Speech by SEC Staff:
|The SEC, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission or the staff of the Commission.|
The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed in this speech are those of the author, and do not necessarily reflect the views of the Commission or other members of the staff of the Commission.
Good afternoon. I am pleased to address the NAVA Regulatory Affairs Conference, once again. The theme for this conference, "Increased Competition in the Variable Product Marketplace: Managing Your Company's Risk," is quite timely.
When I spoke at this conference last year, the bull market had contributed to a great surge in the level of investment in variable products, with assets invested in variable annuities alone reaching almost $1 trillion. While the industry has enjoyed enormous success during the last several years, I am sure you have heard predictions by some that storm clouds are approaching for the industry. According to these prognosticators, the recent market downturn, declining cash inflows, tax code changes that may make variable products less compelling, and a handful of new or reformulated competing products spell trouble for the industry. While I do not believe these dire predictions, there is no denying that many firms have been squeezed by the market's recent volatility. With the market's downturn has come, in many cases, a leveling off of sales and declines in asset levels. This scenario has heightened competition in an already competitive industry.
Competition brings challenges to firms committed to doing the right thing. Just 15 years ago, there were 25 companies, offering 45 different variable annuities contracts. Today, there are approximately 65 companies competing with over 500 different products. Competitive pressure to bring new products to market quickly does not help with the careful and thoughtful preparation of clear and understandable disclosure documents and compliance planning. Intense competition sometimes yields aggressive marketing and advertising for both new and existing products and the search to find ways to increase broker compensation to generate sales, through "commission rate promotions" and other means. There are even reports that to gain market share, some companies are paying out more in commissions and other incentives than they can expect to recover from product fees. Decreasing revenues often result in cost-cutting measures, sometimes at the expense of a firm's legal compliance program. From our standpoint on the staff, we see a lot of companies out there trying to do the right thing. However, in these increasingly competitive times, it is a challenge to keep doing the right thing when an aggressive competitor engages in conduct that may be on or over the line. Regardless of any apparent success of such conduct, I think that it is imperative that participants in this industry not let a competitive environment spur a "race to the bottom". And I can assure you that one way or another, those crossing the line come to the attention of regulators.
Hopefully, we all can agree that the variable products industry's continued success is dependent on maintaining the trust that investors place in it. Your investors trust you to invest their money and to maintain their accounts according to the contracts' design as explained to them in the offering documents, and to do so for reasonable and fair fees. If the industry continues to deserve that trust, then it will prosper through and beyond the challenge of these current market conditions.
So with the theme in mind of "Maintaining Investor Trust", I would like to spend a few minutes this afternoon discussing recent developments that the staff has observed in the variable product arena, and highlight some of the regulatory issues that are high on our radar screen.
One area of concern for the staff is the high (and apparently increasing) level of exchange activity in the variable annuity market. Estimates suggest that as much as 40% of new sales of variable annuities are attributable to contract exchanges. Ten years ago only 8% of sales came from exchanges. Many of these sales are exchanges for so-called "bonus" annuities, which offer the investor an immediate credit equal to a percentage of purchase payments, and often involve higher contract expenses. This high level of exchange activity commands increased vigilance by the staff.
In particular, the staff is concerned about sales practices and the suitability of exchanges. The Office of Compliance Inspections and Examinations is continuing to scrutinize sales practices for bonus annuities, particularly in exchange transactions, and will refer appropriate cases involving abusive activity to the Division of Enforcement. Some of you may have noted the administrative proceeding brought by the Commission: In the Matter of Raymond A Parkins, Jr. In this case, the Commission charged the principal of an investment adviser and broker-dealer with fraudulently inducing his clients to exchange variable annuities by providing them with unfounded, false and misleading justifications for the switches. The Commission is alleging that the clients, as a result of the alleged fraudulent conduct, incurred unnecessary sales charges, and in some cases lost a portion of their investment principal, and that a broker-dealer affiliated with the adviser received commissions of more than $210,000 in connection with the switches.
