S.C. 80b-1 to 80b-22.

    15. Form ADV (referenced in § 279.1) is revised.

    Note: The text of Form ADV does not and the amendments will not
    appear in the Code of Federal Regulations. Form ADV is attached as
    Appendix A.

    16. Form ADV-W (referenced in § 279.2) is revised.

    Note: The text of Form ADV-W does not and the amendments will
    not appear in the Code of Federal Regulations. Form ADV-W is attached as
    Appendix B.

    17. Section 279.3 and Form ADV-H are added as follows:

    Note: The text of Form ADV-H will not appear in the Code of
    Federal Regulations. Form ADV-H is attached as Appendix C.

    § 279.3 Form ADV-H, application for a temporary or continuing
    hardship exemption.

    An investment adviser must file this form under § 275.203-3 of this
    chapter to request a temporary hardship exemption or apply for a
    continuing hardship exemption.

    18. Form 4-R (referenced in § 279.4) is removed.

    19. Section 279.4 is revised and Form ADV-NR is added as follows:

    Note: Form ADV-NR will not appear in the Code of Federal
    Regulations. Form ADV-NR is attached as Appendix D.

    § 279.4 Form ADV-NR, appointment of agent for service of process by
    non-resident general partner and non-resident managing agent of an
    investment adviser.

    Each non-resident general partner or managing agent of an investment
    adviser must file this form under § 275.0-2 of this chapter.

    20. Section 279.5 and Form 5-R are removed and reserved.

    Note: Form 5-R does not appear in the Code of Federal
    Regulations.

    § 279.5 [Removed and Reserved]

    21. Section 279.6 and Form 6-R are removed and reserved.

    Note: Form 6-R does not appear in the Code of Federal
    Regulations.

    § 279.6 [Removed and Reserved]

    22. Section 279.7 and Form 7-R are removed and reserved.

    Note: Form 7-R does not appear in the Code of Federal
    Regulations.

    § 279.7 [Removed and Reserved]

    23. Section 279.9 and Form ADV-Y2K are removed and reserved.

    Note: Form ADV-Y2K does not appear in the Code of Federal
    Regulations.

    § 279.9 [Removed and Reserved]

    By the Commission. Jonathan G. Katz Secretary

    September 12, 2000

    [Note: Appendixes A, B, C, and D will not appear in the Code of
    Federal Regulations]

    Footnotes

    1 Investment Advisers Act Release No. 1862. (Apr.
    5, 2000) [65 FR 20524 (Apr. 17, 2000)] ("Proposing Release").

    2 A summary of comments prepared by our staff is
    available in our Public Reference Room in File No. S7-10-00, and on our
    web site at www.sec.gov/rules/extra/iardsumm.htm.

    3 We changed the numbering of the parts of Form
    ADV from Roman (Part I and II) to Arabic (Part 1 and Part 2) numbers. In
    this Release, however, we use Arabic numbers to refer to the parts of Form
    ADV before and after amendment. At some points, we refer separately to old
    Part II and proposed Part 2 in order to clarify which rules advisers must
    follow during an interim period.

    4 NASDR is a wholly-owned subsidiary of the
    National Association of Securities Dealers (NASD), a self-regulatory
    organization which supervises broker-dealers that conduct a public
    business in securities other than on an exchange of which the
    broker-dealer is a member. NASAA represents the 50 U.S. state securities
    authorities responsible for the administration of state securities laws,
    also known as "blue sky laws." Currently, 49 states (all except Wyoming)
    and the District of Columbia, Guam, and Puerto Rico have investment
    adviser statutes. See
    www.nasaa.org/search/memberslinks.html.

    5 In July, we formally designated NASDR as
    operator of the IARD. Investment Advisers Act Release No. 1888 (July 28,
    2000) [65 FR 47807 (Aug. 3, 2000)].

    6 The following other forms under the Advisers Act
    will continue to be submitted to us on paper: Form ADV-E (Certificate of
    Accounting of Client Securities and Funds in the Possession or Custody of
    an Investment Adviser); ADV-NR (Appointment of Agent for Service of
    Process by Non-Resident General Partner and Non-Resident Managing Agent of
    an Investment Adviser); and ADV-H (Application for a Temporary or
    Continuing Hardship Exemption). In addition, advisers that are
    institutional investment managers will continue to make Form 13F filings
    through our EDGAR system. Form 13F filings are made by many firms other
    than investment advisers, and it would not be feasible to include these
    filings on the IARD.

