benefit from the additional protection afforded by the proposal.\136\
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    \136\ As stated above in supra notes 77-86 and accompanying
text, for purposes of the Paperwork Reduction Act analysis, we
estimated that 1,281 advisers that provide advice to both individual
clients and pooled investment vehicles would each be subject to the
surprise examination with respect to two pooled investment vehicles
with 50 investors in each pool and 796 advisers that provide advice
exclusively to pooled investment vehicles would be subject to the
surprise examination with respect to five pooled investment vehicles
with 50 investors in each pool. [(1,281 x 100) + (796 x 250) =
327,100].
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    Amending the rule to state that advisers have custody if their
``related persons'' hold client assets in connection with advisory
services provided by the adviser, would extend the protections of the
custody rule to these clients. This amendment to the rule would result
in client assets held by the adviser or its related persons becoming
subject to a surprise examination performed by an independent public
accountant registered with, and subject to regular inspection by, the
PCAOB and other requirements of the rule, which may deter fraudulent
activity perpetrated by an adviser through its related persons, and
provide an independent check on the adviser's ability to convert client
assets to its own use.
    The proposed rule would require an adviser to obtain, or receive
from a related person, no less frequently than once each calendar year
a written internal control report from an independent public accountant
registered with, and subject to regular inspection by, the PCAOB with
respect to controls relating to custody when the adviser or a related
person serves as a qualified custodian for client funds or securities
in connection with advisory services the adviser provides to clients.
This requirement would provide important safeguards to advisory clients
in these higher risk situations. Requiring these advisers to also
obtain an internal control report would provide an additional check on
the safeguards relating to client assets held at a related person
qualified custodian. An internal control report could also
significantly strengthen the utility of the surprise examination when
the adviser or a related person custodian maintains client assets
because the independent public accountant performing the surprise
examination could obtain additional comfort that confirmations received
from the qualified custodian in the course of the surprise examination
are reliable and, where a broker-dealer is the qualified custodian, may
be able to leverage existing tests performed in compliance with broker-
dealer auditing and internal control requirements. The internal control
report may also reveal control problems, which could be
significant.\137\ Thus, the requirement to obtain an internal control
report informs the surprise examination process and may itself act as a
deterrent to advisers that may consider misappropriating client assets
directly or through a related person in the guise of providing
custodial services as a qualified custodian. We also propose to require
advisers to maintain the internal control report as a required record
to provide our staff access to the accountant's report. Based on IARD
data, we estimate clients of 372 advisers would benefit from the
protections provided by the internal control report requirement.\138\
---------------------------------------------------------------------------

    \137\ In addition to the specific procedures an independent
public accountant must follow during a surprise examination, the
accountant should perform any additional audit procedures deemed
necessary under the circumstances. See Nature of Examination
Required to be Made of All Funds and Securities Held in Custody of
Investment Advisers and Related Accountant's Certificate, supra note
8.
    \138\ We estimate that 139 investment advisers that are also
banks, registered broker-dealers or futures commission merchants
would custody client assets as a qualified custodian under the rule.
Based on IARD data, we also estimate that 233 investment advisers
have a related person bank, registered broker-dealer or futures
commission merchant that is a qualified custodian for advisory
client assets. 139 + 233 = 372.
---------------------------------------------------------------------------

    The proposed amendments would eliminate the alternative, currently
provided in the rule, under which an adviser with custody can send its
own account statements to clients if the adviser is subject to an
annual surprise examination. Instead, all advisers with custody would
be required to have a reasonable belief, after due inquiry, that the
qualified custodian sends account statements directly to clients. As a
result, we expect that clients of approximately 190 advisory firms that
currently send their own account statements to clients would, under the
proposed amendments, receive account statements directly from qualified
custodians.\139\ This change would provide clients confidence that any
erroneous or unauthorized transactions would be reflected and, as a
result, deter advisers from fraudulent activities. Based on IARD data,
we estimate that 176,320 clients would benefit from this proposal and
would receive account statements directly from qualified
custodians.\140\
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    \139\ Based on ADV-E filings, there were 190 advisers that
underwent surprise examinations during 2008.
    \140\ We estimate that approximately 190 advisers would be
subject to the surprise examination with respect to 928 clients each
under the current custody rule. The proposed elimination of the
option for advisers to send account statements would result in
approximately 176,320 clients receiving account statements directly
from the qualified custodian. (190 x 928 = 176,320).
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    As proposed to be amended, the rule would require each adviser that
is required to undergo an annual surprise examination to enter into a
written agreement with an independent public accountant to perform the
surprise examination. The written agreement would require the
independent public accountant to, among other things, (i) file Form
ADV-E accompanied by a certificate within 120 days of the time chosen
by the accountant for the surprise examination stating that it has
examined the client assets and describing the nature and extent of the
examination, (ii) report to the Commission any material discrepancies
discovered in the examination within one business day, and (iii) upon
the accountant's termination of engagement, file Form ADV-E within 4
business days accompanied by a statement explaining the reasons for
such termination if related to examination scope or procedure. These
filings and reports would provide our staff additional information to
prioritize examinations and would assist in establishing advisers' risk
profiles. As proposed, the rule would result in the electronic filing
of Form ADV-E and the accountant statement on the Internet-based IARD
system. Clients would benefit from electronic filing of the Form ADV-E
because it would allow them to easily access important information
about the surprise examinations performed on their advisers. We
estimate that 8,214,462 advisory clients and 327,100

investors in pooled investment vehicles would benefit from the proposed
change.\141\ Furthermore, the availability to the general public of
Form ADV-E information on the Commission's Web site may result in
additional benefits, including to potential clients deciding which
investment adviser to select.
---------------------------------------------------------------------------

    \141\ See supra notes 135 and 136 and accompanying text for
further information.
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    We are proposing to require advisers to include a statement in the
notice that they are currently required to send to their clients upon
opening a custodial account on their clients' behalf.\142\ The
statement would urge clients to compare the account statements they
receive from the custodian with those they receive from the adviser. As
discussed above, client review of periodic account statements from the
qualified custodian is an important measure that can enable clients to
discover improper account transactions or other fraudulent activity.
Raising clients' awareness of this safeguard under the custody rule at
account opening could enhance the rule's effectiveness. We estimate
that 198,935 clients would receive notices containing this additional
information.\143\
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    \142\ Rule 206(4)-2(a)(2).
    \143\ We estimated that approximately 3,617 advisers open
accounts on behalf of their clients and each year on average open
accounts for about 5% of their 1,092 clients who are either new
clients or whose accounts have been transferred to new qualified
custodians. (3,617 x (1,092 x 0.05) = 3,617 x 55 (rounded up from
54.60) = 198,935).
---------------------------------------------------------------------------

