Investors in the $40 million Navellier Aggressive Small Cap Equity Fund may not have to pay the costs of a lawsuit between the fund's adviser and two of its trustees.

According to the fund's investment manager, Navellier Investment Management of Reno, Nev., it does not appear that fund shareholders will be asked to pay the legal costs incurred by the two trustees Navellier sued almost two and a half years ago. The lawsuit, in which Navellier charged that the fund's independent trustees had breached their fiduciary obligation and wasted fund assets, was decided in favor of the trustees in July in San Francisco District Court.

Although lawyers for the two trustees are still determining those expenses, some estimates suggest that lawyers' costs alone could be in the $4 million to $5 million range.

"It is extremely unlikely it (the trustees' legal costs) will become a liability of the fund," said Arjen Kuyper, chief operating officer of Navellier. Instead of seeking to recoup the trustees' legal fees from the individual mutual fund, Navellier will turn to the Chubb Group of Insurance Companies of Warren, N.J. to cover the costs. Chubb provides the indemnification insurance for the Navellier Aggressive Small-Cap Equity Fund, the fund into which the original Navellier Series fund was merged. A spokesperson for Chubb declined to comment on potential claims, noting that the firm does not discuss individual cases.

While the fund's shareholders may not be burdened by the costs, Navellier itself may be facing other bills.

Navellier will have to pay the court costs for the trial, which are likely to amount to about $200,000, said a source close to the fund management firm.

Chubb also declined to comment on whether the insurance company would seek to recoup the lawyers fees it might have to pay by filing suit against the fund management firm.

Navellier still has the option to file for an appeal of the district court ruling although time is getting short, said Paul Finigan of Brobeck, Phleger & Harrison in San Francisco, attorney for Don Simon, one of the independent trustees. Navellier lawyer Sam Kornhauser did not return a call seeking comment. Finigan said he believed Navellier has until Sept. 18 to appeal the court's decision.

Meanwhile, the independent trustees who sit on the board of directors for the successor Navellier small-cap fund may be wrestling with where their loyalties should lie. While independent directors must first protect the interests of shareholders, they must also insure that the investment manager is financially sound because they are responsible for insuring that an adviser can continue to carry out its investment management responsibilities, say trustees of various fund groups.

In the end, the interests of shareholders must come first, these trustees say.

"Independent trustees have one client and only one client - the shareholder," said one former industry executive turned fund trustee. "It is not the independent directors' responsibility to assure the profitability or continued viability of the investment company." Joel Rossman, one of the current independent trustees who provides oversight for the Navellier Performance Funds, declined to comment on the matter. Barry Sander, another independent trustee who serves on the Navellier board, did not return a call seeking comment.

For its part, Navellier is not letting the question of who will pay for the lawsuit detract from the business of managing assets. In June, Navellier Management, an affiliate of Navallier Investment Management, signed an agreement to be the sole sub-adviser to the one-year-old Avalon Capital Appreciation Fund, a series of The Avalon Fund of Ann Arbor, Michigan.

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