From: fran kenck [fkenck@yahoo.com]
Sent: Wednesday, September 25, 2002 10:18 PM
To: rule-comments@sec.gov
Subject: s7-28-02

First I applaud the SEC's efforts at modernizing a
rule that is much in need of updating.  Overall, I
think you have hit the key issues relating the
burden/costs that "custody' causes for RIAs

Subject: The term custody as it relates to an
investment adviser that itself does not have custody
of client funds/securities, but where there is a
related party of the investment adviser (an entify
that is under the same ownership/control as the RIA)
that is a general partner of a limited partnership or
managing member of an llc (and a client of the RIA).  

Under the current definition of custody and its many
interpretations, it is my understanding that an RIA
would be deemed to have custody if a related entity
has access/possession/control of the limited
partnership's assets, even though the RIA itself does
not have possession/access/control.

The proposed rule, as written, states that the RIA
would be deemed to have custody of client assets
unless....

My question/comment is this--how does a related party
of the RIA fit into the proposed rule, especially as
it relates to the exception in 206(4)-2(b)(2).  Does
this mean that any client of the RIA that is limited
partnership (or limited liability company, or another
type of pooled investment vehicle), regardless of who
is the limited partner/managing member(ie the RIA,
related party or unrelated party)?
 
Another issue that may come up with this particular
exemption ((b)(2)) is that many pooled investment
vehicles where the gp is registered as a commodity
pool operator are set up as a fund of funds.  As such
there is often a delay in getting the information
necessary to distrubute an audited statement within 90
days of the fiscal year end.  It is not uncommon for
NFA to grant an extension of time (up to 180 days in
some cases) to distribute the audited report for a
fund of fund situation.  If the partnership absolutely
cannot distribute its audited statement within 90
days, is it no longer eligible for the exemption under
(b)(2)?

If you have not considered these questions, I think
they are worthy of discussion. If you have considered
them, I think some clarification in the rule may be
necessary.

Thank you.







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