Seward & Kissel LLP

April 8, 2003

Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609

Re: Implementation of Standards of Professional Conduct
for Attorneys (Release Nos. 33-8186; 34-47282; IC-25920;
File No. S7-45-02)

Dear Mr. Katz:

This letter is submitted in response to the Commission's request in SEC Release No. IC-259201 (the "Proposing Release") for additional comments on the rule (the "Professional Conduct Rule") adopted in SEC Release No. IC-259192 (the "Adopting Release") and on a proposed and an alternative approach to the "Noisy Withdrawal" provisions of the Professional Conduct Rule described in the Proposing Release.

We have represented investment advisers and investment companies registered under the Investment Company Act of 1940, as amended (the "ICA"), for more than 50 years. During that time, we have acted as counsel for investment companies, advisers to investment companies, other service providers to investment companies and disinterested trustees of investment companies. These roles have involved us in the issues that can arise as a result of the divergence between the interests of advisers and other service providers to investment companies and the interests of investment companies and their shareholders.

Based on that involvement, we believe that the proposed application of aspects of the Professional Conduct Rule to investment companies registered under the ICA ("registered investment companies") is wrong. We believe also that the application of the Noisy Withdrawal provisions to registered investment companies should be tailored to operate consonantly with the other protections provided for registered investment companies under the ICA.

The Professional Conduct Rule

In its release proposing the Professional Conduct Rule, the Commission took the position that "representation of an issuer" included counsel's representation of an adviser to a registered investment company that involved the counsel in, among other things, preparing documents for filing by and otherwise providing services to the registered investment company.3 In response, the Investment Company Institute and other commenters observed that the Commission's position was likely to place counsel for investment advisers and other service providers to registered investment companies in an untenable position and might "reduce or eliminate" the attorney's participation in providing advice to the management of registered investment companies.4 In the Adopting Release, the Commission dismissed these concerns by observing that counsel to advisers and other service providers (together referred to as "advisers") clearly perform legal services for registered investment companies advised by the counsels' clients and that the Commission's position does "no violence" to the attorney-client privilege because co-clients using the same counsel do not have an attorney-client privilege assertable against each other with respect to their communications with their counsel.

The Commission's assertions have merit in isolation but not in the context of the relationship between advisers and registered investment companies and the common practice of investment companies receiving legal support from counsel to their advisers. The interests of the advisers are not always congruent with those of registered investment companies and their shareholders, a circumstance which animated the Commission's efforts, culminating in the amendments to various Commission rules provided for in SEC Release No. IC-248165, to impel registered investment companies to support retaining separate legal counsel for the registered investment companies' disinterested trustees. The differences in the interests of advisers and interests of registered investment companies are sufficiently pronounced that various provisions of the ICA were adopted to address the differences and much of the Commission's oversight of registered investment companies involves policing them. Also, these differences frequently raise legal issues for which advisers and registered investment companies require the advice of counsel experienced in ICA matters.

The issue is not whether the advice given and work performed by counsel to advisers may support the advised investment companies; it clearly does. Nor is the issue whether the attorney-client privilege would restrict information exchanges between counsel and co-clients. The question is whether counsel to an adviser will be able to represent its client effectively while, as a result of the Professional Conduct Rule, being deputized to act as counsel for the registered investment companies managed by the adviser. In our view, the effect of the deputization will be to compromise the effectiveness of counsel to the adviser.

The price of the deputization is potentially high because it will tend to deprive the adviser of reliable advice by limiting both the adviser's willingness to share information with its counsel and counsel's willingness to provide advice on matters that could trigger an up-the-ladder reporting obligation at advised registered investment companies. In our view, the resulting weakening of the counsel's relationship with its client is likely to diminish the high quality of legal advice that historically has guided the activities of registered investment companies.

We recommend that the Commission consider amending the Professional Conduct Rule to make it inapplicable to counsel for an adviser to a registered investment company whose board of trustees has designated separate counsel for the disinterested trustees. We believe that, in the case of a registered investment company served by disinterested trustees' counsel, deputizing the adviser's counsel is redundant and, therefore, does not merit the reduction that the deputization would cause in the quality of legal advice available to the adviser and the registered investment company. Issues that the Commission might expect to raise an up-the-ladder reporting obligation and possibly lead to the resignation of an adviser's counsel are the types of issues that the Commission expects counsel for the disinterested trustees to recognize, bring to the attention of the trustees and advise them about. To impose a similar role on the adviser's counsel seems both unnecessary and, because of its adverse effects, unwise.

In the case of a registered investment company that does not have counsel for the disinterested trustees, counsel to the adviser arguably has a greater duty to the shareholders than when disinterested trustees' counsel is present. Accordingly, deputizing the adviser's counsel in that circumstance would not be redundant and could provide benefits to a registered investment company and its investors that outweigh the potentially adverse effects that the deputization is likely to have on the relationship between the adviser and its counsel.

Withdrawal Alternatives

Implicit in the discussion above regarding the application of the Professional Conduct Rule to counsel to advisers of registered investment companies is the notion that whatever red flag provision the Commission adopts for instances in which counsel that has reported up-the-ladder without success should not apply to counsel to advisers for registered investment companies with disinterested trustees' counsel. Rather, in the case of those registered investment companies, the obligation of disinterested trustees' counsel to pursue issues with the trustees and either obtain their concurrence in the counsel's advice or resign as counsel would provide the red flag protections that the Commission is attempting to obtain by deputizing advisers' counsel.

That being said, however, we believe that requiring either a "Noisy Withdrawal" by counsel to a registered investment company or its adviser or an issuer filing with the Commission in connection with such a withdrawal is not necessary and carries with it potentially unfortunate effects on the relationship between the counsel and its client. Instead, recognizing that the Commission's Professional Conduct Rule requires the resignation of counsel whose advice is ignored in the circumstances contemplated by the Rule, the Commission could require maintenance of a record of the resignation in the registered investment company context that would be available to the staff of the Commission in connection with an inspection of the registered investment company or its adviser.

Existing rules under the ICA, such as Rule 17j-1 that implements the ICA's code of ethics requirements for, among others, registered investment companies and their advisers, provide a basis for recording an attorney's resignation under the Professional Conduct Rule. When the resigning attorney is counsel to the registered investment company, the resignation could be recorded in the records of the investment company, and when the resigning attorney is counsel for the adviser advising the investment company, the resignation could be recorded in the records of the adviser. That information, like the information about violations of a registered investment company's code of ethics, would alert the Commission's staff to the need to further explore circumstances of a resignation to determine whether there had been a violation of the ICA or the Commission's rules.

If the Staff has any questions about our comments or would like to discuss any aspect of them, please telephone Tony Nuland, Kathleen Clarke or Nora Sheehan at 202-737-8833.

Very truly yours,

Seward & Kissel LLP

99141.0020 #397045

1 68 Fed. Reg. 6324 (February 6, 2003).
2 68 Fed. Reg. 6296 (February 6, 2003).
3 SEC Release No. IC-25829, 67 Fed. Reg. 71669 (December 2, 2002).
4 Investment Company Institute Comment Letter (December 18, 2002).
5 66 Fed. Reg. 3734 (January 16, 2001), corrected at 66 Fed. Reg. 13234 (March 5, 2001).