June 13, 2000

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

Re: Release No. IA-1862, File No. S7-10-00; Electronic Filing by Investment Advisers; Proposed Amendments to Form ADV

Dear Mr. Katz:

Legg Mason, Inc. ("Legg Mason"), on behalf of its thirteen federally registered investment adviser subsidiaries that manage over $100 billion, appreciates the opportunity to comment on the new and amended Rules regarding the electronic filing system for investment advisers and amendments to Form ADV, as proposed by the Securities and Exchange Commission ("Commission") under the Investment Advisers Act of 1940 (the "Act"). Legg Mason supports the Commission's efforts to provide investors with additional and more clearly organized information about advisers and to offer easier access to that information through the Internet.

Legg Mason endorses the comments and suggested revisions to the new and amended Rules contained in the comment letter filed by the Securities Industry Association. In particular, Legg Mason recommends that the Commission:

• Eliminate the proposed requirement that an adviser send updates to advisory clients whenever there is a material change in its brochure (Part 2A);

• Modify the proposed disclosures in the brochure regarding fees and compensation, brokerage practices, and investment performance:

• Eliminate the proposed brochure supplement (Part 2B); and

• Modify the disciplinary disclosures proposed in Item 11 of Part 1A, Item 8 of Part 2A, and Item 3 of Part 2B.

Legg Mason also submits the following comments.

The Scope of Item 11 in Part 1A Should not be Expanded.

Item 11.A of Part I of the current Form ADV asks whether an adviser or an advisory affiliate (which includes "any current employee except one performing only clerical, administrative, support or similar functions") has been convicted of or plead guilty or nolo contendere to any felony or certain misdemeanors. Items 11.A and 11.B of Part IA of proposed Form ADV significantly broaden the scope of this inquiry. As proposed, they would require an adviser and its advisory affiliates to disclose whether they have ever been "charged" with a felony or certain misdemeanors. This amendment to Item 11 casts too wide a net, requiring advisers to disclose information about prospective and current employees that advisers should not request, on which the Commission cannot act, and that is meaningless to investors.

First, an employer that inquires about the arrest record of prospective or current employees risks a claim that it violates Title VII of the Civil Rights Act of 1964. See Reynolds v. Sheet Metal Workers Local 102, 498 F. Supp. 952 (D.D.C. 1980), affirmed, 702 F.2d 221 (D.C. Cir. 1981); Gregory v. Litton Systems, Inc., 316 F.Supp. 401 (C.D. California 1970), modified, Gregory v. Litton Systems, Inc., 472 F. 2d 631 (9^th Cir. 1972). The proposed amendment to Item 11 of Part I therefore places advisers in an untenable position. If advisers request this information from prospective or current employees, they risk a claim that they use the information in making employment decisions in violation of Title VII. If advisers do not request the information, they cannot complete Form ADV. If advisers try to strike a balance and request the information only upon hiring a new employee (on the theory that the information is required and not being obtained for a discriminatory purpose), they risk the adverse consequences of an affirmative answer and the accompanying disclosure on their Form ADV.¹

Second, the Commission may not consider felony or misdemeanor charges when considering whether to grant, suspend, revoke or limit an adviser's registration. Section 203 of the Act sets forth an exclusive list of the matters the Commission may consider before taking such action. Section 203(e)(2) provides that the Commission may consider whether an adviser or an advisory affiliate "has been convicted" of certain felonies or misdemeanors. The new information requested is therefore irrelevant to the Commission's evaluation of an adviser's registration.

Finally, information about felony and misdemeanor charges will be meaningless to investors. The same information is required to be disclosed on Form U-4. In Legg Mason's experience, it usually reveals that an individual committed a youthful indiscretion prior to his or her employment in the securities industry. Such information will not aid investors in evaluating an adviser's qualifications or ability.

Part 2A Should Not be Considered Filed With the Commission.

Under proposed Rules 203-1(b)(2) and 204-1(c), a federally registered adviser is not required to submit Part 2A of Form ADV or any amendments thereto with the Commission until the IARD is able to accept Part 2A.² Instead, a federally registered adviser is required to maintain Part 2A and to provide it to the Commission upon request. Legg Mason commends the Commission for this reasonable approach. Investors will receive, and the Commission will have access to, the disclosure information in Part 2A. Moreover, federally registered advisers will not be unduly burdened by having to file paper copies of Part 2A and amendments thereto with the Commission until the efficiencies of the Investment Adviser Registration Depository ("IARD") are realized.

For these very same reasons, Legg Mason strongly opposes the proposal that Part 2A and amendments thereto be "considered filed with the Commission" so that states may require federally registered advisers to file paper copies of Part 2A and amendments thereto as part of their "notice" filings. This technical concession to NASAA will not result in greater disclosure or improved oversight. To the contrary, it will burden advisers for no reason.

The Commission is the sole registration authority with jurisdiction over federally registered advisers. The Commission has determined that it does not need a copy of Part 2A for every federally registered adviser until the IARD can accept Part 2A electronically. States have no authority to register federally registered advisers. They merely have the limited right to receive documents filed with the Commission "solely for notice purposes."³ Yet, the states have requested a special accommodation to enable them to receive more disclosure information from federally registered advisers than will be received by the Commission.

The states do not need this information. States will have immediate access to Part 1A of Form ADV as it is filed with the IARD. Advisers are also requested in Item 2.B of Part 1A to identify the states that should automatically receive notice of filings and fees through the IARD.⁴ No additional "notice" is necessary or should be required, particularly where the burden imposed will be substantial. Many federally registered advisers, including Legg Mason's subsidiaries, do business in many states. Like Legg Mason's subsidiaries, many also provide substantially different types of advisory services and will prepare multiple brochures. The requirement to file hard copies of these materials and all amendments thereto with the states will impose material administrative and financial obligations on advisers for no reason.

Legg Mason therefore requests the elimination from proposed Rules 203-1(b)(2) and 204-1(c), and the "General Instructions for Part 2 of Form ADV," all language stating that Part 2A or any amendments thereto will be "considered filed with the Commission" or required to be filed with the states until the IARD is able to accept Part 2A. Legg Mason also suggests that the Commission specifically state that Part 2B will not be considered filed with the Commission (even after the IARD becomes fully operative) and that states are therefore precluded from requiring federally registered advisers to file Part 2B.

Legg Mason appreciates the Commission's consideration of these comments. Please contact me if you have any questions or require additional information.

Very truly yours,

Andrew J. Bowden
Deputy General Counsel and
Vice President