PENNSYLVANIA INVESTMENT ADVISER REGISTRATION PACKET www.psc.state.pa.us American LegalNet, Inc. www.FormsWorkflow.com PENNSYLVANIA SECURITIES COMMISSION 1010 N. Seventh Street Eastgate Office Building, 2nd Floor Harrisburg, PA 17102 1410 Filing Requirements: 12/11/2007 PENNSYLVANIA INVESTMENT ADVISER REGISTRATION REQUIREMENTS Contact: Susan J. Zerbe (717) 783 4244 Wendy Deimler (717) 783 4216 TDD: AT&T Relay Center 1 800 654 5984 Alternate formats of this document may be available on request. Call (717) 787 1165 or via AT&T Relay Center. This document and additional forms are also available on the Pennsylvania Securities Commission website at “www.psc.state.pa.us”. GENERAL INSTRUCTIONS & FILING REQUIREMENTS: An initial application for registration as an investment adviser in Pennsylvania must be filed through the Investment Adviser Registration Depository (IARD). If the applicant is not already a participant in the IARD, participation must be initiated before applying for Pennsylvania registration. For detailed information, forms and instructions on IARD participation, see www.iard.com. If already an IARD participant, skip to step 3. Page 1 of 8 American LegalNet, Inc. www.FormsWorkflow.com 1. The first step in getting started on the IARD is setting up an IARD User Account. This is accomplished via the “Entitlement” process. Applicant must file (by USPS regular mail or overnight service) an “Entitlement Package” (which includes three forms) with the IARD Entitlement Group at FINRA. Mail completed forms as follows: Overnight Service IARD Entitlement FINRA 9509 Key West Avenue Rockville, MD 20850 USPS Regular Mail IARD Entitlement FINRA P.O. Box 9495 Gaithersburg, MD 20898 9495 Once IARD receives your Entitlement Package, they will set up the IARD User Account, assign a Firm CRD Number, create an IARD billing account and send the investment adviser an IARD Confirmation Packet which will include log on names, passwords, general instructions and payment instructions. The “Entitlement Package” is available for download at both www.iard.com and www.psc.state.pa.us. NOTE: Please note, financial remittances to the IARD are not submitted to the regular IARD addresses. All checks and payments to your IARD account should be mailed as follows: Regular Mail Courier or Overnight FINRA, CRD IARD P.O. Box 7777 W9995 Philadelphia, PA 19175 9995 FINRA, CRD IARD W9995 701 Market Street, 199 3490 Philadelphia, PA 19106 1532 2. Upon receipt of the Confirmation Packet, it will be necessary to log in to the IARD to activate and set up your firm IARD account. 3. File FORM ADV, Parts 1A, 1B, and appropriate schedules electronically through the IARD. “PA” must be identified under Part 1B, Item 1. 4. The $350.00 Pennsylvania Investment Adviser Filing Fee will be deducted from your IARD account. Page 2 of 8 American LegalNet, Inc. www.FormsWorkflow.com When applying for registration in Pennsylvania through the IARD, the following additional items must be filed directly with this agency. These items should be sent to: Pennsylvania Securities Commission ATTN: Division of Licensing 1010 N. Seventh Street Eastgate Bldg, 2nd Floor Harrisburg, PA 17102 1410 5. Provide one complete copy of FORM ADV Part II with an original execution page (copy enclosed). NOTE: 6. IARD now permits the electronic filing of Form ADV Part II. If you elect to file your Part II electronically through the IARD, the filing of a hard copy directly with this agency is not required. For an Applicant that maintains discretionary authority over client funds or securities, has custody over client funds or securities, or that requires payment of advisory fees 6 months or more in advance and in excess of $1,200 per client, provide the following: a. A Statement of Financial Condition, which meets the requirements of Commission Regulation §303.012 (copy enclosed). b. A computation of Net Worth, which meets the requirements of Commission Regulation §303.042 (copy enclosed). 7. With reference to Commission Regulation §404.011 (Investment adviser brochure disclosure) (enclosed), provide disclosure as to whether or not you furnish each advisory client or prospective advisory client with a written disclosure statement in lieu of Form ADV Part II. If so, provide a copy of such document. 8. Reference Item 8, Form ADV Part IA. If Applicant has provided an affirmative response to Item 8F, provide specimen copies of the solicitor's agreement and disclosure statement. Page 3 of 8 American LegalNet, Inc. www.FormsWorkflow.com 9. With reference to any registered representative status with a broker dealer, provide an undertaking signed by an officer of the broker dealer stating that the broker dealer has reviewed and will comply with Rule 3040 of the FINRA Conduct Rules and FINRA Notice to Members 94 44. 10. Provide specimen copies of all forms of contracts and/or agreements to be used by the Applicant for its investment advisory clients. (See Section 405, Pennsylvania Securities Act of 1972 ("1972 Act") and Regulation 305.019(c)(3)(xvi), attached). 11. It is unlawful for any investment adviser to employ an “Investment Adviser Representative” (IAR) to represent him in Pennsylvania unless registered. Failure to properly register an IAR may result in administrative action by the Commission and civil liability for unregistered investment advisory activity. See Section 102(j.1) of the 1972 Act for the definition of Investment Adviser Representative. An initial application for registration as an IAR (“RA” designation) must be filed through the IARD. NOTE: The investment adviser (entity) must be an IARD participant and have an IAR entitlement before the IARD will accept IAR applications. A. Once entitled, the firm can now begin the process of filing an electronic Form U 4 (See Chapter Nine of the IARD Firm User’s Manual.) It should be noted that the firm does not have to complete the entire Form U 4 at one time. The firm can enter and save the data and then return at a later time to complete and electronically submit the Form U 4. B. The $117.00 Pennsylvania IAR filing fee will be deducted from your IARD account. In addition, the IARD will charge each IAR a one time initial set up fee of $45.00 with an annual maintenance fee of $45.00. See Item 1. for instructions on submitting checks. C. Pennsylvania does not require the filing of fingerprint cards on behalf of the IAR applicant. Page 4 of 8 American LegalNet, Inc. www.FormsWorkflow.com D. The RA must meet one of the following qualifications (see Commission Regulation §303.032): 1. Passing results: a. Received, on or after January 1, 2000 and within 2 years immediately prior to the date of filing an application with the Commission, a passing grade on The Uniform Investment Adviser Law Examination (Series 65), or successor examination. OR b. Received, on or after January 1, 2000, and within 2 years immediately prior to the date of filing an application with the Commission, a passing grade on the General Securities Representative Examination (Series 7) administered by FINRA and the Uniform Combined State Law Examination (Series 66) or successor examinations. OR c. NOTE: Received, on or after January 1, 2000, a passing grade on either the Series 65 examination or passing grades on both the Series 7 and Series 66 examinations and has not had a lapse in registration as an investment adviser or investment adviser representative in any state other than this Commonwealth for a period exceeding 2 years immediately prior to the date of filing an application with the Commission. Grandfathering and examination waivers are set forth in Commission Regulation §303.032(b) and (c) respectively. Page 5 of 8 American LegalNet, Inc. www.FormsWorkflow.com SUPPLEMENTAL REQUIREMENTS: 12. In the event your filing contains deficiencies, you will receive a letter identifying such deficiencies with a request that appropriate information be filed with this agency within 60 days from the date of the letter. 