WEBMASTER NOTE: This is the unedited  transcript  of  the  Interactive
              Data Roundtable held on June 12, 2006, which we received directly from
              the court reporter. We are posting the transcript in this form to make
              it available as soon as possible.




             1   THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION

             2

             3   In the Matter of:             )

             4                                 )  File No. 4-515

             5   INTERACTIVE DATA ROUNDTABLE   )

             6

             7             Administrative Proceeding

             8   PAGES:    1 through 188

             9   PLACE:    Securities and Exchange Commission

            10             100 F Street, N.E., Room L-002

            11             Washington, D.C.

            12   DATE:     Monday, June 12, 2006

            13

            14        The above-entitled matter came on for hearing, pursuant

            15   to notice, at 9:44 a.m.

            16

            17   For the United States Securities and Exchange Commission:

            18        Commissioner Christopher Cox, Chairman

            19        Commissioner Cynthia A. Glassman

            20        Commissioner Paul A. Atkins

            21        Commissioner Roel C. Campos

            22        Commissioner Annette Nazareth

            23

            24                Diversified Reporting Services, Inc.

            25                           (202) 467-9200
 




             1                          C O N T E N T S

             2                                                            PAGE

             3   SESSION ONE:  Improving the Quality of Mutual Fund Disclosure

             4   Opening Remarks:  Chairman Christopher Cox                  5

             5   Moderator:  Andrew J. Donohue                              13

             6   Moderator:  Susan Ferris Wyderko                           17

             7   Panel One: What types of Information are Most Useful

             8                     To Mutual Fund Investors?

             9   Participants:

            10   Barbara Roper, Consumer Federation of America              18

            11   Don Phillips, Morningstar, Inc.                            24

            12   Henry H. Hopkins, T. Rowe Price Group, Inc.                28

            13   William Dwyer, Linsco/Private Ledger Corp.                 32

            14   Elisse B. Walter, NASD                                     38

            15   Panel Two:  How Can the Commission Leverage the Power of

            16                the Internet to Provide Mutual Fund

            17                 Investors with Better Information?

            18   Moderator Andrew J. Donohue                                61

            19   Moderator Susan Nash                                       62

            20   Dr. William D. Lutz, Rutgers University                    63

            21   Paul Schott Stevens, Investment Company Institute          70

            22   Tim Buckley, Vanguard                                      74

            23   Paul G. Haaga, Jr., Capital Research and Management Co.    79

            24   SESSION TWO:  Getting Analysts and Investors

            25                  Significantly Better Information
 




             1                    C O N T E N T S (Continued)

             2   Opening Remarks:  Chairman Cox                            105

             3   Opening Address:  Anne M. Mulcahy, Xerox Corporation      108

             4   Opening Presentations:  Opportunities for Data Analysis

             5                in the New World of Interactive Data

             6   Moderator Corey Booth                                     120

             7   Participants:

             8   Dr. John Markese, American Association of Individual

             9     Investors                                               121

            10   Trevor Harris, Morgan Stanley                             125

            11   Lawrence J. Salva, Comcast Corporation                    135

            12   R. Christopher Whalen, Institutional Risk Analytics       140

            13   Panel Discussion:  Exchange and Analysis of

            14                  Information via Interactive Data

            15   Moderator Scott Taub                                      148

            16   Moderator James M. Daly                                   149

            17   Participants:

            18   Gregory J. Jonas, Moody's Investors Service               150

            19   Thomas M. Franks, TIAA-CREF                               155

            20   Cathy Baron Tamraz, Business Wire
                                                                           157

            21   Charles Gregson, PR Newswire Association LLC              157

            22   Dr. William L. Guttman, Venture Partner, TL Ventures      158

            23   Mr. Stantial, Director of Financial Reporting, United

            24     Technologies Corporation                                159

            25   Trevor Harris, Morgan Stanley                             161
 




             1                    C O N T E N T S (Continued)

             2   R. Christopher Whalen, Institutional Risk Analytics       162

             3   Dr. Clinton E. White, Jr., University of Delaware         163

             4   Mark Augustine, Augustine Consulting                      165

             5   Trevor Harris, Morgan Stanley                             165

             6   Lawrence Salva, Comcast Corporation                       166

             7   Dr. John Markese, American Association of individual

             8    Investors                                                170

             9   Cathy Baron Tamraz, Business Wire                         171

            10   Mark Augustine, Augustine Consulting                      172

            11   Thomas M. Franks, TIAA-CREF                               174

            12   Mr. Stantial, Director of Financial Reporting, United

            13     Technologies Corporation                                176

            14   Gregory J. Jonas, Moody's Investors Service               178

            15   Dr. Clinton E. White, Jr., University of Delaware         179

            16   R. Christopher Whalen, Institutional Risk Analytics       180

            17   Trevor Harris, Morgan Stanley                             180

            18   Cathy Baron Tamraz, Business Wire                         181

            19   Congressman Richard Baker, Chairman, House Subcommittee

            20     on Capital Markets                                      183

            21   Closing Remarks

            22     Chairman Christopher Cox                                184

            23

            24

            25
 




             1                        P R O C E D I N G S

             2                                                       9:44 a.m.

             3   SESSION ONE:  IMPROVING THE QUALITY OF MUTUAL FUND DISCLOSURE

             4             CHAIRMAN COX:  Good morning and welcome.  Thank you

             5   all for joining us today.  And welcome to our first in our

             6   series of roundtables on interactive data.  Our aim is to

             7   make financial disclosures more user friendly to the average

             8   investor.  I'm Chris Cox, the Chairman of the Securities and

             9   Exchange Commission.  We have all of our commissioners here

            10   and an outstanding panel. I'm very much looking forward to

            11   this.

            12             I should start by telling you that we at the

            13   Securities and Exchange Commission hope to lead by example

            14   here.  We have recently launched on our website a beta

            15   version of a full text search capability to allow investors

            16   to search the entire content of SEC filings.  We welcome

            17   feedback as we seek to expand and enhance this new web tool

            18   for investors.

            19             I see a lot of surprised looks here.  This is a new

            20   announcement I think for most of you and we consider this to

            21   be a very big deal indeed.

            22             We have also launched a separate search to help

            23   mutual funds investors more quickly identify information on

            24   their fund and share class.  Previously, details on a

            25   specific fund share class were nearly impossible to dig out
 




             1   of our electronic database.  As with the full text search, we

             2   encourage and welcome your suggestions on how we can improve

             3   this capability.

             4             It has been six years since the dotcom meltdown and

             5   yet during all of that time, consumer appetite for new uses

             6   of the Internet has been increasing nonstop.  Nielson Media

             7   Research now reports that the total number of Americans with

             8   home Internet access is over 200 million.  The PEW Internet

             9   and American Life Project reports meanwhile that the growth

            10   rate of high speed Internet to home users has doubled in the

            11   past year.  These same surveys show that large majorities say

            12   that the Internet has improved their ability to get health

            13   care information, to shop, to pursue hobbies and also to do

            14   their jobs.  And the Internet continues to grow as a central

            15   source of news for tens of millions of Americans.

            16             The time is well past when we should think of the

            17   Internet as a medium that's accessible only to an economical

            18   elite.  According to the New York Times, the digital divide

            19   is rapidly closing.

            20             The Internet, this great instrument of national and

            21   international communication, is also a critical engine of

            22   American productivity.  Wharton School Professor Jeremy

            23   Siegel points out in his book, "The Future for Investors,"

            24   that going back to Gutenberg and even further back all the

            25   way to Silon's invention of paper in China almost 2000 years
 




             1   ago, every time we open up a new communications technology,

             2   invariably it has led to expanded economic opportunity and

             3   growth.

             4             So the question for us today is how do we put the

             5   current communications technology to the service of the

             6   American investor.  How do we harness the Internet which is

             7   serving so many customers in so many other ways to deliver

             8   the maximum benefit to those in our regulated capital

             9   markets.

            10             In many ways, the American investor is still

            11   waiting for the Internet revolution.  Yes, many people have

            12   embraced online trading.  Still more do research and check

            13   quotes by the Internet, but most of America's more than 90

            14   million investors are not enjoying anything close to the full

            15   potential of the Internet to provide customized financial

            16   information.

            17             Some of our morning panelists have the unenviable

            18   task of digging into the dense documents that we see in

            19   today's status quo.  Their job is to fish out the data and

            20   retype it into their own more user friendly services.  But

            21   they and all American investors can at least imagine the

            22   possibilities if all company and mutual fund financial

            23   information were available to everyone for free in real time

            24   directly from the source and in a format that allows the

            25   investor, the analyst or the financial publisher total
 




             1   control.  They could use this information for comparison, for

             2   further research or for new analytical tools, whatever they

             3   chose.

             4             Today most investors are still receiving stacks of

             5   paper, that high tech invention of 105AD.  Whether these

             6   stacks are corporate proxy materials or mutual fund

             7   prospectuses or other reports, investors typically find them

             8   equally difficult to understand.

             9             Yes, these documents have allowed countless

            10   Americans to treat insomnia without resorting to

            11   pharmaceuticals but they have also proven deeply flawed as

            12   vehicles to inform the investor.

            13             For mutual fund investors who are the focus of this

            14   morning's discussions, the mailed prospectus is too often a

            15   dense blob of legalese, difficult to search, time consuming

            16   to read, impossible to navigate quickly.  For these reasons,

            17   the mutual fund prospectus seems almost designed for digital

            18   distribution.  It's a document that almost nobody wants to

            19   read in full but from which many people want to glean key

            20   facts.

            21             Interactive data, the tagging of these key facts so

            22   that they can easily be identified and extracted offers the

            23   possibility of dramatic improvement over traditional

            24   disclosure delivery for mutual fund investors.

            25             Let me emphasize one important point here.  I
 




             1   believe that the Internet offers powerful new ways to put

             2   investors in the driver's seat when it comes to the financial

             3   disclosures they want, the way they want them.  The Internet

             4   offers investors more control and expanded choices.  But one

             5   choice that will always remain is to continue to receive

             6   paper.  Interactive data is not a replacement for paper.  It

             7   is a compelling new option and I believe a superior option

             8   for investors who will be free to choose.  Many investors

             9   would welcome a choice.

            10             Instead of a dense unsearchable morass of

            11   lawyerisms, imagine disclosure documents with the flexibility

            12   of your favorite website giving you access to basic

            13   information and then myriad options to drill down more deeply

            14   for more information on a particular topic or to make a

            15   comparison.

            16             Think of how that capability that we now have with

            17   flash demonstrations, pop-up references and instant

            18   cross-referencing that can happen on a web page.  Think of

            19   how that could improve life for the average investor, from

            20   the novice to the professional money manager.

            21             So let's imagine an investor having instant access

            22   to exactly the items that she is seeking and enjoying the

            23   ability to make comparisons among funds and across time.  She

            24   is able to immediately examine expense ratios or performance

            25   and instantly compare these numbers to those of competitors. 
 




             1   Or maybe what she really cares about are the top 50 holdings

             2   of a given fund.

             3             Interactive data means liberating all of the

             4   individual facts in large disclosure documents so you can

             5   easily call up what you want without having to read the

             6   60-page blob.

             7             Recent evidence suggests that it isn't just average

             8   investors who have difficulty navigating that blob.  James

             9   Choi of the Yale School of Management along with colleagues

            10   at Harvard and the University of Pennsylvania recently

            11   presented mutual fund prospectuses to students at Harvard and

            12   MBA candidates at the University of Pennsylvania's Wharton

            13   School.

            14             They found that even students at these elite 

            15   American universities when given fund prospectuses end up

            16   choosing higher fees when selecting among funds tracking the

            17   exact same stock index.  Of course, it's not our job to tell

            18   people which funds to select or how much to pay for fund

            19   management.  What is our job is to provide investors with

            20   easy access to the information that they want in order to

            21   make an informed decision.  That is why I found it

            22   particularly troubling that at the outset of the study the

            23   students ranked expenses as their most important investment

            24   criterion.  And yet they seemed unable to invest on that

            25   basis when given mutual fund prospectuses to read.
 




             1             On the other hand, when given simply summaries of

             2   the expense data, the students apparently opted for

             3   substantially lower fees.  If true, these findings suggest

             4   that even graduate students with a high level of financial

             5   literacy and undergrads with SAT scores in the 99th

             6   percentile have difficulty comprehending a mutual fund

             7   prospectus.

             8             The obvious solution is to move away from a dense

             9   document of legalese and toward a simple summary that allows

            10   investors to drill down for more detail on whatever topics

            11   they choose.  And the obvious medium to deliver those

            12   enhancements is the Internet.

            13             I am happy to report that the spread of interactive

            14   data for investors of all types has recently gained a new

            15   champion.  Just a few days ago I received a note from UCLA

            16   computer science Professor Leonard Klinerock.  As some of you

            17   know, Dr. Klinerock created the basic principles of packet

            18   switching back in the 1960s and his computer at UCLA was the

            19   very first node of the Internet.  In fact, his team at UCLA

            20   sent the very first message over the Internet so normally I

            21   value his opinion on matters such as this.

            22             Here is what he has written to us, quote:  "We are

            23   likely to be surprised, even amazed at what the individual

            24   investor will be able to extract and deduce from this wealth

            25   of information once we transform the paper data in SEC
 




             1   filings and annual reports into an interactive electronic

             2   live format.  No longer will the well endowed financial firms

             3   be the only ones who can afford to compile comparative data,

             4   but now even the individual investor will have the same

             5   access on a level playing field.  One's ingenuity will be the

             6   limit to evaluation and decision making.  Making accurate

             7   real time interactive data available through the Internet so

             8   that it can be instantly processed and compared on a personal

             9   computer using one's favorite software package is an obvious

            10   beneficial and urgent proposition.  It's hard to believe that

            11   financial reporting is only now emerging from the dark ages

            12   and catching up to the 21st Century."

            13             So with that to set the scene, I want you to know

            14   I'm very much looking forward to hearing from our panelists

            15   on ways to encourage more investor friendly communications. 

            16   And leading what I am sure will be a thoughtful discussion

            17   this morning are my colleagues, Buddy Donohue and Susan

            18   Wyderko.

            19             Buddy, as you perhaps know is our new director of

            20   the Division of Investment Management.  Susan is most

            21   recently acting director of the Division of Investment

            22   Management.  Unfortunately, as in sports, we at the SEC

            23   sometimes lose our players to free agency and so we are sad

            24   to learn that our director of the Office of Investor

            25   Education and Assistance which is Susan's main job will soon
 




             1   be leaving the Commission.  But I want you to know that she

             2   has been extraordinarily effective and respected leader and

             3   most recently served investors in a very distinguished way as

             4   the acting director of the Division of Investment Management.

             5   So these two leaders of the SEC I think are extraordinarily

             6   well equipped to help lead us in this panel discussion this

             7   morning.

             8             We have very much to learn from all of those on our

             9   panel who are gracious enough to participate.  I want to

            10   thank each of you very much for being here.  I very much

            11   appreciate it.  All of us on the Commission do and I look

            12   forward to listening now to the rest of the day's events. 

            13   Thanks very much.

            14             Over to you, Buddy.

            15       PANEL ONE:  WHAT TYPES OF INFORMATION ARE MOST USEFUL

            16                     TO MUTUAL FUND INVESTORS?

            17             MR. DONOHUE:  Thank you for the kind introduction,

            18   Chairman Cox.  I am very pleased to be here both as the new

            19   director of the Division of Investment Management and as a

            20   moderator for today's roundtable.

            21             Before I begin today I need to note that the views

            22   expressed today by me and all the SEC moderators throughout

            23   the day are our own and do not necessarily reflect the views

            24   of the Commission or of our colleagues on the staff of the

            25   Commission.
 




             1             For all the reasons the Chairman just outlined, the

             2   interactive data initiative promises to improve the quality

             3   of disclosure to the average investor to revolutionize how

             4   investors access, use and ultimately understand information. 

             5   We want to empower investors to make better decisions for

             6   their families, their retirement, their healthcare, their

             7   education and their savings.

             8             It makes sense to start our discussion with the

             9   investment that ordinary Americans rely on more than any

            10   other, the mutual fund.  At the SEC we already require mutual

            11   funds to disclose a great deal of important information in a

            12   number of filings.

            13             I have with me documents filed for one particular

            14   fund during the past 12 months.  You can see that the sheer

            15   volume of this information would make it difficult for the

            16   most diligent investor to unearth the nuggets that he or she

            17   seeks.  Much of this information is delivered directly to

            18   investors typically in paper.  Funds provide the prospectus

            19   to each investor who purchases shares and many funds send a

            20   new prospectus to every existing shareholder every year.  For

            21   those investors who want to go beyond the prospectus funds

            22   make statements of additional information available upon

            23   request.  In addition, funds provide the shareholder reports

            24   to each shareholder twice a year.  When a mutual fund holds a

            25   shareholder meeting, the fund sends its proxy statement to
 




             1   the shareholders.

             2             Other reports are available through the

             3   Commission's EDGAR website.  These electronic only documents

             4   can provide information to investors and others who both know

             5   about them and know how to find and use them.  These include

             6   semiannual reports on Forms NCSR and NSAR as well as

             7   quarterly reports of portfolio holdings on Form NQ.  In

             8   addition annual proxy voting records filed on Form NPX

             9   generally are available as electronic documents posted on

            10   fund websites.  Particularly savvy investors can also use

            11   EDGAR to review the other information contained in Part C of

            12   the mutual fund registration statements.

            13             These SEC filings do not include the myriad of fund

            14   advertisements, sales literature and other materials that

            15   funds choose to use in communicating with their shareholders. 

            16   These two add to the total mix of information confronting

            17   investors.

            18             Now, I don't want to suggest that any of these

            19   documents is not useful or does not contain information that

            20   could be important to an investor.  I believe quite the

            21   opposite in fact.  That buried within this paper are probably

            22   all the essential data that a typical investor would need and

            23   want as well as a great deal of other important information

            24   that is used by financial advisors, retirement plan sponsors,

            25   third party analysts and other intermediaries who help
 




             1   investors.

             2             To state the obvious, though, the average investor

             3   will access to this stack of paper or even with access to the

             4   online equivalence of this paper will have a difficult time

             5   figuring out what the critical information much less finding

             6   and digesting it in a timely manner and will have an even

             7   harder time comparing it against the information in the

             8   similar stacks of disclosure for other comparable funds.

             9             It's a lot of information and I think it is time we

            10   confront two questions head on.  First, is there a better way

            11   to highlight the key information that is critical to a

            12   typical investor?  We need to find a life raft to throw out

            13   to the millions of mutual fund investors to keep them from

            14   drowning in this sea of information.  Perhaps a short summary

            15   of the most essential information.

            16             Second, how can we tame this massive data and make

            17   it usable whether for a fund investor or one of the many

            18   intermediaries who digest the information and repackage it

            19   for the investors.  It is here that interactive data holds so

            20   much promise.  Perhaps interactive data could help investors

            21   quickly pull up and compare the after-tax return information

            22   for five different funds at a glance or it might allow a

            23   retirement plan fiduciary to track changes in the portfolio

            24   holdings of a fund to better assess how closely the stated

            25   objectives and strategies of the fund are followed.  Or
 




             1   perhaps it will give an aggressive journalist the opportunity

             2   to move from a portfolio manager's name and background in a

             3   prospectus to the detailed information about that manager's

             4   potential conflicts in the statement of additional

             5   information to the most recent Code of Ethics provisions

             6   governing these conflicts filed with Form NCSR.  The

             7   possibilities are endless and full of great promise.

             8             The purpose of the two panels this morning is to

             9   discuss how we, the policy makers, investor advocates,

            10   industry leaders, academics and others can start to realize

            11   this promise.  The task is daunting but the reward, the

            12   empowerment of the individual investors, is great.

            13             Before I proceed with the panel, I would like to

            14   say a special thanks to my co-moderator, Susan Wyderko.  As

            15   acting director of the division, Susan was instrumental in

            16   moving forward the division's thinking on interactive data

            17   and improved mutual fund disclosure as well as in providing

            18   the impetus for today's morning's roundtable session.  We

            19   would not be having today's discussion without Susan's

            20   inspiration and efforts.

            21             And with that I'd like to ask Susan to introduce

            22   our panelists.

            23             MS. WYDERKO:  Thank you, Buddy.

            24             We are very lucky this morning to have two very

            25   distinguished groups of panelists coming from a wide range of
 




             1   perspectives.  I want to thank everyone this morning for your

             2   time and your energy that you are devoting to us.

             3             We have divided our discussions this morning into

             4   two general topics.  The first panel which you see before you

             5   right now will focus on the types of information that are

             6   most useful to mutual fund investors.  The second panel will

             7   focus on how the Commission can better leverage the power of

             8   the Internet to provide mutual fund investors with better

             9   information.

            10             Now I'm going to briefly introduce the panelists. 

            11   I encourage you to look for more information on the

            12   Commission's website.  They are a very distinguished group.

            13             Farthest away from me is Barbara Roper.  Barb is

            14   the director of Investor Protection at the Consumer

            15   Federation of America.  She is a leading spokesperson on

            16   investor protection issues.

            17             Next to Barb is Don Phillips.  Don is the managing

            18   director of Morningstar and he is responsible for corporation

            19   strategy, research and corporation communications.

            20             Next to Don is Henry Hopkins.  Henry is a vice

            21   president and chief legal counsel in the T. Rowe Price Fund

            22   Group and a very distinguished member of the Investment

            23   Company Bar.

            24             Next in line is Bill Dwyer who is managing Director

            25   of National Sales for Linsco/Private Ledger with
 




             1   responsibility for retirement and management of the firm's

             2   financial advisors.

             3             Finally, but not least, we have Elisse Walter who

             4   is senior executive vice president at the NASD.  Among other

             5   things, Elisse oversees the Investment Company regulation and

             6   leads NASD's investor education efforts.

             7             I'm going to start by inviting each of our

             8   panelists to provide a brief perspective on the information

             9   that is most useful for fund investors.

            10             Barb, I'm going to start with you.  I know the CFA

            11   has done a lot of research in this area, so let's start with

            12   you.

            13             MS. ROPER:  A wise man once said that giving

            14   investors the information they need in a form they can

            15   understand is what distinguishes investing from roulette.  We

            16   are pleased to participate in today's roundtable because we

            17   believe the review that the SEC is undertaking has the

            18   potential to greatly enhance the useability of the

            19   information that mutual fund investors receive.

            20             For the past 18 months CFA has been engaged in a

            21   research project in which we have asked many of the questions

            22   that we're discussing here today about the information that

            23   mutual fund investors need and find useful.

            24             We started with the literature review where we

            25   looked at the recommendations of experts from regulators,
 




             1   industries, investor advocates, personal finance writers and

             2   others.  And what we found was agreement to the point of near

             3   unanimity about the basic factors that investors should

             4   consider when selecting a mutual fund.

             5             These closely track the content of the original

             6   fund profile with highest priority given to investment

             7   objectives and strategies, risks, costs, and past performance

             8   particularly as it relates to the volatility of past returns.

             9             When you look at a more detailed level, there is

            10   more variation in the recommendations on the best way to

            11   evaluate risk, for example, or the relative importance of

            12   costs, but our research suggests that the general question of

            13   what information is essential to an informed mutual fund

            14   purchase has really been answered to the general satisfaction

            15   of experts from all constituencies.

            16             We also found that that information is widely

            17   available to investors and it comes from a lot of different

            18   sources and in a lot of different formats.  And while the

            19   quality and usability varies, it is often quite good.

            20             There are two areas where we think there is a need

            21   and a possibility for improvement.  One, narrative risk

            22   disclosures often consist of little more than boilerplate

            23   that does little to assist an investor who is seeking to

            24   determine whether one fund is more or less risky than another

            25   comparable fund.
 




             1             And, second, the fee table is too cluttered and it

             2   is too hard to get the key information about what you're

             3   paying for the fund and what you're paying for the services

             4   of a broker or adviser in recommending that fund.  But, as I

             5   say, we have a general agreement among the experts about how

             6   investors should go about selecting a mutual fund.

             7             Unfortunately we're releasing a survey today, a

             8   consumer survey that shows that many/most investors' actual

             9   mutual fund purchase practices don't remotely resemble the

            10   expert recommendations.  There is not time to go over that in

            11   detail here but the gist of it here is that there are

            12   significant differences in the factors they consider most

            13   important, the value they place on the prospectus and other

            14   written disclosures and the degree to which they research the

            15   funds that are recommended to them by financial

            16   professionals.

            17             So what are the reasons for the gap?

            18             Two leap to mind.  If you look at what the experts

            19   recommend you do to select a mutual fund, it's too much work. 

            20   The handful of people who are willing to do that much work

            21   already work for Don.

            22             (Laughter.)

            23             Secondly, the expert recommendations treat everyone

            24   as if they were a direct purchaser of mutual funds.  And, as

            25   you know, most people purchase their funds either through a
 




             1   workplace-based retirement plan where they typically choose

             2   from a relatively limited menu of funds or through a

             3   financial professional who makes the selection for them.

             4             It is unreasonable to assume that they will either

             5   want or need the same information as the direct purchaser. 

             6   Our research suggests that even the direct purchasers don't

             7   necessarily want as much information as the experts think

             8   they need.

             9             So what are the implications of that for how we do

            10   mutual fund disclosure?

            11             Well, one of the implications for us has been that

            12   CFA has abandoned our former opposition to the sale of funds

            13   from an abbreviated disclosure document.  It seems pointless

            14   to continue to insist on full prospectus delivery to all

            15   investors when most investors do not appear to find the

            16   prospectus of great value.

            17             It also seems to us that given investors' somewhat

            18   limited attention spans for these issues, we need to make it

            19   as easy as possible for them to get the information they

            20   really need and to understand the information they get.

            21             Before you immediately conclude that the original

            22   profile is the right approach, however, we would encourage

            23   the Commission to study the really innovative approaches that

            24   many fund companies and others take when they prepare these

            25   abbreviated disclosure documents for use on their websites. 
 




             1   Many of them are able to provide somewhat more detail than

             2   the original profile provided but in a user friendly format

             3   that gives the investors far more control over how they

             4   access that data an dhow much information they choose to

             5   review.

             6             I also think it is important to keep in mind the

             7   different needs of different types of investors.  And I would

             8   just like to suggest that for those who invest through

             9   financial professionals the most important information they

            10   need may have nothing to do with mutual funds.  Our research

            11   suggests that most of these investors do little or no

            12   research of the funds that are recommended to them.

            13             Arguably the information they need is the

            14   information that helps them make an informed selection among

            15   financial professionals.  And unlike information about mutual

            16   funds that is not information that is typically readily

            17   available.

            18             So we would like to encourage the Commission to

            19   seriously consider developing a plain English disclosure

            20   document that brokers, financial planners and investment

            21   advisors alike would be required to provide to all

            22   prospective clients that covers the key issues including

            23   conflicts of interest that are relevant to the selection of a

            24   financial professional.

            25             And before I close I would like to make a couple of
 




             1   comments about the Internet disclosure issue.  Our survey

             2   offers both sort of hope and caution on that.  CFA is a

             3   strong supporter of making greater use of the Internet to

             4   communicate with investors because we believe it has the

             5   potential to both reduce the cost and improve the quality and

             6   timeliness of disclosures.

             7             When we asked investors about their willingness to

             8   use the Internet, however, we found on the positive side vast

             9   majorities of investors have access to the Internet and are

            10   willing to use it for at least some purposes, but there does

            11   remain resistance among certain investors, particularly older

            12   investors, for certain purposes.

