February 14, 2001

By E-mail

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

Re: File No. S7-20-00; Amendments to Rule 10f-3

Dear Mr. Katz:

We appreciate the opportunity to comment on S7-20-00, a proposal to amend Rule 10f-3 under the Investment Company Act of 1940 (Investment Company Act Release No. 24775) (November 29, 2000). Rule 10f-3 permits a registered investment company that has certain affiliations with an underwriting participant to purchase securities during an offering. Our firm represents a number of multi-service financial organizations that rely on Rule 10f-3.

The proposed amendments, among other things, would amend Rule 10f-3 to modify the rule's quantitative limit on purchases by a registered investment company to include purchases by any account advised by the investment company's investment adviser. This change is intended to improve the effectiveness of the quantitative limit.

We are concerned that, as drafted, the proposed amendments would treat advisory units in financial services firms differently, depending on whether they are separately incorporated. The Commission has recognized in other regulatory contexts that separate business units need not necessarily be treated as one entity. See, e.g., Exchange Act Release No. 39538 (January 12, 1998) (adopting amendments to beneficial ownership reporting requirements); Regulation M (Rule 100(b) excepts from definition of "affiliated purchaser" "an affiliate, which may be a separately identifiable department or division of a distribution participant, issuer, or selling security holder" that meet certain tests, including effective information barriers). See also Large Position Rules, Department of the U.S. Treasury, 61 Fed. Reg. 48338 (September 12, 1996) (permitting business units to file reports on their large positions in Treasury securities separately under certain circumstances).

As the Commission concluded in adopting Regulation M:

The Commission has determined to eliminate the requirement that the affiliate be a separate and distinct organizational entity from the distribution participant, issuer, or selling security holder in the sense of requiring a separate legal entity, because such a condition could result in elevating form over substance. Moreover, in response to comments regarding the growth and complexity of multi-service financial institutions, language providing that an "affiliate" may be a separately identifiable department or division of a distribution participant, issuer, or selling security holder has been added to the second and third prongs of the definition.

Requiring aggregation of separate business units may have the effect of requiring those units to share sensitive, nonpublic information, when it is otherwise not necessary for business purposes. This would have the ironic and unintended result of diminishing the effectiveness of information barriers.

We believe that the Commission should expressly clarify that separate business units that operate independently under objective standards, divided by effective information barrier procedures, may be viewed as separate investment advisers for purposes of the quantitative limit of Rule 10f-3.

We hope that this comment proves useful to the Commission and its staff in its consideration of amendments to Rule 10f-3. We believe that its implementation would advance the Commission's ongoing efforts to adapt its regulations to the continuing evolution of financial markets and participants. We would be pleased to discuss our comment with the staff, either in person or by telephone. If the staff has any questions or like to arrange a meeting, please contact Matthew A. Chambers at (202) 663-6591.

Sincerely,

Marianne K. Smythe

Matthew A. Chambers