Paul F. Roye, head of the Securities and Exchange Commission's investment management division, said Thursday that the agency is considering rules on shareholder communications, disclosure, and transactions between affiliates.

These areas are particularly important in light of the burgeoning fund industry; half of all American households own funds, he said.

Mr. Roye, who took the helm of the investment management division 13 months ago, was one of the speakers at the Investment Company Institute's Securities Law Development Conference in Washington.

He said the SEC plans to continue to "simplify and streamline" mutual fund prospectuses. This would follow an ongoing effort by the SEC to make these documents more user friendly.

And the SEC is studying ways to eliminate the need to send annual prospectuses to shareholders, he said. The agency plans to explore the concept of an "annual prospectus update" that would concisely inform shareholders of material developments and changes in a fund's operations.

On the topic of disclosure, Mr. Roye said the SEC will eliminate its requirement that the substance of information in an advertisement must be derived from the prospectus. Doing so, he said, will allow funds to provide investors with "better and more timely information."

Tax consequences of investing is another area under SEC scrutiny, Mr. Roye said.

A proposal is expected on the topic of after-tax returns early next year.

Meanwhile, Mr. Roye said his department is reviewing rules that would permit certain transactions between funds and their affiliates to proceed without an exemptive order from the SEC. Currently such transactions are approved on case-by-case basis.

The SEC's office of chief counsel is also considering a no-action letter in that involves "in-kind redemptions of fund shares by affiliated shareholders," he said.

Mr. Roye said he expected to see heightened competition in the fund industry and an increased role for regulators in the 21st century. Changes in the 65-year-old banking laws are likely to "give rise to new conflicts of interest that will have to be addressed by the funds and their advisers, as well as regulators," he said.

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