Our policy is designed to reflect the fiduciary duty to vote proxies in favor of shareholder interests. In determining our vote, we will not subordinate the economic interest of the plan participants to any other entity or interested party.

Per the terms of ERISA, we will “cast the (client’s) proxies in a timely manner solely in the interests of the participants and beneficiaries of (client’s) Plan for the exclusive purpose for providing benefits to participants and their beneficiaries and defraying the reasonable expenses of administering the Plan with care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in like capacity familiar with such matters would use in the conduct of an enterprise of like character and with like aims in accordance with the documents and instruments governing the Plan in accord with the provisions of ERISA.”

Each proxy will be reviewed on a case-by-case basis with final decisions based on the merits of each case. In reviewing the proxy issues, we will use the following Issue Guidelines for each of the categories of issues listed below. If any conflicts of interest should arise, our proxy voting agent, the Marco Consulting Group, will resolve them pursuant to the steps prescribed in the Administrative Procedures section below.

Issue Guidelines

Election of Directors

The members of the boards of directors are elected by shareholders to represent the shareholders’ interests. This representation is most likely to occur if two-thirds of the members are independent outsiders as opposed to insider directors (such as senior management employees, former employees, relatives of management or contractors with the company). If two-thirds of the board is not represented by independent outsiders, a vote will usually be cast to withhold authority on the inside directors.

Other factors that will be considered when reviewing candidates will be the number of corporate boards on which they already serve (ideally directors with fulltime jobs should serve on no more than three boards and no individual should serve on more than five boards), their performance on  committees and other boards, the company’s short-term and long-term financial performance under the incumbent candidates, the company’s responsiveness to shareholder concerns (particularly the responsiveness to shareholder proposals that were approved by a majority of shareholders in the past 12 months) and other important corporate constituents, the overall conduct of the company (e.g., excessive executive compensation, adopting anti-takeover provisions without shareholder approval) and not attending at least 75% of Board and Committee meetings unless there is a valid excuse.

Recently, more emphasis has been placed on the independence of key Board committees—audit, compensation and nominating committees. It is in the best interests of shareholders for only independent directors to serve on these committees.  Votes will be withheld from any insider nominee who serves on these committees.

In contested elections of directors, the competing slates will be evaluated upon the personal qualifications of the candidates, the quality of the strategic plan they advance to enhance long-term corporate value, management’s historical track record, the background to the proxy contest and the equity ownership positions of individual directors.

Ratification of Auditors

The ratification of auditors used to be universally considered a routine proposal, but a disturbing series of audit scandals at publicly-traded companies and SEC-mandated disclosures that revealed auditors were being paid much more for “other” work at companies in addition to their “audit” work have demonstrated that the ratification of auditors needs to be scrutinized as much as the election of directors.

Although the Sarbanes-Oxley Act of 2002 attempted to address the issue of auditor conflicts of interest, it still allows auditors to do substantial “other” work (primarily in the area of taxes) for companies that they audit. Therefore MCG will weigh the amount of the non-audit work and if it is so substantial as to give rise to a conflict of interest, it will vote against the ratification of auditors. Concern will be raised if the non-audit work is more than 20% of the total fees paid to the auditors. Other factors to weigh will be if the auditors provide tax avoidance strategies, the reasons for any change in prior auditors by the company, and if the same firm has audited the company for more than seven years.

Routine Proposals

Routine proposals are most commonly defined as those, which do not change the structure, by laws, or operation of the company to the detriment of the shareholders.  Traditionally, these issues include:

Non-Routine Proposals

Issues in this category are more likely to affect the structure and operation of the company and, therefore will have a greater impact on the value of a shareholder’s investment.  We will review each issue in this category on case-by case basis.

As previously stated, voting decisions will be made based on the financial interest of the plan beneficiaries. Non-routine matters include:

Mergers/Acquisitions and Restructuring.
Our analysis will focus on the strategic justifications for the transaction and the fairness of any costs incurred.

Fair-Price Provisions
These attempt to guard against two-tiered tender offers in which some shareholders receive less value for their stock than other shareholders from a bidder who seeks to take a controlling interest in the company.  There can be an impact on the long-term value of holdings in the event shareholders do not tender. Such provisions must be analyzed on a case-by-case basis.

Reincorporating
A company usually changes the state or country of its incorporation to take advantage of tax and corporate laws in the new state or country.  These advantages will be weighed along with any loss in shareholder rights and protections under the laws of the new state or country.

Changes in Capitalization
Our inquiry will study whether the change in necessary and beneficial in long run to shareholders. An example of a change that was neither was at Harcourt, Brace & Jovanich, which took on $3 billion in debt to ward off future hostile suitors and saw the value of its price per share plummet from $44.00 to $0.75. Creation of blank check preferred stock, which gives the board broad powers to establish voting, dividend and other rights without shareholder review, will be opposed.

Increase in Preferred and Common Stock
Such increases can cause significant dilution to current shareholder equity and can be used to deter acquisitions that would be beneficial to shareholders. We will determine if any such increases have a specific, justified purpose and if the amounts of the increase are excessive.

