Title 3 . Commerce, Community, and Economic Development

Chapter 8 . Land Sales

Section 40. Books and records of state investment advisers

3 AAC 08.040. Books and records of state investment advisers

(a) A state investment adviser registered or required to be registered under AS 45.55 shall make the following books and records and keep them true, accurate, and current:

(1) 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 state investment adviser for the purchase or sale of a security, of any instruction received by the state investment adviser from the client concerning the purchase, sale, receipt, or delivery of a particular security, and of any modification or cancellation of an order or instruction; the memorandum must

(A) show the terms and conditions of the order, instruction, modification, or cancellation;

(B) identify the person connected with the investment adviser who recommended the transaction to the client and the person who placed the order;

(C) show the account for which the order was entered, the date of entry, and the bank, broker, or dealer by or through whom the order was executed, if applicable; and

(D) designate that the order was entered under the exercise of discretionary power, if discretionary power was exercised;

(4) all check books, bank statements, cancelled checks, and cash reconciliations of the state investment adviser;

(5) all bills or statements, or copies of them, paid or unpaid, relating to the state investment adviser's business as an investment adviser;

(6) all trial balances, financial statements, and internal audit working papers relating to the state investment adviser's business as an investment adviser;

(7) the original of each written communication received and a copy of each written communication sent by the state investment adviser,

(A) and relating to

(i) a recommendation made or proposed to be made or advice given or proposed to be given;

(ii) the receipt, disbursement, or delivery of funds or securities; or

(iii) the placing or execution of any order to purchase or sell any security; and

(B) except that

(i) the state investment adviser is not required to keep unsolicited market letters or other similar communications of general public distribution not prepared by or for the state investment adviser; and

(ii) if the state investment adviser sends a notice, circular, or other advertisement offering a report, analysis, publication, or other advisory service to more than 10 persons, the state investment adviser is not required to keep a record of the names and addresses of the persons to whom the notice, circular, or advertisement was sent; however, if the notice, circular, or advertisement is distributed to persons named on a list, the state investment adviser shall retain with the copy of the notice, circular, or advertisement a memorandum describing the list and all its source;

(8) a list or other record of each client account, identifying those accounts in which the state investment adviser is vested with discretionary power with respect to the funds, securities, or transactions of a client;

(9) a copy of a power of attorney and other evidence of the granting of any discretionary authority by a client to the state investment adviser;

(10) a copy in writing of each agreement entered into by the state investment adviser with a client, and any other written agreements otherwise relating to the business of the state investment adviser as an investment adviser;

(11) a copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication, including a communication by electronic media, that the state investment adviser circulates or distributes, directly or indirectly, to two or more persons, other than persons connected with the state investment adviser; if a communication listed in this paragraph recommends the purchase or sale of a specific security and does not state the reasons for the recommendation, the state investment adviser shall include a memorandum indicating the reasons for the recommendation;

(12) a record of each transaction in a security in which the state investment advisor or any advisory representative has, or by reason of any transaction acquires, direct or indirect beneficial ownership; the record must state the title and amount of the security involved, the date of the transaction, whether the transaction was a purchase, sale, or other acquisition or disposition, the price at which the transaction was effected, and the name of the broker, dealer, or bank with or through whom the transaction was effected; the record may also contain a statement declaring that the reporting or recording of any transaction may not be construed as an admission that the state investment adviser or advisory representative has a direct or indirect beneficial ownership in the security; a transaction must be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected; however, a state investment adviser

(A) need not make or keep a record of a transaction

(i) effected in any account over which the state investment advisor or an advisory representative lacks direct or indirect influence or control; or

(ii) in securities that are direct obligations of the United States; and

(B) does not violate this paragraph because of the failure to record a securities transaction of an advisory representative if the state investment adviser establishes that adequate procedures were instituted and reasonable diligence was used to obtain reports of each transaction required to be recorded;

(13) a copy of each written disclosure statement and each amendment or revision to that statement given or sent to a client or prospective client of the state investment adviser in accordance with the provisions of 17 C.F.R. 275.204-3 and a record of the dates that each written disclosure statement, and each amendment or revision, was given, or offered to be given, to any client or prospective client who subsequently becomes a client;

(14) for each client that the state investment adviser obtained by means of a solicitor to whom a cash fee was paid by the state investment adviser

(A) evidence of a written agreement to which the state investment adviser is a party related to the payment of the fee; a written agreement that satisfies the requirements of 17 C.F.R. 275.206(4)-3(a) also satisfies the requirements of this subparagraph;

(B) a signed and dated acknowledgment of receipt from the client evidencing the client's receipt of the

(i) state investment adviser's written disclosure statement given or sent in accordance with 17 C.F.R. 275.204-3; and