            13             One of the things that we found that I think is

            14   perhaps most relevant to our discussion today is that current

            15   investors, those who identified themselves as current

            16   investors who had bought most of their funds through a

            17   financial professional, just under half said they would be

            18   willing to use the Internet to receive periodic disclosure

            19   documents.  And just over a third said they would be willing

            20   to use the Internet to communicate with their financial

            21   professional.

            22             I think we need to understand the reasons behind

            23   and the intensity of that resistance if we are going to

            24   develop Internet disclosure policies that benefit all

            25   investors.
 




             1             MS. WYDERKO:  Thanks, Barb.

             2             Don, Morningstar has a lot of experience providing

             3   investors and intermediaries with information about mutual

             4   funds, so let's hear from you.

             5             MR. PHILLIPS:  Thank you very much, Susan.  Thank

             6   you for the opportunity to participate in this discussion.

             7             First, before I start, I would like to say that

             8   clearly there is something about the system that works very

             9   well.  We often get hung up on ways that we can improve and

            10   that is also important, but something does work.

            11             At Morningstar we are now tracking funds around the

            12   globe and nowhere else are costs as low and as transparency

            13   is great is in the United States.  So there is something very

            14   right about the system.

            15             And also in the aggregate, if you look at investor

            16   dollars, they tend to flow to lower cost organizations and

            17   the better performing funds.  So there is something that is

            18   working with the system, but the reason the system works so

            19   well is that we are constantly asking how can it improve. 

            20   And that is why I think this discussion is timely.

            21             Clearly, there is room for improvement on the

            22   current prospectus.  I would argue that there are two major

            23   audiences it serves and it is not serving either as well as

            24   it might.  One is the individual investor who is trying to

            25   make a decision.  I think Chairman Cox correctly described
 




             1   the situation.  It's bombarding investors with way more

             2   information than they can handle and that they can

             3   intelligently assimilate.  It is not helping them make

             4   decisions.  And that is why the move towards a simplified

             5   prospectus makes all the sense in the world to get some

             6   minimum level of disclosure out there to people at the point

             7   or near the point of the purchase agreement.

             8             But as Barbara mentioned, the vast majority of

             9   investors aren't making their decisions in isolation.  They

            10   are putting money into a fund with the help of some sort of a

            11   professional, whether it's a financial advisor or whether

            12   it's an employer who is selecting funds for a 401(k) plan,

            13   whether it's the press or third party research companies,

            14   these are people that have a professional and sometimes even

            15   a fiduciary responsibility to out and seek out all of the

            16   information.

            17             And the current dense prospectus in a

            18   non-electronic form isn't the tool that the need.  Even the

            19   early tagging efforts here have been done mostly with the

            20   legal mindset, not with the database management mindset.  And

            21   so I think there is ample opportunity to improve to get the

            22   information out there.  So you can have firms like

            23   Morningstar spending our time and energy thinking about what

            24   this information means not simply on the processing of the

            25   information.  I think all parties will benefit from that.
 




             1             I think what you need are two different documents

             2   because there really are two different needs.  Perhaps a

             3   simplified print document also available electronically for

             4   individuals, the focus is on the information investors need

             5   to know.  And then a tagged electronic document that helps

             6   the individuals who want to make further inquiries but also

             7   helps this professional audience that's focused on

             8   information that investors as shareholders have a right to

             9   know.  And this may be more detailed information than would

            10   come up in any summary of 10 or 12 points that would go into

            11   the summary.

            12             I would give just an example.  While much of the

            13   focus I'm sure will be on what goes into the simplified

            14   document, a tremendous amount of benefit can come from the

            15   information that goes in the longer document.

            16             For example, one of the SEC's recent initiatives is

            17   to require disclosure on fund managers' compensation

            18   structure.  Not the exact dollar amount that they're paid,

            19   but what is the structure, what incentives does that create.

            20   Now I would argue that very few investors have actually read

            21   this, but I would argue that it's making a difference in the

            22   retail market and it is helping investors.

            23             In the wake of this required disclosure, we have

            24   had major fund companies come to us and say, "We're

            25   rethinking our compensation structure."  Some major fund
 




             1   groups have come to us and said, "In the 1990s we simply gave

             2   managers more money if they ran a bigger fund.  It was more

             3   profitable to the firm.  The PMs knew that, they asked for

             4   more money, we had to give it to them."

             5             Now in the wake of having to disclose this, we can

             6   go back and say, "That's really not a defensible practice." 

             7   And we're tiering their compensation more to be performance

             8   relative to peers saying if they beat their peer group, we'll

             9   get the assets.  But under the former system, these fund

            10   companies are saying, they were in fact incentivizing

            11   managers to be out promoting their fund not managing it.

            12             On another scale, a major no-load fund company came

            13   to us and said that a marketing consultant had told them in

            14   the Nineties the way to move the needle in the no-load world

            15   was to get a lot of individual years where your fund was in

            16   the top decile.  And they structured all of their

            17   compensation to get single year performances in the top

            18   decile.  And they said, "We got a lot of that type of

            19   performance.  The problem was we were in the top decile one

            20   year and we were in the bottom decile the next year."  And

            21   they said, "The marketing consultants were right.  When we're

            22   in the top decile we got a lot of assets, but we were

            23   attracting the most fickle types of investors, people who

            24   loved us when we were at the top but hated us as soon as we

            25   dropped out of the top 10 percent.  And, in essence, we were
 




             1   incentivizing our managers to scour their long-term

             2   performance records just to get in these short-term fickle

             3   investors."

             4             They said, "In the wake of having to disclose this,

             5   we're changing our procedures and moving from a one-year

             6   period to a three or a five-year period and stretching out

             7   the time periods."

             8             Well, think about that.  For years fund companies

             9   have gone to investors and said, "Buy an equity fund with a

            10   long-term horizon.  Be thinking out five/ten years and, yet,

            11   major fund companies were rewarding managers on the basis of

            12   10 or 12 months worth of performance."

            13             This disclosure which very few investors have seen

            14   I think now is changing behavior in the industry and better

            15   aligning the interests of individual investors with those of

            16   fund managers.  So I would encourage the Commission to not

            17   only think in terms of print and electronic but to think in

            18   terms of these two different audiences:  what an individual

            19   investor might need to know and what a professional or an

            20   informed individual has a right to know.  Both of those have

            21   a part in improving the investor experience.

            22             Thank you very much for the opportunity to

            23   participate.

            24             MS. WYDERKO:  Thanks, Don.

            25             Next, Henry, we would like to hear your perspective
 




             1   as a representative of a large fund group.

             2             MR. HOPKINS:  Good morning.  Can you hear me? 

             3   Okay.  Good morning.

             4             Since the prospectus disclosure regime was first

             5   established over 73 years ago, much has changed.  This new

             6   environment strongly justifies some rethinking.  Not of the

             7   basic investor protections of the 33 and 40 Acts but of ways

             8   those laws apply to mutual fund prospectuses.

             9             When these acts were adopted, communications were

            10   crude compared to today's digital, fiber optic, microwave and

            11   satellite global networks.  The age of personal computers and

            12   the birth of the Internet have revolutionized the

            13   transmission of and access to information.  The financial

            14   news media now covers the mutual fund industry to such an

            15   extent that little happens without the public knowing about

            16   it.  The beneficiaries have been the investing public who can

            17   now easily access a wide spectrum of quality information

            18   instantaneously.  As a result the prospectus of old has

            19   become a roadblock for investors on today's information

            20   highway.

            21             Before outlining T. Rowe Price's recommendations, I

            22   would like to set the stage by reviewing a number of the

            23   findings of the ICI's 2006 study on the information needs of

            24   fund investors.

            25             First, shareholders prefer receiving a concise
 




             1   summary of fund information before buying.  Second, a large

             2   majority of shareholders do not consult fund prospectuses

             3   before purchasing.  They view prospectuses as being difficult

             4   to understand and too long.  Third, fund shareholders use the

             5   Internet regularly most particularly to gather investment

             6   information.

             7             The question for discussion today is how can we

             8   improve the disclosure regime.  Studies have shown that when

             9   it comes to providing most investors with fund information

            10   less is best.  Out of that realization was born the current

            11   profile, a document designed to give investors just the right

            12   amount of information.  The develop of the profile was not

            13   something that just came out of the blue.  It represents the

            14   culmination of decades of work and, in fact, many failed

            15   attempts to build a better disclosure mousetrap.

            16             The profile is an excellent well organized

            17   disclosure document whose content requirements were

            18   substantiated by SEC-sponsored focus groups and an industry

            19   pilot program.  As good a disclosure document as it is, the

            20   use of the profile has been disappointing at best.  The cause

            21   is self-evident.  The profile did not replace the full

            22   statutory prospectus and incorporation by reference was not

            23   permitted thereby creating liability concerns.

            24             In our view, wholesale changes to the profile rule

            25   are not necessary to significantly improve the mutual fund
 




             1   disclosure scheme.  First, permit a fund's profile to be used

             2   as its primary selling document provided investors have the

             3   option of either accessing the full prospectus via the

             4   Internet or requesting a hard copy.

             5             Second, make the profile a statutory prospectus by

             6   incorporating by reference the full prospectus just as the

             7   prospectus currently is permitted to incorporate the SAI by

             8   reference.

             9             Third, retain the ability of funds to use different

            10   versions of the profile to reflect the availability of

            11   different services for different classes of investors.

            12             Fourth, amend the profile rule to require

            13   disclosure of a fund's top 10 and quarter-end holdings.

            14             Now, skeptics argue that investors should be

            15   provided a full statutory prospectus just as when they

            16   purchased the securities of an operating company.  My

            17   rebuttal is two-fold.  First, under recent amendments to SEC

            18   rules, underwriters and operating companies in public

            19   offerings no longer need to physically deliver a final

            20   prospectus.  Rather, they can rely on the availability of the

            21   prospectus on the issuer's website.

            22             Second, prospectuses for operating companies are

            23   never required to be delivered to purchases of shares in the

            24   secondary market which is where most investors purchase their

            25   shares.  Under the integrated disclosure system and the
 




             1   efficient market theory, the price of an operating company's

             2   shares is deemed to reflect all material information about

             3   the company so there is no need to deliver a disclosure

             4   document.  This same principle is all the more true for

             5   mutual funds whose prices are completely transparent since

             6   the business of a mutual fund is solely that of acquiring the

             7   securities of operating companies that meet its investment

             8   objective.

             9             In conclusion, we believe that our recommendations

            10   should transform the profile into the much needed mutual fund

            11   disclosure document for the 21st Century.  Thank you.

            12             MS. WYDERKO:  Thanks, Henry.

            13             Bill, your company works with mutual fund investors

            14   across the country.  Let's hear your perspective.

            15             MR. DWYER:  Thank you, Susan.  And thank you, also,

            16   Director Donohue, for inviting me here today.

            17             Since LPL is not a nationally branded name I

            18   thought I'd give you some background on who we are.  LPL is

            19   the nation's leading independent broker dealer.  We have

            20   7,000 financial advisors across the country that

            21   independently own and operate their businesses.  By industry

            22   standards, they are very experienced.  They typically are in

            23   their mid-40s and have about 15 years of experience in the

            24   business.  And in most case have their name on the door

            25   primarily in suburban and rural communities all across the
 




             1   country.

             2             That being said, the two things that I think are

             3   really pertinent about that is that they work with investors

             4   across the spectrum.  When you work in a small community,

             5   you're going to work with the smallest of investors, you're

             6   going to work with the near mass affluent and also the

             7   extremely wealthy.

             8             It is important to them that disclosure should be

             9   appropriate.  It protects them as well in this process. 

            10   Advisors don't want to be misunderstood or have a client come

            11   back and say that they have been misunderstood because

            12   paramount to them in the business is the goodwill and their

            13   name.  It is the most valuable commodity they have as a

            14   service organization servicing the public.

            15             Don's comments about the significance of mutual

            16   funds is a tool and how well they've been handled here are

            17   very appropriate.  With trillions of dollars invested in

            18   mutual funds, they are the instrument of choice with our

            19   advisors in particular, whether that's in a brokerage

            20   account, whether that's in sub-accounts through an annuity

            21   product or whether that is on an advisory basis, they are far

            22   and away the preferred vehicle to work with the investor

            23   dollar.

            24             To that end, there are three unintended

            25   consequences that we really don't want to see happen and some
 




             1   of these have been expressed as well.  One is -- and Henry

             2   just said it in a different way -- less is more.  At some

             3   point, we really don't want the investor to become so

             4   frustrated and so skeptical of the process that appears to go

             5   on with these stacks of paperwork that Director Donohue

             6   showed us here earlier that they can get through.

             7             Secondly, we don't want the advisors to give up on

             8   the product.  One thing you have to be careful of is that you

             9   don't inadvertently overburden particular vehicles so that

            10   advisors move away from that valuable tool and move to other

            11   products.  We think that is very important that disclosure be

            12   equitable across the spectrum of product.

            13             We also don't want advisors to give up their

            14   licenses.  I can't tell you how frequently I have

            15   conversations where advisors say, "Gee, I can just become an

            16   RIA and give up my brokerage license, face one-time

            17   disclosure -- comprehensive, albeit, to an ADV, but still we

            18   don't believe that the consumer is best served at a broad

            19   level if advisors are kind of moving toward giving up their

            20   securities licenses.

            21             There are cases where fee base is not the best

            22   alternative and we would encourage that regulation not become

            23   so stringent that people look to move away from those

            24   securities licenses.

            25             What are investors most interested in receiving?
 




             1             Barbara's comments were interesting.  Help in

             2   determining and meeting investment goals is far and away what

             3   clients come to an investment professional for.  Education of

             4   all the vehicles that are available to them to invest are

             5   paramount in this process.  Mutual funds today, of course,

             6   are the topic of choice and there is tremendous amounts of

             7   information available to the professional advisor provided

             8   through industry sources like the SEC and the NASD as well as

             9   mutual funds and independent organizations such as Don's.

            10             When you finally get down to the specific

            11   investment, performance was the number 1 thing as I polled

            12   our advisors that they were interested that clients wanted to

            13   know.  They then wanted performance on a relative basis.  How

            14   is that on a market basis?  So they wanted information about

            15   the markets that that particular fund was concentrating on. 

            16   Risk and risk on a relative basis, again.  What risk meant on

            17   a very personal level to that client was how that fit into

            18   their tolerance for risk.

            19             Investment objectives of the fund were also

            20   paramount.  They wanted to make sure in many cases that the

            21   funds culturally fit the investors -- that their holdings

            22   culturally fit where the investor wanted to be.

            23             And then way down the list, ironically, was the

            24   cost of doing business in general.  Not just the cost within

            25   the fund, but the cost of doing business.  Perhaps because
 




             1   these investors have come to a professional advisor, the

             2   reality is they know what they're going to pay.  They want to

             3   make sure that it's fair and that they get a reasonable value

             4   for what they're paying.

             5             Certainly, the NASD has thoroughly vetted this

             6   issue and, as I prepared for this and saw the thousands and

             7   thousands of pages that have been written on this, Profile

             8   Plus as proposed by the NASD seems to be a strong solution to

             9   the many points that consumers are looking to see.

            10             That's not a segue yet, Elisse, but I just thought

            11   I'd put that out there.

            12             (Laughter.)

            13             The information then finally also has to be cost

            14   effective.  The challenge in the securities business today is

            15   actually providing advice and doing it profitably.  Being

            16   able to stay in business.  This should mean that the use of

            17   the Internet is an obvious choice to maximize a reduction in

            18   paper and optimize the cost-effectiveness as we deliver

            19   information.

            20             Timely execution is also important.  If there are

            21   going to be signatures, they should be electronic signatures

            22   wherever possible.  Certainly, paper will not go away, but

            23   the Internet provides a valuable, valuable tool that

            24   investors can work with and get pertinent information on a

            25   timely basis.
 




             1             Cost effective and efficient to implement.  You

             2   know, if you look at excessive and unnecessary disclosure,

             3   you find out that the manufacturers of product are burdened. 

             4   You find out that the distributors of product, whether that

             5   be a broker dealer or other channels, are burdened.  You find

             6   out that the advisors are burdened with excessive disclosure. 

             7   And, in the end, the consumer ends up paying for all of that. 

             8   That's a condition that just cannot exist.

             9             The consumer ends up paying either by people moving

            10   away from providing advice to small investors or by cost

            11   precluding them from participating in valuable vehicles.

            12             Again, we would be strong proponents of the Profile

            13   Plus as an alternative and we finally see it as an evolving

            14   work.  The goal here is not to continue to heap on more and

            15   more data but, in fact, to replace other vehicles that are in

            16   place and as the Profile Plus would evolve, it would become

            17   more robust and remove pages and pages.

            18             One advisor said to me, in closing, he said, "You

            19   know, it amazes me that I can go get some really, really

            20   powerful medicine and all the pertinent disclosures I need to

            21   know are wrapped around that little bottle.  But, yet, in

            22   this business, we have to put out reams and reams of

            23   paperwork to try and disclose the risk."

            24             Thanks for allowing me to participate.

            25             MS. WYDERKO:  Thanks, Bill.  You're absolutely
 




             1   right that the NASD has done a lot of thinking about the

             2   kinds of information that mutual fund investors want to see.

             3             So, Elisse, why don't you wrap up our summary

             4   remarks?

             5             MS. WALTER:  Thank you, Susan, and thank you very

             6   much for inviting NASD to participate in this critically

             7   important event.  At the risk of completely destroying a

             8   sports analogy, I feel like the clean-up batter.  I think

             9   that's right.  Hopefully, I will add some remarks from the

            10   regulatory, including Investor Education, point of view.

            11             What has struck me sitting here this morning is the

            12   general consensus among the members of this panel.  Perhaps

            13   surprising given the diversity of our backgrounds and the

            14   different points of view that we represent.

            15             There is a vast array of information as we have all

            16   said in the public domain about mutual funds.  But as the

            17   Commission is recognizing by holding this forum, we need to

            18   take action to make the federally mandated disclosure more

            19   useful to the millions of Americans who purchase funds. 

            20   Disclosure simply should not be just a vehicle to protect

            21   issuers and intermediaries from liability.  It should inform

            22   investors and help them to make better decisions.

            23             We all recognize that the overwhelming majority of

            24   investors won't read long complicated documents like the

            25   traditional prospectus.  As Barb highlighted, we need to
 




             1   create mandated disclosures that investors can manage easily. 

             2   And we need to avoid disclosure creep.  As Henry said, less

             3   is best.  Investors must be able to digest, comprehend and

             4   retain the information.

             5             And we should also note and act on the fact that,

             6   as Bill stated, if a disclosure is unduly complex or the

             7   manner in which it is provided is unduly cumbersome,

             8   investment professionals will be wary of selling these

             9   products and may well turn to others which may not be as good

            10   for the investors they serve.

            11             The Fund Profile already adopted by the Commission

            12   was a giant step in the right direction.  I believe that we

            13   can improve on that concept and address the issues that seem

            14   to have prevented its widespread use.

            15             As Bill noted, last year the Mutual Fund Task

            16   Force, a group principally industry which NASD organized,

            17   recommended that the Commission adopt a new mandated point of

            18   sale disclosure document which it called the Profile Plus. 

            19   NASD, itself, has endorsed that proposal.

            20             The Profile Plus builds on both the profile

            21   prospectus and the Commission's proposed new point of sale

            22   disclosure about fees, expenses and conflicts of interest. 

            23   We believe it would provide meaningful disclosure both

            24   because of what it does include -- key information about a

            25   fund, objectives, risks, fees, performance and also
 




             1   information about dealer fees and conflicts of interest.

             2             It also is important for what it does not include. 

             3   It deviates from the profile because it doesn't include

             4   information such as redemption information that is not

             5   important at the time of sale.  It avoids lengthy narrative

             6   and uses graphics where possible and it omits information or

             7   less interest to investors such as the breakdown of the

             8   expense ratio.  It is simple.  It provides performance

             9   numbers, for example, without the hypothetical illustration

            10   from the prospectus.  And the Profile Plus also works because

            11   by linking the short form disclosure to the full prospectus

            12   using hyperlinks, as Chairman Cox said, the Profile Plus

            13   harnesses the power of the Internet in this particular

            14   respect which is very important.  Whatever happens should use

            15   that power.  It doesn't force disclosure into one size fits

            16   all.

            17             Investors can choose for themselves the level of

            18   detail they want.  And, as Don said, institutions and

            19   professionals will continue to have the benefit of the longer

            20   disclosures.  But it offers investors this tailoring ability

            21   without sacrificing comparability.  And we believe it also

            22   addresses the liability concerns that have plagued the

            23   Profile prospectus.

            24             Some have suggested that oral disclosure is

            25   preferable.  We agree with Chairman Cox that investors should
 




             1   be offered a choice.  Detailed oral disclosure is confusing

             2   and difficult to retain and while some investors are not

             3   ready to use the Internet for this purpose, many are.  As the

             4   CFA survey reported, even among those 65 and over, the most

             5   Internet resistant group, a significant number are willing to

             6   use the Internet for some purposes.  And all the investor

             7   research today shows that a majority of investors are

             8   Internet savvy.  The resistance of some should not be a

             9   reason to preclude those who want to use the Internet from

            10   opting for Internet delivery.

            11             Others have suggested that even with Internet

            12   delivery the investment should be held up until the broker

            13   can obtain assurances that the investor has read the

            14   disclosure.  We believe strongly that imposing such a

            15   requirement would not be investor friendly.  The ability of

            16   investors to invest as they choose to do should not be

            17   impeded.

            18             Two more brief thoughts before I close.  As the

            19   Commission moves forward, it should be sure to address the

            20   needs of retirement plan investors.  Of course, working

            21   closely with the Department of Labor.

            22             And, finally, this is a beginning.  This effort

            23   should not stop with mutual funds but should extend to other

            24   investment vehicles as well.  Thank you.

            25             MR. DONOHUE:  I want to thank the panelists for
 




             1   their prepared remarks.  We have about 15 minutes now within

             2   which to have some questions asked and I would encourage the

             3   Commissioners, although I'm sure no encouragement is

             4   necessary, if there are questions to certainly jump in.

             5             I will first defer to the Commissioners if there

             6   are any questions that they might want to ask the panelists.

             7             COMMISSIONER ATKINS:  Well, just one.  I guess as

             8   we talk about the liability issues that have come up with

             9   respect to the Profile prospectus and perhaps also of the

            10   Profile Plus, I was just curious if you all have any, you

            11   know, particulars as to what we need to do, whether it's a

            12   Safe Harbor in that respect.  We were talking about -- Mr.

            13   Hopkins mentioned that making it a statutory prospectus might

            14   help solve that problem, whether there are other ways as well

            15   of addressing that?

            16             MS. WALTER:  Commissioner Atkins, I think there are

            17   a number of different ways to do it.  When the Mutual Fund

            18   Task Force came up with the Profile Plus what it in effect

            19   was advocating was a step less that access equals delivery. 

            20   Because what the task force said and we at NASD agree is that

            21   if you deliver a short form document and it hyperlinks to the

            22   larger document, that that really is delivery of the larger

            23   document and that simply could be done as an interpretive

            24   matter.

            25             So, if the Commission didn't feel comfortable going
 




             1   all the way to access equals delivery as it has in the

             2   corporation context, that might be one solution.

             3             MR. HOPKINS:  I would agree wholeheartedly.  I

             4   think incorporation by reference, the prospectus into the

             5   Profile is the simple solution.  And it avoids having to

             6   reach the conclusion that Internet access equals delivery.

             7             MS. ROPER:  Obviously, it is an issue that is much

             8   easier when you're talking about Internet delivery because it

             9   really does -- if you link it, you have delivered it.  The

            10   investor has the choice whether they read it or not just as

            11   they have a choice whether they read the print document that

            12   they receive in the mail.

            13             For those who choose not to use the Internet, it is

            14   a more difficult issue and I don't know that I have a

            15   specific solution there.

            16             COMMISSIONER NAZARETH:  As you know, one of the

            17   features of the point of sale disclosure was this really, you

            18   know, two-page hard-copy document.  And perhaps Elisse can

            19   address this.  I know one of the controversial elements of

            20   that was whether or not that was in fact a step backward or

            21   whether we should encourage people to look at such a document

            22   online and have the online document supplement oral

            23   disclosure.  Can you sort of address again where your group

            24   came out on that?

            25             MS. WALTER:  Where the task force came out was that
 




             1   for those people who were comfortable with Internet

             2   disclosure that it really was a more effective way to deliver

             3   the information.  There was great concern among the members

             4   of the task force and we share that that the oral disclosure

             5   would confuse and be difficult to deal with.

             6             So for those who were willing to deal with the

             7   Internet and we think there will be many, it is a more

             8   powerful form of disclosure.  It leaves the oral conversation

             9   that may be taking place when the fund is being recommended

            10   or the investor calls to place an order on the questions that

            11   the investor has.

            12             Now, for those who are not comfortable with

            13   Internet delivery, it would be worth having an abbreviated

            14   form of oral delivery that would be more capable of being

            15   retained than the lengthy delivery of repeating the whole

            16   document and to have that serve as a substitute and then

            17   provide the prospectus or perhaps just the two-page document

            18   later on with the confirmation.

            19             We are quite concerned that investors will not want

            20   to delay the consummation of their transaction until the

            21   document arrives in the mail and we don't think that we

            22   should interfere with their investment choices including the

            23   time in which they want to place their order.

            24             COMMISSIONER CAMPOS:  I wholeheartedly agree.

            25             COMMISSIONER GLASSMAN:  I thought that one of the
 




             1   issues regarding Internet delivery, at least in some of the

             2   research that we had done, was that although the investors

             3   are interested in using Internet delivery, it was difficult

             4   for them to be on the phone with their investment provider

             5   and use the Internet at the same time.  That was a challenge.

             6             MS. WALTER:  It was for some and it wasn't for

             7   others.  There were a significant number who said, when we

             8   went back -- and if you'll recall, Commissioner Glassman, at

             9   your request we did some further investor research

            10   specifically about that issue and we determined that I

            11   believe it was a little bit less -- it was hovering around

            12   half felt comfortable accessing the Internet while they were

            13   on the phone.  Others felt that they would continue in a

            14   later phone call.  Others felt that they would access the

            15   information later but wanted to proceed.  And we really think

            16   that that ought to be at the investor's option and it ought

            17   to be presented to them quite neutrally so that they can

            18   decide the way they feel most comfortable.

            19             MS. ROPER:  You also don't have to be on the

            20   Internet at the same time you're on the phone.  If you have

            21   downloaded a link and you've pulled up the document, you can

            22   go off line.  If you have received it out and printed it out,

            23   I mean, virtually instantaneous delivery, you're talking

            24   about a delay of perhaps, you know, five minutes that I think

            25   most people are willing to tolerate.
 




             1             So it does not require that you have the

             2   technological ability to be online and on the phone at the

             3   same time.  And I actually think the model that Chairman

             4   Glauber has talked about recently of having the broker talk

             5   to the client about the document while they have the either

             6   Internet document in front of them is the most useful one if

             7   we want the investor to actually understand it.

             8             COMMISSIONER CAMPOS:  In this kind of a

             9   conversation context what should the broker dealer maintain

            10   as evidencing the conversation with the investor?

            11             MS. WALTER:  Well, clearly, it's one of the

            12   concerns that people have about oral disclosure.  It's not

            13   very easy to police.  And unfortunately for those who are on

            14   the edge and unscrupulous, it's probably fairly easy to gain

            15   on because you're going to end up with a notation in a file

            16   that an oral conversation took place.

            17             Whereas, if in fact the broker is e-mailing the

            18   investor a hyperlink to the document, then you will at least

            19   have a record that that e-mail has been sent and received. 

