Vanderbilt Law Review

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The proposals of this note, the thrust of statutory regulation, the trend of the case law and the direction of recent developments are all consistent. In a practical sense, the suggestions here attempt to provide a reasonable source of law for the men of the industry and for the courts in search of an authoritative system of behavioral standards. If, for example, a mutual fund has enjoyed such vigorous growth that the percentage fee now charged by the advisers has lost its relevance to the actual cost of management, the disgruntled shareholder or the apprehensive director would seek information on potential law suits. They would first turn, no doubt, to the Investment Company Act to determine whether the statute specifically imposed any duties that might be violated. Finding none, the interested party would, under the proposals of this paper, then turn to duties created by implication under the Investment Company Act or duties created by trust law. Having determined that such duties arguably exist, the party, to establish the scope of these duties, would then look to trust standards in the absence of controlling case law under the statute. Utilizing the principles of trust law under the theories set forth in this note, the shareholder might then build his brief, or the director govern his actions, on the basis of such law to the extent that it provides reasonable solutions. Suit could then be brought in conformity with the procedural requirements of standard corporation law. This technique, derived from rational analysis of the participants,emphasizes the best aspects of both predictability and fairness, and as such is worthy and capable of bracing the newly developing mutual fund law until such time as it has the strength to stand on its own. Once this point is reached, there will no longer be a need to borrow halfway relevant law from other sources or to run the risk of misdirection implicit in the utilization of law in an area for which it was not promulgated. But, until that time, it is senseless not to apply all the relevant learning possible to problems analogous to those about which substantial law already has been developed. It has been the purpose of this note to demonstrate the utility of this device for the mutual fund.