    Finally, we propose to amend Form ADV in connection with the
amendments to the custody rule. We would modify Item 7 of Part 1A under
which advisers report certain financial industry affiliates, to require
an adviser to report all related persons that are broker-dealers and to
identify which, if any, serve as qualified custodians with respect to
the adviser's client assets.\144\ We also would amend Item 9 to require
advisers that have custody (or whose related persons have custody) of
client assets to provide additional information about their custodial
practices under the custody rule. In addition, the proposed amendments
to Schedule D of Form ADV would require an adviser, depending on the
adviser's response to Item 9, to provide additional details including
information about the accountants that perform annual audits, surprise
examinations or that prepare internal control reports,\145\ whether a
report prepared by an accountant contains an unqualified opinion,\146\
and about any related person that serves as a qualified custodian for
the adviser's clients.\147\ These disclosures would provide our staff
more information to determine advisers' risk profiles and prepare for
examinations. Moreover, this information would be filed electronically
under the proposed amended rule and would be available to the public on
the Commission's Web site. Clients would therefore benefit by obtaining
more information about their advisers' custodial practices.
---------------------------------------------------------------------------

    \144\ Proposed Section 7.A. of Schedule D of Form ADV.
    \145\ Proposed Section 9.C. of Schedule D of Form ADV.
    \146\ Id.
    \147\ Proposed Section 9.D of Schedule D of Form ADV.
---------------------------------------------------------------------------

    Improved clarity of the rule. We anticipate that investment
advisers would find it easier to understand and comply with the rule as
a result of the proposed amendments, which may result in cost savings
for advisers. The proposed amendments would improve the clarity of the
rule by adding several definitions, including amending the definition
of ``custody'' to address related person custodian situations, and
adding definitions of ``control,'' and ``related person.'' \148\
---------------------------------------------------------------------------

    \148\ Rule 206(4)-2(c).
---------------------------------------------------------------------------

C. Costs

    Surprise Examination. As discussed above, the proposed amended rule
would require all advisers with custody of client assets to undergo an
annual surprise examination. This amendment would result in a new
requirement to obtain a surprise examination for (i) advisers with
custody that rely on qualified custodians to send account statements
directly to advisory clients, (ii) advisers that custody client assets
themselves as qualified custodians or advisers with client assets held
at a qualified custodian that is a related person,\149\ and (iii)
advisers to pooled investment vehicles that are subject to an annual
audit and deliver the audited financial statements to investors in the
pool.\150\ Based on the data we collected from Form ADV as of February
2009, we estimate that the proposed amended rule would subject 9,575
advisers to an annual surprise examination.\151\ Reducing that number
by the 190 advisers that already undergo an annual surprise examination
under the current rule,\152\ we estimate that the proposed amendments
would result in approximately 9,385 additional advisers being required
to obtain a surprise examination.\153\ For purposes of the Paperwork
Reduction Act analysis, we estimate a total annual collection of
information burden in connection with the surprise examination of
179,636 hours.\154\ Based on this estimate we anticipate that advisers
would incur an aggregate cost of approximately $11,783,898 per year for
the total hours their employees spend in complying with the surprise
examination requirement.\155\
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    \149\ Under the current custody rule, depending on
circumstances, an adviser may or may not have custody if a related
person has custody of its clients' assets. See supra note 76.
    \150\ We also have proposed to amend the rule to make privately
offered securities that investment advisers hold on behalf of their
clients subject to the surprise examination requirement. It is
unlikely that an adviser would be subject to the surprise
examination requirement solely based on this rule change, but rather
the amendment would subject these positions to the surprise
examination requirement.
    \151\ Based on responses to Item 9.A. or Item 9.B. and Item 5 of
Part 1A, Form ADV as of February 2009. We reduced this number by the
42 advisers that provide advisory services exclusively to registered
investment companies (advisers that checked only (4) under Item 5
D.). Under rule 206(4)-2(b)(4) and proposed rule 206(4)-2(b)(5),
advisers are not subject to the custody rule with respect to the
account of a registered investment company.
    \152\ See supra note 139 and 140.
    \153\ 9,575 -190 = 9,385.
    \154\ See supra note 89 and accompanying text for further
information. We estimate that of the 179,636 hours, 177,242 would be
spent on providing clients lists and other information to the
independent public accountant performing the examination and 2,394
hours would be spent on adding to the written agreement with the
accountant the specified duties the rule would require the
accountant perform.
    \155\ We expect that the function of providing lists of clients
and other information to the independent public accountant in
assisting its examination, totaling 177,242 hours, would be
performed by compliance clerks. Data from the Securities Industry
and Financial Markets Association's Office Salaries in the
Securities Industry 2008, modified by Commission staff to account
for an 1800-hour work-year and multiplied by 2.93 to account for
bonuses, firm size, employee benefits and overhead, suggest that
cost for this position is $63 per hour. We expect that the function
of adding certain duties of the accountant to the written agreement
with the accountant, totaling 2,394 hours, would be performed by
compliance managers. Data from the Securities Industry and Financial
Markets Association's Management & Professional Earnings in the
Securities Industry 2008, modified by Commission staff to account
for an 1800-hour work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead, suggest that the
cost for this position is $258 per hour. Therefore the total costs
would be $11,783,898 ((177,242 x $63) + (2,394 x $258)).
---------------------------------------------------------------------------

    In addition, advisers subject to the surprise examination
requirement would incur accounting fees to comply with the requirement.
We previously estimated that there were 204 advisers subject to the
surprise examination requirement under the current custody rule.\156\
Of the 204 advisers, 11 advisers were subject to the surprise
examination with respect to 100 percent of their clients and spent
$8,000 each annually,

on average, and 193 advisers were subject to the surprise examination
with respect to only 1 percent of their clients and spent $1,000 each
annually, on average. The total estimated accounting fees were
therefore $281,000.\157\
---------------------------------------------------------------------------

