Commission Proposes Disclosure of Proxy Voting by Mutual Funds, Investment Advisers

FOR IMMEDIATE RELEASE
2002-139

ashington, D.C., September 19, 2002 -- The Securities and Exchange Commission voted today to propose requiring mutual funds and other registered management investment companies to disclose their proxy voting policies and procedures and their actual proxy votes cast. The proposal is designed to enable fund shareholders to monitor their funds' involvement in the governance activities of portfolio companies.

The Commission also proposed requiring investment advisers to adopt written policies and procedures governing their exercise of voting authority with respect to client securities. Advisers would also be required to inform clients about these policies and disclose how clients can obtain information from the adviser about actual proxy votes cast.

"If adopted, these proposals would give investors fundamental information about the practices of those who vote proxies on their behalf," said SEC Chairman Harvey L. Pitt. "They also would discourage or expose proxy voting conflicts of interest. The securities belong to fund investors, who are entitled to know how their property is being voted."

Investment Company Proposals

The proposals affecting registered management investment companies would require the following:

  • Investment Company Proxy Voting Policies and Procedures.  The proposals would require a fund to disclose in its registration statement the policies and procedures that it uses to determine how to vote proxies relating to portfolio securities. This disclosure would include the procedures that a fund uses when a vote presents a conflict between the interests of fund shareholders, on the one hand, and those of the fund's investment adviser, principal underwriter, or any affiliated person of the fund, its investment adviser, or principal underwriter, on the other.
     
  • Investment Company Proxy Voting Record.  The proposals would require a fund to file its complete proxy voting record with the Commission as part of its report on Form N-CSR, the form that was recently proposed by the Commission to be used by funds to file certified shareholder reports required by the Sarbanes-Oxley Act of 2002. The recommended proposals would require a fund to disclose the following information for each matter with respect to which a fund was entitled to vote: information identifying the matter voted on; whether the matter was proposed by the issuer or by a security holder; whether and how the fund cast its vote, and whether the fund cast its vote for or against management.
     
  • Disclosure of Proxy Votes That Are Inconsistent With Fund's Policies and Procedures.  The proposals would require a fund to disclose in its reports to shareholders proxy votes that are inconsistent with the fund's proxy voting policies and procedures and the reasons for the inconsistent votes.
     
  • Availability of Proxy Voting Information to Fund Shareholders.  The proposals would require a fund to disclose to its shareholders the availability of information about its proxy voting policies and procedures and its voting record. Specifically, a fund would be required to state in its registration statement and reports to shareholders that information about the fund's proxy voting is available without charge, upon request, by calling a specified toll-free (or collect) telephone number; on the fund's Web site, if applicable; and on the Commission's Web site. The recommended proposals also would require a fund, upon receipt of a request for proxy voting information, to send the requested information within three business days of receipt of the request.

Investment Adviser Proposals

The proposals with respect to investment advisers would require the following:

  • Investment Adviser Proxy Voting Policies and Procedures.  The proposals would require investment advisers to adopt written policies and procedures governing their exercise of voting authority with respect to client securities. An adviser's policies and procedures must be designed to ensure that the adviser votes proxies in the best interest of clients and addresses material conflicts of interest that may arise between the adviser's interests and those of its clients.
     
  • Investment Adviser Disclosure of Proxy Voting Policies and Procedures.  The proposals would require investment advisers to describe their proxy voting policies and procedures to clients and to furnish a copy of their policies and procedures upon client request.
     
  • Obtaining Information From Investment Advisers About Proxy Votes.  The proposals would also require investment advisers to inform clients how they can obtain information from the adviser on how it voted their proxies.
     
  • Investment Adviser Recordkeeping for Proxy Voting.  In addition, the proposals would amend the investment adviser books and records rule to require advisers to maintain certain records about their proxy voting activities, including how they voted each client's proxies. The Commission will review these records as part of its investment adviser inspection program.

The full text of detailed releases concerning each of these items will be posted to the SEC Web site as soon as possible. Comments will be collected for 60 days following publication of the proposals in the Federal Register.

Last modified: 9/19/2002