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Ready or Not, Here Come E-Statements

Communicating electronically with investors in place of paper-based mailings is no longer just a pipe dream. Many fund advisors are hard at work transforming fund investors from being entirely paper dependent to embracing electronic versions of annual reports, updated prospectuses, proxy materials and even transaction confirmations and quarterly account statements.

Electronic documents save significant print and postage costs for fund companies and may even result in improved relations with investors. A study by DST Output of Kansas City, Mo., a provider of electronic communication solutions, indicates that 40% of investors who opt for e-documents are likely to stay with the same fund group.

But not every fund group has moved into the electronic format arena yet. Nor have fund investors overwhelmingly embraced this natural evolution.

According to kasina, a New York-based technology consulting firm serving the financial services industry, only 23% of all mutual fund companies currently offer investors e-documents. However, of the top 20 fund company Web sites that kasina cited in 2001, 70% offer electronic documents.

And on the receiving side, most mutual fund investors still have not embraced the e-document option. Across the industry, kasina estimates that only 2.5% of all fund shareholders have opted to receive paperless fund documents. But that number is expected to increase.

Here's how e-documents work. Printed fund documents are converted into an electronic PDF, HTML or XML file, then stored at a fund group's proprietary Web site. To begin receiving documents electronically, however, investors first have to register their fund account information,

e-mail address and a password.

When new documents or account statements become available, investors who have registered at the Web site to receive electronic documents are sent an e-mail that includes a special, hyperlinked URL. Once investors click on the hyperlink, they are zapped to the fund's special Web site page, where they must first sign in with their user name and password.

Convincing Investors

Fund companies are finding they must significantly ramp up efforts to sell investors on the benefits of receiving electronic documents over their paper-based equivalents, while acknowledging that a percentage of investors, those seen as diehard paper fans, may never accept the switch.

Liberty Funds of Boston, which has been offering electronic versions of its fund compliance documents, most notably annual reports and prospectuses, puts a message in the front of its funds' annual reports to compel investors to sign up. "See what the top of your desk really looks like. Introducing Liberty e-Delivery," the blurb reads.

Liberty has delayed its initiative to also offer e-statements and electronic confirmations until Liberty's four fund group Web sites can be consolidated into one site later this fall, said Jeanne Ferullo, vice president and director of e-commerce marketing. Right now, 10% of Liberty's investors who have registered to at least view their accounts online have also enrolled for

e-delivery of compliance documents, and the company eventually expects to have 25% of shareholders enrolled to receive

e-statements, Ferullo said.

Calvert Group of Bethesda, Md., began offering e-compliance documents 18 months ago and now has 15,000 investors who have opted in, which represents 15% of its online investors. At the beginning of 2002, Calvert began offering e-statements. It now has 2,000-plus investors signed up, which represents 1.5% of Calvert's online investors, said Karen Becker, senior vice president of shareholder services.

Becker said she needs an overall 12% sign-up rate to break even. Eventually, however, she expects 50% of investors will request electronic documents. Calvert plans to add e-confirmations in September and electronic year-end 1099 tax statements in January.

INVESCO Funds of Denver claims its e-document adoption rate now runs between 15% and 16% of online investors. These investors now receive electronic prospectuses, annual reports, account statements, confirmations and, starting last month, INVESCO's quarterly shareholder newsletter, said Terry Berg, vice president of marketing communications and e-commerce.

INVESCO proactively seeks investor consent with a pop-up online message. It also prints a teaser on the envelopes it uses to snail mail documents, reading, "You can receive this document online. Register your account now."

More than 37% of investors at American Century Investments of Kansas City, Mo., have opted for e-documents and that number continues to increase steadily, said Beth Randolph, a company spokeswoman.

Challenges and Benefits

Despite high expectations, some fund groups are grappling with difficult issues. They include how to format e-documents, how and when to secure consent from investors to accept only electronic versions, and what to do with abandoned e-mail addresses.

Most fund groups will stop sending an

e-mail message if a message bounces back after three attempts. Fund companies then write to investors and ask for an updated

e-mail address. But funds also look for other opportunities to update e-mails. At American Century, e-mails are routinely checked when an investor calls an account representative for any reason, Randolph said.