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XI. Mutual Funds

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TOPICS TO BE DISCUSSED

1. THE U.S. MUTUAL FUND INDUSTRY

2. PERFORMANCE MEASUREMENT

3. BIAS IN INDUSTRY DATA

4. PERSISTENCE IN PERFORMANCE

5. PREDICTING CASH FLOWS

6. PERFORMANCE OF NEW CASH FLOWS

7. SOME NEW DEVELOPMENTS IN THE MUTUAL FUND INDUSTRY

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Assets of Major Intermediaries (Trillions)

Commercial Banks 7.36

Credit Unions 0.56

Saving Institutions 1.36

Life Insurance Companies 3.37

Closed End Funds 0.16

Exchange Traded Funds 0.10

Mutual Funds 6.39

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Number of Mutual Fund Complexes

Over 400 In 2002

Top Ten Companies Hold 56% Of Assets

Top 25 Complexes 76% Of Assets

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15

0

500

1000

1500

2000

2500

3000

3500

4000

1990 1992 1994 1996 1998 2000 2002

Total Institutional Assets in Mutual Funds and as Percent of Mutual Fund Total Assets

362631

898

1,582

2,504

3,143 2,985

34.0% 38.3% 41.5% 44.7% 46.3% 45.1% 46.7%

16

1997

2002

Annual

%Growth

Australia 42,909 356,304 52.5

Canada 197,985 248,979 4.7

France 495,774 845,147 11.3

Germany 146,888 209,168 7.3

Ireland 22,728 250,116 61.6

Italy 209,410 378,259 12.6

Japan 311,335 303,191 -0.5

Luxembourg 390,673 803,869 15.5

United Kingdom

253,683 288,887 2.6

Total Non-USA.

2,822,796

4,878,586 11.6

U.S. 4,468,201 6,391,271 7.4

Worldwide Assets of Open-end Investment Companies (millions of U.S. dollars)

Only countries with assets over 2 m in 2002 included in the list Total Non-U.S. includes 39 countries for which ICI collect data.

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0

10

20

30

40

50

60

Full-serviceBroker

*Discount Broker Insurance Agent BankRepresentative

Financial Planner Direct Marketer

Channels Used for Mutual Fund Investments (Percent of Respondents)

35.2%13.3% 4.7%

9.4%17.8% 19.6%

*1/3 Online 2/3 Office

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The Retirement

Market and How it

Invests

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Total Retirement Market

10.2 Trillion Dollars

2.1 T or 21% inMutual Funds

8.1 T of 79% Managed byPension Funds, Banks,

Insurance Companies, andBrokerage Firms

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Retirement Market

Size % of

Shares Invested Share in Trillion RM

in Mutual Funds in 1990

1. Defined Contribution PlanPrimarily 401 (k) Plans (68% of Total) 2.1T 22% 45% 9%

2. Defined Benefit Plan 4.5T 44% 1%

3. IRA’s 2.3T 23% 46% 24%

4. Fixed and Variable Annuity 1.2T 11%

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Its Importance

to the

Mutual Fund

Industry

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How Important is the Retirement Market to Mutual Funds

1990 – 19% Owned by Retirement Accounts

2002 – 33% Owned by Retirement Accounts

2002 – 44% of Long Term Funds 12% of Money Market Funds

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Other Retirement Plans 44 10%

403 (b) Plans 74 16%

401 (k) Plans 82 18%

IRAs23754%

Total 436

Mutual Fund Assets by Type of Retirement Plan 1992 in billions of dollars

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Mutual Fund Assets by Type of Retirement Plan

2002, in billions of dollars

Other Retirement Plans 177 8%

403 (b) Plans 194 9%

401 (k) Plans 697

32%

IRAs106750%

2,124 Billion

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Type of

Retirement Plan

Assets

in 1992

Assets

in 2002

Growth Rate

Per Year

IRAs

401(k) Plans

403 (b) Plans

Other Retirement Plans

237

82

74

44

1067

687

194

177

16.2

23.7

10.1

14.9

Growth Rate of Retirement Plan Assets in Mutual Funds (Assets in billions of dollars)

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How Are Retirement Assets Invested

By Retirement Market

Common Stock – Domestic 56%

Common Stock – Foreign 7%

Bonds 14%

Money Market Funds 13%

Hybrid Funds 10%

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Domestic

Foreign

Bond Hybrid Money

Market

IRAs 51.7% 7.7% 14.4% 9.2% 16.8%

401(k) Plans 59.2% 7.9% 10.3% 12.2% 10.2%

403 (b) Plans 73.7% 6.2% 6.7% 6.2% 7.2%

Other Employer

Sponsored Plans

46.9% 6.2% 27.6% 7.3% 11.9%

Total 55.8% 7.4% 13.6% 9.8% 13.3%

Equity

How Plans Allocate Their Mutual Fund Investments, 2002