THE INDEPENDENT TRUSTEES OF
THE HERITAGE MUTUAL FUNDS
December 6, 2002
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Re: Proposed Rule: Disclosure of Proxy Voting Policies and Proxy
Voting Records by Registered Management Investment Companies
Dear Mr. Katz:
This is a comment letter regarding proposals by the Securities and Exchange Commission ("SEC") relating to disclosures of proxy voting policies and proxy voting records by registered management investment companies as set forth in Investment Company Act Release No. 25739 (September 20, 2002) (the "Release").
This letter is being submitted by the members of the Boards of Trustees of the Heritage Mutual Funds who are not "interested persons" of those Funds as that term is defined in the Investment Company Act of 1940, as amended. These Funds offer 13 separate series and have total assets in excess of $7 billion. Many of these funds invest most of their assets in equity securities. As a result, we have a strong interest in the SEC's proposals in the Release.
We agree with many statements in the Release and we support certain of the proposals in the Release. We believe that proxies should be voted in the best interests of an investment company's shareholders. We acknowledge that proxy-voting duties typically are delegated to an investment company's adviser or subadviser and, in some circumstances, that party might have a conflict of interest between its own best interests and the best interests of shareholders.
Thus, we support the proposal to require that investment companies disclose their proxy-voting policies and procedures. We also support the proposal to require that those policies and procedures must address how potential conflicts of interests between shareholders and certain affiliated persons will be resolved. Further, we support a rule that would require the reasonable maintenance of proxy-voting records so that the SEC staff could review proxy-voting practices to the extent they deem appropriate. These types of rule-making actions are commonly taken by the SEC when attempting to deal with conflicts of interest situations.
However, we strongly disagree with those portions of the SEC's proposals that would require an investment company to disclose publicly information regarding how the investment company voted its proxies and to disclose publicly any specific instances in which an actual vote was inconsistent with the investment company's policies and procedures. This approach is not consistent with the SEC's response to comparable situations.1 Further, this requirement would impose direct and indirect costs on investment companies and their shareholders that are not justified by any demonstrated problem or material investor demand.
The direct and indirect costs include (1) the potentially substantial costs of actually implementing the disclosure requirements, (2) the added burden on management and board members of responding to unaffiliated persons who wish to influence the outcome of proxy votes, and (3) the potential disadvantage from a portfolio management point of view of making more frequent public disclosures of a fund's portfolio holdings
As independent Trustees, our primary role is to protect the best interests of our shareholders. In our view, the additional costs that would arise from the SEC's rule as proposed are not in the best interests of our shareholders. These costs are unwarranted absent, among other things, a meaningful investor demand for this type of data. We understand that some public interest groups have sought this type of data for many years. However, we also understand that very few, if any, of our Funds' shareholders have sought this type of information. To the extent that a material number of investors seek this type of data, market forces will generate this data. In the meantime, legitimate conflict of interest concerns can be fully addressed by those portions of the SEC's proposal that we support.
In summary, we believe that the interests of shareholders can best be served by modifying the SEC's rule proposal as set forth above, and we urge the SEC to do so.
C. Andrew Graham
James L. Pappas
David M. Phillips
Deborah L. Talbot
/s/ Deborah L. Talbot
Deborah L. Talbot
|1 || For example, the SEC responded differently when certain "access persons" engaged in personal trading activities that conflicted with the best interests of investment company shareholders. As part of its response, the SEC amended Rule 17j-1 to require that applicable codes of ethics be made publicly available and that certain disclosures regarding these codes be made in the investment company's registration statement. The SEC did not require public disclosure of each personal trade by an access person. Similarly, each specific instance of non-compliance with a code of ethics need not be disclosed publicly. Rather, material code violations must be reported to appropriate supervisory personnel, including, as applicable, the investment company's board of directors or trustees. We see no reason for a more onerous approach with respect to proxy voting policies and procedures.