Securities and Exchange Commission
                            Investment Adviser Year 2000 Reports
                            August 10, 1998




                                                                              DRAFT
                                                                             8/7/98
                                                                            (Riggs)

                       August 10, 1998

                       Jonathan G. Katz
                       Secretary
                       Securities and Exchange Commission
                       450 Fifth Street, N.W.
                       Stop 6-9
                       Washington, D.C.  20549

                            Re: File No. S7-20-98 -- Investment Adviser Year 2000
                       Reports

                       Dear Mr. Katz:

                            Charles Schwab & Co., Inc. ("Schwab") appreciates the
                       opportunity to comment on the recent proposal by the
                       Securities and Exchange Commission's ("Commission" or
                       "SEC")* to require most investment advisers registered with
                       the Commission to file reports about their preparations for
                       the Year 2000 computer problem.[1]  This letter is also
                       submitted on behalf of Charles Schwab Investment Management,
                       Inc. ("CSIM"), an investment adviser registered with the
                       Commission that serves as adviser to the SchwabFunds, a
                       family of investment companies also registered with the
                       Commission.  As discussed below, Schwab generally supports
                       the Commission's proposal.  Our comments are intended to
                       enhance the Pproposal's balance between gathering meaningful
                       information about investment advisers' Year 2000 readiness
                       and imposing new reporting requirements on advisers at a
                       time when their resources must be focused on their actual
                       Year 2000 preparations.

                            Schwab is a broker-dealer and is also an SEC registered
                       investment adviser.  Through its Schwab Institutional
                       Services for Investment Managers enterprise, Schwab renders
                       brokerage and related services to [over 5,300???]
                       independent investment advisers whose clients' accounts with
                       Schwab total [more that $128 billion???].  Schwab also
                       operates the nation's leading mutual fund supermarket, which
                       allows Schwab's customers to invest in over 1,527[_____???]
                       funds from 246 fund families.  Schwab is under common
                       control with Charles Schwab Investment Management, Inc., an
                       investment adviser registered with the Commission that
                       serves as adviser to [the Schwab Funds???], a family of
                       investment companies also registered with the commission.
                       Schwab's own, limited investment advisory services are
                       comprised primarily of impersonal advisory services rendered
                       in connection with its related brokerage services.


                          Schwab Supports The Commission's Efforts To Encourage
                       Year 2000 Preparations By Investment Advisers And Investment
                                                Companies

                            Schwab appreciatescommends the Commission's leadership
                       in raising awareness about the critical need of all
                       participants in the securities markets to remediate their
                       computer systems to address the Year 2000 problem.  As the
                       market leader both in serving independent investment
                       advisers and in makingoffering mutual funds available
                       through a fund supermarket, Schwab commends the Commission
                       for recognizingacknowledging in its proposal that
                       "investment advisers play a key role in the economic life of
                       America today."* [2]  Schwab agrees that timely preparation
                       for the Year 2000 by investment advisers and investment
                       companies is critical to investor protection.  As the
                       Commission is aware from its Year 2000 examination of
                       Schwab, Schwab iswe are devoting significant resources to
                       its own Year 2000 preparations.  Schwab has also undertaken
                       efforts to increase the Year 2000 awareness of other market
                       participants, particularly the investment advisers whom
                       Schwab serves. and the investment companies whose shares are
                       made available through Schwab.

                            Schwab acknowledges the Commission's effort to take a
                       flexible, common sense approach so that Year 2000 reporting
                       is not unduly burdensome on affected investment advisers.*
                       [3]  Schwab strongly encourages the Commission to take a
                       similar approach as it considers changes to its existing
                       rules under the Investment Advisers Act of 1940 (the
                       "Advisers Act") based on the work of the Investment Adviser
                       Task Force in the Division of Investment Management.

                        Schwab Strongly Supports The Commission's Proposal To Not
                                                 Require
                       Not Require Independent Public Accountant Attestation Of The
                                                 Reports

                            As proposed, advisers' reports on Form ADV-Y2K would
                       not be required to be attested to by independent public
                       accountants.  The Commission requested comment on whether
                       such attestation should be required.  Schwab strongly
                       supports the Commission's proposal to not require
                       attestation.

                            As stated in Schwab's comments on the Commission's
                       previous proposal (now adopted) to require Year 2000 reports
                       by broker-dealers and non-bank transfer agents,*[4]
                       requiring independent public accountant attestation of the
                       reports likely will impose costs out of proportion to the
                       value of attestation to the Commission or the public.
                       Moreover, we understand that the accounting profession has
                       raised significant concerns about the ability of independent
                       public accountants to attest to Year 2000 reports.[5]
                       Schwab believes these same problems would affect an
                       attestation requirement for advisers' reports on proposed
                       Form ADV-Y2K and probably to a greater degree.  We believe
                       that for many advisers, the cost of engaging an independent
                       public accountants to attest to theirits Year 2000 reports
                       would be prohibitive.



