Speech by SEC Staff:
|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 herein are those of Mr. Roye and do not necessarily reflect the views of the Commission, the Commissioners, or other members of the Commission's staff.|
Thank you and Good morning. I am pleased to be invited again to your General Membership Meeting. Even though the program indicates that I am to give the report of the Securities and Exchange Commission, I am required to state that my remarks this morning, represent my own views and they may not represent the views of the Commission or my colleagues on the staff.
I have always been impressed that at your annual meetings you honor journalists for their excellence in personal finance reporting. Even though the financial press can sometimes be critical of the mutual fund industry (and yes also the SEC), these awards demonstrate that the industry has a respect and appreciation for the important role that these journalists play in reviewing, analyzing and critiquing the industry. Moreover, a key component of protecting investors is educating them. While the ICI and its members have made and continue to make significant efforts to educate mutual fund investors, as exemplified by your Investing for Success Campaign, you are not able to reach investors with the immediacy and in the sheer numbers, that is possible with the financial press. The personal finance press provides a valuable service for America's investors in addressing and educating investors on topics of interest regarding mutual funds and is typically at the forefront of identifying innovative trends and issues in the industry. They are an important check on us, the industry and the regulators, and it is appropriate that you honor the best in their field.
I hope the past few days of your meeting have been useful and productive for you. The theme of this year's conference "Continuing a Tradition of Integrity Navigating the Changing Landscape" is particularly timely. During this conference, you have focused on issues such as competition, globalization, the implications of new technology and legislative developments, all of which are major factors affecting the business environment in which the mutual fund industry operates. These forces not only impact your business, but they also often require reactions and responses from regulators, some of which I will discuss this morning.
Over the decades, the mutual fund industry has been remarkably resilient, navigating varying economic conditions, the ups and downs of the market, and challenges from old and new competitors. The mutual fund industry has been able to avoid the scandals that have plagued some in the financial services industry because the industry's "compass," as it has navigated through a changing environment, has been largely focused on its fiduciary obligations, and honest and fair dealings. Indeed, maintaining this tradition of integrity, in large measure, has been the mutual fund industry's prescription for success. What is the reward for maintaining this tradition? Today, the mutual fund industry is the principal trustee of the nation's savings, with over $7 trillion of assets under management; more than double the amount on deposit at commercial banks.
Your mission statement for this General Membership Meeting is reflective of another reason that the mutual fund industry has thrived over the years. The mission statement provides that the meeting "address issues central to the industry's continuing commitment to meeting the needs of the investing public." The statement further stresses that the program should explore topics "essential and timely to the investor and thus core to fulfilling [your] responsibilities as an industry." This recognition by the mutual fund industry of its responsibility to investors is one of its keys to success and one of the navigational tools that will guide the industry through any swift currents of change that may lie ahead.
This morning I thought I would discuss some of the challenges facing the industry in a sobering market environment, issues that are essential to maintaining investor confidence in the industry, and matters that I hope the SEC can address, that I believe are important for investors and to improving the mutual fund regulatory framework.
While the mutual fund 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 and a handful of new or reformulated competing products may sink the industry. For many reasons, I do not believe these dire predictions. I agree with those who view the fact that half of all American households own mutual funds as an indication of opportunity, not as a sign of market saturation. Just a couple of days ago I read about a recent study that concluded that two market segments women and generation xers represent significant growth opportunities for financial services firms, but are being relatively neglected. Moreover, many of the baby boomers will increase their savings during the next ten years as they prepare for retirement.
There are clearly some who see bright prospects for the U.S. fund industry. This is exemplified by the fact that many foreign firms are actively seeking to acquire U.S. money managers. As of June 30, 2000, firms headquartered outside the U.S. owned more than 130 advisers to U.S. investment companies. These advisers managed $1.1 trillion (or 15 per cent) of the $7.6 trillion in U.S. investment company assets. During the year 2000 alone, European banks and insurance companies acquired nine U.S. advisers with assets under management in excess of $200 billion.
In fact, when I reflect on the unique strengths and advantages that mutual funds offer investors, I believe the industry is ideally suited to weather any future storms in the financial services industry. I am however concerned that some funds could go astray by taking tempting shortcuts that could court disaster in the long run.