            20   But one way or the other, however the scenario is set up,

            21   however the requirements are set up, it will be clear that

            22   the brokers will have to maintain a record which will be

            23   auditable by examiners when they go in to make sure that they

            24   have fulfilled their obligation.

            25             COMMISSIONER GLASSMAN:  To follow up on that, how
 




             1   difficult is it to follow up the oral disclosure with

             2   something that's sent later with a confirm if the security is

             3   purchased?

             4             MS. WALTER:  You know, I really should defer in

             5   part to  Bill and Henry on this.  I think it is really more a

             6   question of the expense of the system.  And to the extent

             7   that you have to not only do the Internet disclosure which is

             8   quite inexpensive and really does conserve costs and you have

             9   to do another mailing, that obviously just adds another cost

            10   to the system.  Is it a great cost?  If you're just sending

            11   the two-page document, it obviously isn't terribly bulky, but

            12   it is an added cost.

            13             COMMISSIONER GLASSMAN:  It wouldn't be an

            14   additional mailing because the confirm is mailed, correct? 

            15   So it could be something in the confirm mailing.

            16             CHAIRMAN COX:  Don, I wonder if I could put a

            17   question directly to you.  You mentioned this army of people

            18   that look at information whether or not the customer ever

            19   sees it.  And I'm quite interested in what your forecast is

            20   of what use might be made not only by Morningstar but other

            21   people that are in the business of intermediating some of

            22   this disclosure if a whole lot of information in mutual fund

            23   prospectuses were tagged.  Help us imagine some of what might

            24   come of that.

            25             MR. PHILLIPS:  Well, right now, a tremendous amount
 




             1   of our time and energy goes into just establishing and

             2   maintaining a clean database.  And, yet, the real value that

             3   we bring to the equation is the exercise of judgment about

             4   that information.

             5             And I think the same is true for these

             6   intermediaries.  And right now the time and energy, the

             7   daunting part of the task is just how do you get this

             8   information into a position where you can start extracting

             9   value from it.

            10             And that's why I think the move to make it easier

            11   to do that and have more people thinking about what the

            12   information means is a healthy one.

            13             If I'm going to go buy a car or a big screen TV or

            14   some other expensive consumer item, I can do a whole lot of

            15   research on the Internet.  And the comparative information

            16   might be provided not by the person who makes or sells it but

            17   by some third party in many cases lending it some objectivity

            18   and in other cases you've got to be careful what you run into

            19   on the Internet.  But the ability to use the Internet as a

            20   tool for comparative shopping is one of the things that makes

            21   it a great tool.

            22             What might I be able to see crop up in the form of

            23   web-provided information as a customer if I want to do a

            24   little bit of research before I call my broker or my

            25   financial advisor.
 




             1             Well, today you can already get a tremendous amount

             2   of information because there are parties like Morningstar and

             3   a number of newspapers and other organizations do have a lot

             4   of information out there.

             5             MR. PHILLIPS:  Yes, of course.  I understand that. 

             6   I guess I'm thinking what would be the increment, what

             7   additional information might we get?

             8             MR. PHILLIPS:  Well, I think what you would do is

             9   you would free up more parties to think about this

            10   information, how you present it, how you interpret it.  The

            11   classic mistake that Wall Street makes is we throw lots and

            12   lots of information at people and pretend that we've educated

            13   them.  And people don't relate to big tables of numbers. 

            14   And, at the end of the day, that's still what this will be.

            15             What they relate to are pictures.  They relate to

            16   advice and counsel.  And that's what you need is to empower

            17   people to be focusing on the interpretation of this, the

            18   counsel that goes along with this.

            19             You could argue that making this information more

            20   accessible to the public would be a disadvantage to a group

            21   like Morningstar since we have assembled big databases.  But

            22   we think that our real value added again is not just you

            23   having the data but how we think about it.  And what you

            24   would be doing by this is inviting more competition for our

            25   firm and for others but it would be a healthy process because
 




             1   you would get us all focused on the value added part.  How do

             2   you interpret this?

             3             And there are major advantages that third party

             4   firms will continue to have in that a legal document or the

             5   discrimination documents can't offer the opinion as to

             6   whether this is the right fund.

             7             And the real art of investing is taking all that

             8   investment information and matching it to the investor.  And

             9   I think that by making the investment information more

            10   accessible, you can allow more people to focus on the real

            11   art of investing, matching the right investment to the right

            12   investor.

            13             And that's where, that's where the process often

            14   breaks down because many people can't participate because

            15   they don't have the data to begin with or they have been

            16   freed up to focus on the matching up of the data which really

            17   is the key to creating a good investor experience.

            18             MR. HOPKINS:  If I could just interject?  I don't

            19   think by providing this data in an easily accessible form

            20   we're going to have a million little Morningstars making the

            21   same analysis that Don's company does.  That's number 1.

            22             Number 2, what we provide retail shareholders which

            23   is the Profile versus what we provide our 401(k) retirement

            24   participants is quite different.  Actually, we do not use the

            25   Profile with our 401(k)7 business.  We use the Morningstar
 




             1   profiles for each of our funds.

             2             And I think if there is one area that the

             3   Commission should examine and that is what should

             4   participants in these plans be given.

             5             Right now there really is very little guidance and

             6   everyone is sort of doing their own thing.  Whereas, in the

             7   retail side, we have a very distinct prospectus and profile. 

             8   So that's an area I think where we need some discussion.  And

             9   I would propose that in the area of the retirement business

            10   that it could be something other than the profile.  It could

            11   be something like, you know, the Morningstar investment

            12   profile as an example, which is a very simple way to provide

            13   information to a certain segment of investors that don't even

            14   need as much as in the profile.  But a lot of discussion and

            15   thought has to go into deciding how are we going to best

            16   provide this very large segment of the mutual fund investing

            17   public with appropriate information to make decisions.

            18             MS. WALTER:  I think, Chairman Cox, the real

            19   increment will come with respect to the retail investor.  If

            20   you have all of this data tagged and, therefore, there can be

            21   an easy way for investors to be able to choose what

            22   information, beyond the short form disclosure document, they

            23   want, they will be able to get to it more easily.  And I

            24   would like to think they would be more likely to look at the

            25   things that particularly interest them.
 




             1             And it also comes about because of the short form

             2   disclosure document, if that is done in a standardized format

             3   so that it's readily comparable, there can be a library, an

             4   electronic library of those established.  And, in act, NASD

             5   has offered to put some of its resources behind establishing

             6   such a library so that investors can easily when they're

             7   considering what fund or what fund share class to invest in,

             8   they can bring up the documents, very short form, comparable

             9   format and make a very easy simple comparison.  And that is

            10   something that is very difficult for people to do today.

            11             MS. ROPER:  I guess I look at it a little

            12   differently.  I don't see investors as being interested in

            13   setting up lots of pieces of information side-by-side and

            14   making the analysis themselves about which is going to be the

            15   best funds based on those factors.

            16             But I do see the potential of the Internet to allow

            17   a kind of comparative shopping that does that comparison for

            18   them.  You know, if I buy a car, I can say I want a car that

            19   gets this many miles per gallon and I want it to have these

            20   kinds of crash test results.  And, you know, whatever the

            21   factors I want.  There is no reason you couldn't do -- that

            22   someone couldn't develop the same kind of thing for mutual

            23   funds on the Internet.

            24             I want a fund, you know, a large cap stock fund

            25   with expense ratio of some whatever percentage.  And whatever
 




             1   factors that I want to put into that.  And I don't have to

             2   sit down and look side-by-side at all the different funds

             3   that have those characteristics.  It can spit it out for me.

             4             There is some of that available in sometimes

             5   somewhat crude form on the Internet now.  And I think if we

             6   make it easier to tag that data we're going to see more of

             7   that kind of thing.

             8             MR. DWYER:  You know, I might just add to that,

             9   that typically when you refer to buying things over the

            10   Internet and doing background information -- maybe you're

            11   going to go buy a microwave, for example, and you want to do

            12   a Consumer Report study, you're generally not going to buy a

            13   portfolio of microwaves.  You're not going to buy a suite of

            14   them unless it's an institutional buy.  So what Don alludes

            15   to is the art of investing is really where it goes.

            16             Your conversation tends to separate a little bit

            17   the Internet and the advisor.  The reality is professional

            18   advisors today use the Internet every day in working with

            19   their clients to go over their portfolios, to go over the

            20   account status at any given point, and to go over investment

            21   recommendations that they're making going forward.  So it is

            22   a very viable vehicle that advisors are using already today. 

            23   And I think it really needs to be looked -- you can get so

            24   wrapped up in disclosure on a given entity that it's really 

            25   relevant to "I can fully understand it, but if it doesn't fit
 




             1   my need, then it's still a bad investment."

             2             One advisor said that everyone seems to be focused

             3   on the sticker on the window of the car as opposed to what's

             4   under the hood.  And when you have that car that can't get

             5   you up the hill, then that's a problem at any price.

             6             So I think the Internet is a valuable tool in the

             7   education process that the advisor uses with the client and,

             8   again, streamlined disclosure for them to work with is very

             9   valuable.

            10             COMMISSIONER CAMPOS:  If we're done with that

            11   question, I have another one if I could.

            12             Henry brought up the retirement sector and I wrote

            13   a short article a few months ago about the terribly different

            14   requirements on the retail side of mutual funds versus the

            15   retirement side where if you have insurance products or bank

            16   products  other than ERISA rules which only

            17   encourage -- don't require -- disclosure, there is not much

            18   available to retirement investors.  And, in particular, given

            19   the fact that defined benefit plans are on their way out,

            20   defined contribution plans are pretty much the norm, we have

            21   essentially in my view retirees and the boomers essentially

            22   driving blind to sort of emphasize the problem.  Because

            23   they're getting very erratic and not very much disclosure

            24   because they're not required to essentially especially with

            25   some of these products.
 




             1             Do any of you feel that this is a problem?  Some

             2   have said maybe I'm an alarmist and we shouldn't worry about

             3   this.  But it seems to me that at a minimum some type of

             4   profile, a summary disclosure should be required to 401(k)

             5   and other self-management retirees.

             6             MS. ROPER:  I couldn't agree more.  This is for

             7   many people, not only the major way they invest, but the

             8   first way they invest.  And they enter that arena with the

             9   least amount of information that we provide in any context.

            10             And I don't see any reason why different types of

            11   investments should come with different types of disclosure. 

            12   Just as I think all financial professionals should have

            13   comparable up front disclosures that they have to provide to

            14   aid an informed decision among professionals, it shouldn't

            15   matter whether it happens to by tradition have been regulated

            16   under the Insurance Division or some other division, you

            17   ought to be able to get some basic information about every

            18   investment you've considered that allows you to determine is

            19   this appropriate for my needs.  And among the types of

            20   products that is appropriate for my needs, is it a good

            21   choice for me?

            22             MR. HOPKINS:  You know, it's a little different

            23   situation when you face making an investment in your

            24   company's 401(k) program because the company has already

            25   selected certain options that you choose from.  So it's not
 




             1   like the retail investor that has the whole universe of

             2   mutual funds they must select from.  The company has already

             3   done the research and has a reasonable component of funds

             4   that you must select.  So that the information generally that

             5   is provided to participants within a program is less.

             6             The surprising thing to me is that there has not

             7   been any agreement between the Department of Labor and the

             8   SEC in coming together with what should be the minimum amount

             9   of information to provide this segment of the investing

            10   public which, as Barbara said, in many times it's the first

            11   time the person has invested and many times they are the

            12   least trained and able to make investment decisions.

            13             COMMISSIONER CAMPOS:  My research showed that even

            14   in the menu situation where you're getting a basic equity

            15   index and maybe a fixed income product, very little

            16   information as to making the choice is among the select menu

            17   we're being provided.

            18             MR. HOPKINS:  A lot of the companies, you know,

            19   want to streamline what goes to their employees and so it's

            20   sort of a consolidation to have, you know, a one-page concise

            21   summary of each fund as opposed to either prospectuses or

            22   even profiles.

            23             MR. DONOHUE:  One of my more important functions is

            24   to see if we can maintain a schedule.  I think Susan has one

            25   last question and I think, Susan, I'll turn it to you.
 




             1             MS. WYDERKO:  Thanks, Buddy.  The topic of this

             2   panel is what types of information do mutual fund investors

             3   find most helpful.  And I think what we've said is that the

             4   answer can depend on the investor and the answer often

             5   depends on the channel in which they're getting the

             6   information, the time at which they're getting the

             7   information.

             8             Now, we in the government, pass regulations.  And

             9   the cost of getting those regulations is very high.  If we

            10   get the answer wrong, the cost is very high.  We can't adjust

            11   easily.  So give us some practical advice.

            12             How do we, the SEC, go about figuring out which of

            13   the different kinds of information are the most important to

            14   put on a streamlined document?

            15             MS. WALTER:  I think the answer is many fold. 

            16   There's been a lot of consumer research done.  The CFA, the

            17   ICI, NASD, the Commission, we have all done a lot of consumer

            18   research.

            19             I know that our Mutual Fund Task Force brought to

            20   bear on many of what I consider to be people at the NASD

            21   excepted some of the great minds in the industry.  And they

            22   took a look at the information including the information that

            23   was required in the original profile and added to it to a

            24   certain extent to focus on dealer conflicts as the Commission

            25   had and subtracted from it and came out with a rather
 




             1   streamlined list of items that we felt were the items that

             2   were critical to give at the point of sale.  Not to continue

             3   to emphasize that one proposal, an awful lot of thought went

             4   into that and it is that body of information or something

             5   very similar to that that I think gives you what you need.

             6             MR. HOPKINS:  Yes, I would say that the research

             7   and effort that went into the profile produced an excellent

             8   document, a disclosure document, and I think all we need to

             9   do is simply build upon that and confirm those findings, that

            10   they're just as true today as they were when that document

            11   was created.

            12             MS. ROPER:  I would say that I think the profile

            13   effort did a very good job of defining the categories of

            14   information that we need to give investors.  Where I think we

            15   would benefit from additional research is on how best to

            16   present that information to investors to ensure that they

            17   understand it.

            18             And when I say to ensure that they understand it, I

            19   don't necessarily mean to ensure that they like it.  People

            20   like the profile.  What we don't know is whether they can

            21   then make an informed decision based on the information that

            22   they got in the profile.

            23             And I think the kind of testing you have done in

            24   other contexts to determine the usability of information

            25   could help us to refine the basic profile concept to make
 




             1   sure that it conveys information in a way that investors can

             2   use and understand.

             3             MR. PHILLIPS:  And I think the key thing would be

             4   to have two different mindsets.  When you're thinking of the

             5   profile, it really does get down to what information do

             6   investors need.  And that's very difficult to figure out

             7   exactly what the key things are going to be.

             8             We used to have analysts who were starting off at

             9   Morningstar and they would say, "Well, tell me which order to

            10   look at the numbers and the information on the page."

            11             And we'd say, "Well, it's always something

            12   different.  It's the exercise of judgment."

            13             And we had one page that we used to use in training

            14   and it was a fund where I maintained the most important thing

            15   you could know about the fund was the address.  And it was a

            16   convertible bond fund that had an expense ratio close to 3

            17   percent a year which was causing it to significantly

            18   underperform its category year in and year out.  And the

            19   address was Penthouse Suite, something or other Wilshire

            20   Boulevard, Beverly Hills, California.

            21             So, you're never going to come up with the perfect

            22   document that has all the information that people need to

            23   know.  But I do think that the efforts for the profile have

            24   been very good and, if not exactly perfect, maybe that one

            25   outlying fact that you would want on a certain fund, it is
 




             1   awfully close to the information people need.

             2             But it needs to be backed up and supplemented by

             3   the larger prospectus which is guided not by this

             4   paternalistic idea of what investors need to know or what we

             5   think they need to know, but what as investors, as

             6   shareholders, have a right to know and what the third parties

             7   that are helping investors make decisions have a

             8   responsibility to know about a fund.

             9             And I think if you have got that safety net of that

            10   broader document with a right to know mindset, then even if

            11   we are a little off on what the need-to-know information is,

            12   investors will be well protected.

            13             MR. DONOHUE:  Don, I think that's a good point to

            14   end our first session.

            15             Thank you all.

            16             (Brief Recess.)

            17    PANEL TWO:  HOW CAN THE COMMISSION LEVERAGE THE POWER OF THE

            18                                      
                             INTERNET TO PROVIDE MUTUAL FUND INVESTORS WITH

            19                        BETTER INFORMATION?

            20             MR. DONOHUE:  I'd like to start our second panel

            21   now.  Today we are standing at an information crossroads.  As

            22   Chairman Cox outlined in his opening remarks, we are moving

            23   from a world where paper was the norm for information

            24   delivery to a world where the Internet increasingly is the

            25   medium of choice.
 




             1             Over 200 million Americans have home Internet

             2   access.  Their Internet experience is improving rapidly as

             3   broadband connections proliferate and the demographics of

             4   those with Internet access increasingly mirror the general

             5   population.

             6             The Internet has done far more than simply move

             7   paper documents online.  It has caused a see change in our

             8   expectations of how quickly and easily information should be

             9   available.  Recent book by Internet design expert, J. Cobb

            10   Nielson, explains that Internet users typically are looking

            11   for answers to questions.  In Nielson's words, "It's almost

            12   like the web is swamp.  People are fishing in that big swamp

            13   and dragging out something that hopefully will be a nugget of

            14   gold but could be an alligator."

            15             Our second panel this morning will explore how we

            16   can use the Internet and interactive data to help mutual fund

            17   investors find the nuggets of gold they seek among the swamp

            18   of available information.

            19             Now I'll turn the mike over to  Susan Nash, an

            20   associate director in the Division of Investment Management

            21   whose office is spearheading our reexamination of mutual fund

            22   disclosure and the role that interactive data can play. 

            23   Susan will introduce our four distinguished panelists.

            24             Susan?

            25             MS. NASH:  Thanks, Buddy.
 




             1             Farthest from me is Bill Lutz.  Bill is a professor

             2   of English at Rutgers University and an expert on plain

             3   language.  I know that Bill has been instrumental in helping

             4   a number of funds to rewrite their prospectuses to make them

             5   easier for investors to understand.

             6             Next to Bill is Paul Stevens.  Paul is the

             7   president and chief executive officer of the Investment

             8   Company Institute, the National Association of US investment

             9   companies.

            10             Next to Paul is Tim Buckley.  Tim heads up

            11   Vanguard's Information Technology Division and in that job he

            12   is responsible for Vanguard's utilization of technology to

            13   provide services to Vanguard's millions of shareholder

            14   accounts.

            15             And, finally, Paul Haaga is executive vice

            16   president and a director of Capital Research and Management

            17   Company as well as chairman of the executive committee.

            18             As with the first panel, we will open the

            19   discussion by inviting each of our panelists to provide some

            20   perspective on how the Internet could be used more

            21   effectively to provide better information to mutual fund

            22   investors.

            23             Bill, can you give us your vantage point as an

            24   expert in the area of communications with investors?

            25             DR. LUTZ:  I'm the outsider here, I'm the academic
 




             1   which means I'm allowed to be very abstract and

             2   non-practical.  Although I have written 58 mutual fund

             3   prospectuses into plain English, today I work on Item 7 of

             4   the 10-K.  That is the MD&A in plain English.  I don't know

             5   which of the two I would rather choose.  I think the third

             6   option is having my fingernails slowly extracted one by one

             7   in which case, I would go with the latter.

             8             (Laughter.)

             9             We were asked when we were invited to this panel to

            10   prepare five points so I will give you the five points.  One,

            11   the effects of the Internet will be as great as if not

            12   greater than the introduction of moveable type in the

            13   mid-15th Century.

            14             Two, the Internet is moving us back to the oral

            15   tradition replacing important elements of the print

            16   tradition.

            17             Three, the Internet is a medium that doesn't simply

            18   transmit data, it creates information.

            19             Four, the Internet as it develops will become a

            20   dynamic blending of the visual and the verbal allowing users

            21   to interact with the data to create the information they

            22   want.

            23             Five, information is that which reduces

            24   uncertainty.  That definition comes from the now classic

            25   monograph, "The Mathematical Theory of Information,"
 




             1   published in 1949 by Claude Shannon and Warren Weaver.

             2             Let me repeat that.  Information is that which

             3   reduces uncertainty.

             4             It is important that we distinguish our terms. 

             5   Much of what we are talking about is not information, it is

             6   data.  Those piles of folders were data, they were not

             7   information.  And we are drowning in data and we have too

             8   little information.  And we need to sort the two and decide

             9   which it is we are doing.

            10             I am the only person and I am the English professor

            11   who is going to use PowerPoint right now.  Only a little bit

            12   because I am going to show, not tell.

            13             We start with the Shannon and Weaver definition. 

            14   But what does this mean?  Like all definitions, this one is

            15   simple but profound in its implications.  And this is what I

            16   want you to start thinking about, the implications of this.

            17             What does this mean?  For those of you who have

            18   traveled to London and have ridden the Underground or the

            19   Metro in Paris or even the Metro in Washington, D.C., this is

            20   the London underground map of 1913.  When you take a subway,

            21   what do you want to know?  How do I get from A to B and how

            22   much is it going to cost me.

            23             Look at this underground map.  We have the Thames

            24   River on it, but look at all the roads that are on there,

            25   there are parks that are marked.  I don't need to know this
 




             1   on a subway map.

             2             Well, they simplified it.  Notice how a lot of

             3   those features were removed by 1932.  Now it's focusing just

             4   on the lines.  But do I really need to know the directions

             5   that they go in relationship to each other?  No.

             6             This is the map today.  It tells me how I get to

             7   from point A to point B and because of the zone structure in

             8   London, I know how much the fare is going to be or how to

             9   look up my fare.  That's all I need to know.  Any additional

            10   information I can look for it someplace else.  This is called

            11   information architecture in which we have a hierarchy of

            12   information here.

            13             Now, by the way, if you are one who rides this a

            14   lot, you quickly learn the limitations of this map.  For

            15   example, you learn that you will never ever transfer stations

            16   at Bank because although on the map they intersect, they

            17   intersect only because you walk about a mile underground. 

            18   The same thing in Paris at the Chatelet stop.  Never change

            19   trains at Chatelet.  You'll spend your life walking

            20   underground in Paris.  So there are limitations to this, but

            21   it gives me the information that I'm looking for.

            22             By the way, there's another map you can buy in

            23   London that will tell you that information if you really want

            24   it.  So this is that which reduces uncertainty.  Now which

            25   map would you rather use?  This one or this one?  This is the
 




             1   new New York City Subway Map.  This is data overload.  I

             2   really don't need to know the route that the path train takes

             3   to New Jersey if I'm riding the New York City Subway.  I

             4   don't need to know all those highways and streets that are

             5   mapped on there.  And notice also that the map is trying to

             6   following the geographical layout and just for good measure

             7   bus routes are thrown in.  No one in New York City uses this

             8   map.  You can't.  It is data overload.  It's not information,

             9   it is data overload.

            10             How do I get from Point A to Point B?  I bought a

            11   different subway map.  Everybody else does because it's

            12   simplified and it gets rid of all this extraneous data.

            13             So, if we think of the prospectus as a document

            14   loaded with data but no information, because people look at a

            15   prospectus to reduce uncertainty to make certain decisions. 

            16   As a simple example, I'm surprised no one has mentioned when

            17   we go online to look for an airplane ticket, we want to know

            18   when does the plane leave, when does it arrive and how much

            19   will it cost me.  Those are the first three questions we have

            20   answered.  After that, we may want to know my seat assignment

            21   and then, you know, do they serve meals, what type of

            22   aircraft.  But notice that the first screens that you

            23   interact with give you that essential information.  That is

            24   what data hierarch is.  That's why it is so important that we

            25   try to determine what it is that investors need to know.
 




             1             But, if we look at the Internet as a means for

             2   creating information, for transforming data into information

             3   that the individual wants, then we will completely rethink. 

             4   We don't have to worry about using the information as a pipe

             5   to deliver.  It is not a delivery system, it is a medium for

             6   creating through interaction.  And it is not a replacement

             7   for the Post Office.  It is an entirely new medium for the

             8   creation of information just as the development of moveable

             9   type was when we moved from the oral tradition to the print

            10   tradition.  So now we need to think of it that way.

            11             If we create a truly interactive means of

            12   delivering this information, we don't have to worry what we

            13   put up there.  You can throw everything in there because

            14   people will have the power to do it.

            15             As one who has just purchased recently three

            16   electronics on the Internet doing exactly what we're talking

            17   about, I went on line, I said this is what I want to get.  It

            18   popped up, gave me three choices.  I looked up each of the

            19   choices for the features I wanted and made my decision.  Then

            20   I looked for the cheapest place to buy it.  This is the way

            21   we need to think about the delivery of data to anybody who is

            22   going to invest in a mutual fund.

            23             There is no reason why you cannot do exactly what

            24   Barbara said earlier, why can't I ask for, "I want a mutual

            25   fund with these features," and it will pop up or the three or
 




             1   five or four.  That's what I did when I was looking for my

             2   DVD recorder.  I said I want something that will do this. 

             3   And it popped up with five examples for me.  This is how we

             4   need to think about it.

             5             I am very much a print person.  I'm in English

             6   literature -- and I also worked on the Profile Prospectus by

             7   the way.  If you go back into the files, you will find that

             8   one of the three sample profile prospectuses was called "The

             9   Grendell Fund."

            10             (Laughter.)

            11             I had to slip that one in and originally named it

            12   the Rothguard, but nobody could pronounce that one.

            13             So what we need to do is break from the print

            14   tradition.  And there is no reason why we can't use natural

            15   language questioning to give the information and think we

            16   solve a lot of problems that we're all worried about here.

            17             The conflict between disclosure, liability and the

            18   information that the investor seeks.  Those are three

            19   different purposes.  And we have been trying to come up with

            20   a mutual fund prospectus that does all three things for all

            21   three functions and it doesn't work.  It ends up being

            22   unreadable.  So we need to change the way we think about it

            23   and use the Internet the way it can be used, to create

            24   information for each individual.

            25             MS. NASH:  Thanks, Bill, those were informative
 




             1   insights.

             2             Paul, I know that the ICI has recently done some

             3   research in the area of mutual fund investors' information

             4   needs as well as fund investors' use of the Internet.  Could

             5   you share your perspective with us?

             6             MR. STEVENS:  Yes, Susan, thank you very much. 

             7   Thank you, as well, Buddy, and Chairman Cox and members of

             8   the Commission for this opportunity to present the ICI's

             9   views.

            10             We believe the Commission deserves great credit for

            11   recognizing that the time is right to seize upon the

            12   potential of the worldwide web as a means to better inform

            13   investors.  In 2005, a survey that we conducted found that 90

            14   percent of US fund investors have access to the Internet. 

            15   Most of them use it regularly.  In fact, 90 percent of that

            16   90 with access use it at least once or two times a week.  The

            17   vast majority of them are on line everyday.  And that typical

            18   among their uses of the Internet are for financial purposes.

            19             But just as important and I think this is part of

            20   the calculus here, the Internet can serve us far more than a

            21   stand-in for paper documents, the current method that we use

            22   to provide data or hopefully information.  It can, in fact,

            23   as you have observed, Chairman Cox, put investors in control

            24   when it comes to information about their investments.

            25             It is with this in mind that I'm particularly
 




             1   pleased to be able to report that the ICI has launched what

             2   we think of as a ground-breaking project to help realize that

             3   vision.  We are working to extend the XBRL taxonomy to cover

             4   the risk-return summary that's included in all fund

             5   prospectuses.

