From: transact99@att.net
Sent: Thursday, December 05, 2002 8:38 AM
To: rule-comments@SEC.gov
Subject: File No. S7-38-02

RE:  File No. S7-38-02

I am writing in support of the Securities and Exchange Commission's recently 
proposed rules regarding proxy voting disclosure by mutual funds and investment 
advisers, File No. S7-38-02.  For the past two-and-a-half years, the values of 
personal and retirement stock investments in the U.S. and worldwide have 
decreased dramatically.  While many things have contributed to the decline, one 
of the major factors has been the loss of confidence of investors in businesses 
due to: (1) the failure of some boards of directors to properly assess corporate 
strategies and direct executives and auditors; and (2) malfeasance and illegal 
behavior on the part of some executives, auditors, and board members.

Recent legislation passed by Congress and signed by the President have addressed 
the auditing problems; existing laws and regulations are dealing with the illegal 
behavior that has occurred.  Poor stewardship by corporate boards can only be 
addressed by the stock holders through their votes concerning policies, 
initiatives, and approval of board members.  Individuals who directly own stock 
participate in the management of their investments by voting their proxies.  
However, persons who invest indirectly in stocks through investment advisors, 
such as mutual funds, pool their funds with thousands of other investors and 
delegate the responsibility for proxy voting to the investment advisors.  A large 
portion of all stocks in the U.S. are managed by investment advisory companies, 
but holders of shares in the funds managed by those companies currently have no 
way of knowing how the shares held by the advisors were voted.  In essence, they 
have no voice in determining whether policies and boards of the companies making 
up their investments are sound.  Furthermore, they have no way of knowing whether 
the proxy votes made by the investment advisors are in the best interests of the 
shareholders.  

Some investment advisors have recently begun to describe their voting policies to 
their shareholders.  This is helpful, but in general has been limited to broad 
policy questions, not specific issues and persons standing for election to the 
boards of companies in which they invest.  Proposed Rule 206(4)-6 of the 
Securities and Exchange Commission would change this situation and give persons 
who invest through investment advisors information they could use to voice their 
agreement or disagreement with proxy vote decisions made by advisors.  Since a 
third or so of the value of stocks in the U.S. are held by investment companies, 
we must be sure that the investors in these investment vehicles who risk their 
fortunes in the markets have the information needed to: (1) judge whether the 
investment advisors are making sound judgments about the policies and board 
nominees of the companies in which they invest; and (2) judge whether the 
investment advisors are making proxy judgments that are in the best interests of 
the shareholders.

Since the investment advisory companies are already public corporations in the 
U.S., they are subject to federal and state regulation, especially with respect 
to their fiduciary responsibility of providing the investors with information 
about their investments.  Thus, clients already have the right to know how 
advisors vote on corporate proxies.  The proposed rule should enunciate this 
right as a given and not as a newly established claim.

The question, then, is what is an efficient and cost-effective manner to provide 
this information?  This is a major concern of the investment advisory companies 
since it could result in an unnecessary administrative and financial burden to 
them.  The rule as proposed takes the right direction here.  The rule states that 
the advisor must disclose to the client how to obtain information about how the 
advisor voted.  The advisor should not be required to be the party to disclose 
the information, although the advisor could provide this information directly if 
it desired.  It is more likely that a third party could achieve an economy of 
scale by providing this service to stock holders.  For example, there is a proxy 
voting service on the Internet for a large number of the publicly traded 
companies on the U.S. exchanges.  It would be a relatively simple step for this 
organization (or one like it) to use the information it already collects from 
investment advisory companies that use its services for proxy voting, to create a 
web site to detail the proxy votes of the investment companies.  To satisfy the 
proposed rule, the investment advisory company would simply provide the 
information to shareholders of where this information could be found on the 
Internet.  The idea is to provide a place where the information can be easily 
accessed.  Every person could freely access the information--there would be no 
bar to access--even though not everyone has access to the Internet in their home.  
Those without home Internet access could use public facilities at libraries, ask 
friends to access the information, or even call their investment advisory company 
and ask them to access the information via the Internet.

To facilitate the supply of this information, clients of the investment advisory 
companies should have the right to know the proxy votes by the advisor in the 
aggregate, that is in total.  If the advisor was eligible to vote for 1,000,000 
shares of a stock and for some issue voted 800,000 for and 200,000 abstain, then 
these totals should be available to the shareholder.  Further division of the 
vote total to represent the proportion of the stock shares attributable to fund 
shares owned by an individual should not be necessary nor the responsibility of 
the investment advisor to provide.  It is reasonable to require that the votes 
for directors (for, withhold, and withhold individuals) be provided, and that the 
votes on each proposal (for, against, and abstain) also be available.  As a 
shareholder, I would be satisfied in having the vote information available for 
the current year and the previous five calendar years.  More than that would be 
of little use.  Likewise, investment advisory companies should not be required to 
maintain records of their proxy votes and contacts with investors about proxy 
votes beyond the current year and the previous five calendar years.  Rule 204-2 
may imply that they keep the records forever.

There should be no requirement that the investment advisory companies vote as 
share holders recommend or petition.  This would create an undue procedural 
complication and financial burden on the advisory company.  If shareholders are 
dissatisfied with the investment company’s actions, they have the opportunity to 
lobby investment company management by telephone or letter, they can vote against 
board trustees of the investment company when they come up for election, or they 
can sell some or all of their investments in the company’s funds.  However, 
shareholders must have access to information about how the investment company 
advisors voted as is proposed in the rules cited above so they may properly 
manage their own financial affairs and participate, albeit indirectly, in the 
important task of corporate governance.

Sincerely,

William L. Longley