Increasing competition for variable annuity business has led some insurers to undertake "asset retention" programs, designed to encourage a contract owner who might be considering exchanging a contract for one of a different issuer to instead stay in the contract or make an exchange into a new contract issued by the same insurer. We are concerned, however, that some of these asset retention programs result in exchange offers that do not comply with Section 11 of the 1940 Act. As you are aware, Section 11 generally prohibits an insurance company and other affiliated insurers from making an offer to its variable annuity contract owners to exchange their existing contracts for other variable annuity contracts issued by the insurer or its affiliates, unless the Commission has issued an order approving the terms of the offer, or the offer complies with Commission rules governing exchange offers. However, Section 11(a) exempts principal underwriters from its provisions as long as the offer made by the principal underwriter is to an individual investor done in the regular course of its retail business. This exception, otherwise known as the "retail exception," was intended to except individual offers from a broker to an investor, and was not intended to encompass issuer programs that encourage exchanges. Recently, the staff has learned that some insurers may be undertaking or contemplating initiatives designed to encourage exchanges from one variable annuity contract to another contract of the same insurer without obtaining the exemptive relief that Section 11 requires or complying with the applicable rules.
Last week, the staff issued a letter to the National Association for Variable Annuities, American Council of Life Insurers, and the Insurance Marketplace Standards Association, expressing our concern that some insurers may be interpreting the "retail exception" too broadly and outlining our views on the scope of the "retail exception." In particular, we listed ten factors that the staff will consider in determining whether an exchange offer is outside of the "retail exception."
We look at whether there is a plan or intention to promote exchanges from existing contracts into other contracts and whether, and how, an insurer dedicates staff and other resources to "asset retention" programs. We look at the insurance company's communications, including any direct communication with contract owners but also communications to brokers. We look at the amount and any changes in the amount of compensation paid to brokers in connection with internal exchanges and the amount of compensation in relation to the services that a broker performs in connection with an exchange. We also look at whether exchanges are offered on terms designed to encourage exchange activity, as well as the existence and nature of any marketing of a new contract or the availability of an exchange offer that is designed, or likely, to reach existing contract owners.
We caution that these factors are not intended to be an exhaustive list. Other factors may be important in determining whether a particular exchange offer falls within the "retail exception," and an insurer should consider all the facts and circumstances of the offer. As the letter emphasizes, whether or not an exchange offer falls within the "retail exception" cannot be determined by application of a "bright line" mechanical test.
We expect any insurer that relies on the "retail exception" to monitor its exchange activity on an ongoing basis to evaluate whether its actions fall within the "retail exception." Insurers should continually assess their communications with existing contract owners to determine whether they are providing information about new contracts or the availability of exchanges that may be inconsistent with reliance on the "retail exception." In addition, an insurer should monitor the overall volume and pattern of exchange transactions to assess whether they appear to be consistent with the "retail exception."
I urge you to review the letter carefully.
The staff continues to receive an increasing number of applications requesting approval for the substitution of underlying funds supporting variable products. But the change in this area is not just in the volume of applications submitted, but really a sea change in the nature of the applications. Until fairly recently, substitution applications typically were submitted by insurance companies that were facing unforeseen circumstances regarding an underlying fund that literally forced the company to make alternative arrangements. However, this is no longer the typical scenario. What we are seeing instead are proposed substitutions that are part of the insurance company's long-term business plans.
We look carefully at these applications to determine the impact the substitutions will have on contract owners. As was discussed during this morning's panel, the statutory standard for these applications requires us to find that the substitution is consistent with the protection of investors and with the purposes intended by the policy and provisions of the 1940 Act. In light of this standard, we are focusing on any aspect of a substitution that could disadvantage contract owners. We are focusing in particular on situations where the new substitute fund has higher advisory fees or 12b-1 fees that, absent a substitution, could not be imposed without a shareholder vote - and we are in some cases requiring shareholder votes for those types of transactions. We also focus on increases in expense ratios generally, and in appropriate cases require that expenses be capped at the level of the substituted fund's net expense ratio for up to two years.
In all of this, we have sought to develop a consistent approach to our review and disposition of these applications, and to have consistent standards for the imposition of conditions, such as shareholder votes or expense caps. However, as no two applications present precisely the same facts, we have also sought to be flexible and to adapt our analysis to each application as appropriate, realizing that a rigid or mechanical analytical model will not yield appropriate results in every case. Let me give you an example. Last year we had determined that in transactions involving funds affiliated with the insurance company, new 12b-1 fees or higher advisory fees should require a shareholder vote. Period. Then we got in an application for a substitution into a fund with a new 12b-1 fee, but where combined advisory and 12b-1 fees were still no higher than the advisory fee of the old fund. We took a hard look at our standards in light of the facts of this application, and we ultimately got comfortable that this substitution could proceed without a shareholder vote. I could give you several examples like this where our analytical model has evolved in response to the particular facts of new applications.
