the custodian, although the procedure would be to consult with Loomis-Sayles on any voting questions that had investment significance. T. Rowe Price Associates similarly reported that it does not hold any significant amount of securities in its own name but serves as investment advisor to four mutual funds and a number of private clients. Personnel of T. Rowe Price Associates do vote proxies of securities held by the mutual funds, but normally do not vote proxies of securities held by its private clients. In certain situations the advisor has agreed to advise clients on how to vote proxies, such recommendations generally being based on the potential investment implications of the question presented. Massachusetts Financial Services does not own any corporate securities but, as advisor to various investment clients, including five open-end investment companies, plays a dominant role in the determinations made with respect to the voting of corporate securities held by the funds, with final responsibility resting upon the trustees or directors of each fund. Investors Diversified Services generally does have full voting rights in the securities it owns. Fidelity Management and Research Company acts as investment advisor to fourteen investment companies, most of which have their funds invested in common stock with full voting rights. The directors of the funds in the Fidelity Group of Funds have established policies for voting the common stocks owned by the Funds. B. For the securities for which the investment advisory service has full or partial voting rights, is its practice always to exercise the voting rights; if not, what are the circumstances under which they would not be exercised? Five of the six companies which stated they had voting rights indicated that they always exercise them. Only Massachusetts Financial Services indicated that, although its funds usually exercise their voting rights, "when it has been in the best interest of the shareholders to do so, votes have been withheld." An example was cited detailing one set of circumstances in which one of its funds withheld its proxy. C. In voting stock, what are the basic policies the investment advisor follows as to how it votes? For example, does it consistently vote to support management, or what factors would lead it to vote against management? One company, Continental Investment Corporation, indicated that it consistently votes to support its own management decisions as they relate to subsidiary operations. However, as noted above, it indicated that CIC only holds securities of its wholly-owned subsidiaries and did not report on the policies of its subsidiary companies which do manage investment portfolios. The other five companies with voting rights generally implied that each proxy is voted on its merits so as to enhance the investment value of its securities. Two companies, Loomis-Sayles and Company, and Investors Diversified Services, made a distinction between "routine" and "non-routine" matters, saying that they would generally vote for management on routine matters but would vote nonroutine matters depending upon the potential investment implications of the question presented. In general, it could be said, investment advisors or funds under their management will vote for corporate management proposals but in a number of cases, replies indicated circumstances in which proxies would be voted against management. Thus Massachusetts Financial Services indicated that its funds had voted against several proposals to amend retirement and pension plans of portfolio companies; and against a change in the capital structure of a company where the proposed change did not seem to be in the best interest of the stockholders. Fidelity Management and Research Company indicated that each of its Funds states in its Registration Statement that investment in portfolio securities will not be made with a view to control the management of a portfolio company. Recently various Funds of Fidelity Management and Research Company have voted against management proposals for merger, increasing debt, cumulative voting for directors, and a proposal to do away with preemptive rights of shareholders; in each of these cases the company felt that the proposals could adversely affect the economic interests of the shareholders. Loomis Sayles provided a memorandum giving specific guidelines for voting proxies, with the overall principle of casting its votes in the best investment interests of Fund shareholders. Examples of situations in which the Funds would be likely to vote against management of a portfolio company are a request by management for approval of a stock option plan that provides an excessive number of shares, mergers or acquisitions which are not believed to be in the best interests of shareholders of the portfolio company, or relinquishment of preemptive rights. II. BROKERAGE FIRMS A. Of the stock a brokerage firm holds in its own name, what is its practice in exercising voting rights attached to ownership of such stock? Does the brokerage firm follow a policy of consistently supporting management in casting its votes? What would be factors that would lead it to vote against management? Two of the firms, Dean Witter and Company and Merrill Lynch, Pierce, Fenner and Smith, Inc., have a policy of not voting stocks held in their name. Merrill Lynch advised that it does not, with the exception of securities purchased in the Firm's trading accounts, enjoy beneficial ownership of any securities. Such securities are over-the-counter securities which are purchased primarily to provide an inventory for customers who wish to buy such securities. Since Merrill-Lynch's position in over-the-counter securities is turned over on an average of once every two days, which indicates the transitory nature of the firm's ownership of such securities, it is the practice of Merrill-Lynch not to exercise voting rights attached