Stock/Executive Compensation Plans
The purpose of such plans should be to reward employees or directors for superior performance in carrying out their responsibilities and to encourage the same performance in the future. Consequently, the plan should specify that awards are based on the executive’s/director’s and the company’s performance. In the case of directors, their attendance at meetings should also be a requirement. In evaluating such plans we will also consider whether the amount of the shares cause significant dilution (5% or more) to current shareholder equity, how broad based and concentrated the grant rates are, if there are holding periods, if the shares are sold at less than fair market value, if the plan contains change-in-control provisions that deter acquisitions, if the plan has a reload feature, and if the plan allow the repricing of “underwater” options.

Employee Stock Purchase Plans
These are broad-based plans, federally regulated plans which allow almost all fulltime and some part-time workers to purchase limited amounts of company stock at a slight discount. Usually the amount of dilution is extremely small. They will normally be supported because they do give workers an equity interest in the company and better align their interests with shareholders.

Creation of Tracking Stock
Tracking stock is designed to reflect the performance of a particular business segment. The problem with tracking stocks is they can create substantial conflicts of interest between shareholders, board members and management. Such proposals must be carefully scrutinized and they should be supported only if a company makes a compelling justification for them.

Approving Other Business
Some companies seek shareholder approval of management being given broad authority to take action at a meeting without shareholder consent.  Such proposals are not in the best interests of shareholders and will be opposed.

Corporate Governance Proposals

We will generally vote against any management proposal that is designed to limit shareholder democracy and has the effect of restricting the ability of shareholders to realize the value of their investment. Proposals in this category would include:

Golden Parachutes
These are special severance agreements that take effect after an executive is terminated following a merger or takeover. In evaluating such proposals we will take into account the salaries, bonuses, stock option plans and other forms of compensation already available to these executives to determine if the additional compensation in the golden parachutes is excessive. Shareholder proposals requesting that they be approved by shareholders will be supported.

Greenmail Payments
Greenmail is when a company agrees to buy back a corporate raider’s shares at a premium in exchange for an agreement by the raider to cease takeover activity. Such payments can have a negative impact on shareholder value. Given that impact, we will want there to be a shareholder vote to approve such payments and we will insist that there be solid economic justification before ever granting such approval.

Super Majority Voting
Some companies want a super majority (e.g., 66%) vote for certain issues.  We believe a simple majority is generally in the best interest of shareholders and we will normally vote that way unless there is strong evidence to the contrary.

Dual Class Voting
Some companies create two classes of stock with different voting rights and dividend preferences.  We will examine the purpose that is being used to justify the two classes as well as to whom the preferred class of stock is being offered.  Proposals that are designed to entrench company management or a small group of shareholders at the expense of the majority of shareholders will not be supported.  Proposals that seek to enhance the voting rights of long-term shareholders will be given careful consideration.

Fair Price Proposals
These require a bidder in a takeover situation to pay a defined “fair price” for stock.  Our analysis will focus on how fairly “fair price” is defined and what other anti-takeover measures are already in place at the company that might discourage potential bids that would be beneficial in the long term to shareholders.

Classified Boards
These are boards where the members are elected for staggered terms.  The most common method is to elect one-third of the board each year for three-year terms.  We believe the accountability afforded by the annual election of the entire board is very beneficial to stockholders and it would take an extraordinary set of circumstance to develop for us to support classified boards.

Shareholders’ Right To Call Special Meetings and Act By Written Consent
These are important rights for shareholders and any attempts to limit or eliminate them should be resisted.  Proposals to restore them should be supported.

Shareholder Proposals

Proposals submitted by shareholders for vote usually include issues of corporate governance and other non-routine matters. We will review each issue on a case-by-case basis in order to determine the position that best represents the financial interest of the plan beneficiaries.  Shareholders matters include:

Poison Pill Plans
These plans are designed to discourage takeovers of a company, which can deny shareholders the opportunity to benefit from a change in ownership of the company.  Shareholders have responded with proposals to vote on the plans or to redeem them.  In reviewing such plans we check whether the poison pill plans were initially approved by shareholders and what anti-takeover devices are already in place at the company.

Independence of Boards and Auditors
The wave of corporate/audit scandals at the start of the 21st Century provided compelling evidence that it is in the best interests of shareholders to support proposal seeking increased independence of boards (e.g., requiring supermajority of independents on boards, completely independent nominating, compensation and audit committees, stricter definitions of “independence”, disclosures of conflicts of interest) and auditors (e.g., eliminate or limit “other” services auditors perform, rotation of audit firms).  A related issue is the independence of analysts at investment banking firms. Proposals seeking to separate the investment banking business from the sell-side analyst research and IPO allocation process should be supported.

Military Conversion
With the end of the Cold War and the collapse of the Soviet Empire, there is a distinct likelihood that the federal government will be reducing its military budget.  This likelihood has prompted shareholders to request that companies that depend heavily on military contracts start planning a transition to civilian contracts.  We will analyze such proposals to see if they are appropriate for the company and proposed in a prudent manner. 