There is no denying that many fund management firms have recently been squeezed by the market's recent volatility. To match the explosive growth of the industry in the 90s, the industry hired more service staff, sales representatives, marketing and compliance personnel, analysts and portfolio managers, at a furious pace. But the drop in assets at some firms has now resulted in salary freezes, downsizing, job cuts, and outsourcing of key functions such as accounting and transfer agency services. Clearly, mutual fund management companies have responsibilities to their shareholders as well. Undoubtedly some job cutting is unfortunately warranted and I am sure that some jobs can be cut without seriously compromising shareholder services. To the extent that expenses can be cut without such compromises, fund shareholders should be no worse off. And in fact many of the reports of job cuts note that some have been made as part of firms' increased use of technology and automation of shareholder services.
However, I want to caution you to be judicious when considering job cuts and reducing budgets dedicated to compliance and internal controls. My colleagues in the Division of Market Regulation tell me that at many brokerage firms, the first layoffs often occur in areas that aren't profit centers, like legal and compliance departments. But I am also told that these actions can create some serious headaches for those firms farther down the road.
Cutting corners in the legal and compliance area could spell disaster for some in the fund industry. Compliance problems can sink a firm. There are numerous examples of firms in the securities business who have not devoted proper attention and resources to their legal and compliance responsibilities and internal controls who do not exist today. I fear that at some firms, the order is full speed ahead, creating new funds, new products without the proper controls and compliance systems in place. The Titanic was equipped with too few lifeboats, the steel in the hull was too brittle and the captain continued at full speed even when warned of icebergs in the North Atlantic shipping lanes. The resulting disaster claimed 1,500 lives. The movie, Titanic, presents the version of the story in which the lookouts did not see the iceberg in time to do anything about it. But there are some who claim that the officer in charge had enough time to kill the engines and prevent the disaster. However, it is claimed by some that he mistakenly thought he could save time by steering around the tip of the iceberg with the engines still running. The problem was that about 90 percent of an iceberg is underwater. The officer steered around the smaller portion of the iceberg that was visible, but he failed to consider the underwater portion of the iceberg, which ripped through the Titanics's hull. The Titanic sank with only 12 square feet of its total area damaged by the iceberg, but the damage was in a critical area. Before the Titanic even struck the iceberg, it had received a total of seven iceberg warnings from other ship's wires. These warnings, all within 24 hours of the disaster, indicated that the Titanic's route posed abnormally high risks, due to the presence of atypical ice floes. These risks were ignored and not addressed. I'm sure now that I have drawn the comparison of the risks undertaken by the Titanic and the risks with cutting back on compliance, your eyes are glazed over and you've begun to view me up here as hanging over the rail much like Leonardo Dicaprio in the movie. However, you should realize that, like the Titanic, firms that cut it too close to the edge often pay a price and sometimes lack of attention in what are seemingly inconsequential areas can lead to disastrous consequences. At one time, when E.F. Hutton talked, people listened. However, it is claimed that legal and compliance problems led to the downfall of this once major securities firm. In other words, compliance should be priority one not an afterthought.
As a difficult market environment has lead to a reduction in cash flows and reductions in levels of assets under management, management company profit margins are being squeezed. In some cases, fund distributors are having difficulty generating enough revenue from 12b-1 fees to recoup money they fronted or borrowed to pay brokers commissions on the sale of fund shares. With asset levels down, it can be difficult for fee inflows to match borrowings. We see firms looking for ways to not only reduce expenses, but to shift expenses and generate additional revenues through fee increases and other measures. It is incumbent on fund managers and mutual fund directors to evaluate the appropriateness of fee increases and to insure that they are justified. Moreover, in a down market, investors are more likely to pay attention to fee levels, since they may not be masked by positive performance numbers.
In the past, the Commission has seen isolated cases of investment adviser's overreaching clients to generate additional revenues, such as favoring performance fee-paying clients over its other clients in the allocation of trades. Or the use of soft-dollar arrangements in impermissible ways to pay for certain undisclosed expenses, including personal travel, and non-research related expenses of the investment manager; and the direction of brokerage-to broker-dealers on an undisclosed basis for the paying of higher than normal commissions in exchange for client referrals or kick-backs from broker-dealers executing client transactions. Again, these problems have been isolated in the mutual fund area and we hope that the pressures of a difficult market do not cause mutual fund managers to engage in these types of prohibited practices.
As many mutual fund managers look to generate revenues by expanding into other areas of the investment management business such as offering private accounts or sponsoring and advising hedge funds and other alternative investment vehicles, they should be mindful that certain of these new opportunities raise conflict of interest issues and the potential for abuse.
