Mr. Jonathan G. Katz August 6, 1998 Page 1 August 6, 1998 Mr. Jonathan G. Katz Secretary U.S. Securities and Exchange Commission 450 Fifth Street, N.W. Mail Stop 6-9 Washington, DC 20549 Re: Release No. IA17-28; IC-23293; File No. S7-20-98 Comment Letter Dear Mr. Katz: We write in response to the request by the Securities and Exchange Commission (the "Commission") for public comment on the proposed new rule (the "Proposed Rule") and form under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), that would require most registered investment advisers to file with the Commission a report regarding their preparation for the Year 2000 computer problem. The Proposed Rule was published on June 20, 1998 in Release No. IA17-28. Views expressed in this letter are those of firm and are not submitted on behalf of any of our clients. Newman Tannenbaum Helpern Syracuse & Hirschtritt LLP represents a significant number of registered investment advisers and has a large private investment fund practice throughout the United States and worldwide. A significant portion of our practice relates to counseling investment advisers and private investment funds. In general, we feel the Commission is doing an excellent job towards insuring the securities industry's readiness for the Year 2000 problem. We too, have sought to keep our clients informed as to the significance of this issue by distributing firm publications from time to time to our clients summarizing the Commission's position on this matter. The Proposed Rule's requirement that registered investment advisers file with the Commission a report regarding preparation for the Year 2000 computer problem will, in our view, help the Commission evaluate the readiness of advisers for the Year 2000 problem, identify those advisers and funds that pose a significant risk to their clients and shareholders, and evaluate the adequacy of disclosure made by these firms regarding the Year 2000 problems. Form ADV-Y2K, Part II, requires advisers to a registered investment fund, fund complex or series of funds to answer multiple choice or fill-in-the-blank format questions with respect to the registered investment fund(s) or group(s) of registered funds. Evidently, under the Proposed Rule, an adviser need not complete Part II for the complex or a fund (or a series) with respect to which another adviser is completing Part II. The Commission has requested comment on this proposed approach. In our view, we do not feel that such practice can adequately insure that the answers of one investment adviser will cover all aspects of a registered fund's business. In particular, this is because registered funds often have several advisers, each with separate and distinct duties and obligations relating to the business of the funds. While, as the Commission suggests, the reporting adviser for a fund would likely be the adviser with administrative responsibilities it is our view that any such administrative adviser may not be intimately familiar with the potentially numerous business aspects for such fund. As an alternative, perhaps the Commission should require all investment advisers to a fund or fund complex (or series), as the case may be, to attest to the Part II response. The Proposed Rules require Form ADV-Y2K to be signed by an authorized person that participates in managing or directing the investment adviser's affairs. The Commission has requested comment as to whether the proposed form should be required to be attested to by an independent public accountant. We take the view that such attestation is not necessary and, in fact, is contrary to the Commission's sensitivity to the costs and benefits imposed by its rules, as denoted in this Release. Furthermore, we see no reason why the Commission should require the involvement of an independent public accountant to an adviser as opposed to any other professional providing its services to the adviser (i.e. in-house or outside counsel). The Commission has estimated that it would take two hours of professional time, at a rate of $100 per hour, to complete Form ADV-Y2K. The additional burden of requiring an independent public accountant to attest to such form will increase these costs. To assume that any independent public accountant (or such other professional) would attest to the answers contained in Form ADV-Y2K without conducting due diligence as to the accuracy of such responses, would defeat the purpose of obtaining the independent confirmation. Furthermore, it is not likely that any independent public accountant is as familiar with the issues that are likely to be raised in Form ADV-Y2K when compared to the familiarity of an authorized person that participates in managing or directing the investment adviser's affairs. Accordingly, this firm takes the view that the proposed requirement to have the form signed by any such authorized person, adequately meets the Commission's objectives for gathering the relevant information. The Commission has also requested comment on its requirement that any reporting advisers, with multiple computer systems at different stages of preparation for the Year 2000 problem, take a qualitative average and