13. When amending FORM ADV Part 1A or 1B, these amendments must be filed electronically through the IARD. Any amendments to FORM ADV Part II or any other additional items requested by staff must be filed directly with this agency. Any amendment to FORM ADV Part II must also include a new execution page. The applicant must promptly notify the Pennsylvania Securities Commission, either with a filing through the IARD (FORM ADV Part 1A or 1B) or directly with the Commission (FORM ADV Part II), of any material change in its application no later than 30 days after the occurrence of the event. 14. Regulation §303.042(b) requires immediate notification if net worth falls below minimum requirements. 15. When requesting waiver of the examination requirements in accordance with Commission Regulation §604.016, the following must be provided: a. A letter requesting waiver of the examination requirement(s) setting forth your basis for the request; b. A detailed biographical sketch which substantiates the individual's previous experience (to include duties, responsibilities and accomplishments) in securities, banking, finance or other related business that forms the basis for your request; c. A completed "Certification" (copy enclosed) on behalf of each individual attesting to the fact that he/she has reviewed the 1972 Act and its regulations; and d. Verification of the PROFESSIONAL DESIGNATION (if any) awarded to such individual. Page 6 of 8 American LegalNet, Inc. www.FormsWorkflow.com 16. Registrant must notify the Commission in writing within 30 days after the termination of or withdrawal from employment of any "Investment Adviser Representative" furnishing investment advice in Pennsylvania. In accordance with Commission Regulation §305.061(c) notification shall be filed on Form U 5, "Uniform Termination Notice for Securities Industry Registration." Enclosures: Pa. Securities Act of 1972 Section 102 (j). Definition of "Investment Adviser" Section 102 (j.1).Definition of "Investment Adviser Representative" Section 301. Registration Requirement Section 302. Exemptions Section 405. Contract Requirements 64 Pa. Code §303.012. Investment adviser registration procedure §303.014. Investment adviser representative registration procedures §303.021. Registration and notice filing procedures for successors to a broker dealer, investment adviser or Federally covered adviser §303.032. Examination requirements for investment advisers and investment adviser representatives §303.042. Investment adviser capital requirements §303.051. Surety bonds §304.012. Investment adviser required records §304.022. Investment adviser required financial reports §304.052. Investment adviser compensation §305.011. Supervision of agents, investment adviser representatives and employes §305.019. Dishonest and unethical practices §305.061. Withdrawal of registration or notice filing §404.011. Investment adviser brochure disclosure §404.012. Cash payment for client solicitation §404.013. Investment adviser custody or possession of funds or securities of clients Page 7 of 8 American LegalNet, Inc. www.FormsWorkflow.com §604.016. Guidelines for waivers of Uniform Securities Agent State Law Examination (Series 63), Uniform Investment Adviser Law Examination (Series 65) and General Securities Representative Non Member Examination (Series 2) statement of policy. §604.020. Broker dealers, investment advisers, broker dealer agents and investment adviser representatives using the Internet for general dissemination of information on products and services statement of policy Commission Positions Registration of Financial Planners Miscellaneous Examination Waiver Certification FORM ADV PART II Execution Page Page 8 of 8 American LegalNet, Inc. www.FormsWorkflow.com SECTION 102(j) OF THE PENNSYLVANIA SECURITIES ACT OF 1972 (j) “Investment adviser” means 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 as to the advisability of investing in, purchasing or selling securities, or who,, for compensation and as a part of a regular business, issues or promulgates analyses or reports concerning securities. “Investment adviser” does not include: (i) A bank; (ii) A lawyer, accountant, engineer or teacher whose performance of these services is solely incidental to the practice of his profession; (iii) A broker-dealer registered under this act without the imposition of the condition referred to in section 305(b)(v); (iv) A publisher of any bona fide newspaper, news column, newsletter, news magazine or business or financial publication or services, whether communicated in hard copy form or by electronic means, or otherwise, that does not consist of the rendering of advice on the basis of the specific investment situation of each client and is of general, regular and paid circulation; and the agents and servants thereof in the performance of their regular duties on behalf of such publication or service; (v) A person whose advice, analyses or reports relate only to securities exempted under section 202(a); (vi) A person who has no place of business in this State if his only clients in this State are other investment advisers, federally covered advisers, broker-dealers or institutional investors; (vii) A person who has a place of business in this State and, during the preceding twelvemonth period has had not more than five clients in or out of this State and does not hold himself out generally to the public as an investment adviser; (viii) A person that is an investment adviser representative; (ix) A federally covered adviser; (x) A person excluded from the definition of “investment adviser” under section 202(1)(11) of the Investment Advisers Act of 1940 (54 Stat. 847, 15 U.S.C. § 80b-2(a)(11)); or (xi) Other persons not within the intent of this subsection whom the commission by regulation designates. American LegalNet, Inc. www.FormsWorkflow.com SECTION 102 (j.1) OF THE PENNSYLVANIA SECURITIES ACT OF 1972 (j.1) “Investment adviser representative” means: (i) With respect to any investment adviser registered or required to be registered under this act, any partner, officer, director, or person occupying a similar status or performing similar functions, or other individuals employed by or associated with an investment adviser, except clerical or administrative personnel, who performs any of the following: (A) Makes any recommendations or otherwise renders advice regarding securities; (B) Manages accounts or portfolios of clients; (C) Determines which recommendation or advice regarding securities should be given; (D) Solicits, offers or negotiates for the sale of, or sells, investment advisory services; or (E) Supervises employes who perform any of the foregoing; (ii) With respect to any federally covered adviser, any individual employed by or associated with a federally covered adviser who is an “investment adviser representative” and who has a “place of business” in this State as those terms are defined in the rules and regulations of the Securities and Exchange Commission. American LegalNet, Inc. www.FormsWorkflow.com SECTION 301 OF THE PENNSYLVANIA SECURITIES ACT OF 1972 (a) It is unlawful for any person to transact business in this State as a broker-dealer or agent unless he is registered under this act. (b) It is unlawful for any broker-dealer or issuer to employ an agent to represent him in this State unless the agent is registered under this act. The registration of any agent is not effective during any period when he is not associated with a specified broker-dealer registered under this act or a specified issuer. No agent shall at any time represent more than one broker-dealer or issuer, except that where affiliated organizations are registered broker-dealers, an agent may represent one or more of such organizations. When an agent begins or terminates a connection with a broker-dealer or issuer, or begins or terminates those activities which make him an agent, the agent as well as the broker-dealer or issuer shall promptly notify the commission. The commission may adopt a temporary registration procedure to permit agents to change employers without suspension of their registrations hereunder. (c) It is unlawful for