The emergence of mutual fund supermarkets. The push for plain-English disclosure of investment risks. The growing role of banks as sellers and managers of mutual funds. These are some of the forces that are complicating the jobs of independent mutual fund directors, the board members whose role it is to serve as advocates for investors.

Heavy hitters from the securities world flocked to Washington last week to discuss these and other issues at a two-day roundtable sponsored by the Securities and Exchange Commission. Here are some highlights from their remarks.

*** Charles R. Schwab

Schwab's Mutual Fund Marketplace is an important service of our company. As of yearend 1998 we served 2.8 million customers, with a total of about $490 billion in assets held at Schwab.

More than 40% of these assets are in the form of mutual funds, valued about $212 billion. Of this amount, $70 billion is in the no-load, no- transaction-fee "supermarket" that we started in 1992. We call this supermarket Mutual Fund OneSource.

The OneSource program today lets our customers choose any of 1,000 funds from 120 families. As a policy matter, we restrict participation to the lowest-cost class of a fund's shares.

Supermarkets like OneSource have benefited customers by helping increase competition in the fund business. Their "open architecture" has widened the field, making room for new investment managers and new styles of management.

Funds and their sponsors typically pay Schwab a 35 basis-point-fee on assets to participate in OneSource. The OneSource fee is not a hidden charge. The fact that Schwab receives the fee is disclosed to investors on our trade confirmations. We have consistently supported mandatory disclosure to investors of all such compensation arrangements.

In December 1998 we surveyed over 800 of our mutual fund customers on this subject. Almost 90% said that they had at least a fair understanding of the different types of fees that you pay when investing in mutual funds.

The OneSource fee replaces other fund fees. It does not add to them. Much of the fee is designed to compensate Schwab for the record keeping and shareholder servicing work that we do. A fund would have to pay a transfer agent or some other party to perform this work in any event.

There is no basis for concluding that a supermarket structured like OneSource drives fund expenses higher.

Recently we examined a group of almost 500 funds available at Schwab that were around in 1992. The average operating expense ratio for those funds participating in OneSource has declined more since 1992 than has the average OER of funds outside the program. From 1992 to 1998, the average OER of the 10 funds with the greatest OneSource assets declined 43 basis points, and none of them had their OER increase during the period.

*** Michael J.C. Roth A fund's prospectus is just about the most important document a shareholder can get on his or her investment. To clarify that document makes great sense.

But to my amazement, I have learned in the past year that there are many in the mutual fund industry who oppose this step.

(An SEC official) showed me a letter from an attorney, which concluded that prospectuses are complex documents with complex concepts and therefore should not be written in "plain English."

Others express the concern that the stilted language of traditional prospectuses ... has stood the test of time and legal challenges, and therefore should be preserved. We disagree!

It is important to understand that the move to plain English does not mean chopping out important disclosure. Instead it means tailoring disclosure in a way that an investor will find easy to read and understand. Our plain-English prospectuses are actually slightly longer than our old ones because writing plainly does not equate to fewer subjects or fewer words and includes more graphic presentations.

Our plain-English prospectuses were written completely by a team of USAA people. That team included marketing, compliance, and legal people, and their work was consistently shared with and commented on by our directors. Their work did not result in any incremental cost to our funds.

We have received letters from shareholders complimenting our prospectuses-the first in my 20 years at USAA.

We can understand the concern of some in our industry over issues of liability that may arise from changing long-standing and tested language. (But) we believe that investors who are given a clear an understandable prospectus will be less likely to come into conflict with their investment company than if they were given the old product.

Thomas Jefferson spoke to this with these words: "All experience hath shown, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed."

We have "righted" ourselves.

*** Bradley W. Skolnik Banks have become full-fledged players in the sale of mutual funds. Indeed, their involvement in securities activities in general is no longer simply incidental or sporadic.

While this has been convenient for many investors, it has also been the source of confusion for others who may not fully understand that investments are not FDIC insured. The sale of securities products, and mutual funds in particular, on bank premises has raised concerns among regulators and in the industry about sales practices.

Millions of bank customers may be making their first ventures into the stock market and may not know that the investment is not FDIC-insured. In addition, they may not be aware that the bank could be using confidential financial information obtained from them to further the sale of a mutual fund or other investment product.

The directors of bank-related funds cannot be expected to micromanage a fund's operations or the day-to-day activities of an affiliated broker- dealer's sales force on the bank premises. Nor are they situated in any practical way to determine the suitability of a fund product for a particular investor or to supervise registered representatives or sales agents.

This does not, however, detract from the oversight responsibility that bank-related fund directors have.

In particular the director of bank-related funds must be vigilant in ensuring that effective sales practice compliance procedures are in place.

We have identified several "best practices" to help fund directors better fulfill their obligations to shareholders:

Demand truth in marketing and advertising by routinely reviewing marketing and advertising materials.

Insist on effective compliance systems.

Require full disclosure of how bank-managed mutual funds differ from insured deposits.

Require truth in investing-clear disclosure of risks and descriptions of fund investment objectives.

Protect customers' right to privacy by policing the use of confidential information a customer has provided to a bank.

Monitor trends in the volume and type of customer complaints and litigation or arbitration related to sales practices.

Be proactive, not reactive.

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