    \156\ We did the estimate in connection with our 2007
application for hour burden approval from the OMB under the
Paperwork Reduction Act with respect to information collection
required by the current custody rule.
    \157\ (11 x $8,000) + (193 x $1,000) = $281,000.
---------------------------------------------------------------------------

    We now estimate that there would be 9,575 advisers subject to the
surprise examination and they would each pay, on average, an annual
accounting fee of $8,100 for the surprise examination.\158\ The
estimated total accounting fees for all surprise examinations would
therefore be $77,557,500.\159\ This represents an increase of
$77,276,500 in estimated costs attributable to this rulemaking,
resulting primarily from the increase in the estimated number of
advisers that would be subject to the surprise examination.\160\
---------------------------------------------------------------------------

    \158\ See supra note 102 and accompanying text.
    \159\ 9,575 x $8,100 = $77,557,500.
    \160\ $77,557,500-$281,000 = $77,276,500.
---------------------------------------------------------------------------

    Under the proposed amended rule each adviser that is required to
undergo an annual surprise examination must enter into a written
agreement with the independent public accountant that performs the
surprise examination, specifying certain duties that the accountant
would perform under the rule.\161\ We believe that the requirement of a
written agreement reflects current industry practice and that advisers
therefore would have a written agreement with their accountants
regardless of whether it is required by the custody rule. Requiring
certain additional items to be included in the written agreement would
not significantly increase costs for advisers.\162\ Moreover, we do not
believe that the new requirements placed on the independent public
accountant by the written agreement (electronic filing of Form ADV-E
and termination statement) would materially increase the accounting
fees for the surprise examination discussed above.
---------------------------------------------------------------------------

    \161\ Proposed rule 206(4)-2(a)(4).
    \162\ We estimate that it would take each adviser about 0.25
hour to add the required specifications. See supra note 88 and
accompanying text. Converting the hour burden to costs, each adviser
would spend $64.50. See supra note 155.
---------------------------------------------------------------------------

    Internal Control Report. As discussed above, in situations where an
adviser or a related person serves as a qualified custodian for client
funds or securities under the proposed rule in connection with advisory
services the adviser provides to clients, the adviser must obtain, or
receive from the related person, no less frequently than once each
calendar year a written internal control report that provides an
opinion from an independent public accountant with respect to the
adviser's or related person's controls relating to custody of client
assets. We are proposing that the independent public accountant issuing
the internal control report be registered with, and subject to regular
inspection by, the PCAOB. We estimate that approximately 372 investment
advisers would have to obtain, or receive from a related person, an
internal control report relating to custodial services, and would have
to maintain the report as a required record.\163\ We anticipate the
cost of maintaining these records will be minimal. Based on discussions
with accounting professionals, we understand that the cost to prepare
an internal control report relating to custody would vary based on the
size and services offered by the qualified custodian, but that on
average an internal control report would cost approximately $250,000
per year, for total costs attributable to this section of the proposed
rule to be $93,000,000.\164\
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    \163\ Some advisers may have client assets that are in custody
with more than one related person qualified custodian, but a related
person qualified custodian also may provide custody services to more
than one related person investment adviser. For purposes of this
analysis we assume that these alternatives offset one another since
those advisers that have more than one related person that is a
qualified custodian is likely part of a large financial service
provider and the custodian is more likely to be providing custody
services to more than one adviser. The same internal control report
would satisfy the rule's obligations for related person advisers
that use a common related qualified custodian.
    \164\ $250,000 x 372 = $93,000,000.
---------------------------------------------------------------------------

    Our estimated cost of implementing the internal control report
requirement is based on information available to us. We believe,
however, that actual costs may be lower than estimated because (i) some
qualified custodians already obtain an internal control report on their
custody practices,\165\ (ii) advisers that have more than one related
person qualified custodian may concentrate these custody arrangements
with a single related person qualified custodian, and (iii) that to the
extent advisers have accommodated certain client arrangements that
result in a related person maintaining client funds or securities on an
infrequent basis, they may discontinue these accommodations.\166\
---------------------------------------------------------------------------

    \165\ For instance, it is our understanding after discussions
with several large accounting firms that mutual fund custodians
obtain internal control reports to assist funds in meeting their
obligations under the Investment Company Act compliance program rule
(rule 38a- 1) [17 CFR 270.38a-1].
    \166\ For instance, an advisory client may be referred to the
adviser by a related person broker-dealer that would continue to
maintain custody of the client assets even though the adviser is
managing the assets.
---------------------------------------------------------------------------

    Liquidation Audit. The proposed amended rule would specifically
require an adviser to a pooled investment vehicle that is relying on
the annual audit exception to obtain a final audit if the pool is
liquidated at a time other than the end of a fiscal year.\167\ This
clarification would assure that the proceeds of the liquidation are
appropriately accounted for. We believe this clarification would not
materially increase the costs for advisers to pooled investment
vehicles because we believe most of these pooled investment vehicles
are subject to contractual obligations with their investors to obtain a
liquidation audit.
---------------------------------------------------------------------------

    \167\ Proposed rule 206(4)-2(b)(3)(ii).
---------------------------------------------------------------------------

    Due Inquiry. The proposed rule would require all registered
advisers that have custody of client assets to have a reasonable
belief, after due inquiry, that the qualified custodian sends account
statements directly to their clients at least quarterly, with the
exception for certain pooled investment vehicles, described above. Most
advisers subject to the rule have qualified custodians that deliver
account statements directly to clients and already conduct an inquiry
of whether the qualified custodian sends account statements to clients,
so we believe few advisers would have to change their practices.\168\
For those advisers that previously had sent account statements directly
to clients instead of having the qualified custodian send account
statements to clients, the costs should not be significant because
qualified custodians send account statements to clients in their normal
course of business. The requirement that advisers form their reasonable
belief after due inquiry similarly should not have significant costs,
as we understand that today most advisers receive duplicate copies of
client account statements from custodians.
---------------------------------------------------------------------------

    \168\ Filing data indicates that 190 advisers (other than those
that have custody but only have pooled investment vehicle clients
that are subject to an annual audit) did not have the qualified
custodian send account statements directly to their clients; see
supra notes 139 and 140.
---------------------------------------------------------------------------

