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March 12, 2003
Mutual Fund Industry Takes Last Stab at Blocking Proxy Voting Disclosure
    by William Baue

The Investment Company Institute, the mutual fund industry trade group, continues to lobby against new SEC rules that require disclosure of proxy voting policies and records.

On January 23, 2003, the U.S. Securities and Exchange Commission (SEC) announced new rules that require mutual fund companies to disclose their proxy voting records and policies starting on April 14, 2003. The Investment Company Institute (ICI), the mutual fund industry trade group, lobbied hard against the new rules, arguing that such disclosure would financially overburden mutual funds and would, therefore, increase costs to investors. The SEC acknowledged the ICI's cost estimates when it rejected this line of argument in the final rule. However, the ICI has one last chance to plead its case, because the Paperwork Reduction Act of 1995 requires the White House's Office of Management and Budget (OMB) to review the accuracy of the SEC's cost estimates. The OMB, which administers the Paperwork Reduction Act, will accept public comments through Friday, March 14.

"[W]ith respect to arguments that the disclosure may impose excessive costs, we note that several fund groups that currently provide disclosure of their complete proxy voting records to their shareholders commented that although there are start-up costs for compliance systems, this cost decreases over time, and that the overall costs of the disclosure are minimal," the SEC states in the rules.

The SEC estimates that disclosing proxy voting records would cost $992 annually per equity portfolio. This estimate is consistent with cost estimates submitted to the SEC by Walden Asset Management, Domini Social Investments, and Pax World Funds, all of which currently disclose their proxy voting policies and records.

"By contrast, [the Investment Company Institute] estimated, based on a survey of fund complexes conducted on its behalf by a third-party, that proxy voting record disclosure would cost approximately $3,380 per fund in start-up costs, and $5,530 per year in ongoing costs," the SEC regulation reads. Elsewhere in the rules, the SEC states, "We estimate that a typical fund may have, on average, 30,000 shareholder accounts." These figures translate to less than 20 cents annually per shareholder account.

"The cost is pretty insignificant by investor," said Domini Director of Shareholder Activism and General Counsel Adam Kanzer, who is writing a letter to the OMB expressing Domini's support of the SEC rules as they stand. "Math is not my strong suit, but even the number the ICI came out with to scare everybody, which they thought was enormous, doesn't seem like that big a number to me."

AFL-CIO Secretary-Treasurer Richard Trumka submitted a letter to the OMB today in support of the SEC rules.

"The Commission estimates the total external and internal costs of the additional disclosure required by the new rules at $12.7 million [per year], which translates to an average cost of 13 cents for each of the nation's 95 million mutual fund shareholders," writes Mr. Trumka. This figure includes the increase per equity portfolio as well as other costs.

ICI is submitting its own letter to the OMB, according to ICI spokesperson Chris Wloszczyna. Based on the same survey it used to calculate its original estimate, ICI has calculated a revised estimate of the costs for implementing the SEC's proxy voting record disclosure.

"[W]e believe that a more realistic estimate of the costs that the fund industry, and hence fund shareholders, would incur . . . would be a transition cost of $20.8 million and annual recurring costs of $40.9 million," reads the ICI letter to the OMB.

According to the ICI 2002 Mutual Fund Fact Book cited in the SEC rule, "Approximately 93 million individual investors hold shares of mutual funds." Therefore, even ICI's upwardly revised estimate of the burden of the SEC's new rule amounts to less than a 50-cent increase in annual costs for each shareowner account.

"I think it's extraordinary for the ICI to even attempt this kind of an end-run," said AFL-CIO Office of Investment Corporate Transactions Coordinator Michael Garland. "I would be very surprised if the OMB were to try to block this rule at this point."

"At a time when investor confidence is so low, to set back a major reform like this would be political suicide," Mr. Garland told


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