From: Diane South [dsouth@CITIZENSFUNDS.com] Sent: Tuesday, December 03, 2002 5:00 PM To: rule-comments@sec.gov Cc: traceyrembert@coopamerica.org Subject: S7-36-02 and S7-38-02 December 3, 2002 Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street NW Washington, DC 20549-0609. Re: FILE NUMBERS S7-36-02 and S7-38-02 Dear Secretary Katz: This letter is in support of the Securities and Exchange Commission's proposed rules concerning proxy voting policies and disclosure, File Numbers S7-36-02 and S7-38-02. Citizens Funds, one of America's largest families of socially responsible mutual funds, strongly supports the recommendations set forth by the SEC on these issues, and applauds the Commission for this bold initiative on behalf of investor rights and meaningful financial disclosure. These proposed rules are overdue, and will go a long way toward restoring confidence in financial markets. We support Proposed Rule S7-36-02, which would be a major step forward in providing adequate disclosure and transparency to individual investors whose proxy assets are held and voted by mutual fund managers. The proposed rule is consistent with other recent SEC efforts to enhance mutual fund communications with investors, including the plain English prospectus and more detailed disclosure regarding investment strategies, fees, and risks. With the proposed amendments, the SEC is joining the Department of Labor to state that proxy voting is a fiduciary duty, and should be exercised in the best interests of mutual fund shareholders. At Citizens Funds, we publicly disclose both our proxy voting guidelines and specific voting decisions. We do so because we believe this is in the best interests of our shareholders and clients. Proxy voting should be a key component in the overall management of investors' money. Such disclosure is hardly onerous, given the nature of proxy voting databases and the Internet. In September, we began providing Citizens' proxy votes on our website ( www.citizensfunds.com) as part of our ongoing effort to promote transparency and foster communication with shareholders. This enables investors to see how we cast ballots on issues ranging from executive compensation to company directors. Our experience demonstrates that Proposed Rule S7-36-02 can be implemented in a cost-effective and timely manner by registered management investment companies. The Social Investment Forum, a membership association representing more than 500 investment advisers, research firms, mutual funds, and other institutional investors involved in socially responsible investing, can provide additional information about how a handful of mutual funds are successfully publishing their proxy votes. We encourage you to work with the Social Investment Forum as you develop the rule details. Historically, most mutual funds have been reluctant to disclose their proxy voting records or the principles that guide their voting of securities. In fact, the nation's largest mutual fund company, Fidelity Investments, "as a matter of policy, does not disclose its vote decision with respect to a particular company, meeting, or agenda item." Unlike investment managers of defined benefit plans, most mutual fund firms refuse to tell their investors how they voted on key issues coming to a vote. This is unfortunate, as mutual funds have enormous potential to raise the bar on corporate governance at U.S. companies. Proxy voting, of course, is the primary forum through which shareowners participate in the governance of a corporation, and through which corporate management seeks affirmation and approval from shareowners. Proxies generally contain management proposals on key issues of corporate governance - including board composition, capital structure, auditing, and executive compensation - as well as shareowner proposals on issues such as workforce diversity, vendor practices, environmental policies, or other emerging corporate liabilities. Yet many of the mutual funds and registered investment advisers who vote proxies on these issues not only decline to disclose their policies, procedures, or votes, but may in fact be voting against the interests of their shareholders and clients. Disclosure of proxy votes and voting policies would put pressure on fund managers to refrain from unilateral rubberstamping of management's decisions, and would provide investors an additional tool for evaluating and distinguishing among various funds in the marketplace. Transparent voting policies would allow individuals to place their money in funds that promote good corporate governance. In addition, the SEC has noted that such disclosures "may encourage funds to become more engaged in corporate governance of issuers held in their portfolios, which may benefit all investors, and not just fund shareholders." We also support Proposed Rule S7-38-02. Investment advisers are expected to create policy guidelines to disclose to clients how they will vote on given proxy issues. Citizens believes that transparent adviser voting is critical to improving investor education, restoring confidence in financial markets, and strengthening corporate governance at U.S. companies. This rule will empower investors to determine whether proxy voting is done in their best interests. We encourage the Commission to provide more specific guidance to advisers on what to include in published voting records, as well as what items should be addressed in voting policies and procedures. In conclusion, we commend you for proposing these rules on proxy-voting disclosure and for seeking comments. A recent count of the responses on the SEC website revealed that out of more than 5,000 comment letters, fewer than 10 were in opposition. Please add our voice to the overwhelming support you have received for these proposed rules. Sincerely, Diane Tod South, Director of Social Research Citizens Funds 230 Commerce Way, Suite 300 Portsmouth, NH 03801 603.436.1513, extension 3659 fax: 603.422.0953