present the most accurate picture practicable of the preparedness of the systems of the adviser or the fund. The Commission's proposed approach would require an adviser using two (or more) computer systems that are at different stages of preparedness (one of those systems being more critical than the other), to base its responses primarily on the more (or most) critical system. This protocol, however, is likely to significantly reduce the amount of the advisers' burden in providing the Commission with its responses. Although, in the opinion of an adviser, one system may be more critical than others, this is an opportunity for the Commission to obtain information as to the types of systems that investment advisers deem to be more critical than others, as well as obtaining background information as to the interdependence of firms and individuals in the securities industry. Accordingly, we would suggest that the Commission require responses to Form ADV-Y2K on a system-by-system basis. We commend the Commission on its requirement for advisers to file Form ADV-Y2K by fax. However, in light of this new procedure, we believe the Commission should suggest to advisers to maintain copies of any facsimile confirmations respect to any and all correspondence to the Commission. In this "technology age," we believe it would be hard to find any adviser without access to a fax machine, let alone other forms of electronic communication. To extend this thought, perhaps the Commission should consider accepting alternative forms of electronic communications by its registrants (i.e., electronic mail or EDGAR). Any such communication would certainly be less costly in terms of courier expenses. In addition, the Commission has inquired as to the effect of the Proposed Rule on individual investment advisers and on the profession as a whole. While, as legal advisors, this firm is not in a position to provide data and analyses relating to the costs and benefits associated with the Proposed Rule because of its advisory as opposed to participatory role in the context of Form ADV-Y2K, we do feel that Form ADV-Y2K will force investment advisers to become more aware of the issues relating to the Year 2000 problem and the six related areas considered by the Commission: 1. The scope and status of the adviser's yield to have the compliance plan; 2. The commitment by the adviser of resources and personnel (including consultants) to address Year 2000 issues; 3. The systems that may be affected by the Year 2000 problem; 4. Progress on each of the six steps of preparation identified in the Commission's release relating to the adviser preparation; 5. Contingency plans in the event that the adviser experiences Year 2000 difficulties after December 31, 1999; and 6. The readiness of third parties upon whom the adviser relies for critical systems. Such awareness is likely to diminish the negative repercussions on the computer systems of advisers and other firms with which their systems interface. We are not aware of any industry for which the U.S. government has taken such an active role in promoting Year 2000 preparedness. In light of the significant resources this firm has allocated toward the Year 2000 issue with regard to our financial services practice, we submit that the Commission's focus on this matter has also had a similar effect on the various public accounting firms and other service providers to the securities industry as well. The Commission has also asked for comments on the potential affect of the Proposed Rule on the economy on an annual basis. A great deal of emphasis has been placed on the likelihood that adverse economic conditions will result from the lack of preparedness by public and other companies in the United States for December 31, 1999. Once again, we must commend the Commission for its emphasis on this issue. We believe that this Proposed Rule, as well as the Commission's prior statements on this issue (e.g. Chairman Levitt's 1997 letter to all registered investment advisers, the current Y2K sweep of investment advisers and guidance on disclosure obligations of advisers and funds), are likely to have a positive effect on the economy. Finally, with respect to our evaluation of the accuracy of the Commission's estimate of the burden of the proposed collection of information, we expect that this estimate is significantly lower than that which will be incurred by advisers in preparing these forms. Many advisers are likely to consult with counsel as well as make inquiries of the various service providers and other firms and individuals relied upon in their day-to-day business. Additionally, we feel strongly that use of automatic collection techniques will, in fact, minimize the burden of the collection of information on investment advisers and would hope that the Commission will continue to develop alternative forms of information technology communication. [357506-1] Mr. Jonathan G. Katz August 6, 1998 Page 2 Please contact me at your convenience if you would like to discuss the matters addressed herein. Very truly yours, Michael G. Tannenbaum MGT:pdj cc: Ricardo W. Davidovich, Esq. Paul M. Weisenfeld, Esq. [357506-1]