any person to transact business in the State as an investment adviser unless he is so registered or registered as a broker-dealer under this act or unless he is exempted from registration. It is unlawful for any person to transact business in this State as an investment adviser representative unless he is so registered or exempted from registration. (c.1) The following apply: (1) It is unlawful for any: (i) person required to be registered as an investment adviser under this act to employ an investment adviser representative unless the investment adviser representative is registered under this act or exempted from registration, provided that the registration of an investment adviser representative is not effective during any period when he is not employed by an investment adviser registered under this act; or (ii) federally covered adviser to employ, supervise or associate with an investment adviser representative having a place of business in this Commonwealth, unless such investment adviser representative is registered under this act or exempted from registration. (2) If a registered investment adviser representative begins or terminates employment with an investment adviser or a federally covered adviser, the investment adviser in the case under paragraph (1)(I), or the investment representative in the case of paragraph (1)(ii), shall promptly notify the commission. (3) The commission may adopt a temporary registration procedure to permit investment adviser representatives to change employers without suspension of their registrations under this act. (d) It is unlawful for any licensed broker-dealer, agent or investment adviser to effect a transaction in securities, directly or indirectly, in this State if the registrant is in violation of this act, American LegalNet, Inc. www.FormsWorkflow.com or any regulation or order promulgated under this act of which he has notice, if such violation (I) is a material violation; (ii) relates to transactions effected in this State; and (iii) has been committed by such registrant, or if the information contained in his application for registration, as of the date of such transaction, is incomplete in any material respect or is false or misleading with respect to any material fact. (e) Every registration or notice filing expires on December 31 of each year unless renewed. No registration or notice filing is effective after its expiration, unless a renewal application has been timely filed, and expiration of a registration for which no renewal application has been filed is deemed an application for withdrawal under section 305(f). (f) It is unlawful for an federally covered adviser to conduct advisory business in this State, unless such person complies with the provisions of section 303(a)(iii). American LegalNet, Inc. www.FormsWorkflow.com SECTION 302 OF THE PENNSYLVANIA SECURITIES ACT OF 1972 Section 302. Exemptions.–The following persons shall be exempted from the registration provision of section 301: (a) A broker-dealer registered under the Securities Exchange Act of 1934, who has not previously had any certificate denied or revoked under this act or any predecessor statute, if he has no place of business in this State and, during any period of twelve consecutive months, he does not direct offers to sell or buy into this State in any manner to persons other than broker-dealers, institutional investors or governmental agencies and other instrumentalities designated by regulation of the commission, or to more than five other customers in this State, whether or not the offer or any of the offeror or any of the offerees is then present in this State. (b) An agent in so far as he effects transactions on behalf of a broker-dealer who is exempted by the provisions of subsection (a). (c) A person who represents an issuer in effecting transactions in securities registered under section 205 or 206 who: (1) Is a bona fide officer, director, partner or employe of the issuer or an individual occupying similar status or performing similar functions; and (2) Does not receive any compensation, directly or indirectly, for effecting the transactions. (d) An investment adviser who does not have a place of business in this State and during the preceding twelve-month period has had not more than five clients who are residents of this State exclusive of other investment advisers, federally covered advisers, broker-dealers or institutional investors. (d.1) An investment adviser representative who is employed by or associated with an investment adviser insofar as he transacts business in this State on behalf of an investment adviser who is exempted by the provisions of subsection (d). (d.2) An investment adviser representative who has a place of business in this State and is employed by or associated with a federally covered adviser and the federally covered adviser meets any of the criteria described in section 303(aa)(iii)(A), (B), or (C). (e) Any person who represents an issuer in effecting transactions in: (1) securities that are exempted by section 202(e), (f) or (g); (2) securities involved in a transaction exempted by section 203(c), (g), (k), (l) or (m); or (3) securities which are covered securities under section 18(b)(1) of the Securities Act American LegalNet, Inc. www.FormsWorkflow.com of 1933 (48 Stat. 74, 15 U.S.C. 77r(b)(1)). (f) The commission may by such regulations as it deems necessary or appropriate in the public interest or for the protection of investors, either unconditionally or upon specified terms and conditions or for specified periods, exempt from the provisions of section 301 any class of persons specified in such regulations. American LegalNet, Inc. www.FormsWorkflow.com SECTION 405 OF THE PENNSYLVANIA SECURITIES ACT OF 1972 Section 405. Contract Requirements.– It is unlawful for any investment adviser to enter into, extend, or renew any investment advisory contract if such contract: (1) provides for compensation to the investment adviser on the basis of a share of capital gains upon, or capital appreciation of, the funds or any portion of the funds of the client; (2) fails to provide in writing that no assignment of such contract shall be made by the investment adviser without the consent of the other party to the contract; or (3) fails to provide in writing that the investment adviser, if a partnership, will notify the other party to the contract of any change in the membership of such partnership within a reasonable time after such change. Clause (1) does not prohibit an investment advisory contract which provides for compensation based upon the total value of a fund averaged over a definite period, or as of definite dates or taken as of a definite date, or in any other manner permitted by the Investment Advisers Act of 1940 (54 Stat. 847, 15 U.S.C. § 80b-1 et seq.), and the rules and regulations promulgated thereunder or any contract for the rendering of investment advisory services to an institutional investor. “Assignment,” as used in clause (2), includes any direct or indirect transfer or hypothecation of an investment advisory contract by the assignor or of a controlling block of the assignor’s outstanding voting securities by a security holder of the assignor; but, if the investment adviser is a partnership, no assignment of an investment advisory contract is considered to result from the death or withdrawal of a minority of the members of the investment adviser having only a minority interest in the business of the investment adviser, or from the admission to the investment adviser of one or more members who, after admission, will be only a minority of the members and will have only a minority interest in the business. American LegalNet, Inc. www.FormsWorkflow.com 64 Pa. Code § 303.012. Investment adviser registration procedure. (a) An application for initial registration as an investment adviser shall contain the information requested in and shall be made on the Uniform Application for Investment Adviser Registration (Form ADV), or a successor form. The applicant shall complete and file