April 6, 2001
Dear Client:
By now, you should have received a proxy-voting ballot via Schwab for your shares in a Citizens Mutual Fund. Voting is simple and can be done by telephone, internet or mail. Just follow the instructions on the voting form.
Normally I do not comment on these matters. However, in reviewing the proposals up for vote, I object to at least three of the proposals. In summary, these represent potential increases in costs and changes in the investment objectives and management, all without shareholder approval.
How can funds do this? Most investors do not pore over the endless pages of these proposals filled with legalese that does not clearly and simply state what is really at issue for vote. As a result, most shareholders do not vote, which means that you are giving the fund the right to vote for you (unless you withhold this right). And I also note that this set of proposals has been generated at a time when all investors are attending to their year 2000 federal income tax returns.
Proposal #3 - To vote an Amended and Restated Management Agreement
Proposal #5 - Approve changes in the Fund's fundamental investment restrictions
Proposal #6 - To vote on authorizing the Trustees to select and change investment subadvisors and enter into investment subadvisory agreements without obtaining the approval of shareholders.
Proposal #3 has the potential impact of increasing costs to shareholders, transparently, without obtaining an approval to do so. The presentation by Citizens looks somewhat devious to me, because the appearance of temporarily lowered fees is presented in the exhibits, yet with a waiver by shareholders on future increases in fees. The current rules cap fees and do not permit increases without shareholder approval. There was a reason to put that clause in the fund charter in the first place. Do you want to give up this right? It is obvious to me that this is not an effort to reduce costs, otherwise why remove a cap on those costs? I recommend an AGAINST vote here.
Proposal #5 allows funds to change the fundamental investment objective of the funds as they see fit, without shareholder approval. So if you thought that you bought the fund to serve a particular investment area of your portfolio, this could be changed without your approval. And it might be an area in which the current fund managers do not have adequate experience or a good track record. Shareholders would have no opportunity to review this. You would only receive a written notice from the fund that the objective had changed. I recommend an AGAINST vote here.
Proposal #6 is another surrender of shareholder rights, although it is less of an issue from a practical standpoint. Although this proposal provides for the change of the fund management company without shareholder approval, I doubt that shareholders would ever be given enough objective and complete information about the reasons/benefits/disadvantages for the management change, to be able to make a meaningful decision by vote. Still, it fits with the pattern of autonomy that the Board is trying to create in general with this set of proposals, by excluding shareholders from voting. I recommend an AGAINST vote here. Trustees are supposed to act in the best interests of the shareholders (and you will see this customarily stated in the proposals). However, the reality is that Trustee/Board director positions are appointments of individuals who are typically highly compensated insiders of fund management or their associations with fund management, perhaps including some other individuals who may lose their appointment if they do not consistently vote with the other Trustees. These individuals are not even required by law to have their own money invested in the funds. Expecting shareholder rights and benefits to be the very first and foremost priority of these Boards, is not realistic.Shareholders sole exercise of authority is their vote. If the Securities and Exchange Commission was truly looking out for fund shareholders, these proposal matters would be significantly simplified and understandable by the average investor. The complicated legalese could be an exhibit. And every Trustee/Director would be required to have substantial portion of their personal assets in the fund to ensure that shareholder rights were their first priority.
If these proposals are approved (most shareholders neglect to vote), I will consider it a factor in considering a future sale of the Citizens funds. I do not recommend funds to clients that I consider to have shareholder-unfriendly or abusive policies.
Regards,
Russell W. Hoffman
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