MEMORANDUM

January 15, 2003      

On January 13, 2003, Paul Roye, Director of the Division of Investment Management, Susan Nash, Associate Director of the Division of Investment Management, and I spoke by telephone to Craig Tyle, General Counsel of the Investment Company Institute (ICI) regarding the above-referenced proposing releases. He reiterated that the ICI opposed any requirement for funds to disclose their proxy votes. He then made the following comments regarding more specific aspects of the proposals:

1. The ICI continues to oppose the proposed requirement for funds to disclose "inconsistent votes" in their reports to shareholders. Reasons - (1) it will be quite burdensome (and will require legal review), and (2) the disclosure would overwhelm the rest of the shareholder report. (It also would be quite expensive to add pages to the shareholder report.) In response, many funds will be likely to vote their proxies in a more mechanical fashion and not exercise their best judgment on a case-by-case basis. Even proponents of proxy voting disclosure have not supported this aspect of the proposal (e.g., Fund Democracy LLC).
    
2. With respect to the proposed requirement for disclosure of actual votes, Mr. Tyle said that, if the reason that the SEC believes that disclosure of a fund's proxy voting guidelines (as opposed to actual votes) is not sufficient is that funds may not disclose their guidelines with sufficient specificity, the ICI would be willing to design best practices concerning which subjects should be covered by guidelines.
    
3. If the SEC determines that some form of disclosure of votes is required, it should adopt the approach suggested by TIAA-CREF, allowing disclosure by category of vote. (However, Mr. Tyle noted that the ICI did not agree with TIAA-CREF's position on disclosure of inconsistent votes or disclosure of votes where there may be a conflict.)
    
4. If some form of vote disclosure is required, it should be required (1) annually rather than semiannually and (2) on a calendar year, rather than a fiscal year, basis. This would reduce burdens for fund complexes that have funds with different fiscal year-ends. Mr. Tyle stated that under the proposal, some complexes might be required to prepare proxy voting disclosure 12 times per year.
    
5. The disclosure requirements should apply only to votes cast on or after July 1, 2003, with the same timetable for disclosure of policies and procedures on Form N-1A. Funds should be able to add new disclosures in a Rule 485(b) filing.
    
6. Funds should not be required to disclose proxy votes (1) where holdings are not disclosed in the fund's financial statements (per the exception for holdings of not more than 5% in note 1, Section 12-12 of Regulation S-X) or (2) where the issuer has adopted confidential voting.
    
7. The SEC should not subject funds with few equity holdings to disclosure requirements. One suggestion: Exempt funds that have a stated policy of investing at least 80% of their assets in fixed income securities.
    
8. Holdings by a fund in mutual funds should not be subject to the disclosure requirements (e.g., holdings in money market funds, funds of funds).
    
9. The SEC should eliminate the requirement for disclosure of CUSIP number and ticker symbol with respect to each proxy vote. At a minimum, the SEC should not require this disclosure where it would be impractical to obtain this information in a timely fashion (e.g., foreign holdings).
    
10. Disclosure regarding proxy votes should not be subject to CEO and CFO certification under the Sarbanes-Oxley Act of 2002.
     
11. The SEC should modify the proposed recordkeeping requirements as recommended in the ICI's comment letter (eliminating requirements re: oral conversations, requests for voting information, and keeping copies of proxies).