With the baby-boom generation entering its retirement years, the mutual fund industry's outlook remains bullish. But at the Investment Company Institute's annual meeting in May, the trade group's president, Matthew P. Fink, sounded a slightly cautionary note, warning his industry that it must help the average investor do a better job of saving. He also urged the group to press for legislation that would encourage saving. "My confidence in our industry's future is not based on a belief in inevitable trends," he said. "Rather, it is based on my conviction that the mutual fund industry will continue to thrive because we will continue to make the needs of individual investors our highest priority." The following is excerpted from Mr. Fink's address to the conference.

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We must encourage legislation that motivates Americans to save.

As Sen. (John) Kerrey and (OppenheimerFunds Inc. Chairman) Jon Fossel have noted, government policy is a critical factor in personal saving. In an ideal world, Americans would not need incentives to save. But we live in the real world, where personal savings is directly tied to incentives, particularly tax incentives.

Just consider the history of the individual retirement accounts. In 1982, when IRAs were made available to all workers, IRA contributions amounted to $28 billion, and by 1986 had increased to $38 billion. In 1986, however, Congress cut back sharply on IRA deductibility. In 1987, IRA contributions fell over 60%, to $15 billion.

The institute assisted in the creation of IRAs in 1974. We took a leading role in IRA expansion in 1981, and in opposing cutbacks in 1986. We will continue to urge Congress to expand IRA eligibility.

The institute also supports legislation that would encourage small companies to provide retirement plans for their employees. In 1993, only 29% of employees who worked for small companies were covered by retirement plans, as compared with 83% in larger companies.

Both Congress and President Clinton support legislation to expand IRAs and to increase small plan coverage. We are hopeful that this legislation will be enacted into law.

The institute also is committed to furthering debate on retirement security, particularly as it pertains to Social Security reform. It is critical that policymakers restore public confidence in the Social Security system. This past year, the institute testified on the Simpson-Kerrey bill, which would allow employees to invest roughly one-third of their Social Security payroll taxes in individual accounts. Sen. Kerrey deserves much credit for his leadership.

In short, in a variety of areas - IRAs, employer plans, and Social Security - our industry must continue to support legislation to encourage personal savings and investment.

We must (also) ensure that the mutual fund regulatory system is kept up- to-date to accommodate the changing needs of investors.

The Investment Company Act is an unusually effective statute. The act's core provisions - the requirement that every fund mark its assets to market every day, flat rate prohibitions against transactions between a fund and its managers, strict limits on leveraging, and a statutory system of independent directors - are unique to our industry. They have enabled us to avoid the crises that have repeatedly wracked other types of pooled investment media - from real estate investment trusts in the early 1970s, to the Orange County municipal fund in the 1990s.

The 1940 act also provides the SEC with broad administrative authority to adjust requirements to meet new conditions. And the SEC has used this authority wisely.

But only Congress can address the major regulatory problem burdening our shareholders and our industry - the inconsistent crazy quilt of state mutual fund regulation.

This system of idiosyncratic state regulation is contrary to the interests of investors. It needlessly duplicates, and often undermines, SEC initiatives to improve investor protection. It helps produce prospectuses that are lengthy, complex, and difficult to comprehend. It hinders innovations in fund products and services permitted by federal law. It imposes undue compliance burdens on funds. And it diverts state resources from enforcement and education, where state action is required.

Justice Brandeis once observed that, "It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory, and try novel social and economic experiments without risk to the rest of the country."

Applying the Brandeis test, the experiment of permitting states to regulate mutual funds has, clearly, failed. States exercise their regulatory authority in a manner inconsistent both with federal law and with each other. Moreover, it is virtually impossible to confine the impact of a state's activities to its citizens. Portfolio limitations and disclosure requirements imposed on a fund by a single state affect all of the fund's shareholders nationwide.

Continuing the "experiment" is, in Justice Brandeis' terms, fraught with "risk to the rest of the country."

Countless efforts to address this problem at the state level have failed. This national problem requires a national solution.

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