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Mr. Jonathan G. Katz Securitiesand Exchange Commission March 12,2004

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and their implementation should be carefully crafted to meet the risks presented by individual advisory businesses. Because of the great diversity among investment advisers6NSCP does not believe that a single rule can be crafted that adequately addresses the potential conflicts of interests faced by this diverse group, while providing appropriate flexibility where the risk of a conflict is diminished by a firm's business model.7

Accordingly,NSCP suggeststhat, in crafting personal trading policies, advisers should consider the use of each of the best practices discussed in Release 2209 as well as the types of securitiesand transactionsto which those controls should be applied.8In this way, the legitimate interests of clients, firms and regulators in addressing potential conflictsof interest can be balanced with the legitimate interests of employees in making personal investment decisions. The Commissionhas taken a similar approach in rulemakings in a number of other areas, including proxy voting and complianceprocedures generally.9 2. Protection f Material Nonpublic I formation

NSCP strongly agrees that advisers should have strong policies and procedures addressing material nonpublic information as we11 as other confidential or client-sensitive information.I0Further, NSCP believes such policies and procedures are most effectivewhen they are in writing and regularly distributed and explained to an adviser's staff.

The Proposed Rule imposes a "need to know" standard as the appropriate control over confidential client information. NSCP agreesthat access to and distribution of confidential information must be controlled if confidentiality is to be respected and protected. In this context, "need to know" is a valuable principle that all advisers consider when developingpolicies and procedures. However, a "need to know" standard is not the only possible control, and in some

6 See H.R. Rep. No. 100-910, at 21-22 (Sep. 9, 1988)(recognizingthat policies and procedures to prevent insider trading may reasonably differ among investmentadvisers, depending on the firm's operations, business structure, and the nature and scope of its business); Report of the Division of InvestmentManagement, SEC, Personal Investment Activities of Investment Company Personnel at 4 (Sep. 1994)(noting that rule l7j-1 allows funds to tailor personal trading restrictions and proceduresto the funds' circumstancesbecause that flexibility puts the funds i n t h e b e s t p o s i t i o n t o o v e r s e e a c c e s s p e r s o n s ' i n v e s t m e n t a c t i v i t i e s ) . '

For example, advisers that invest in small capitalization equity securities should be expected to have strong procedures for employee transactions involving such securities, including pre-clearance and even a ban on investing in IPOs. NSCP does not believe, however, that such robust procedures would represent an appropriate balancing of i n t e r e s t s f o r e m p l o y e e s o f a d v i s e r s t h a t i n v e s t e x c l u s i v e l y i n f i x e d - i n c o m e s e c u r i t i e s . 8 9 See, Release 2209 at text accompanying notes 23-27. See, Final Rule: Disclosure of Proxy Voting Policies and Proxy Voting Records by Registered Management Investment Companies,Release No. 33-8188,34-47304, IC-25922, Jan. 31,2003.; and Final Rule: Compliance Programsof Investment Companies and Investment Advisers, Release Nos. IA -2204; IC - 26299; File No. S7-03- 03, Dec. 17,2003.

lo NSCP believes that all clients of advisers (whether individuals, institutions or investmentcompanies)are owed the same duty of confidentiality. Accordingly,NSCP believes that the same standards for maintaining confidentiality should apply under the Advisers Act and the Company Act. Moreover,NSCP believes that the obligationto respect and protect confidential and nonpublic information should extend to both transactional and holdings information.

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