                        Schwab Supports The Proposed "Qualitative Average" Method
                                                   For
                        Advisers Reporting On The Year 2000 Preparedness Of Multiple Systems

                            In its proposal, the Commission recognized that
                       investment advisers and funds may rely on multiple systems
                       that are at different stages of preparation for the Year
                       2000. As proposed, Form ADV-Y2K would require the adviser to
                       report based on a "qualitative average" of the preparation
                       of its multiple systems weighted by the criticality of each
                       of the systems on which the average is based.  We understand
                       that the Commission intends this to be a flexible approach
                       to "present the most accurate picture practicable" of the
                       preparedness of the adviser's or fund's systems.[6]     The
                       Commission requested comment on this approach and
                       alternatives to it.  Schwab supports the "qualitative
                       average" approach, and we believe it is more practical than
                       available alternatives.

                            The Commission noted that one alternative would be to
                       require advisers to report preparedness on a system-by-
                       system basis.  As the Commission is aware, a key aspect of
                       the Year 2000 problem is the complex interdependencies of
                       multiple systems.  An adviser's or fund's own systems have
                       interdependencies among themselves, and they also have
                       interdependencies with vendors' systems and those of other
                       market participants.  System-by-system reporting would not
                       efficiently address these interdependencies.  The proposed
                       "qualitative average" approach, however, would allow
                       reporting advisers to factor into their reports multiple
                       system interdependencies.  In addition, Schwab believes that
                       requiring system-by-system reporting would significantly and
                       unnecessarily increase the burden on advisers preparing the
                       reports. an

                           The Commission Should Provide Safe Harbor Protection
                         For Good Faith Forward-Looking Statements In The Reports

                            As proposed, advisers' reports on Form ADV-Y2K would be
                       made available to the public.  Schwab supports
                       perceivemaking the reports publicly available for the
                       reasons noted in the Commission's proposal.  Nevertheless,
                       Schwab urges the Commission to provide filing advisers a
                       limited safe harbor from private liability for forward-
                       looking statements contained in the reports and made with a
                       reasonable basis and in good faith.

                            As the Commission has recognizedhas recognized,
                       preparation for the Year 2000 problem is among the most
                       complicated and largest tasks ever undertaken by the
                       securities markets and their participants.* [7]  We are sure
                       that the Commission also recognizes the extreme challenge
                       presented by the requirement to report on preparation for a
                       future event that is unprecedented in nature, scope and
                       complexity.  By their nature, advisers' reports on
                       preparations for the Year 2000 problem will be forward-
                       looking.[8]  Advisers' Year 2000 compliance plans must, by
                       nature, also be dynamic.  As an adviser implements its plan,
                       the plan itself and the adviser's preparations for the Year
                       2000 must continually be updated and adjusted.  In addition,
                       due to the complex interdependencies among an adviser's
                       systems and those of third parties with whom the adviser
                       interacts, the information will necessarily be reasonably
                       uncertain.[9] * Inevitably, despite an adviser's good faith
                       and best efforts, some statements in its reports on Form
                       ADV-Y2K may prove to have been erroneous or may become
                       erroneous after the reports are filed.

                            While Schwab agrees that this information is important
                       to securities market participants and the investing public,
                       it is precisely the type of information the reasonable and
                       good faith disclosure of which should not expose advisers to
                       the potential for costly securities fraud litigation.
                       Because the reports will be made public, advisers' clients
                       and other market participants may claim to have relied on
                       them to their detriment and seek redress against the filing
                       advisers.  We do not believe that this should be the
                       Commission's intended purpose for the reports or making them
                       publicly available.[10]*   Thus, Schwab encourages the
                       Commission to provide a limited safe harbor from private
                       liability for forward-looking statements in advisers' Year
                       2000 reports.  Such a safe harbor could be modeled after
                       that provided to public companies under the Private
                       Securities Litigation Reform Act of 1995.[11]*   It would
                       cover only forward-looking statements made with a reasonable
                       basis and in good faith and accompanied by meaningful
                       cautionary disclosure.

