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In the newsletter I received from Vanguard, it stated that it's
mutual fund money is set up by seperate trust entity, it's board
member and employee have no way to tab the customer fund. IN the case
of fraudent or fund company bankruuptcy etc, customer fund will be
fully protected.
I didn't know how the mechnism work, however, I do believe there
must have some regulation by SEC to the mutual fund industry.
In the meanwhile, I'm full wind ahead with mutual fund investment.
Michael... (Janus/20 is up another .50/share)
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| You can loose money in mutual funds because of:
1. market risks
2. misrepresentation by brokers (eg: First Investors junk bond funds)
3. high fees and
4. out right theft.
Because the mutual funds are closely regulated by the SEC as well as the
states the probability of #4 occurring is extremely low. In many cases, the
securities themselves are held by trust company. For example, the PAX
fund uses State Street Bank as custodian.
In addition, the operations are closely monitored by the auditors.
Finally, mutual fund officials are bonded. According to a statement by
Arthur Loring, general counsel for Fidelity, FMR officials are bonded for
$100 million. For Vanguard, the number is $70 million.
Of course, given that the assets of these funds companies are in the
100+ billion range, $100 million would not cover a theft on a grand
scale.
Gim
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| I had some shares in United Services Prospector Fund. One of the
buyers for the fund violated rules on fractions of companies owned
and did some other semi- or non-legal acts.
Over the last few years I have gotten various compensating payments,
due to things like United Service's "errors and omissions" insurance,
sucessful lawsuits against the criminals, other insurance, sell-offs
of the incorrectly-acquired shares and so on. The most recent letter
claimed that they have recovered a lot (possibly over 90%) of the
lost money.
It is clear to me that though bad things can be done, there's a lot
of structure in place to detect and correct.
-John Bishop
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