Law and regulation

They may be late to the party, but they seem to be making up for lost time.

The question may not be how independent mutual fund boards should be, but whether investors would be better off without fund boards altogether.

PALM DESERT, Calif.-Fund boards have a duty to shareholders to act as fiduciaries, but how much responsibility should fund directors have, and are they overloaded?

* Increased contribution limits: Maximum annual contributions will increase from the current cap of $10,500 to $11,000 in 2002 and will increase in increments of $1,000 until 2006 when they will hit $15,000. After 2006, maximum contributions will increase in increments of $500 based on cost-of-living increases.

The board of trustees of the closed-end Swiss Helvetia Fund announced last week that it would allow investors to vote to approve or reject a series of changes to the fund's by-laws that the board had authorized last year.

Despite a difficult market last year for mutual fund investors, independent fund directors awarded themselves an 11 percent average pay raise in 2000. That represents the largest compensation gain in the past eight years, according to Management Practice, the New York consulting firm that specializes in the governance of mutual funds and annually surveys independent mutual fund directors' compensation.

Shareholders of the $27 million Matthew 25 Fund have voted down, by more than a five to one margin, a proxy proposal that would have required both inside and independent directors to invest at least $25,000 in the fund as a prerequisite to serving on the fund's board. (MFMN 10/2/00)

In an effort to establish a greater level of board independence, the trustees of the Putnam Funds of Boston last week passed over George Putnam III for the chairmanship and instead named John A. Hill chairman, said Laura McNamara, a company spokesperson.

The Allied Owners Action Fund, managed by Privateer Asset Management of New York, has targeted a second company under its shareholder activism mandate - Comshares of Ann Arbor, Mich. The fund accumulates stakes in companies it believes are undervalued and then rallies shareholders to press management for changes in hopes of increasing the value of the company's stock. The non-diversified Allied Owners Action Fund, which was introduced March 9, announced the new target company on its website June 2.

Thirty-four percent of investment management companies share customer data with non-affiliated parties, indicating that investment companies may have to hold these partners up to strict confidentiality standards, according to a survey by KPMG LLP of New York.

The Investment Counsel Association of America of Washington D.C., has proposed a code of ethics for investment advisers regarding their contributions to politicians.

Almost two-thirds of Americans have not garnered substantial gains from the stock market surge and 10 percent say their stock gains will provide enough for early retirement, according to a recent survey by Keyport Life Insurance Co.

Mutual fund directors do a good job monitoring fund advisers on matters required by law but should expand their oversight in several ways, a recent SEC examination of fund directors' practices suggests.

Shareholders of the closed-end Central European Value Fund can expect to see major changes over the next few months.

Palm Desert, Calif. - The occasional practice of mutual fund directors serving on more than one fund complex poses troubling conflicts that are best avoided, according to two seasoned industry participants.

Lens Investment Management of Portland, Maine has nominated yet another director for the board of The Pioneer Group of Boston, Lens Investment Management announced today. Lens owns approximately 4.1 percent of Pioneer's stock.

Phil Goldstein - the closed-end fund investor, fund director and leader of proxy fights - is running for the board of directors for the Italy Fund. Goldstein, president of Opportunity Partners LP of Pleasantville, N.Y., plans to spend $30,000 in a campaign to persuade shareholders to elect him and fellow Italy Fund investor Glenn Goodstein of Encino, Calif., to the board. Goldstein also is asking shareholders to vote in favor of opening the Italy Fund, according to the proxy statement. Such a move will eliminate what Goldstein described as chronic discounts to the fund's net asset value.

First Financial Fund, the closed-end fund administered by Prudential Investments of Newark, N.J. and advised by Wellington Management of Boston, is apparently shoring up its defenses to ward off advances by Stewart Horejsi, a shareholder activist. Horejsi has been purchasing fund shares with an eye toward possibly taking a more active role in the management of the fund. (See related story page 8)

A proposal to merge the open-ended Global Small Cap Fund of New York with the open-ended PaineWebber Global Equity Fund, won approval Jan. 14, despite efforts by shareholder activists to delay the vote until their own opposing proxy was considered.

Deep Discount Advisors of Asheville, N.C. has submitted to the SEC an opposing proxy statement to replace the directors of the Global Small Cap Fund of New York, despite what appears to be an attempt by the fund to ignore the proxy, according to SEC filings.