    7 In Investment Advisers Act Release No. 1888,
    supra note 5, we approved a schedule of filing fees NASDR will
    charge. The fee schedule is available on our web site at www.sec.gov/divisions/investment/iard.shtml.

    8 Rule 204-1(b) [17 CFR 275 204-1(b)].

    9 An SEC-registered adviser must indicate in Item
    2.B of Part 1A the states in which it has notice filing obligations. IARD
    will determine the amount of state fees due from the adviser based on its
    response.

    10 In this Release, we refer to both applicants
    for registration as an adviser with a state securities authority and
    persons registered as an adviser with a state securities authority as
    "state-registered advisers."

    11 As we explained in the Proposing Release, Form
    ADV will continue to request social security numbers of persons who have
    not been assigned a CRD number. NASDR needs this information when
    assigning a CRD number to distinguish between persons having the same
    name. Proposing Release, supra note 1, at note 77.

    12 We have revised each item and schedule of Form
    ADV that requires an address to inquire whether the address reported is a
    private residence. Items 1.F and 1.G of Part 1A and Sections 1.F, 1.K and
    10 of Schedule D.

    13 The contact employee information is provided
    in response to Item 1.J of Form ADV. Commenters expressed concern that the
    contact employee might be inundated with phone calls that would more
    appropriately be directed elsewhere in the advisory firm.

    14 Rule 204-3 [17 CFR 204-3].

    15 Rules 203-1(b)(2) and 204-1(c) [17 CFR
    275.203-1(b)(2) and .204-1(c)].

    16 Rule 203-1(b)(2). As a result, state
    securities authorities may continue to require SEC-registered advisers to
    file with them a paper copy of the adviser's Part II of Form ADV.
    See section 307 (a) of The National Securities Markets Improvement
    Act of 1996 (NSMIA), (Pub. L. No. 104-290, 110 Stat. 3438) (1996). Several
    commenters objected to this rule, arguing that states have no interest in
    the brochures of SEC-registered advisers. We believe that states should
    continue to be able to require Part II during this hiatus in our
    requirements. Under our rule, a state is free to require Part II from all
    advisers that meet its jurisdictional requirements, from no advisers, or
    upon request.

    17 Rule 203-1(b)(1) [17 CFR 275.203-1(b)(1)]. The
    Advisers Act provides that, within 45 days after a person files an
    application for registration with us, we must either grant registration
    under the Act or institute a proceeding to determine whether registration
    should be denied. Section 203(c)(2) [15 U.S.C. 80b-3(c)(2)]. Under our
    rules, as today amended, an application for registration under the Act is
    considered filed with us on the date that the application is accepted by
    the IARD. Rule 203-1(c) [17 CFR 275.203-1(c)]. The IARD will only accept
    filings that are complete and for which filing fees are paid.

    Some affiliated advisers have filed a single Form ADV to register all
    or some of the affiliates. Our experience is that such joint registrations
    do not work well since each adviser may have different responses to the
    same items. We will no longer accept joint registration; each affiliate
    must file a separate application for registration.

    18 See infra Section I.B.3.

    19 Rule 204-1(b).

    20 Rules 204-1(b)(4) and 203-2(b) [17 CFR
    275.204-1(b)(4) and 203-2(b)]. Form ADV-W is in Appendix B to this
    Release.

    21 Until an adviser makes its first electronic
    filing it must comply with the updating requirements of our rules by
    making paper filings of Part 1 of Form ADV with us, using "old" Form ADV,
    i.e., Form ADV that does not reflect the current amendments. If an
    adviser should withdraw its registration before making its first
    electronic filing on Form ADV, it must file its Form ADV-W with us on
    paper. It may use either "old" Form ADV-W or Form ADV-W as we are amending
    it today.

    22 If an adviser's fiscal year (as reported in
    its current Form ADV) ends in December, the adviser must transition to
    electronic filing by submitting an amendment to its Form ADV through the
    IARD no later than:

    (i) January 31, 2001, if the adviser's SEC file number is 801-1 through
    801-36806;

    (ii) February 28, 2001, if the adviser's SEC file number is 801-36807
    through 801-54145; and

    (iii) March 30, 2001, if the adviser's SEC file number is 801-54146 or
    higher.

