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The original impetus for this research was provided several years
ago by a request to assist Counsel for Fidelity Management and
Research Corporation in analyzing the mutual fund industry, with
particular emphasis on money market mutual funds. We were asked to
focus our efforts on the mechanism by which the advisory fees of
mutual funds are determined. This request arose out of litigation
that challenged the level of advisory fees charged to the
shareholders of the Fidelity Cash Reserve Fund. Subsequently, we
were asked to provide similar assistance to Counsel for T. Rowe
Price Associates regarding the fees charged to shareholders of
their Prime Reserve Fund. 1940, advisers of Under the Investment
Company Act of mutual funds have a fiduciary duty with respect to
the level of fees they may charge a fund's shareholders. Since the
passage of the Investment Company Act, there have been numerous
lawsuits brought by shareholders alleging that advisory fees were
excessive. In these lawsuits, the courts have failed to provide a
set of standards for determining when such fees are excessive.
Instead, they have relied on arbitrary and frequently ill-defined
criteria for jUdging the reasonableness of fees. This failure to
apply economic-based tests for evaluating the fee structure of
mutual funds provided the motivation for the present book, which
undertakes a comprehensive analysis of the economics of the mutual
fund industry.
The original impetus for this research was provided several years
ago by a request to assist Counsel for Fidelity Management and
Research Corporation in analyzing the mutual fund industry, with
particular emphasis on money market mutual funds. We were asked to
focus our efforts on the mechanism by which the advisory fees of
mutual funds are determined. This request arose out of litigation
that challenged the level of advisory fees charged to the
shareholders of the Fidelity Cash Reserve Fund. Subsequently, we
were asked to provide similar assistance to Counsel for T. Rowe
Price Associates regarding the fees charged to shareholders of
their Prime Reserve Fund. 1940, advisers of Under the Investment
Company Act of mutual funds have a fiduciary duty with respect to
the level of fees they may charge a fund's shareholders. Since the
passage of the Investment Company Act, there have been numerous
lawsuits brought by shareholders alleging that advisory fees were
excessive. In these lawsuits, the courts have failed to provide a
set of standards for determining when such fees are excessive.
Instead, they have relied on arbitrary and frequently ill-defined
criteria for jUdging the reasonableness of fees. This failure to
apply economic-based tests for evaluating the fee structure of
mutual funds provided the motivation for the present book, which
undertakes a comprehensive analysis of the economics of the mutual
fund industry.
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