    Form ADV. As discussed above, we are proposing several amendments
to Part 1A of Form ADV that are designed to provide us with additional
details regarding the custody practices of advisers registered with the
Commission, and to provide additional data to assist in our risk-based
examination program. For purposes of the Paperwork Reduction Act
analysis, we estimate that these amendments would increase the annual
information collection burden in connection with Form ADV from 22.25
hours to 22.50 hours for each adviser.\169\ The total

information collection burden resulting from the proposed amendments
would be 3,068 hours.\170\ Based on this estimate we anticipate that
advisers would incur an aggregate cost of approximately $193,284 per
year for the total hours their employees spend in connection with the
proposed provisions of Form ADV.\171\
---------------------------------------------------------------------------

    \169\ See supra notes 113-121 and accompanying text.
    \170\ As stated above we estimate that there would be 12,272
advisers subject to the Form ADV filing requirement. See supra note
113 ((22.50 - 22.25) x 12,272 = 3,068).
    \171\ We expect that the function of completing Form ADV would
be performed by compliance clerks at a cost of $63 per hour. The
total cost would be $193,284 (3,068 x $63 = $193,284). See supra
note 155 for explanation of the hourly compliance clerk cost
estimate.
---------------------------------------------------------------------------

    Form ADV-E. For purposes of the Paperwork Reduction Act analysis,
we estimate that the collection of information in connection with Form
ADV-E would increase from the currently approved 12 hours to 575 hours
based on the proposed rule amendments. This increase results from an
increase in the estimated number of advisers that would be subject to
the requirement of completing Form ADV-E under the proposed amendments
to rule 206(4)-2 and the additional collections of information proposed
by the amendments relating to filing Form ADV-E when an independent
public accountant performing the surprise examination terminates its
engagement. This represents an increase of 563 hours \172\ with an
estimated aggregated annual cost of approximately $35,469.\173\
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    \172\ 575 - 12 = 563.
    \173\ We expect that the function of completing Form ADV-E would
be performed by compliance clerks at a cost of $63 per hour. The
total cost would therefore be $35,469. See supra note 155 for
explanation of the hourly compliance clerk cost estimate.
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D. Request for Comment

     The Commission requests comments on all aspects of the
cost-benefit analysis, including the accuracy of the potential costs
and benefits identified and assessed in this release, as well as any
other costs or benefits that may result from the proposals.
     We encourage commenters to identify, discuss, analyze, and
supply relevant data regarding these or additional costs and benefits.

VI. Initial Regulatory Flexibility Analysis

    The Commission has prepared the following Initial Regulatory
Flexibility Analysis (``IRFA'') regarding proposed rule 206(4)-2 in
accordance with section 3(a) of the Regulatory Flexibility Act.\174\
---------------------------------------------------------------------------

    \174\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------

A. Reasons for Proposed Action

    Rule 206(4)-2, the custody rule, requires registered advisers to
maintain their clients' assets with a qualified custodian, such as a
broker-dealer or a bank. Advisers may comply with the current custody
rule either by having a reasonable belief that the qualified custodian
sends periodic account statements directly to the advisory clients or
by the adviser sending its own quarterly account statements to its
clients and undergoes an annual surprise examination.\175\ An adviser
to a pooled investment vehicle may comply with the rule by having the
pool audited annually by an independent public accountant and
distributing the audited financials to the investors in the pool within
120 days of the end of the pool's fiscal year.\176\
---------------------------------------------------------------------------

    \175\ Rule 206(4)-2(a)(3)(i) and (ii).
    \176\ Rule 206(4)-2(a)(3)(iii) and (b)(3).
---------------------------------------------------------------------------

    To enhance the protections afforded to clients' assets, we are
proposing to require all registered advisers that have custody of
client assets to have a reasonable belief that the qualified custodian
that holds advisory client assets sends account statements directly to
advisory clients at least quarterly.\177\ Under the proposed
amendments, the rule would require all advisers having custody of
client assets to undergo an annual surprise examination.\178\ In
addition, the rule would explicitly state that an adviser has custody
if any of its related persons has custody of the adviser's client
assets in connection with the adviser's advisory services.\179\ The
rule would also require the adviser and the accountant, under the terms
of its agreement with the adviser, to report information to the
Commission that would assist the Commission in protecting advisory
client assets. Together, these revisions to the rule are designed to
strengthen the controls relating to advisers' custody of client assets
and deter advisers from fraudulent activities.
---------------------------------------------------------------------------

    \177\ Proposed rules 206(4)-2(a)(3) and (b)(3). As described
above, the rules would continue to contain a limited exception to
this requirement for audited pooled investment vehicles.
    \178\ Proposed rule 206(4)-2(a)(4).
    \179\ Proposed rule 206(4)-2(c)(2). Under the current custody
rule, an adviser may or may not have custody if a related person has
custody of its clients' assets.
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B. Objectives and Legal Basis

    We have designed the proposed amendments to enhance the protections
afforded to clients when their advisers have custody of client assets.
The surprise examination requirement of the rule may deter fraudulent
activities by advisers. Moreover, an independent public accountant may
identify misuse that clients have not, which would result in the
earlier detection of fraudulent activities and reduce resulting client
losses. The proposed amendments would eliminate the exemption from the
requirement of an annual surprise examination provided under the
current rule for advisers to audited pooled investment vehicles. Annual
surprise examinations of pooled investment vehicles would provide the
investors in the pool additional protection. Unlike an annual audit of
the pool, which is performed at the end of each fiscal year, the
accountant could choose to conduct the surprise examination at any time
during the year. The possibility of an unscheduled examination at any
time would act as an additional deterrent to fraudulent activity by
advisers, and would provide an independent check on the safety of
pooled investment vehicle assets.
    The proposed amendments would provide that an adviser is deemed to
have custody of client assets held by related persons. These amendments
would result in the rule being easier to understand for advisers.
Similarly, the proposed amendments would add to the rule definitions of
``control'' and ``related person'' to assist advisers in understanding
the rule.
    The Commission is proposing to amend rule 206(4)-2 pursuant to the
authority set forth in sections 206(4) and 211(a) of the Advisers Act
[15 U.S.C. 80b-6(4) and 80b-11(a)]; to amend rule 204-2 pursuant to the
authority set forth in sections 204 and 211 of the Advisers Act [15
U.S.C. 80b-4 and 80b-11]; to amend Form ADV pursuant to the authority
set forth in sections 203(c)(1), 204, and 211(a) of the Advisers Act
[15 U.S.C. 80b-3(c)(1), 80b-4 and 80b-11(a)]; and to amend Form ADV-E
pursuant to our authority set forth in sections 204, 206(4), and 211(a)
of the Advisers Act [15 U.S.C. 80b-4, 80b-6(4), and 80b-11(a)]. Section
206(4) gives us authority to issue rules designed to prevent
fraudulent, deceptive, or manipulative acts or practices. Section 211
gives us authority to classify, by rule, persons and matters within our
jurisdiction and to prescribe different requirements for different
classes of persons, as necessary or appropriate to the exercise of our
authority under the Act. Section 203(c)(1) gives us authority to
prescribe registration forms, by rule, to collect information and
documents, as necessary or appropriate in the public interest or for
the protection of investors. Section 204 gives us authority to
prescribe, by rule, such records and reports that an adviser must make,
keep