             6             ICI has engaged Pricewaterhouse Coopers, the

             7   experts in XBRL international there to help develop this new

             8   taxonomy.  We have also formed a very broad working group

             9   enlisting our members along with other stakeholders who will

            10   be involved in XBRL reporting for mutual funds.

            11             We expect to complete the project by the first

            12   quarter of 2007 and then we will launch an education program

            13   to encourage mutual funds to use this tagging in their EDGAR

            14   filings.

            15             Now what, may you ask, is the significance of this

            16   effort?  The current XBRL tagging system for mutual funds as

            17   you probably know principally focuses on financial

            18   statements.  For operating companies, the financials contain

            19   most of the information that shareholders want.  But for

            20   mutual funds and for fund investors, financial statements

            21   frankly are of secondary importance.  By contrast for almost

            22   a decade under the SEC's disclosure rules, the risk-return

            23   summary has highlighted the crucial information that

            24   investors use in deciding which funds to buy.

            25             Now, ICI research about the use and preferences for
 




             1   information among fund shareholders and investors confirms

             2   that recent fund buyers look primarily for information that

             3   is included in this risk-return summary.  It's information

             4   such as the fund's fees and expenses, its historical

             5   performance and its risk characteristics.  XBRL tagging can

             6   help turn the risk-return summary into an even more powerful

             7   tool than the Commission envisioned when it first adopted it

             8   in 1998 as a way to help investors compare one fund with

             9   another through the standardization of the information and

            10   the format in which it's presented.

            11             Now, to our knowledge, ICI is the only US financial

            12   services industry organization actively working to extend

            13   XBRL beyond financial data.  Widespread use of this new

            14   taxonomy will introduce millions of investors and their

            15   advisors to the benefits of XBRL and we are proud to be

            16   leading this new effort.

            17             Beyond XBRL, we would urge the Commission to

            18   consider other reforms that will help bring fund disclosure

            19   into the 21st Century.  In the new system we would encourage

            20   you to consider, funds and their intermediaries could deliver

            21   a clear concise disclosure document at least to those

            22   investors who have not affirmatively opted to receive

            23   information online.  The document could be much like the

            24   profile prospectus.  It would include a prominent statement

            25   that additional disclosures, detailed disclosures that is to
 




             1   say the prospectus and statement of additional information as

             2   they exist today would be available on the funds website or

             3   upon request in a paper form.

             4             That sets up sort of a win-win system it seems to

             5   us.  All investors would receive the most important

             6   information about a fund, the information that they consider

             7   to be most important.  It would come to them in a form far

             8   more likely actually to be used by them, but all investors

             9   and other market participants would still have available the

            10   full panoply of information that's contemplated by the

            11   Commission's disclosure rules.

            12             Now, in addition, it seems to us quite clear that

            13   substantial numbers of investors are prepared today to rely

            14   exclusively on electronic communications with their fund

            15   company.  And to serve this group of investors, the

            16   Commission should clarify its rules that it will allow

            17   Internet-on funds or fund share classes in a way that is not

            18   possible today.

            19             We believe as other panelists this morning have

            20   indicated that the Commission should harness the power of the

            21   Internet as a tool for providing important point of sale

            22   disclosures to brokerage customers.  And, frankly, we would

            23   agree with NASD Chairman Bob Glauber that this should extend

            24   not just to mutual funds but also to ETFs, separately managed

            25   accounts and annuities, products as to which point of sale
 




             1   disclosure information is no less important.

             2             In summary, if we take advantage of the best that

             3   the Internet offers, we can craft a fund disclosure system

             4   that will serve the broad interests of the financial market

             5   place and also the interests of average fund investors. 

             6   Disclosures that millions more shareholders actually use,

             7   that it seems to us would be a true revolution and it is one

             8   that is within our reach.

             9             Thank you very much.

            10             MS. NASH:  Thanks, Paul.  The extension of the

            11   taxonomy to the risk-return summary is an exciting develop

            12   and we appreciate your efforts in that regard.

            13             Moving to Tim next.  Tim, you have a particular

            14   vantage point as one who is really responsible for using

            15   technology to actually communicate with millions of your

            16   investors.  Can you share your insights with us?

            17             MR. BUCKLEY:  Sure, Susan, thank you.  And thank

            18   you to Chairman Cox and Commissioners.  We're thrilled to be

            19   here.  I'm thrilled to be here on behalf of Vanguard to

            20   discuss interactive data and leveraging the Internet.

            21             It is clear there is a lot of momentum building.  A

            22   lot of momentum today around revolutionizing disclosure.  And

            23   we at Vanguard believe the time is right.  Why is the time

            24   right?  The data standards are there.  The standards for

            25   sharing information, making it accurate, timely and easy and
 




             1   also convenient.

             2             On top of that, the Internet is where people have

             3   gone to invest.  In many ways the revolution has already come

             4   to investing.  And I'll just give you some good data on the

             5   penetration of the Internet to investors.  But I'll give you

             6   a little bit about Vanguard's background.

             7             This is something we've been doing for about 11

             8   years now.  We launched Vanguard.com in 1995.  It was more of

             9   a curiosity then.  People went out there and they weren't

            10   inundated with information.  In fact, they only got a couple

            11   of things.  They get fund prices and yields and some

            12   objectives on funds.  Only a few thousand people went there. 

            13   but by 1998 when we started putting account balances out

            14   there, it was amazing.  People started going.  They had a

            15   reason to out there to check the web.

            16             And then in 2000, people could manage their whole

            17   portfolio online.  We saw a million people go out there.  And

            18   today we have 4 million people online.  Eighty percent of our

            19   contacts come in through the web.  We will on a busy day have

            20   500,000 people log on and check their account and interact

            21   with Vanguard that way.

            22             So what does this tell you?  It tells you that

            23   people have matured online.  They have matured already.  And

            24   they are ready to embrace a change in disclosure, a change in

            25   the way we flow information to them.
 




             1             So how do you get at that?  What do you do?  Well,

             2   an essential part of it is tagging the information and making

             3   it easy and not doing it in a proprietary way.  With XBRL and

             4   the work of the ICI with specifically XBRL for investment

             5   management, there are the tags out there that we can easily

             6   share information so that when we tag it, it can be easily

             7   produced somewhere else.  So you can get information on the

             8   Vanguard Funds whether at a competitor's site, whether at the

             9   SEC site or at the Yahoo! or a Google.  But that information

            10   can be published in a timely and accurate way.  So it's out

            11   there.

            12             One caution I would have, though, is that let's not

            13   go about tagging everything we possibly can tag.  I'll be the

            14   IT guy here for a second and say, well, that's a sure-fire

            15   way to end up escalating costs beyond where they need to go.

            16             First, we need to decide what is the most relevant

            17   information.  What information do we want people to act on

            18   and prioritize that information.  There are over 700 tags in

            19   the library.  I won't go through each one of them.  We have

            20   limited time.  But there is a lot of great information in

            21   here and there is a lot of information in here the investor

            22   would not know what to do with.  It would look like the old

            23   London subway.  So we need to prioritize those tags.

            24             It is something we have done at Vanguard.  If you

            25   go to our site and you look up one of the Vanguard funds, you
 




             1   will see that we have tried to give a concise snapshot, a

             2   snapshot of the information that is essential to making an

             3   investment decision.  And it's high level information, but

             4   you can drill down on it and get more in-depth information

             5   and you can actually drill down and get access to the

             6   prospectus as well.

             7             We on a daily basis have millions of visits to

             8   those web pages to get information on our funds.  And it is a

             9   rare event that somebody will call Vanguard and not have

            10   looked at that website.  They will have looked at it for

            11   information, become more educated to ask us questions.  And

            12   it much the same for our advisory business.  We have

            13   thousands and thousands of advisors who use our website as

            14   well for support material on our funds where they can easily

            15   get information to share with their investors.

            16             So what do we envision going forward in the future? 

            17   We would love to see what we do on a proprietary basis be

            18   done more broadly, be done across the industry where you

            19   could pull up not a Vanguard site but maybe it's at the SEC

            20   site or maybe it's through Yahoo! or Google, you could pull

            21   up a Vanguard fund and you could pull up an American fund and

            22   you could compare those as an advisor or as an investor.  You

            23   could compare them easily with standards that are out there,

            24   but not standards across 700 pieces of information but maybe

            25   the 10 or 12 that matter the most.  Information along the
 




             1   way.

             2             So how about the long run?  Well, we certainly

             3   believe that tagging more information would benefit, would

             4   benefit many people.  Maybe not the massive investors but

             5   certain other parties, more sophisticated investors would

             6   benefit from it.  But, again, I do worry about just opening

             7   it up to say let's keep tagging the whole universe.  Rather,

             8   let's define the universe first.  Let's know the road that

             9   we're taking and the end that we want to achieve.  Let's

            10   decide on the criteria we want to use.

            11             We have experience of building these tools before

            12   to search against fund criteria and we can tell you there is

            13   certain criteria that are used and certain criteria that are

            14   never used and actually very few people use the really

            15   in-depth sophisticated searches.  They rely more on those 10

            16   or 12 pieces of information.

            17             So overall, we're very excited about what the

            18   Commission is up to around changing disclosure and really

            19   around leveraging technology, leveraging data tagging,

            20   leveraging the Internet.  We think great things can happen

            21   especially over the short term as we adopt XBRL standards.

            22             Thank you.

            23             MS. NASH:  Thanks, Tim, an interesting perspective.

            24             Paul, your firm often communicates through

            25   financial intermediaries.  Can you give us your perspective
 




             1   on how the Internet would be helpful in that environment?

             2             MR. HAAGA:  Thank you very much, Susan, and thank

             3   you for having me participate in this.

             4             I think everything has been said but not by

             5   everybody.  And so I've got a written statement in which I

             6   address a lot of the questions that my colleagues have

             7   addressed and I think I'll just rely on that and maybe try to

             8   add a few perspectives to what they've given.

             9             The first is the question that Chairman Cox asked

            10   previously about the use of XBRL and data tagging by research

            11   analysts.  I know you're going to hear a lot about that this

            12   afternoon but let me just weigh in on behalf of our research

            13   analysts.  While they don't use XBRL itself extensively

            14   because there is a limited number of companies that have

            15   that.  They are very interested in it and they do use I think

            16   FAX Set and there's a Capital ID is another one.  But we are

            17   very encouraging as analysts about the use of these tagging

            18   and data search protocols.

            19             Second is that everybody has talked this morning

            20   about the point of sale and the investor buying shares.  And

            21   that's understandable because the disclosure obligations are

            22   keyed off the investor's purchase of shares.  But I think

            23   that's the third most important time that investors need in

            24   their investing life.  The second most important is while

            25   they're owning the shares and the very most important is
 




             1   while they're withdrawing their shares and trying not to

             2   outlive their income and retirement.  And that I hope that

             3   while we're focusing on the information needs of the

             4   purchaser we can also remember the owner and the withdrawer

             5   because they are very important as well.

             6             Third, we're talking a lot about delivery and about

             7   the types of information that people need, the categories of

             8   information.  While we're doing that, let's not forget that

             9   vocabulary matters.  It's much harder to regulate, it's much

            10   harder to specify and, yet, the difference between knowledge

            11   and information is really going to make or break this effort.

            12             I am reminded of what happened in 1994 when the

            13   bond funds tanked.  This is a true story.  There was a bond

            14   fund investor who stood up at a shareholders meeting and was

            15   very upset about the law.  He said, "You know, I understood

            16   that my account value could fluctuate, but I didn't think it

            17   would go down."

            18             (Laughter.)

            19             As Chairman Cox eloquently said capital markets

            20   rely on trust and jargon and legalese are not trusted by

            21   investors.

            22             And, fourth, while I think it's very important and

            23   I certainly agree with Chairman Cox and others that simply

            24   moving information data pages from paper to the website

            25   shouldn't be our only goal.  We should also find better ways
 




             1   to research and use them.

             2             At the same time there are some very immediate

             3   benefits that can be gained simply by moving some paper to

             4   the Internet.  Several of my colleagues have held up pieces

             5   of paper or piles of paper.  Let me go them one better.  One

             6   of our mutual funds, Growth Fund of America, when it prints

             7   its annual report, it fills 17 tractor-trailers.  Of that

             8   material, just taking out the actual report letter and just

             9   focusing on the financial statements which, frankly, I think

            10   especially the footnotes are the part that is least often

            11   read.  That is 600,000 pounds.  Six hundred thousand pounds,

            12   three hundred tons, one fund, one report and they do two a

            13   year to 5.6 million people.

            14             If that information could be put on the Internet,

            15   there would be a direct and immediate savings to

            16   shareholders.  So, let's please put some things up on the

            17   Internet that are now in paper immediately while we are

            18   developing our data tagging and search capabilities.

            19             Thank you.

            20             MS. NASH:  Thanks, Paul.

            21             I'd like to switch gears now and have interaction

            22   among the panelists and with, hopefully, the Commissioners. 

            23   So I'll invite the Commissioners to join in with any

            24   questions.

            25             CHAIRMAN COX:  Well, while people are thinking of
 




             1   their questions, I just want to make sure I understand your

             2   last point.  Can you give us a little more detail about

             3   that.  I want to make sure I understand exactly what you're

             4   describing with all those tractor-trailers.

             5             MR. HAAGA:  Right.  The mutual funds I think

             6   because they are corporations they get confused with being

             7   businesses.  And the securities law require businesses to

             8   send out financial statements and that includes footnotes

             9   describing valuation methods and other things, a lot of

            10   things that never change.

            11             The only important part of the financial statement

            12   for a mutual fund is the expenses and the summary portfolio

            13   and, yet, there are multiple additional pages that are both

            14   the full financial statements and the footnotes to those

            15   statements and they have to be mailed out to shareholders. 

            16   We can save a little bit by house-holding, but they have to

            17   be mailed out to shareholders every six months.

            18             And I can't imagine they are looked at or read, but

            19   a person who owns our funds for 20 years gets them 40 times

            20   in paper.  I'll bring a copy of the report.  I won't bring in

            21   a tractor-trailer.

            22             CHAIRMAN COX:  Actually, I get the point.  You

            23   don't need to bring it in at all.

            24             Well, while I've got you, I take it that, from your

            25   remarks, that if XBRL tagging were more generally available
 




             1   that your analysts would make great use of it.

             2             MR. HAAGA:  Yes, definitely.

             3             CHAIRMAN COX:  And is that the sense of other

             4   panelists?  That in addition to what we've been focused on

             5   that within mutual funds there would be great utility to

             6   this?

             7             MR. BUCKLEY:  Well, whether it's the people

             8   managing the portfolio or the mutual fund shareholders

             9   themselves, the benefits are much the same.  When you think

            10   about information once it's tagged you know it's tagged at

            11   the source.  So it's at its most accurate point, if you will. 

            12   And then it can be delivered in a timely fashion when it is

            13   tagged and then it can be published or pulled, that that's

            14   almost instantaneous.  And so you don't have to wait to get

            15   that from a third party.

            16             Morningstar does some great work for fund investors

            17   but, yet, we have to wait until that data has been aggregated

            18   and then it's published from them.  When it's tagged, it can

            19   be taken straight from the source.  So that goes for our fund

            20   managers as well.  They see the same benefits on tagging of

            21   other securities information.

            22             COMMISSIONER GLASSMAN:  How difficult is it to

            23   develop the taxonomy?  It's easier for mutual funds I think

            24   than corporations; but in general, how difficult is it?

            25             MR. STEVENS:  I can report only second-hand
 




             1   information, Commissioner Glassman, because I am not involved

             2   in the effort myself.  But what I could say is that the

             3   process we will follow will be getting sort of a straw man, a

             4   taxonomy that Pricewaterhouse Coopers and the experts that

             5   are resident there will develop for us.

             6             We will then have a very large working group who

             7   will go through in considerable detail just to make sure that

             8   there is agreement about the architecture that's been put

             9   together so that people will buy into it.  And at that point

            10   it will include, as I have said, the elements of the

            11   risk-return summary.

            12             If memory serves and I don't know that I remember

            13   the exact number, but I believe it is something in the order

            14   of 157 particular data elements that would be tagged within

            15   this portion of the prospectus.  After that, individual funds

            16   would have to go in and look at their own risk-return

            17   summaries on a fund-by-fund basis and apply the tags.  There

            18   would have to be some attention to doing this accurately

            19   because when it is done by third parties in particular there

            20   will be a degree of error that is probably greater than we

            21   would hope for.

            22             So it is a fairly painstaking effort just with this

            23   fairly confined portion of the current prospectus, the

            24   risk-return summary.

            25             And then after the dataset, the taxonomy is put
 




             1   together, you actually have to have an organization that will

             2   maintain it over time.  And the Institute is wrestling with

             3   what our role or some other organization's role would be in

             4   that regard.  Depending on how many tags, I'm told, you have

             5   some way of calculating how many full-time equivalents you

             6   would have to have.  But that gives you a sense of the effort

             7   just with respect to this portion of the prospectus.  If you

             8   tried to tag all of the data that Buddy had in those redwell

             9   folders over there, it would expand many, many times.

            10             That may eventually where we get, but we are just

            11   embarking on a road and our focus has been what's going to be

            12   most important for individual investors and, in particular,

            13   the key information that the Commission had identified that

            14   is of real significance to them.

            15             MR. BUCKLEY:  And I'll comment a little bit on the

            16   actual tagging of the information.  Once the taxonomy is

            17   established, as long as we are tagging information that's

            18   fairly common and you expect the information that's so

            19   critical to investing to be common, that at least for

            20   Vanguard it would be a fairly easy task.  That's held in

            21   enterprise data stores and the such.  So it's easy to do.

            22             Tagging can get very complex and expensive when you

            23   start tagging exotic instruments and things like that when

            24   you want to know every single holding of a fund, not just the

            25   top 50 holdings.  So it is all in how we define what we want
 




             1   to tag that will define the costs.

             2             I can't speak for the smaller companies, they may

             3   have a different challenge, but certainly you could expect

             4   common information can be tagged very easily and especially

             5   the information we've talked about today.  That could be

             6   tagged more easily than the more detailed information down

             7   the road.

             8             COMMISSIONER CAMPOS:  If I could just interject a

             9   little bit.  If we go back to Professor Lutz's very revealing

            10   lecture where information is that which reduces uncertainty,

            11   and I'm just thinking because everything else is data, what

            12   really does meet that threshold as to information.  It seems

            13   as if you are almost requiring an analytical element or else

            14   it's just data.  Right?

            15             So I'm just wondering if you're promoting the

            16   concept that something beyond the data elements that we've

            17   come to think about in terms of this is required?  In other

            18   words, is there an analytical, an interpretive component

            19   that's necessary for it to be useful to investors and should

            20   we be thinking in some terms like that for the future?

            21             DR. LUTZ:  Well, we all create information.  What

            22   is information to one person may not be information to

            23   another.  As we have even heard in the panel this morning,

            24   one investor might want to focus on one aspect of a mutual

            25   fund and someone else may not care about that at all.  So we
 




             1   create the information.

             2             What we are talking about particularly with XBRL

             3   and with the use of the Internet, I can go in and ask

             4   questions to get the information that I want based upon the

             5   data that is presented.

             6             I think the problem is -- and someone said earlier

             7   -- that we have been trying to tell investors what is

             8   important to them and I don't think that's going to work.  It

             9   hasn't worked.  I think that was what we tried to do when we

            10   thought if we rewrote the prospectus into plain language

            11   everybody could understand it and make informed decisions and

            12   that never worked.

            13             I think what we can do now is say to people,

            14   "Here's the data.  Look for your information."  And I can,

            15   you know, put on my turban and start predicting the future,

            16   but I don't think it's too difficult to see that at a point

            17   there would be third party vendors who are going to sell or

            18   give away software packages to investors to access that data

            19   in the way that they want it.  I mean we do this already now

            20   in a limited way on the Internet.

            21             It would probably would be packaged with my next

            22   version of Quicken or Microsoft Money.  I mean they already

            23   have sophisticated tools there now.

            24             I think we have to get away from this idea that we

            25   are going to tell people, give them this information.  They
 




             1   are going to create it.  What our job is is to get the data

             2   and as others with more expertise than I have said, we have

             3   to do it with the XBRL and overcome those technical aspects. 

             4   But we can see already from Vanguard and from any number of

             5   other sites that people are willing to go in there and get

             6   their information.

             7             Again, I will use the analogy of the travel

             8   websites and how quickly they just pretty much ended the

             9   travel industry as travel consultants because we can do it

            10   now.  And we do it not because those websites tell us what we

            11   should know.  They simply allow us to find the information

            12   that we want and I think that's what we are talking about

            13   here.  Let the investors be able to find quickly and easily

            14   the information they want.  And there's been enough research

            15   that's been done that we have got a pretty good limited

            16   universe.

            17             When we worked on the profile prospectus years ago,

            18   we quickly came up with the 10 questions that got to the

            19   heart of things.  And I don't think that has changed all that

            20   much, not substantially in the years since.  So that is what

            21   we're talking about and that's what I see is the promise of

            22   this.

            23             I'm sorry to keep repeating this, but I think we

            24   have to keep clear in our minds that there is a difference

            25   between data and information.  And also to not think of the
 




             1   Internet as a pipeline even though we like to use this

             2   metaphor.  If we think of it that way, we're not going to

             3   really use it.  It is a medium, an interactive medium that

             4   creates information.

             5             One brief analogy, nobody buys an album anymore. 

             6   They download their play list.  They create their own albums.

             7             I was in London in April what I think, one of the

             8   more significant events of my lifetime took place.  The

             9   number 1 song in England, top of the charts was available

            10   online.  It did not exist on a CD and there were no plans to

            11   put it out as a CD either.  And that to me is significant.

            12             We have interactive television.  We have television

            13   on demand.  This is the way things are going.  We will all

            14   create -- we create our own newspapers on line.  We I think

            15   need to start getting the investment community into this mix

            16   quickly where investors can create their information and we

            17   will simply provide them with the tools.

            18             MR. DONOHUE:  A question for the panel.

            19             Paul, did you have a comment you wanted to make?

            20             MR. STEVENS:  Commissioner Campos, this history is

            21   one that is particularly important to understand about how

            22   the profile or how the risk-return summary was developed. 

            23   Bill was there.  I was involved when I was general counsel of

            24   the ICI, but there was an effort to make at least this part

            25   of the prospectus to be informative and not just giving a lot
 




             1   of data.  It really was the intent to make it the better

             2   London subway map.

             3             And just to give you one example, how do you

             4   explain to people like Paul Shareholder that funds can

             5   fluctuate down as well as up in value?  Well, there's a bar

             6   graph that's here of the total returns of the fund over time

             7   which was intended graphically to emphasize it can go below

             8   zero and it can go above zero as well.

             9             So there has been a good bit of thought given by

            10   the Commission, its staff, by outside consultants and others

            11   to making at least this part of the required disclosure more

            12   than just data to make it informative.

            13             MR. DONOHUE:  A question I have for the panel, what

            14   would you think the appropriate role for the Commission in

            15   what really is an evolution that's going on such that the

            16   Commission doesn't wind up being an impediment or rather may

            17   help as a facilitator?

            18             MR. HAAGA:  I think the Commission -- and thank you

            19   for not wanting to be an impediment -- the Commission, what

            20   they really need to do, they do need to specify some minimum

            21   amounts of information.  It's clear.  And I think adopting

            22   something along the lines of the profile would be good.  We

            23   have talked a lot about the Profile Plus and I was also

            24   involved in developing that.

            25             But one of the things we did was to find out what
 




             1   information people want.  We went and looked at what they pay

             2   for and what they pay for, by and large, is the Morningstar

             3   one-pagers that had concise information in the same place for

             4   every fund.

             5             And so I guess I would commend the Commission to

             6   please just, you know, enact a profile that would involve

             7   some standardized placement of information and types of

             8   information and then let other things go.  Relax the

             9   advertising rules, at least the delivery requirements

            10   relating to the advertising rules, allow more information to

            11   be developed by the funds themselves.  And I think you will

            12   be pleased by the outcome.

            13             MS. NASH:  One of the things I think that people do

            14   like about Morningstar is that you find everything in one

            15   place in the same order.  In some of the past iterations that

            16   the Commission has gone through on disclosure reform, the

            17   industry has asked for flexibility in presentation,

            18   flexibility in presenting one fund by itself or multiple

            19   funds together, that kind of thing.

            20             I would ask the panelists for their views on going

            21   forward as we begin this process do you think the Commission

            22   should be more prescriptive, less prescriptive than it's

            23   been.  Because one thing I hear Bill and I think Barbara

            24   saying is that information architecture is very important,

            25   how it looks, how it feels, how you get at it.
 




             1             But I have a question about whether the Commission

             2   can ever really be the one to specify exactly how that should

             3   all work.  I am wondering what the panelists think about that

             4   issue.

             5             MR. BUCKLEY:  Information architecture is very

             6   important but we have to realize that at Vanguard we serve

             7   very different client groups.  And for each client group we

             8   will have a different information architecture.

             9             What is more important is that the Commission come

            10   out and say here are the 10 or 12 pieces of information we

            11   want to make sure are there on every page and not get caught

            12   up in the visual design.

            13             We have best practice in visual design we're

            14   willing to share.  But let us architect it according to our

            15   website, according to our clients and according to our

            16   experience and let's worry about the information that is on

            17   the page, the 10 or 12 important pieces of information. 

            18   Because we do have a fiduciary duty to make sure they see

            19   that information.  And different shareholders will see it in

            20   a different way.  A 401(k) participant is not the same as a

            21   retail participant -- sorry, a retail shareholder.  And a

            22   retail shareholder for us is not the same as an advisor.

            23             MR. STEVENS:  Susan, it seems to me that your

            24   question and Buddy's are a little bit related.  I think some

            25   degree of flexibility is appropriate and some degree of
 




             1   standardization is as well.  And perhaps you can look at this

             2   at least with the portion of the prospectus that would be

             3   data tagged in such a way that, well, if it was not presented

             4   exactly the same way, the fact that it is tagged would make

             5   it accessible and would provide a tool that would facilitate

             6   additional flexibility.

             7             The other thing I would say is that the Commission

             8   should take a very serious view about trying to avoid adding

             9   to the key body of information, make a serious judgment now

            10   and try to adhere to it.  Because one of the things that we

            11   have experienced is that under the pressure of events, the

            12   spotlight of a particular situation, some new disclosure

            13   items becomes all-fired important.  And it may be to some

            14   people, it may be for some period of time.  But, you know, I

            15   mean we've gone through this history together in so many ways

            16   and I think that we understand that there is a body of

            17   information that is all weather and it ought to be there. 

            18   And so resisting changing that body I think is going to be

            19   something that would be important for the Commission to try

            20   to discipline itself around as well.

            21             DR. LUTZ:  One of the things that I run into in the

            22   corporations that I work with in financial disclosure is the

            23   extreme conservatism in presenting data.  They are afraid to

            24   make it look, well, to use the terms of Chairman Cox, to make

            25   it look like USA Today Money Section.  They are really afraid
 




             1   to do that for any variety of reasons.

             2             I think the more that the Commission can encourage

             3   companies to be creative in disclosure as long as it does not

             4   mislead or distort but really and truly communicates, that's

             5   the first thing.

             6             The second thing is that if you're doing this on

             7   the web, there is no more harsher audience than the people on

             8   the web.  If your site doesn't work, you will pay for it and

             9   you will find very quickly that you're going to have to

            10   change your ways.  And I think the public will educate you

            11   very quickly.  But I do think more encouragement for people

            12   to use information design and to do things in a creative way

            13   to communicate with people would really help because

            14   companies are, quite frankly, afraid to try something new.  I

            15   mean, "The old 8-point type worked just fine, thank you.  And

            16   we'll stay with that."  And even if they know it will be

            17   better, nobody wants to take the risk.