This is an evolving area. And while we are committed to protecting contract owners affected by any proposed substitution, we are not tied to inflexible standards for approval of these applications, regardless of the circumstances. We look forward to working with the industry and the private bar in a spirit of cooperation as we move forward in this area by addressing the transactions that are on the drawing board for this year and next.
I'd like to take a few minutes to discuss some recent disclosure issues. Variable products are difficult for the average investor to understand and they are becoming more complicated as the number of features and enhancements proliferate. It is in everyone's interest that we work toward clear and understandable disclosure. Both the Commission and the industry have identified a number of areas where disclosure improvements could help investors in variable contracts.
A. Form N-6
I know the first question in this area for many of you is - when can we expect the adoption of Form N-6? As you know, we are awaiting the arrival of a new Chairman of the Commission. I can say with confidence that the staff is finalizing the form with a view towards submitting it to the Commission for consideration shortly after the arrival of the new Chairman.
B. Form N-4: Accumulation Unit Values
Let me discuss a recent development affecting variable annuity disclosure. Recently, the staff has seen a rise in the number of annuity products that offer "unbundled" or optional features. These features include optional death benefits, guaranteed minimum income benefits and bonuses paid on purchase payments, among others. Registrants maintain that unbundled products are advantageous for investors because they provide more suitable options for investors and allow those investors to elect and pay for only those features that they want to be a part of their contract. When investors select one or more of these optional features, the investors pay specific charges that are added to the basic contract charge, and the charges are assessed against the assets of the particular separate account. Because contract owners may select one or more optional features in a variety of combinations which result in numerous possible combinations of contract charges, it has been pointed out to us that this method of pricing makes it difficult for registrants to provide useful disclosure about accumulation unit values in accordance with the requirements of Form N-4. Item 4 of the Form requires disclosure of condensed financial information for each class of accumulation units. In the context of an unbundled contract, this can result in a lengthy presentation of unit value tables in the prospectus, potentially overwhelming readers and obscuring other important information in the prospectus. This result is, of course, at odds with the staff's overall efforts to make prospectus disclosure concise and useful to investors.
In March of this year, the staff issued a no-action letter in which we agreed not to recommend enforcement action to the Commission if the prospectus for each of the insurance company's variable annuity contracts includes the unit value information required by Item 4(a) of Form N-4 only with respect to the classes of accumulation units corresponding to the highest and lowest combination of charges available under the contract. The insurance company will disclose accumulation units that reflect combinations of charges between the highest and lowest possible charges in the Statement of Additional Information, which would, of course, be available to investors free of charge upon request. The staff believes that this method of disclosure provides adequate information to investors in a usable format, whereas strict compliance with the form had yielded a great quantity of disclosure in the prospectus, perhaps at the expense of quality and usefulness.
C. Further Form N-4 Developments
I would also like to talk briefly about what you are likely to see in the future in the area of variable annuity disclosure. As some of you know, NAVA and its Prospectus Simplification Committee has submitted for the staff's consideration various innovative proposals for updating Form N-4 and the disclosure requirements applicable to variable annuities. It is now 16 years since the form was adopted, and the staff recognizes that the form is in need of a tune-up, if not a major overhaul, in light of the numerous product innovations during those years.
A few of the NAVA recommendations that we are considering are:
The staff will also be looking at ways in which the Form can elicit better disclosure about immediate annuities. I think we are all in agreement that in certain ways the Form is ill-suited for these products, in that it calls for disclosure regarding the accumulation phase of a contract, which is at odds with the very nature of an immediate annuity. The staff looks forward to working with NAVA and others as we craft better, more useful and more understandable disclosure for variable annuity investors.
Advertising is another important area that is commanding the SEC staff's attention, as well as the attention of NASD Regulation. NASDR recently brought six enforcement actions against firms for the improper marketing and sale of variable annuities. One of the cases included allegations involving misleading and unbalanced advertising and sales literature that failed to adequately disclose that variable contracts purchased in tax-deferred plans provide no additional benefit to the customer and use of a web-site that implied that tax benefits in tax-deferred plans are only available if they are funded with an annuity contract. Our examination staff is also paying particular attention to variable product marketing material on inspections.