with the Commission or with an investment adviser registration depository designated by order of the Commission one copy of the form accompanied by the filing fee in section 602(d.1) of the act (70 P. S. § 1-602(d.1)), the compliance assessment in section 602.1(a)(4) of the act and any exhibits required by this section. (b) Except as set forth in subsection (f), the following statements of financial condition shall accompany an application for initial registration as an investment adviser: (1) An applicant that has custody of client funds or securities or an applicant that requires payment of advisory fees 6 months or more in advance and in excess of $1,200 per client shall file an audited balance sheet of the applicant prepared in accordance with generally accepted accounting principles and accompanied by a standard audit report containing an unqualified opinion of an independent certified public accountant. The accountant shall submit, as a supplementary opinion, comments based upon the audit as to material inadequacies found to exist in the accounting system, the internal accounting controls and the procedures for safeguarding securities and funds and shall indicate corrective action taken or proposed. The balance sheet required by this paragraph shall be as of the end of the applicant’s most recent fiscal year. If that balance sheet is as of a date more than 45 days prior to the date of filing the application, the applicant also shall file a subsequent balance sheet prepared in accordance with generally accepted accounting principles as of a date within 45 days of the date of filing. This balance sheet may be unaudited and may be prepared by management of the applicant. (2) An applicant that has discretionary authority over client funds or securities, but not custody, shall file a balance sheet which need not be audited but shall be prepared in accordance with generally accepted accounting principles. The balance sheet required by this paragraph shall be as of the end of the applicant’s most recent fiscal year. If that balance sheet is as of a date more than 45 days prior to the date of filing the application, the applicant also shall file a subsequent balance sheet, which must be prepared in accordance with generally accepted accounting principles as of a date within 45 days of filing the application. Each balance sheet required by this paragraph may be unaudited and prepared by management of the applicant. Each balance sheet required by this paragraph also shall contain a representation by the applicant that the balance sheet is true and accurate. (3) An applicant whose proposed activities do not come within paragraph (1) or (2) need not file a statement of financial condition. (c) As part of the requirements relating to the statements of financial condition set forth in subsection (b), the Commission may require the following: (1) A list of the securities reflected in the statement of financial condition of the applicant valued at the market. (2) A description of material contractual commitments of the applicant not otherwise reflected in the statement of financial condition. (3) In the case of a sole proprietor, whose statement of financial condition includes only those assets and liabilities used in the applicant’s investment adviser business, an affirmative statement by American LegalNet, Inc. www.FormsWorkflow.com the applicant that its liabilities which have not been incurred in the course of business as an investment adviser are not greater than the applicant’s assets not used in its investment adviser business. (d) An investment adviser registered under the act shall take steps necessary to ensure that material information contained in its Form ADV and exhibits remains current and accurate. If a material statement made in Form ADV and exhibits becomes incorrect or inaccurate the investment adviser shall file with the Commission an amendment on Form ADV within 30 days of the occurrence of the event which requires the filing of the amendment. (e) For purposes of this section, the following terms have the following meanings: Principal place of business—The meaning set forth in 17 CFR 275.203A-3(c) (relating to definitions) promulgated under the Investment Advisers Act of 1940 (15 U.S.C.A. § § 80b-1—80b21). (f) An applicant that maintains its principal place of business in a state other than this Commonwealth need not comply with subsection (b) if the applicant meets the following: (1) Is registered as an investment adviser in the state in which it maintains its principal place of business. (2) Is in compliance with the financial reporting requirements of the state in which it maintains its principal place of business. (3) Has not taken custody of the assets of any client residing in this Commonwealth at any time during the preceding 12-month period. American LegalNet, Inc. www.FormsWorkflow.com 64 Pa. Code § 303.014. Investment adviser representative registration procedures. (a) An application for initial registration as an investment adviser representative of an investment adviser or Federally-covered adviser shall contain the information requested in and shall be made on the Uniform Application for Securities Industry Registration or Transfer Form (Form U-4), or a successor form. The investment adviser representative and the investment adviser or Federally covered adviser shall complete and file with the Commission or with an investment adviser registration depository designated by order of the Commission one copy of Form U-4 and exhibits thereto accompanied by the filing fee required by section 602(d.1) of the act (70 P. S. § 1-602(d.1)), the compliance assessment required by section 602.1(a)(1) of the act (70 P. S. § 1-602.1(a)(1)) and the results evidencing passage of the examinations required by § 303.032 (relating to qualification of and examination requirement for investment advisers and investment adviser representatives). (b) An investment adviser representative and an investment adviser or Federally-covered adviser shall take necessary steps to ensure that material information contained in Form U-4 remains current and accurate. If a material statement made in the Form U-4 becomes incorrect or incomplete, the investment adviser representative and the investment adviser or Federally-covered adviser shall file with the Commission an amendment to Form U-4 within 30 days of the occurrence of the event which requires the filing of the amendment. American LegalNet, Inc. www.FormsWorkflow.com 64 Pa. Code § 303.021. Registration and notice filing procedures for successors to a broker-dealer, investment adviser or Federally-covered adviser. (a) The following apply with respect to broker-dealers: (1) When a broker-dealer is formed or proposed to be formed for the purpose of succeeding to, and continuing the business of, a broker-dealer registered under section 301 of the act (70 P. S. § 1-301) and as a broker or dealer under section 15(b) of the Securities Exchange Act of 1934 (15 U.S.C.A. § 77o(b)) (successor broker-dealer) based solely on a change in the predecessor’s date or state of incorporation, form of organization or composition of a partnership, the successor broker-dealer shall comply with the requirements of SEC Rule 15b1-3(a) promulgated under the Securities Exchange Act of 1934, except that the successor broker-dealer shall file the amendments to Form BD with the Commission. (2) When a broker-dealer is formed or proposed to be formed for the purpose of succeeding to, and continuing the business of, a broker-dealer registered under section 301 of the act and as a broker or dealer under section 15(b) of the Securities Exchange Act of 1934 (successor broker-dealer) for reasons other than a change in the predecessor’s date or state of incorporation, form of organization or composition of a partnership, the successor broker-dealer shall comply with the requirements of SEC Rule 15b1-3(b) promulgated under the Securities Exchange Act of 1934, except that the successor shall file Form BD with the Commission. (b) The following shall