Petersen Hastings Investment Management

October 31, 2002

Mr. Harvey L. Pitt, Chairman
Securities and Exchange Commission
450 Fifth Street NW, Room 6012
Washington, DC 20549

Dear Chairman Pitt:

We write to submit the following comments in response to the Securities and Exchange Commission's recently proposed rules, File Numbers S7-36-02 and S7-38-02, concerning proxy voting policies and voting disclosure by mutual funds and investment advisors. We strongly support the recommendations set forth by the SEC, and congratulate the agency for its forward-looking positions on a topic of utmost importance to the investment community.

Petersen Hastings Investment Management is a locally owned, independent, SEC Registered Investment Adviser with approximately $170 million under management. Our mission is to create financial solutions for our clients that provide an inseparable union between their personal or organizational values and financial performance. We provide financial planning services for individuals and qualified retirement plan investment services for businesses. We also integrate socially responsible issues into our client portfolios when our clients' objectives call for it and we take our proxy voting role seriously. We get involved with corporate responsibility and governance issues through the Social Investment Forum and other organizations because we consider the investment advisor as the final line of defense for the individual financial planning client or 401(k) participant from corporate wrongdoing. We were one of the early pioneers of the fee based approach to investment management as opposed to the commission based approach. We also are part of a larger group of advisors called the Zero Alpha Group LLC that represents over $1 billion under management across the United States. Zero Alpha Group Members have similar beliefs regarding the financial planning process and selection of investments based upon low cost index or passively structured vehicles.

Comments Regarding File No. S7-36-02: Disclosure of Proxy Voting Policies and Proxy Voting Records by Registered Management

Investment Companies

We support Rule S7-36-02, and feel it is a major step forward in providing transparency for investors. This rule is also consistent with recent SEC moves designed to increase transparency in financial filings and transactions. The SEC is making a clear statement that proxy voting is a fiduciary duty and should be exercised with the best interests of investors in mind. The SEC must also realize that investment advisors cannot fully protect their client's interests when mutual fund proxy voting information is not fully disclosed or readily available.

It is of increasing concern to some investors (both individual and professionals) that there is no way of knowing how most mutual funds voted on key corporate governance and social issues.

Rule S7-36-02 would better enable shareholders and their advisors to monitor mutual funds' involvement in corporate governance, compensation, and social policy activity at companies. The proposed amendments would encourage mutual funds to be more actively engaged in the companies they hold, instead of passive institutional investors.

HOW THIS RULE BENEFITS INVESTORS:

  • As an investment advisor, we are in many cases the final line of defense for the individual financial planning client or 401(k) participant from corporate wrongdoing. It is difficult for the investment advisor to protect investors from mutual funds or separate account managers who have a practice of voting proxies inconsistent with good governance when there is not full disclosure and transparency of proxy votes.

  • We will typically search for low cost index or passively structured funds that meet our client's overall asset class needs. We should also be able to evaluate proxy voting policies to better represent our client's positions and force mutual funds to take their proxy voting role more seriously with greater transparency. With proxy voting guidelines as another advisor tool, we will be able to better represent and protect our clients' interests.

  • Spotlights conflicts of interests that may exist between fund companies that vote with management at corporations, where they have 401(k) or other business.

  • Provides investors with ways of distinguishing fund companies, including identifying those that have strong corporate governance or social responsibility engagement guidelines.

  • Forces fund managers to treat the proxy as a client asset.

  • Presses mutual funds to take their responsibility seriously for their voting.

  • IT IS IN THE BEST INTEREST OF THE INVESTOR, A MEASUREMENT THAT WE HAVE USED AT OUR INVESTMENT ADVISORY FIRM FOR YEARS IN OUR DECISION MAKING!

RESPONSE TO INDUSTRY ARGUMENTS AGAINST THIS RULE:

  • Such disclosures are not costly or cumbersome to mutual fund companies--small funds with fewer resources and revenues have been doing this for years.

  • The largest public pension in the world, CalPERS, also discloses its votes and guidelines (since 1999), even though it deals with thousands of companies and proxy votes each year. It does this through web site databases, and hard copy disclosure on request.

  • Many mutual funds and large institutional investors already engage companies in serious positive dialogue, yet are able to still vote against management on issues without destroying that relationship.

  • Most fund companies already have web sites, and could easily reach the bulk of their investors through web disclosures, which is low-cost.

  • Funds should already be internally keeping track of votes, so it's just a matter of converting existing data to new fields for web interface.

  • The surprise opposition to this rule by one of the largest investment organizations ignores the fact that confidentiality should be protected for the individual investor, not hidden from the investors that this organization and others like it ultimately represents through a fiduciary role.

Comments Regarding File No.S7-38-02 :

Proxy Voting By Investment Advisers

Under this rule, investment advisers are expected to create policy guidelines to disclose to clients how they will vote on given proxy issues. Advisers are also to keep adequate records of their voting in order to provide transparency to clients when requested. Because investment advisers have voting authority over $12 trillion in assets, in addition to the $7 trillion controlled by mutual funds, and vote these assets on behalf of their clients, methods for disclosing such votes seems a reasonable request. These assets make up the lion's share of the investment market in the U.S., and yet many individuals and institutions entrusting voting rights and obligations to advisers are left in the dark about how their assets are being used to strengthen a company's bottom line. Transparency regarding voting by portfolio managers is paramount in strengthening corporate governance at U.S. companies. We are one of these Advisers and not only recommend full proxy voting disclosure, we embrace it!

We commend the SEC on its recent efforts to encourage greater disclosure and transparency by mutual funds, including a "plain English" prospectus, and detailed disclosure requirements regarding investment strategies, fees, and risks. The proposed rules concerning disclosure of proxy votes and guidelines is a solid step on the path for true transparency for investors that have indirect control of their assets. Investors feel disempowered and frustrated by the litany of corporate scandals gracing newspapers and television screens. They want to know how their hard-earned monies are being invested for the future, yet are dubious that adequate checks and balances are in place to prevent future "Enron's."

Transparency of action and intent go a long way to alleviate such anxieties. This in turn will help to restore lagging faith in our currently volatile equities markets, and the mutual fund sector.

We look forward to your response concerning our comments.

Sincerely,

Jeffrey C. Petersen
Petersen Hastings
Investment Management Inc.

cc: Commissioners Harvey Goldschmid, Roel Campos, Paul Atkins, and Cynthia Glassman; Secretary Jonathan Katz.