The year 2001 could be the year of more information for mutual fund investors as some key rules proposed by the Securities and Exchange Commission are set to go into effect in the next few months.

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Before SEC Chairman Arthur Levitt steps down in February, he and his staff are expected to pass a number of proposals into early next year that could change the way many investors choose their mutual funds. Though the identity of Levitt's successor is as yet unknown, SEC watchers say they expect the commission to pick up where the current administration left off in discussing new proposals that will benefit mutual fund shareholders.

As for the immediate future, the SEC is expected to enact a number of rules that will focus on issues such as reporting after-tax performance, fund names accurately reflecting their holdings and the independence of fund directors.

As early as next year, mutual-fund holders could start seeing performance numbers represented on both a pretax and after-tax basis. Concerned that investors might not fully comprehend the impact that taxes could have on their returns, the SEC has proposed that fund firms show the fund's return both assuming that the shareholder continued to hold his or her shares at the end of the period and assuming the shareholder sold his or her shares at the end of the period, realizing taxable gain or loss on the sale.

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To show investors the worst-case scenario, the SEC has proposed that funds use the highest possible tax rate of 39.6% to illustrate the impact of taxes. But that could be changed before the rule is finalized, as many critics charge that this rate is not reflective of the average investor's experience.

"The main concern is that it may not be representative of the actual experienced return on the part of investors," said

Lipper's

director of research Ed Rosenbaum at a recent news conference.

The so-called "names" rule, which requires funds to invest in 80% of their portfolio in securities that their name suggests instead of the current 65%, is another rule on tap for the next few months. Although that percentage falls short of what some groups were looking for (the

National Association of Investors Corp.

was hoping for an 85% requirement) most agree that the rule is a step in the right direction of investor awareness.

Another rule close to completion is one that would require investment companies to have independent directors comprise at least a majority of their board of directors and to require those directors' legal counsel to also be independent.

Apart from those fund- holder friendly rules, the commission is also expected to consider proposing some new rules that are near and dear to many mutual fund investors' hearts. Among those topics is a controversial proposal to get mutual funds to disclose their holdings more frequently.

"We're looking at all shareholder communications in general," says Cindy Fornelli, senior adviser to the SEC's director of the division of investment management. "As technology evolves, we want to step back and see if share holders are getting the proper mix of information in terms of both quality and quantity."

Mutual fund companies are currently required to report the contents of their portfolios twice a year, but many investor advocate groups, including the NAIC, the

Financial Planning Association

and Mercer Bullard, founder of advocacy group

Fund Democracy

and a frequent contributor to

TheStreet.com

, are spearheading a movement for more frequent disclosure.

The controversy stems from how useful more frequent information would be to investors. Most advocates of the move are looking for mutual fund firms to disclose their holdings monthly with a 60-day time lag. But mutual fund industry groups argue that more frequent disclosure could undermine a fund manager's strategy. That is, if everyone knew what a portfolio manager was trying to do, other investors could try to front-run the manager by trying to buy the same stocks.

Further, the

Investment Company Institute

argues that many people who invest in mutual funds don't necessarily want to know what their mutual funds are doing at every moment, and those that do, have a large array of mutual funds that already disclose their top holdings monthly to choose from.

"We think that the shareholder's interest is adequately served now," says ICI spokesman John Collins.

Not surprisingly, investor groups disagree, saying that more frequent disclosure can only be useful in helping investors make more informed decisions.

"In this age of technology, it's hard to envision why mutual fund companies won't disclose on a more frequent or a more timely basis. It gets in the way of progress," says Ray Ferrara, a certified financial planner in Clearwater, Fla., and a national board member of the Financial Planning Association.

Other issues that may be proposed for rulemaking next year include requiring mutual funds to show investors how much in dollars they would have paid in expenses at the end of set time periods, using the fund's actual returns. Right now, mutual fund firms show expenses in percentage terms based on an investment of $10,000 and an assumed return of 5%.

More accurate mutual fund advertising will be another priority for the commission in 2001, adds the SEC's Fornelli, who says the commission will be looking at issues such as how often mutual fund companies should update their year-to-date performance in their ads, for example.

The SEC also plans to look into changes to an act that governs transactions between affiliated parties, such as a brokerage and a mutual fund owned by the same conglomerate.

TheStreet.com's

Bullard recently wrote how the

Heartland Advisors

municipal bond fund debacle this year shows the need for tighter affiliated transaction

rules.

Of course, the effectiveness of some of these changes will largely depend on how much investors use the information. But investor groups say they welcome any moves toward breaking down some of the walls that surround the mutual fund industry.

"Our membership -- these folks are hungry for information," says Dennis Genord, manager of the NAIC's mutual fund education program. "They're an exceptional bunch of investors and anything that could help them make an informed investment decision in their eyes is positive."