You've probably read and heard a lot in the last few days about proposals by the Securities and Exchange Commission's Division of Investment Management to reform the way the mutual fund industry does business under the Investment Company Act of 1940.
The attention given these proposals is not surprising for at least four reasons:
* A major revision of the 1940 act would be an event. There hasn't been one since 1970.
* Now that mutual funds are owned by one out of four U.S. households -- and by a large number of institutional investors as well -- interest in funds is widespread.
* They are the product of a two-year comprehensive review of fund regulation by an SEC task force, which sought and analyzed comments of the Investment Company Institute, individual fund companies, brokerage firms, lawyers, academic researchers and many others.
* They have been accorded a high priority by SEC Chairman Richard C. Breeden, who requested the study shortly after taking office in October 1989.
When all is said and done, though, how much will the key proposals affect you as a present or prospective mutual-fund investor?
For the near term, not much.
Depending on whether they involve legislation or regulations, the division's proposals have to be considered and approved by Congress or by Breeden and members of the commission. Whether Congress would still act in this election year is doubtful. Presumably, the SEC may take some actions.
Over time, some of the recommended steps could help improve your investment results if they succeed in helping to hold down the costs you bear -- but they would have no impact, of course, on how well your portfolio managers do their jobs, which often matters even more.
They also could complicate your already challenging task of fund selection by contributing to the proliferation of choices.
Enactment cannot be assumed, however.
The proposal likely to generate the most heat is the one that would repeal the stipulation requiring that fund shares be sold at the public offering prices described in prospectuses.
For no-load funds, which are marketed directly by fund companies, the prices are the net asset values. For funds sold by sales forces, such as those that account for 85.9 percent of the assets of U.S. government income funds, they include front-end loads -- sales charges at the time of purchase -- that may run as high as 8.5 percent.
Ending retail price maintenance would result in broker/dealers establishing ranges of possible loads -- price competition to benefit investors, in the task force's view. Those who believe it would harm investors and the industry will be heard from.
The task force recommended that the SEC permit funds to issue multiple classes of shares in single portfolios that would go beyond the dual pricing structures (Class A, or front-end load, and Class B, or back-end load, charged when mutual fund shares are sold by an investor) that are becoming increasingly common.
It also proposed creation of a new investment vehicle, a unified fee investment company that would closely resemble no-load funds. It would have a single fee -- no sales charges or redemption fees -- which would be prominently displayed on the cover page of each prospectus. It would not have a 12b-1 distribution fee.
Of all the recommendations affecting your interests as a shareholder, perhaps none is more important than the requirement that independent directors should constitute a majority of a fund's board (instead of only 40 percent), name their own successors and be able to cancel a fund's investment advisory contract at any time.
Whether fairly or not, observers have questioned just how independent these directors could be in, among other things, evaluating a fund's contract with its investment adviser, the sponsor of the fund that had named the independent directors in the first place.
"Measures that enhance the independence of independent directors, if they can be undertaken without undue expense, are consequently desirable," the task force report said.
The task force didn't get into other matters of investor interest, such as proposals to require funds to disclose the names of portfolio managers (and others who contribute investment advice) and to require fund managements to discuss and analyze fund performance in reports to shareholders.
Industry and public comments on these topics were solicited at the same time as comments on reform of the 1940 act but were put aside until completion of the study.
The Division of Investment Management "most likely" will return to these items "one of these days," Director Marianne K. Smythe says.