(ii) solicitor's written disclosure statement given or sent in accordance with 17 C.F.R. 275.206(4)-3; and

(C) a copy of the solicitor's written disclosure statement given or sent in accordance with 17 C.F.R. 275.206(4)-3;

(15) all accounts, books, internal working papers, and 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 a communication by electronic media, that the state investment adviser circulates or distributes, directly or indirectly, to two or more persons, other than persons connected with the state investment adviser; however, with respect to the performance of a managed account, the retention of the following items satisfies the requirements of this paragraph:

(A) each account statement, if it reflects all debits, credits, and other transactions in a client's account for the period of the statement; and

(B) each worksheet necessary to demonstrate the calculation of the performance or rate of return of the managed accounts;

(16) a copy of all communications received or sent regarding any litigation related to a written customer or client complaint involving the state investment adviser, an investment adviser representative, or an employee of the state investment adviser or investment adviser representative;

(17) written information about each advisory client that is the basis for making a recommendation or providing investment advice to that client;

(18) written procedures for the supervision of the activities of employees and investment adviser representatives that are reasonably designed to achieve compliance with applicable securities laws and regulations;

(19) a copy of each document, other than a notice of general dissemination, that was filed with or received from a state or federal agency or self-regulatory organization and that pertains to the state investment adviser or to an advisory representative within the meaning set out in ( l )(1)(A) of this section; documents to be kept under this paragraph include applications, amendments, renewal filings, and correspondence.

(b) If a state investment adviser has custody of client funds or securities, the state investment adviser shall, in addition to the books and records required under (a) of this section, make the following books and records and keep them true, accurate, and current:

(1) a journal or other record showing all purchases, sales, receipts, and deliveries of securities for all accounts and all other debits and credits to the accounts;

(2) a separate ledger account for each client showing all purchases, sales, receipts, and deliveries of securities, the date and price of each purchase and sale, and all debits and credits;

(3) copies of confirmations of all transactions effected by or for the account of each client; and

(4) a record for each security in which a client has a position showing the name of each client having an interest in the security, the amount invested or interest of each client in the security, and the location of the security.

(c) A state investment adviser who renders an investment supervisory or management service to a client shall, with respect to the portfolio being supervised or managed and to the extent that the information is reasonably available to or obtainable by the state investment adviser, make and keep true, accurate, and current

(1) records showing separately for each client the securities purchased and sold, and the date, amount, and price of each purchase and sale; and

(2) for each security in which a client has a current position, information from which the state investment adviser can promptly furnish the name of the client, and the current amount or interest of the client.

(d) A state investment adviser may maintain books or records required by this section so that the identity of a client to whom the state investment adviser renders investment supervisory services is indicated by a numerical or alphabetical code or a similar designation.

(e) A state investment adviser shall preserve the following records in the following manner:

(1) records required by (a)(l) - (10), (a)(12) - (14), (b), and (c)(1) of this section shall be maintained and preserved in an easily accessible place for not less than five years after the end of the fiscal year during which the last entry was made on the record; for the first two years, those records shall be kept in the state investment adviser's principal place of business;

(2) partnership articles and any amendments to them, articles of incorporation, charters, minute books, and stock certificate books of the state investment adviser and of any predecessor shall be maintained in state investment adviser's principal place of business and shall be preserved until at least three years after termination of the enterprise;

(3) each record required by (a)(11) and (a)(15) of this section shall be maintained and preserved in an easily accessible place for not less than five years after the end of the fiscal year during which the state investment adviser last published or otherwise disseminated that record, directly or indirectly; for the first two years, that record shall be kept in the state investment adviser's principal place of business; and

(4) each record required by (a)(16) - (19) of this section shall be maintained and preserved in an easily accessible place for not less than five years after the end of the fiscal year during which the last entry was made on the record; for the first two years, that record shall be kept in the state investment adviser's principal place of business; however, that record need be kept only for the period during which the state investment adviser was registered or required to be registered in this state, if that period is less than the five-year period required by this paragraph.

(f) If a state investment adviser provides a client advisory services at a place of business other than the state investment adviser's principal place of business, the state investment adviser shall maintain, for the applicable period set out in (e) of this section, the following records or copies of those records at the place of business of the state investment adviser from which the client receives advisory services:

(1) records required by (a)(3), (a)(7) - (10), (a)(13) - (14), (a)(16) - (18), (b), and (c) of this section;

(2) records required by (a)(11) and (a)(15) of this section, if those records identify the name of the investment adviser representative providing investment advice from that business location, or which identify the business location's physical address, mailing address, electronic mailing address, or telephone number.

(g) A state investment adviser, before ceasing to conduct or discontinuing business as an investment adviser, shall arrange for and be responsible for the preservation of the books and records required to be maintained and preserved under this section for the remainder of the applicable period specified in (e) of this section, and shall notify the administrator in writing of the exact address where those books and records will be maintained during the remainder of that period.

