Regulation

Recommendations outlined in the Securities and Exchange Commission's April 30 valuation letter will create logistical challenges for small- and mid-sized fund companies and raise questions as to when fund boards should use fair value pricing, according to industry lawyers and observers.

The Internal Revenue Service has denied the request of the Investment Company Institute of Washington, D.C. to include the tax treatment of fund launch costs in its 2001 Priority Guidance Plan to finally resolve the issue. The ICI still hopes the issue will be considered this year, but it is clear that since the IRS left it out of its business plan, it is not one of its top priorities.

Efforts on the part of the Vanguard Group of Malvern, Pa. to develop an exchange-traded share class may have been defeated last week after a U.S. District Court decision prohibited Vanguard from offering the new share class using its S&P index funds, according to industry observers.

NASD Regulation, the regulatory arm of the National Association of Securities Dealers of Washington, D.C., announced last week that it had censured and fined asset manager Stifel, Nicolaus & Company of St. Louis and two individuals in connection with the illegitimate sale of class B mutual fund shares.

The fund industry is concerned that evolving interpretations of the act which authorizes the use of electronic signatures in commerce will inhibit the mutual fund industry's use of the Internet. The Investment Company Institute outlined its concerns in a letter to the Federal Trade Commission last month.

A lawsuit filed April 2 in a Delaware state court could decide if a closed-end fund's board of directors acted properly in setting strict guidelines as to who qualifies for nomination as a fund board director, or if the guidelines were established to thwart shareholder activism and impede investors' rights.

President Bush's budget proposal for fiscal year 2002 proposes staff reductions in several areas of the Securities and Exchange Commission, including in the office of investment management which oversees mutual funds, according to an SEC document.

The first wave of privacy disclosures are appearing in mutual fund prospectuses and first quarter 2000 account statements being mailed to fund investors.

The Investment Company Institute of Washington D.C. has taken the unusual step of submitting a follow up letter to an earlier request that the Securities and Exchange Commission regulate portfolio products like mutual funds.

Laura Unger, acting chairman of the Securities and Exchange Commission, announced in a speech before the Philadelphia Bar Association late last month that the SEC's staff is working on an interpretive bulletin which will emphasize that technical compliance with Rule 482, the advertising rule, will not protect firms from charges of fraud. Unger said the bulletin will also point out that it may be necessary to provide investors with additional facts, which give investors an accurate picture of a fund's performance in order to avoid running afoul of anti-fraud provisions.