Electronic Filing by Investment Advisers; Amendments To Form ADV

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.

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

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.

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.

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.