Regulation

After a string of successes in the courtroom through most of last year, the mutual fund industry suffered a setback recently in a federal class action lawsuit which contends that directors lost their independence by earning high pay for serving on multiple mutual fund boards.

Despite heightened awareness within the fund industry and increased scrutiny by the SEC of fund trustee independence, three newly-registered funds have, in recent months, placed individuals whose independence might be questioned, on their boards.

The Investment Company Institute has recommended the SEC tweak proposed rules which would enable fund companies to send only one copy of a proxy statement to a household whose members own the same fund in more than one account.

A class action suit against Dreyfus Corporation of New York will go forward in U.S. District Court in New York. The court dismissed five of eight claims against Dreyfus on Jan. 5. But, the judge allowed three claims to go forward. The remaining claims allege portfolio manager misconduct.

SEC Chairman Arthur Levitt is scheduled to give the keynote address next month at a special conference for independent mutual fund directors in Washington, D.C.

There is a new headache and expense coming for mutual fund companies this year - privacy compliance.

In light of the Securities and Exchange Commission's report that auditors at PricewaterhouseCoopers of New York compromised their independence with their mutual fund and other securities holdings, the SEC might cite other accounting firms for putting their independence in question, said accounting industry lawyers and executives.

The high cost of retaining key mutual fund executives and concerns about lawsuits have produced what may become a common ingredient in mutual fund company acquisitions -

In calculating fund expense ratios, funds may only reduce total expenses by contractual fee waivers or reimbursements, the SEC is reminding fund advisers in its annual, "Dear CFO" letter.

The SEC has made it easier for funds to redeem the holdings of affiliates and large shareholders in securities rather than cash, a move industry accountants and lawyers say should reduce fund costs and ease operational headaches.