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Firms Scramble to Address Tragedy

Last week's terrorist attack brought down much more than the World Trade Center. Crashing down with one of the world's architectural marvels were the U.S. financial markets, which ground to a halt and, as of press time, had not reopened.

Besides the economic consequences, a disaster of this magnitude carries with it tremendous human loss and naturally has dire consequences on investors' psyches. Following last Tuesday's horrific event fund companies' communications departments around the country scrambled to address investors' concerns about the markets, their funds and, of course, the welfare of those involved in the tragic events.

The Fund Industry Reacts

With the closing of the U.S. markets, mutual fund transactions were stopped and call volumes dropped precipitously. How--and what--should fund companies communicate to their shareholders?

"Typically, decisions that are made out of panic turn out to be wrong decisions, so mutual fund companies should clearly be communicating with their clients that everybody rushing to hit the exit door may not be a prudent use of your funds. Traditionally, in the long run, you are compensated for bearing equity risk," said Dr. Robert Brooks, an executive with SouthTrust and professor of financial management with the University of Alabama.

Last Tuesday and Wednesday, most firms added, at a minimum, an announcement to investors that trading had halted due to the closure of the markets. In addition, many funds have been composing communications aimed at calming investors.

Addressing Investors'

Financial Insecurities

Fear is one of the natural responses to last week's tragedy and concern with financial security is of course part of that, as people want to ensure that the investments they have made for themselves and their families are safe. It is a concern that a number of fund companies recognized and responded to within hours of the tragedy.

o OppenheimerFunds, with an office in the World Trade Center, was at ground zero. All of the company's 598 WTC employees were able to escape the building and are safe, according to the company.

Oppenheimer released a statement on its Web site that day. Of course its first thoughts were for those impacted by the attack, and it noted the safety of the firm's employees.

The company then addressed the effect on its business: "We are confident that we will be able to handle our normal business demands," the statement said. "Our emergency recovery plans have been successfully implemented. Critical services in our New York office have been relocated to other venues. All shareholder records are kept by our transfer agent in a different state and are backed-up daily."

o Putnam Investments released a "Special Message to Our Shareholders" the day after the tragedy expressing the company's sadness and addressing potential fears on the part of shareholders.

"At Putnam, we remain focused on our professional responsibilities," the statement said. "We want to assure you that the assets we manage on your behalf are safe and secure. Putnam's phone lines are staffed and our systems are fully operational. Putnam's senior management team has been meeting regularly to discuss the situation. They are formulating a global economic view and industry-specific perspectives, particularly on industries likely to be affected by yesterday's events, and ensuring appropriate oversight of the funds."

Patience, Prudence Urged

The statement included not only what the company is doing amidst this crisis, but also what shareholders should do in the coming days and weeks. Its suggestions for investor patience and a guard against overreaction' are likely to be echoed from many sources once the domestic markets reopen.

"The important thing for investors to do right now is to remain calm and not to allow the impact of this near-term occurrence to cloud a long-term perspective," Putnam's statement continued. "Above all, we believe you should avoid the temptation to make hasty investment decisions.

"History has demonstrated that the impact on the securities markets of even the most momentous events is generally softened by time. Investors with well-thought-out financial plans who maintain a long-term perspective can generally ride out temporary market declines. Those who respond quickly and impulsively to events frequently undo perfectly sound investment plans from which they may never fully recover."

SEC, ICI Weigh In

o Both the Securities and Exchange Commission and the Investment Company Institute released statements about the situation of securities markets and mutual funds, respectively. In the SEC's statement, Harvey Pitt, the SEC's newly appointed chairman, assured investors that the market closing is "a temporary phenomenon" and that trading would resume as soon as is practical. Matthew Fink, president of the ICI, addressed the safety of mutual funds in general.

"Mutual funds will be ready to resume business as soon as the U.S. financial markets reopen," he said in the statement. "In the meantime, mutual fund investors can rest assured that their mutual fund assets are fully protected. Investor transactions will be handled in an orderly fashion and computed at the next available market price."

As part of their concern about security and safety, investors are worried about their investments; investments they have made for their retirement, their child's education, etc. And it is the responsibility of mutual fund firms to protect the assets it was given to manage, and to inform shareholders of the status of those investments. Firms have begun that process.