“Amid stiff opposition from the mutual-fund industry and from within its own ranks, the Securities and Exchange Commission passed new rules Thursday requiring funds to disclose how they vote corporate proxies,” writes Ian McDonald in today’s Wall Street Journal.

“The new rules require open-end mutual funds, closed-end mutual funds, and investment advisers to explain proxy-voting policies and procedures in public filings. Funds also must report their proxy-voting record annually to the SEC, making the information available to shareholders free of charge, upon request. The rules will be enacted in July, in time for the 2004 proxy season.”

“The new measures faced staunch opposition from chief executives of Fidelity Investments and Vanguard Group, the nation’s two largest mutual-fund firms. The two executives bashed the proposals as an unwanted and expensive distraction in a Jan. 14 editorial published in The Wall Street Journal.”

“The proposals rankled some at the SEC too. The investment adviser requirements were approved unanimously by the SEC’s five commissioners, including outgoing Chairman Harvey Pitt. But the new rules for funds passed four to one. Commissioner Paul Atkins voted against the fund rules, saying vote disclosures would weaken fund managers’ ability to press corporate managers, give special-interest groups dry powder, boost fund expenses, and go mostly unread by fund investors.”

“‘We all benefit when we get different points of view,’ Chairman Pitt said. ‘I support [these rules] because I think mutual fund shareholders have the right to know how their property is being used. To me that’s a fundamental right and all these rules support it.’ “

“Under these rules, funds will be required to disclose their procedures and policies in voting proxies in its statement of additional information, a public document available upon request. Funds will also be required to file their proxy-voting record annually with the SEC, covering the 12 months ending June 30. They will have two months to file the information, briefly identifying each vote’s details, including whether the vote was proposed by the company or another shareholder, and whether or not the fund voted in line with management’s recommendation.”

“Funds will be required to let investors know how to get a copy of the fund’s proxy policies and record for free via a toll-free phone line. To cut costs, the information can be provided on the fund’s Web site or with a link to the SEC’s Web site and needn’t be mailed to shareholders.”

“The new rules are part of regulators’ broader effort to improve the transparency of financial disclosures in the wake of corporate frauds like those at Enron and WorldCom.”

“Funds have sway with corporate managements on issues of executive pay and board make-up given the $3.4 trillion in U.S. stock they held at the end of 2001 on behalf of more than 90 million investors. That stake represents 19% of all publicly-traded U.S. equities, up from 6% ten years earlier.”

” ‘Voting decisions by funds have an enormous impact on the lives of investors,’ said Mr. Pitt. ‘Because the securities are held for the benefit of the investor, they, the investors, deserve to know the funds’ proxy voting policies and whether they were followed.’ “