            18             And I think a second thing and I am surprised no

            19   one has mentioned this and I'm going to wear my other hat as

            20   a lawyer, is there are legal issues in the regulatory issues. 

            21   I think we need to take a look at what's holding companies

            22   back because they're afraid of or they don't have a clear

            23   understanding that this is okay according to the regulations. 

            24   And I think we need to take a look at those as well.

            25             CHAIRMAN COX:  Well, may I take the opportunity
 




             1   then to ask you a question?  You said that companies aren't

             2   willing to take the risk.  And earlier in your prepared

             3   remarks you described three distinct purposes that we're

             4   trying to achieve with our mutual fund prospectuses.  They

             5   are not necessary in consonance with one another and yet

             6   we're trying to do them all in the same document.

             7             Do you have any suggestions of how we might

             8   differently attack this problem so that we can achieve each

             9   of those three separate purposes perhaps in a different way. 

            10   In particular, the liability piece.

            11             DR. LUTZ:  The liability is always the first thing

            12   that I run into when I work with companies.  And they

            13   interpret liability to mean if I vary from the previous

            14   format, form or wording, then I'm getting into liability

            15   trouble.  And it is only if I can show them an example of

            16   someone who has done it and hasn't gotten into trouble that

            17   they're willing to do it.

            18             I do not think that liability and disclosure and

            19   information that the investor seeks are mutually

            20   incompatible.  Stop and think.  If we make the disclosure

            21   accessible, informative and easily understandable, what's the

            22   problem?  We have covered information disclosure and

            23   liability.

            24             And I think that we need to take a broader view and

            25   not have -- everybody is worried about their own little area
 




             1   and I think we have to see all of this as --

             2             CHAIRMAN COX:  This problem is exactly as you

             3   described.  And even though you are exactly right about why

             4   people shouldn't behave that way, they do.  And they do even

             5   though you and others have amply explained to them the

             6   benefits of behaving differently.  What can change this?

             7             DR. LUTZ:  I think I would go back to the original

             8   plain English project when we made the decision to show not

             9   tell.  And I think the pilot project that we are currently

            10   doing with the XBRL is exactly the way to go.

            11             We did a similar pilot project.  We rewrote the

            12   MD&A's into plan language.  We rewrote mutual fund

            13   prospectuses into plain language cooperating with companies. 

            14   They used it as their filings.  They had no problems with

            15   their filings.  Then we could go out to others and say, "Go

            16   thou and do likewise and you will not suffer."  And that made

            17   a big difference.

            18             I think we have to do it by showing people how to

            19   do it, showing that they won't get into trouble if they do it

            20   this way.  And then they can imitate it.  We all learn by

            21   imitation.

            22             MR. STEVENS:  Let me see if I can take a stab at

            23   this because it is extraordinarily important to the success

            24   of any kind of initiative in this area.

            25             I think one of the ways we get hung up is on the
 




             1   language that we use around these issues.  And securities

             2   lawyers are always talking about the delivery of the

             3   prospectus.

             4             Think about the mutual fund prospectus.  How do we

             5   deliver it?  We put it in the mail.  It comes to someone's

             6   mailbox.  They've got to go get it out of the mailbox. 

             7   They've got to sit down, open the envelope and read it.  But

             8   we are hung up on this notion of delivery.

             9             CHAIRMAN COX:  You skipped a step.  They have to

            10   schedule a few hours to do that.

            11             MR. STEVENS:  Yeah, take some time out of their

            12   busy schedule, right.

            13             CHAIRMAN COX:  That's right.

            14             MR. STEVENS:  But what we're really doing is making

            15   the information available to them.  And that's how I think we

            16   need to think about what the law requires of us.  And what

            17   Bill has described about the Internet, it is at least as

            18   good, and if we make the information of a higher quality and

            19   more useful, an even better way of doing exactly the same

            20   thing effectively that we do via the US Postal Service making

            21   the information available.

            22             And, therefore, if it has been made available to

            23   the investor via the Internet, it is no less effective from

            24   the point of view of "delivering the prospectus" for the

            25   securities laws purposes. I think, you know, you need to
 




             1   conceptualize what it is that the law requires of us.

             2             Now, what we're trying to do is develop --

             3             CHAIRMAN COX:  Do I understand you to be saying

             4   that you can deliver the legally tested boilerplate which

             5   nobody except the courts and the lawyers can understand

             6   because it's part of what's available on the Internet, but

             7   then if you put a plain English gloss on top of it that makes

             8   it clear what the heck you are talking about, you won't get

             9   in trouble for skipping the other?

            10             MR. STEVENS:  No.  I think the point is to try to

            11   improve the quality of all of the disclosure.

            12             The point is the system as it now delivers a mass

            13   of information or data and you do not perfect the delivery on

            14   the basis of whether someone finds that to be useful or

            15   actually indeed uses it.

            16             So, via the Internet, you're accomplishing the same

            17   purpose but with the hopes of actually doing it in such a

            18   form that people will put it to use and find it altogether

            19   more valuable than what they do in the current system.

            20             In sum, the liability question has got to be

            21   answered, but I don't think it's that hard.  The harder thing

            22   is how you craft the information when it is delivered in an

            23   alternative way in a way that will invite people to use it

            24   more effectively.

            25             MR. HAAGA:  This is not a liability comment, but I
 




             1   think we shouldn't lose sight of the flexibility that putting

             2   things on the Internet gives us.  Right now when we prepare a

             3   prospectus, we have to have a document that we really hope is

             4   going to last a year because we send out 17 tractor-trailers

             5   full of prospectuses; whereas, if we get stuff up on the

             6   Internet there will be the flexibility to update and improve

             7   things as time goes by.  I think that will give us a lot of

             8   comfort being a little more flexible and experimental in what

             9   we say.

            10             DR. LUTZ:  I just want to quote Arthur Leavitt

            11   whose favorite comment was, "Disclosure is not disclosure if

            12   it doesn't communicate."

            13             MR. DONOHUE:  A question for the panel.  The ICI is

            14   taking the lead right now on developing the taxonomy.  What

            15   would be the most productive steps and the role of the

            16   Commission that would be envisioned by the panelists as that

            17   process progresses and reaches some observations,

            18   conclusions, recommendations?

            19             MR. STEVENS:  Well, first, we very much hope that

            20   you will take part in the working group.  I think there will

            21   be members of the staff who will be taking part because we

            22   want to make sure we get the effort correct.

            23             I think once we have the taxonomy developed

            24   thinking about what incentives can be provided to mutual

            25   funds to begin filing their EDGAR filings with the tags would
 




             1   be useful.  It is not as important to my members to get, you

             2   know, accelerated effectiveness of their filings and things

             3   of that nature, so perhaps some other incentives could be

             4   looked to to encourage a voluntary program.

             5             CHAIRMAN COX:  Do you have any suggestions?

             6             MR. STEVENS:  Well, I think looking at the

             7   XBRLized, if that's a verb, risk-return summary and how it

             8   would fit in as a part of a broader disclosure reform would

             9   be a huge incentive.  Because if you had a larger group of

            10   funds that were involved in that voluntarily and the

            11   Commission made it clear that over time it wished to move to

            12   a point where, you know, the profile would be the principal

            13   document that's provided and the rest of the information

            14   while we continue to improve it and its utility would be put

            15   on the Internet, that would be a tremendous incentive, I

            16   think.  That's the broader concept of the kinds of reforms

            17   that the Commission could consider and that this effort would

            18   fit into.

            19             MR. HAAGA:  Yeah, I think that we have enormous

            20   incentives to participate beyond just the XBRL part because

            21   the entire project here is enormously valuable to us and to

            22   our shareholders.

            23             DR. LUTZ:  I think pilot projects are extremely

            24   useful.  They are practical.  They uncover problems.  They

            25   give solutions.  And they build a spirit of cooperation and
 




             1   confidence and trust and provides a means to show people the

             2   way they should be going and the way they can go.

             3             I think taking the Profile Prospectus maybe and

             4   doing something with that in cooperation with companies who

             5   would volunteer.  It builds a sense of confidence and

             6   understanding.  And we all learn together as we work on it.

             7             MR. BUCKLEY:  I'll just comment quickly here.  If

             8   it is that that profile that's on line, the concise

             9   disclosure, and we don't have to deliver the truckloads of

            10   prospectus and all, then there is a huge financial incentive,

            11   but there is also one where when we look at it, so as a

            12   mutual company, we pass those financial benefits onto our

            13   shareholders.  But that is not even the greatest one.

            14             The greatest one is that we will actually know that

            15   our shareholders are getting better disclosure, that they're

            16   getting this information in a more timely way and in a more

            17   interactive way and one that can be easily absorbed that's

            18   useful and usable especially if we have picked those 10 or 12

            19   critical elements to show in that concise presentation.

            20   I think there is huge incentive if we know what the end is is

            21   out there.

            22             MS. NASH:  Just to hark back to one concept that

            23   Barbara Roper raised.  She talked about the importance of

            24   investor education.  I guess my question for the panelists is

            25   if we move further to doing disclosure through the Internet,
 




             1   does it give us a better chance to integrate investor

             2   education with disclosure of a fund's particular information. 

             3   Or are those two functions that are separate and we should

             4   look at them separately?

             5             MR. HAAGA:  I'll start.  I think disclosure and

             6   education should be looked at together and I think one of the

             7   mistakes we've made in the past is conflating the two and

             8   thereby putting too much burden on the prospectus as serving

             9   too many purposes and too many masters.  And I think if we

            10   -- I've already mentioned the flexibility of using the

            11   Internet -- we use advisors, as you know, to work with our

            12   shareholders and so we are not, happily, relying solely on

            13   the Internet or on our mailings to do all the education

            14   function.  Nonetheless, even we think we can improve things

            15   if we get more flexibility.

            16             MR. BUCKLEY:  We, of course, deal with the advisors

            17   as well as the direct investor and I'll use the direct

            18   investor here.  They certainly use the educational tools we

            19   put out there but not in the amount that you might think or

            20   might hope.  So we have always taken a different approach

            21   which is let's put something out there in plain English so

            22   they don't need a pop-up.  They don't need someone to explain

            23   what fees are.  They don't need someone to explain what

            24   holdings are or what information they should be looking at. 

            25   That that should be actually part of the actual disclosure on
 




             1   the fund that is on the web.  That it is easy, so easy to

             2   understand that you don't need the education.

             3             Education is out there and it is probably on many

             4   of the sites already today.  But the ideal here is to make

             5   these concise and clear in what we present on our funds

             6   online.

             7             MR. STEVENS:  Susan, I think again that the

             8   educational purpose will be advanced by a focus as tight as

             9   possible on what the key information you want to impart. 

            10   There has been a lot of emphasis in our marketplace on

            11   consideration of the effect of fees and expenses on long-term

            12   performance of mutual funds.

            13             I think the research information now indicates that

            14   recent fund purchasers have looked at that as a key element

            15   of information.  If you look at trends in fund fees and

            16   expenses, they are down considerably, even The Wall Street

            17   Journal's report of our most recent research today.

            18             That it seems to me is an educational success.  And

            19   if there are five or six other bits of information that you

            20   really want to drill into the investing public, this is the

            21   key stuff that you ought to be focused on, then that sort of

            22   high quality document that you will draw people's attention

            23   to will have a very direct educational benefit.

            24             DR. LUTZ:  I think also, again I'm going back to

            25   the interactive nature of the Internet, that you can serve 
 




             1   whether somebody is just a beginner or a sophisticated

             2   investor, that website will serve them.

             3             I don't know if you are a fan of Wikipedia, but if

             4   you look up something on Wikipedia, you can get all the

             5   backgrounds you need as you read the article and if you need

             6   to branch off and come back, it's a very rudimentary way of

             7   using the Internet.  But it shows you the possibility that

             8   you can educate the investor even as the investor is just

             9   looking for basic information.

            10             If you go to the IBM website, they do this in a

            11   limited way with their online annual report where they have a

            12   section that says, "How to read our annual report."  And they

            13   go through and they take each section of it in the financial

            14   section and then they'll saying, "This is what these numbers

            15   mean."  And then you can link over to their current report

            16   and then after you have read what cash flow is supposed to

            17   be, you can go over and look at the IBM cash flow for that

            18   report.

            19             So, again, we need to think of the expansive -- it

            20   is, you know, people have to start reading science fiction to

            21   understand what's going on.  The word "cyberspace" comes from

            22   science fiction.  Cyberspace is unlimited.  We are still

            23   thinking of print in bound books.  There is no limit when you

            24   get on the Internet.  And when you get into that area of

            25   information, it is infinite.  We have to stop thinking of
 




             1   books.  I mean it's tough.  So we can educate investors.  We

             2   can inform them.  And we can give the financial analyst the

             3   information all in the same website if we think about the way

             4   that we should be using it and the way we should be designing

             5   it.

             6             MR. DONOHUE:  This morning's panels have given us

             7   much to reflect on.  I want to thank each of our panelists

             8   again for taking time out of your busy schedule to join us. 

             9   Your perspectives have been very illuminating.

            10             Before we adjourn, I would like to acknowledge

            11   several members of the Division of Investment Management who

            12   along with Susan Nash and Susan Wyderko, labored hard and

            13   long behind the scenes to make this morning's session

            14   possible, Brent Fields, Chris Kysa, David Schwartz, Debbie

            15   Skeins, Dui Chang and Evelyn Malone.

            16             That wraps up this morning's sessions.  The

            17   roundtable will convene again at 1:15.  Thank you all.

            18             (Whereupon, at 12:17 p.m., a luncheon recess was

            19   taken.  Reconvened at 1:18 p.m.)

            20   SESSION TWO:  GETTING ANALYSTS AND INVESTORS SIGNIFICANTLY

            21                         BETTER INFORMATION

            22             CHAIRMAN COX:  Good afternoon.  Welcome now to the

            23   second half of our program.  I want to thank you once again

            24   for all coming today.  Perhaps we have had a little bit of

            25   in-and-out and not all the same people.  We have a very, very
 




             1   outstanding panel awaiting us and I want to make sure that we

             2   give ample time for that.

             3             This morning we explored the potential of

             4   interactive data and the Internet to make mutual fund

             5   information more user friendly to the individual investor. 

             6   This afternoon we are going to be focused on ways that

             7   interactive data can improve the usefulness of information

             8   provided by companies of all kinds to investors of all kinds,

             9   large and small.

            10             For institutional investors just as much as for the

            11   more than 40 million individual investors in the United

            12   States of America who directly own stocks, interactive data

            13   offers the opportunity to analyze companies with information

            14   that is highly current, easily obtained and presented in

            15   exactly the way the investor wishes to view it.

            16             This afternoon we will hear from this distinguished

            17   panel of analysts and investors who will help us focus on how

            18   interactive data could be most useful in evaluating

            19   companies.  We will see a brief demonstration.  And we will

            20   hear from our panel on the types of new tools that could help

            21   us all spend more time on analysis and less time on data

            22   entry and verifying numbers and other manual tasks.

            23             Of course, all of the potential benefits of

            24   interactive data will only be realized if it is hassle-free

            25   and cost effective particularly from the standpoint of the
 




             1   companies that produce it.  That is why the Securities and

             2   Exchange Commission has created the interactive data test

             3   group, to allow companies voluntarily to file their reports

             4   using an interactive format so that we and they can

             5   simultaneously learn from the experience.

             6             So far companies representing more than 1 trillion

             7   dollars in market value have volunteered to be a part of this

             8   pilot.  They are already tagging their financial statements

             9   and other data to allow for enhanced analysis.  The

            10   interactive data test group has something to do with the

            11   selection of our next speaker.

            12             As I have noted several times today I think that

            13   interactive data has the potential exert an enormous positive

            14   influence on our capital markets.  And, so, for this

            15   afternoon's address, I asked our staff to see if we couldn't

            16   book someone who is equally influential.  In fact, I

            17   specifically asked that one o Time Magazine's 100 Most

            18   Influential People from 2006 be our speaker.  Then we

            19   whittled it down.

            20             Angelina Jolie's PowerPoint presentation was we

            21   thought too cumbersome.  And the Pope wanted to focus

            22   exclusively on software engineering issues which we thought

            23   would be better for a later program.

            24             (Laughter.)

            25             So we whittled it down to three finalists and now I
 




             1   have to tell you that publicly we'll offer our apologies to

             2   George Clooney and Oprah and we decided to go with the one

             3   woman who is by far the most qualified to address these

             4   issues because she is, her company is a member of our

             5   interactive data test group.  Analyst Mulcahy is the chairman

             6   and CEO of Xerox Corporation.  She also serves on the boards

             7   of Catalyst, Citigroup, Fuji, Xerox and Target Corporation. 

             8   As an English and journalism major she has agreed to deliver

             9   her remarks in plain English.

            10             She began her career at Xerox as a field sales rep

            11   in 1976.  She rose through the ranks in sales and went on to

            12   serve as vice president for Human Resources, then chief staff

            13   officer, then corporate senior vice president and then

            14   president and COO.  In 2001, she became Xerox's chief

            15   executive officer and the following year, she added the

            16   title, "Chairman."

            17             Well, I would guess that Ms. Mulcahy doesn't object

            18   to being included on Time Magazine's list along with Ms.

            19   Jolie and Mr. Clooney.  I have a feeling that she's probably

            20   happier to be included on Barron's Magazine's list of the

            21   World's Best CEOs.  And with the recent addition of Xerox to

            22   our group of interactive data trailblazers, she's joined

            23   still another impressive list.  Please welcome Anne Mulcahy.

            24             MS. MULCAHY:  Thank you, Chairman Cox, for that

            25   lovely and entertaining introduction.  I really appreciate it
 




             1   and my kids were, I have to say, very unimpressed with being

             2   part of the Baron's list, but the Time's 100 they thought was

             3   pretty cool.

             4             And I'm just really delighted to be here today and

             5   it is a topic that we care a lot about.  I have to tell you

             6   truth be told that any CEO who receives an invitation to

             7   visit the SEC does take a deep breath, but this was an

             8   invitation that certainly I could have refused but wanted to

             9   accept a great deal.

            10             It is both a pleasure and a privilege to be here

            11   and to have the opportunity to share some of my thoughts with

            12   you on the future of financial reporting and more

            13   specifically I'm going to touch on three subjects briefly. 

            14   The first, why are we participating in the SEC's interactive

            15   data test group.  Next, do we have any advice as we take on

            16   this very complex and challenging task?  And, third, maybe

            17   just some thinking about some pitfalls along the way as well. 

            18   So, it's a good road map for my remarks and let me start with

            19   why Xerox is part of this test.

            20             I would say that it's very much part of our

            21   tradition to volunteer, to push the envelope and to use

            22   technology specifically to make our lives easier and more

            23   productive.  Actually, years ago, Xerox was part of the EDGAR

            24   pilot from concept to launch.  There is no question that our

            25   entire company cares a lot and actually is built on
 




             1   innovation.  So being on the ground floor of something like

             2   this is something we like.  We like to think that it's part

             3   of our DNA.

             4             Certainly another reason that we felt it was

             5   important to participate is because we believe that the

             6   potential is enormous.  Applying the possibilities of

             7   interactive data to financial reporting not only makes it

             8   more effective, it makes it more expansive, more transparent,

             9   more useful, more helpful to investors and potential

            10   investors large and small.  So I think the goals are pretty

            11   significant.

            12             Victor Hugo once had famously quoted -- was quoted

            13   as, "No army can resist the power of an idea whose time has

            14   come."  And I think it's a most appropriate quote.  The

            15   Commission's embrace of interactive data is clearly an idea

            16   whose time has come.

            17             It's been 20 years since EDGAR was developed and

            18   certainly it's been tweaked here and there over the years,

            19   but it is essentially the same platform it was when it was

            20   launched in the late 1980s.  So, EDGAR may have stood still

            21   but the world certainly hasn't.

            22             So if you reflect, you would think back and say

            23   when we started EDGAR, there wasn't an Internet, there wasn't

            24   a Google, Blackberries, iPods, cell phones didn't take

            25   messages or photos.  People went to libraries to do their
 




             1   research and overnight delivery of business documents was

             2   considered fast.  So you all have a context that you could

             3   talk about and there's no shortage of examples.  But the

             4   point is it is time to move on to the next level.  We do

             5   believe that interactive data holds the promise of

             6   transforming the way we report and retrieve financial

             7   information.

             8             So for companies like Xerox, we will be able to

             9   prepare and file information more easily and effectively. 

            10   And we will have the assurance knowing that it will be

            11   available to institutions and individuals faster than today

            12   and that the accuracy will also be improved considerably.

            13             And just as importantly, it will give the public an

            14   improved capability to analytically understand financial

            15   information.  And that's really a big deal.

            16             And where it gets kind of exciting for us is making

            17   financial documents interactive.  This is an area we know

            18   well.  We actually refer to it as smart document management

            19   and it is something that we have been providing to our

            20   customers now for a number of years.

            21             Documents can be imbedded with intelligence and,

            22   for example, we can make documents easier for our customers

            23   to retrieve them.  They can carry their own translation

            24   requirements, they can carry their own histories of where

            25   they were created and how they've been used.  And although it
 




             1   has been made possible by digital technology, technology

             2   alone is not sufficient.

             3             I think we have all learned that the bigger

             4   challenge is that new technology always requires changes in

             5   the way people work.  Productivity is not what you get

             6   imbedded in software code and business improvements don't

             7   come in a box and greater transparency doesn't come because

             8   of legislation alone.  Technology is an enabler, not a

             9   result.  It's a means, not an end.  And that is really why

            10   this group is so important.  It is where the rubber meets the

            11   road.

            12             The Commission quite correctly, in my view,

            13   understands the need to integrate technology with the way

            14   real people do real work in the real world.  What looks good

            15   in the lab often doesn't work well in the office.

            16             To get at this issue, we have actually been

            17   conducting a lot of studies throughout the US and Europe and

            18   I would say that the results are somewhat of a wake-up call

            19   for industry and government alike.

            20             Less than half -- 48 percent to be precise -- of

            21   senior managers think IT makes their jobs easier.  In fact,

            22   one-third believe it makes their work more complicated. 

            23   Research also shows that 1 in 5 workers spends at least 60

            24   percent of their time dealing with documents.  That's 29

            25   weeks of work all spent managing about 1.3 trillion documents
 




             1   produced in offices each year.  Many of these, potentially

             2   most of these documents still exist on paper, but there are

             3   an increasingly amount of them that are done in digital form

             4   on computer screens, whether they're in your Blackberries or

             5   on your web pages, that's where information is living today. 

             6   Managing that reality really does require a very different

             7   approach from the past.

             8             The old world of IT was made up of the little "i"

             9   and the big "T".  The focus was always on the technology. 

            10   The new world of IT is focused on the big "I" and the little

            11   "t".  It is all about what really matters and that is the

            12   information.  So, big "i" little "T" is about how the

            13   information flows, where it goes, who it touches, what value

            14   it delivers and not just how the technologies work.

            15             I have to say for the past half century we have

            16   actually been thinking just the opposite.  It was all about

            17   machines, processing data, and certainly with very little

            18   attention paid to the way we process the information building

            19   in our information infrastructures.  But that truly is

            20   starting to change now.

            21             In every business organization, people are thinking

            22   of the best way to capture, manage and deliver content.  And

            23   they desperately need solutions and services that guarantee

            24   business continuity, foster collaboration and ensure legal

            25   and regulatory compliance and it has to be more cost
 




             1   effective.  And all those roads lead back to smarter document

             2   management, a way to streamline document processes by working

             3   smarter with documents and more importantly the information

             4   they contain.

             5             So under the leadership of Chairman Cox, the SEC is

             6   helping lead the way.  And the shear size, the visibility and

             7   the critical nature of financial filing and reporting makes

             8   this one of the most significant applications of document

             9   technology anywhere, period.  And that is why Xerox is so

            10   interested in being a part of this project and that may be

            11   the understatement of all time.

            12             So we are excited about this project and I am going

            13   to move on to the second item I was asked to address and that

            14   is what advice would I give to this community as we explore

            15   this new frontier together.

            16             I'm sure I'm not going to say anything that is

            17   radically new.  As a matter of fact, my advice is more likely

            18   to be reinforcing of the direction that is already being

            19   taken rather than setting out a new direction.  But it is all

            20   about executing and alignment.  So here it goes.

            21             First, I think it is really critical that a lot of

            22   listening is done.  I would dare say that the vast majority

            23   of us in the pilot, if not all, share a very common set of

            24   objectives.  We want greater speed, more transparency,

            25   improved accuracy, more consistency and comparability across
 




             1   companies, better search capability and less complexity.  A

             2   pretty tall order.  But, if we balk at something or support a

             3   change or question a policy, I think it is because we really

             4   care.  So listening to these views can only enhance the

             5   outcome of the product.

             6             I have to say this one I really think we know from

             7   experience.  We've been doing a lot of listening at Xerox

             8   lately and it has helped our company improve enormously.  One

             9   of the hallmarks that we like to think about at the new Xerox

            10   is a deep desire to be connected to the realities of our

            11   customers.  And we work with a passion and persuasiveness

            12   that we hope no other company in our industry can match.

            13             What we learn really is the foundation and it

            14   informs all our research and development efforts today.  And

            15   what we're finding out is that customers are just not

            16   interested anymore in technology for the sake of technology. 

            17   They want help in solving their problems, boosting

            18   productivity, growing their revenues, producing higher levels

            19   of customer value for their customers.  And the only way you

            20   really help is to really listen to what their issues and

            21   their challenges are.

            22             Second, you have to collaborate with your various

            23   customers, companies that will input into this system, the

            24   regulators who will manage it, the investors who will rely on

            25   it and perhaps most importantly the public who has a right to
 




             1   it.  And, fortunately, they are all represented today and

             2   that's a good thing.  It's really a good start to make sure

             3   we understand who are customers and constituencies are.

             4             But a lot of the real collaboration is going to

             5   take place in the trenches.  And I think some of it is going

             6   to be messy and a little frustrating as well.  This will all

             7   be about listening to things that you probably won't want to

             8   hear, probably getting thrown off schedule and being tempted

             9   to begin to disregard input and feedback.  And that would be

            10   really a rift.  This is really an opportunity to listen, to

            11   respond and to stay on course.

            12             Third is getting it roughly right before you

            13   launch.  I have to tell you, as a product developer, we have

            14   lots of experience with this and the price you pay not to get

            15   a product roughly right is extraordinarily expense.  And that

            16   means to say that timetables and schedules are really

            17   important but, you know what?  They are arbitrary devices. 

            18   You have to be their master and not the other way around and

            19   take the time that you need to get it right.

            20             It is essential in my judgment that we actually

            21   launch a product that really does meet the satisfaction of

            22   the constituencies.  And speaking from experience

            23   technological graveyards are filled with products that failed

            24   miserably out of the box and then they are never able to

            25   recover.  So once interactive data is out of the box, you do
 




             1   have to live with the vast majority of consequences and the

             2   public can be quite unforgiving.

             3             So next might seem like it's a contrast to my

             4   previous statement, but it's about launching a product that

             5   is roughly right, but it doesn't have to be perfect.  Nothing

             6   in this world achieves perfection, but I have to tell you

             7   that engineers and programmers always strive for it.  And at

             8   some point someone does have to step in and say, "Enough."

             9   So it is a fine line to walk this line between good enough

            10   and perfect and I think the two pieces of guiding advice

            11   would be listen to your customers and then be decisive.

