From: Certner, David [DCertner@aarp.org] Sent: Monday, December 09, 2002 4:55 PM To: 'rulecomments@sec.gov.' Subject: SEC Mutual Fund Letter (s7-36-02) <<...OLE_Obj...>> December 9, 2002 Jonathan G. Katz, Secretary U.S. Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549-0609 Re: SEC Proposal on Mutual Fund Proxy Voting Disclosure File No. S7-36-02 Dear Mr. Katz: The U.S. Securities and Exchange Commission (SEC) is proposing to require that registered management investment companies disclose how they vote proxies relating to portfolio securities they hold. The proposals would require registered management investment companies to file reports with the SEC and to make available to their shareholders the specific proxy votes that they cast in shareholder meetings. Specifically, under the proposed amendments, such companies would also be required to disclose the fund policies and procedures that determine how proxies are voted. Because mutual funds control 21 percent of U.S. corporate equity (representing an estimated $19 trillion in assets), they have substantial influence in shaping corporate governance policies and practices. We believe that the amendments that have been proposed by the SEC, if adopted, will enhance transparency and accountability - both corporate and fund management accountability. The underlying issue addressed by the SEC in offering these particular amendments is whether confidential voting of mutual fund proxies by registered investment management firms enhances shareholder interests -- based on voting outcomes. The basic argument offered by institutional investors promoting proxy-voting confidentiality is that anonymous ballots (as a mechanism for assuring confidentiality) will enable such investor representatives to vote the true interest of the shareholder. That is, when fund managers vote their proxies in confidence we are told to anticipate reduced support for management proposals and increased support for shareholder proposals. To date, most of the evidence about the impact of confidentiality on mutual fund proxy voting has been anecdotal or case-based. However, the principal conclusion from a recently published empirical study -- "Does Confidential Proxy Voting Matter?" - is that no significant difference was found. The study looked at companies that have had periods where proxy votes were kept confidential, and when they were made public, with no significant difference on this basis in the proxy votes of fund managers. Other significant study findings include: · Voting outcomes are best explained by proposal type; neither institutional nor insider ownership, nor prior performance, significantly affect the level of support a proposal receives; and · Confidential voting also does not affect firms' stock performance. In order to enhance the 'transparency and accountability' value of proxy disclosures made by the funds to their shareholders, we believe that it would be useful to request that the funds date and keep current their complete proxy voting record on their websites. But in order to guarantee each shareholder access to this important information for decision-making purposes, we believe that funds should disclose their complete proxy voting record at least semi-annually - as part of their paper-based reports to each individual investor. It would improve the utility of the disclosures if they were required to cover only the proxy votes since the date of previous disclosure, and if that vote information were categorized into a simple table: by purpose and source(s) of each proposal and by whether the proposal concerned a contested or non-contested matter. Finally, with regard to the application of the SEC proposal to unit investment trusts (UITs): Optimally, we would prefer that UITs also adhere to appropriate proxy voting disclosure requirements. But given the distinctive nature of their administrative structure, and the complexities that this raises for the proper adaptation of the SEC disclosure amendments, we offer no firm opinion at this time. We look forward to the final promulgation of these amendments. Please feel free to call Roy Green of our Federal Affairs staff (202) 434-3800 if there are any further questions. Sincerely, David Certner Director Federal Affairs .