    Rule 204-1(b)(1) [17 CFR 275.204-1(b)(1)].

    23 An adviser is required to update its
    registration forms at least annually within 90 days of the end of its
    fiscal year. Rule 204-1(a)(1). [17 CFR 204-1(a)(1)].

    24 Rule 204-1(b)(1)(ii) [17 CFR
    275.204-1(b)(1)(ii)]. Advisers are free to file as soon as they complete
    the entitlement process with NASDR as described below. As a result, some
    advisers may have filing options. An adviser having a fiscal year ending
    on October 31, for example, could submit an annual updating amendment to
    us on paper in January 2001 and then make subsequent electronic filing by
    the end of April 2001, or could transition to electronic filing early, by
    the end of January.

    25 Form ADV-H is in Appendix C to this
    Release.

    26 See rule 203-3(a) [17 CFR
    275.203-3(a)]. Some commenters on the proposed rule argued that seven days
    was inadequate. We are adopting the rule as proposed. As we noted in the
    Proposing Release, advisers facing a persistent filing impediment should
    make alternative filing arrangements, such as hiring a service bureau.

    27 Rule 203-3(b) [17 CFR 275.203-3(b)]. An
    investment adviser generally is a small business if it (a) manages assets
    of less than $25 million, (b) has total assets of $5 million or less, and
    (c) is not in a control relationship with another investment adviser that
    is not a small business. Rule 0-7 [17 CFR 275.0-7]. Since SEC-registered
    advisers are primarily larger firms, we expect that few will qualify for a
    continuing hardship exemption.

    28 We are delegating authority to grant or deny a
    continuing hardship exemption to our Division of Investment Management.
    See rule 30-5(e)(7) of our Organization and Program Management
    Rules. [17 CFR 200.30e-5(e)(7)].

    29 Advisers that already have a CRD account with
    NASDR will use that account. These firms, however, must still complete the
    entitlement forms and return them to NASDR in order to obtain IARD
    access.

    30 New applicants for SEC registration can obtain
    copies of the entitlement forms from NASDR at www.iard.com

    31 The site address is www.sec.gov/divisions/investment/iard.shtml.

    32 Advisers registered with the Commission or
    applying for registration with the Commission can call the Commission
    staff at (202) 942-0691 with legal and regulatory questions relating to
    Forms ADV and ADV-W.

    33 Advisers should call NASDR's help desk at
    (240) 386-4848 with questions about filling out entitlement forms, setting
    up an IARD account, and using the IARD system.

    34 Rule 204-3. Form ADV, as amended, is in
    Appendix A to this Release

    35 Form ADV will exist in both an electronic and
    a paper version. We have appended to this release the paper version, which
    will only be filed by advisers that have received a continuing hardship
    exemption. The electronic version of the form, which will be available
    only through the IARD, will elicit the same information but will have
    minor differences necessary to reflect and, in some cases take advantage
    of, an electronic environment.

    36 Part 1B was prepared by NASAA on behalf of
    state securities authorities. Completion of this part of Form ADV is a
    requirement of state law (and not SEC rules).

    37 We deleted terms that would have been used
    only in new Part 2 and added a definition of "employee," which is used in
    Item 5. As noted, infra note 38, we omitted the reference to
    "independent contractors" in Item 5 because the term could be construed to
    include persons who did not provide advice on the adviser's behalf.
    Instead, the item relies on the defined term "employee," which includes
    independent contractors that perform advisory functions on behalf of the
    adviser. In addition, we modified the definitions of "advisory affiliate"
    and "related person," which are used in Items 7, 8, 9, and 11. These
    modifications do not change from current Form ADV the persons and firms
    that are "advisory affiliates" and "related persons" of advisers; the
    modifications only clarify the definitions.

    38 We have revised (i) Item 1.I to clarify which
    web addresses must be provided on Schedule D; (ii) Item 5 to delete
    references to "independent contractors"; (iii) Item 5.B.(3) to ask only
    for the number of solicitors that are not employees of the adviser;
    and (iv) Item 7 to ask whether the adviser or a related person is a
    general partner of a limited partnership or a manager of a limited
    liability company and to limit the item to investment-related
    limited partnerships and investment-related limited liability
    companies.