Observers have noted that the amount spent for advertising for investment products increased during the year 2000. That surprised industry observers because advertising usually declines in market downturns. Observers have also noted that more and more advertisements rely on performance claims. We are pleased to see advertisements that, while including performance numbers, also alert readers to market volatility and refer readers to web sites and other sources for more current performance numbers. We believe these types of disclosure put performance numbers in an appropriate context and serve to temper unrealistic expectations about performance.
We are actively considering revisions to our advertising rules and exploring how to promote the use of more current performance information. Rule 482 requires that total return information be calculated as of the most recently completed calendar quarter. Should this calculation be as of the most recently completed month end, or the most current date practicable, to promote currency of the information? Much more information is available to investors today about year to date performance of variable products and funds, through newspapers and company websites. Should ads be required to refer investors to this more current information? In any event, our goal will be to seek to promote balance and responsibility in product advertising.
As many of you are aware, the staff prohibits the presentation of related fund performance in a prospectus for a variable annuity product, although we permit it in the underlying fund prospectus, subject to the standards set forth in the relevant no-action letters in this area. NASD Regulation, on the other hand, generally has prohibited the use of related fund performance, except predecessor performance, in sales material for funds and variable products alike. We understand that many in the industry take issue with the staff's position on the use of related fund performance information, and this issue has come up recently in the context of proposed amendments to the NASD Regulation's conduct rules in this area. The staff looks forward to a productive dialogue with the NASDR and the industry regarding the various uses of related fund performance information.
A. Portfolio Schedules
As far as underlying funds are concerned, we continue to study how to simplify and improve shareholder report and financial statement presentations. We know that many of you in the industry are concerned with portfolio schedule requirements, because you are required to deliver multiple disclosure documents, which sometimes are quite voluminous by virtue of the portfolio schedules, particularly when a contract offers multiple investment options. In that regard, we are considering proposals to allow improved and better-focused portfolio presentations. Perhaps a summary portfolio schedule, in lieu of a full schedule, which highlights a fund's major holdings, would be more useful to the average investor. If investors want the entire schedule, they could request it, and it could be forwarded promptly. We are also considering whether tables, charts or graphs depicting a fund's holdings by identifiable categories, such as industry sector, geographic region, credit quality or maturity would convey important information to investors disinclined to read through a standard portfolio schedule.
Many of you know that the staff has received several rulemaking petitions asking us to review the frequency with which portfolio holdings are disclosed. We are considering these in light of the needs and desires of various types of investors to have this type of information on a more frequent basis, and we will also consider any adverse impacts that may be caused for the funds, such as facilitating "front-running" or compromising investment strategies.
B. Fund Fees
Mutual fund fees in general have been an area of recent focus by the Commission. At the end of last year, the Division released a report on mutual fund fees and expenses. The report describes the legal framework with respect to mutual fund fees, analyzes how fees have changed over time, identifies factors that may influence the current level of fees, and recommends initiatives that are designed to improve the oversight of fund fees and the disclosure that investors receive regarding fees. Our goal in conducting the study was to provide objective data describing trends in mutual fund fees that would be useful to the Commission and the Congress in overseeing the mutual fund industry and to others focusing on the effect of mutual fund fees on investor returns. Our hope is that the report will contribute to the public dialogue about mutual fund fees and thereby help to educate investors on the impact that fees have on their investment returns.
Our report came on the heels of a report on mutual fund fees issued last summer by the General Accounting Office at the request of Congress. Both our report and the GAO report concluded that mutual fund investors could benefit from additional information regarding mutual fund fees so as to heighten their awareness and understanding of these fees and their effects. The GAO recommended that the SEC require mutual funds' quarterly account statements to include the dollar amount of each investor's share of operating expenses. The GAO Report acknowledged, however, that there are advantages and disadvantages to this recommendation and suggested other alternatives for enhancing investor awareness and understanding of fund fees, in view of the additional costs and administrative burdens of such an approach. Recognizing that the compliance cost associated with a new personalized expense disclosure requirement would ultimately be borne by fund shareholders, and may be considerable, we embraced one of the GAO's alternative suggestions, namely, disclosure of the dollar amount of fees paid for standardized investment amounts. As we discussed in greater detail in our report, we believe that this alternative is likely to achieve the most favorable trade-off between costs and benefits.