Management arrangements for hedge funds can be structured to enable portfolio managers to participate directly in the profits generated by the funds that they manage. The conflicts in these arrangements result from the differing fee structures of hedge funds and mutual funds, and the fact that greater profits can be earned by the adviser from the performance based compensation of a hedge fund. The differing fee structures create a risk of favoring a hedge fund over a mutual fund when allocating trades. Conflicts can also arise when a hedge fund effects short sales of securities, if such securities are held long by mutual funds managed by the same advisory firm. Such trades could adversely affect long positions held by mutual funds. Or mutual fund trades could be used to benefit a hedge fund, when mutual fund long positions are sold after the hedge fund sells the same security short. We expect firms to have compliance procedures in place to address these concerns.
We also are monitoring carefully those mutual funds that are using hedge fund type strategies, such as short selling, the aggressive use of leverage and derivatives. The Investment Company Act imposes limits on the use of these strategies.
We all agree that the mutual fund industry's success is dependent on maintaining the trust that fund shareholders place in it. Your investors trust you to research and identify investment opportunities, they trust you to invest their money according to the fund's stated investment objective and policies without regard for various potential conflicts that could profit the advisory firm at their expense, they trust you to accurately value their investments, and they trust you to do all of that for a reasonable and fair fee. And if the fund industry continues to deserve that trust, then it will sail through any storm on the horizon.
An area that is fundamentally important to the industry continuing its tradition of integrity 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 to the public at net asset value. If fund assets are incorrectly valued, fund investors will pay too much or too little for their shares. 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.
Fund management should ensure that appropriate operational procedures and supervisory structures are 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.
Unfortunately, the Commission has recently had to seek a receiver for three funds as a result of valuation issues. In SEC vs. Heartland Group, Inc., the SEC filed a complaint in federal court and obtained an order of permanent injunction against the Heartland group enjoining them from violation of the Investment Company Act. The order also freezes the assets of these mutual funds and provides for the appointment of a receiver to take control of the assets of the funds, manage the funds, suspend redemptions in the funds and, if appropriate, liquidate the funds.
Specifically, the Commission's complaint alleged that the Heartland Group failed to send an annual report for three funds' to shareholders, and failed to file the report with the Commission in the time allotted under the federal securities laws. The Commission's complaint further alleges that the failure was due to Heartland Group's inability to obtain audited financial results for the three funds for fiscal year 2000, due to Heartland Group's independent public accountant's concerns regarding the underlying valuations of the securities held in the funds. The complaint further alleges that while the auditors had commenced an audit of the funds, they stated that they would disclaim any opinion as to the value of the securities held by the funds during fiscal year 2000. As a result, shareholders of the funds were being deprived of statutorily required fundamental financial information upon which they could base a decision to remain invested, or to redeem shares in the funds.
I am sure that everyone in this room would agree that whatever it costs to maintain adequate personnel and systems to prevent that kind of result is money well spent. 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. Three weeks ago 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.
I highlight this valuation issue to emphasize the importance of your responsibility to diligently value your funds appropriately, but also to let you know that we are very aware of the problems that arbitrageurs and market-timers cause funds and their long-term shareholders. 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 in order to meet redemptions. This can adversely impact a fund's performance; increase trading costs, increase shareholders' tax liabilities and harm long-term shareholders. I would 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 of how to deal with the problem. No one questions the right of funds to turn away additional investments by shareholders who have been identified as market-timers. Approaches worthy of further consideration to curb market timers include involuntarily redeeming those determined to be market timers and delaying the exchange orders of market timers.
We continue studying how to simplify and improve shareholder report and financial statement presentations. I believe that management's discussion of fund performance can be improved and should be mandated in the shareholder report. We are also taking a hard look at disclosure of fund portfolio holdings, with the goal of improving the quality of portfolio schedule information. Would a summary portfolio schedule, in lieu of a full schedule, which highlighted a fund's major holdings be more useful to the average mutual fund investor? If an investor wanted 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. Should we exempt certain funds such as index funds and money market funds from portfolio schedule requirements altogether?
As I am sure many of you know, we have received several rulemaking petitions asking us to review the frequency with which portfolio holdings are disclosed. Our consideration of this issue requires us to balance the needs and desires of various types of investors, against imposing undue burdens or causing adverse impacts on funds, such as facilitating "front-running" of the fund or compromising their investment strategies.
