By September of each year, as mandated by the Securities and Exchange Commission (SEC) since 2003, mutual fund companies publish their proxy voting records for the previous year ending June 30. These disclosures have confirmed what shareholder advocates already suspected to be true: that mutual funds, representing about 25 percent of total assets, overwhelmingly support management’s proxy recommendations. A leading corporate governance research firm, The Corporate Library, found that the most prominent mutual funds voted with management 92 percent of the time for the year ending June 30, 2005. Moreover, only 30 percent of shareholder resolutions were supported. This indicates a level of faith in management that we believe runs counter to the best interests of shareholders.

How does Walden compare? In reviewing the votes of a representative portfolio, the Walden Social Equity Fund, about one third of votes were cast against the recommendation of management for the 12 months ending June 30, 2006. This includes Walden’s support of about 90 percent of shareholdersponsored resolutions, which generally are not favored by management. At 17 percent of companies, Walden withheld votes for one or more directors because of diversity, independence, or accountability concerns. Auditor ratification and incentive stock plans were two significant areas of disagreement with management proposals. Walden did not support ratification if more than 25 percent of auditor revenue was derived from non-audit work (a conflict of interest concern); nor did it support incentive plans that were not aligned sufficiently with shareholder interests.

On the flip side, what accounts for our high level of support for shareholder resolutions? The simple answer is that the vast majority of the proposals encouraged good governance policies or better disclosure. Three issues accounted for most of the shareholder resolutions supported: majority vote policy for directors, political contributions disclosure, and compensation policies and disclosure. Other issues appearing on three or more ballots included equal employment opportunity policies and reports, international labor and vendor standards, and requests to separate the positions of CEO and chair. We believe that voting for these shareholder proposals is consistent with our clients’ social investment objectives and contributes to long term business success.

-H. Soumerai