1. (a) Any investment adviser who wishes to charge 3.0% or greater of the assets under management must disclose that such fee is in excess of the industry norm and that similar advisory services can be obtained for less.

2. (b) Any investment adviser who wishes to charge a fee based on a share of the capital gains or the capital appreciation of the funds or any portion of the funds of a client must comply with SEC Rule 205-3 (17 Code of Federal Regulations §275.205-3), which prohibits the use of such fee unless the client is a "qualified client." In general, a qualified client may include:

   1. (1) a natural person or company who at the time of entering into such agreement has at least $750,000 under the management of the investment adviser;

   2. (2) a natural person or company who the adviser reasonably believes at the time of entering into the contract:

      1. (A) has a net worth of jointly with his or her spouse of more than $1,500,000; or
      2. (B) is a qualified purchaser as defined in the Investment Company Act of 1940, §2(a)(51)(A) (15 U.S.C. 80a-2(51)(A)); or

   3. (3) a natural person who at the time of entering into the contract is:

      1. (A) An executive officer, director, trustee, general partner, or person serving in similar capacity of the investment adviser; or
      2. (B) An employee of the investment adviser (other than an employee performing solely clerical, secretarial, or administrative functions with regard to the investment adviser), who, in connection with his or her regular functions or duties, participates in the investment activities of such investment adviser, provided that such employee has been performing such functions and duties for or on behalf of the investment adviser, or substantially similar function or duties for or on behalf of another company for at least 12 months.

Source Note:The provisions of this §116.13 adopted to be effective August 12, 2001, 26 TexReg 5799.