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Mutual Fund News

U.S. funds shed light on boards

Reuters News Agency

NEW YORK -- Investors may know of the stock pickers managing their mutual funds, but chances are they don't have a clue about the boards of directors overseeing their portfolios.

Soon that could change in the United States.

Mutual funds for the first time are pulling the curtain back on their directors, the stewards charged with safeguarding investors' interests. Directors now must reveal potential conflicts of interest, like their business ties to fund firms. They must also say how much they invest in the funds they oversee.

That's already leading to some interesting tidbits, with the second-biggest U.S. fund firm, The Vanguard Group, disclosing each of its directors has at least $100,000 (U.S.) in the group's funds, and Rydex Funds saying two of its directors don't own a single share in the firm's portfolios. Some well-known firms like Fidelity Investments and Stilwell Financial's Janus have yet to divulge those kind of details.

Critics worry that directors are only passive advocates for shareholders and are too cozy with management. But funds, forced by new rules to shine light on their boards, may seek out directors who are aligned more closely with investors.

Directors by law must protect the interests of the roughly 88 million investors who own mutual funds -- not the firms that own them. These fund overseers make many key decisions for the funds -- most importantly, whether to approve changes to fund management or the fees that funds charge.

The directors, or their firms, however, sometimes do business with the companies hired to run the funds.

Those links could lead directors to sign off on proposals that favour the firms at the expense of investors, critics say.

Under new U.S. Securities and Exchange Commission rules, funds must ensure that the majority of their directors do not work for the fund and its affiliates. Previously only 40 per cent must have been independent.

© 2007 The Globe and Mail. All rights reserved.

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