to the ownership of such stock. Four firms indicated that they generally support management in voting stocks held in the firm's name. Lehman Brothers follows this practice unless otherwise instructed by the senior management of the firm. Kidder, Peabody and Company and Bache and Co. will only vote against management if one or more of the proposals to be voted on could adversely affect them. Salomon Brothers stated it would sell a security if management proposed something it did not consider to be in their interest as stockholders, rather than vote against management. E. F. Hutton indicated that it votes each issue on its own merits and did not disclose any pattern of voting for or against management. Brown Brothers Harriman and Company noted that, as a bank licensed to do business in New York and certain other States, it is not permitted to deal in corporate securities, nor does the firm generally invest in corporate securities for its own account. B. For stock it holds in trust for its clients, what is the practice of the brokerage firm in voting shares for which it receives no instructions from the beneficial owners or their legal representatives? Does it vote such stock or does it refrain from voting? Based on responses received from eight brokerage firms, the voting procedures followed by major brokerage firms with respect to stocks held in nominee accounts or directly for the benefit of clients are based uniformly on proxy rules of the New York Stock Exchange (Rules 450-460), copies of which were enclosed by two respondents. A copy of these rules is attached (attachment 3). In essence, the rules indicate that member firms of the New York Stock Exchange are required to provide their clients with the proxy materials issued by corporations and must receive specific instructions from them to vote on matters set forth in the proxy statement. The only general exception to this requirement is provided under the so-called "Ten Day Rule." Under this rule the brokerage firm is permitted to exercise the vote of the beneficial owner of corporate securities provided the relevant proxy material has been mailed to the beneficial owner at least ten days before the meeting for which the proxy is solicited, and provided furthermore that the matters for which votes are requested are of a routine nature, "routine" being determined by the New York Stock Exchange in each instance. In respect to non-routine proposals, the proxy executed by the brokerage firm will be limited to the number of shares for which it has received specific voting authorization from beneficial owners. Those shares on which it has not received instruction will not be voted. Rule 451.20 includes form letters to be sent: (A) where a member firm of the New York Stock Exchange may vote without customer instruction, such as for the election of unopposed directors or appointment of auditors; (B) where a member firm may not vote without customer instructions, such as on a proposal to permit the issuance of more than 5 percent of the issuer's common stock, pursuant to stock option or purchase plans; and (C) where the proxy material contains proposals some of which may be acted upon without instructions by the customer and others which may be voted on only upon the direction of the beneficial owner. Supplemental information received from the respondents includes the following. Merrill, Lynch, Pierce, Fenner and Smith indicated that with respect to routine matters only, Merrill-Lynch as a matter of policy tenders 95 percent of its uninstructed vote on behalf of management. Historically, the records of Merrill-Lynch show that the 5 percent of the votes retained by Merrill-Lynch are sufficient to cover any instructions from customers voting against management. If Merrill-Lynch receives instructions from clients in excess of 5 percent against management, the initial vote will be revoked and a new vote tendered. E. F. Hutton and Company, Lehman Brothers, Salomon Brothers, and Dean Witter & Company indicated that, on routine matters on which they are permitted to vote by New York Stock Exchange rules, they vote in accordance with corporate management's recommendations. Brown Brothers Harriman indicated: "We vote only in accordance with instructions received from beneficial owners or their legal representatives. We only suggest to clients on how proxies should be voted on controversial matters in response to their specific requests for such advice. In such cases the recommendation is determined on what we believe are the merits of the issue." JULIUS W. ALLEN, DEAR MR. In order for us to respond to a Congressional request for information relating to policies and practices of investment advisors with respect to voting of corporate securities, we should appreciate your cooperation in answering the following questions, as they relate to 1. Of the securities holds, for what percentage does it have full voting rights, for what percentage does it have partial or contingency voting rights, and for what percentage does it have no voting rights? 2. For the securities for which has full or partial voting rights, is its practice always to exercise the voting rights; if not, what are the circumstances under which they would not be exercised? follows as to how it 3. In voting stock, what are the basic policies votes? For example, does it consistently vote to support management, or what factors would lead it to vote against management? It would be most helpful if you could give us your reply not later than January 10, 1974. Thank you for your assistance in this matter. Sincerely yours, JULIUS W. ALLEN, Senior Specialist in Business Economics, Economics Division. DEAR MR. -- LETTER SENT TO BROKERAGE HOUSES JANUARY 4, 1974. ... In order for us to respond to a Congressional request for information on the policies and practices of security dealers with respect to voting of corporate securities they hold, we should appreciate your cooperation in answering the following questions as they relate to Please describe the procedures of ------ in voting of corporate securities it holds. Specifically: 1. Of the stock it holds in its own name, what is its practice in exercising voting rights attached to ownership of such stock? Does --------- follow a policy of consistently supporting management in casting its votes? What would be factors that would lead it to vote against management? 