T. Rowe Price
February 6, 2004
Mr. Jonathan G,. Katz
Re: Proposed Disclosure Regarding Market
Dear Mr. Katz:
We are writing on behalf of the T. Rowe Price family of mutual funds and its affiliated service providers ("T. Rowe Price") to offer our views on the above referenced Proposal. The family of T. Rowe Price mutual funds comprised over 100 funds with over $110 billion in assets as of December 31, 2003. As such, the Proposal is of great interest to us. In general, we support the comments of the ICI in their letter of February 5, 2004. However, we also offer the specific comments set forth below.
Disclosure about Frequent Purchases and Redemptions of Fund Shares
We support the Commission's efforts to enhance disclosure about fund policies and procedures on frequent purchases and redemptions of fund shares. However, in mandating new disclosures, the Commission should bear in mind the important work it has done over the years in making prospectuses more readable and user friendly. Obviously, given the events that have unfolded over the last several months, it is important for investors to have information about fund policies and procedures on excessive trading. What is just as important is that funds do what they say. The essential failure on the part of those firms that have been involved in the recent market timing scandals has not been for a lack of disclosure. Rather, it has been a failure by these firms to adhere to their disclosed policies.
In light of these considerations, we believe that the disclosure proposed under paragraphs (e)(4)(iii) and (iv) 1 of the Proposal should be kept at a very general level in the prospectus. The material issue for a prospective investor or shareholder is to understand what the fund's policies are regarding excessive trading, not what the technical procedures are to monitor and detect violations of these policies. In our view, the specific procedures adopted by the fund in these areas (other than to spell out restrictions on trading, e.g., one round-trip trade every 120 days) are matters of internal compliance. A fund that discloses that it discourages excessive trading must have procedures to enforce this policy. These will be part of the fund's compliance procedures under rule 38a-1. They will be approved by the fund's board and subject to review by the Commission. Furthermore, detailing the monitoring procedures will provide a roadmap for persons seeking to skirt the fund's restrictions. For these reasons, we do not believe the kind of detail seemingly contemplated by the Proposal is necessary or desirable.
Disclosure of Portfolio Holdings
We support the requirements of paragraph (f)(2)2 of the Proposal with respect to the types of arrangements that have been detailed in the recent scandals. However, we are concerned that this paragraph could also discourage legitimate information sharing that certain funds engage in as part of the normal course of buying and selling portfolio securities. For example, it is common for municipal bond funds to make current or recent portfolio holdings systematically available to dealers who the fund uses to purchase and sell its securities. This information sharing assists the portfolio manager in finding bonds suitable for the fund's portfolio as well as finding potential buyers should the fund be interested in selling a particular bond. It is widespread in the municipal bond area because of the huge number of issues. We believe that a general statement in the SAI of the existence of such arrangements would be appropriate. However, the specific disclosures set forth in the Proposal could easily be viewed as overly intrusive by the dealer community and could inadvertently discourage this beneficial practice. For this reason, we encourage the Commission to not impose the requirements of proposed paragraph (f)(2) on these arrangements.
We are available to answer any questions you may have on our letter.
Henry H. Hopkins
Forrest R. Foss