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Investor Group Confronts Mutual Funds Over SudanSubmitted by: L. Reed Walton, Publications

Shareholders at several dozen mutual funds will likely be able to vote on whether the funds should withdraw their investments from companies operating in or supporting Sudan.

The Securities and Exchange Commission ruled Jan. 24 that Boston-based Fidelity, the nation?s largest mutual fund company, could not exclude a proposal that urges 11 Fidelity funds to adopt procedures to screen out investments in companies that contribute to genocide. The resolution, submitted by non-profit group Investors Against Genocide (IAG), cited Fidelity?s investments in PetroChina, which has ties to the Sudanese government through its parent, China National Petroleum Company.

More than 400,000 people in Sudan?s Darfur region have died from violence or starvation, and an additional 2.3 million have been forced from their homes since fighting between ethnic Sudanese and Arab militias backed by the country's government began in 2003, according to the Save Darfur Coalition.

Twenty-two U.S. states and 58 colleges and universities have adopted Sudan-related divestment policies, and 15 companies have completely divested or have publicly announced plans to do so, according to the Sudan Divestment Task Force. Last year, Warren Buffett?s Berkshire Hathaway, which was once PetroChina?s third-largest shareholder, began reducing its stake in the company.

On Dec. 31, President George W. Bush signed the Sudan Accountability and Divestment Act, which allows mutual funds and private pension funds to more easily drop their investments in companies that support the government of Sudan. The increased government and press attention to Darfur does not seem to have affected the mutual fund industry, Eric Cohen, chairman of IAG, told Risk & Governance Weekly.

The SEC ruling likely clears the way for the IAG resolution to appear on the ballots at many mutual funds this year. IAG has filed the proposal at 28 of Fidelity?s mutual funds, 20 Vanguard funds, and several others--totaling more than 50. The non-profit group, encouraged by the recent SEC decision in the Fidelity case, plans to file the proposal at hundreds of additional mutual funds in the coming months, Cohen said.

Investors Against Genocide, previously known as the Fidelity Out of Sudan campaign, is a Boston-based organization that has received support from 46 Massachusetts legislators, the National Council of Churches, and the American Jewish World Service, among others.

U.S. mutual funds do not often receive shareholder proposals, and IAG is targeting these investment vehicles almost exclusively, making the large number of filings this year unprecedented. SEC spokesman John Nester declined to comment on how the agency would rule on requests by other mutual funds to exclude the IAG proposal, according to the Boston Globe.

Fidelity told the Globe that it disagrees with the commission?s decision. ?Although the SEC staff has not concurred with our position, we continue to believe the proposal deals with matters relating to a fund's ordinary business operations, and contains false and misleading statements,? Fidelity spokesman Vince Loporchio said. The proposal will first go to a vote at several Fidelity funds on March 19.

On Feb. 11, the agency proposed regulations to implement the Sudan divestment legislation. The rules would require registered investment companies to tell shareholders how many shares were divested and when, as well as the name of the company that was the target of divestment and its ticker symbol.

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on February 15, 2008 (boomark / email).