            12             Fifth is about keeping it simple.  There is a lot

            13   of complexity in interactive data but your users don't have

            14   to see it.  I think the genius of the first Xerox copier

            15   which came out in 1959 was actually its simplicity to use. 

            16   There certainly was a lot that was going on behind the

            17   curtain, but for the user all they did was kind of push the

            18   green button and the copy came out.  And I think it is just

            19   an extraordinary goal that we should strive for from a

            20   technology perspective.

            21             I can't stress this point enough that there really

            22   is an opportunity to design for simplicity even though the

            23   design itself may be complex.  I have to say, and it's kind

            24   of my pet peeve, I still get very annoyed when I have to push

            25   Control Alternate and Delete to activate my computer.  Why
 




             1   not just one button?  And I am sure there are good reasons,

             2   but I think those are the things that have to be thought

             3   through that are just opportunities to kind of simplify and

             4   streamline as we launch this approach.  Do whatever it takes

             5   to make it user friendly and intuitive.

             6             So let me turn to the last issue I was asked to

             7   discuss and that is what bumps in the road I see ahead of us. 

             8   And it is actually because the promise of interactive data is

             9   so enormous that therein lies the risk.  Nothing of great

            10   importance comes easily.  And although we all agree on the

            11   conceptual description and the general direction, the devil

            12   always lies in the details.  So it will be fair to say that

            13   we will definitely face unforeseen technical challenges. 

            14   This is a time when naysayers are really out and in a

            15   leadership position.  Skeptics are a lot easier to find than

            16   supporters.  And a lot of advice to turn back and not throw

            17   good money after bad.  I think you can expect that public use

            18   of this system may be less than you hoped for, at least in

            19   the early days, and there may be lots of comment whether it

            20   is from the press or Congress about the cost of doing this as

            21   well.

            22             And despite our best efforts my guess will be there

            23   will be a fair amount of complexity as well.  I think that is

            24   something that we should expect and ensure that we are

            25   prepared for.  In many ways, it is actually a sign that you
 




             1   are on the right track.

             2             Change is really, really tough.  People hate change

             3   and, quite frankly, it is human nature.  We have experienced

             4   an enormous amount of change at Xerox over these last five

             5   years and what we have discovered is that people are willing

             6   to change when there are three conditions that are in place.

             7             The first is that the pain of the status quo

             8   actually has to be greater than the pain of change.  So

             9   people have to have a perspective about what they're leaving

            10   behind and why it is so important that they move forward.

            11             There has to be a clear vision so they have to see

            12   that this change is going to lead to a better future.  So it

            13   really has got to have concrete goals that are well

            14   understood by all the constituencies.  And there is no more

            15   important time for our communications to be open, honest and

            16   extremely direct.

            17             So I think it is very appropriate that we keep on

            18   pointing to a brighter future, keep listening to the

            19   customers and also the critics and keep the communications

            20   open.  And during that whole time believing in what you do

            21   and having a passion for it is hugely important as well.  I

            22   know I do.

            23             So I began this talk by talking about this famous

            24   quote from Victor Hugo, "No army can withstand the power of

            25   an idea whose time has come."  But when I wrote it I said I
 




             1   wasn't quite sure I had it exactly.  So I actually Googled

             2   that quote to make sure that I had quoted Victor Hugo right

             3   and while I was doing that I found another quote that

             4   actually was better.  I'll use the quote now.  It says, "Of

             5   course, you have critics.  It is the story of every man who

             6   has done a great deal or created a new idea.  It is the cloud

             7   that thunders around everything that shines.  Don't bother

             8   yourself about it.  Keep your mind clear and your focus

             9   true."

            10             That's not a bad piece of advice to certainly end

            11   my talk on.  I have to tell you that at Xerox we are actually

            12   very proud to be associated with your work.  You can count on

            13   us, by the way, to be both supporters but also constructive

            14   critics as well.

            15             I just want to thank you for inviting me to share

            16   our thoughts and this is an invitation that we're delighted

            17   we accepted.  Thank you very much.

            18             MR. BOOTH:  Thank you, Anne, very much for those

            19   perspectives.  Very illuminating I am sure for everyone.

            20             My name is Corey Booth and I am the Chief

            21   Information Officer of the SEC.  I can't help noting I am

            22   actually the third speaker of the day with an English degree

            23   who seems to have lost their way but ended up in an

            24   interesting place.

            25             My role today is to kick off the afternoon panels
 




             1   and most importantly to introduce four speakers who are going

             2   to start us off and give us their perspectives first before

             3   we get into the panel, per se.

             4             First, I'd like to introduce Dr. John Markese, the

             5   president and chief executive officer for the American

             6   Association of Individual Investors, a not-for-profit

             7   educational institution.  John presents investment seminars

             8   and writes columns on stock analysis, portfolio management,

             9   mutual funds and other financial topics and is a strong

            10   advocate for the empowerment of the individual investor

            11   through improved information and tools.

            12             Please welcome John Markese.

            13             MR. MARKESE:  Thank you, Corey.  I'd like to thank

            14   the Commission for this opportunity to speak.  I thought I

            15   would take some time and tell you how individual investors

            16   actually use information this afternoon.  A little bit about

            17   our association so you can understand what I mean by an

            18   individual investor.

            19             We have been around since 1978 and about 1980 we

            20   started writing about how to use your computer to make

            21   intelligent investment decisions.  Now those computers are

            22   starting to show up on the Antiques Roadshow today, but we do

            23   have powerful computers now available to everyone.

            24             Our average member  and I am going to say this a

            25   little bit unfortunately is in their late 50s.  We try with
 




             1   all our might, we can't seem to get young people involved. 

             2   Mostly male, again that's unfortunate, but we are hoping

             3   there are other readers to these memberships.  And they have

             4   advance degrees, not necessarily in finance.  In fact, not in

             5   finance the case.

             6             If you think about investors with that background,

             7   I'm going to give you a little bit of the hierarchy.  There

             8   is the investor that basically takes advice from a

             9   professional.  There is a second level that I will say looks

            10   at Value Line.  Let me speak about the third level, the

            11   engaged investor that is going to use the database.

            12             Now, in the early Nineties, our members came to us

            13   and said, "Well, we now have these computers.  You've been

            14   writing about this.  We want to screen large databases."

            15             So we went out and talked to data vendors,

            16   analysts, analyst quotations, large databases and I have to

            17   say we begged, we implored, we cajoled and I think we even

            18   cried trying to get a comprehensive database at a reasonable

            19   price.  And we did.

            20             What we did with that is we wrote software allowing

            21   them to screen, individual investors to screen a database of

            22   almost at 9000 firms, 2200 individual variables that they

            23   could screen on, 7 to 10 years of data.  We also gave them 50

            24   screens from Warren Buffet to Can Slim, if you're familiar

            25   with that and we allowed them to create their own screens.
 




             1             And so what they are doing -- and, again, this is

             2   the cutting edge investor that is most likely to use

             3   interactive data -- what they're doing out there is screening

             4   this database which is a updated on our website weekly.  We

             5   send out CDs monthly.  They are screening through this large

             6   database with these either pre-arranged screens or their own

             7   custom screens, they're finding investments of interest.

             8             And then here's where they interact with EDGAR

             9   hopefully.  They go to that EDGAR database, they pull up the

            10   original documents, the 10-Ks, the 
                                                the Qs, they look at the MD&A,

            11   they look at the numbers, again, although we have great faith

            12   in the numbers we receive, and they do an in-depth analysis. 

            13   The probably peak at Value Line if there is a Value Line.

            14             A lot of them go to smaller stocks which the only

            15   source then would either be from the company or from the

            16   EDGAR database.  So this is an engaged group.  They're

            17   looking for the ability, access data, real time basis, update

            18   once they had invested, any new filings.  This group is

            19   probably the group most likely to benefit from XBRL and the

            20   data tagging and the nature of what is being proposed.

            21             So going forward, here is what I see.  Hopefully

            22   with tagging, these data providers will provide

            23   data -- again, we begged low prices, but they could be

            24   lower -- give us low prices because of the ease of extracting

            25   this data.  Hopefully it's now accurate and it's more timely. 
 




             1   And with that lower cost allow more investors to participate

             2   at that level.

             3             Secondly, they are going to have to give up more

             4   value here because, as you know, if their prices are going to

             5   come down, which I assume they would, they are going to have

             6   to give us something else.  And what I would propose and I

             7   think has been asked earlier this morning, "Well, what else

             8   would come forth?"  I would hope that these data providers

             9   would go in and find industry by industry what the value

            10   drivers are.

            11             In other words, five of the top specific to the

            12   industry variables and whether it is book-to-bill ratio or

            13   the load factors or average volume or same store sales,

            14   whatever, they would then report on those levels of

            15   information so an individual investor picking a stock can

            16   then look at the peer group and make comparisons to make

            17   qualitative and quantitative comparisons and then be able to

            18   look at the EDGAR site, pull up and tag even the footnotes,

            19   the MD&A detail and then make an intelligent investment

            20   decision.

            21             So that's what my hope for is, in the forward

            22   moving of the XBRL.  I think we are close, but I also think

            23   we have to have an exhaustive standardized comprehensive and

            24   I'm going to say this again, standardized, to make this low

            25   cost and make the ability of the individual investor with any
 




             1   simple software -- and, by the way, I did talk to software

             2   providers and data providers.  Software providers are ready

             3   in the wings to come out with a lot of detailed templates for

             4   investors they can either download into Excel spreadsheets or

             5   we can attach them to the screening devices that are already

             6   available.

             7             So I commend the Commission again.  Anything that

             8   is, in terms of data that is cheaper, more accurate, more

             9   timely, more comprehensive, all of our members would vote a

            10   very loud, "Yes."  Thank you.

            11             MR. BOOTH:  Thanks very much, John.

            12             Next up we have Trevor Harris, managing director

            13   and vice chairman of Client Services at Morgan Stanley. 

            14   Trevor has been heavily involved in accounting and company

            15   valuation issues and academia as well as at Morgan Stanley

            16   and is at the forefront of Morgan Stanley's efforts to

            17   approve the use of financial data in the firm's Equity

            18   Research.

            19             Trevor.

            20             MR. HARRIS:  Thank you, Corey.  Chairman Cox, thank

            21   you for inviting me.

            22             I am going to try very hard to do an interactive

            23   live presentation for you.  It's been a bit of a

            24   technological challenge getting this working so I'm not sure

            25   it is going to work, but we will certainly try it.
 




             1             I do want to make one caveat is that to the extent

             2   I can show you this data, it is all for illustrative purposes

             3   only and so it should not be relied on in any way.

             4             What we have been doing at Morgan Stanley since I

             5   arrived in 1997, we have been involved in actually trying to

             6   work with interactive data because we have been a strong

             7   believer in it and we are trying to utilize the benefits of

             8   it.  So, I am going to start off with, hopefully, it's just a

             9   very quick perspective on both the way investors do analysis

            10   on the buy side and sell side, a little bit of what we are

            11   doing in a live way if I can, and then I am going to try and

            12   actually access the SEC website.  I originally wanted to do

            13   this with our own software, but this is a commercial vendor

            14   that does it, so I can show you how it all interlinks as this

            15   data becomes more available to us.

            16             So, if we think about the investment analysis

            17   process, buy side and sell side analysts and investors are

            18   really looking at risk-reward trade-offs from a specific

            19   point of view.

            20             We are trying to understand the sustainability and

            21   growth of different drivers in performance of the business. 

            22   So we are looking at what actually drives business as well as

            23   the credibility and quality of management.

            24             We use historical information, but actually the

            25   focus -- and this is both financial reporting and other, but
 




             1   the focus is to create forecasts both of different duration

             2   and detail.  So we do actually enjoy some of the complexity

             3   that people have already talked about.

             4             And what we are trying to do is assess both

             5   stock- specific or company-specific value and uncertainty

             6   relative to price and that's both on an absolute and a

             7   relative basis.  And, clearly, as others have already talked

             8   about, we are concerned with the reliability, the consistency

             9   and the comparability.  And these are all the attributes we

            10   are trying to incorporate.

            11             Importantly, we want to understand the economic

            12   activity.  And to some extent you have to deal with

            13   complexity, you cannot avoid complexity to understand the

            14   economic activity and timeliness is, of course, critical.

            15   So with that perspective, what is it we have actually been

            16   doing?

            17             And I would argue that any of these data providers,

            18   anyone who is going to try and do this from an investor's

            19   point of view has essentially these same five building

            20   blocks.

            21             The first is in order to get particularly global

            22   comparability where we focus on the economic activity and try

            23   to separate the operating from the funding criteria or the

            24   funding parts of the business, we had to create our own set

            25   of broad general as well as the industry-specific metrics.
 




             1             So just to be very clear, we are dealing with

             2   interactive data.  We are creating our interactive data which

             3   I'm going to show you in a second, hopefully, before this has

             4   become available on the public sites.

             5             What we have then done, and I'm going to show you

             6   in a second, is we actually take our analysts' models and we

             7   tag them with XBRL tags and integrate those into financial

             8   models so that we can use that both for valuation, for

             9   comparison and, most importantly, for many of the

            10   constituents, it has helped us to get additional insights and

            11   ask additional questions.  So you actually get to understand

            12   why is Company A suddenly got an operating profit or an

            13   operating margin going in one direction while Company B is

            14   going in a different direction.

            15             So you start to ask different questions and you can

            16   add complexity as we've done with something like pension

            17   data.  This is a bit difficult to see on the screen, but this

            18   is an example of how you would actually take an analyst's

            19   model -- and remember, all of this has been put in by hand

            20   initially because we didn't have the interactive data, adding

            21   a tagging editor to it and then that provides actually tagged

            22   elements.

            23             Now, what I had hoped to show you a little later

            24   was how we could bring in the data -- we have a prototype

            25   where we are actually bringing the data from the SEC's
 




             1   website and automatically tag it.

             2             So the key here is that the time that it will ave

             3   is enormous in terms of the input that investors have.  And,

             4   actually, there was an interesting article on Motley's Fool I

             5   think it was this weekend talking about exactly that process.

             6             The other thing that it does which is relevant is

             7   it actually validates the model.  So what we actually have

             8   found is by going through electronic data, what we've heard

             9   before from one of the other speakers, was it actually

            10   creates a much more transparency and accuracy.

            11             So this is the process that's gone through with the

            12   analysts' models.  And what I am going to try to do now is to

            13   actually show you a live demo of some of that information.

            14             So the starting point here -- let me show you what

            15   we have is.  I have taken in from our database, so this is

            16   live connected to the web right now.  And what we have

            17   actually done is we have listed a set of companies here.  And

            18   the companies I've chosen are based because one of these UTX

            19   actually has a listing on the web, so it is actually filed an

            20   XBRL document with the voluntary program.  So I'm going to

            21   try and bring that in in a second.

            22             And what you can do is, you can do the type of

            23   comparative analysis, the screens and comparisons that the

            24   previous speakers spoke about.  And actually, just to give

            25   you one example, by clicking on this particular metric,
 




             1   showing you just the earnings per share number, what we can

             2   then do is actually start to drill down to get to the

             3   different layers of complexity.

             4             So certain investors clearly just want to look at

             5   summary statistics.  Other investors want to get deeper and

             6   deeper.  So this is a net operating profit.  You can go

             7   deeper into the operating expense numbers.  And just to keep

             8   going, you can see this is a typical type of disclosure.  But

             9   what we have also done where it's material is certainly gone

            10   into all sort of pension information.

            11             So this is -- actually, I chose just the first

            12   company, Boeing, but UTX would have the same information. 

            13   And you can see how much detail and complexity that's

            14   actually include in here.

            15             So the point of this is that you can deal real

            16   quickly -- and notice this is both historic and forecasted

            17   information that you can deal very quickly in going from very

            18   high level to very complex information.

            19             So how does this actually help us in terms of

            20   investment decisions?  That's some of the relative

            21   information.  Here's something that's very specific and

            22   absolute.  And this is where, from an individual investor's

            23   point of view, I think this would be personally much more

            24   helpful than some of the information we see with ratings and

            25   other types of simple metrics.
 




             1             So let me explain to you very quickly what's here. 

             2   On the left-hand side here where my arrow is pointing, this

             3   is actually the stock price over the last 12 months for

             4   United Technologies.

             5             What I have done is I have created three valuations

             6   using a very sophisticated proprietary valuation model -- and

             7   I'm going to show you in a second how quickly we can

             8   manipulate that as well as some scenarios.  So it gives us an

             9   ability to do scenario analysis -- and I stress again this is

            10   all hypothetical data at the moment which I've adjusted.

            11   So you can see where the price is relative to your assessment

            12   of the stock.

            13             Now, to show you the nature of the interactive

            14   data, this is what is underlying it and you can see there is

            15   a lot of information, both historical and forecasted

            16   information.  And to give you -- and this is where I am

            17   hoping it is going to work.  We will take a quick chance

            18   here.  To show you just how easily you can start to build

            19   scenarios if you have this interactive data, on the left-hand

            20   graph here, I have operating revenue growth as well as

            21   operating revenue.  Then we have operating margins, operating

            22   asset efficiency, various leverage criteria and so on.

            23             And let's assume that an individual investor if

            24   they had this application or our own internal people or our

            25   clients felt that the operating revenue forecast was a little
 




             1   too pessimistic because the economy is going to get much

             2   better -- and please watch the other screens as I just move

             3   this.

             4             All I have to do is move that up and I'm going to

             5   do something a bit extreme just for effect.  And you will

             6   also see at the top on the screen is a valuation.  It has

             7   adjusted the revenue, it adjusted all the margins, the asset

             8   efficiency, the leverage and so on and gave us a new

             9   valuation.  So the ability to do scenarios is fundamentally

            10   different and clearly much more efficient.

            11             So how then does this relate?

            12             There are many other obviously applications around

            13   us, but the question then is how do we actually bring this to

            14   the interactive site.

            15             Now, what I had hoped to do was show you how we

            16   could pull it in and then just tag it automatically to be

            17   able to pull into that system.

            18             What I am going to try to do instead is, this is a

            19   commercial application, that Hitachi has put out.  This is

            20   experimental right now.  You go to the SEC plug-in and it is

            21   now searching hopefully and going to the website and try and

            22   actually find -- with some luck, we are getting there.  It

            23   will actually going to the SEC's website and try to pull in

            24   what's actually available.

            25             There we go.  And you will see it is now looking to
 




             1   the website.  I'm going to go down to the UTX filing that's

             2   there.  We open that filing.  And basically what it is doing

             3   is it's pulling in the information from the SEC's website. 

             4   And, again, in our system, this would automatically

             5   simultaneously be tagging it to introduce in our models. 

             6   This would be if an investor had a particular style sheet or

             7   a template, this is a simple template we created and, again,

             8   with a little bit of luck, you will see that it will provide

             9   us with updated -- as I said, with a bit of luck.

            10             But what this should be doing is pulling it into an

            11   actual -- no.  It didn't pull it in for the moment.  But it

            12   would actually pull the data in to a spreadsheet.

            13             I'm going to move to my final slide, but I'm going

            14   to try -- I have a way I think of pulling the original

            15   filing, perhaps not that one.

            16             I think if I pull in this one, I'll come back to

            17   it.  I'm going to open it.  This one I think is going to work

            18   better.

            19             And, again, one of the issues as Ms. Mulcahy said

            20   is -- there we go.  It pulls it in and you've got the data

            21   into a format that is useful to you.  In our case, it goes

            22   straight into the analysts' models and we can update it.

            23             So what does this actually mean?  Just to conclude

            24   here.  If we can actually take this data and get it in that

            25   form, it will certainly improve the analysis from a
 




             1   transparency timeliness point of view and our ability to deal

             2   with complexity.

             3             You cannot get simplicity without incorporating

             4   that complexity.  But you can only really deal with that if

             5   you actually have something like interactive data.  And,

             6   clearly, one of the things that I don't think happens enough

             7   is, people don't focus enough on the risks.  They focus on

             8   the expected value, intrinsic value, but they don't focus on

             9   risks enough.  That's something it will do.

            10             The other question we always get is, does this mean

            11   that analysts will cover all the companies.  The answer is

            12   no.  But clearly to the extent that we can save significant

            13   amount of input information, we all have the objective of

            14   extending coverage to more and more companies.  So, it

            15   clearly adds to the number of companies that are covered both

            16   by buy side and sell side.

            17             And then the last part which is perhaps just as

            18   important is instead of spending significant amounts of time

            19   just in pulling in data which is essentially a non-useful

            20   task other than for the insight, those people who are

            21   investing in fundamental analysis can actually spend their

            22   time on the analysis and the insight.  So it changes the

            23   dynamic and we can actually I think make the capital markets

            24   much more efficient for everyone.  Thank you.

            25             MR. BOOTH:  Thank you very much for that
 




             1   demonstration.

             2             Now, I'd like to introduce Larry Salva, the senior

             3   vice president and chief accounting officer and controller

             4   for Comcast Corporation.  Larry has been at Comcast since

             5   2000 after holding a variety of leadership positions at

             6   Pricewaterhouse Coopers and elsewhere within the accounting

             7   profession.

             8             He is also the chair of the Committee on Corporate

             9   Reporting for Financial Executives International, one of the

            10   leading professional organizations for executives in the

            11   finance function.  Please welcome Larry Salva.

            12             MR. SALVA:  Thanks, Corey.

            13             I'm going to take John's lead and since I don't

            14   have a visual presentation just take the opportunity to speak

            15   from my seat here.

            16             In spite of attempts over the last several years to

            17   educate the financial community, according to a 2005 survey

            18   by Computer Sciences Corporation and the Financial Executives

            19   Research Foundation, it still indicated that over 70 percent

            20   of financial executives have little or no knowledge about the

            21   XBRL standard.  And XBRL is still in the early stages of its

            22   adoption curve probably somewhere between the first phase in

            23   which enthusiasts and visionaries get interested in the

            24   technology and the standard and the group that is actually

            25   going to give it critical mass.  And that's are users defined
 




             1   as the pragmatists.

             2             And I like to think of myself as a pragmatic

             3   person, but I have to say at least Comcast is still not, to

             4   my embarrassment, Comcast is still not in the voluntary

             5   program.  And that's partly because of perception, partly

             6   because of reality.

             7             What I would like to do -- and I recognize that

             8   this is a conference assembled mostly representing analysts

             9   and users, but I was happy to have been invited to perhaps

            10   represent the views of preparers and maybe some of the

            11   obstacles in terms of why preparers aren't jumping into the

            12   pool quite as quickly as we would like, I actually do recall

            13   I served on the Commission staff when the EDGAR Pilot Branch

            14   was operating.  And sometimes it does take awhile for

            15   technology to take hold.

            16             Clearly, there are advantages to jumping in early. 

            17   And why a company should participate would include to better

            18   understand XBRL, to influence its direction, to evaluate it,

            19   to prepare to comply with what will eventually become a

            20   potential future requirement to use XBRL in filings.  It

            21   holds the potential clearly to improve efficiencies of

            22   financial reporting within the organization not just

            23   externally.  And clearly, you know, we anticipate improving

            24   transparency of financial information to investors, analysts,

            25   regulatory agencies, rating agencies and lenders.
 




             1             I recall sitting at an open Commission meeting and

             2   it was 20 years ago where Commissioner at the time envisioned

             3   a day where we wouldn't have financial statements where

             4   investors would just go in and look at data within a

             5   company's database and get the information that they were

             6   interested in.

             7             And while we may never pull down that firewall for

             8   companies to let that kind of transparency in, data tagging

             9   clearly or so-called barcoding of financial data clearly can

            10   improve the ability, the transparency of financial reporting.

            11             Unfortunately, the timing of XBRL might have been

            12   just a little bit off.  You know, its infancy, if you will,

            13   or introduction where it should have gotten traction may have

            14   coincided with where corporate America felt the burden of 404

            15   reporting, the staff resource constraints that we've

            16   been -- all of a sudden accountants and financial reporting

            17   people are in great demand.  And financial reporting groups

            18   have felt the pressure and the short resources.

            19             So, while a lot have heard that it doesn't take

            20   much to get involved and maybe the investment is up front, it

            21   is that up-front investment that is being resisted at least

            22   by many of my peers on the Committee on Corporate Reporting,

            23   the larger companies that didn't feel like they had that

            24   resource available to them.

            25             I think as time goes on they are finding that
 




             1   resource.  We're getting up to that point now where we are

             2   getting the breathing room and we can invest in it.  I am

             3   glad to see that six of the twenty volunteer companies in the

             4   volunteer group are members of the Committee on Corporate

             5   Reporting.

             6             The payback at least to a large company sometimes I

             7   think is difficult to quantify.  Much has been said about the

             8   possibility of increasing accurate information and coverage

             9   on small to medium-size enterprises, those that might have no

            10   analyst coverage or that analyst coverage might be sparse. 

            11   And certainly anything that you can do to increase the

            12   accuracy and the coverage of small and medium size

            13   enterprises would make sense for that segment of the market.

            14             I think in speaking to the Investor Relations group

            15   within my own company, they don't have the sense that we're

            16   missing or that buyers, buy side analysts are getting data

            17   incorrect about our company or that we're not on their radar

            18   screen as an investment opportunity.  But that shouldn't in

            19   my opinion be an impediment to our involvement in the

            20   program.  I have pushed and will continue to push for our

            21   involvement in the voluntary program.  Again, I'm dealing

            22   more with the resource constraints than anything else rather

            23   than the lack of enthusiasm for the project.

            24             The SEC XBRL voluntary program does provide -- it

            25   provides an excellent way to participate in the development
 




             1   and evolution of XBRL.  And that is an opportunity to test

             2   the perceptions and shape or determine the future reality.

             3             Clearly, the perceived benefits to businesses would

             4   be more efficient preparation of financial statements, lower

             5   cost of producing the information, increased accuracy, more

             6   timely information, process efficiencies and clearly reduced

             7   data entry and manual effort.

             8             And the ease of implementation at least as I

             9   understand it is it doesn't require a system-wide

            10   implementation.  You can make a small investment up front and

            11   it can be deployed in phases, essentially a top-down approach

            12   starting with the primary financial statements and then

            13   expanding into data in lower and lower layers with a flexible

            14   architecture in using existing business rules.  It should be

            15   easy to modify.

            16             So the opportunity does exist.  It is one that many

            17   companies are jumping into on the early end and I think that

            18   this will naturally evolve in its adoption curve.  And I

            19   think we are at that inflection point where many companies

            20   will be very interested in how the volunteer program goes and

            21   what benefits can be achieved by companies by participating. 

            22   Thank you.

            23             MR. BOOTH:  Thanks, Larry.

            24             Finally, let me present Christopher Whalen,

            25   managing director of Institution Risk Analytics, a research
 




             1   firm specializing in data-intensive analysis of companies. As

             2   a former investment banker and journalist as well as a

             3   staffer at the US House of Representatives and the Federal

             4   Reserve Bank of New York, Chris has seen the securities

             5   industry from all angles and is a close observer of the

             6   development of interactive data.

             7             Chris.

             8             MR. WHALEN:  Thank you, Corey.

             9             IRA was created in 2003 by myself and my business

            10   partner, Dennis Santiago, who is one of the great old men of

            11   the financial data world.  And we did it to perform analytics

            12   on structured data.  That is to say interactive data.  Even

            13   though today we still have to use data that comes from vended

            14   sources other than the data that we get from the FDIC, we

            15   could see that the marketplace was moving in this direction. 

            16   So we find the Commission's interest in this subject both

            17   timely and extremely well considered.

            18             I would like to briefly give you some thoughts and

            19   answer some questions that I've heard from staff and from our

            20   colleagues at the SEC over the last couple of years from the

            21   perspective of builder of analytic systems.

