Barclays Global Investors is best known as the largest institutional investment manager. That may be about to change. The company has quietly applied with the SEC to start trading open-end "managed" index funds on the American Stock Exchange.

If approved, they wouldn't be the first funds to trade on an exchange; that honor goes to, among others, closed-end funds, which unlike open-end funds issue a limited number of shares. But their introduction could be the first step to the public's trading of all types of mutual funds, which could be a boon to the Amex.

Far-fetched? Perhaps, but a key component of the Barclays plan is that funds would be priced continuously throughout the trading day, just like any other stock, instead of just once a day at the market's close.

What's more, "many of the criticisms of mutual funds, such as high fees and taxes, would be eliminated," says financial adviser Robert Levitt of Levitt Novakoff in Boca Raton, Fla. The high fees would be substituted with a commission to a broker for handling the trade, rather than the fund manager in the form of a management charge. (There would still be a management fee, but it would be paltry compared with fees charged by typical mutual funds.)

Then there's the tax issue: By purchasing a fund that trades as a stock, rather than a fund, investors would no longer be directly responsible for capital gains incurred by the fund for trades by the manager. "The two things that control taxes [in open-end funds] are the portfolio manager and other investors through the cash they put in and out" of individual stocks and the funds themselves, Levitt says.

Don't closed-end funds already offer that tax bonus? Sure, but because they issue only a limited number of shares, the shares often trade at big discounts or premiums to the value of the portfolio, or the net asset value. Barclays contends that those premiums and discounts can generally be eliminated by an unlimited supply of shares. In fact, in its application, Barclays makes a point of saying that its funds would create "efficiencies in pricing ... and minimize the [underwriting] costs that are sometimes encountered" with closed-end funds.

How exactly Barclays is going to have an unlimited supply of shares that trade is unclear. Details are sketchy; the prospectus has not yet been issued and officials were unavailable for comment.

If some of this sounds familiar, though, it should, because Barclays' proposed funds are similar in concept to the Standard & Poor's depositary receipts, or SPDRs, and other products that already trade on the Amex. One difference is that SPDRs are unit trusts that trade a fixed portfolio, and they mirror a small number of indices. Barclays, however, has filed to trade, at the start, as many as 45 indices created by Standard & Poor's, Dow Jones and Russell. (Some aren't even in existence yet.)

Perhaps the biggest difference is that unlike SPDRs or even index funds, Barclays wants to add a level of active management to its funds by lending shares to short-sellers, and investing in derivatives, options and futures, tactics that it says "are desirable and in the interest of investors."

All of this sounds great to Levitt, who has been looking for ways to invest in sectors without taking the tax hit of an index or having to rely on the skills (or lack, thereof) of a sector fund manager. "If I could buy the same product like a mutual fund on an exchange and I could buy it cheaper with better tax efficiency, it would be tempting," he says.