One on One is a weekly feature offering excerpts of interviews ? conducted by The Evening Sun with newsworthy business 6 leaders. James S. Riepe is the managing director of T. Rowe
Price Associates Inc., a Baltimore-based mutual funds and : investment management firm. He is also director of the 7 company's investment services division.
' Q. What is the outlook for mutual funds, money markets and equity funds in the 1990s in light of the impending bad economic situation?
A. Well, we know the '90s will be hard pressed to be anywhere near as good as the '80s. The kind of market returns in the '80s, the friendly environment we had in the '80s, the prosperity, is just not sustainable over another decade, so I think the fund industry will have to adjust as will a lot of other people [have to] adjust to a more realistic economic and market scenario. Having said that, I think mutual funds will do extremely well. We have the baby-boom generation just moving into an age where they begin to save and invest, and all those resources that would bring to bear. You've got the mutual fund concept which has been tested now for many decades and proven to be most adaptable to all kinds of investments, and a very, very cost effective way for individuals to invest. And that may sound trite in one sense, but one of the primary reasons for the success of the fund industry has been because the vehicle itself serves such a great purpose for so many investors, as well as institutional investors, I might add, not just individuals. So I think that part of it is very good, and then I think you're going to see growth in a lot of different areas based on what Congress has just done and likely will do in the tax side, and the tax situation with states. We think that the whole tax free municipal bond area will be popular again. You can take the Maryland fund; we have a Maryland municipal bond fund. It has a tax equivalent yield now for a Maryland resident that exceeds 10 percent whereas U.S. Treasury bonds are yielding 8.5 percent. So I think taxes are starting to become a factor again in peoples' plans for their investments.
Q. You were recently elected the new chairman of Investment Company Institute. What are your duties and responsibilities in that position?
A. The ICI is the industry association for the mutual fund industry, trade association for the mutual fund industry, which now totals some $1 trillion in assets, and it has a full-time president and staff, and it has a chairman that is elected from its industry members. I serve in that function and my job is to represent the industry to legislators, regulators, other types of groups, as well as to act internally within the institute in leading the board of governors and the executive committee of the institute to provide policy guidance, judgment, for the staff of the institute.
Q. What are some issues facing the mutual funds industry, both as far as regulation and as far as government legislative action?
A. One of the major issues that we will be dealing with over the next year or two is a proposal by the SEC [Securities and Exchange Commission] jointly supported by the industry to amend the Investment Company Act of 1940, which is the fundamental legislation under which mutual funds operate. And a study is being conducted right now by the SEC to try and uncover ideas about amending that act so as to update it for the way that mutual funds operate in 1990 versus the way they operated in 1940 when the act was drawn and in 1970 when the only other set of amendments to the act were adopted. So that's a major issue that we are dealing with and we have done a legal survey internally within the industry to determine some of our ideas on those kinds of changes. I'd say secondly there are always tax proposals that come out of the woodwork and we are always very sensitive to Congress' treatment of mutual funds. Funds have historically received a pass-through treatment which means that they are treated as a conduit and not taxed as an entity, but simply the individual is taxed as they would be whether they own securities directly or through a mutual fund. And we work very hard to try to preserve that tax treatment.
Q. There has been a proliferation of mutual funds in the last decade. Has this caused confusion among investors and should there be fewer funds?