            22             We have been a member of the XBRL consortium since

            23   last year and I would like to think that we occupy kind of

            24   both sides of the divide, the enthusiasts group and also the

            25   pragmatist group.
 




             1             On the one hand we entirely buy into the vision of

             2   XBRL.  We see its utility.  We see its value in enabling

             3   public companies, private companies, other organizations to

             4   describe the financial information in their businesses.  And

             5   yet at the same time as an organization that has to deliver

             6   workable, reliable transparent analytics today to end users,

             7   we take somewhat of a conservative approach in terms of

             8   making it work because at the end of the day whether you're

             9   talking to Wall Street investors or risk managers or any

            10   other consumers of financial information, they want

            11   reliability and they want timeliness.

            12             Now, when we talk about interactive data, we think

            13   of it in three ways.  Interactive data is organized to ensure

            14   that the content can be used at every step in the process. It

            15   is interoperable in that it can be used by disparate

            16   technologies and can be used equally and seamlessly.  And

            17   most importantly, interactive data for us is distilled so

            18   that each step in the pipeline adds value to the next user

            19   downstream.

            20             Now, both of our colleagues, John and Rupert showed

            21   you the distillation process.  The screening techniques, the

            22   normalization, the standardization of different accounting

            23   treatment for disparate companies.  This is what adds value

            24   to financial data.  It is not just having it tagged.  Tagged

            25   is good.  When we get a diskette from the FDIC, now
 




             1   especially that they have implemented XBRL, we have extremely

             2   high confidence that all of the numbers on that diskette are

             3   right.  So we can get on with the analytics.

             4             But the tagging is really only the beginning of the

             5   distillation process.  And that is one of the points that I

             6   really wanted to allude to day.

             7             Now, one of the interesting questions that we have

             8   been asked was what are the sources of data used by

             9   investors.  And I think John highlighted that very nicely. 

            10   For me, having worked as an analyst, when one of my companies

            11   or banks reported its financial results, you almost always

            12   got the data directly from them.  You got it in a press

            13   release.  You were on their mailing list to receive an Excel

            14   spreadsheet.  And that was pretty much the numeric data that

            15   they would eventually or simultaneously file with the SEC.

            16             Now, that didn't mean that maybe years ago working

            17   as a banker on a fairness opinion, we wouldn't make extensive

            18   use of EDGAR.  We would.  But that was usually in the context

            19   of inputting the numbers from a physical EDGAR document into

            20   an Excel spreadsheet and then staying up all night eating

            21   Chinese food, proofreading the document to make sure it's

            22   right because at Bear Sterns, for example, you never wanted

            23   to answer no to the question, "Have you checked every number

            24   in this document?"

            25             Now, another question that we have been asked a lot
 




             1   is could interactive data change or have a positive impact on

             2   real time analysis.  Would greater use of interactive data

             3   improve the ability of retail investors, especially retail

             4   investors, to access and understand financial reports?

             5             Well, I think the answer is yes.  I mean clearly

             6   interactive data is going to allow analysts to move from

             7   simply observing financial numbers to understanding what

             8   those numbers mean in context.

             9             But I think even more importantly for me, if all

            10   investors were able to access as-filed data from the FDIC, it

            11   would level the playing field between the professionals and,

            12   as John pointed out, the interested individuals, the people

            13   who subscribe to Value Line and keep them piled up in the

            14   corner of the study because they just can't bring themselves

            15   to throw them away.

            16             And, you know, it is really striking.  You can't

            17   criticize the SEC or the EDGAR system.  It has evolved in a

            18   very orderly, very I think rational sort of fashion from a

            19   technology perspective.  When the first filings were made at

            20   the SEC, the filer community, the smart institutional

            21   investors immediately started gaming the system.  They would

            22   hire couriers to go down and pick up a document as soon as it

            23   was filed.  You had whole cottage industries that were formed

            24   around this.

            25             Over the years as EDGAR has progressed, it has
 




             1   become more accessible and more transparent to investors,

             2   more useful particularly to small investors.  But there is

             3   still an enormous degree of disparity and unfairness in the

             4   current system.  Even the timing of the release of data from

             5   the EDGAR system so vastly advantages the professional

             6   investor.

             7             I think that that, if nothing else, that should

             8   drive the Commission to act.  And that should also I think

             9   give the Commission the confidence, indeed even the courage

            10   to act.  Because until the individual investor with an

            11   Internet connection can get access to the same information

            12   that a professional can get -- in many cases at great

            13   cost -- I think the job is still undone.

            14             Now, another interesting question that I've been

            15   asked is assuming that a sufficient number of companies were

            16   to adopt the tagging regime, what obstacles would get in the

            17   way of using it.

            18             Well, I think Trevor illustrated that today.  You

            19   can't just take the as-filed numbers and do work with them. 

            20   If you have got one satellite TV company that capitalizes a

            21   set-top box and another one that expenses the set-top box,

            22   you have got to normalize those two before you can do a

            23   valuation analysis of the two companies.

            24             So to me and really to my firm, assuring a

            25   sufficient degree of uniformity in filings is almost a
 




             1   prerequisite if you want that data ready to eat when it is

             2   disseminated by EDGAR.  I'm not sure you do.  But I am just

             3   saying from a financial analytical perspective, if you want

             4   an investor to be able to download five companies from EDGAR,

             5   put them in their Excel spreadsheet and immediately starting

             6   running ratios and screens on them, you are going to have to

             7   have some degree of commonality.

             8             Now, having worked with the FDIC data for a number

             9   of years, it's very easy.  All banks basically have the same

            10   accounting, the same reporting taxonomy.  So running

            11   analytics on them is a relatively easy matter.  But when you

            12   get outside the financial world and you are into the much

            13   larger universe of non-financial companies and, indeed, under

            14   our GAAP system, they all have very different ways of

            15   describing their businesses.  And they cling to that right of

            16   describing their businesses differently.

            17             Now, one of the more interesting points that I was

            18   asked about is what incentives would encourage companies to

            19   submit data in an interactive data format.

            20             I think both myself and my partner, Dennis, believe

            21   very strongly that the Commission ought to employ the carrot

            22   and the stick.  You know, a company that is unwilling or

            23   unable to report information transparently when this

            24   technology is, as Ms. Mulcahy, is very mature I think is

            25   worthy of investor skepticism and regulatory attention.
 




             1             There is going to come a point when all, especially

             2   the large accelerated filers should not be asked why don't

             3   you get involved in XBRL but why aren't you involved.  You

             4   know, "What's the problem?"

             5             I am reminded of Chairman Greenspan's comments a

             6   couple of weeks ago about the credit derivative market when

             7   he was worrying about the fact that we are still processing

             8   these contracts by hand.  And he looked at the audience at

             9   the Bond Market Association and said, "Why do we have a

            10   problem?"

            11             I think this is the same sort of things.  The

            12   vendors could handle us quite easily.  The corporations might

            13   not even know.  They could just the submit the document that

            14   they are already filing with you now and the vendors could

            15   tag it and that would be it.

            16             Just one final point and then I want to allow us to

            17   get into our discussion.  The thing that I would really,

            18   especially having worked as an analyst recently and having

            19   seen the changes that are going on in the Wall Street

            20   business models, you know, would interactive data help get

            21   more analysts coverage for companies?  Well, maybe.

            22             I'm not sure what entities will be providing that

            23   coverage.  I'm not sure that it's going to be a broker

            24   dealer.  It might be a media company.  It might be the

            25   companies themselves if they could access as-filed data from
 




             1   the SEC and generate peer group information using that data

             2   with no commentary and just release that to their investors.

             3             The model is so broken now that I think, as you

             4   have already seen in the newspaper, more and more broker

             5   dealers are going to be getting their researchers out of the

             6   publication business and into the transaction business.  And

             7   I think it is very possible that you are going to see most of

             8   the traditional Wall Street research sector disappear.

             9             I am not sure that's a bad thing though, because,

            10   frankly, having worked for two very large retail brokerages,

            11   I'm not sure that the little guy was ever terribly benefitted

            12   by the institutional researchers' work output.  Before Reg FD

            13   the researchers were going on the banking calls and, you

            14   know, they were very much part of the transaction process and

            15   I think the little guy was probably off with his Value Line

            16   book.

            17             So with that, let me stop there.  We did file a

            18   complete document today with the Commission which I would

            19   refer you to and I will be happy to answer any questions you

            20   might have.

            21             MR. BOOTH:  Thanks very much to all four of you for

            22   those introductory thoughts.  Now I'd like to turn the floor

            23   over to the panel as a whole for the balance of the afternoon

            24   and also to introduce our two SEC moderators for the

            25   discussion.
 




             1             Sitting down in front unfortunately with their

             2   backs to the audience, we have Scott Taub, the acting chief

             3   accountant, and Jim Daly, associate director for the Division

             4   of Corporation Finance.

             5             Guys.

             6             MR. TAUB:  Corey, thank you.  And as far as having

             7   our backs to the audience, I suppose you're probably seeing

             8   our best side anyway back there.  It's all right.

             9             Just to kick things off, we have assembled a fairly

            10   large panel and we have a fairly limited amount of time,

            11   about an hour, to deal with these topics.  So Jim and I are

            12   going to tee up the issues in the order that we have selected

            13   them.  We will look to panelists, turn over your cards when

            14   you have comment, just flip them on the side so that we can

            15   call on you in order.

            16             We will try to make sure that everybody who wants

            17   to comment on a particular topic gets a chance to do so. 

            18   However, given the limited amount of time, we may feel the

            19   need to move onto another topic in order to make sure that

            20   we're able to get to everything that we'd like to get to

            21   during this hour.

            22             Commissioners, certainly please free to ask

            23   questions as well, turn your cards up if we haven't given you

            24   the opportunity to ask a question that you would like to ask. 

            25   We believe that we have a very good panel and we are looking
 




             1   forward very much to what input you can all give us.

             2             I'll turn over Jim to introduce the rest of the

             3   panelists and get things kicked off.

             4             MR. DALY:  Thank you, Scott.

             5             Moving from right to left for the remaining

             6   panelists, Mark Augustine is with the healthcare investment

             7   group called Augustine Consulting and provides proprietary

             8   biotechnology industry research to various hedge fund and

             9   mutual fund clients.

            10             Cathy Baron Tamraz is the president and chief

            11   executive officer of Business Wire.

            12             Thomas Franks is the head of Global Equity Research

            13   and TIAA-CREF.

            14             Continuing to move to the left, Charles Gregson is

            15   the CEO of PR Newswire.  He assumed that position in April

            16   2005.

            17             William Guttman is a venture partner with TL

            18   Ventures where he has focused on software and financial

            19   technology investments.

            20             Greg Jonas is the managing director of Moody's

            21   Accounting Specialist Group and his group assesses the credit

            22   risk of borrowers.

            23             John Stantial is the director of Financial

            24   Reporting for United Technologies Corporation.

            25             Clinton E. White Jr., is a professor at the
 




             1   University of Delaware and he has published numerous article

             2   in academic professional journals on this issue and a number

             3   of XBRL issues as they relate to accounting matters.

             4             Now, what I thought we would do, as Scott

             5   mentioned, given the fact we have such a large panel is tee

             6   up some questions, probably picking and directing them to two

             7   panelists at a time.  And then after that anyone can add

             8   additional thoughts that they think are appropriate as well

             9   as the Commission can add its views or questions as well.

            10             So the first question I'd like to tee up, on the

            11   matter of access and accuracy, goes to Mr. Jonas and Mr.

            12   Franks.  Would greater use of interactive data improve the

            13   ability of retail and/or institutional investors to access

            14   and understand reported financial data?  How could the use of

            15   interactive data increase the depth of information used in

            16   financial analysis or otherwise facilitate the quality of

            17   financial analysts?

            18             The important thing to understand here is that

            19   investors come in all shapes and sizes, institutions versus

            20   retail.  So maybe you could bring your perspective as well as

            21   you answer that question.

            22             MR. JONAS:  Jim, thank you.  I certainly appreciate

            23   the privilege of being here today to say a few words about

            24   interactive data that we think could be of significant

            25   benefit to investors.
 




             1             We see that it can help us do our work at Moody's

             2   in at least five ways.  Let me mention them and then briefly

             3   touch on each.

             4             First is improving the speed of data access.

             5             Second is the completeness of data access making

             6   sure that we've got the whole picture.

             7             Third is improving the accuracy of the data that we

             8   use.

             9             And fourth is possibly improving the comparability

            10   of the information we use.

            11             And, finally, understanding the source and the

            12   context of company data when we build databases.

            13             Speed of data access first.  We suspect that data

            14   procurement that data procurement that now takes us weeks or

            15   days or hours could be accomplished in a fraction of those

            16   times.  Let me give you a couple of examples.

            17             We currently spend days downloading, building and

            18   checking our database of information on corporations each

            19   month.  We spend more time adjusting that data to improve its

            20   use for our purposes.  We hope that interactive data could

            21   reduce these times from days to perhaps hours.

            22             On the research side, a typical research project

            23   involves searching the SEC filings for text-searching

            24   software.  Two projects that I was recently involved in in

            25   just the past couple of weeks identified 50 companies most
 




             1   affected by the FASB's proposal to get the balance sheet

             2   right for pension accounting.

             3             As another example, you know, we spent dozens of

             4   hours identifying and downloading 404 reports that reported

             5   material weaknesses.  And, again, we hope that interactive

             6   data could dramatically reduce those times.

             7             The second benefit we perceive is completeness of

             8   data access.  Interactive data can reduce the risk that our

             9   queries of SEC filings would miss important stuff.  Tech

            10   searches are notoriously bad at flagging all relevant data. 

            11   And, in part, this is because companies can call the same

            12   thing different names.  Further, companies can report

            13   information in different places.  And to reduce the risk that

            14   we overlook something important, we often perform redundant

            15   manual steps.  Standardized tagging of information can help

            16   us ensure that we identify all the data that meets our search

            17   criteria.  And that is very important that we not overlook

            18   something.

            19             The third benefit I mentioned was accuracy of data

            20   access.  Our processes today to accessing data include many

            21   manual interventions, each of which increases the risk of

            22   human error.

            23             For example, our statistical analysts download data

            24   classified in our reporting framework, manually input data

            25   into the templates we use to adjust financial statements and
 




             1   then perform procedures to ensure that the processes have

             2   produced a reliable result.  Using interactive data could

             3   reduce the amount of human intervention in this process and

             4   reduce human error.  It might also allow automated quality

             5   control procedures to ensure the reliability of the database

             6   rather than requiring extensive manual processes.

             7             The fourth benefit I mentioned, and for me among

             8   the most important, is improving the comparability of company

             9   data.  Comparability is essential to the rating and research

            10   processes as I suspect it is to almost all of business

            11   analysis.  Ratings that we use are relative not absolute

            12   measures of credit risk.  We compare companies to those of

            13   their industry peers.  We compare companies with those that

            14   are at similar rating levels.  We compare domestic companies

            15   with international counterparts.

            16             Now, today's comparability surely can be improved

            17   and the Commission has been outspoken on a number of these

            18   areas so I won't belabor them.  But US GAAP differs from

            19   other GAAPs.  Companies apply different estimates and

            20   judgments in measuring data.  Companies display unclassified

            21   information differently on the face of the financial

            22   statements.  And these differences give us huge headaches in

            23   the analytical community.

            24             Interactive data can improve comparability.  Data

            25   tagging is not just about technology.  It is equally about
 




             1   the classification of information.  Boundless flexibility in

             2   tagging data is the enemy of comparability.  Limiting

             3   flexibility in tagging is essential to the value to

             4   interactive data to investors.

             5             So thoughtful data tagging I think can actually

             6   improve comparability in a major way.  Let me give you one

             7   example.  Consider retailers.  Some retailers view their

             8   store costs as part of operating expenses and include them in

             9   cost of good sold where they affect reported gross margin.

            10             Other retailers use store costs as selling costs

            11   and include them in SG&A where they don't affect gross

            12   margin.  So gross margin and SG&A costs of retailers are not

            13   comparable.  Further, investors do not have the data needed

            14   to make them comparable.  But tagging store costs could offer

            15   management and investors the best of both worlds.  Management

            16   could classify store costs as it deems best consistent with

            17   the way it manages the business.  Yet, investors can download

            18   data and classify it in a comparable way essential to

            19   financial analysis.  So XBRL offers the best of both worlds.

            20             My final point and then I'll be silent is to

            21   understand the source and context of company data. 

            22   Interactive data can allow the analyst to instantly backtrack

            23   from a data point to the source of that data point.  And that

            24   backtracking can help the analyst see to better understand

            25   the data in the context in which the data was presented. 
 




             1   That is key to analytical effort.

             2             So, in conclusion, you know, why we're really fired

             3   up about this is that it offers -- interactive data offers us

             4   more time to be doing what we're paid to do which is analyze

             5   the information and gaining insight from that and less time

             6   just getting data ready for analysis where we spend too much

             7   time.  Thanks.

             8             MR. DALY:  Thank you.

             9             Mr. Franks.

            10             MR. FRANKS:  Thank you.

            11             Let me just first say that my point of view is

            12   going to be from the institutional investor where at

            13   TIAA-CREF we have over 50 investment professionals on the

            14   research side really aligned by industry will be performing

            15   the analysis prior to investment decision.  And I see, as was

            16   just touched on, an enormous opportunity to improve the

            17   efficiencies of particular pieces of the investment process

            18   particularly early on as a screening tool in particularly

            19   small or mid-cap names.

            20             MR. DALY:  Could you pull your might just a little

            21   bit closer?

            22             MR. FRANKS:  Sure.  I think, as was just touched

            23   on, the interactive data project will allow you to get to

            24   what you want to do faster.  And what we want to do as

            25   investors is not spend a lot of time cleaning the data,
 




             1   looking for clean historicals, accurate current financial

             2   statements.  That's part of it, but what we really want to

             3   spend our time on is forecasting the future.  And that's

             4   where we believe we add value.  So any tool that will give us

             5   accurate information in a manipulable format is a big plus

             6   from our point of view.  I don't think it will ever replace

             7   the Ks and the Qs which are going to contain information that

             8   probably cannot be tagged and is a rich source of information

             9   of the company, in the footnotes, in the discussion sections

            10   which it will probably be beyond the scope of this exercise

            11   to really tag.  And, if you're investing large amounts of

            12   money, you will have to go through in detail no matter what.

            13             But I do think this can accelerate the investment

            14   process for us and I do think that beyond the core group of

            15   companies that an analyst would cover, this could allow us to

            16   create better intelligence screens which would bring small

            17   and mid-size companies that we might not normally look at to

            18   our attention at which point we can then begin to do the much

            19   more detailed work that could lead to investment decisions. 

            20   So whether you call that coverage of a company, it is

            21   certainly attention towards companies that we may not have

            22   otherwise looked at.

            23             MR. DALY:  Thank you.  This next question is for

            24   Ms. Tamraz and Mr. Gregson.  What sources of data are

            25   primarily used by analysts, investors or other users -- the
 




             1   media, for example -- for research today for official filings

             2   for the SEC, third party financial databases, manually re-key

             3   data.  What sources do you look to?

             4             MS. TAMRAZ:  Well, Dow Jones, Reuters, Bloomberg,

             5   Thompson Financial, you know, services like that are the

             6   sources, but I think it all starts before that.  And

             7   representing the news distribution service and the commercial

             8   news wires, I think interactive data all starts with the

             9   press release.

            10             In our service, the press release is already being

            11   distributed in XML and XBRL to me is just an extension of XML

            12   and it is further tagging of the financial data.  So I think

            13   that is going to be enormously useful for everyone, the

            14   individual investor and the professional investor, media, et

            15   cetera, to analyze companies and make buying decisions. So I

            16   was happy and thankful to be invited here today because I

            17   think the press release is at the heart center of interactive

            18   data and provides that source being pushed out to Dow Jones,

            19   Reuters, Bloomberg, et cetera, is key to taking that

            20   information and analyzing it.

            21             MR. GREGSON:  I'm just really endorsing what Cathy

            22   said.  The news release is the primary source of data for

            23   newsrooms and for a large number of people who are required

            24   to comment instantly on what companies are saying.  And the

            25   use of their interactive data will enable the media to
 




             1   comment much more effectively and much more rapidly on what

             2   companies are saying, particularly in their earnings

             3   statements.

             4             I think that the two newswires working together to

             5   develop a taxonomy for text as well as supporting the

             6   financial taxonomies will make the press release

             7   significantly more valuable to both retail and institutional

             8   investors.  So we thoroughly endorse the efforts of the SEC

             9   to ensure that this standard is rolled out.

            10             MR. DALY:  The last question in this area goes to

            11   Mr. Guttman and Mr. Stantial.  What incentives would

            12   encourage companies to submit data in an interactive data

            13   format?  We have heard about the carrot and the stick

            14   already.  What perceived risks by Company C in submitting the

            15   data in an interactive data format as a result?

            16             DR. GUTTMAN:  Well, let me just as a private equity

            17   investor much of what we are talking about today is kind of

            18   an unrealizable dream at least in the area that I work in,

            19   but I do have the privilege of working with a number of

            20   companies and have invested in a number of companies that

            21   generate or move data of the kind that we're talking about

            22   today.

            23             I think that one of the things -- and I had an

            24   opportunity to speak with them before coming to today's

            25   panel.  And I think the question is very interesting because
 




             1   there is a very large ecosystem of companies, mid-market,

             2   smaller companies that generate or move the kind of data that

             3   we're talking about and so far they have not really realized

             4   a lot of customer demand.  So the typical supply-and-demand

             5   incentives that are present in the market had not yet

             6   appeared with respect to XBRL.

             7             I think it also raises the corollary point that

             8   there are a huge number of listed securities and that the

             9   cost of implementing XBRL don't scale.  So it is not -- in

            10   other words, the large companies that are presumably a part

            11   of the test group, that's a relatively small expense for them

            12   relative to the scale of their organization.  So I think that

            13   as others have mentioned during the course of the panel,

            14   there probably need to be incentives of some kind put into

            15   place to cause both the data providers and data movers within

            16   the ecosystem as well as the smaller organizations who are

            17   expected to report this kind of information to the SEC and

            18   analysts to actually embrace XBRL.

            19             MR. STANTIAL:  I would like to approach this

            20   question a little bit differently and maybe a liberal

            21   interpretation of incentive.  Barring a mandated requirement

            22   file, we did think about this quite a bit, but really didn't

            23   think there was say a traditional incentive that the

            24   Commission would provide that would really make us any more

            25   interested than we already were.  But having said that, I
 




             1   think the real issue here is how do we get broader

             2   application, interest and usage of XBRL by companies.

             3             And using that kind of avenue for incentive, there

             4   were kind of two thoughts.  One is really this community

             5   here, the investors and analysts.  You know, right now XBRL

             6   is very much within the financial reporting realm and in some

             7   regards that's harmful.

             8             I think if we can have the investor and analyst

             9   community make a much stronger statement to companies that

            10   they want and need this data in XBRL, then you are going to

            11   take the interest within a company from the financial

            12   reporting segment over into investor relations, senior

            13   management and those kinds of levels which is going to, given

            14   that it's coming from your shareholders or representatives of

            15   your shareholders is going to get quite a bit of attention.

            16             The other way I would focus and it just may be a

            17   very liberal interpretation of incentives would be to take

            18   resources that are available whether it's the Commission or

            19   consortiums or whomever and find ways to bridge these, and

            20   I'll call them, perceived roadblocks to adopting XBRL.  And I

            21   have heard some of them even this afternoon on the panel

            22   having now filed I think six or seven XBRL documents

            23   including the one that was profiled on the Morgan Stanley

            24   product, they really I can honestly say are not roadblocks or

            25   issues even for smaller companies to adopting XBRL.
 




             1             I think where the resistance or the trepidation

             2   comes from is a lack of knowledge or proper understanding. 

             3   So if we can bring resources to bear to bridge that maybe

             4   through a tool kit, through hands-on workshops where you walk

             5   people through how you tag documents, things of that kind of

             6   nature, to take it from this level we're talking down to the

             7   details to show people that you can file a document for

             8   literally -- our first document was $300.  That was our total

             9   out-of-pocket cost.  Even for a small company, $300 is not a

            10   lot of money.  And it was about 80 hours of effort.  I know

            11   resources are a constraint, but 80 hours is not that much of

            12   a constraint for any company.  And, if it is, there are now

            13   organizations such as EDGAR online that will tag it for you. 

            14   So you can circumvent the resource issue.

            15             But I think it is that kind of information that

            16   needs to come out into practical terms and then I think that

            17   will really help some of these more companies into the fold.

            18             MR. DALY:  Mr. Harris.

            19             MR. HARRIS:  Thank you.  I just wanted to add one

            20   point that relates to all three of your questions really. 

            21   Based on our own experience using interactive data, I don't

            22   think you should underestimate even for the retail investors

            23   that it takes you to actually asking a completely different

            24   set of questions to what you were asking before.  Because

            25   what the interactive data does is highlight differences,
 




             1   gaps, inconsistencies which you would never have been able to

             2   see in an efficient way before.  So it actually takes you

             3   down the path of better understanding which several of the

             4   other panelists have said.  So I don't think you should

             5   underestimate the path that this leads you to.  Don't look at

             6   it where it is today.

             7             The other thing I would just mention relative to

             8   the last set of comments is people are scared of change as

             9   Ms. Mulcahy said.  Therefore, some of the people who

            10   purportedly would demand this information may actually be a

            11   little anxious as to what it does to their own activities. 

            12   So, again, I wouldn't let that be too much of a barrier

            13   because as you start to play with this you really appreciate

            14   the value that you can get out of it.

            15             MR. DALY:  Mr. Whalen.

            16             MR. WHALEN:  Just to take that comment a step

            17   further, in most cases when you get vended interactive data

            18   today, you're not allowed to redistribute that outside your

            19   organization.  As soon as the SEC makes public interactive

            20   data widely available, every media outlet that focuses on

            21   investors, Google, Yahoo!, all the rest of them, will take

            22   that data and they will do exactly what Rupert is talking

            23   about.  They will almost immediately start processing it,

            24   distilling it and offering it to users in a variety of

            25   different ways to capture exactly the value proposition that
 




             1   he just outlined.

             2             MR. DALY:  We'll try to circle back on this, but

             3   let's move onto Scott.

             4             MR. TAUB:  I would like to ask a few questions that

             5   really build on some things that people have already said in

             6   the opening presentations and then in answer to the last few

             7   questions.

             8             Let me start if I can with Dr. White.  In addition

             9   kind of the basic financial statements, I would like to hear

            10   from people about what other items should be tagged. 

            11   Footnotes, MD&A, perhaps filings that don't even include

            12   financial statements.  What kinds of documents ought to be

            13   tagged and why would the additional tagging produce benefits?

            14             MR. WHITE:  There is already talk about -- there is

            15   quite a bit of talk in the academic community in fact and it

            16   has also been picked up by the SEC.  For example, Corey Booth

            17   mentioned at the 13th XBRL International Conference that

            18   there were several leverage points that had been identified. 

            19   And I couldn't agree more.  These are footnotes, 8-Ks and

            20   10-Qs.

            21             It seems to me that the 8-K is a no-brainer because

            22   you have triggering events, you have the need to disclose

            23   very timely important information for investors.  It is a

            24   rather structured environment.  So it seems to me that the

            25   8-K is because a no-brainer to develop the appropriate
 




             1   taxonomies and reporting mechanisms.