    39 Items 11.A, 11.B, and 11.D of Part 1A.

    40 Item 11.C(5) of Part 1A.

    41 Item 11.A.(1) and 11.B. These changes further
    conform Form ADV's disciplinary questions to those of Form BD. See
    Form BD Amendments, Securities Exchange Act Release No. 35224 (Jan. 12,
    1995) [60 FR 4040 (Jan. 19, 1995)] (proposing), and Form BD Amendments,
    Securities Exchange Act Release No. 37431 (July 12, 1996) [61 FR 37357
    (July 18, 1996)] (adopting). Advisers need not report a finding by a
    self-regulatory organization that the adviser violated a "minor" rule if
    the sanction imposed consists of a fine of $2,500 or less and the
    sanctioned person does not contest the fine. Item 11.E.(2). See
    Securities Exchange Act Release No. 30958 (July 27, 1992) [57 FR 34028
    (July 31, 1992)] (making a similar change to Form BD). The rule must have
    been designated as "minor" under a plan approved by the Commission.

    42 Each DRP contains a box where the adviser can
    indicate that the DRP should be removed from the ADV record because the
    event or proceeding occurred more than ten years ago. Checking this item
    will remove the DRP from the adviser's current Form ADV. The ten-year
    limit applies only to disciplinary information required by Item 11 of Part
    1A. Under the Advisers Act's anti-fraud rules, advisers may be required to
    inform clients about disciplinary events that occurred more than ten years
    ago. See rule 206(4)-4(a)(2) [17 CFR 275.206(4)-4(a)(2)]. In
    addition, state securities authorities will continue to require
    state-registered advisers to report some events that are more than ten
    years old.

    43 Each DRP contains a box where the adviser can
    indicate that the DRP should be removed from the adviser's current Form
    ADV if the "pending" event is no longer pending because it was resolved in
    the adviser's or the advisory affiliate's favor. The state securities
    authorities have decided to require state-registered advisers to report
    criminal charges.

    44 Rule 204-3. Sponsors of wrap fee programs
    must also continue to prepare and deliver (and offer) wrap fee brochures
    in accordance with rule 204-3 and Schedule H of Form ADV.

    45 Rules 203-1(b)(2) and 204-1(c).

    46 Currently, the updating requirements appear
    in the text of rule 204-1, and specify that an adviser is required to
    amend its Form ADV if any response to old Part II becomes materially
    inaccurate. Rule 204-1(b)(1). Today's amendments, however, remove most of
    those requirements from rule 204-1 to Form ADV itself. Rule 204-1(a)(2),
    as amended, [17 CFR 275.204-1(a)(2)]. The updating requirements contained
    in Form ADV, as we are adopting it today, apply to new Part 1A but not old
    Part II. The Form ADV instructions do not address updating Part 2.

    47 Section 206 [15 U.S.C. 80b-6].

    48 See Note to paragraph (b)(2) of rule
    203-1 and Note to paragraph (c) of rule 204-1.

    49 5 U.S.C. 553(d)(3).

    50 All of the commenters disagreeing with our
    cost-benefit analysis raised concerns with our proposed revisions to
    advisers' disclosure requirements. As discussed earlier, we are not
    adopting those proposals at this time. One commenter suggested that the
    cost savings of one-stop filing would be $100 or less per adviser, and
    would therefore be outweighed by the IARD filing fees.

    51 Section 306 of NSMIA, supra, note
    16.

    52 The IARD will also benefit advisers by
    preventing them from making incomplete filings. Submitting an incomplete
    filing is a common error by new advisers applying for registration, and is
    one that can substantially delay the registration process and thus the
    business plans of applicants.

    53 Postage expenses alone can cost an
    SEC-registered firm $750 per year. This estimate assumes an average
    overnight mail cost of $10 per mailing in each of 50 states and an average
    of 1.5 amendments filed per year ($10 x 50 x 1.5) = $750.

    54 We recognize that not every adviser will
    experience net cost savings from one-stop electronic filing. In several
    areas, such as the sliding filing fee scale, we have recognized that some
    larger advisers may benefit more from using the IARD than other, smaller
    firms. In balancing the costs and benefits of the amendments we are
    adopting today, we must look at the expected costs to all SEC-registered
    firms, and we must also consider the benefits to investors.