                            Without the recommended safe harbor, advisers will be
                       prudent to add disclaimers and other qualifying disclosures
                       in explanatory notes to their answers to the questions of
                       form ADV-Y2K.*  Consistent with the Commission's experience
                       with disclosure of this type in other contexts, we believe
                       these disclosures would be comprised largely of boilerplate
                       which would be counter to the otherwise simple, user-
                       friendly, common sense format of the reports.

                                      The Commission Should Clarify
                            Registered Investment Company Year 2000 Reporting

                            As proposed, Form ADV-Y2K would require advisers to
                       registered investment companies to complete Part II of the
                       Form with respect to those funds and other funds in the same
                       complex or family.  Schwab believes that fund advisers'
                       reports on Form ADV-Y2K will further the protection of fund
                       investors by providing useful information about investment
                       companies' Year 2000 readiness.  Schwab suggests that the
                       Form should be clarified to assure that the scope of the
                       information required sufficiently covers a fund's
                       operations, no matter who is responsible for those
                       operations.

                             The questions of Form ADV-Y2K Part II track closely
                       the questions of Part I, but they relate to the fund as
                       opposed to the adviser.  The Commission's proposal
                       acknowledges the external, third party management structure
                       of most investment companies.  In some cases, a fund's
                       systems and the compliance plans may be under the control
                       not of the fund or its adviser, but rather of some third
                       party service provider, and we understand that some
                       commentators oppose requiring advisers to report on the
                       status of issues outside their direct control.  We believe
                       information about Year 2000 readiness is important to
                       investors no matter what the management structure of the
                       fund.  Therefore, Schwab recommends that the Commission
                       clarify Part II of Form ADV-Y2K to assure that the reports
                       adequately cover the Year 2000 preparations of all fund
                       service providers whose systems support fund operations,
                       whatever their registration status.

                        Schwab Generally Supports Filing Adviser Year 2000 Reports
                                                  By Fax

                            Proposed Rule 204-5 would require that reports on
                       proposed Form ADV-Y2K be filed with the Commission
                       exclusively by fax.  Paper filings would not be accepted.
                       Instructions to the Form would provide specified fax
                       numbers.  The Commission stated in its proposal that it
                       assumes all advisers easily will be able to file the reports
                       by fax.  Schwab believes all filing advisers will have
                       access to fax machines.  Nevertheless, we are concerned
                       about the potential inability of advisers to file due to
                       problems with the SEC's fax machines.  We would expect that
                       a substantial majority of the advisers' reports would be
                       transmitted relatively close to the applicable filing
                       deadlines, and therefore, the Commission's fax machines
                       could be busy, or there could be transmission errors that
                       are not resolved before the applicable filing deadlines.
                       Thus, despite good faith reasonable efforts, advisers could
                       experience problems with timely filing the reports by fax.

                            We understand that this concern is shared by other
                       interested parties who may comment on the proposal, such as
                       the Investment Company Institute (ICI).  We support
                       providing a safe harbor for late reports of advisers who
                       makde timely, good faith, but unsuccessful attempts to file
                       by fax.  As an alternative, the Commission could allow
                       advisers to choose between filing their Year 2000 reports by
                       fax or in paper.   [Finally, Schwab stronglyencouragess the
                       Commission to allow advisers to file Form ADV-Y2K by e-mail,
                       much as it currently allows comment letters such as this to
                       be filed by e-mail. make E-mail a viable medium for filing
                       SEC reports.???]

                                                         Other Comments


                            Schwab, like many other broker-dealers, is also
                       registered with the Commission as an investment adviser.
                       Under Rule 204-5 as proposed, Schwab would not be required
                       to file Year 2000 reports on Form ADV-Y2K because it does
                       not have $25 million or more in assets under management and
                       is not an investment adviser to a registered investment
                       company.  Nevertheless, pursuant to Instruction 2 to Part I
                       of proposed Form ADV-Y2K, CSIM (which is required to file
                       because it does serve as investment adviser to registered
                       investment companies) mightwould appear to be required to
                       include information about Schwab in its reports.   This is
                       based on the assumption that, bBecause Schwab and CSIM are
                       under common control, they wcould be deemed "investment
                       adviser affiliates" as that term is used in Instruction 2 to
                       Part I of proposed Form ADV-Y2K.  The term "investment
                       adviser affiliates" is not defined in Form ADV-Y2K, proposed
                       Rule 204-5 or, to our knowledge, anywhere else in the
                       Advisers Act or the rules thereunder.   Nevertheless, from
                       discussions with members of the staff in the Division of
                       Investment Management, wWe understand that the term may
                       cover SEC registered advisers that, like Schwab, would not
                       be required to file Form ADV-Y2K but are in a control
                       relationship with an adviser, like CSIM, that must
                       file.*[12]

