Connecticut Application for Investment Adviser Registration WHO MUST REGISTER: Generally, any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or the advisability of investing in, purchasing or selling securities must register as an "investment adviser" with the Connecticut Department of Banking if the person has less than $25 million in assets under management. Persons who, as a part of a regular business, issue or promulgate analyses or reports concerning securities must also register as investment advisers with the state. Investment advisers having $25 million or more in assets under management must register with the federal Securities and Exchange Commission (the "SEC") rather than the state. State registration is triggered when a Connecticut investment adviser services Connecticut clients or clients located in another jurisdiction. State registration also is required where a non-Connecticut state-regulated investment adviser services clients located in Connecticut. FOR HELP: Write to us at: State of Connecticut Department of Banking Securities and Business Investments Division 260 Constitution Plaza Hartford, Connecticut 06103 Telephone us at: (860) 240-8230 For information on the Investment Adviser Registration Depository (IARD), be sure to visit the SEC and the IARD on-line for details on electronic filing. Last Revised December, 2004 WHAT YOU MUST FILE • • • • Form ADV - Note: Effective April 1, 2003, new applicants for investment adviser registration in Connecticut, and Connecticut registrants amending Form ADV, must file an initial or amended Part 1 of Form ADV electronically through the Investment Adviser Registration Depository ("IARD") at www.iard.com. Part II of Form ADV must be filed in paper form with the department. Remit a $250 application fee for the investment adviser and $50 for each investment adviser agent being registered through the IARD. Completed Connecticut Supplement For Connecticut-based investment advisers: Financial statements (including a completed Registrant's Certificate) American LegalNet, Inc. www.USCourtForms.com • • • • • • • • For Non-Connecticut-based investment advisers: Foreign Compliance Certification (if applicable) Investment advisory contract Workers' Compensation Coverage Questionnaire with instructions Form DBA-1 (if applicable) (If applicable) Copy of any disclosure document furnished to clients in lieu of Part II of Form ADV One copy of any prospectus, pamphlet, circular, form letter, advertisement, other sales literature or advertising communication addressed or intended for distribution to investors, including clients or prospective clients. File Form U-4 (for registration of investment adviser agents) electronically through the IARD (If applicable) Employer consent letters (for multiple registration of investment adviser agents) IMPORTANT NOTE Once you make your filing and we request additional information, be sure to respond promptly. If we do not hear from you within 60 days, your application may be considered abandoned. Make sure you double check your filing before you submit it to speed up processing time. Under the Connecticut Uniform Securities Act, your investment adviser registration is not effective until the registrant's name has been entered on the Register of Investment Advisers. We will notify you in writing of that fact. Unless it is suspended or revoked, your registration will expire on December 31st of each year. Your renewal will be processed electronically through the IARD. Paying the applicable fees constitutes renewal in Connecticut. Although you do not have to file a new Form ADV to renew your registration, you must amend your Form ADV online if there have been any material changes in the information you previously submitted to us. DETAILS ON CERTAIN REQUIRED ITEMS I. FORM ADV AND APPLICATION FEES File a completed Part I of Form ADV (Uniform Application for Investment Adviser Registration) with accompanying schedules electronically through the IARD. Include a $250 initial application fee for the investment adviser and a $50 fee for each investment adviser agent for whom a registration application on Form U-4 is submitted. Note: Registration fees are not refundable. Consult www.iard.com for details on the filing procedure. File Part II of Form ADV in paper with the department. II. CONNECTICUT SUPPLEMENT Complete a Connecticut Supplement and submit it in paper form to the department. American LegalNet, Inc. www.USCourtForms.com III. FINANCIAL STATEMENTS Investment Advisers With a Connecticut Principal Place of Business Must File a Statement of Financial Condition and a Registrant's Certificate Each investment adviser must have tangible assets in excess of liabilities less satisfactory subordination agreements to the extent of at least $1,000. File directly with the department a statement of financial condition as of a date within 60 days of the date on which your investment adviser application is filed. The financial statement must disclose the nature and amount of the investment adviser's assets, liabilities and capital. If the applicant is a sole proprietorship, include personal (as well as business) assets and liabilities. By law, filed statements of financial condition are not open to the public. Net Tangible Assets: Although you should direct questions about calculating net tangible