WASHINGTON -- SEC chairman Arthur Levitt made a plea yesterday for Congress to enact legislation to protect states, localities, and other investors from unscrupulous investment advisers.

Speaking to reporters at the National Press Club, Levitt also announced two Securities and Exchange Commission initiatives aimed at getting mutual funds to simplify and improve the information they disclose to investors.

In addition, Levitt said he is working with derivatives market participants to develop voluntary suitability standards to ensure that state and local governments and other investors are not sold derivative products that are unsuitable for them.

Levitt said the SEC will soon publish an informational brochure for investors about municipal bonds.

He also said that the SEC should have "supervisory responsibility" over anybody in a bank that sells a mutual fund.

Levitt told the reporters that he was disappointed that Congress failed to approve a pending investment advisers bill before it adjourned last week. The bill would have increased the SEC's registration fees for investment advisers and allowed the commission to use the money to inspect more advisers to see if they are complying with securities laws. The measure also would have authorized the SEC to determine if there are potential conflicts of interest between advisers and their clients and to write rules requiring that such conflicts be disclosed. Most of the bill's provisions were agreed to by key House and Senate members. But the bill died after Sen. Phil Gramm, R-Tex., blocked it, saying the increased fees would be a tax on advisers that would stifle competition within the industry and put small firms out of business.

Levitt told the reporters that "we need help" in getting that legislation because the SEC has too little staff to inspect many advisers.

Since 1981, the number of investment advisers has soared to 22,000 from 5,100, with assets under their management increasing to $9.3 trillion from $450 million. But the SEC staff assigned to inspect the advisers has increased by only 15 during the period, to 51 inspectors.

Asked about Congress' delay in enacting a funding bill that forced the SEC to halt some services and cost the Treasury almost $20 million, Levitt said, "I am going to do everything I can to see that it never happens again."

Congress did not approve the bill until just before it adjourned and a week after the new fiscal year began because several Republican senators held it hostage to try to win congressional consideration of their own unrelated revenue proposals.

Levitt said the SEC is embarking on the two initiatives to improve mutual fund disclosures because fund prospectuses are often too technical and legalistic for investors to understand.

"We want a higher standard of clarity," he said.

One initiative is an SEC commitment to expedite its review of any mutual fund prospectuses that are simplified and clarified for investors.

The other calls for fund officials to provide investors with a "one-page, stand-alone summary" of the main features of the fund. Levitt said seven of the largest fund groups have already agreed to provide such summaries to investors.

He stressed that fund officials should still provide investors with a full prospectus, but said the summary will make it easier for them to understand the fund's plans and potential risks.

Levitt said that suitability standards for derivatives are needed, but that he wants to work with market participants to come up with voluntary standards.

The derivatives market, Levitt said, "is much better than it was a year ago" and is "more mature" partly because widely publicized derivatives-related losses have made both dealers and investors pay more attention to their derivatives activities.

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