                            We believe no useful purpose would be served by
                       requiring CSIM to include in its reports on Form ADV-Y2K
                       information about theSchwab's Year 2000 preparations of
                       Schwab.    Schwab's systems predominately support its
                       business as a broker-dealer.  Those systems will be the
                       subject of Year 2000 reports Schwab is required to file
                       under the Commission's recently adopted broker-dealer and
                       transfer agent Year 2000 reporting requirements.*  The
                       preparation of those systems for the Year 2000 is also
                       subject to examination by the Commission. As stated above,
                       as an investment adviser, Schwab has no assets under
                       management.  Moreover, its investment advisory activities
                       are entirely incidental to its business as a broker-dealer
                       and are virtually all of an impersonal nature.  Schwab's
                       investment advisory activities are not heavily reliant upon
                       computer systems, and the systems that support those
                       activities are the same systems supporting Schwab's broker-
                       dealer activities.  In addition to being redundant of
                       Schwab's broker-dealer Year 2000 reports, the inclusion of
                       that information would cloud the picture of CSIM's Year 2000
                       readiness Therefore, the inclusion in CSIM's Year 2000
                       reports of information about the year 2000 preparations of
                       Schwab's broker-dealer systems would serve no useful purpose
                       andand thereby may, in fact, decrease the usability of
                       CSIM's reports. [13] Schwab strongly recommends that the
                       Commission clarifyrevise the instructions to Form ADV-Y2K
                       reporting requirements for  to make clear that the term
                       "investment adviser affiliates." does not include advisers
                       that must file broker-dealer Year 2000 reports with the
                       Commission or that have no assets under management or that
                       render only impersonal advisory services.  At a minimum,
                       Tthe Commission could provide in the instructions to the
                       Form that only systems that support the adviser's or an
                       investment adviser affiliate's business as an investment
                       adviser are covered by the report.  Systems that support an
                       adviser's activities other than its advisory business would
                       not be covered.  The Commission could also address this
                       issue by allowing a SEC registered investment adviser
                       affiliate to voluntarily file its own reports on Form ADV-
                       Y2K in lieu of including information about the affiliate in
                       the reporting adviser's reports as otherwise required by
                       Instruction 2 to Part I.

                                      The Commission Should Clarify
                            Registered Investment Company Year 2000 Reporting

                            As proposed, Form ADV-Y2K would require advisers to
                       registered investment companies to complete Part II of the
                       Form with respect to those funds and certain other funds in
                       the same complex or family.  The questions of Part II track
                       fairly closely the questions of Part I, but they relate to
                       the fund as opposed to the adviser.  Although the
                       Commission's proposal acknowledges the external, third party
                       management structure of most investment companies, we
                       believe that, in may cases, the fund itself will have
                       neither the systems nor the compliance plans contemplated by
                       the proposed wording of the questions in Part II.
                       Therefore, Schwab recommends that the Commission clarify
                       Part II of Form ADV-Y2K to assure that the reports cover the
                       Year 2000 preparations of fund service providers whose
                       systems support fund operations.

                            We believe the following additional comments may
                       clarify certain aspects of Form ADV-Y2K.  First, the legend
                       at the bottom of the cover page of the Form should include
                       the word "willfully" following the words "Advisers Act" in
                       the first line, in order for it to accurately reflect
                       Section 207 of the Advisers Act.   Second, we note that the
                       first "check-box" of Question 1 (b) in Part I contemplates a
                       written plan, while (d) of that question asks whether the
                       plan is in writing.  Third, with respect to Question 2 (c),
                       (e) and (g) of Part I, we suggest that percentages of the
                       adviser's total annual budget allocated to its Year 2000
                       preparations might be more meaningful than the ranges of
                       dollar amounts of specific Year 2000 budget allocations
                       requested by the question as proposed.
                       Fourth, with respect to Question 5 of both Parts I and II,
                       regarding inventories of systems, we suggest that it may be
                       appropriate to ask advisers to identify their mission-
                       critical systems and those of the funds they advise.  This
                       identification could be by basic system type, such as
                       portfolio management, trading, accounting, etc.  Second, the
                       wording of Question 10(db) of Part I should be revised to
                       ask whether any vendor of a mission-critical system has not
                       provided assurance that it is undertaking the "steps it
                       reasonably believes are necessary" to prepare the system for
                       the Year 2000.

                                                           Conclusion

                            Schwab commends the Commission for its continued
                       leadership on the Year 2000 issue.  We join the Commission
                       in recognizing the importance of investment advisers and
                       investment companies to the American economy, and we
                       appreciate the Commission's efforts to encourage their Year
                       2000 preparations by proposing a generally balanced and
                       common sense reporting requirement.  Our comments are
                       intended to enhance the balance and practicality of
                       advisers' Year 2000 reports.