apply to investment advisers: (1) When an investment adviser is formed or proposed to be formed for the purpose of succeeding to, and continuing the business of, an investment adviser registered under section 301 of the act (successor investment adviser) based solely on a change in the predecessor’s date or state of incorporation, form of organization or composition of a partnership, the successor investment adviser may file an initial application for registration by amending Form ADV of the predecessor and, under section 303(b) of the act (70 P. S. § 1-303(b)), succeed to the unexpired portion of the predecessor’s term of registration. (2) When an investment adviser is formed or proposed to be formed for the purpose of succeeding to, and continuing the business of, an investment adviser registered under section 301 of the act for reasons other than a change in the predecessor’s date or state of incorporation, form of organization or composition of a partnership, the successor investment adviser shall file Form ADV with the Commission. Upon registration, the successor investment adviser, under section 303(b) of the act, shall succeed to the unexpired portion of the predecessor’s term of registration. (c) When a Federally covered adviser is formed or proposed to be formed for the purpose of succeeding to, and continuing the business of, a registered investment adviser or of another Federallycovered adviser (successor Federally-covered adviser), the successor Federally-covered adviser shall file with the Commission either Form ADV or an amendment to Form ADV as required under SEC Release No. IA-1357 (December 28, 1992) and, under section 303(b) of the act, shall succeed to the unexpired portion of the predecessor’s notice period. American LegalNet, Inc. www.FormsWorkflow.com 64 Pa. Code § 303.032. Examination requirements for investment advisers and investment adviser representatives. (a) Examination requirements. An individual may not be registered as an investment adviser or investment adviser representative under the act unless the person has met one of the following qualifications: (1) Received, on or after January 1, 2000, and within 2 years immediately prior to the date of filing an application with the Commission, a passing grade on The Uniform Investment Adviser Law Examination (Series 65), or successor examination. (2) Received, on or after January 1, 2000, and within 2 years immediately prior to the date of filing an application with the Commission, a passing grade on the General Securities Representative Examination (Series 7) administered by the National Association of Securities Dealers, Inc. and the Uniform Combined State Law Examination (Series 66) or successor examinations. (3) Received, on or after January 1, 2000, a passing grade on either the Series 65 examination or passing grades on both the Series 7 and Series 66 examinations and has not had a lapse in registration as an investment adviser or investment adviser representative in any state other than this Commonwealth for a period exceeding 2 years immediately prior to the date of filing an application with the Commission. (b) Grandfathering. (1) Compliance with subsection (a) is waived if the individual meets the following qualifications: (i) Prior to January 1, 2000, the individual had received a passing grade on the Series 2, 7, 8 or 24 examination for registered representatives or supervisors administered by the National Association of Securities Dealers, Inc. and the Series 65 or Series 66 examinations. (ii) The individual has not had a lapse in employment as an investment adviser, investment adviser representative or principal or agent of a broker-dealer for any consecutive period exceeding 2 years immediately preceding the date of filing an application with the Commission. (2) An individual need not comply with subsection (a) if the individual meets the following qualifications: (i) Prior to January 1, 2000, the individual was registered as an investment adviser or investment adviser representative in any state requiring the licensing, registration or qualification of investment advisers or investment adviser representatives. (ii) The individual has not had a lapse in registration as an investment adviser or investment adviser representative in another state for any consecutive period exceeding 2 years immediately preceding the date of filing an application with the Commission. (c) Waivers of exam requirements. Compliance with subsection (a) is waived if: (1) The individual meets the following qualifications: (i) Has no disciplinary history which requires an affirmative response to Items 23A-E or Item American LegalNet, Inc. www.FormsWorkflow.com 23H of The Uniform Application for Securities Industry Registration or Transfer (Form U-4) or successor items thereto. (ii) Has been awarded any of the following designations which, at the time of filing of the application with the Commission, is current and in good standing: (A) Certified Financial Planner (CFP) awarded by the Certified Financial Planner Board of Standards, Inc. (B) Chartered Financial Consultant (ChFC) or Master of Science and Financial Services (MSFS) awarded by the American College, Bryn Mawr, Pennsylvania. (C) Chartered Financial Analyst (CFA) awarded by the Institute of Chartered Financial Analysts. (D) Personal Financial Specialist (PFS) awarded by the American Institute of Certified Public Accountants. (E) Chartered Investment Counselor (CIC) awarded by the Investment Counsel Association of America, Inc. (2) The individual is licensed as a certified public accountant, is currently in good standing and has no disciplinary history that requires an affirmative response to Items 14A-E or Item 14H of Form U-4 or successor items thereto, and has notified the Commission that the individual is eligible for a waiver of the examination requirement imposed by subsection (a). (3) The individual is licensed as an attorney, is currently in good standing and has no disciplinary history that requires an affirmative response to Items 14A-E or Item 14H of Form U-4 or successor items thereto, and has notified the Commission that the individual is eligible for a waiver of the examination requirement imposed by subsection (a). (4) The individual has received an order from the Commission waiving compliance with subsection (a). American LegalNet, Inc. www.FormsWorkflow.com 64 Pa. Code § 303.042. Investment adviser capital requirements. (a) Every investment adviser registered under section 301 of the act (70 P. S. § 1-301) shall maintain at all times the following net worth requirements: (1) The following applies when an investment adviser has its principal place of business in a state other than this Commonwealth. (i) If the investment adviser currently is licensed as an investment adviser in the state in which it maintains its principal place of business and is in compliance with that state’s net worth requirements, the net worth required by this section shall be the same as the net worth requirement imposed by that state. (ii) If the investment adviser currently is not licensed as an investment adviser in the state in which it maintains its principal place of business, the net worth required by this section shall be the same as if the investment adviser had its principal place of business in this Commonwealth. (2) Except as provided in subsection (e), an investment adviser that has its principal place of business in this Commonwealth and also is registered as a broker-dealer under section 301 of the act shall maintain at all times a minimum net capital of $25,000. (3) An investment adviser that has its principal place of business in this Commonwealth and has custody of client funds or securities shall maintain at all times a minimum net worth of $35,000 unless the investment adviser meets any of the following: (i) The investment adviser has custody solely as a result of receiving fees directly deducted from clients’ funds or securities if the investment adviser: (A) Possesses written authorization from the client to deduct