(h) Records required to be maintained and preserved under this section may be maintained and preserved by photographic process on magnetic disk, tape, or other computer storage medium, and may be maintained and preserved in that form for the applicable period required by (e) or (f) of this section. If records are produced or reproduced by a photographic film or computer storage medium, the state investment adviser shall

(1) arrange the records and index the films or computer storage medium so as to permit the immediate location of any particular record;

(2) be ready at all times to provide promptly any facsimile enlargement of film, computer printout, or copy of the computer storage medium that the administrator or the administrator's representative requests;

(3) store, separately from the original, at least one copy of the film or computer storage medium for the applicable period required by (e) or (f) of this section;

(4) with respect to records stored on a computer storage medium, maintain procedures for maintenance and preservation of, and access to, records so as to reasonably safeguard records from loss, alteration, or destruction;

(5) with respect to records stored on photographic film, and for purposes of examining those records, at all times have available facilities for immediate, easily readable projection of the film and for producing easily readable facsimile enlargements; and

(6) with respect to records which, in the ordinary course of the state investment adviser's business, are created by the state investment adviser on electronic media or are received by the state investment adviser solely on electronic media or by electronic data transmission, be able to electronically display and immediately produce printed copies of those records.

(i) If a state investment adviser is engaged in more than one enterprise or activity the state investment adviser shall maintain separate books of accounts and records for the investment advisory business and the other businesses. The books and records must clearly identify the division among these businesses of income, expenses, and assets.

(j) A book or other record made, kept, maintained, and preserved in compliance with 17 C.F.R. 240.17a-3 and 17 C.F.R. 240.17a-4 that is substantially the same as a book or other record required to be made, kept, maintained, and preserved under this section, satisfies the applicable record-keeping requirement of this section.

(k) A state investment adviser registered or required to be registered in this state and that has its principal place of business in a state other than this state is exempt from the requirements of this section, if the state investment adviser

(1) is registered or licensed as an investment adviser in the state in which it maintains its principal place of business; and

(2) is in compliance with the applicable books and records requirements of the state in which it maintains its principal place of business.

( l ) In this section,

(1) "advisory representative," if the state investment adviser is primarily engaged in a business

(A) providing services to advisory clients, means

(i) a partner, officer, or director of the state investment adviser;

(ii) an employee of the state investment adviser who makes a recommendation or takes part in determining which recommendation is to be made, or whose functions or duties relate to the determination of which securities are to be recommended before the effective dissemination of the recommendations; and

(iii) a person who obtains information concerning securities recommendations by the state investment adviser before the effective dissemination of the recommendations, if the person who obtains the information is in a control relationship to the state investment adviser, is an affiliated person of that controlling person, or is an affiliated person of that affiliated person;

(B) other than providing services to advisory clients, means

(i) a partner, officer, director, or employee of the state investment adviser who makes a recommendation or takes part in determining which recommendation is to be made, or whose functions or duties relate to the determination of which securities are to be recommended before the effective dissemination of the recommendations; and

(ii) a person who obtains information concerning securities recommendations by the state investment adviser before the effective dissemination of the recommendations, if the person who obtains the information is in a control relationship to the state investment adviser, is an affiliated person of that controlling person, or is an affiliated person of that affiliated person;

(2) "control" means the power to exercise a controlling influence over the management or policies of a company, unless that power is solely the result of an official position with that company; a person who owns beneficially, either directly or through one or more controlled companies, more than 25 percent of the voting securities of a company is presumed to control that company;

(3) "discretionary power" does not include discretion as to the price at which or the time when a transaction is or is to be effected, if, before the order is given by the state investment adviser, the client has directed or approved the purchase or sale of a definite amount of the particular security;

(4) "financial statements" means a balance sheet prepared in accordance with generally accepted accounting principles, an income statement, and a cash flow statement;

(5) "investment supervisory services" means the giving of continuous advice as to the investment of funds on the basis of the individual needs of each client;

(6) "solicitor" means a person who, for compensation, acts as an agent of an investment adviser in referring potential clients.

(m) For purposes of ( l )(1)(B) of this section, a state investment adviser is primarily engaged in a business other than providing services to advisory clients if, for each of its most recent three fiscal years or for the period of time since organization, whichever period is shorter, the state investment adviser derived from that other business, on an unconsolidated basis, more than 50 percent of the state investment adviser's

(1) total sales and revenues; and

(2) income or loss before income taxes and extraordinary items.

History: Eff. 2/20/72, Register 41; am 4/19/2000, Register 154

Authority: AS 45.55.050

AS 45.55.060

AS 45.55.950