Subject: File No. 4-606
From: Gary L. Watkins
Affiliation: President, Banyan Capital Management

August 24, 2010

Following is excerpted from a letter sent to our mailing list friends and clients on or about April 29, 2010:

News over the recent past has been dominated by various legislative initiatives in Washington. It is on this subject I would like to speak with you. In particular I would like to focus on the financial regulatory reform bill currently winding its way through the sausage grinder. While all of my concerns about this pending legislation are too numerous to chronicle in a brief letter, I would like to spotlight the investor protection piece for discussion.

In its current incarnation, the proposed legislation would create a new bureaucracy to serve as a watchdog to protect the interests of investors. History shows such federal government offices actually accomplish little toward such a mandate and mostly serve as cover for spineless politicians unwilling to do that which is truly meaningful. One simple rule change, found in the original bill but removed in the most recent version, could have made a significant difference in protecting investors. However, that change quickly found its way to the cutting room floor due to lobbying by the brokerage and insurance industries. Allow me to explain.

Currently there are differing standards of conduct for those operating in the financial services industry. On the one hand, money managers are held to a fiduciary standard whereby they are required to put the interests of the client ahead of any other consideration. Under this arrangement the provider of financial services must alert prospective clients in advance and in writing to their compensation structure. This written notice also describes any conflict of interest that might be present and chronicles any regulatory history the provider or its principals may have. Banyan Capital Management is regulated to this standard. On the other hand, brokers, bankers, insurance agents and the like who sell securities are only held to a suitability standard in dealing with their clients. This allows securities salesmen to put their interests, their firms' interests or that of a mutual fund company ahead of their client as long as the investment is "suitable".

Securities salesmen are also not required to notify prospective clients of their regulatory history. On rare occasions we have allowed securities salesmen to call on Banyan. As part of our normal due diligence, we reviewed the regulatory history of these salesmen on behalf of our clients. Over the past several years we have found salesmen who pled guilty to a felony, pled guilty to participating in a ponzi scheme and one person who was actually pleased to have only been sued three times by his clients. Needless to say, we did not enter into a business relationship with those individuals. It is mindboggling that salesmen such as these can continue to work in the financial services industry without being required to inform people of their regulatory history.

To be fair, many securities salesmen do operate honorably within a conflicted environment. It is a shame that lobbyists for securities sellers do not want to require that brokers meet the higher fiduciary standard. In fact, lobbyists have been successful in getting this provision removed from the financial reform bill. Reintroducing a provision to hold financial industry salesmen to a fiduciary standard would do more to protect investors than anything else and would save the cost of another layer of bureaucracy.

As you can see, I have copied the two Senators from our state and our Representative in the House on this letter to apprise them of my perspective on this subject. It would be welcomed by all true investment professionals if Washington were to actually do something that matters for investors. I'm afraid the opportunity to do so may be missed yet again on this occasion.


Gary L. Watkins

Douglas E. Ott, II
Portfolio Manager

CC: The Honorable Saxby Chambliss
United States Senator

The Honorable Johnny Isakson
United States Senator

The Honorable Tom Price
Member, United States House of Representatives