MEMORANDUM OF UNDERSTANDING CONCERNING

THE EXAMINATION OF INVESTMENT ADVISERS

This Memorandum of Understanding (MOU) addresses the regulation and examination of

investment advisers by the members of the North American Securities Administrators
Association, Inc. ("NASAA") and for purposes of this MOU being the securities regulators of
the fifty states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.

1. RECITALS

1.1 NASAA members are currently responsible for the regulation of investment
advisers with assets under management of less than $25 million. NASAA
members are the only regulators that qualify and license investment adviser
representatives. The Securities and Exchange Commission ("SEC") is currently
responsible for the regulation of investment advisers with assets under
management of not less than $25 million. The statutory cap for determining state
and federal regulation of investment advisers was established in 1996 by
Congress. NASAA (which as used herein also refers to the state securities
regulators that are members of NASAA) conducts its examinations of investment
advisers and investment adviser representatives on a regular and consistcnt basis.

1.2 The SEC has statcd that its current workload has made regular and frequent
examinations of investment advisers exceedingly difficult. Therefore, without
state assistance, it is unlikely that there will be sufficient resources to provide for
a meaningful increase in the frequency of examinations of larger investment
advisers by the SEC. Additionally, because of SEC's proper focus on larger
investment advisers, it is also probable that, absent assistance from the states,
smaller investment advisers with assets under management between $25 million
and $100 million will go unexamined thereby creating an "examination gap" of
investment advisers with assets under management of more than $25 million but
less than $100 million.

1.3 An increase of the statutory cap from $25 million to $100 million for the states
would allow for a substantial increase in regulatory oversight and examination
frequency of advisers with assets under management of more than $25 million but
less than $100 million while alleviating the burden of examination of these firms
from the SEC, thereby allowing the SEC to concentrate its efforts on the larger
and more systemically important advisers, and thus closing any "examination
gap."

1.4 NASAA believes that regulation is properly the province of government rather
than member governed self-regulatory organizations. Because NASAA has been
the sole regulator of all investment adviser representatives and investment
advisers with assets under management of less than $25 million for over a decade

1
 it is more experienced and bctter-suited to the regulation and examination of the
investment advisers with assets under management up to $100 million.

1.5. While certain states may have resource constraints relative to their examination
programs, many others do not. NASAA stands ready to assist member states in
conducting regular, thorough examinations of investment advisers and investment
adviser representatives to ensure timely and efficient examinations of state
registered investment advisers and closure of the aforementioned "examination
gap."

2. AGREEMENT

2.1 In recognition of these mutual interests, to protect the investing public, and to
further enhance state effectiveness in the examination of investment advisers and
investment adviser representatives, NASAA wishes to enter into an understanding
that shall govern cooperative examinations of investment advisers. Accordingly,
NASAA agrees as follows:

2.2 NASAA recognizes the importance of a consistent and regular schedule of

examinations for investment advisers. NASAA believes that such an approach is
particularly important to both the investing public and to investment advisers. In
recognition of this understanding, NASAA members agree to consult with each
other for the purpose of ensuring that examination resources are augmented, when
necessary, with the assistance of sister states. Such assistance shall include, but
not be limited to, a request, transmitted to the sister state(s) upon contemplation of
any need for assistance, setting forth all elements relevant to the request. The
sister state shall then respond as soon as practicable. This process shall at all
times be consultative and cooperative.

2.3 Upon acceptance of the request for assistance, the sister state shall, within a
mutually agreeable time frame, assign or dispatch the appropriate numbcr of
experienced investment adviser examiners to assist the requesting party.

2.4 NASAA further believes that innovative and flexible approaches to examinations
are in the best interests of both the investing public and investment advisers. To
that end, NASAA has tasked its long-standing Investment Adviser Operations
and Training Project Groups with the following ongoing responsibilities:

2.4(i) Investigating, evaluating, and recommending nontraditional examination

approaches and solutions to the NASAA membership;

2.4(ii) Providing training on these nontraditional approaches and solutions;

2.4(iii) Facilitating and engaging in cooperative discussions with fellow NASAA

members and other governmental regulators regarding new and productive
examination methodologies; and,

2
 2.4(iv) Providing leadership in the rapid development of mutually satisfactory
positions on examination policies and procedures designed to address any
currently unforeseeable challenges to the implementation of an
effective, integrated, and coordinated national examination program.

3. COST OF JOINT EXAMINATION PROGRAM

3.1 Costs of the joint examination program shall be funded on a case-by-case basis, as
appropriate, by NASAA.

4. PARTICIPATION IN JOINT EXAMINATIONS

4.1 Individual members of NASAA may elect to participate in this joint

examination program by notifying the Executive Director or General Counsel.

4.2 The NASAA Board of Directors encourages participation by all U.S. NASAA
Members.

2009.

_~~':c~
Denise VOi~rd
NASAA Presi ent