The Wall Street Journal says the Securities and Exchange Commission has narrowly approved new rules requiring mutual-fund companies to have chairmen who are independent from the companies managing the funds.

The newspaper said the SEC also approved in a separate ruling Wednesday a pilot program that will lift some curbs on short selling for a year.

The agency’s move on fund boards is aimed at addressing potential conflicts of interest. The SEC also is requiring that 75% of fund directors be independent, and that fund directors provide better disclosure to shareholders on factors involved in approving fund advisory contracts.

SEC Chairman William Donaldson sided with two Democrats in endorsing the plan; two Republican commissioners voted against the rule, saying it will be costly and may not offer benefits to investors. Despite months of aggressive lobbying, fund companies had braced for a stinging defeat. All of the fund changes will take effect by the end of 2005.

In an arrangement unfamiliar to many small investors, each mutual fund is actually a separate investment company, with a supposedly independent board that is charged with representing shareholders’ interests. The fund boards then hire the big, well-known money managers, such as Fidelity Investments, to oversee the funds. Over the years, however, the investment managers — rather than the boards — have come to dominate most mutual funds.

The red flag for the SEC: The chairman for most mutual funds is an executive from the fund-management company. That structure can pose a conflict since the interests of the fund-management company and the fund’s investors don’t always coincide. Higher management fees, for example, benefit investment advisers but hurt shareholders.