WASHINGTON – Maintaining more realistic expectations about mutual fund returns will be a critical step toward rejuvenating investor confidence.

That was the message resonating from the Investment Company Institute’s General Membership Meeting here Thursday as mutual fund executives gathered to discuss the obstacles that lay ahead for the industry.

Mutual funds have been under siege from federal regulators and investor advocacy groups over the last year as a series of corporate scandals and lousy performance have jerked tears in the eyes of middle-income Americans. While the ICI fully supports reform that will be beneficial to investors, it has vehemently denied that more stringent regulation will restore their faith. Rather, it believes that adopting a more realistic outlook on potential gains and taking concrete steps to identify trouble spots are the keys to sustaining growth.

In the five years that preceded the current bear market stocks rose more than 20% annually as measured by the S&P 500 index. "These unprecedented gains undoubtedly gave some investors the impression that the only direction the stock markets travel is up," said Paul Haaga, Jr., chairman of the board of governors of the Investment Company Institute and executive vice president of Capital Research and Management Co. Haaga noted that ICI has repeatedly cautioned investors that extraordinarily high returns were not sustainable. But he conceded that the industry must be more diligent in conveying that message.

"The world has changed," said Bill Thompson, managing director and chief executive at Pacific Investment Management. Investors will have to realize that equity market returns of 5% to 8% are more realistic, he said.

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