MEMORANDUM

TO:

File S7-38-02

FROM:

Daniel Kahl

SUBJECT:

Proxy Voting by Investment Advisers

DATE:

December 12, 2002

On December 12, 2002, Robert Plaze, Jennifer Sawin, Jamey Basham, Vivien Liu, and Daniel Kahl of the SEC met with David Tittsworth and Karen Barr from the Investment Counsel Association of America ("ICAA") and Mary Ann Tynan from Wellington Management Company, LLP, a member of the ICAA, to discuss the Commission's September 20, 2002 proposal regarding proxy voting by investment advisers. Following is a summary of issues the ICAA raised at the meeting.

Fiduciary Obligations and Voting Authority

  • The ICAA agreed that the fiduciary duty investment advisers owe to their clients extends broadly to the services provided, including proxy voting. The ICAA added that virtually all of its members vote proxies on behalf of clients and have procedures for proxy voting, but the procedures do not address conflicts of interest.

  • The ICAA disagreed with the presumption stated in the proposing release that the proposed rule should apply to an investment adviser when the advisory contract is silent as to voting authority over client securities

Conflicts of Interest

  • The ICAA believes that many of the conflicts of interest referred to in the proposing release do not actually affect advisers' proxy voting. The ICAA asserted that there is little precedent establishing that investment advisers have serious conflicts of interest that have adversely affected how they vote client proxies.

Recordkeeping

  • The ICAA strongly opposed the requirement in the proposal that investment advisers memorialize all oral communications that were material in making a voting decision. The ICAA added that most of its members do not memorialize in writing an analysis of and the reasons for voting client proxies.