We are also exploring in the context of shareholders report improvements, the issue of making mutual fund fees more transparent to investors. Both our SEC Staff Report on mutual fund fees in December 2000 and the General Accounting Office ("GAO") Report on fees in June of 2000 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 mutual 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 discussed more fully in our Report, we believe that this alternative is likely to achieve the most favorable trade-off between costs and benefits.
While we recognize 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 shareholder reports, alongside other key information about the fund's operating results, including management's discussion of fund performance. This 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.
Fund advertising is another important area that I believe firms need to navigate very carefully. In the year 2000, it is reported that mutual fund companies spent $515 million on advertising 22 per cent more than they spent in 1999. That surprised industry observers because fund advertising usually declines in market downturns. Another trend that these observers noted is that more ads relied on performance claims. We are pleased to see fund ads these days 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 are constructive for both investors and fund companies and put performance numbers in an appropriate context, serving to temper unrealistic expectations about fund 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 current fund year-to-date performance, through newspapers and fund websites. Should fund advertisements be required to refer investors to this more current information? In any event, our goal will be to seek to promote in these rule amendments, balance and responsibility in fund advertising.
I mentioned the Titanic earlier. It was the technological marvel of its age the largest, most luxurious ship built up to that time thought to be unsinkable. The century was still relatively new and there was an almost unquestioned acceptance of new technology. Indeed, when it came time to abandon ship many people refused to get off, thinking the Titanic was safe from sinking. New technologies like the Internet have created new opportunities but also resulted in traps for the unwary, as evidenced by the number of Internet securities fraud actions brought by the Commission.
The Internet has spurred a flurry of new products and ways of offering and delivering investment products and investment advisory services. It is incumbent upon regulators to understand these products and monitor their compliance with the federal securities laws.
A. Web-Based Products
The development of so-called web-based baskets of securities has caused some concern in the mutual fund industry. The ICI has submitted a rulemaking petition asserting that certain of these products are unregistered investment companies. We are analyzing how these products fit within the federal securities laws. That analysis is principally focused on two issues. First, are these products investment companies as the ICI argues? For us, the answer to that question hinges on whether these products constitute the creation of new securities and result in the creation of an investment company within the statutory definitions. We are not persuaded by arguments that because a product competes directly with mutual funds it should be regulated as a mutual fund. Our determination must be based on our analysis of the statutory provisions defining investment companies.
An issue with some products is whether the promoters of the products should be registered as investment advisers. While some are registered as broker-dealers, there is some amount of advice inherent in creating the baskets of securities that they offer. If that advice is more than incidental to their brokerage business, then they will have to be regulated as investment advisers. We are reviewing how these various products operate and want to make sure they are operating in the appropriate regulatory box.
B. Exchange Traded Funds
We are also focusing on the latest developments in exchange-traded funds, which surged in growth last year. Some 80+ ETFs currently trade on the AMEX, totaling over $65 billion in assets. And during the 4th quarter of 2000, the $26.8 billion that flowed into ETFs nearly equaled the $29.6 billion that went into mutual funds. Each of the products approved thus far has been based on an equity securities index. We currently have pending an application for a bond index ETF and there are those trying to figure out how to structure an actively managed ETF. The prospect of actively managed ETFs raises many issues including how to achieve enough transparency of the Fund's portfolio to permit the arbitrage discipline to function so as to keep the market price of shares close to the fund's net asset value. I anticipate that the Commission will soon publish a concept release regarding actively managed ETFs. Our goal will be to generate comments so we can gain a better understanding of the various perspectives on the issues surrounding actively managed ETFs. We then will be able to better evaluate any proposals for these types of products as they are presented to us through the exemptive process on a case-by-case basis.
Let me turn to the Titanic again. Everyone knows that the Titanic did not carry enough lifeboats to rescue all the passengers on board. What is less well known, which I learned from that great American historian, Barry Barbash, is that the Titanic had four more lifeboats than was required by regulations of the British Board of Trade, which regulated the safety standards of these passenger liners. The Titanic was subject to regulations that were last amended in 1894 (some eighteen years prior to the disaster), adopted well before ships of the Titanic size were built. According to explanations at that time, the British Board of Trade thought there was no need to revisit these regulations, as the sea lanes were so busy any distressed ship would be within easy rescue of another ship. Clearly regulators must keep up with changes in the industries they regulate. There is also a lesson here that illustrates the benefits of best practices that go beyond legal requirements. It apparently never dawned on the operators of the Titanic that the largest and safest ship in the world, would ever need to use its lifeboats.
