BOSTON - A federal court judge here appears likely to substantially reduce and perhaps dismiss a lawsuit which challenges the independence of Fidelity Investments' mutual fund directors.

U.S. District Court Judge Patti Saris said there appears to be no law which supports investor Richard Krantz's effort to challenge the fees Fidelity charges all of its funds when Krantz owns shares of only two Fidelity funds, Equity Income II and Value. Saris also repeatedly expressed doubts about allegations that Fidelity's directors lost their independence because of the fees they received for serving on the boards of trustees of more than 200 Fidelity funds.

"I'm not willing to jump there," Saris said in response to allegations that directors' receipt of more than $200,000 in compensation destroyed their independence from Fidelity.

Saris made her comments during an hour-long court hearing last Wednesday. Fidelity had asked Saris to dismiss the case which Krantz filed against the firm and its affiliates in September. Krantz wants Fidelity to repay all of the fees it received for managing all Fidelity funds from September, 1997 to September, 1998.

Saris' final, written ruling on Fidelity's request to dismiss the case could take weeks. If she limits the case to Fidelity Value and Equity Income II, it would substantially reduce the potential fees Krantz could recover.

It was unclear precisely what the two funds paid Fidelity between 1997 and 1998. In its court papers, Fidelity argued that the expenses of the funds had decreased steadily since 1993 and were only 0.66 percent of average net assets for Value in 1998 and 0.68 percent of average net assets for Equity Income II over the same period.

At the hearing, Joel Feffer, Krantz's lawyer, agreed to limit the case to Value and Equity Income II. Krantz's suit against Fidelity is one of five similar cases shareholders have filed against firms which advise mutual funds. Judges thus far have dismissed three of the five cases - claims against T. Rowe Price Associates, BlackRock Financial Management and Credit Suisse Asset Management. (MFMN, 4/5.) Cases against Prudential Investments and Fidelity are pending.

Fidelity's lawyer, James Dittmar, argued last week that Krantz had offered no evidence that either the Fidelity directors had lost their independence or that Fidelity's fees were excessive, another allegation in Krantz's case.

"What you have in front of you is a (complaint) that has zero in it," Dittmar told Saris. Saris said she could find no court decisions which held that serving on more than one fund board in the same fund complex necessarily destroyed a director's independence.

She also rejected as a "semantic nuance" Feffer's argument that language in Fidelity's SEC filings conceded that independent directors were affiliated with Fidelity because of their multiple board service.

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