AMERICAN BAR ASSOCIATION
BUSINESS LAW SECTION

December 6, 2002

Via e-mail - rule-comments@sec.gov

Securities and Exchange Commission
450 5^th Street, N.W.
Washington, DC 20549
Attention: Jonathan G. Katz, Secretary

Re: File S7-36-02
Release No. 33-8131, 34-46518, IC-25739
Proposed Rule: Disclosure of Proxy Voting Policies and Proxy Voting Records by Registered Management Investment Companies

Ladies and Gentlemen:

We submit this letter on behalf of the Committee on Federal Regulation of Securities of the American Bar Association's Section of Business Law (the "Committee")^* in response to a request for comment by the Securities and Exchange Commission (the "Commission") on proposed rule and form amendments under the Investment Company Act of 1940, as amended (the "1940 Act"), relating to disclosure of proxy voting policies and procedures and proxy voting records by registered investment companies (the "Proposal").¹ The Proposal would require management investment companies registered under the 1940 Act ("Funds") to disclose the policies and procedures that they use to determine how to vote proxies relating to portfolio securities and to file with the Commission, and make available to their shareholders, the specific proxy votes that they cast at shareholder meetings of issuers of portfolio securities.

The comments expressed in this letter represent the views of the Committee only and have not been approved by the American Bar Association's House of Delegates or Board of Governors and therefore do not represent the official position of the Association. In addition, this letter does not represent the official position of the ABA Section of Business Law, nor does it necessarily reflect the views of all members of the Committee.

General

As a threshold matter, the Committee concurs with the Commission that Funds have a fiduciary obligation to vote portfolio securities in the interests of Fund shareholders. In addition, the Committee agrees that Funds should have explicit policies and procedures designed to fulfill their voting obligation. We also agree with the Commission's proposal to require disclosure of these proxy voting policies and procedures in either the Fund's Statement of Additional Information ("SAI") or the newly proposed Form N-CSR.

We believe that Funds' proxy voting policies and procedures should be approved by the Funds' boards of directors, including the disinterested directors, and these boards should exercise on-going oversight of compliance. Further, we believe that these policies and procedures should be reviewed by the board on an annual basis so that they continue to reflect the interests of the Funds and their shareholders.

We believe that the Commission should recognize that Funds may decline to vote on social or political issues that may be tangential to the business or financial activities of the issuer soliciting proxies.

Disclosure of Proxy Voting Record

With regard to the Proposal's specific cost and benefit analysis, we believe that a more detailed discussion of the economic feasibility of the Proposal may be better addressed by industry participants who are directly affected by what may be very significant costs of compliance with the Proposal. Nevertheless, the Committee believes that there are better and more efficient ways to disclose and monitor Fund proxy voting policies and procedures. In our view, a Fund's board of directors is the appropriate forum for establishing and monitoring activities in proxy voting and maintaining compliance with the policies and procedures. We believe that the exercise of this duty by the board is a preferable approach that strikes an appropriate balance between the cost and benefits of this Proposal. We further recommend that the disinterested directors should be responsible for voting proxies in situations when there is a conflict because of a Fund's, investment adviser's or other affiliate's relationship with the issuer soliciting proxies. We also believe that the disinterested directors should be responsible for monitoring any divergence from established voting protocols.

The Committee believes that Funds should maintain information regarding the policies and procedures and votes as part of Fund records, but that Funds should not be required to make voting records available to shareholders. Such records are open to the Commission's inspection and examination staff, and if there is any material deviation from the stated policies and procedures involving conflicts of interests, the Commission has adequate enforcement authority to deal with such occurrences.

"Exclusively" Language of Form N-1A, Item 13

The proposed amendments to Item 13 of Form N-1A require Funds to describe the policies and procedures used to determine how to vote proxies "[u]nless the Fund invests exclusively in non-voting securities."² We believe that the "exclusively" language is overbroad and recommend that the Commission add a de minimus exception for Funds that hold a small percentage of their assets in voting securities.

Disclosure of Policies and Procedures in the Proposed Form N-CSR

While the Committee supports the inclusion of the proxy voting policies and procedures in the Form N-CSR for investment companies not filing current SAIs, we are concerned that the inclusion of this information would subject the principal executive officer and the chief financial officer to liability under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 for matters that are outside the scope of these provisions. We would therefore recommend that the Commission explicitly clarify that disclosure of proxy voting policies and procedures are not covered by the certificates filed with Form N-CSR by such officers.

The Committee respectfully submits these comments and requests that the Commission revise its Proposal in accordance with the comments set forth above. Members of the Committee's Subcommittee on Investment Companies and Investment Advisers are prepared to meet and discuss these matters with the Commission and the Staff and to respond to any questions.

Respectfully submitted,

/s/_________________________________
Stanley Keller
Chair
Committee on Federal Regulation
of Securities

Drafting Committee

John N. Ake
Diane E. Ambler
Jay G. Baris
Stuart H. Coleman
Janna Manes
Kimberly A. Klock

cc: The Honorable Chairman Harvey L. Pitt
Chairman of the Securities and Exchange Commission

The Honorable Paul S. Atkins
Commissioner

The Honorable Roel C. Campos
Commissioner

The Honorable Cynthia A. Glassman
Commissioner

The Honorable Harvey J. Goldschmid
Chairman

Paul F. Roye
Director, Division of Investment Management

____________________________

^* References to "we" and "our" refer to the Committee.

¹ Release No. 33-8131, 34-46518, IC-25739 (September 20, 2002) (the "Proposing Release").

² Proposed amendments to the text of Form N-1A, Item 13 (emphasis added).