Fund Industry Illustrates Its Proxy-Voting Objection

In a final push to try to defeat a proposed proxy-voting disclosure rule that could be adopted as early as today, the mutual fund industry has brought out some heavy artillery -- literally.

The industry’s lobbying group this week sent regulators phone-book-size documents for three stock funds to show how cumbersome and costly the funds believe the rule on disclosure of proxy voting records would be to implement.

The documents -- which the industry said were sized appropriately to list each fund’s votes on corporate contests over executive pay, board makeup and other issues -- were sent via FedEx to the five members of the Securities and to Exchange Commission and the agency’s enforcement chief, Paul Roye, as well as to 12 reporters, at a cost of about $3,800.

Activist investor groups on Wednesday derided the Investment Company Institute’s stunt as “pathetic,” predicting that the SEC would adopt the proposed rule at today’s meeting.

“The ICI is trying to give the impression that people are going to get phone books in their mailbox,” said Mercer Bullard, a securities law professor at the University of Mississippi and the head of Fund Democracy, a shareholder advocate group.

“It’s a Machiavellian deception and an insult to the SEC, which I’m sure will take it that way,” Bullard said.

The ICI acknowledged that the three index funds it used as examples -- Fidelity Spartan Total Market, Vanguard Balanced and T. Rowe Price Extended Market -- were extreme because of their sprawling portfolios. With more than 2,300 stock holdings per fund, the sample disclosure reports range from 467 to 777 pages.

But ICI spokeswoman Elizabeth Powell said more than 200 funds would have to produce disclosure spreadsheets of 99 pages or more detailing their votes. The ICI estimates the disclosure rule would cost $900 million over 20 years.

Under the proposed rule, fund companies would have to file their proxy votes twice a year with the SEC. Funds also would be required to send printed copies to investors on request.

Spurred by Fund Democracy and other groups, nearly 7,800 investors wrote to the SEC in support of the proposed rule during the two-month comment period that ended in December. Influential Republican Reps. Michael G. Oxley of Ohio and Richard H. Baker of Louisiana are among proponents of the rule as well.

Backers say that in the post-Enron Corp. era of full disclosure, funds should be required to tell investors how their shares are voted in proxy contests.

The ICI and fund powerhouses such as Fidelity Investments and Vanguard Group have campaigned against the proposal saying it would distract managers by politicizing proxy voting, and that few of the industry’s 95 million investors are interested in the votes.

Even with the aid of technology, the proposed rule would be hard to implement, critics say. Powell said the ICI tried to e-mail its example documents to the SEC -- but the 9-megabyte file initially was rejected as too large.