In a long-awaited move, the Securities and Exchange Commission Tuesday approved rules requiring mutual fund companies to tell investors about any market-timing in their funds as well as regulations about fair-value pricing of funds and disclosing their portfolio holdings.

Market-timing, the rapid buying and selling of fund shares, isn't technically illegal, but some funds say they prohibit it in their prospectuses. Last fall, a series of revelations about market-timing badly shook the $7.5 trillion mutual fund industry and left the practice widely discredited. The total costs of undisclosed market-timing arrangements at a slew of mutual fund companies hasn't been accurately tallied, but some estimates suggest longer-term investors saw the value of their shares diluted by billions of dollars.

The rules take effect Dec. 5 and mark the first stage of the regulatory and legislative cleanup of the mutual fund industry, as well as the variable annuities business, which uses insurance products to invest in a manner similar to mutual funds. An SEC statement said the new rules were "designed to improve transparency of policies and procedures of mutual funds and variable insurance products with respect to market timing."

"I think these are positive steps in the right direction," said Kunal Kapoor, director of mutual fund research at Morningstar. "But these are just the first steps, and the SEC needs to tackle some of the tougher questions."

The new regulations will require a mutual fund to describe in its prospectus the risks of market-timing to other shareholders and state whether the fund's board of directors has adopted policies and procedures with respect to frequent purchases and redemptions of fund shares. If no policy exists, the fund will have to explain why.

Funds must also describe polices for deterring and discouraging market-timing. Sellers of variable annuities must do the same.

"I think that's a no-brainer," Kapoor said. "Every fund should have a statement in plain English about their policies pertaining to market-timing, or frequent trading, of their shares -- whatever you want to call it."

At the same time, funds also have to explain when and how they will use fair-value pricing to prevent stale prices in funds that market-timers could then use to rack up profits.

Funds and variable annuities will also have to describe their policies for disclosing their portfolio holdings in an effort to make funds more transparent.

Kapoor said the SEC can still go further in its reforms, particularly in making it easier for fund shareholders to understand how fund executives are compensated, and in offering fund companies themselves some more guidance about fair value pricing.

Many fund companies have adopted anti-market-timing policies since the beginning of a scandal that revealed timing arrangements between several hedge funds and major fund companies such as Janus ( JNS); Alliance Capital ( AC); and MFS, a subsidiary of Sun Life Financial ( SLF). Last week, Putnam Investment Management, a unit of Marsh and McLennan ( MMC), became the latest company to settle, agreeing to terms with both the SEC and Massachusetts state regulators.

Kapoor said Fidelity Investments and the Vanguard Group were among the leaders in adopting policies ahead of the SEC's rules.

While the first spate of reforms are a sign of progress, the possibility still exists that Congress will wade further into the mutual fund swamp. A mutual fund reform bill passed the House of Representatives last November, and several competing bills are under consideration in the Senate , though there are doubts that a new law will be passed before the November presidential election.

"I think this just scratches the surface," Kapoor said.