July 29, 2003 — Equity funds continued to receive large inflows of cash from investors in June, at a higher rate from the prior month. Stock portfolios received inflows of about $18.66 billion in June, versus $11.93 billion in May, according to data from the Investment Company Institute.

Domestic equity funds had an inflow of $17.97 billion in June, compared with an inflow of $12.47 billion in May. Stock funds that invest overseas had an inflow of $684 million in June, compared with an outflow of $538 million in May.

The ICI also noted that bond funds had an inflow of $5.30 billion in June, compared with an inflow of $8.89 billion in May.

Hybrid funds had an inflow of $3.99 billion in June, compared with an inflow of $3.08 billion in May.

In addition, money market funds had an inflow of $23.17 billion in June, compared with an outflow of $17.84 billion in May. Funds offered primarily to institutions had an inflow of $31.63 billion in June. Funds offered primarily to individuals had an outflow of $8.46 billion for the month.

There has been a lot of money dammed up, waiting for the opportunity to go into the equity markets again,” said Louis Harvey, president of Dalbar Inc., a Boston-based mutual fund consulting firm. “With good performance of the stock markets, we are seeing the release of all that pent-up cash.”

Harvey said he is surprised that taxable bond funds are still seeing robust cash inflows. “Bonds and bond funds have nowhere to go but down, but we are still seeing enormous flows of cash into fixed-income portfolios,” he said. “Although this inflow was a bit less than in May, it doesn’t make any sense. The reasonable movement should’ve been outflows from bonds. Obviously, many investors remain skeptical about the equity markets and are holding back.”

Harvey noted that muni bonds almost shut down in June (an inflow of only $38-million versus $1.27-billion in May). “This is most likely a result of the newly reduced tax rate on dividends,” Harvey said. “Since interest payment from muni funds will still be taxed at the higher ordinary income rate, they are far less attractive investments.”

Harvey said he expects inflows into bond funds to steadily decrease for the remainder of the year.

Year to date through June, equity funds have received an inflow of $35.50 billion , compared with an inflow of $53.21 billion at this time last year.

Overall, the combined assets of the nation’s mutual funds increased by $114.4 billion, or 1.7%, to $6.818 trillion in June.

Net New Cash Flow of Long-Term Funds (Bil.$)

STOCK MUTUAL FUNDSAmounts in Billion $

June 2003May 2003*Year-to-Date 2003Year-to-Date 2002*

New Sales76.7366.20389.73500.67

Redemptions-60.73-56.49-348.30-440.91

Net Exchanges2.652.22-5.93-6.55

Net New Cash Flow18.6611.9335.5053.21

TAXABLE BOND MUTUAL FUNDS

June 2003May 2003*Year-to-Date 2003Year-to-Date 2002*

New Sales34.4033.10201.16144.60

Redemptions-27.46-24.80-141.01-98.32

Net Exchanges-1.68-0.684.834.40

Net New Cash Flow5.267.6264.9850.68

MUNICIPAL BOND MUTUAL FUNDS

June 2003May 2003*Year-to-Date 2003Year-to-Date 2002*

New Sales6.035.7733.2531.50

Redemptions-5.22-4.48-29.17-24.53

Net Exchanges-0.78-0.02-1.320.67

Net New Cash Flow0.381.272.777.64

HYBRID MUTUAL FUNDS

June 2003May 2003*Year-to-Date 2003Year-to-Date 2002*

New Sales8.266.9842.1943.10

Redemptions-4.92-4.35-31.44-31.93

Net Exchanges0.650.451.241.85

Net New Cash Flow3.993.0811.9913.01

*Revised