A Securities and Exchange Commission rule initiative that was strongly criticized by consumer groups several years ago when it was first suggested has reappeared on the SEC's docket as part of an impending rule proposal expected by June 28.

The part of the impending proposal that elicited strong criticism aims to streamline disclosure of portfolio holdings, according to Barry P. Barbash, a partner with the law firm of Shearman & Sterling of Washington D.C. and a former SEC official.

The rule proposal may suggest improvements to disclosure requirements of fund fees and expenses, according to Paul Roye, director of the SEC's division of investment, who outlined different forms the proposal might take late last month at an Investment Company Institute conference in Palm Desert, Calif.

The proposal may suggest increasing the frequency of portfolio holding disclosure from semi-annually to quarterly, but would require funds to list only their top 50 holdings, Roye said. Currently, they must list all their holdings.

In 1997, Barbash, who was then the SEC director of investment management, suggested a similar rule, prompting a "firestorm" of negative publicity and criticism, he said. Speaking before mutual fund executives attending the same ICI conference four years ago, Barbash suggested nearly the same initiative.

"We expect to rethink the portfolio disclosure requirements to improve the quality of the information and reduce its quantity," Barbash said in his speech. "We could require, for instance, disclosure in the annual report of the top 25 or 50 largest portfolio holdings, along with graphic presentations of other important characteristics of a fund's portfolio, such as industry concentration, types of securities, or geographic distribution. A complete list of portfolio securities could be made available to interested fund shareholders upon request."

Detractors said the suggestion would effectively repeal shareholder disclosure rules, Barbash said. The issue was abandoned and not raised again as more pressing issues dominated the SEC's efforts, Barbash said.

The SEC needs to be extremely careful in how it presents the new rule proposal if it wants to avoid the same criticisms, said Barbash. While most of the industry supported the initiative, the public perception was it would cut down on the amount of vital information disclosed to shareholders, he said. The SEC needs to make it clear that this initiative does not eliminate shareholders' access to portfolio holdings information, it simply requires those that want it to ask for it, he said.

While the SEC may have the support of the industry on streamlining disclosure of portfolio holdings, it may find its proposal to improve disclosure of fees and expenses places it at odds with the industry, according to Barbash.

That part of the proposal will probably include some of the suggestions included in the recent SEC fee study, including a recommendation that dollar figure representing fund fees and expenses be included in shareholder reports, Roye said. The fee study, which was issued in January, recommended that semi-annual shareholder reports include a table showing the costs incurred by a shareholder who invested a standardized amount and received a standardized return. Under such a scheme, the only variant would be the funds' expenses, providing an easy method for investors to compare the fees and expenses of similar funds. The proposal might also recommend shareholder reports include a figure showing fees and expenses on a $10,000 investment, taking into account each individual fund's performance, Roye said.

"My sense is the industry may say, enough is enough' on fees and fee disclosure," Barbash said.

Fund companies might not support a measure that will allow investors to make it simple for investors to make direct comparisons of fees, said Neil Epstein, an analyst with Putnam, Lovell, de Guardiola & Thornton of New York.

"It's going to show people explicitly what they are paying and some people might say that's too much," he said. "That's going to concern people in the industry."

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