Fidelity Investments, the world's largest mutual-fund company, is being sued over losses linked to investments in subprime mortgage-backed securities made by its Ultra-Short Bond Fund.
Fidelity made "misleading or inaccurate'' statements in the bond fund's registration documents, investor Alan Zametkin said in a complaint filed June 5 in U.S. District Court in Massachusetts. The fund has fallen 6.8 percent this year and 13 percent in the past 12 months.
Fidelity's is at least the second ultra-short bond fund sued over subprime-related losses. San Francisco-based Charles Schwab Corp., the largest U.S. online broker, faces eight proposed group lawsuits from investors in its YieldPlus Fund, which is down 32 percent in the past year, compared with an average decline of 1.2 percent for similar funds.
Ultra-short bond funds invest in corporate, mortgage-backed and government securities with maturities of one year or less. The $330 million Fidelity fund's subprime-backed holdings were rated AAA and AA, the highest investment-grade levels, Loporchio said. All ultra-short bond funds faced ``an unusually challenging market environment over the past 12 to 18 months,'' he said.
The complaint, which seeks class-action status, says Fidelity failed to inform investors adequately about the risks associated with the fund's holdings in mortgage-backed securities. The fund invested "nearly two-thirds'' of its assets in subprime-backed investments, according to the complaint, first reported yesterday by the Wall Street Journal.
The case is Zametkin v. Fidelity Management & Research Co., 08-CV-10960, U.S. District Court, Boston.
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