advisory fees from an account held by a qualified custodian. (B) Sends the qualified custodian written notice of the amount of the fee to be deducted from the client’s account. (C) Sends the client a written invoice itemizing the fee, including any formulae used to calculate the fee, the time period covered by the fee and the amount of assets under management on which the fee was based. (ii) The investment adviser has custody solely as a result of serving as a general partner, manager of a limited liability company or a person occupying a similar status or performing a similar function which gives the investment adviser or its supervised person legal ownership or access to client funds or securities if: (A) The pooled investment vehicle is subject to audit at least annually and distributes its audited financial statements which have been prepared by an independent certified public accountant in accordance with generally accepted accounting principles to all limited partners, members or beneficial owners within 120 days of the end of its fiscal year. (B) The investment adviser: American LegalNet, Inc. www.FormsWorkflow.com (I) Hires an independent party to review all fees, expenses and capital withdrawals from the accounts included in the pooled investment vehicle prior to forwarding them to the qualified custodian with the independent party’s approval for payment. (II) Sends written invoices or receipts to the independent party which describe the amount of the fees (including any formulae used to calculate the fees, the time period covered by the fees and the amount of assets under management on which the fees were based), expenses or capital withdrawals for the independent party to verify that payment of the fees, expenses or capital withdrawals is in accordance with the documents governing the operation of the pooled investment vehicle and any statutory requirements applicable thereto. (iii) The investment adviser has custody solely as a result of acting as trustee for a beneficial trust in which the beneficial owners of the trust are a parent or step-parent; grandparent or step-grandparent; spouse, brother or step-brother, sister or step-sister; or grandchild or step-grandchild of the investment adviser. (4) An investment adviser that has its principal place of business in this Commonwealth and has discretionary authority over client funds or securities but does not have custody of client funds or securities shall maintain at all times a minimum net worth of $10,000. An investment adviser will not be deemed to be exercising discretion and subject to the requirements of this paragraph when it places trade orders with a broker-dealer under a third-party trading agreement if: (i) The investment adviser has executed a separate investment adviser contract exclusively with its clients that acknowledges that a third-party agreement will be executed to allow the investment adviser to effect securities transactions for the client in the client’s broker-dealer account. (ii) The investment adviser contract specifically states that the client does not grant discretionary authority to the investment adviser and the investment adviser, in fact, does not exercise discretion with respect to the account. (iii) A third-party trading agreement is executed between the investment adviser, the client and the broker-dealer which specifically limits the investment adviser’s authority in the client’s broker-dealer account to the placement of trade orders and deduction of investment adviser fees. (5) An investment adviser that has its principal place of business in this Commonwealth and accepts prepayment of advisory fees of more than 6 months in advance and more than $1,200 per client shall maintain at all times a positive net worth. (b) As condition of the right to continue to transact business in this Commonwealth, an investment adviser registered under the act shall notify, by the close of business on the next business day, the Commission if the investment adviser’s total net worth is less than the minimum required net worth. Within 24 hours after transmitting the notice, the investment adviser shall file a report of its financial condition including the following: (1) A proof of money balances of ledger accounts in the form of a trial balance. American LegalNet, Inc. www.FormsWorkflow.com (2) A computation of net worth. (3) An analysis of clients’ securities and funds which are not segregated. (4) A computation of the aggregate amount of clients’ ledger debit balances. (5) A computation of the aggregate amount of clients’ ledger credit balances. (6) A statement as to the number of client accounts. (c) For the purpose of this section, the following terms have the following meanings: Custody—A person is deemed to have custody of client funds or securities if the person directly or indirectly holds clients funds or securities, has any authority to obtain possession of them or has the ability to appropriate them. Independent party—A person who meets all of the following requirements: (i) Is engaged by an investment adviser with respect to payment of fees, expenses or capital withdrawals from a pooled investment vehicle in which the investment adviser has custody solely as a result of serving as a general partner, manager of a limited liability company or a person occupying a similar status or performing a similar function which gives the investment adviser or its supervised person legal ownership or access to client funds or securities. (ii) Does not control, is not controlled by and is not under common control with the investment adviser. (iii) Within the preceding consecutive 12 month period, did not derive 5% or more of its gross revenues from the investment adviser who hired the person to be an independent party, including the amount to be received from the investment adviser under the terms of the independent party engagement. Net capital—The meaning set forth in 17 CFR 240.15c3-1 (relating to net capital requirements for brokers or dealers), promulgated under the Securities Exchange Act of 1934 (15 U.S.C.A. § § 78a—78kk). Net worth—The excess of assets over liabilities as determined by generally accepted accounting principles reduced by the following: (i) Prepaid expenses except items properly classified as current assets under generally accepted accounting principles. (ii) Deferred charges. (iii) Goodwill, franchises, organizational expenses, patents, copyrights, marketing rights, unamortized debt discount and expense and all other assets of an intangible nature. (iv) Home furnishings, automobiles and any other personal items not readily marketable in the case of an individual. (v) Advances or loans to stockholders and officers in the case of a corporation; American LegalNet, Inc. www.FormsWorkflow.com members and managers in the case of a limited liability company; and advances or loans to partners in the case of a partnership. Pooled investment vehicle— (i) A limited partnership, limited liability company or an entity with a similar legal status and performing similar functions. (ii) The term does not include an investment company that has filed a registration statement under the Investment Company Act of 1940 (15 U.S.C.A. § § 80a-1—80a64). Principal place of business—The meaning set forth in 17 CFR 275.203A-3(c) (relating to definitions) promulgated under the Investment Advisers Act of 1940 (15 U.S.C.A § § 80b-1—80b21). Qualified custodian—The following shall be considered qualified custodians for purposes of this section: (i) A bank as that term is defined in section 102(d) of the act (70 P. S. § 1-102(d)). (ii) A Federally covered adviser as that term is defined in section 102(f.1) of the act. (iii) A broker dealer registered with the Commission under section 301 of the act (70 P. S. § 1-301). Supervised person—A person who meets the definition in section 202(a)(25) of the Investment Advisers Act of 1940 (15 U.S.C.A. § 80b-2(a)(25)). (d) For investment advisers registered or required to be registered under the act, the Commission may require that a current