September 12, 2002

Via Electronic Filing

Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: Proposed Amendments to Investment Company Advertising Rules; Release No. 33-8101; 34-45953; IC-25575; File No. S7-17-02

Dear Mr. Katz:

We are writing in response to the supplemental comment letter dated August 21 from the North American Securities Administrators Association (NASAA).

While not addressing our organization by name, it is clear that NASAA's letter refers to our comment letter and our proposal to amend the Commission's advertising rule under the Investment Advisers Act of 1940. For the record, we wish to take this opportunity to note our strong exception to two arguments set forth in NASAA's letter.

First, we take issue with the assertion that the "objective character of the Commission's investment adviser advertising rule is its strength" and that investment advisers "know the standards to which they will be held." Nothing could be further from the truth. The fact of the matter is that the investment adviser advertising rules have become a complex maze of no-action letters that are subject to inconsistent and conflicting interpretations. It is precisely because of the confusion and complexities caused by these pronouncements that we have urged the Commission, at a bare minimum, to issue a revised rule in an effort to consolidate guidance on the subject and to provide needed clarification to investment advisers.

Second, we certainly take issue with the following statements in NASAA's letter:

If the SEC took action viewed as weakening investor protections, states most certainly would reinstate them in separate legislation. Because the states retain jurisdiction over SEC-registered investment advisers in instances of fraud, changing the rules could not only lessen the protections under federal law for investors, but face advisers with a conflict between the activities deemed fraudulent by the SEC and state regulators.

Section 303 of the Investment Advisers Supervision Coordination Act1 preempts state and local laws regulating SEC-registered investment advisers and their supervised persons (including laws that define fraud or deceit). While the law specifically provides that state securities commissions may investigate and bring enforcement actions "with respect to fraud or deceit" against SEC-registered investment advisers, this limited grant of authority does not entitle state legislatures or securities commissions to redefine fraud or deceit in a manner that is inconsistent or different from federal laws and regulations. If the law could be read in such a manner, the core of the legislation - i.e., the preemption of state authority over SEC-registered investment advisers - would be rendered moot. The legislative history certainly does not support such an interpretation and we would certainly welcome the opportunity to provide detailed documentation that supports the only logical meaning of the law.

We note that NASAA's letter suggests that a "limited" review of investment adviser advertising rules may be warranted "as a separate matter." We agree that the Commission should commence a separate proceeding as soon as possible to review and revise the investment adviser advertising rules in order to allow all of these important issues to be debated publicly and resolved in a manner that is consistent with the Commission's mission of investor protection.



Executive Director

Cc: Mr. Joseph Borg

1 Section 203A of the Investment Advisers Act of 1940, as revised, provides as follows: "(b) ADVISERS SUBJECT TO COMMISSION AUTHORITY. (1) IN GENERAL. - No law of any State or political subdivision thereof requiring the registration, licensing, or qualification as an investment adviser or supervised person of an investment adviser shall apply to any person (A) that is registered under section 203 as an investment adviser, or that is a supervised person of such person, except that a state may license, register, or otherwise qualify any investment adviser representative who has a place of business located within that State; or (B) that is not registered under section 203 because that person is excepted from the definition of an investment adviser under section 202(a)(11). (2) LIMITATION. Nothing in this subsection shall prohibit the securities commission (or any agency or office performing like functions) of any State from investigating and bringing enforcement actions with respect to fraud or deceit against any investment adviser or person associated with an investment adviser."