Alert ID: 069   03/08/2006
Suggested Routing:
Senior Management
 Legal & Compliance
Operations
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Proxy Voting Policies and Procedures
Targeted by SEC

The SEC is targeting a follow-up sweep review on another area of trade practices for investment advisers … proxy voting. To this end, the Commission's Boston District Office has forwarded a document request letter to examine the proxy voting policies and procedures of some investment advisers and mutual funds.

The document request letter covers a two year period (July 1, 2003 through August 31, 2005), has an extensive list items request for review, and includes a 15-item "yes" or "no" questionnaire which concentrates on the issues of conflicts of interest, whether any conflicts were identified when voting proxies for any fund, and whether they were "material" or disclosed to clients. The information and documentation requested includes:

 The current organizational charts of the departments responsible for
voting proxies;
The organizational chart that identifies all affiliates of the fund(s),
adviser, principal underwriter, directors, trustees or officers;
Prospectuses, statements of additional information, annual and semi-annual reports;
Written proxy policies and procedures;
Any material that explains to shareholders how to obtain proxy voting information;
The adviser's proxy voting records for all clients;
Proxies received where votes were not cast and an explanation for not submitting a vote;
Proxy statements where there were conflicts of interest present and any documentation memorializing the basis for deeming the conflict as
material or not;
Copies of all correspondence to or from any proxy voting service
provider, including invoices and payments to/from the service providers;
The most recent Form ADV Part II;
Each written fund shareholder request for information on how proxies
were voted and a copy of any written response (in lieu of a log, the
SEC has provided a form that can be filled out, which includes the date
the request was received, the date of the fund's response, method of shareholder notification and shareholder information);
Copies of the proxy statements for the 15 largest security holdings as a percentage of each fund's assets on June 30, 2004, and June 30, 2005, where proxies were received.

What is also of significance is the utilization of new technology by the SEC with respect to accumulation of data and information related to the sweep. First, the SEC is requiring the documents and information to be transmitted in electronic format on a USB hard drive formatted specifically as detailed in an appendix to the request letter. Second, and not surprising, the SEC appears to be relying on e-mails to aid in its examination, including those from compliance. To this end, the Boston District Office is asking for copies of all
e-mails pertaining to issues on proxy voting matters.

Ultimately, it appears that the Commission's representations related to maintaining focus and raising the bar in the exam program for 2006 appears to be on-point.

For further information regarding this release, please call
Suzette Surman , Vice President Broker/Dealer Division 281-863-6109
  MGL Consulting Corporation
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The Woodlands, Texas 77381
Phone: 281-367-0380
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