    55 See discussion of electronic filing
    help features supra at Section I.B.5 of this Release.

    56 Approximately 900 SEC-registered advisers
    also are registered with us as broker-dealers.

    57 See discussion of hardship exemptions
    supra at Section I.B.3 of this Release.

    58 Investment adviser information is publicly
    available from us, but until now we have been unable to provide this
    information to the public without charge. We currently charge $.24 per
    page for copies and, upon receipt of the required fee, mail the Form ADV
    to the requester.

    59 An adviser generally will no longer be
    required to report an indirect owner unless the indirect owner owns 25% of
    a direct owner. See Section II.D.1 of the Proposing Release,
    supra note 1.

    60 Moreover, most advisers do not have
    disciplinary events to report.

    61 See discussion of disciplinary
    disclosure requirements supra at Section C.1 of this Release. As
    discussed earlier, we also are no longer requiring advisers to report
    unsatisfied judgments or liens; bankruptcies; bond denials, payouts, or
    revocations; or any "minor" rule violations.

    62 44 U.S.C. 3501 to 3520. The titles for the
    collections of information are "Form ADV"; "Rule 203-2 and Form ADV-W";
    "Rule 203-3 and Form ADV-H"; and "Rule 0-2 and Form ADV-NR," all under the
    Advisers Act. OMB approved the collection of information requirements, and
    the OMB control numbers are as follows: Form ADV, 3235-0049 (expires Jun.
    30, 2003); Rule 203-2 and Form ADV-W, 3235-0313 (expires Jun. 30, 2003);
    Rule 203-3 and Form ADV-H, 3235-0538 (expires Jun. 30, 2003); and Rule 0-2
    and Form ADV-NR, 3235-0240 (expires Jun. 30, 2003).

    63 As discussed in the Proposing Release,
    revised Part 1A of Form ADV incorporates the collection of information
    that previously appeared in Schedule I to Form ADV.

    64 The current burden assumes there would be 760
    new applicants per year, and an average of 9.01 hours for a new registrant
    to complete the form. The current burden also assumes that 7,300 other
    advisers are registered with us, and assumes that advisers file an
    aggregate of 11,810 amendments with us annually, at an average of 1.07
    hours per amendment.

    65 The 3,703 hours represents an increase
    independent of today's amendments. We receive approximately 1,000 (not
    760) new applications annually; and we have approximately 8,100 (not
    7,300) advisers registered with us. [(240 more new registrants per year x
    9.01 hours) + [(800 more currently-registered advisers x 1.5 amendments) +
    (240 new applicants x 1 amendment)] x 1.07 hours = 3,703 hours.]

    66 The collection of information for amended
    Form ADV also incorporates the burden of rule 206(4)-4, which requires
    advisers to disclose financial and disciplinary information to clients and
    prospective clients. The current burden does not include these separately
    existing 6,755 burden hours per year. In the Proposing Release, we
    proposed to incorporate the requirements of rule 206(4)-4 into Part 2 of
    Form ADV and to withdraw the rule. As discussed above, however, we are
    deferring adoption of those proposals until later this year.

    67 As discussed in the Proposing Release, to
    estimate the annual burden associated with revised Form ADV, we amortized
    the burden of an adviser's initial preparation and filing of Form ADV over
    a 15-year period, which reflects the expected useful life of the revised
    form. After its initial filing of Form ADV through the IARD (whether as a
    new registrant or for an existing registrant re-filing to transition to
    the system), an adviser's burden will generally be limited to amending the
    form as needed.

    68 Many of the concerns centered on proposed
    Parts 2A (the adviser's narrative firm brochure) and 2B (brochure
    supplements for advisory personnel). As discussed earlier, we are
    deferring adoption of those proposals at this time.

    69 As discussed in the Proposing Release, based
    on the Commission's recent experience it is estimated that, each year, 890
    new registrants and 10 multi-state advisers (i.e., advisers relying on the
    multi-state exemption found at rule 203A-2(e) [17 CFR 275.203A-2(e)]) will
    each amend their Form ADV 1 time; 100 advisers relying on rule 203A-2(d)
    [17 CFR 275.203A-2(d)] will each amend their Form ADV 2 times; and 8100
    currently-registered advisers will amend their Form ADV, on average, 1.5
    times.