for prescribed periods, or disseminate, as necessary or appropriate in
the public interest or for the protection of investors.

C. Small Entities Subject to Rule

    Under Commission rules, for the purposes of the Advisers Act and
the Regulatory Flexibility Act, an investment adviser generally is a
small entity if it: (i) Has assets under management having a total
value of less than $25 million; (ii) did not have total assets of $5
million or more on the last day of its most recent fiscal year; and
(iii) does not control, is not controlled by, and is not under common
control with another investment adviser that has assets under
management of $25 million or more, or any person (other than a natural
person) that had $5 million or more on the last day of its most recent
fiscal year.\180\
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    \180\ 17 CFR 275.0-7(a).
---------------------------------------------------------------------------

    The Commission estimates that as of February 2009 approximately 177
SEC-registered investment advisers that have custody of client assets
were small entities, and that no more than 8 of these advisers or their
related persons would serve as a qualified custodian for client funds
or securities under the proposed rule in connection with advisory
services the advisers provides to their clients.\181\
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    \181\ This estimate is based on the information submitted by
SEC-registered advisers on Form ADV, Part 1A [17 CFR 279.1].
---------------------------------------------------------------------------

D. Reporting, Recordkeeping, and Other Compliance Requirements

    The proposed rule amendments would impose certain reporting,
recordkeeping and compliance requirements on advisers, including small
advisers. The rule would require advisers that are subject to the
surprise examination to complete Form ADV-E and to maintain internal
control reports in certain instances. In addition, under the proposed
amendments, each adviser that is required to undergo an annual surprise
examination must enter into a written agreement with the independent
public accountant that performs the surprise examination that would
specify certain duties the accountant would have to perform as part of
the surprise examination engagement. Investment advisers, under the
proposed rule amendments, would have to maintain a copy of an internal
control report that an adviser would be required to obtain or receive
from its related person for five years from the end of the fiscal year
in which the internal control report is finalized.
    We estimated that the average annual accounting fee for such
surprise examination would be $8,100 for each of the advisers subject
to the surprise examination.\182\ This is based on our estimate that
each adviser, on average, would be subject to the surprise examination
with respect to 928 client accounts. Most small advisers that would be
subject to the surprise examination have less than 6 accounts that
would be included in the surprise examination.\183\ Thus the accounting
fees for surprise examination conducted on small advisers would likely
be much lower than our estimated average cost. As a result, the
potential impact of the amendments on small entities due to the
proposed surprise examination requirement should not be significant.
---------------------------------------------------------------------------

    \182\ See supra note 102.
    \183\ Based on data collected from the IARD as of February 2009,
more than half of the 177 small advisers would be subject to the
surprise examination with respect to no more than 6 accounts.
---------------------------------------------------------------------------

    We also estimated that on average an internal control report would
cost approximately $250,000 per year, but would vary based on the size
and services offered by the qualified custodian. As stated above, we
estimate that no more than eight advisers would have to obtain these
reports, half of which would have to obtain the report and the other
half would have to receive the report from a related person.

E. Duplicative, Overlapping, or Conflicting Federal Rules

    The Commission believes that there are no rules that duplicate,
overlap, or conflict with the proposed rule amendments.

F. Significant Alternatives

    The Regulatory Flexibility Act directs the Commission to consider
significant alternatives that would accomplish the stated objective,
while minimizing any significant adverse impact on small entities. In
connection with the proposed rule amendments, the Commission considered
the following alternatives: (i) The establishment of differing
compliance or reporting requirements or timetables that take into
account the resources available to small entities; (ii) the
clarification, consolidation, or simplification of compliance and
reporting requirements under the rule for such small entities; (iii)
the use of performance rather than design standards; and (iv) an
exemption from coverage of the rule, or any part thereof, for such
small entities.
    Regarding the first and fourth alternatives, we do not believe that
differing compliance or reporting requirements or an exemption from
coverage of the rule amendments, or any part thereof, for small
entities, would be appropriate or consistent with investor protection.
Because the protections of the Advisers Act are intended to apply
equally to clients of both large and small advisory firms, it would be
inconsistent with the purposes of the Act to specify different
requirements for small entities under the proposed amendments.
    Regarding the second alternative, the proposed amendments would
clarify when an investment adviser, including a small adviser, has
custody. We also have endeavored to consolidate and simplify the rule,
by adding new definitions to the rule.
    Regarding the third alternative, we do not consider using
performance rather than design standards to be consistent with our
statutory mandate of investor protection with respect to custody of
client assets by investment advisers.

G. Solicitation of Comments

    We encourage written comments on matters discussed in this IRFA. In
particular, the Commission seeks comment on:
     The number of small entities that would be affected by the
proposed rule; and
     whether the effect of the proposed rule on small entities
would be economically significant.
    Commenters are asked to describe the nature of any effect and
provide empirical data supporting the extent of the effect.