2. For stock it holds in trust for its clients, what is the practice of in voting shares for which it receives no instructions from the beneficial owners or their legal representatives? Does it vote such stock or does it refrain from voting? It would be most helpful if you could give us your reply no later than January 18, 1974. Thank you very much for your assistance in this matter. JULIUS W. ALLEN, ATTACHMENT 2 Economics Division. PART I: RESPONSES RECEIVED FROM INVESTMENT ADVISORY Mr. JULIUS W. ALLEN, COMPANIES ALLIANCE CAPITAL MANAGEMENT CORP., Senior Specialist in Business Economics, Economics Division, The Library of Congress, Congressional Research Service, Washington, D.C. DEAR MR. ALLEN: Mr. Peter H. Vermilye, President of Alliance Capital Management Corporation, has asked me to respond to your letter of December 19, 1973. In its investment advisory relationship with clients, Alliance Capital Management Corporation does not accept authority to exercise full, partial or contingent voting rights with respect to portfolio securities held in client accounts. Accordingly, Alliance Capital Management Corporation never exercises such voting rights. If I can be of any further assistance to you in this matter, please don't hesitate to contact me. Yours truly, Mr. JULIUS W. ALLEN, MICHAEL A. BOYD, General Counsel and Secretary. CHASE INVESTORS MANAGEMENT CORP., Senior Specialist in Business Economics, Economics Division, The Library of Congress, Congressional Division, Research Service, Washington, D.C. DEAR MR. ALLEN. Mr. Lane, President, Chase Investors Management Corporation New York (“CIMC"), has referred to me for reply your letter of December 19, 1973. CIMC was recently formed as an affiliate of The Chase Manhattan Bank, N.A. ("CMB") to perform certain investment adivsory, management and research services. Until the present, the principal activity of CIMC has been to perform investment advisory and research services for CMB. CIMC does not "hold" any corporate securities for customers. In connection with the investment advisory and research services performed by CIMC for CMB, CIMC does not have any voting rights with respect to corporate stocks. As to the relatively few accounts of customers, other than CMB, established with CIMC, any statistic submitted in the manner requested would be completely misleading. At the present time. CIMC has only about $2 million of common stock assets as to which investment advisory or management services are rendered, and as to these assets, has been requested to exercise full voting rights. Due to the relatively small amount of investments involved and the nature of the accounts, we submit that the data has little statistical value. In those instances in which CIMC exercises voting rights, its policy is to determine how the shares should be voted in the best interest of the particular account and would vote to support management or would vote against management depending upon such determination in each instance. Very truly yours, JEAN M. LINDBERG, Vice Chairman. Mr. JULIUS W. ALLEN, CONTINENTAL INVESTMENT CORP., Senior Specialist in Business Economics, Economics Division, The Library of Congress, Congressional Research Service, Washington, D.C. DEAR MR. ALLEN. In response to your letter of December 19, we wish to advise that Continental Investment Corporation itself holds only the securities of its wholly-owned subsidiaries and does not maintain what might be characterized as an investment adviser's portfolio. In this circumstance the answers to your specific questions are: 1. 100% full voting rights. 2. It always exercises full voting rights. 3. It consistently votes to support its own management decisions as they relate to subsidiary operations. Some of our subsidiary companies do manage investment portfolios. In order to avoid confusion in communications, it would be helpful if you would indicate whether you wish to contact such subsidiaries directly or whether we might be of assistance in that respect. Very truly yours, SABINO MARINELLA, President. LIONEL D. EDIE & CO., INC., Mr. JULIUS W. ALLEN, The Library of Congress, Congressional Research Service, Washington, D.C. DEAR MR. ALLEN: Mr. Milne has asked me to respond to your letter of December 19, 1973 concerning voting rights. Lionel D. Edie & Company, Incorporated does not hold clients' securities at any time. Our clients maintain their securities personally or with their own designated custodian. In addition Edie does not accept power of attorney over voting rights from any client for any security. These are always retained by the client. Therefore, your questions relating to when Edie votes the shares and how they vote the shares are not applicable. I trust this has answered your inquiry. Please feel free to contact me should you wish additional information. Sincerely yours, Mr. JULIUS W. ALLEN, DENIS J. DOOLEY, II, Corporate Secretary. FIDELITY MANAGEMENT & RESEARCH Co., Senior Specialist in Business Economics, Economics Division, The Library of DEAR MR. ALLEN: This is in reply to your letters of December 19, 1973 and January 18, 1974 in which you asked for information relating to policies and practices of investment advisers with respect to voting of corporate securities. This company acts as an investment adviser to fourteen investment companies, the names of which are hereto attached. In answer, we assume your inquiries are directed to the voting of securities owned by these investment companies. |