November 4, 2002

BY ELECTRONIC AND U.S. MAIL

Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: File No. S7-36-02

Dear Mr. Katz:

The American Federation of Teachers (AFT) is a labor union representing over 1.5 million members in public education, state and local government and health care. Literally thousands of our members voluntarily participate in 403(b) and 457 plans across the country. In most cases our members contribute 100 percent of plan costs. We estimate that about $100 billion of our members' money is invested in variable annuities and mutual fund custodial accounts. This money is an important source of family revenue that can be used to supplement pension benefits, provide for home purchases and improvements and children's' education. Therefore, AFT has a vital interest to see that these funds are invested in the best interests of our members.

We support the Securities and Exchange Commission's proposed rule (File No. S7-36-02) that would require registered management investment companies to disclose both their proxy-voting guidelines and, most importantly, their actual proxy voting records. AFT views proxy voting as a fiduciary duty. We believe that proxies should be voted with the same diligence and prudence that is used to make, buy, and sell decisions. Yet recent accounting scandals at Enron, WorldCom and Tyco have shaken investor confidence and make us question how much actual scrutiny is given to corporate plans and conduct. Simply put, 403(b) and 457 policy holders need assurance that institutional investors are voting stock proxies in their best interests and not those of management. The best way to provide the real owners of the investments with proper oversight of their money is to make the proxy voting process transparent.

AFT believes that stock-option plans, anti-takeover measures, excessive executive compensation plans, and the need for truly independent boards of directors impact on the long term profitability of corporations. As our members are typically long-term investors, they have an interest in seeing that the long-term profitability of every corporation is the main focus of investment company oversight. Yet many of the positions our members would support on these and other issues may be in conflict with those of the management of any one company. AFT supports the disclosure of voting guidelines and records as a way to alleviate concerns that our members have over many potential conflicts of interest between registered management investment companies and the corporations whose stock proxies they now control.

Mutual fund companies have the ability and resources to be a strong voice for corporate accountability. Our members want and expect these companies to use the proxy vote to protect their interests. Yet mutual fund companies have typically acted as passive investors and have not engaged corporate management on important governance issues. In many instances, mutual funds withhold proxy votes or sell the stock rather than confront management on important governance issues. The required disclosure of both proxy voting guidelines and the votes they cast in shareholder meetings will give mutual funds a regulatory basis for becoming active defenders of investor interests in maximizing long-term value for shareholders.

Thank you for the opportunity to comment on this important amendment that is a major concern for our members.

Sincerely,

Edward J. McElroy
Secretary-Treasurer

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