VII. Effects on Competition, Efficiency and Capital Formation

    Section 202(c)(1) of the Advisers Act requires the Commission, when
engaging in rulemaking that requires it to consider or determine
whether an action is necessary or appropriate in the public interest,
to consider, in addition to the protection of investors, whether the
action will promote efficiency, competition, and capital
formation.\184\ Today the Commission is proposing amendments to rule
204-2, Part 1A of Form ADV and Form ADV-E in connection with proposing
amendments to rule 206(4)-2, the rule governing registered investment
adviser custodial practices.\185\
---------------------------------------------------------------------------

    \184\ 15 U.S.C. 80b-2(c).
    \185\ We are proposing amendments to rule 206(4)-2 pursuant to
our authority set forth in sections 206(4) and 211(a) of the
Advisers Act. Analysis of the effects of these proposed amendments
is contained in sections IV, V, and VI above.
---------------------------------------------------------------------------

    The proposed amendments to Part 1A of Form ADV are designed to
provide us with additional details concerning the custody practices of
advisers registered with the Commission, and to provide additional data
to assist in our risk-

based examination program. Under the proposed amendments to Form ADV-E,
the form and attached accountant's certificate would be filed
electronically on the IARD system. In addition, the rule would require
the accountant performing an annual surprise examination to, upon
termination of its engagement, file a Form ADV-E and a termination
statement to explain the reasons for such termination. Both Part 1A of
Form ADV and Form ADV-E would be available to the public on the
Commission's Web site.
    Public availability of more detailed disclosure of advisers'
custodial practices will permit investors to use this information
together with other information they obtain from Form ADV in making
more informed decisions about whether to hire or retain a particular
adviser. A more informed investing public will create a more efficient
marketplace and strengthen competition among advisers. Moreover, the
electronic filing requirements are expected to expedite and simplify
the process of filing Form ADV-E and attached accountant's certificate
with the Commission, thus further improving efficiency. We believe,
however, that the proposed amendments are unrelated to, and will have
little or no effect on, capital formation.
    We are proposing to amend rule 204-2 to require that, if an
independent custodian does not maintain client assets but the adviser
or a related person instead serves as a qualified custodian for client
funds or securities under the rule in connection with advisory services
the adviser provides to clients, the adviser must maintain a copy of
any internal control report obtained or received pursuant to rule
206(4)-2(a)(6) for five years from the end of the fiscal year in which
the internal control report is finalized.\186\ The proposed amendment
is designed to provide our examiners important information about the
safeguards in place at an adviser or a related person that maintains
client assets. We believe that the proposed amendment would not
materially increase the compliance burden on advisers under rule 204-2
and thus would not affect competition, efficiency and capital
formation.
---------------------------------------------------------------------------

    \186\ Proposed rule 206(4)-2 would require that if an
independent custodian does not maintain client assets but the
adviser or a related person instead serves as a qualified custodian
for client funds or securities under the rule in connection with
advisory services the adviser provides to clients, the adviser must
obtain, or receive from the related person, no less frequently than
once each calendar year an internal control report, which includes
an opinion from an independent public accountant with respect to the
adviser's or related person's controls relating to custody of client
assets. See proposed rule 206(4)-2(a)(6)(ii).
---------------------------------------------------------------------------

    The Commission requests comment whether the above proposals, if
adopted, would promote efficiency, competition, and capital formation.
Commenters are requested to provide empirical data to support their
views.

VIII. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996, or ``SBREFA,'' \187\ the Commission must advise OMB
whether a proposed regulation constitutes a ``major'' rule. Under
SBREFA, a rule is considered ``major'' where, if adopted, it results in
or is likely to result in: (1) An annual effect on the economy of $100
million or more; (2) a major increase in costs or prices for consumers
or individual industries; or (3) significant adverse effects on
competition, investment or innovation.
---------------------------------------------------------------------------

    \187\ Public Law No. 104-121, Title II, 110 Stat. 857 (1996)
(codified in various sections of 5 U.S.C., 15 U.S.C. and as a note
to 5 U.S.C. 601).
---------------------------------------------------------------------------

    We request comment on the potential impact of the proposed rule
amendments on the economy on an annual basis. Commenters are requested
to provide empirical data and other factual support for their views to
the extent possible.

IX. Statutory Authority

    We are proposing amendments to rule 206(4)-2 (17 CFR 275.206(4)-2)
pursuant to our authority set forth in sections 206(4) and 211(a) of
the Advisers Act (15 U.S.C. 80b-6(4) and 80b-11(a)). We are proposing
amendments to rule 204-2 pursuant to the authority set forth in
sections 204 and 211 of the Advisers Act (15 U.S.C. 80b-4 and 80b-11).
We are proposing amendments to Part 1 of Form ADV (17 CFR 279.1)
pursuant to our authority set forth in sections 203(c)(1), 204, and
211(a) of the Advisers Act (15 U.S.C. 80b-3(c)(1), 80b-4 and 80b-
11(a)). We are proposing amendments to Form ADV-E (17 CFR 279.8)
pursuant to our authority set forth in sections 204, 206(4), and 211(a)
of the Advisers Act (15 U.S.C. 80b-4, 80b-6(4), and 80b-11(a)).

List of Subjects in 17 CFR Parts 275 and 279

    Reporting and recordkeeping requirements, Securities.

Text of Proposed Rule and Form Amendments

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

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

    1. The authority citation for Part 275 continues to read in part as
follows:

    Authority: 15 U.S.C. 80b-2(a)(11)(G), 80b-2(a)(17), 80b-3, 80b-
4, 80b-4a, 80b-6(4), 80b-6a, and 80b-11, unless otherwise noted.
* * * * *
    2. Section 275.204-2 is amended by:
    a. Removing ``in effect, and'' at the end of paragraph (a)(17)(i)
and adding in its place ``in effect;'';
    b. Removing the period at the end of paragraph (a)(17)(ii) and
adding in its place a semicolon; and
    c. Adding paragraph (a)(17)(iii).
    The addition reads as follows:

Sec.  275.204-2  Books and records to be maintained by investment
advisers.

    (a) * * *
    (17) * * *
    (iii) A copy of any internal control report obtained or received
pursuant to Sec.  275.206(4)-2(a)(6)(ii).
* * * * *
    3. Section 275.206(4)-2 is revised to read as follows:

Sec.  275.206(4)-2  Custody of funds or securities of clients by
investment advisers.