While the staff recognizes that fund quarterly account statements are an important source of information, and are provided more frequently than shareholder reports, we nonetheless believe that placement of additional fee information would be more appropriate in semi-annual and annual shareholder reports, alongside other key information about the fund's operating results, including management's discussion of fund performance. This alternative would allow shareholders to evaluate the costs they pay against the services they receive and encourage investors to consider information about the dollar amount of fund fees in their decision-making process.
C. Short-Term Redemption Fees
The staff also is very aware of the problems that arbitrageurs and market-timers cause funds and their long-term shareholders, and we are sympathetic to funds that try to discourage market timers from using their funds as trading vehicles. Market timers can force portfolio managers to either hold excess cash or sell holdings at inopportune times in order to meet redemptions. This can adversely impact a fund's performance, increase trading and administrative costs and harm long-term shareholders. Indeed, the tax deferred status of variable products eliminates one of the disincentives to market timing and short-term trading that otherwise exists for investors in funds, which is the realization of capital gains from the funds on a current basis.
One measure being instituted in response to this problem is the imposition of redemption fees. Studies indicate that the number of fund companies imposing such fees has increased over 80 percent since 1999. We understand that some funds underlying variable product separate accounts are taking steps to impose redemption fees for contract owners who transfer amounts among sub-accounts on a short-term basis according to market timing strategies. This phenomenon raises interesting issues because of the relationship between the underlying funds and the separate accounts that invest in the funds. Because the separate account is the actual owner of the fund shares, the fund is not in a position to impose a fee directly on a contract owner that is engaged in short-term
trading among subaccounts. Indeed, the fund generally is unable to ascertain what portion of a net purchase or redemption order from a separate account comprises redemptions from contract owners of units in a subaccount that have been held for a short time. So, although a redemption fee geared to market timing is properly a fund level fee, the proceeds of which remain in the fund, the insurance company nevertheless must be able to determine the amount and enable the fund to collect the fee. Obviously, this raises logistical challenges for the fund and the insurance company in addition to the regulatory and disclosure issues that must be addressed in structuring any fee of this type in the context of variable products. Because this is new ground, we encourage any company considering such an arrangement to pay careful attention in crafting disclosure for the product as well as the fund prospectus, and to expect a keen interest on the part of the staff in the disclosure review process. In that regard, we are more than willing to work with registrants to resolve regulatory and disclosure issues. Please do not hesitate to contact the staff when formulating one of these arrangements, so that we may work together to resolve those issues early on.
I would also note that while we haven't seen sufficient justification to change our general policy of capping redemption fees at 2 percent, we have shown some flexibility in that policy when special circumstances warranted. We are receptive to innovative ideas to deal with the problem of market timers.
D. Fair Value Pricing
An area that is fundamentally important to the industry in maintaining investor trust is in the area of valuation and pricing. As you know, valuation is extremely important for mutual funds because they must redeem and sell their shares at net asset value. If underlying fund assets are incorrectly valued, separate accounts will pay too much or too little for their shares, and this will consequently result in inappropriate unit values. In addition, the over-valuation of a fund's assets will overstate the performance of the fund, and will result in overpayment of fund expenses that are calculated on the basis of the fund's net assets, such as the fund's investment advisory fee.
The Investment Company Act requires funds to value their portfolio securities by using the market value of the securities when market quotations for the securities are "readily available." When market quotations are not readily available, the 1940 Act requires fund boards to determine, in good faith, the fair value of the securities.
It is important that appropriate operational procedures and supervisory structures be in place with respect to both "market value" and "fair value" determinations. Funds typically obtain most of their pricing data from third party sources, such as pricing services and dealers. But even prices provided by third parties should be subject to appropriate controls. Controls should be incorporated at each level of the valuation process. Periodic crosschecks of prices received from pricing services should be conducted. These crosschecks should generate red flags when there are questions regarding the reliability of prices.
I recognize that some circumstances can make fair valuation difficult and I hear a lot of comments to the effect that the industry needs more guidance from the Commission on this topic. It has always been my goal as Director, and the goal of our staff, to help funds avoid problems instead of just looking for them after-the-fact.