appraisal be submitted to establish the worth of an asset being calculated under the net worth formulation. (e) The requirements of subsection (a)(2) do not apply to an investment adviser that has its principal place of business in this Commonwealth and also is registered as a broker-dealer under section 15 of the Securities Exchange Act of 1934 (15 U.S.C.A. § 77o) if the broker-dealer is one of the following: (1) Subject to, and in compliance with, SEC Rule 15c3-1. (2) A member of a National Securities Exchange whose members are exempt from SEC Rule 15c3-1 under subsection (b)(2) thereof and the broker-dealer is in compliance with all rules and practices of the exchange imposing requirements with respect to financial responsibility and the segregation of funds or securities carried for the account of customers. American LegalNet, Inc. www.FormsWorkflow.com 64 Pa. Code § 303.051. Surety bonds. (a) The following applies with respect to the filing of a surety bond with the Commission by an investment adviser: (1) An investment adviser that has its principal place of business in this Commonwealth and does not meet the minimum net worth requirements of § 303.042 (relating to investment adviser capital requirements) may, by order of the Commission, have and maintain a surety bond in the amount of the net worth deficiency rounded up to the nearest $5,000. The surety bond shall be filed with the Commission on Uniform Surety Bond Form (Form U-SB) or successor form thereto; shall be subject to the claims of all clients of the investment adviser regardless of the client’s state of residence; and shall be issued by a person licensed to issue surety bonds in this Commonwealth. (2) An investment adviser that has its principal place of business in a state other than this Commonwealth shall comply with paragraph (1) unless the investment adviser meets the following qualifications: (i) Is registered as an investment adviser in that state. (ii) Is in compliance with the applicable net worth and bonding requirements of the state in which it maintains its principal place of business. (3) For purposes of this section, the term ‘‘principal place of business’’ has the same meaning as set forth in 17 CFR 275.203A-3(c) (relating to definitions) promulgated under the Investment Advisers Act of 1940 (15 U.S.C.A. § § 80b-1—80b-21). (b) A broker-dealer registered under the act but not registered as a broker or dealer under the Securities Exchange Act of 1934 (15 U.S.C.A. § § 78a—78kk) may, by order of the Commission, be permitted to have and maintain for the registration period a surety bond in the amount of the net capital deficiency rounded up to the nearest $5,000. The surety bond shall: (1) Be filed with the Commission on Form U-SB or successor form thereto. (2) Be subject to the claims of all clients of the broker-dealer regardless of the client’s state of residence. (3) Be issued by a person licensed to issue surety bonds in this Commonwealth. (c) Upon request of the Commission, a broker-dealer or investment adviser shall provide evidence of the existence of a surety bond. American LegalNet, Inc. www.FormsWorkflow.com 64 Pa. Code § 304.012. Investment adviser required records. (a) Except as provided in subsection (j), every investment adviser registered under the act shall make and keep true, accurate and current the following books, ledgers and records: (1) A journal or journals, including cash receipts and disbursements records, and any other records of original entry forming the basis of entries in any ledger. (2) General and auxiliary ledgers (or other comparable records) reflecting asset, liability, reserve, capital, income and expense accounts. (3) A memorandum of each order given by the investment adviser for the purchase or sale of any security, of any instruction received by the investment adviser from the client concerning the purchase, sale, receipt or delivery of a particular security, and of any modification or cancellation of any such order or instruction. The memoranda shall show the terms and conditions of the order, instruction, modification or cancellation; shall identify the person connected with the investment adviser who recommended the transaction to the client and the person who placed the order; and shall show the account for which entered, the date of entry, and the bank, broker-dealer by or through whom executed where appropriate. Orders entered pursuant to the exercise of discretionary power shall be so designated. (4) All check books, bank statements, canceled checks and cash reconciliations of the investment adviser. (5) All bills or statements (or copies of), paid or unpaid, relating to the investment adviser’s business as an investment adviser. (6) All trial balances, financial statements, net worth computation, and internal audit working papers relating to the investment adviser’s business as an investment adviser. For purposes of this subsection, ‘‘financial statements’’ shall mean a balance sheet prepared in accordance with generally accepted accounting principles, an income statement and a cash flow statement. The net worth computation means the net worth required by § 303.042 (relating to investment adviser capital requirements), if any. (7) Originals of all written communications received and copies of all written communications sent by the investment adviser relating to one or more of the following: (i) Any recommendation made or proposed to be made and any advice given or proposed to be given. (ii) Any receipt, disbursement or delivery of funds or securities. (iii) The placing or execution of any order to purchase or sell any security, except that an investment adviser: (A) Is not required to keep any unsolicited market letters and other similar communications of general public distribution not prepared by or for the investment adviser. (B) With respect to any notice, circular or other advertisement offering any report, analysis, publication or other investment advisory service sent by the investment American LegalNet, Inc. www.FormsWorkflow.com adviser to more than 10 persons (including transmission by electronic means), the investment adviser is not required to keep a record of the names and addresses of the persons to whom it was sent except, that if the notice, circular or advertisement is distributed to persons named on any list, the investment adviser shall retain with the copy of the notice, circular or advertisement a memorandum describing the list and its source. (8) A list or other record of all accounts which list identifies the accounts in which the investment adviser is vested with any discretionary power with respect to the funds, securities or transactions of any client. (9) A copy of all powers of attorney and other evidences of the granting of any discretionary authority by any client to the investment adviser. (10) A copy in writing of each agreement entered into by the investment adviser with any client, and all other written agreements otherwise relating to the investment adviser’s business as an investment adviser. (11) A file containing a copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication including by electronic media that the investment adviser circulates or distributes, directly or indirectly, to two or more persons (other than persons connected with the investment adviser), and if the notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication including by electronic media recommends the purchase or sale of a specific security and does not state the reasons for the recommendation, a memorandum of the investment adviser indicating the reasons for the recommendation. (12) Records of transactions as follows: (i) A record of every transaction in a security in which the investment adviser or investment adviser representative of the investment adviser has, or by reason of any transaction acquires, any direct or indirect beneficial ownership except: (A) Transactions effected in any account over which neither the investment adviser nor any investment adviser representative of the investment adviser