             2             Something that would add extreme value at the

             3   moment to what we already have to the taxonomies that we

             4   already have is the tagging of footnotes.  Now, I'm thinking

             5   about tagging at a higher level as opposed to trying to

             6   create a taxonomy that picks up all the nuances that you find

             7   in footnotes.  But that to me is one of the most difficult

             8   pieces or sections of any set of financial information is the

             9   complexity that is disclosed in the footnotes.  It can

            10   totally change the meaning of a set of data that appears in

            11   the financial statements by reading the footnotes and fully

            12   understanding what they say.  So to me it's basically a

            13   no-brainer, footnotes, 8-Ks, 10-Qs.

            14             MR. TAUB:  There's been a few comments about the

            15   importance of standardization in terms of getting the most

            16   benefits out of data tagging.  However, as I think all of our

            17   panelists know, US GAAP and the SEC's reporting rules

            18   regarding financial statements and related information tend

            19   to be very flexible.  That is there are no limits to the

            20   captions a company can use in its filings nor in the

            21   narrative disclosures that it makes.

            22             So trying to get to thoughts about how important is

            23   standardization versus the maintaining the flexibility that

            24   is currently allowed in our reporting system.  I think we

            25   have heard from everybody except Mr. Augustine.  So, perhaps
 




             1   I'll look to you to start this one off.

             2             MR. AUGUSTINE:  Thank you and thank you for having

             3   me here.  I think it's a difficult question.  Certainly

             4   reconciliation of GAAP and non-GAAP earnings is a very

             5   important part of what the analyst and an investor would

             6   spend his or time doing.  That is part of the discussion that

             7   goes to the fine print in the footnotes to the financials as

             8   to what is so important about the seeming minutiae but really

             9   what can make a critical difference in interpretation of such

            10   results.  So I don't think that question should be taken very

            11   lightly, but I certainly don't have any real closure on it.

            12             In my nine years as a sell side biotechnology

            13   research analyst, reconciliation of GAAP and non-GAAP

            14   earnings is something that we encountered routinely, but in

            15   terms of how often it became an issue of conversation between

            16   investor and analyst or companies and investors on conference

            17   calls, the answer is very infrequently.  And so it might be

            18   best to get some experience or comments from people with

            19   other industries where this might be much more germane to

            20   their day-to-day.

            21             MR. TAUB:  Okay.  Trevor Harris.

            22             MR. HARRIS:  Thank you, Scott.

            23             I think we have to be very careful what that word

            24   standardization means.  There are other countries that have

            25   uniform accounting practices where every journal entry is
 




             1   dictated and I would not say that automatically leads to more

             2   informative information.

             3             In addition, companies are complex and different. 

             4   And that is part of the information we need.  And I think you

             5   can go to Greg Jonas' point is we are very happy for the

             6   companies to tell us the way that they think the information

             7   should be portrayed.  To the extent that we have tagged data

             8   elements that deal with that complexity, we can reorganize

             9   them in the way we want.

            10             Our experience with our clients is that different

            11   investors want different things.  And we actually create

            12   custom metrics so that they can create any metric they want

            13   which is very easy to do with tagged data, it's almost

            14   impossible to do without.

            15             So actually I would be very

            16   careful -- standardization at some level makes sense, but

            17   what that word really means and how far you take it can

            18   actually be very dangerous in terms of the information that

            19   you provide.

            20             MR. TAUB:  Thanks.  Mr. Salva.

            21             MR. SALVA:  Yeah, thanks, Scott.  Just to echo what

            22   Trevor just indicated because I thought of that as Greg was

            23   giving his example of store costs and what belongs in margin

            24   or what might be in margin for one company versus another.

            25             As you know, US GAAP doesn't necessarily ensure
 




             1   comparability from company to company because of the

             2   selections of alternative accounting principles that can be

             3   applied and not just principles but also classification.  I

             4   think there is a lot of flexibility on the part of commercial

             5   companies to classify costs in different ways.  They look at

             6   them for internal management reporting purposes differently

             7   and sometimes appropriately because the underlying economics

             8   drive different presentations or selection of accounting

             9   principles.  So we do have to be careful in terms of

            10   believing that by data tagging or standardization will lead

            11   to comparability.

            12             What it will do is it will facilitate analysis so

            13   that underlying differences can be ferreted out.  I think

            14   that is what Trevor might mean by it leads you down a

            15   different path of questions that you might not ever get to

            16   because you are too distracted by trying to get to the data

            17   to analyze.

            18             MR. TAUB:  I believe Chairman Cox has a question.

            19             CHAIRMAN COX:  Yes.  I just want to make sure that

            20   I'm learning the right lesson from listening to all these

            21   comments.  Synthesizing what discussion has just occurred, I

            22   think what I'm hearing is that if we want ready-to-eat

            23   comparability, if I've got the term correctly from earlier,

            24   we want ready-to-eat comparability, we might find ourselves

            25   disappointed.  It's a big world.  There are a lot of
 




             1   different ways to report a lot of things.

             2             But if what we want is to have the kinds of movable

             3   pieces that will let us reassemble things to our own

             4   satisfaction and particularly if we are willing to see a role

             5   for intermediaries and third parties between this data and

             6   retail customers for a variety of purposes we might find

             7   ourselves highly satisfied.  Is that about right?

             8             MR. WHALEN:  If you have a thorough tagging regime,

             9   no matter how the companies try and obfuscate, the analysts

            10   armed with the tagged data, much like Rupert is doing now by

            11   hand, are going to be able to sort it out.  And that's really

            12   I think the very exciting possibility.  It will make the IR

            13   professionals' job a lot hard and it will make both the

            14   professional street analyst and also the independent analyst,

            15   the journalist, all the other parties that want to be

            16   consumers of that data that much more effective.

            17             CHAIRMAN COX:  And I just want to add an additional

            18   layer of potential complexity here and see just how much

            19   satisfaction we might yearn for at least potentially in the

            20   future.

            21             Is it possible to imagine a future in which the

            22   analyst can use this data tagging in order to do a much

            23   better job of comparing GAAP and IFRS financials?

            24             MR. HARRIS:  No question.  We are doing that really

            25   currently today.  We cover our global universe, many
 




             1   companies reporting under IFRS, many under non-other

             2   international GAAPs and US GAAP, so there is no question that

             3   it does facilitate those kinds of analysis.

             4             But if I may try to give you an illustration? 

             5   There are many companies that have kept the finance

             6   subsidiaries which actually are integrated in the way that

             7   they actually run their operating businesses.

             8             For our classification, we happen to treat those as

             9   operating entities because there is no way to separate how

            10   much of the value is from the financing business and how much

            11   is from the let's say the production side of the business.

            12   In other companies they are so clearly distinct, we make that

            13   separation.

            14             To get the right analysis about the sustainability

            15   and growth of profits, you have to deal with those kinds of

            16   distinctions.  Other people may have different views of that. 

            17   Some regions deal with it differently.  But once it's tagged

            18   and once you understand that source, you can actually look at

            19   it both ways so that you can actually make those comparisons

            20   more meaningful at virtually no cost.

            21             And that's the key is you can make all these

            22   comparisons very simply and then see which gives you the

            23   better insight about what's happening going forward.

            24             MR. TAUB:  Mr. Jonas put his card up, down and back

            25   up again, so we'll give him a shot.
 




             1             MR. JONAS:  I just can't help myself but I

             2   absolutely agree with the point Chairman Cox just made except

             3   that on international standards the division for the future

             4   is conversions with US GAAP so that we have one body of

             5   global GAAP in that we don't have to rely on tagging

             6   technology to help put a band-aid on two diverse GAAPs.

             7             MR. TAUB:  We've heard a number of people make

             8   comments that through tagged data analysts would have more

             9   time and perhaps more capability to perform analyses that are

            10   not currently performed.

            11             I guess I'd like to get views from Mr. Markese

            12   regarding whether these same benefits would accrue to

            13   individual investors were we to get into a tagged data

            14   format.

            15             MR. MARKESE:  Well, it's an uneven playing field on

            16   a cost basis, an access basis.  We all know that.  But what

            17   we're talking about in the professional models are a richness

            18   of data that simply is not available to the individual

            19   investor but would be with tagging.

            20             I mentioned those value drivers, I mentioned the

            21   quantitative things we can pull out.  What we need is peer

            22   group comparisons, for instance.  When you do get down, you

            23   screen down your finest that you like, how do you compare

            24   that?  And there are different ways of creating industries. 

            25   And the depth of information available on that again is not
 




             1   available to individual investors today, but with tagging it

             2   would be cheaper and I assume more available at lower cost.

             3             MS. TAMRAZ:  I just want to make a comment about

             4   that because I was interested in some remarks that Corey

             5   Booth made in talking about simplifying some of the coding

             6   and I think this is where news services like Business Wire

             7   and Peer Newswire can be helpful because we have got an idea

             8   going that we might provide some simple tagging for companies

             9   where it wouldn't have to be that complex but yet it would

            10   provide some of the main information that would be used for

            11   analysis and that might be very helpful for the downstream

            12   for the end user to read some of the simple tags to make

            13   decisions without it being so complicated.

            14             But Corey said I think the idea of using XBRL to

            15   encode earnings release information is a very powerful one

            16   whether it takes place through the SEC 8-Ks and 10-Qs or

            17   through the press release services.  This type of information

            18   is often relatively simple and condensed and shouldn't

            19   require massive taxonomies, but it is also very valuable and

            20   time-sensitive information.

            21             I think that is a really good direction to go in

            22   because there are many out there that are not as

            23   sophisticated as, you know, the big guys.  And if we provide

            24   something that is a little more easy to use and readable I

            25   think that will be very good for the individual investor.
 




             1             MR. TAUB:  Sticking with the theme of perhaps the

             2   smaller companies for a moment and perhaps even smaller

             3   investors, we have heard reports that the costs are fairly

             4   low.  Mr. Stantial I think provided some comments in that

             5   regard.  But the other thing we have also heard a couple of

             6   people mention is the possibility that XBRL tagging or other

             7   data tagging for use with interactive data might indeed

             8   increase analyst coverage.  It occurs to me that this would

             9   be potentially of benefit to smaller and medium-size

            10   companies if it were to occur.

            11             I guess I would like to solicit a few more thoughts

            12   from people as to whether this would occur.  I see Mr.

            13   Augustine nodding his head.

            14             MR. AUGUSTINE:  I'd love to help you out.  I mean

            15   covering the biotechnology industry, you have to understand

            16   there are more than 300 public companies.  I covered 27 at my

            17   peak with a support staff of two people, so I covered less

            18   than 10 percent.  How did I choose those companies?  There

            19   were 12 I had to cover.

            20             Why?  Because they were liquid.  They traded a lot. 

            21   They got the institutional investor votes.  They were Amgen

            22   and Genentech and a handful of other profitable companies. 

            23   There are only a dozen profitable companies in my industry. 

            24   So how do I choose the remaining 15 or 20 to round out my

            25   coverage?
 




             1             Well, I might get an idea in a technology and

             2   believe that it may work, but it also is the case that CEOs

             3   and CFOs, CFOs in particular, they spend 40 percent of their

             4   time in my industry if they are a development-stage

             5   biotechnology company just meeting with investors and

             6   analysts like soliciting coverage.  Otherwise they are left

             7   in the depths that were described by earlier speakers of

             8   having one or two analysts covering them tending to be the

             9   underwriters.

            10             So here I am in an industry that is

            11   capital-intensive.  It's $800 million to make a drug.  It

            12   takes 12 years and very few of the companies are actually

            13   covered.  The benefits to small and mid-size companies in my

            14   industry group should be readily apparent.  It's the

            15   opportunity to furnish somebody with full historical

            16   financials and all they have to do going forward is project

            17   on the fate of one or two products in development.  I mean

            18   that's a no-brainer for me as an analyst.

            19             The biggest roadblock for me covering more

            20   companies was never the science, it was all of the legwork to

            21   simply bring it up to the state of readiness.  All the

            22   forecasting, et cetera, would be readily enhanced.

            23             So my suggestion is that for that cost

            24   consideration whatever it might be in dollars certainly it's

            25   not as burdensome as SOX compliance and to that end I would
 




             1   point out that these companies ought to look at expanded

             2   coverage and expanded ownership base, the constant need to

             3   access capital, and realize that as they are able to speak to

             4   more and more investors and to gain increased coverage, one

             5   of the great benefits, of course, that is also going to

             6   accrue to them conceivably is that they have many more

             7   sources to tap.

             8             But, look, how do you incentivize them?  Although I

             9   think it may be readily apparent, how about linking it to The

            10   Securities Offering Reform Act of 2005 by which they could

            11   benefit from things that might normally accrue to otherwise

            12   the well-known investors.

            13             Once you reduce the research black-out periods that

            14   arbitrarily seemingly to an investor or analyst kept me and

            15   others from writing when actionable events occurred in those

            16   companies and make it easier for them to get on file so that

            17   we don't have to sit there with $200 million shells in our

            18   face every other week because they are worried about being

            19   able to take advantage in a timely fashion opportunistically

            20   of an appreciating stock price.  I think that is an example

            21   in my industry that I know well.

            22             MR. TAUB:  Mr. Franks.

            23             MR. FRANKS:  Thank you.

            24             Some similar observations.  This will becoming from

            25   the buy side where if we have 50 analysts you can only ask
 




             1   someone to be an expert on 20 to 40 companies.  And that is

             2   going to get you a 1000 to 2000 companies.  And clearly there

             3   is more investible opportunities out there particularly in

             4   areas that are less covered, so you would want to look at

             5   those as well.

             6             As a research director, the analyst's time is our

             7   most precious asset and we want that pointed towards areas

             8   where they can generate a return for our participants.  So

             9   what you would do as an analyst is clearly you're going to

            10   cover the 20-plus names that are the biggest market gaps that

            11   you have to cover from an index point of view.  Beyond that

            12   you want to screen as many names as possible.

            13             I used to be a semiconductor analyst.  You would

            14   always cover Intel, always have an opinion on Intel, but

            15   getting down into the sub-billion-dollar market cap companies

            16   using your industry expertise to identify investment

            17   opportunities is value add on the buy side.  And with tools

            18   driven by interactive data, if you can be screening 200 names

            19   and similar to biotech, there is a lot of small semiconductor

            20   names, doing various types of analysis which will differ over

            21   where you are in the cycle and what type of company they are

            22   and say, "This looks interesting.  Let me spend some time

            23   there."  Begin to dig in the Qs and Ks, figure out why this

            24   company is trading where it is, you may not think it's an

            25   opportunity at that point.  Then you drop it.  You may think
 




             1   it is an opportunity you continue to develop your model's

             2   forecast forward and invest accordingly.  So it's a real

             3   potential benefit for the efficiency and breadth of buy side

             4   coverage.

             5             MR. TAUB: Thank you.  Let me move to a slightly

             6   different topic.  There has been some talk of to what extent

             7   auditors would need to be involved in attesting to the

             8   accuracy of XBRL data.  For our voluntary program we have had

             9   one company, United Technologies, that has gotten its auditor

            10   involved and the auditor has reported on that data using

            11   guidance put out by the PCAOB.

            12             Is it necessary for auditors to be involved with

            13   XBRL data?  Are there different types of attestations that

            14   auditors should be asked to do in terms of XBRL.  Mr.

            15   Stantial, you have had some experience here if I might look

            16   to you to begin.

            17             MR. STANTIAL:  Yes.  I'll answer two parts.  We had

            18   auditors go through partly because we wanted them to learn

            19   the process with us.  None of the firms having gone through

            20   this, then they weren't sure as well what it all really

            21   entailed.  So, similar to us, we wanted to get the learning

            22   curve out of the way so we could proceed in the future

            23   efficiently.

            24             In general, I think auditor's assurance is

            25   essential.  You are taking an area that people as has been
 




             1   noted have a fair amount of trepidation to begin with.  It's

             2   major change.  Although the taxonomy is out there, for

             3   instance, the commercial and industrial taxonomy has

             4   something like 1500 tags right now.  It is probably half of

             5   what it needs to be.  So there is a lot of room right now for

             6   companies to be extending tags in order to meet the full

             7   scope of their financials.

             8             And even though a lot of the conversation now is

             9   just on the basic financials, there is no reason not to go

            10   ahead and use the tags that are developed to do your MD&A,

            11   your footnotes and everything else.  They are there.  They

            12   are not as mature.  But given that then I think people would

            13   want to know that you had some independent review of either

            14   what companies did to extend accounts or how they applied

            15   some of these less mature tags or filled in the voids, and

            16   perhaps not being intimate with what XBRL means and the whole

            17   process then to have an outside party just sort of fill in

            18   your insecurity with that level of assurances that you would

            19   want then to use the data unencumbered and freely.

            20             MR. TAUB:  Mr. Whalen.

            21             MR. WHALEN:  Just as a follow-up to that, if you

            22   think of it, most large enterprises today are tagging their

            23   data internally but they are using proprietary accounting

            24   systems.  There are some offerings in the marketplace right

            25   now both by consultancies and large enterprises like Cisco,
 




             1   for example, that are trying to take that proprietary tagged

             2   information and migrate it to XBRL.  So I think it makes an

             3   enormous amount of sense.

             4             If you're an auditor and you want to know where a

             5   piece of financial information came from within the

             6   enterprise, you are going to want it tagged in some way so

             7   you can trace it down and verify the origin.  It is really

             8   the same concept whether it's XBRL or a proprietary

             9   accounting system.

            10             MR. TAUB:  Mr. Jonas, perhaps for the last comment

            11   on this.  And maybe have you thought about whatever auditor

            12   involvement there is, is there a report needed beyond the

            13   standard auditor's report to cover the XBRL information?

            14             MR. JONAS:  Well, if we are successful in getting

            15   investors to increasingly rely on interactive data, you know,

            16   errors in the tags will flow right through to the investor's

            17   databases possibly misleading their analysis.  So companies

            18   and auditors could perform all other steps in the preparation

            19   and audit process correctly, but if the data tags are wrong,

            20   we could end up like fumbling the ball here on the goal line.

            21             I mentioned before that I think tagging data is the

            22   equivalent of classifying data and the auditor's report has

            23   long covered the classification of data in financial

            24   statements and footnotes.  So I would think that investors

            25   would greatly benefit from similar assurance about the
 




             1   classification of data in the tagging process.  I would think

             2   that could be done through the standard auditor's report.

             3             With regard to data that's tagged on unaudited

             4   information which I hope occurs as we broaden the tagging

             5   universe, I would hope that management's report on internal

             6   control and management's assertion about controls would cover

             7   the data tagging process as well as the other aspects of

             8   control.

             9             MR. TAUB:  Dr. White?

            10             DR. WHITE:  I picture a world in which XBRL does

            11   not stand alone.  There are many other initiatives going on

            12   in the XML world.  One is called internal control XML.  It is

            13   based on the frame work.  It is using an idea where a risk

            14   control library gets created that includes businesses

            15   processes, risks, controls, testing procedures and so forth,

            16   all of which would work directly for SOX compliance.

            17             So to me, and this is one of the roles of academics

            18   obviously, some research being carried forward in using a

            19   combination of these technologies that are all working

            20   towards the same goal makes total sense.  And, again, as an

            21   academic we need access to data.  And so if we can overcome

            22   that hurdle where we can get access to real world data and be

            23   able to do some experimentation, we can make a significant

            24   contribution here.

            25             MR. TAUB:  Thank you.  I'll turn it over to Jim to
 




             1   go through our last group of questions.

             2             MR. DALY:  The last session is on tools for

             3   interactive data use.  And I would offer this up to Mr.

             4   Whalen and Mr. Harris.  They have talked pretty much on some

             5   tools that they have used and have experience with, but are

             6   there sufficient tools in the marketplace today to use

             7   interactive data overall?  What type of tools would investors

             8   and analysts like to have and what are the costs versus the

             9   benefits for those tools?

            10             MR. WHALEN:  Well, I think the answer is that there

            11   is a very mature and very rapidly growing set of tools, from

            12   storing and gathering data down to the actual analysis of

            13   data.  Could we use more tools?  Sure.  But I think if you

            14   offer interactive data to this marketplace, you will see a

            15   proliferation of tools that will even exceed what's already

            16   out there starting with Microsoft, looking at Google

            17   launching their own spreadsheet, all the proprietary

            18   offerings out there that retail investors can get from

            19   websites and other organizations.  I think if you enable them

            20   by making this data publicly available, the options will be

            21   limitless.

            22             MR. DALY:  Mr. Harris.

            23             MR. HARRIS:  Yes, I would really just endorse that. 

            24   I don't think -- it's a chicken-and-egg situation.  To the

            25   extent that there is interactive data in our case, we started
 




             1   building a suite of applications for that.  To the extent

             2   that it becomes more publicly available, I just think there

             3   is almost limitless tools that would be made readily

             4   available very quickly and it would help all of Mr. Markese

             5   and other investors, too.

             6             MR. WHALEN:  Could I add something quickly?  We

             7   really should not underestimate the systemic influence on

             8   both the academic community and the risk management community

             9   as to what tools we develop because of the availability or

            10   the lack of availability of data.  If graduate students in

            11   business schools who are working on new behavioral models for

            12   analyzing corporate behavior had access to structured machine

            13   readable data from the SEC, I can't even imagine what they

            14   would be doing.  The tools we have today are a function of

            15   the data availability.  We are still living with what was

            16   available 10 and 15 years ago.

            17             MR. DALY:  Ms. Tamraz.

            18             MS. TAMRAZ:  Well, I think talking about tools, it

            19   is a chicken-and-egg thing and you have got to get the news

            20   tagged first and then the tools will be created to process

            21   that news.  And, again, I think Business Wire and Peer

            22   Newswire  we are uniquely positioned to push XBRL forward.

            23             For instance, we just rolled out a tool in March

            24   called Earnings Direct.  So the company, the issuer can

            25   convert their company data into XBRL by downloading an Excel
 




             1   template, populating it and XBRL tagging it, uploading it,

             2   sending it back to us and then we are pushing it out to the

             3   community that is going to use it and analyze it.  And,

             4   again, Peer Newswire is doing similar work in this area. 

             5   Together we have been pushing forward the whole tagging of

             6   financial information.  And I think that is really key to

             7   this whole process.

             8             Business Wire alone issues more than a quarter of a

             9   million press releases a year.  And you have got about 50

            10   percent of the marketplace, so you can see how many news

            11   releases are going out and if they were tagged I'm sure there

            12   would be a proliferation of tools to receive them, analyze

            13   them and act on them.  So it really is a chicken-and-egg

            14   thing.

            15             And also peer pressure is also a wonderful thing. 

            16   I know everyone is saying well, the SEC should mandate it,

            17   but with the voluntary program, I have to say we have done

            18   some filings for Altria and a few other companies and

            19   XBRLized them and the phone has been ringing because nobody

            20   wants to be left off the bus as the bus move forwards.  So I

            21   think it is going to start to grow.

            22             MR. DALY:  Anything else?  Any final comment from

            23   anyone?

            24             Mr. Chairman?

            25             CHAIRMAN COX:  Well, thank you very much. I'm about
 




             1   prepared to wrap this up.  So before I do, I want to thank

             2   all of our panelists and thank all of you who have joined us

             3   today and offer a special word of thanks to the people that

             4   are still with us for staying with us all day.

             5             We actually have one more panelist on this vital

             6   issue still today.  This additional perspective comes to us

             7   from the Chairman of the House Subcommittee on Capital

             8   Markets, Richard Baker, who is actually in Louisiana but

             9   through the miracle of modern technology he is going to be

            10   our last presenter on what has been an absolutely outstanding

            11   panel.  So we are now going to give Chairman Baker the last

            12   word.

            13             CHAIRMAN BAKER:  Technology is a powerful force in

            14   the world of commerce creating opportunity, products and

            15   services.  Technology deployed in the regulatory world can 

            16   have a parallel effect.  Data tagging methodology such as

            17   Extensible Business Reporting Language can be a powerful tool

            18   to achieve many valuable goals.

            19             The investing world is a dynamic place with more

            20   individual investors in the market than any time in history,

            21   second in value only to home ownership.  Investment

            22   portfolios for the individual are growing household wealth to

            23   record levels.

            24             Yields to investors can be significantly enhanced

            25   with the reduction in regulatory charges.  Merely reducing
 




             1   the flow of paper can be a significant saving, but it is

             2   actually possible, at least in my opinion to reduce the

             3   paperwork burden on business, lowering the regulatory costs

             4   while improving access to needed information for the

             5   individual investor.  XBRL I believe offers that clear

             6   potential.

             7             I commend Chairman Cox for issuing guidance on the

             8   use of data tagging.  I am anxious to work with him and the

             9   agency in deploying this important technology to assist the

            10   marketplace and individual investors.  Having timely access

            11   to usable information is a powerful tool for all

            12   stakeholders.  This is a terrific opportunity to employ

            13   incredible technology and obtain tangible benefits not

            14   possible before.

            15             Thanks for the opportunity to participate in your

            16   interactive data roundtable.

            17             CHAIRMAN COX:  We are grateful for Chairman Baker's

            18   thoughts on the potential of interactive data and I think his

            19   remarks show the support for improving the flow of

            20   information throughout our capital markets through XBRL,

            21   through data tagging in the ways that we have discussed

            22   today, extends from regulators and investors and companies

            23   and analysts to the Congress.

            24             I would like to take just a moment now to recognize

            25   a few key members of our staff here at the SEC who helped
 




             1   plan this afternoon's program.

             2             First, thanks to Susan Nash for our Investment

             3   Management contribution and her thoughtful effort moderating

             4   a second panel today.  And, Susan, also for your ongoing

             5   efforts to employ technology in ways that will help mutual

             6   fund investors.

             7             Thanks to Corey Booth who, as you know, is our CIO

             8   here at the SEC, not only for your great work today but also

             9   for your continuing leadership of our technology initiatives.

            10             Scott Taub, who's served as a co-moderator here

            11   this afternoon, our acting chief accountant, is doing

            12   excellent work on our interactive data project as is Jim Daly

            13   in Corporation Finance.  You did an outstanding job with this

            14   panel, but very importantly the day before and tomorrow as

            15   well.

            16             I would also like to thank Jim for not only making

            17   this roundtable such a success but also helping to grow our

            18   interactive data group.  We can be very proud of the

            19   volunteers that we have had sign up for that already.

            20             And final thanks and especially so to Jeff Nauman

            21   and Bridgett Litman for their tireless efforts to make

            22   interactive data a reality and to empower America's

            23   investors.  This has been an excellent roundtable.  To all of

            24   our presenters, in particular, to the Commissioners who have

            25   been here, as you've noticed, all day long, to members of the
 




             1   news media, interested observers and, of course, those who

             2   are watching on the web, your energy and your enthusiasm on

             3   behalf of America's investors is enormously appreciated.

             4             Thanks very much and good afternoon.

             5             (Whereupon, at 3:17 p.m., the Interactive Data

             6   Roundtable proceedings were concluded.)

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             1                     PROOFREADER'S CERTIFICATE

             2

             3   In the Matter of:   INTERACTIVE DATA ROUNDTABLE

             4   Witness:            Administrative Proceeding

             5   File Number:        4-515

             6   Date:               Monday, June 12, 2006

             7   Location:           Washington, D.C.

             8

             9

            10        This is to certify that I, Don R. Jennings (the

            11   undersigned), do hereby swear and affirm that the attached

            12   proceedings before the U.S. Securities and Exchange

            13   Commission were held according to the record and that this is

            14   the original, complete, true and accurate transcript that has

            15   been compared to the reporting or recording accomplished at

            16   the hearing.

            17

            18

            19

            20   _________________________     _____________________________

            21   (Proofreader's Name)            (Date)

            22

            23

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            25