    (a) Safekeeping required. If you are an investment adviser
registered or required to be registered under section 203 of the Act
(15 U.S.C. 80b-3), it is a fraudulent, deceptive, or manipulative act,
practice or course of business within the meaning of section 206(4) of
the Act (15 U.S.C. 80b-6(4)) for you to have custody of client funds or
securities unless:
    (1) Qualified custodian. A qualified custodian maintains those
funds and securities:
    (i) In a separate account for each client under that client's name;
or
    (ii) In accounts that contain only your clients' funds and
securities, under your name as agent or trustee for the clients.
    (2) Notice to clients. If you open an account with a qualified
custodian on your client's behalf, either under the client's name or
under your name as agent, you notify the client in writing of the
qualified custodian's name, address, and the manner in which the funds
or securities are maintained, promptly when the account is opened and
following any changes to this information. Include in the notification
a statement urging the client to compare the account statements he or
she shall receive from the custodian with those from the adviser.

    (3) Account statements to clients. You have a reasonable basis,
after due inquiry, for believing that the qualified custodian sends an
account statement, at least quarterly, to each of your clients for
which it maintains funds or securities, identifying the amount of funds
and of each security in the account at the end of the period and
setting forth all transactions in the account during that period.
    (4) Independent verification. The client funds and securities for
which you have custody are verified by actual examination at least once
during each calendar year by an independent public accountant, pursuant
to a written agreement between you and the accountant, at a time that
is chosen by the accountant without prior notice or announcement to you
and that is irregular from year to year. The written agreement must
also require the accountant to:
    (i) File a certificate on Form ADV-E (17 CFR 279.8) with the
Commission within 120 days of the time chosen by the accountant in
paragraph (a)(4) of this section, stating that it has examined the
funds and securities and describing the nature and extent of the
examination;
    (ii) Upon finding any material discrepancies during the course of
the examination, notify the Commission within one business day of the
finding, by means of a facsimile transmission or electronic mail,
followed by first class mail, directed to the attention of the Director
of the Office of Compliance Inspections and Examinations; and
    (iii) Upon resignation or dismissal from, or other termination of,
the engagement, or upon removing itself or being removed from
consideration for being reappointed, file within four business days
Form ADV-E accompanied by a statement that includes:
    (A) The date of such resignation, dismissal, removal, or other
termination, and the name, address, and contact information of the
accountant; and
    (B) An explanation of any problems relating to examination scope or
procedure that contributed to such resignation, dismissal, removal, or
other termination.
    (5) Special rule for limited partnerships and limited liability
companies. If you or a related person is a general partner of a limited
partnership (or managing member of a limited liability company, or hold
a comparable position for another type of pooled investment vehicle),
the account statements required under paragraph (a)(3) of this section
must be sent to each limited partner (or member or other beneficial
owner).
    (6) Investment advisers acting as qualified custodians. If you or a
related person maintains client funds or securities pursuant to this
section as a qualified custodian in connection with advisory services
you provide to clients:
    (i) The independent public accountant you retain to perform the
independent verification required by paragraph (a)(4) of this section
must be a member registered with, and that is subject to regular
inspection as of the commencement of the professional engagement period
by, the Public Company Accounting Oversight Board in accordance with
its rules; and
    (ii) You must obtain, or receive from your related person, no less
frequently than once each calendar year, a written internal control
report prepared by an independent public accountant:
    (A) The internal control report must include an opinion of an
independent public accountant, issued in accordance with the standards
of the Public Company Accounting Oversight Board, with respect to the
description of controls placed in operation relating to custodial
services, including the safeguarding of funds and securities held by
either you or a related person on behalf of your advisory clients, and
tests of operating effectiveness; and
    (B) The independent public accountant must be a member registered
with, and that is subject to regular inspection as of the commencement
of the professional engagement period by, the Public Company Accounting
Oversight Board in accordance with its rules.
    (7) Independent representatives. A client may designate an
independent representative to receive, on his behalf, notices and
account statements as required under paragraphs (a)(2) and (a)(3) of
this section.
    (b) Exceptions. (1) Shares of mutual funds. With respect to shares
of an open-end company as defined in section 5(a)(1) of the Investment
Company Act of 1940 (15 U.S.C. 80a-5(a)(1)) (``mutual fund''), you may
use the mutual fund's transfer agent in lieu of a qualified custodian
for purposes of complying with paragraph (a) of this section.
    (2) Certain privately offered securities. (i) You are not required
to comply with paragraph (a)(1) of this section with respect to
securities that are:
    (A) Acquired from the issuer in a transaction or chain of
transactions not involving any public offering;
    (B) Uncertificated, and ownership thereof is recorded only on books
of the issuer or its transfer agent in the name of the client; and
    (C) Transferable only with prior consent of the issuer or holders
of the outstanding securities of the issuer.
    (ii) Notwithstanding paragraph (b)(2)(i) of this section, the
provisions of this paragraph (b)(2) are available with respect to
securities held for the account of a limited partnership (or limited
liability company, or other type of pooled investment vehicle) only if
the limited partnership is audited, and the audited financial
statements are distributed, as described in paragraph (b)(3) of this
section.
    (3) Limited partnerships subject to annual audit. You are not
required to comply with paragraph (a)(3) of this section with respect
to the account of a limited partnership (or limited liability company,
or another type of pooled investment vehicle) that is subject to audit
(as defined in section 2(d) of Article 1 of Regulation S-X (17 CFR
210.1-02(d)):
    (i) At least annually and distributes its audited financial
statements prepared in accordance with generally accepted accounting
principles to all limited partners (or members or other beneficial
owners) within 120 days of the end of its fiscal year; and
    (ii) Upon liquidation and distributes its audited financial
statements prepared in accordance with generally accepted accounting
principles to all limited partners (or members or other beneficial
owners) promptly after the completion of such audit.
    (4) Registered investment companies. You are not required to comply
with this section (17 CFR 275.206(4)-2) with respect to the account of
an investment company registered under the Investment Company Act of
1940 (15 U.S.C. 80a-1 to 80a-64).
    (c) Definitions. For the 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. Control includes:
    (i) Each of your firm's officers, partners, or directors exercising
executive responsibility (or persons having similar status or
functions) is presumed to control your firm;
    (ii) 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;
    (iii) 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;
    (iv) 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; or
    (v) A person is presumed to control a trust if the person is a
trustee or managing agent of the trust.
    (2) Custody means holding, directly or indirectly, client funds or
securities, or having any authority to obtain possession of them. You
have custody if a related person holds, directly or indirectly, client
funds or securities, or has any authority to obtain possession of them,
in connection with advisory services you provide to clients. Custody
includes:
    (i) Possession of client funds or securities, (but not of checks
drawn by clients and made payable to third parties) unless you receive
them inadvertently and you return them to the sender promptly but in
any case within three business days of receiving them;
    (ii) Any arrangement (including a general power of attorney) under
which you are authorized or permitted to withdraw client funds or
securities maintained with a custodian upon your instruction to the
custodian; and
    (iii) Any capacity (such as general partner of a limited
partnership, managing member of a limited liability company or a
comparable position for another type of pooled investment vehicle, or
trustee of a trust) that gives you or your supervised person legal
ownership of or access to client funds or securities.
    (3) Independent public accountant means a public accountant that
meets the standards of independence described in rule 2-01(b) and (c)
of Regulation S-X (17 CFR 210.2-01(b) and (c)).
    (4) Independent representative means a person that:
    (i) Acts as agent for an advisory client, including in the case of
a pooled investment vehicle, for limited partners of a limited
partnership (or members of a limited liability company, or other
beneficial owners of another type of pooled investment vehicle) and by
law or contract is obliged to act in the best interest of the advisory
client or the limited partners (or members, or other beneficial
owners);
    (ii) Does not control, is not controlled by, and is not under
common control with you; and
    (iii) Does not have, and has not had within the past two years, a
material business relationship with you.
    (5) Qualified custodian means:
    (i) A bank as defined in section 202(a)(2) of the Advisers Act (15
U.S.C. 80b-2(a)(2)) or a savings association as defined in section
3(b)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(b)(1))
that has deposits insured by the Federal Deposit Insurance Corporation
under the Federal Deposit Insurance Act (12 U.S.C. 1811);
    (ii) A broker-dealer registered under section 15(b)(1) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o(b)(1)), holding the
client assets in customer accounts;
    (iii) A futures commission merchant registered under section 4f(a)
of the Commodity Exchange Act (7 U.S.C. 6f(a)), holding the client
assets in customer accounts, but only with respect to clients' funds
and security futures, or other securities incidental to transactions in
contracts for the purchase or sale of a commodity for future delivery
and options thereon; and
    (iv) A foreign financial institution that customarily holds
financial assets for its customers, provided that the foreign financial
institution keeps the advisory clients' assets in customer accounts
segregated from its proprietary assets.
    (6) Related person means any person, directly or indirectly,
controlling or controlled by you, and any person that is under common
control with you.