                       Sincerely,

                       CHARLES SCHWAB & CO., INC.


                       David E. Riggs
                       Vice President and
                       Senior Corporate Counsel

                       [cc:  Barry P. Barbash
                              Director, Division of Investment Management???]

                       **FOOTNOTES**

                [1]: SEC Release No. IA-1728; IC-23293; File No. S7-20-98 (June 30,
                            1998)(the "Proposing Release").

                [2]: Proposing Release at p. 2.

                [3]: Schwab believes that completing Part I and filing Form ADV-Y2K may
                     take many advisers longer than the two employee hours the Commission
                     estimates. See Proposing Release, Section VI at p. 6.

                [4]: See Letter from W. Hardy Callcott, Vice President and Deputy
                     General Counsel, Charles Schwab & Co., Inc., to Jonathan G. Katz,
                     Secretary, SEC, dated April 16, 1998. See also, Reports to be Made by
                     Certain Brokers and Dealers, SEC Release No. 34-40162; File No. S7-7-98
                     (July 2, 1998) (the "Broker-Dealer Release") and Year 2000 Readiness
                     Reports to be made by Certain Transfer Agents, Release No. 34-40163;
                     File No. S7-8-98 (July 2, 1998).

                 [5]: See the Broker-Dealer Release at Section III.B., p.7.

                 [6]: Proposing Release at p. 3.

                 [7]: See Proposing Release at n. 18 citing Securities Industry
                      Association Year 2000, available at
                      http://www.sia.com/year_2000/index.html.

                 [8]: Certain questions included in proposed Form ADV-Y2K call for
                      answers that are inherently forward-looking.  For example, Question 2 of
                      Part 1 asks for information about Year 2000 budget allocations for the
                      years 1999 and 2000.  Questions 7, 8 and 9 asks for percentages of
                      completion of various components of an advisers Year 2000 compliance
                      plan.  In light of the nature, complexity and scope of preparing for the
                      Year 2000, advisers can only make estimates of all of the steps and
                      tasks necessary to prepare.  As preparations proceed, the number or
                      scope of various previously identified steps or tasks will inevitably be
                      revised.  Therefore , percentages of completion of currently identified
                      preparatory steps and tasks are also inherently forward-looking and
                      uncertain.

                  [9]: The Commission's recent Interpretive Release providing guidance on
                       Year 2000 disclosure by investment advisers, among others, notes that
                       statements of Year 2000 readiness based on reasonable reliance on third
                       party statements and representations would be forward-looking. See
                       Statement of the Commission Regarding Disclosure of Year 2000 Issues and
                       Consequences by Public Companies, Investment Advisers, Investment
                       Companies, and Municipal Issuers, SEC Release Nos. 33-7558; 34-40277;
                       IA-1738; IC-23366; International Series Release No. 1149 (the
                       "Interpretive Release")

                  [10]:  As the Commission discussed in the Interpretive Release,
                         Investment advisers and investment companies have Year 2000 disclosure
                         obligations to their advisory clients and shareholders, respectively,
                         and potential liability attendant thereto separate from the proposed
                         reports on Form ADV-Y2K. See Interpretive Release, Section III.D. at p.
                         12

                  [11]: See Securities Act of 1933 Section 27A and Securities Exchange Act
                        Section 21E.

                  [12]: Schwab is registered as an investment adviser with the Commission
                        pursuant to Rule 203A-2 under the Advisers Act. Paragraph (c) of that
                        Rule provides an exemption from Advisers Act Section 203A(a)'s
                        prohibition on Commission registration for advisers controlling,
                        controlled by, or under common control with SEC registered advisers with
                        whom they share the same principal office and place of business. Schwab
                        is under common control with CSIM, which is registered with the
                        Commission, and they share the same principal office and place of
                        business.

                  [13]: Schwab's systems predominately support its business as a broker-
                        dealer.  Those systems will be the subject of Year 2000 reports Schwab
                        is required to file under the Commission's recently adopted broker-
                        dealer and transfer agent Year 2000 reporting requirements. See n. 4,
                        above.  Schwab does not conduct an investment advisory business separate
                        from its business as a broker-dealer.  The systems that support those
                        activities also support Schwab's broker-dealer activities.  Schwab has
                        no systems that would be covered by the inclusion of its systems in
                        CSIM's reports that will not be covered in Schwab's broker-dealer
                        reports.



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