As the financial services industry undergoes consolidation on a global scale, we are increasingly being called on to keep up and provide flexibility in the area of affiliated transactions. As we have in the past, we remain open to dealing with a variety of issues relating to transactions between funds and their affiliates on a case-by-case basis through exemptive orders. We recognize that there are areas where the restrictions on affiliated transactions no longer make sense, or that with the appropriate conditions and safeguards should be allowed to proceed. To the extent possible, we have also tried to provide flexibility with regard to affiliated transactions through the no-action and interpretive letter process. We have been asked by some to look at the possibility of expanding the scope of existing rules and the adoption of new rules to provide additional relief in this area. But any rule amendments in this area must first recognize that Section 17 is the heart of the '40 Act and any changes must be tested against the possibility of abuse and cannot compromise investor protection.
One last topic that I wanted to discuss was the Commission's recent adoption of requirements that funds disclose their after-tax returns. Last year, funds paid a record $345 billion in capital gains distributions. That number was up 45 per cent from 1999 when shareholders actually paid $42.7 billion in taxes on fund distributions. Of course many shareholders were upset at receiving taxable distributions from a fund that was down for the year partly because many investors do not understand how fund distributions are taxed many of them got a painful lesson on the subject last month.
It is estimated that every year, distributions reduce investors reported returns by 2.5 percentage points. Consequently, because of the way that fund distributions are currently taxed, we felt that investors would benefit greatly by receiving better disclosure concerning the effect of tax expense on returns. I should point out that the Commission was certainly not alone in its thinking. In April 2000, the U.S. House of Representatives passed by a vote of 358-2, the "Mutual Fund Tax Awareness Act of 2000", a bill that would enhance the information that mutual fund shareholders receive about after-tax returns.
After we proposed this requirement, many commenters raised a number of compelling issues. I believe the final rules represent careful consideration of these comments.
We recognize that there are those of you who still disagree with the need for the requirements, or with the details of the requirements, as they were adopted. In fact, in discussions with Matt Fink, he has reminded me of John Paul Jones, the famous captain of the Bonhamme Richard who delivered the immortal refusal to surrender, "I have not yet begun to fight." But I believe that the rules are currently necessary to inform investors of the potential magnitude of the tax impact on their mutual fund investments. However, possible changes on the horizon may result in our changing course on this issue.
Two bills that would allow shareholders to defer paying taxes on fund distributions have been introduced in the House of Representatives. One bill would allow individuals to defer $3,000 of fund distributions per year ($6,000 for couples); the other would raise those amounts to $5,000 for individuals and $10,000 for couples. There is reportedly some support for such legislation in the Senate. I can't opine on the bills' chances of passage. That is a more appropriate subject for the next two speakers.
But if such legislation is adopted, we will certainly study any changes to the way fund distributions are taxed and consider the need to revisit our after-tax rules. If it turns out that the bulk of fund shareholders are able to defer paying taxes on their funds' distributions until they redeem their shares, then we will seriously consider whether there is a need for funds to provide after-tax returns.
I don't want to leave you with the impression from my references to the Titanic disaster that I foresee anything like that for the fund industry. There may be a few companies and persons prowling the seas of investors who chose to fly the banner of the Jolly Rodger, but I am confident that our staff, OCIE, and our Division of Enforcement will continue to run them aground. But overall, you should be very proud of the fund industry and confident of its future. While the mutual fund industry faces new challenges, it will be the old principles of integrity, trust and fiduciary obligations that will chart the course for continued success.
Let me close by encouraging the continuation of another tradition a tradition that has evolved over the years between the SEC and the mutual fund industry, that is a tradition of holding each other to the highest possible standards. Given the SEC's vital mission of investor protection, circumstances will at times dictate that we raise the bar for the industry. But it is imperative that when we take action through rulemaking or otherwise that we strive to get it right. You help yourselves and the investing public with your thoughtful and constructive criticism of our actions. That we may differ on some issues is virtually inevitable. But do not forget that we both have a larger objective --maintaining the public confidence in the integrity of the mutual fund industry.
I thank you for listening.
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