With shareholder activism and corporate governance such a hot topic lately, MFMN set out to discover what's driving shareholder proxies these days, and what kind of response rates they're getting.

It turns out that merging and liquidating funds is the key driver, according to leading proxy tabulators and solicitors.

In the past, the hot-button issue has been lifting investment restrictions.

Why the shift?

"There was a proliferation of funds," said Peter C. Suhr, EVP of sales and marketing for Alamo Direct of Hauppage, N.Y.

"Everybody came out with every sort of fund they could imagine. Now, they're looking for efficiencies," Suhr said.

Suhr said he has noticed the shift in the last year. Prior to that, he said, the emphasis of shareholder proxy votes was easing or lifting investment restrictions, particularly with respect to "inter-fund lending and concentrations of portfolios."

"Companies said the market was robust' back then," Suhr added. "To drive for more returns, they needed to have more flexibility in what the portfolio manager [could] do. Most [succeeded in] lifting restrictions. Now you're seeing the merger and clean-up of products that didn't work in the long-run."

And today, those ballots concerning fund consolidations often involve tax-free funds and bond funds seeking to achieve economies of scale, Suhr said. By combining or liquidating funds, investment companies often lower administrative, operations, advisory and trading costs. "Anything with less than 20,000 shareholders - people are taking a good hard look at," he said.

Robert Brennan, senior vice president with Georgeson Shareholder Com-

munications, New York, agrees. "The hot proposals are reorganizations," he said. "It's just constant. A number of funds are rationalizing their product lines as assets continue to dip down. Over the last year, we've probably done several hundred."

Meanwhile, Brennan said, it has become much harder to obtain the greater than 50% response-rate that generally is required on proxy votes. "Typically, on the first mailing, only a low 20% to 25% of the outstanding shares participating come back unassisted. We're employed by firms to go out and use active phone campaigns to get additional participation."

"General shareholder apathy is at an all-time high. A lot is associated with the big market declines. People are frustrated and uninterested," he said.

Read Their Lips: No New Fees

The issue that is most challenging for fund companies to get adopted, Brennan said, tends to be fee increases. "But there haven't been that many fee increases in the last six months."

As far as the preferred method of voting is concerned, Suhr estimates that 8% to 13% of shareholders vote online. "It's been pretty consistent over the last three years," he said.

Michael Collins, director of account management for ADP Corp. of Edgewood, N.J., said that getting the shareholder to vote online via proxy presents a greater opportunity to get that shareholder to receive semiannual and annual reports electronically. That has been a major objective of fund groups, which have been seeking to lower mailing and telephone servicing costs.

Collins also noted that 3% to 6% of shareholders through banks and brokerages have consented to electronic delivery of periodic reports. With some fund groups, he said, the figure is as high as 10%.

Some complexes, he said, have as many as 10% to 20% of their shareholders using the Internet.

The consents to obtain electronic delivery of periodic reports is significantly higher among Internet users, about 20% to 25%.

"We do ask each and every shareholder who has voted through the Internet if they would like to receive information electronically," Collins said.

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