[§485A-502]  Prohibited conduct in providing
investment advice.  (a)  It shall be unlawful for a person that advises
others for compensation, either directly or indirectly or through publications
or writings, as to the value of securities or the advisability of investing in,
purchasing, or selling securities, or that, for compensation and as part of a
regular business, issues or promulgates analyses or reports relating to
securities:



(1)  To employ a device, scheme, or artifice to
defraud another person; or



(2)  To engage in an act, practice, or course of
business that operates or would operate as a fraud or deceit upon another
person.



(b)  It shall be unlawful for any investment
adviser to enter into, extend, or renew any investment advisory contract, if the
contract, in writing:



(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 that no assignment, as defined
in section 202(a)(1) of the Investment Advisers Act of 1940, of the contract
shall be made by the investment adviser without the consent of the other party
to the contract; or



(3)  Fails to provide that the investment adviser, if
a partnership, will notify the other party to the contract of any change in the
membership of the partnership within a reasonable time after the change.



(c)  Notwithstanding subsection (b)(1), an
investment adviser may enter into, extend, or renew an investment advisory contract
that:



(1)  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



(2)  Provides for compensation to the investment
adviser on the basis of a share of capital gains or capital appreciation of the
funds of the client; provided that the conditions and requirements as defined
and set forth in Rule 205-3 under the Investment Company Act of 1940 (17 C.F.R.
275.205-3) shall be met; and provided further that before entering into the
advisory contract, and in addition to the requirements of Form ADV, the
investment adviser shall disclose in writing to the client or the client's
independent agent all material information concerning the proposed advisory
arrangement, including the following:



(A)  That the fee arrangement may create an
incentive for the investment adviser to make investments that are riskier or
more speculative than would be the case in the absence of a performance-based
fee;



(B)  Where relevant, that the investment
adviser may receive increased compensation with regard to unrealized
appreciation as well as realized gains in the client's account;



(C)  The periods that will be used to measure
investment performance throughout the contract and their significance in the
computation of the fee;



(D)  The nature of any index that will be used
as a comparative measure of investment performance, the significance of the
index, and the reason the investment adviser believes that the index is
appropriate; and



(E)  Where the investment adviser's
compensation is based in part on the unrealized appreciation of securities for
which market quotations are not readily available within the meaning of Rule 2a-4(a)(1)
under the Investment Company Act of 1940 (17 C.F.R. 270.2a-4(a)(1)), how the
securities will be valued and the extent to which the valuation will be
independently determined.



(d)  It shall be unlawful for any investment
adviser or investment adviser representative to:



(1)  Fail to disclose to the client in a separate
disclosure statement the capacity in which the investment adviser and
investment adviser representative are acting and the compensation to be
received in situations in which:



(A)  The investment adviser is acting as
principal for the investment adviser's own account and knowingly sells any
security to or purchases any security from a client for whom the investment
adviser is acting as investment adviser; or



(B)  The investment adviser is acting as a
broker-dealer for a person other than the client and knowingly effects any sale
or purchase of securities, real estate, insurance contracts, annuities
contracts, or any types of real or personal property for the account of the
client; and



(2)  Fail to provide the disclosure statement
described in paragraph (1) and obtain the written consent of the client to the
transactions described in the disclosure statement prior to the closing of the
transactions.



(e)  A rule adopted or order issued under this
chapter may define an act, practice, or course of business of an investment
adviser or an investment adviser representative, other than a supervised person
of a federal covered investment adviser, as fraudulent, deceptive, or
manipulative, and prescribe means reasonably designed to prevent investment advisers
and investment adviser representatives, other than supervised persons of a
federal covered investment adviser, from engaging in acts, practices, and
courses of business that are fraudulent, deceptive, or manipulative.



(f)  A rule adopted or order issued
under this chapter may specify the contents of an investment advisory contract
entered into, extended, or renewed by an investment adviser.



(g)  It shall be unlawful for any investment
adviser to use any scheme, device, or artifice to circumvent or attempt to
circumvent the prohibitions or limitations in subsection (b).



(h)  Nothing in this section shall be deemed to
relieve any person of any fiduciary or other obligation to which such person
may be subject under any law. [L 2006, c 229, pt of §1]