has any direct or indirect influence or control. (B) Transactions in securities which are direct obligations of the United States. The record shall state: (I) The title and amount of the security involved; the date and nature of the transaction (that is, purchase, sale or other acquisition or disposition). (II) The price at which it was effected. (III) The name of the broker-dealer or bank with or through whom the transaction was effected. (ii) The record may also contain a statement declaring that the reporting or recording of any transaction will not be construed as an admission that the investment adviser or investment adviser representative has any direct or indirect beneficial ownership in the security. (iii) A transaction shall be recorded not later than 10 days after the end of the calendar quarter American LegalNet, Inc. www.FormsWorkflow.com in which the transaction was effected. (iv) For purposes of this paragraph, the following terms have the following meanings: (A) Investment adviser representative—A partner, officer or director of the investment adviser; any employe who participates in any way in the determination of which recommendations shall be made; any employe of the investment adviser who, in connection with assigned duties, obtains any information concerning which securities are being recommended prior to the effective dissemination of the recommendations; and any of the following persons who obtain information concerning securities recommendations being made by the investment adviser prior to the effective dissemination of the recommendations: (I) Any person in a control relationship to the investment adviser. (II) Any affiliated person of a controlling person. (III) Any affiliated person of an affiliated person. (B) Control—The power to exercise a controlling influence over the management or policies of a company, unless the power is solely the result of an official position with the company. A person who owns beneficially, either directly or through one or more controlled companies, more than 25% of the voting securities of a company shall be presumed to control the company. (v) An investment adviser shall implement adequate procedures and use reasonable diligence to obtain promptly reports of all transactions required to be recorded. (13) Records of transactions by investment advisers primarily engaged in a business other than advising clients as follows: (i) Notwithstanding paragraph (12), when the investment adviser is primarily engaged in a business or businesses other than advising investment advisory clients, a record shall be maintained of every transaction in a security in which the investment adviser or any investment adviser representative of the investment adviser has, or by reason of any transaction acquires, any direct or indirect beneficial ownership, except transactions: (A) Effected in any account over which neither the investment adviser nor any investment adviser representative of the investment adviser has any direct or indirect influence or control. (B) In securities which are direct obligations of the United States. The record shall state: (I) The title and amount of the security involved. (II) The date and nature of the transaction (that is, purchase, sale, or other acquisition or disposition). (III) The price at which it was effected, and the name of the broker-dealer or bank with or through whom the transaction was effected. (ii) The record may also contain a statement declaring that the reporting or recording of any American LegalNet, Inc. www.FormsWorkflow.com transaction will not be construed as an admission that the investment adviser or investment adviser representative has any direct or indirect beneficial ownership in the security. (iii) A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected. (iv) An investment adviser is ‘‘primarily engaged in a business or businesses other than advising investment advisory clients’’ when, for each of its most recent 3 fiscal years or for the period of time since organization, whichever is lesser, the investment adviser derived, on an unconsolidated basis, more than 50% of the following: (A) Its total sales and revenues. (B) Its income (or loss) before income taxes and extraordinary items, from other business or businesses. (v) For purposes of this paragraph, the following terms have the following meanings: (A) Investment adviser representative—When used in connection with a company primarily engaged in a business or businesses other than advising investment advisory clients, the term means any partner, officer, director or employe of the investment adviser who participates in any way in the determination of which recommendations shall be made; any employe who, in connection with assigned duties, obtains information concerning which securities are being recommended prior to the effective dissemination of the recommendations; and any of the following persons who obtain information concerning securities recommendations being made by the investment adviser prior to the effective dissemination of the recommendations as follows: (I) Any person in a control relationship to the investment adviser. (II) Any affiliated person of a controlling person. (III) Any affiliated person of an affiliated person. (B) Control—The power to exercise a controlling influence over the management or policies of a company, unless the power is solely the result of an official position with the company. A person who owns beneficially, either directly or through one or more controlled companies, more than 25% of the voting securities of a company shall be presumed to control the company. (vi) An investment adviser shall implement adequate procedures and use reasonable diligence to promptly obtain reports of all transactions required to be recorded. (14) A copy of each written statement and each amendment or revision, given or sent to any client or prospective client of the investment adviser under § 404.011 (relating to investment adviser brochure rule), and a record of the dates that each written statement, and each amendment or revision, was given, or offered to be given, to any client or prospective client who subsequently becomes a client. (15) For each client that was obtained by the adviser by means of a solicitor to whom a cash fee was paid by the adviser shall maintain the following: (i) Evidence of a written agreement to which the adviser is a party related to the payment of the fee. American LegalNet, Inc. www.FormsWorkflow.com (ii) A signed and dated acknowledgment of receipt from the client evidencing the client’s receipt of the investment adviser’s disclosure statement and a written disclosure statement of the solicitor. (iii) A copy of the solicitor’s written disclosure statement if required by § 404.012 (relating to cash payment for client solicitation). (iv) For purposes of this paragraph, the term ‘‘solicitor’’ means any person or entity who, for compensation, directly or indirectly solicits any client for, or refers any client to, an investment adviser. (16) All accounts, books, internal working papers, and any other records or documents that are necessary to form the basis for, or demonstrate the calculation of, the performance or rate of return of all managed accounts or securities recommendations in any notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication, including but not limited to, electronic media that the investment adviser circulates or distributes, directly or indirectly, to two or more persons (other than persons connected with the investment adviser) except that, with respect to the performance of managed accounts, the retention of all account statements, if they reflect all debits, credits, and other transactions in a client’s account for the period of the statement, and all worksheets necessary to demonstrate the calculation of the performance or rate of return of all managed accounts shall be deemed to satisfy the requirements of this paragraph. (17) A file containing a copy of all written communications received or sent regarding any litigat