February 5, 1993
TO: BOARD OF GOVERNORS NO. 10-93
SEC RULES MEMBERS NO. 17-93
RE: PLAINTIFF VOLUNTARILY DISMISSES SECTION 36(b) CASE
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A mutual fund shareholder who filed a Section 36(b) lawsuit
in 1989 against the investment manager to a family of mutual
funds has voluntarily agreed to dismissal of the case. According
to the Order of Dismissal issued by the U.S. District Court for
the Western District of Missouri (a copy of which is attached),
the plaintiff's counsel concluded that "the allegations contained
in the various complaints filed in this action could not be
proved at trial and therefore are not meritorious. . . ." (In an
earlier order in this case, Batra v. Investors Research
Corporation, the court had ruled that the plaintiff, a
shareholder of one fund that was part of a series investment
company, had standing to bring this suit for excessive management
fees with respect to a different series, from which he had
exchanged his shares prior to filing the lawsuit. (See
Memorandum to SEC Rules Members No. 50-91, dated October 17,
1991.)
The attached Order of Dismissal states that the defendants
had provided evidence to the plaintiff pursuant to pretrial
procedures
"tending to establish that defendants have rendered
extensive services of the highest quality to the Fund and
its shareholders; that the Fund's performance has been
superb; that the profitability to the defendants of
managing the Fund is reasonable, not excessive, and well
within the range of industry standards; that defendants do
not realize significant economies of scale in managing the
Fund; that defendants do not receive "fall out" benefits
from managing the Fund; that the Fund's expenses are less
than those of many comparable Funds in the industry; that
the mutual fund industry is highly competitive; and that
the "non-interested" directors of the Fund are people of
the highest caliber and integrity, that they have received
extensive information relevant to their annual
consideration of the Fund's management agreement and were
fully informed about all relevant facts bearing upon the
management agreement, and that they have carefully and
conscientiously performed their duties in considering and
renewing the Fund's management agreement each year."
In view of this evidence, the order indicates, the
plaintiff concluded that if the case were tried, the court would
determine that the compensation received by the defendants was
"reasonable and fair in light of the surrounding circumstances"
and that no Section 36(b) violation had occurred.
The case was dismissed with prejudice and without costs to
any party.
Craig S. Tyle
Vice President-Securities
Attachment