assets to your accountant rather than to the Department of Banking, here are some pointers: a) Allowable assets are total assets less intangible assets. Allowable assets less liabilities equal net tangible assets. b) Intangible assets are determined by generally accepted accounting principles. Here are just a few examples: goodwill; organization costs; patents, copyrights and trademarks; leases, leaseholds and leasehold improvements; exploration rights and costs of development of natural resources; formulas, processes and designs (e.g., software); licenses, franchises, memberships and customer lists; prepaid expenses (e.g., rent, insurance); and deferred charges. The Division may consider other items if you provide accounting authority demonstrating why the item should not be deducted from an investment advisory financial statement. Audit Requirements: The financial statement does not have to be audited (i.e. examined in accordance with generally accepted auditing standards and reported upon with an opinion expressed by an independent certified public accountant or independent public accountant) unless you have been in business for one year or more, and you will either 1) have custody or possession of client funds or securities or 2) require the prepayment of advisory fees six months or more in advance and in excess of $500 per client. Even if you would normally have to obtain audited financial statements no more than 60 days old, the Commissioner has granted an exemption if: 1) you submit your most recent audited statement of financial condition; and 2) that financial statement includes an unaudited statement of financial condition as of a date within 60 days preceding the date your investment adviser application is filed. Investment Advisory Registrant's Certificate Staple a completed Investment Advisory Registrant's Certificate to the front of the financial statement to which it relates. Make sure that the date to which the Registrant's Certificate refers corresponds to the date of the financial statement. Submit a separate Investment Advisory Registrant's Certificate for each financial statement (make extra copies as needed). Note: After you have become registered, the Connecticut Regulations require you to file a report of your financial condition within 90 days after your fiscal or calendar year ends. This report must reflect your financial condition as of the end of your fiscal year. You must include an Investment Advisory Registrant's Certificate with this report of financial condition. American LegalNet, Inc. www.USCourtForms.com Investment Advisers Not Having a Connecticut Principal Place of Business Must File a Foreign Compliance Certification if they are Licensed in their Home State NOTE: If an investment adviser has an out-of-state principal place of business but is not registered or licensed as an investment adviser there, this instruction does not apply. Instead, follow the instruction for investment advisers having their principal place of business in Connecticut. IV. INVESTMENT ADVISORY CONTRACT File a sample copy of your investment advisory contract or agreement directly with the department. Every investment advisory contract or agreement must be in writing. An investment advisory contract is a very important document that legally defines your relationship with your client. If you have questions about drafting your contract, please direct them to your attorney. What Must be in the Investment Advisory Contract • • • • • • • • • • • SERVICES you will provide to your clients TERM of the agreement (how long it lasts). FEE ARRANGEMENT between you and your clients FORMULA FOR COMPUTING THE ADVISORY FEE (If applicable) Designation of CUSTODIAN or an acknowledgment (if applicable) that the adviser will have custody over client funds and/or securities. Amount and manner of calculating the amount of the PREPAID FEE to be returned to the client if the contract terminates or a party to the contract does not perform A space for the CLIENT'S SIGNATURE, and the DATE. A statement that the investment adviser will not be compensated on the basis of a share of CAPITAL GAINS upon or CAPITAL APPRECIATION of client funds (or any portion of client funds). It is permissible, however, for the contract to state that the fee is based on total or net asset value or a flat fee. It is also permissible for compensation to be based upon total or net asset value of a fund averaged over a definite period or as of definite dates or taken as of a definite date. Performance fees that would be permitted and determined for federally regulated advisers in accordance with Section 205 of the federal Investment Advisers Act of 1940 and any rules or regulations adopted in accordance with that statute are also allowable. A statement that the investment adviser CANNOT ASSIGN THE CONTRACT without the other party's consent. (An assignment includes any direct or indirect transfer or hypothecation of the contract by the assignor or of the beneficial ownership of a controlling block of the assignor's outstanding voting securities by a security holder of the assignor.) For partnerships only: The contract must state that the adviser will notify the other party to the contract of any change in the partnership's membership within a reasonable time after the change. Acknowledgment that the client has