Mutual fund marketing and compliance executives seize on SEC regulators' every word, much as portfolio managers scrutinize even an offhand remark from Federal Reserve Chairman Alan Greenspan. So, a SEC compliance director's recent admonition about the allocation of initial public offering shares had mutual funds wondering if the SEC was planning to regulate this area.

The answer is no, at least for now. While the SEC is concerned that funds with a high concentration of IPO shares may have artificially skewed performance records that cannot be consistently maintained and are misleading to investors, the SEC is not planning to regulate IPO allocation, said Douglas Scheidt, chief counsel in the SEC's investment management division.

Lori Richards, director of the SEC's compliance office, had told a group of mutual fund executives last month that the SEC had received "complaints concerning the allocation of hot IPOs." Richards urged fund companies to review allocations of such shares to make sure they are consistent and fair.

However, the SEC is not planning to regulate this area of the mutual fund business, Scheidt said in an interview. The regulator said that the SEC's general guidelines on fund companies' fiduciary responsibilities already require fund companies to treat clients fairly. Further, he added, the allocation of IPO shares would be difficult to regulate because IPO allocations are largely determined by funds' various investment strategies and available cash.

"We have no current plans in the works to adopt a rule or issue more guidance," Scheidt said.

Henry Hopkins, managing director and chief legal counsel at T. Rowe Price Associates of Baltimore, also pointed to fund companies' fiduciary responsibilities as a warranty they will not unfairly assign hot IPO shares only to certain funds.

"First of all, all funds have access to IPOs," Hopkins said. However, he conceded that access might be limited or enhanced by a variety of factors, including "when they [the fund] express[es] interest in the IPO, the amount of business they do with the underwriting broker and their history with the broker."

Christine Benz, domestic equity fund editor at Morningstar of Chicago, said it was widely known that access to IPOs is not equitable for all funds. Access "depends on the clout of the fund family," Benz said.

Unequal access aside, once a fund company gets a hold of IPOs, it distributes such shares fairly among its funds depending on their investment strategy and cash reserve, according to Hopkins.

"We have a brokerage control committee, which establishes regulations for trade allocations. In some cases, it is based on the timing of the orders. In others, we may allocate an average price to all orders. And yet in other cases, we might [allocate prices based on] the size of the orders placed," Hopkins said.

Paul Haaga, executive vice president of Capital Research and Management Co. of Los Angeles, thought it was a good idea for the SEC to remind fund companies to be fair about allocating IPO shares, especially in light of "Internet IPOs that go to the moon." However, Haaga does not believe more regulation is necessary.

Geoff Bobroff, a mutual fund consultant with Bobroff Consulting in East Greenwich, R.I., said that "many firms have loose allocation guidelines, so fairness of allocation is a reasonable concern on the part of regulators." Bobroff added that because IPOs can have a tremendous impact on small funds, fund companies may be more inclined to assign them to smaller funds in their fund family in order to enjoy stellar performance figures.

But instead of regulating the allocation of IPO shares, Bobroff suggested the SEC might want to consider asking fund companies to disclose the percentage of their performance tied to IPOs.

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