Compliance

Changes to Illinois tax law may make the state's 529 college savings plan more attractive to Illinois residents, but they could also inspire other states to try to get residents to favor their in-state 529 plans. If that happens, fund companies that have established a 529 footprint in one state may have to scramble to form alliances with multiple states to get them into their plan.

The mutual fund industry is balking at a proposed new Securities and Exchange Commission rule that would require top executives to personally sign off on each of their funds' annual and semi-annual reports.

A mutual fund advisor that has outspokenly bemoaned the corporate scandals plaguing Wall Street this year, even put its weight behind the movement to leverage fund assets to pressure public corporations into reform, has been fined by the Securities and Exchange Commission for improper disclosure.

Shortly after the Securities and Exchange Commission decided to require top executives of mutual fund companies to certify their firms' financial reports, the commission proposed in an open meeting last week to extend the rule to shareholder reports, as well.

Expensing options could be expensive. While fund industry leaders are calling for uniform expensing of options, some fear such action could drag corporate earnings down by 23% or more. And with the markets as ugly as they have been, now is not a good time to risk further losses, opponents to regulation say.

A number of leading fund companies, Fidelity Investments of Boston and Charles Schwab & Co. of San Francisco included, are resisting a proposal that would require them to make a fund's monthly performance available to investors by the third day after the month.

NEW YORK - A crisis of confidence among investors is worse than many thought, a panel of investment executives hosted by the New York Society of Security Analysts concurred last week.

The mutual fund industry's chief lobby group sent a stern message to the Senate last week, urging it to allow fund companies to provide 401(k) investors with advice as part of the pension reform legislation that lawmakers are now considering.

With lawmakers in Washington calling for Securities and Exchange Commission Chairman Harvey Pitt's resignation, fund executives said the mutual fund industry is likely to support the embattled regulator.

As President Bush laid out a tough new stance last week on the increasing number of accounting scandals that plague Wall Street, fund executives turned their attention to accounting practices. Many executives said that portfolio managers have been too lazy about assessing the risk involved with the stocks they choose.

The mutual fund industry's chief lobby group has sent a letter to a committee of the New York Stock Exchange suggesting that shareholders should have a say in the authorization of stock option plans for workers.

WASHINGTON - In a speech that some thought signaled a get-tough attitude toward the mutual fund industry, Securities and Exchange Commission Chairman Harvey Pitt told executives late last month that the SEC would review distribution fees for mutual funds.

WASHINGTON - Kicking off the 2002 General Membership Meeting of the Investment Company Institute on the heels of recent scandals that have rocked the investment management and accounting industries, ICI President Matthew Fink told fund executives that the mutual fund industry was working hard to protect the interests of shareholders.

The Securities and Exchange Commission may soon change fund performance advertising rules to ensure that investors are better informed about the most recent performance data available.

It doesn't happen very often. But when independent directors who sit on mutual fund boards become the focus of criminal allegations, lawsuits, investigations by the Securities and Exchange Commission or public scrutiny, fund companies and their boards of directors often find they must make an important decision. Should they ask the trustee to resign or stay the course?

Just weeks after Merrill Lynch of New York settled a case with the State of New York to improve its disclosure of business dealings with the companies it analyzes, the New York investment and banking firm faces a smattering of lawsuits.

Mutual funds that are used specifically as investments of variable annuities will now follow disclosure rules more in line with the rest of the fund world.

ORLANDO - Be prepared to get to know your Securities and Exchange Commission compliance officers better. The SEC plans on making longer and, perhaps, more frequent compliance examinations.

Timing is everything.

The U.S. Department of Justice's felony indictment of March 14, which charged Arthur Andersen with obstruction of justice in the federal investigation of Enron, may be causing fund advisers and their boards of directors to take pause and more carefully consider the auditing process for their funds. That is true even where fund groups have never utilized Andersen to audit their funds.