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PROXY VOTING

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Title: PROXY VOTING


1
PROXY VOTING
FIDUCIARY AND INVESTMENT RISK MANAGEMENT
ASSOCIATION 2008 NATIONAL RISK MANAGEMENT
TRAINING CONFERENCE
  • Presented by
  • Jeffrey S. Kropschot, VP and CCO
  • A.G. Edwards Trust Company FSB

2
PROXY VOTING
  • Power/Duty to Vote Proxies
  • The trustee has a duty to actively manage and
    protect the trust estate, which includes the
    power to vote proxies related to shares of stock
    held in a fiduciary capacity.
  • The trustee has a duty to act solely in the
    economic interest of the trust, based on the
    intentions of the grantor.
  • The duty of care requires an investment adviser
    with proxy voting authority to monitor corporate
    events and to vote proxies.
  • An investment adviser must cast proxy votes in a
    manner consistent with the best interest of its
    clients and must not subrogate client interests
    to its own.

3
PROXY VOTING
  • Types of Proxy Issues
  • Routine Matters that do not include
    authorization for a merger, consolidation or any
    matter which may affect substantially the rights
    or privileges of such stock. Examples include
  • Election of Directors
  • Selection of External Auditor
  • Non-Routine - Matters that do include
    authorization for a merger, consolidation or any
    matter which may affect substantially the rights
    or privileges of such stock. NYSE Rule 452.11
    lists eighteen non-routine proxy issues.

4
PROXY VOTING
  • Bank Regulatory Guidance - OCC
  • Should have internal policies that outline the
    banks position for voting proxies and for
    handling related social or controversial issues.
    The policy should include a provision that the
    bank maintain a record of how proxies are voted
    and, when a decision is made not to vote a proxy,
    the reasons why that decision was made.
  • Should have a policy addressing investments in
    and voting of own bank stock, holding company
    stock, or stock of companies for which directors,
    officer, employees or related organizations have
    an interest that might interfere with the banks
    judgment.
  • With respect to the financial report disclosures
    in 12 CFR 9.18(b)(6), a national bank should
    consider making the proxy voting policy and proxy
    voting records available to interested persons.

5
PROXY VOTING
  • Bank Regulatory Guidance - OTS
  • The investment policy should contain guidelines
    and standards for voting proxies, particularly in
    regards to investments in the savings
    associations own securities or proprietary
    mutual funds. The policy should require that it
    vote shares in the best interest of each account.

6
PROXY VOTING
  • Bank Regulatory Guidance - FDIC
  • Should have a policy addressing the voting of
    routine, as well as controversial, issues. The
    policy should require that it vote proxies in the
    best interest of the clients. The policy should
    also establish voting and recordkeeping
    procedures.

7
PROXY VOTING
  • Bank Regulatory Guidance - FRB
  • Should have proxy voting policies and procedures
    suitable to assumed responsibilities. Policies
    should address voting of routine and non-routine
    issues (i.e., issues involving sensitive social
    issues, conflicts of interest, significant
    increases in management power or perquisites, or
    merger or buy-out proposals).

8
PROXY VOTING
  • SEC Investment Adviser Guidance
  • 17 CFR 275.206(4)-6
  • It is a fraudulent, deceptive, or manipulative
    act, practice or course of business for an
    investment adviser to exercise voting authority
    with respect to client securities unless the
    adviser
  • Adopts and implements written policies and
    procedures that are reasonably designed to ensure
    that the adviser votes proxies in the best
    interests of its clients
  • Discloses to its clients how they may obtain
    information regarding how their proxies were
    voted and
  • Describes its proxy voting policies and
    procedures to its clients and provides copies
    upon request.

9
PROXY VOTING
  • Must adopt and implement written policies and
    procedures that are reasonably designed to ensure
    the adviser votes proxies in the best interests
    of its clients.
  • Procedures should address situations where it
    would be in the clients best interest not to
    vote every proxy (e.g., cost of voting exceeds
    expected benefit to the client) .
  • Procedures must address how the adviser addresses
    material conflicts arising between its interests
    and those of its clients.
  • Advisers that vote securities based on a
    pre-determined voting policy could demonstrate
    that the vote was not a product of the conflict
    of interest.
  • Advisers that vote securities based on a
    pre-determined voting policy, based on the
    recommendations of an independent third party,
    could demonstrate that the vote was not a product
    of the conflict of interest.
  • Advisers can suggest that clients engage another
    party to determine how proxies should be voted.

10
PROXY VOTING
  • Must disclose to clients how they may obtain
    information regarding how their proxies were
    voted.

11
PROXY VOTING
  • Must describe proxy voting policies and
    procedures to clients and provides copies upon
    request.
  • Description should be a concise summary of the
    advisers policies and procedures and should
    indicate that a copy of the policies and
    procedures is available upon request.
  • Some advisers use a brochure (in lieu of Part II
    of Form ADV ) to make this concise summary and to
    offer clients the opportunity to request copies
    of the policies and procedures.

12
PROXY VOTING
  • SEC Investment Adviser Guidance
  • 17 CFR 275.204-2(c)(2)(i-v)
  • Adviser must retain the following records
  • Copies of all required policies and procedures
  • Copies of each proxy statement received
  • Records of each vote cast on behalf of its
    clients
  • Copies of documents created by the adviser that
    were material to making a decision on how to vote
    proxies on behalf of a client or that
    memorializes the basis for that decision and
  • A copy of each written client request for
    information on how the adviser voted proxies on
    behalf of the client, and a copy of any written
    response by the investment adviser to any client
    request for information on how the adviser voted
    proxies on behalf of the requesting client.

13
QUESTIONS
14
REFERENCES
  • OCC Handbooks (Various)
  • http//www.occ.treas.gov/handbook/amgt.htm
  • OTS Trust and Asset Management Handbook
  • http//www.ots.treas.gov/da.cfm?catnumber106an7
  • FDIC Trust Examination Manual
  • http//www.fdic.gov/regulations/examinations/trust
    manual/index.html
  • FRB Trust Examination Manual
  • http//www.federalreserve.gov/boarddocs/supmanual/
  • Federal Register Vol.68, No. 26 / Friday,
    February 7, 2003
  • http//a257.g.akamaitech.net/7/257/2422/14mar20010
    800/edocket.access.gpo.gov/2003/pdf/03-2952.pdf
  • 17 CFR 275.206(4)-6
  • http//a257.g.akamaitech.net/7/257/2422/03jul20071
    500/edocket.access.gpo.gov/cfr_2007/aprqtr/pdf/17c
    fr275.206(4)-6.pdf
  • 17 CFR 275.204-2(c)(2)(i-v)
  • http//a257.g.akamaitech.net/7/257/2422/03jul20071
    500/edocket.access.gpo.gov/cfr_2007/aprqtr/pdf/17c
    fr275.204-2.pdf
  • ISS Proxy Voting Guidelines
  • http//www.issproxy.com/pdf/2007USSummaryGuideline
    s.pdf
  • Summary of Proxy Voting Policies and Procedures
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