Morgan Keegan Bond Fund Blues

Diya Gullapalli of the WSJ has reported that Investors in Tennessee filed a federal lawsuit seeking class-action status against Morgan Keegan Asset Management Inc. over two mutual funds that are among the hardest-hit in this year’s credit chaos.

Fund managers and others on Wall Street will be closely watching this case and others that are expected to be filed, as investors take losses from the credit crunch.

At issue are the Regions Morgan Keegan Select Intermediate Bond Fund and the Select High Income Fund, which are down 47% and 56%, respectively, so far this year. The suit alleges, in part, that the funds misrepresented or failed to disclose material facts relating to the risks and ease of trading for certain securities in the portfolios.

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