American Federation of Labor and Congress of Industrial Organizations

February 13, 2003


Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549

Re: File No. S7-51-02

Dear Mr. Katz:

On behalf of the American Federation of Labor and Congress of Industrial Organizations (the "AFL-CIO"), I welcome this opportunity to offer our support on the Securities and Exchange Commission (the "Commission") proposal, S7-51-02, regarding Shareholder Reports and Quarterly Portfolio Disclosure.

The AFL-CIO is the federation of America's labor unions, representing more than 66 national and international unions and their membership of more than 13 million working women and men. Union members participate in the capital markets as individual investors and through a variety of benefit plans with over $6 trillion in assets. Union members generally invest their 401(k) and other retirement savings in mutual funds.

As you know, the AFL-CIO first petitioned the Commission on December 20, 2000 to adopt rules to improve the quality and frequency of mutual fund portfolio and proxy voting disclosure (SEC File No. 4-439). We commend the Commission for recently adopting final rules requiring proxy-vote disclosure, and believe the proposed rules on portfolio holdings both respond to the remaining issues that we raised in our December 20, 2000 petition, and provide additional disclosure that will benefit mutual fund investors.

Our specific comments on the proposed rules are detailed below.

A. Disclosure of Portfolio Holdings

In our December 20, 2000 petition, we noted that the current semi-annual disclosure requirement for mutual fund portfolio holdings makes it difficult for investors to detect excessive portfolio overlap, and facilitates several forms of portfolio manipulation, including style drift, window dressing and portfolio pumping1. To address these concerns, we called on the Commission to require monthly disclosure of complete portfolio holdings, subject to a 60-day delay.

While we continue to believe that monthly disclosure is preferable, we support the proposed quarterly disclosure requirement as a reasonable compromise that will meaningfully enhance the ability of shareholders to detect excessive portfolio overlap and manipulation. We also support the proposed 60-day delay which, as noted in our petition, we believe is sufficient to address concerns that more frequent portfolio disclosure will allow others to front run fund trades.

To enhance the effectiveness of quarterly disclosure, we encourage the Commission to include its proposed requirement that funds identify securities acquired within a designated number of days before the end of the reporting period. We recommend a relatively short period, and suggest that five trading days is appropriate to address the most common manipulation schemes.

Finally, we support the proposed amendments allowing mutual funds to include only a summary portfolio schedule of investments in its reports to shareholders, rather than the complete schedule, provided that the complete schedule is filed quarterly with the Commission and provided to shareholders upon request, free of charge. We suggest that the Commission could strengthen these amendments by requiring that mutual funds disclose the complete schedule on their web sites, as well as file it with the Commission, since mutual fund investors are more likely to be familiar with their fund's web site.

B. Disclosure of Fund Expenses

We also support the Commission's efforts to enhance the disclosure of mutual fund expenses borne by shareholders. We are confident that more transparent disclosure of ongoing fees-which are currently deducted from fund assets and thus effectively invisible to the average investor-will both inform investors and promote fee-based competition among funds that will ultimately result in reduced fees to shareholders.

Because the additional fee disclosure is not likely to require extensive space, we suggest that mutual funds disclose this information in account statements provided to investors, rather than in the annual and semi-annual reports to shareholders. This will make this important information more readily accessible to the many investors who regularly review their statements, but who choose not to examine the more in-depth financial information contained in the reports.

Also, given the computational obstacles to providing individual shareholders with their actual share of fees borne during the period, we are prepared to support the Commission's proposed approach, which shows the cost in dollars associated with a $10,000 investment. However, we encourage the Commission to explore cost-effective methodologies to provide individual investors with their actual share of fees.

C. Management's Discussion of Fund Performance ("MDFP")

We support the Commission's proposal to require mutual funds, other than money market funds, to include MDFP in annual reports to shareholders. This is a logical improvement that is consistent with corporate financial reporting. Moreover, as the Commission notes, mutual funds typically include MDFP in their annual reports anyway, so the proposal is unlikely to meet with significant resistance.

D. Conclusion

At a time when the Commission has been extraordinarily busy implementing the investor protections mandated by the Sarbanes-Oxley Act, we commend the Commissioners and staff for their recent efforts to also enhance mutual fund disclosure. In particular, we support the proposed rules on mutual fund shareholder reports and quarterly portfolio disclosure, which continue the Commission's laudable efforts to make mutual funds more accountable to their shareholders through enhanced disclosure and transparency.

We thank you for this opportunity to offer our comments and support on these important proposals.


Richard L. Trumka

cc: (by U.S. mail)
Harvey L. Pitt, Chairman Roel C. Campos, Commissioner
Cynthia A. Glassman, Commissioner
Harvey J. Goldschmid, Commissioner

1 Details of these harmful practices are included in our December 20, 2000 petition, and duly noted in the Commission's proposal.