received a copy of the adviser's DISCLOSURE STATEMENT (Part II of Form ADV or a disclosure containing the information in Part II of Form ADV) not less than 48 hours prior to entering into the contract. Note: If the contract gives the client the right to American LegalNet, Inc. www.USCourtForms.com • • • • terminate the agreement without penalty within 5 business days after entering into the contract, it is permissible to provide the disclosure statement at the time the contract is signed. (If applicable) Written AUTHORIZATION from the client permitting the adviser to place orders to buy or sell securities on the client's behalf. (If applicable) Written AUTHORIZATION from the client permitting the adviser to place orders to buy or sell securities on the client's behalf ON THE INSTRUCTION OF A THIRD PARTY. (If applicable) Written AUTHORIZATION from the client permitting the adviser to exercise any DISCRETIONARY POWER in placing an order for the purchase or sale of securities. Special Note on Hedge Clauses: A hedge clause is a contract provision seeking to limit or entirely avoid an investment adviser's civil liability for various types of conduct or omissions arising from the advisory relationship. In May 1991, the department issued a policy statement discouraging the use of certain hedge clauses. An adviser may violate the Connecticut Uniform Securities Act's antifraud provisions if the advisory contract leads a client to believe that the client has waived a right of action the client may have under state or federal securities law or common law, or if the contract otherwise misleads the client as to the nature of those rights. V. DISCLOSURE DOCUMENT OR "BROCHURE" Delivery of Brochure: Investment advisers must deliver a written disclosure statement or "brochure" to their clients and prospective clients. Your brochure can be either a copy of Part II of Form ADV or a document that contains at least the information that Part II of Form ADV requires. You must deliver the brochure either 1) at least 48 hours before you enter into a contract with the client; or 2) at the time you actually enter into the contract with the client. If you deliver the brochure when you enter into the contract, the contract must let the client terminate the agreement without penalty within 5 business days after the client signs the contract. All applicants must file a paper copy of Part II of Form ADV, even those filing Part 1 of Form ADV through the IARD. In addition, if you will substitute another disclosure document for Part II of Form ADV, file that document with our department. VI. EXPERIENCE REQUIREMENTS Every person listed on Schedule A, B or C of Form ADV who is involved in managerial or supervisory responsibilities must meet the experience requirements under Section 36b-31-7b of the Connecticut Uniform Securities Act Regulations. If you are a partnership, at least 2 of your active partners (or if there is only one active partner, then that one) must meet the experience requirements. If you are a corporation, at least 2 of your active officers (or if there is only one active officer, then that one) must have sufficient experience. Tip: Applicants with personnel having no managerial or supervisory responsibilities or not being active as officers or partners should provide a dated written statement, American LegalNet, Inc. www.USCourtForms.com signed by an officer or other authorized person of similar rank, supporting their claim that these individuals should receive a waiver from the experience requirements and the reason for the waiver request. What Experience Qualifies? • • • • The individual has been engaged in the securities business as a broker-dealer, agent, investment adviser or investment adviser agent, spending a major portion of his or her working time in the securities business for at least 3 years within the 7 calendar years preceding the date of the application or The individual is otherwise qualified by knowledge and experience as the agency determines. Applicants relying on this provision must provide us with adequate documentation to support their claim. The Regulations permit the agency to substitute a qualifying examination for the experience requirements; or The individual is an attorney with at least 3 years of substantial experience in securities law; or The individual is an accountant with at least 3 years of substantial experience in the sale of securities or the rendering of securities-related advice. VII. FORM DBA-1 (see separate instructions) VIII. TESTING REQUIREMENTS Generally, investment adviser agents must pass the Series 65 examination. See the Question and Answer sheet for more information, including exceptions to the requirement. IX. WORKERS' COMPENSATION COVERAGE QUESTIONNAIRE (separate instructions) X. INVESTMENT ADVISER AGENT REGISTRATION (see separate instructions) XI. AMENDMENTS Amend Part I of Form ADV electronically via the IARD. If you are amending Part II, you must file a paper amendment with our office. (We anticipate that the IARD will be able to accept Part 2 filings in the future.) When filing an amendment with us, make sure you manually sign revised Form ADV and date it to reflect the date of the amendment. Circle the items you are amending. Do not circle changes you have filed with us before. American LegalNet, Inc. www.USCourtForms.com