Very few U.S. mutual funds put their investors first, and funds from big ones such as Fidelity Investments and Federated Investors lag in governance rankings because of weaker boards or corporate culture, a study found.

Morningstar, the leading mutual funds research firm, said in a report that of more than 1,000 funds graded for their stewardship, just two earned perfect scores and only 6 percent got 'A' grades while 70 percent got 'C' or lower.

Each fund is graded A to F and scored 1 to 10 based on the parent firm's overall culture and regulatory history and on the quality of the fund's board of directors, how its managers are compensated, the extent to which managers invest their own money in it, and the fees it charges.

Firms with the strongest corporate cultures consistently place fund-shareholder interests first, Laura Lutton, senior mutual fund analyst and head of the Stewardship Grade committee at Morningstar, wrote in the report, citing asset manager T. Rowe Price as a shining example.

Many of its funds earn overall A grades because the firm's corporate culture puts fund shareholders first, its manager-compensation plan hinges on long-term performance, and most of its funds are reasonably priced, Lutton wrote. T. Rowe's 65 funds tracked by Morningstar were rated A on average.

Of the funds, only the Clipper Fund and the Selected American Shares, both managed by Davis Advisors, scored 10. Davis' 7 funds were rated A on average.

But funds of Federated Investors suffered from weaker corporate culture and 21 of its funds were rated F on average, Morningstar said.

Federated said it was puzzled with Morningstar's analysis.

We continue to deal with some of the biggest institutional clients and corporate fiduciaries around the world who have invested significant amounts of money in our firm. Our firm is growing with major clients who trust us to manage money for them and their clients, said Tom Territ, president of Federated Securities Corp.

Fidelity Investments, the world's biggest mutual fund firm, saw 164 of its funds rated C on average. Morningstar said this was because Edward Johnson was chairman of both the funds and the firm.

In the past, the fund family has been slow to close some of its most successful funds, and we wonder whether an independent chairman would have been a stronger advocate for keeping assets in check to protect the funds' existing shareholders. Johnson directly benefits from asset growth because it leads to more revenue at Fidelity, Lutton wrote.

Fidelity spokesman Vin Loporchio said more than 75 percent of the funds' trustees are independent. The independent trustees can exercise their freedom of choice and informed business judgment to appoint any individual of their choosing to serve as board chairman, he said.

Loporchio also said Fidelity has closed a number of funds over the years and knows when such a step is appropriate.

Funds from Putnam Investments, AIM Investments, AllianceBernstein and Janus Capital are among funds that had their grades reduced because they have had serious regulatory violations in recent years, Lutton wrote.

The four firms were involved in the mutual funds trading scandal that started in 2003.

It is unfortunate that regardless of extensive changes by Putnam since 2003 to put shareholders first, the regulatory issues of the Morningstar system so strongly weights past issues in its overall stewardship ranking, company spokeswoman Sinead Martin said. (Reporting by Muralikumar Anantharaman)