    70 The revised collection of information burden
    per amendment is 0.75 hours (current burden per amendment of 1.07 hours x
    .70 = .749 hours per amendment).

    71 13,250 responses x 0.75 hours = 9,937.5
    hours.

    72 9,938 hours attributable to amendments +
    (1,000 new registrants x 1.47 (amortized) hours) + (8,100 existing
    registrants x 1.47 (amortized) hours) = 23,315 hours.

    73 23,315 hours due to rulemaking + 3,703 hours
    due to an increase in the number of advisers = 27,018 total burden
    hours.

    74 19,448 + 27,018 = 46,466.

    75 Rule 203-2 currently provides for a 60-day
    wait before a withdrawal is effective.

    76 The Commission in the past received
    approximately 616 notices of withdrawal on Form ADV-W per year.

    77 (650 advisers filing for full withdrawal x
    .75 hours) + (650 advisers filing for partial withdrawal x .25 hours) =
    487.5 + 162.5 = 650 hours. This represents a net increase from the current
    burden of 616 hours, which was based on 616 respondents and one hour per
    response.

    78 A non-resident general partner or managing
    agent is required to file Form ADV-NR only once.

    79 One hour is the current burden for a response
    to Form 4-R, 5-R, 6-R or 7-R.

    80 See Form ADV-H in Appendix C of this
    Release. The adviser applying for a continuing hardship exemption also
    must indicate the reasons that the hardware and software needed for
    Internet access are unavailable, and propose a time period for which the
    exemption would be in effect.

    81 Rules 203-3 and 0-7.

    82 A temporary hardship exemption would be
    available to advisers that submit electronic filings but are temporarily
    unable to do so. An adviser using a continuing hardship exemption could
    not apply for a temporary hardship exemption.

    83 (50 x 1) + (20 x 1) = 50 + 20 = 70 hours.

    84 5 U.S.C. 603(a).

    85 References to "rule and form amendments"
    include new rule 203-3 and new Form ADV-H.

    86 For purposes of the Advisers Act and the RFA,
    an investment adviser generally is a small entity if (a) it manages assets
    of less than $25 million reported on its most recent Schedule I to Form
    ADV, (b) it does not have total assets of $5 million or more on the last
    day of the most recent fiscal year, and (c) it is not in a control
    relationship with another investment adviser that is not a small entity.
    Rule 0-7.

    87 Title III of NSMIA, supra note 16.

    88 Section 203A(d) of the Advisers Act [15
    U.S.C. 80b-3A(d)] authorizes us to designate NASDR as operator of the
    filing system, and to require that advisers file through the system and
    pay filing fees. The rules we are adopting will require advisers to use
    the system and pay filing fees to NASDR, but do not themselves impose or
    authorize NASDR to impose any filing fee on advisers using the IARD.
    Nonetheless, we have included these filing fees as part of our FRFA. In
    Investment Advisers Act Release No. 1888, supra note 5, we
    designated NASDR as operator of the IARD and approved NASDR's proposed
    filing fees.

    89 A 1998 industry survey of registered
    investment advisers noted that all respondents use the Internet. According
    to the survey, advisers "new to the business or those with less than $100
    million of assets under management are more active users of the online
    channel than are higher-net-worth [advisers]." See Phil Clark,
    Cerrulli Survey; Advisers Flock to Internet for Research and Fund Data,
    Fund Marketing Alert, July 6, 1998 at 1. In 1999, the Institute of
    Certified Financial Planners (ICFP) and Morningstar also conducted a
    survey of financial planners and found that 99% of those surveyed had
    Internet access. See ICFP/Morningstar, Work/Computer Environment
    Among RIAs (available in File No. S7-10-00). Those advisers that
    cannot submit electronic filings themselves can obtain the assistance of a
    filing service bureau -- a firm that provides assistance to advisers and
    broker-dealers in preparing and making regulatory filings. For advisers'
    convenience, we will maintain a list of service bureaus that offer
    assistance in making filings on the IARD system.

    90 See Form ADV-H, infra Appendix
    C of this Release.

    91 The 14% estimate is based on responses to
    Item 11 of current Form ADV.

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