Donald Yacktman looked like the winner last week in his proxy fight with the independent directors who monitor the two mutual funds that bear Yacktman's name.

The preliminary results from the proxy vote conducted Nov. 24 showed that shareholders who voted, overwhelmingly supported Yacktman Asset Management's proposals to oust the four independent directors of the Yacktman Fund and the Yacktman Focused Fund. They also voted in favor of electing three new independent directors Yacktman backed and to reduce the size of the funds' board from six to five members.

Before the board members can be ousted and the new slate elected, the vote must be certified by the Independent Inspector of Elections, an independent overseer of proxy votes in the securities industry. It was scheduled to meet Friday, Dec. 4, after this newsletter's deadline, to certify the vote.

Although the totals varied slightly among the three proposals, roughly 90 percent of the approximately 24 million shares voted at the meeting supported Yacktman's proposals, Yacktman and his proxy solicitation firm, D.F. King & Co., said Tuesday. Yacktman said he got his numbers from the independent inspector which also reports preliminary proxy votes.

Although the result among shareholders who voted was clearly in Yacktman's favor, it appeared to represent a relatively narrow margin of victory for technical reasons. Yacktman needed a majority of the vote from all outstanding shares of his funds for his proposals to be approved. The required majority vote for approval was roughly 20,893,000 votes, based on figures reported in the independent directors' proxy statement dated Oct. 19. Yacktman's proposals received between 21.2 and 21.4 million votes.

Yacktman said he was "gratified and very appreciative" of the vote. In an open-end fund, shareholders who are unhappy with a fund adviser can simply redeem their shares and invest elsewhere, Yacktman said. Those who remain do so because they have chosen the adviser to manage their money, he said. The proxy vote reflected shareholders' choice of their fund adviser over the directors, Yacktman said.

"I think people bought this mutual fund because of the manager," he said.

In September, Yacktman and his money management firm, Yacktman Asset Management of Chicago, began an unprecedented proxy campaign to oust independent directors Jon D. Carlson, Stanislaw Maliszewski, Thomas R. Hanson and Stephen E. Upton. Yacktman asked the directors to resign, citing the deteriorating relationship between himself and the directors.

Yacktman contended that the directors had exceeded their proper roles by unduly interfering in the investment process. The directors denied the allegation, and alleged that Yacktman's investing style had drifted from the fund's mandate and damaged investment performance. The dispute also elicited charges about Yacktman Asset Management's business practices and counter-charges about personal friendships among the independent directors.

Last Tuesday, Maliszewski said he was unfamiliar with the preliminary results and uncertain as to the directors' next step in the dispute. He warned, however, that if the proxy contest resulted in the removal of the independent directors, it will have significant consequences for mutual fund governance. Maliszewski said if an adviser ousted independent directors, it would be comparable to an accused "firing the jury" in a trial.

"If we lose, there will be no such thing as an independent director," Maliszewski said. Independent directors "are not going to fight (a fund adviser), they're going to resign," Maliszewski said.

The Investment Company Act, the principal federal statute governing mutual funds, places special duties on independent directors. They must oversee a fund's adviser and make crucial decisions including compensation for the adviser.

Yacktman's lawyer, Richard Teigen of Foley & Lardner in Milwaukee, said broad conclusions should not be drawn from the Yacktman proxy fight. The dispute was about particular differences in the Yacktman funds' management, Teigen said.

Nevertheless, the dispute may offer some lessons about the authority of independent directors, Teigen said. It is relatively easy for directors to remove a fund adviser, he said. But the Yacktman proxy vote suggests that in this instance, the Yacktman independent directors "were really out of step" with the views of the funds' shareholders. Teigen said oversight may work more efficiently if there is a less drastic measure than a proxy fight by which directors can determine shareholders' views on crucial issues such as the firing of an adviser.

"While the independent directors have an important role to fulfill, there isn't a check on them," Teigen said.

There has, in fact, been talk among industry lawyers that the Yacktman dispute, along with other issues pressing fund directors, may result in regulatory changes or Congressional legislation regarding the role of independent directors as provided in the Investment Company Act.

A number of court cases, as yet unsettled, were also initiated in relation to the Yacktman dispute. Yacktman filed suit in Maryland state court as part of the proxy fight, challenging the directors' ability to use fund assets to pay for proxy fight expenses. The SEC, commenting on the matter, said it "seriously questioned" Yacktman's challenge on the issue of expenses and threatened to file a friend-of-the-court brief on that issue on behalf of the independent directors. The independent directors' estimated in an Oct. 19 SEC filing that they would spend $500,000 on the proxy campaign.

A hearing in the Maryland court case is expected this week, Teigen said. He predicted the case would be concluded soon in light of the vote.

Of the proxy vote, Mercer Bullard, assistant chief counsel of the SEC's Division of Investment Management, said only that it has been SEC policy not to intervene in such proxy battles.

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