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My youngest daughter received some tarot cards and an instruction book as a holiday gift, and asked me if I knew how to use them.

I told her I didn't need cards to foretell the future because each year around this time I use my intuition — and some really good industry contacts — to predict the big stories the fund industry will see in the coming 12 months.

Since I started making prognostications in 1996, about five calls in seven have hit the target. Surely, there will be other hot news in the fund world in 2008, but here are some stories likely to pop up in the new year:

● A new system for benchmarking life-cycle funds . . . or outrage over performance.

Target-date funds and life-cycle funds were approved in 2007 as "default choices" for retirement plans that sign up all workers who don't actively opt out of the program. Between the ease of a perceived all-in-one option and the importance of offering default choices, virtually every large fund company has already created funds with a maturity date or based on an investor's age.

Unfortunately, the fund-rating firms do a lousy job analyzing these funds, typically lumping them in with "asset allocation" funds and measuring them against standard market benchmarks.

Investors in these funds are much less concerned with the broad market than they are about being on the path toward reaching their goals. Since there is a wide range of performance in these categories, one of two things is likely to happen: Either investors will find out that the lousy target-date funds are laggards by any measure and not worth owning, or the ratings firms will find ways to better benchmark performance, so that consumers see if the fund can actually meet expectations.

● A slew of class-action lawsuits against funds burned by sub-prime problems.

There hasn't been a good wave of lawsuits against funds for years, but with funds like Regions Morgan Keegan Intermediate Bond and High Income, there's little doubt that the plaintiff's bar has potential cases to talk about. Those funds were each hurt in their own way by investments made in sub-prime mortgages; in the case of the RMK funds, the fallout was disastrous, amounting to losses surpassing 45 percent. Even in cases like Fidelity Ultra Short — down about 5 percent this year — lawyers will say the fund should not have lost money stretching out of its comfort zone in an effort to get additional yield.

● More fund blow-ups due to sub-prime investments and the mortgage crisis.

When a fund gets into trouble on illiquid paper, it has a bit of leeway in reporting that trouble. Specifically, management is often involved in setting the value of its securities, and may hang on to some hope that bad, thinly traded paper will retain its value. Eventually, however, bad notes get properly valued.

While most observers believe the fund industry has done a good job of airing its dirty laundry, clearly there is more to come out in the wash. The losses will dwarf the problems suffered by the RMK funds.

● The closure of dozens — if not hundreds — of relatively new exchange-traded funds.

New exchange-traded funds are created virtually every day, but a lot of them are based on thin, implausible investment premises, and have failed to gain any traction with investors. While the trend will continue, the backers will start pulling the plug on things the investing public has ignored.

● Prospectus reform that still doesn't help consumers.

The Securities and Exchange Commission is pushing for new prospectuses, but the proposals aren't such a radical change that the average investor will actually read the dumb things, let alone understand them.

● Mutual fund tax reform, a popular idea in an election year, gets no new love from Congress.

The legislation wasn't just stalled in Congress, it was virtually ignored. Because it hasn't gotten a whiff of support in early presidential discussions, it was dead before 2008 arrived.

● The SEC gives up.

The SEC has proposed some good reforms but has backtracked away from ideas like the independent board chairman and more. The agency may have good intentions, but the best it's going to show in '08 is that new prospectus (yawn).

● Board takes a fund away from management.

At some point this year, there will be a story about a fund board getting the backbone to pull a fund away from its current lackluster management and replacing it with something better. It doesn't happen often, but there were some tremors in 2007 that may have helped independent directors grow backbone that they can use this year.