Douglas G. Ober, Chairman, Adams Express Company and Petroleum & Resources Corporation President, Closed-End Fund Association

Investor protection is a high priority for investment companies and the organizations that monitor them. We rely on investors’ confidence in the efficiency of the markets and in their investments to fuel the market economy. And now, a quest for investor protection and more transparency has hastened a wave of newly-effective regulations. New requirements brought on by the Sarbanes-Oxley Act, stock exchange listing standards, and the SEC are taking effect.

The SEC has mandated that all funds, fund advisers, and their key service providers adopt written policies and procedures to prevent violations of the federal securities laws by October 5 of this year. And the funds and their advisers have been required to appoint a chief compliance officer who monitors their compliance and reports directly to the Board.

Our own boards at Adams Express and Petroleum & Resources Corporation met in September and spent the better part of a full day approving scores of policies and procedures on items such as share repurchases, document retention, soft dollars, and many, many others. These policies and procedures were the result of a tremendous amount of work by our chief compliance officer and senior management over the summer. Not every policy is new; like many of our peers, we have been reporting to our board on many of these issues for a long time and needed to document what we have been doing.

Internal examination of policies and procedures is a very constructive exercise, however, and the benefits to shareholders should be visible. The goal of the new requirements is transparency: as an investor, you should be able to determine how your investments operate, the all-in costs and trading policies, and the voting practices of the portfolio managers who run the funds in which you invest.

At the same time, the industry and investors must adapt to new realities:

• The audit costs at public companies are up sharply as publicly-traded companies, including closed-end funds, have risen to the challenges of Sarbanes-Oxley and new listing requirements by the New York Stock Exchange. The next stage of new regulation by the SEC will add further to the cost of doing business. AIG Chairman Hank Greenberg said that the combination of regulations will cost AIG “in the hundreds of millions”.
  
  
• Much more money will need to be spent on compliance matters, including the compensation of chief compliance officers and their staffs and the on-going monitoring activities they must perform.
  
  
• The compliance burden will impact small funds the most. The economic realities of implementing these regulations place a significant burden on small funds. If the previous minimum level of assets for self-sufficiency was $75-100 million, it is sure to move higher. Several funds have already announced plans to consolidate or close. No word yet on how much higher the bar will go, but the direction is up.

The pendulum of reform is swinging and we think that our companies are better for it. But reform does not come without a cost. Investors must understand that also as they gain unprecedented insight into the activities and workings of the management companies to which they entrust their assets. If these efforts help to restore investors’ confidence, then the costs will be more than justified.