Cumulative Voting
This allows each shareholder to vote equal to the number of shares held multiplied by the number of directors to be elected to the board.  Shareholders can then target all their votes for one of a few candidates or allocate them equally among all candidates. It if one of the few ways shareholders can attempt to elect board members. In studying cumulative voting proposals we will review the company’s election procedures and what access shareholders have to the nominating and voting process.

Confidential Voting
Most voting of proxies in corporate America is not confidential. This opens the process to charges that management pressures shareholders or their investment mangers to vote in accordance with management’s recommendations. We believe the concept of confidential voting is so fundamental to the democratic process and is so much in the best interest of shareholders that we would oppose it only in the most extraordinary circumstances.

Shareholder Access To the Proxy For Director Nominations
Proposals to provide shareholders access to the company proxy statement to advance non-management board candidates will generally be supported unless they are being used to promote hostile takeovers.

Separate Chairperson and Chief Executive Officer
The primary purpose of the board of directors is to protect shareholder interests by providing independent oversight of management. If the Chair of the Board is also the Chief Executive Officer of the company, the quality of oversight is obviously hindered. Therefore, proposals seeking to require that an independent director serve as Chair of the Board will be supported.  An alternative to this proposal would be the establishment of a lead independent director, who would preside at meetings of the board’s independent directors and coordinate the activities of the independent directors.

Term Limit For Directors
Proposals seeking to limit the term for directors will normally not be supported because they can deny shareholders the service of well-qualified directors who have effectively represented shareholder interests.

Broader Participation On Boards
A more diverse board of qualified directors is in the best interests of shareholders.  Therefore proposal requesting companies to make efforts to seek more qualified women and minority group members will be supported.

Greater Transparency and Oversight
Shareholders benefit from full disclosure of board practices and procedures, company operating practices and policies, business strategy, and the way companies calculate executive compensation.  Proposals seeking greater disclosure on these matters will generally be supported.

Executive/Director Compensation
Proposals seeking to tie executive/director compensation to specific performance standards, to impose reasonable limits on it or to require greater disclosure of it are in the best interests of shareholders.  The expense of options should be included in financial statements (as required in Canada).  Financial performance is the traditional measurement for executive compensation—the more specific the better.  Other performance measures can be a useful supplement to the traditional financial performance measurement and are worthy of consideration.  Examples are regulatory compliance, international labor standards, high performance workplace standards and measures of employee satisfaction.

High Performance Workplaces
We will support proposals encouraging the high performance workplace practices identified in the Department of Labor’s report that contribute to a company’s productivity and long-term financial performance.

Codes of Conduct
Proposals seeking reports on and/or implementation of such commonly accepted principles of conducts as the Ceres Principles (environment), MacBride Principles (Northern Ireland), Code of Conduct for South Africa, United Nations’ International Labor Organization’s Fundamental Conventions, fair lending practices and the U.S. Equal Employment Opportunity Commission are in the best interests of shareholders because they provide useful information and promote compliance with the principles.

Pension Choice
There has been a recent trend by companies to convert traditional defined benefit pension plans into cash-balance plans.  This has proved controversial because cash-balance plans often hurt older workers and may be motivated by a company’s desire to inflate its book profits by boosting surpluses in its pension trust funds.  Shareholder proposals giving employees a choice between maintaining their defined benefits or converting to a cash-balance will generally be supported.

Administrative Procedures

The procedures for receipt and voting of proxies by the International Brotherhood of Teamsters proxy voting agent, the Marco Consulting Group, are as follows:

1.  The client notifies the custodian bank to forward all proxies to us.
2.  We track the portfolio to ensure current listing of all securities held.
3.  We track the shareholders meeting dates to ensure that all proxies are voted on time.
4.  We notify the bank of any missing or improper proxies to secure all proxies due the Fund.
5.  We provide a report annually on shares voted and positions taken.  Clients are welcome to contact MCG at any time to find out how we have voted on a particular issue.
6.  The Securities and Exchange Commission (SEC) has expressed concern that proxy-voting agents may have material conflicts that can affect how it votes proxies.  The SEC notes that advisers may render services to a publicly traded company or they may have business or personal relationships with participants in proxy contests, corporate directors or candidates for directorships.  Since we do not render services to publicly traded companies and we do have a comprehensive, detailed proxy voting policy that dictates the overwhelming majority of our votes, it is extremely unlikely that such material conflicts will arise.  If they do, any MCG employee will immediately recuse himself/herself from the analysis/voting of the pertinent issue and our General Counsel will deal with the issue.  If our General Counsel also has a material conflict, he will recuse himself/herself and refer the issue to our President.  If our President also has a material conflict, he will recuse himself/herself and the issue will be referred to MCG’s outside law firm for resolution.
7.  For SEC record keeping purposes, we will retain copies of (i) our proxy voting policies and procedures; (ii) proxy statements received as preserved through access to the SEC’s EDGAR system; (iii) records of the votes we cast as preserved on ADP’s Proxy Edge System; (iv) records of client requests for proxy voting information; (v) documents we prepared material to making a decision on how to vote as preserved on ADP’s Proxy Edge System.