Securities and Exchange Commission Chairman Arthur Levitt on Friday urged mutual fund directors to take a more active role in looking out for their funds' investors.

"I don't expect fund directors to run day-to-day operations," Mr. Levitt said in a speech to the Investment Company Institute's annual meeting here. "But I do expect them to remember who they serve-fund shareholders.

"I expect fund directors to be tireless in the pursuit of shareholder interest."

Mr. Levitt added that the SEC will hold a roundtable on fund governance this fall with investor advocates, directors, fund managers, academics, and others.

The chairman's remarks came during an address in which he criticized the mutual fund industry for not doing enough to educate investors. As expected, Mr. Levitt called on fund companies to do a better job of spelling out fund expenses and other fees in prospectuses and elsewhere.

"We are chagrined to hear that some of you intend to make only a few cosmetic changes and leave your prospectuses as they are-the same dense legalistic presentations that investors don't want, don't understand, and don't read.

"In our book, that merits a failing grade." he said.

Mr. Levitt, however, did not threaten any regulatory action.

Several fund companies have cooperated with an SEC initiative to demystify the language in their prospectuses and give other educational materials to investors.

But Mr. Levitt called on the industry to do more. "I'm disturbed at the number of investors who don't understand the impact of fees and expenses."

Don G. Powell, chairman of Van Kampen American Capital Inc. and of the ICI, said the institute agrees with Mr. Levitt's message.

"It's very consistent with what we are trying to do," he said, adding, "he's always going to want them to move faster."

Mr. Levitt chastised mutual fund companies for focusing on hot performing funds-which are often short-term performers-in advertisements and making no larger effort to explain that markets inevitably rise and fall.

"You're setting yourselves up for millions of disappointed investors when your selling efforts focus exclusively on our recent full market," he said.

He suggested clearly outlining expenses and risks in ads as well as prospectuses and urged the companies to make sure fund salespeople explain the cost of investing.

Mr. Levitt pointed to a survey that showed mutual fund investors anticipate returns of more than 20% a year for the next decade and said research shows that only 8% say they completely understand the expenses their funds charge.

He emphasized that he does not believe the SEC should tell funds what level of fees to charge.

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