A reader recently sent me a quick note, asking for my prediction of what his fund is likely to do in 2005. I said the fund "is likely to go up ... if it doesn't go down or sideways...

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A reader recently sent me a quick note, asking for my prediction of what his fund is likely to do in 2005.

I said the fund “is likely to go up … if it doesn’t go down or sideways.”

I’m not in the business of divining the future of individual issues, but each year at this time, I take a crack at predicting the big stories of the coming 12 months in the fund industry.

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My selections may not be the fund world’s only hot news, but I am confident that we’ll see the following in 2005:

A failed underground effort by the fund industry to remove William Donaldson as chairman of the Securities and Exchange Commission.

Donaldson has led a number of initiatives that powerful fund CEOs dislike. Word around the business is that some of those top dogs are banding together to pressure President Bush to give Donaldson the boot, a move that would slow or derail regulatory progress.

It won’t work. Axing Donaldson at this point would send the wrong message to the investing public, and that’s not the impression politicians want to give as they include individually managed accounts in their plans to overhaul Social Security.

High-profile regulatory cases against fund directors for allowing excessive management fees.

Regulators are looking at several firms over this issue, clearly hoping to send the message that ignoring what is best for consumers will not be tolerated. That message is doubly important with new rules requiring independent board chairmen taking hold in 2006.

Mutual-fund tax reform stalls … again.

In recent years, there have been several proposals to make the capital gains that a fund distributes to shareholders exempt from taxes. The idea that has gone furthest up the legislative pipeline would allow an annual exemption of up to $3,000 in gains per person.

At least two legislators in Congress will reintroduce the tax cuts this year, hoping to get in the mix amid the Bush administration’s desire for tax changes and greater savings incentives. Continued fund changes and bigger tax issues will be the priorities, and the fund-tax proposals will get no real traction.

No change in the status of 12b-1 fees.

Regulators have discussed limiting or eliminating this “sales and marketing fee,” but there will be no agreement on what alterations to make.

Commodities-oriented funds becoming the next hot ticket.

Just a few mutual funds invest in hard assets, a category that hedge funds love.

With fund marketers looking for new products to grab the attention, this is the genre that will grab the headlines in ’05, in part because these funds tend to be streaky and the timing is right for new issues to open with a bang.

Investors rushing into international funds, only to end up disappointed.

Foreign funds had a nice pickup in 2004, and investors took notice. What they failed to recognize is that the success of many international funds had more to do with the weak dollar than the strength of the underlying issues.

That’ll be a problem if the dollar reverses itself, which could well happen late in 2005. A dollar reversal would see international funds give back most of their recent gains, and investors who were late to the party will be left with one heck of a hangover.

Chuck Jaffe is senior columnist at CBS Marketwatch. He can be reached at jaffe@marketwatch.com or Box 70, Cohasset, MA 02025-0070.