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

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

    Authority: The Investment Advisers Act of 1940, 15 U.S.C. 80b-1,
et seq.

    5. Form ADV (referenced in Sec.  279.1) is amended by:
    a. In the General Instructions, revising the first bullet and last
paragraph of instruction 4;
    b. In Part 1A, revising the last paragraph of Item 7.A. and
revising Item 9; and
    c. In Schedule D, revising Sections 7.A., 9.C. and 9.D.
    The revisions read as follows:

    Note: The text of Form ADV does not and this amendment will not
appear in the Code of Federal Regulations.

Form ADV
* * * * *
Form ADV: General Instructions
* * * * *
    4. * * *
     information you provided in response to Items 1, 3, 9
(except 9.A.(2), 9.B.(2), and 9.(E)), or 11 of Part 1A or Items 1, 2.A.
through 2.F., or 2.I. of Part 1B becomes inaccurate in any way;
* * * * *
    If you are submitting an other-than-annual amendment, you are not
required to update your responses to Items 2, 5, 6, 7, 9.A.(2),
9.B.(2), 9.E., or 12 of Part 1A or Items 2.H. or 2.J. of Part 1B even
if your responses to those items have become inaccurate. If you are
amending Part II, do not file the amendment with the SEC.
* * * * *
Part 1A
* * * * *
Item 7 Financial Industry Affiliates
* * * * *
    A. * * *
    If you checked Items 7.
    A.(1) or (3), you must list on Section 7.A. of Schedule D all your
related persons that are investment advisers, broker-dealers, municipal
securities dealers, or government securities broker or dealers.
* * * * *
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    6. Form ADV-E (referenced in Sec.  279.8) is amended by revising
the instructions to the Form.
    The revisions read as follows:

    Note: The text of Form ADV-E does not and this amendment will
not appear in the Code of Federal Regulations.

Form ADV-E
* * * * *

Instructions

    This Form must be completed by investment advisers that have
custody of client funds or securities and that are subject to an annual
surprise examination. This Form may not be used to amend any
information included in an investment adviser's registration statement
(e.g., business address).

Investment Adviser

    1. All items must be completed by the investment adviser.
    2. Give this Form to the independent public accountant that, in
compliance with rule 206(4)-2 under the Investment Advisers Act of 1940
(the ``Act'') or applicable State law, examines client funds and
securities in the custody of the investment adviser within 120 days of
the time chosen by the accountant for the surprise examination and upon
such accountant's resignation or dismissal from, or other termination
of, the engagement, or if the accountant removes itself or is removed
from consideration for being reappointed.

Accountant

    3. The independent public accountant performing the surprise
examination must submit (i) this Form and a certificate of accounting
required by rule 206(4)-2 under the Act or applicable State law within
120 days of the time chosen by the accountant for the surprise
examination, and (ii) this Form and a statement, within four business
days of its resignation or dismissal from, or other termination of, the
engagement, or removing itself or being removed from consideration for
being reappointed, that includes (A) the date of such resignation,
dismissal, removal, or other termination, and the name, address, and
contact information of the accountant, and (B) an explanation of any
problems relating to examination scope or procedure that contributed to
such resignation, dismissal, removal, or other termination:
    (a) By mail, until the Investment Adviser Registration Depository
(``IARD'') accepts electronic filing of the Form, to the Securities and
Exchange

Commission or appropriate State securities administrators. File the
original and one copy with the Securities and Exchange Commission's
principal office in Washington, DC at the address on the top of this
Form, one copy with the regional office for the region in which the
investment adviser's principal business operations are conducted, or
one copy with the appropriate State administrator(s), if applicable; or
    (b) By electronic filing of the certificate of accounting and
statement regarding resignation, dismissal, other termination, or
removal from consideration for reappointment on the IARD, when the IARD
accepts electronic filing of the Form.
* * * * *

    By the Commission.

    Dated: May 20, 2009.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-12182 Filed 5-26-09; 8:45 am]

BILLING CODE 8010-01-C