At the end of April we issued a letter to the ICI that provides guidance on firms' obligations to fairly price foreign securities. This letter follows up on our December 1999 letter on valuation related issues. This new letter focuses on the need for funds to avoid dilution of its long-term shareholders by those seeking arbitrage opportunities that may arise when significant events occur in foreign markets. Funds generally calculate their net asset values by using closing prices of portfolio securities on the exchange or market on which the securities principally trade. Many foreign markets however operate at times that do not coincide with those of the major U.S. markets. As a result, the closing prices of securities that principally trade on foreign exchanges may be as much as 12-15 hours old by the time of a Fund's NAV calculations and may not reflect the current market value of those securities at that time. In particular, the closing prices of foreign securities may not reflect their market values at the time of a fund's NAV calculation if an event that will affect the value of those securities has occurred since the closing prices were established on the foreign exchange, but before the fund's NAV calculation. Dilution of the interests of a fund's long-term shareholders could occur if fund shares are overpriced and redeeming shareholders receive proceeds based on the overvalued shares. The risk of dilution increases when significant events occur because such events attract investors who are drawn to the possibility of arbitrage opportunities. Fair value pricing can protect long-term fund investors from those who seek to take advantage of funds as a result of a significant event occurring after a foreign market closes. The letter highlights a fund's obligation to monitor events that might necessitate the need to use fair value pricing to protect fund shareholders.
E. Portfolio Pumping and Window Dressing
We are also concerned about two practices that apparently go on to some extent in the investment management area - "portfolio pumping" and "window dressing". Portfolio pumping is the practice of increasing a fund's stake in portfolio securities at the end of a financial period solely for the purpose of fraudulently driving up the NAV of the fund. Academic studies have suggested that the practice goes on in the fund world.
Our Office of Compliance Inspections and Examinations formed a task force to look into the practice. The Task Force analyzed trading data of various registrants that might indicate manipulation. Earlier this month, the Commission filed fraud charges against a hedge fund manager alleging market manipulation and portfolio pumping. Among other things, the Commission charged that the investment manager manipulated the value of the common stocks of an OTC bulletin board company in which the hedge fund held an interest at the end of each month during the last five months of 2000. The Commission also alleged that the investment manager caused approximately $2.4 million in fund redemptions to be made at inflated values for its benefit and to the detriment of the fund's other investors.
We also are concerned about the misleading practice known as "window dressing". Here, advisers buy or sell portfolio securities at the end of a reporting period for the purpose of misleading investors as to the securities held by the fund, the strategies engaged in by the advisers or the source of the fund's performance. For example, an adviser may cause the fund to hold significant positions in securities that are not permitted under the fund's disclosed investment objectives. As the reporting period draws near, the adviser liquidates these positions to come into compliance with its stated objectives. OCIE is examining trading patterns to detect violations in this area. We view this as an antifraud violation. Investors are misled if they are told that the fund is investing consistent with prospectus disclosure when it is not.
Window dressing may also occur when an adviser replaces investments in otherwise permissible securities with investments in high performers just before the end of a reporting period to make it appear as though the adviser had a winning hand.
We hope that funds have appropriate controls in place to prevent these abusive practices.
In my opening remarks, I cautioned you against finding yourself in a "race to the bottom," with reference to competitors that may not adhere to investor protection principles. Other segments of the insurance industry are being tarnished as they abuse their positions of trust. While most insurance agents are law-abiding professionals, a growing number are becoming involved with fraudulent schemes involving promissory notes, pay phone and ATM scams and viatical settlements. Investor losses in promissory notes, viatical settlements, and automated teller machines have totaled more than $2 billion dollars in the past 5 years. In addition to actions brought by the SEC to curb these fraudulent schemes, state securities regulators recently took enforcement actions against more than 1,100 insurance agents. The variable products industry can't afford to be tarnished in this manner. I encourage each of your companies to seek the high ground when it comes to product design and features, fee levels, the marketing and sales of your products and the training of those selling your products. Maintaining high standards in these areas will result in recognized value for your customers, maintain their trust and minimize your company's litigation and enforcement risks.
Let me close by encouraging the continuation of a tradition - a tradition that has evolved over the years between the SEC and the variable products' industry, that is a tradition of holding each other to the highest possible standards. Although we may differ on some issues from time to time, I am pleased that we have continued to work together and focus on the larger objective - maintaining the public confidence in the integrity of the variable products industry. During this period of increased competition, I am certain that we can preserve this tradition.
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