Compliance

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.

Warning: A large diet of initial public offerings may be hazardous to your investment health.

The SEC is prepared to look back before Dec. 8 to sue mutual fund companies if the agency finds apparent violations of the pricing policies outlined in a letter the agency issued last month.

The SEC is considering a rule change that could save mutual funds millions of dollars each year by creating a new, abbreviated mutual fund document that would take the place of lengthy fund prospectuses under some circumstances.

Mutual fund advisory firms have a troubling conflict of interest that may cause them to pull their punches in some proxy votes, according to SEC Commissioner Paul R. Carey.

The two-and-a-half-year-old struggle between Navellier Investment Management of Reno, Nev. and two former independent fund directors is once again heating up with lawsuits being filed by both sides. Navellier has filed a new lawsuit against one former fund trustee who has reciprocated with his own lawsuit. A second former trustee is contemplating filing a similar lawsuit.

A recently enacted Maryland law that makes it more difficult to challenge the independence of fund directors in court is under attack.

The SEC may be overdoing it in its preparations for the computer-programming transition to the year 2000, according to some mutual fund operations executives.

The process of valuing the securities in a mutual fund's portfolio - often an imprecise task - may require more work from now on for some fund companies and fund directors.

Deep Discount Advisors of Asheville, N.C. has sent a protest letter to the SEC charging that the Global Small Cap Fund of New York is trying to prevent Deep Discount from introducing a proxy vote to elect a new slate of directors for the fund.

The SEC is expected to issue guidance soon on how mutual funds should value their securities, an issue of critical importance to the fund industry that the SEC has not systematically addressed in more than 25 years.