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News August 2, 2004 Issue

Form N-PX Deadline Looms

Move over October 5, thereís a new deadline in town.

By August 31, all registered open-end and closed-end funds will be required to disclose their proxy voting records on new Form N-PX. The form, which will be publicly accessible on the SECís EDGAR filing system, will reveal how funds voted their proxies for the twelve-month period ending June 30, 2004 (regardless of the fundís fiscal year end). Funds also will have to post their proxy voting record on their websites ("as soon as reasonably practicable" after filing Form N-PX) or make the record available to those that call a toll-free number.

Like any self-respecting deadline, the August 31 due date is presenting challenges for some fund complexes. "People are really scrambling to make this happen," said one industry source. The sheer amount of data that must be collected is presenting technological difficulties, he said. In some cases, he added, fund managers are finding out that some proxies that they thought had been voted, hadnít been.

Several investment management lawyers reported working through Form N-PX issues with clients. None, however, reported any significant interpretative issues. "Itís just walking them through it," said one.

Nonetheless, "a lot of firms are stressing about it," said ISSís senior vice president of communications, Cheryl Gustitus. The SEC, she said, "didnít provide a lot of direction" about Form N-PX. And, she added, "there is a lot of data" to pull together. "These portfolios are large."

The one interpretative question that has arisen: can Form N-PX be filed on a family-wide basis, or must each RIC, or even series, file a separate N-PX? Gustitusís answer: every fund that is a RIC must file. "Weíve been telling our clients to be on the safe side and file for every one," said Gustitus.

That makes sense. Bowne director Peter Mead noted that a series-by-series filing on N-PX could run 30,000 pages for some of the larger fund families. At the other end of the spectrum, however, he did report seeing some smaller fund families making family-wide Form N-PX filings, with separators between each fund.

Gustitus said that ISS has been encouraging clients to use their regular EDGAR filing agent or to follow the usual methods that they use for their EDGAR filings. Some have questioned whether the EDGAR system will have the capacity to process the thousands of N-PX filings that will hit on August 31. Of course, EDGAR does just fine handling large corporate 10-Ks, which tend to hit simultaneously.

The disclosure of proxy votes is forcing funds to look at their voting records and "do whatever analysis they can to see if they are outliers in any way," noted Gustitus. "Are they out of step with the rest of the market?" She said some fund managers have been asked to report back to their boards about how their voting records stacked up to their peers.

She also reported that some fund groups are preparing for a possible onslaught of public inquiries once their proxy voting records are disclosed. Groups are developing scripts and FAQs with their communications departments, said Gustitus. "It may be a complete dud in terms of phone calls or there could be a lot," she added. "They are preparing for an onslaught just in case."

Kirkpatrick & Lockhart partner Michael Caccese reported hearing similar concerns, but predicted that there would not be an onslaught of inquiries. "I think itís going to be a non-event now," he said "I think people will focus on it during the next proxy season. Then, theyíll look back and see what the mutual fund managers did."