More than 1,600 attendees gathered this morning for the annual rite of summer for the fund industry -- the Investment Company Institute's Annual General Membership meeting. Opening up the official start of the conference were Terry Glenn, the chairman of the ICI and president of Merrill Lynch Funds and Matthew Fink, president of the ICI.

Glenn addressed the theme of the conference: "Navigating the Changing Landscape," saying that it "couldn’t be more appropriate" and adopted the analogy of a ship at sea (Read the transcript of Glenn's remarks).

Glenn also told attendees that the increase in sales and redemptions of fund shares in 2000 was an continuation of a decade-long trend and does not "necessarily imply that the typical shareholder has shortened his or her holding period", suggesting instead that the high redemption activity stems from "a small percentage of mutual fund investors."

He also dismissed imitators who "seek to develop products to compete against mutual funds" as not a threat in what may have been a veiled reference to firms such as Foliofn. Funds gain their strength through third-party sales and asserted that most fund investors are uncomfortable holding individual securities. He also chided attendees to not associate the word "panic" with fund shareholders.

"The recent volatility in the financial markets has prompted some to question the mettle of mutual fund shareholders. However, it is a fact that "panic" is not a word one would associate with our investors. The Institute has conducted a number of studies, including an analysis of equity fund flows since World War II, which show that fund investors have never responded to sharp market breaks by redeeming shares en masse. And there is no evidence that this long-established pattern of behavior will change. Shareholders are not insensitive to stock price movements, but their response to market movements tends to be spread over time."

Fink's remarks were more geared to the regulatory atmosphere surrounding funds (Read Matthew Fink's complete remarks).

Fink told attendees that the ICI "strongly supports" the SEC is review of mutual fund shareholder reports and reiterated the industry's desire that funds not be required to disclose portfolio holdings more frequently. "...We have seen considerable evidence that those who trade against mutual funds would welcome it [more frequent disclosure]," he said. "Arbitrageurs, day traders, and market timers already exploit current mutual fund disclosures. Last year, a former hedge fund operator called a mutual fund’s annual report "the greatest bargain" in investment research," he added.

Like Glenn, Fink also made a veiled reference to Folio products.

"We have long supported the innovations that make this spectrum of products and services possible. And we welcome the vigorous competition it produces. But "moving in the right direction for investors" requires us to act whenever functionally similar products or services threaten investor interests," he warned, alluding to the ICI's call for the SEC to regulate folio products like funds.

"As many of you are aware, the Institute recently suggested that the SEC review whether relatively new portfolio investment programs are investment companies within the meaning of the Investment Company Act. These programs include offerings that consist of carefully selected and professionally managed investment portfolios. The structure of these synthetic fund-like products pose many of the precise risks that the 1940 Act was designed to prevent—self-dealing; excessive fee arrangements; deviation from stated investment objectives; and abuses in disclosure and advertising. SEC rulemaking in this area is critical," added Fink.

He also called for Congress to increase the compensation of SEC employees.  

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