AMVESCAP Responds to Civil Charges
December 02 2003 - 2:30PM
PR Newswire (US)
AMVESCAP Responds to Civil Charges LONDON, Dec. 2
/PRNewswire-FirstCall/ -- AMVESCAP PLC is the parent company of
INVESCO Funds Group (IFG), a Denver-based manager of retail mutual
funds. Today, IFG was informed by the United States Securities and
Exchange Commission (SEC) and the Office of the New York State
Attorney General that it and an employee are facing civil
enforcement actions based on "market timing" activities by certain
investors in its mutual funds. We believe these actions are not
merited. Neither IFG nor the employee who has been charged engaged
in wrongful conduct. These charges will be vigorously contested.
The phenomenon of active trading, which includes market timing in
the mutual fund industry, is neither new nor newly discovered. In
fact, daily liquidity is a fundamental feature of any open-end
mutual fund, and absent clear regulatory guidance, should not be
needlessly restricted. IFG tried in good faith to identify and curb
harmful market timing activities. In this highly regulated
industry, no clear regulations or directions have been provided
that bear specifically on which market timing activities should be
permissible and which should not, nor what approaches a fund
complex can or cannot take in trying to cope with market timers
consistent with the best interests of its shareholders. Unlike late
trading - which is clearly illegal and which IFG never knowingly
facilitated or permitted - market timing is a lawful activity. IFG
chose what it believed was the best approach in dealing with the
problem of potentially harmful market timing. Industry-wide
guidance is certainly in order, and we welcome SEC Chairman
Donaldson's pledge that new rules designed to curb market timing
abuses are forthcoming. Comprehensive rulemaking, rather than
selected civil enforcement actions, is the only fair way to
establish new industry responsibilities and legal duties in this
important area of shareholder protection. Asset allocation
strategies and similar investment techniques, which can include
market timing, have been a very complicated issue for the mutual
fund industry to manage for some time. IFG, like many fund
companies, recognized the challenge of supporting the legitimate
investment styles of asset allocation and momentum investing while
preventing short-term trading where it could be harmful. The
collective judgment of IFG's management was that Fund shareholders'
best interests were served by trying to monitor all investors
utilizing investment models calling for frequent asset allocation
or similar legitimate changes, rather than remaining vulnerable to
uncontrolled short-term traders who would go in and out of the
funds when they chose, in dollar amounts they chose, and at a
frequency and velocity they chose, all with the potential harm that
such uncontrolled trading could cause. To accomplish this, IFG
determined it could better control certain asset allocators and
momentum investors by restricting them to certain funds which, in
its judgment, would not be adversely affected by their activities.
This was done after consultation with investment professionals and
included restrictions and limitations designed to protect the Funds
and their shareholders. These restrictions and limitations were
adjusted whenever IFG thought it necessary to protect the Funds and
their shareholders in light of changing market conditions,
investment strategies, or the portfolio manager's reassessment of
what could be appropriately handled. In applying these standards,
there was never a requirement that any investor maintain other
investments in exchange for trading capacity. IFG never put its
financial interest ahead of the best interests of the Funds'
shareholders. This is most clearly demonstrated by IFG's action in
terminating relationships with shareholders who held well in excess
of $500 million of assets that posed a potential threat to the
Funds, and in turning away at the outset investors seeking to
invest in excess of that amount. Through our internal review of
this issue to date, we have documented approximately 400 separate
instances where IFG shut down a shareholder's account because of
its timing activities. IFG used a wide variety of tools to protect
shareholders from the potentially harmful effects of market timing.
Redemption fees were imposed on certain funds that were potentially
subject to "time zone," "illiquidity" or other "pricing
inefficiency" arbitrage plays. IFG actively searched for,
monitored, and where appropriate, terminated relationships with
harmful market timers. This challenge was made more difficult by
marketplace features such as omnibus accounts and similar
arrangements that allow investors trading through intermediaries to
mask both their identity and their intent. IFG's prospectus
expressly authorized each shareholder to make four exchanges per
Fund per year without any limitation on the dollar amount of each
such exchange. The prospectus specifically provided IFG with
flexibility in its exchange policy by expressly authorizing
"modification" of that policy whenever it was "in the best
interests of the Fund." IFG exercised that authority when it deemed
appropriate - sometimes to allow fewer than four exchanges in a
particular Fund that seemed vulnerable to the potential adverse
consequences of market timing activities, and sometimes, to allow
more. Exchanges subject to the restrictions and limitations
described above were designed to protect the Funds and their
shareholders. Despite this record, the charges appear to treat what
IFG always intended to be a flexible guideline as if it were an
inflexible policy. IFG saw uncontrolled market timers as a problem
to be addressed in the interests of the shareholders in order to
avoid the potentially harmful aspects of uncontrolled market timing
activities in the funds. In making these decisions, IFG and its
employees always acted in good faith and in compliance with its
prospectuses, its legal obligations, and most importantly, its
fiduciary duty to Fund shareholders. Today's allegations are
without merit and will be vigorously contested. ABOUT AMVESCAP:
AMVESCAP PLC is a leading independent global investment manager,
dedicated to helping people worldwide build their financial
security. Operating under the Atlantic Trust, AIM, and INVESCO
brands, AMVESCAP strives to deliver outstanding investment
performance and service through a comprehensive array of retail and
institutional products for clients in more than 100 countries.
AMVESCAP had $345 billion in assets under management as of
September 30, 2003. The company is listed on the London, New York,
Paris, and Toronto stock exchanges with the symbol 'AVZ'. For more
information, please visit http://www.amvescap.com/ . DATASOURCE:
AMVESCAP PLC CONTACT: Doug Kidd of AMVESCAP PLC, +1-404-479-2922,
or email,
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