Ten Largest Funds -- October 2002 Review

Nov. 13, 2002 — Reflecting this year’s dicey markets, the ten-largest fund lineup shows investors erring decidedly on the side of caution.

As is often the case, giant fund shareholders appear to be reacting to market trends, since two fixed-income funds — PIMCO Total Return Fund/Instl (PTTRX) and Vanguard GNMA (VFIIX) — have joined the lineup this year. Both funds benefited from investors seeking the greater comfort of bonds during this year’s falling stock market. However, October’s results suggest that investors may be behind the curve, since the heavyweight equity funds, particularly the growth offerings, outperformed the lineup’s giant bond offerings and its balanced offering — the Income Fund of America/A (AMECX).

Growth funds’ better fortunes in October may continue if the economy revives, as many market observers predict. Bonds may do less well in the near term if interest rates rise, as many forecasters expect.

For most of this year, PIMCO Total Return fund — with a 40% stake in mortgage-backed securities as of September 30 — and Vanguard GNMA benefited from a flight to safety in the bond market. Like the stock market, the bond market has been concerned about global terrorism, corporate scandal, and an uncertain economy; but bonds have had the added advantage from lower interest rates.

Regardless of the bond market’s overall fortunes, PIMCO Total Return fund, with $64.6 billion in assets as of September 30, is expected to remain prominent since it has long been the largest fixed-income mutual fund. Run by high-profile bond manager Bill Gross, the fund had the highest net flows of any mutual fund this year through September, according to Financial Research Corp., a Boston-based research firm.

The strongest sign of October’s market turnaround in the giant fund group is from Fidelity Magellan (FMAGX), the highest gainer in the lineup last month, but the worst giant fund performer this year through October. In part, Fidelity Magellan did better among the heavyweights because of its growth profile. There are only two other giant fund growth offerings: Growth Fund of America/A (AGTHX), which has a similar moderate growth profile, and Fidelity Contrafund (FCNTX), which had previously benefited from its cautious stance toward the economy.

In fact, the giant fund list has become less growth oriented than in prior periods, when it included more aggressive fare such as American Century Ultra/Inv (TWCUX) and Janus Fund (JANSX). Both recently fell off the ten-largest roster.

Ten Largest FundsInvestment StyleOctober 2002 Returns (%)2002 Returns Through 10/31/02 (%)

Fidelity Magellan (FMAGX) Large-Cap Growth+9.4%-22.3%

Vanguard 500 Index/Inv (VFINX) Large-Cap Blend+8.8%-21.9%

Investment Company of America Fund/A (AIVSX) Large-Cap Value+5.7%-16.2%

PIMCO Total Return Fund/Instl (PTTRX) Intermediate-Term High Quality0.0+7.6%

Washington Mutual Investors Fund/A (AWSHX) Large-Cap Value+5.5%-16.9%

Growth Fund of America/A (AGTHX) Large-Cap Growth+8.0%-21.3%

Fidelity Contrafund (FCNTX) Large-Cap Growth+2.4%-8.6%