Principal Protection Products Gather Interest & Assets in U.S.

Date: Wednesday, October 2, 2002

New study sheds light on the escalating development of principal protected mutual funds, insurance products, and hedge funds - Today, FRC announced the release of the first comprehensive study to focus on the principal protection products offered in the United States. Principal Protection: Asset Retention in Down Markets is a timely qualitative and quantitative review of current principal protection developments in the traditional mutual fund industry, the insurance industry, and the hedge fund industry in the U.S. Responding to periods of market volatility, product manufacturers are developing offerings with principal guarantees to allay investors’ current and future fears. Armed with the conservative investment story behind these types of products, distributors are able to deliver the capital preservation solutions sought by nervous investors today. Principal protected mutual funds have been garnering more attention by product manufacturers looking to capitalize on market volatility to attract the assets of retail clients. The term “principal protection” generally refers to products that permit some equity market exposure, while guaranteeing at least a return of principal on some future date, by incorporating a third-party, unaffiliated guarantor. Over the last several months, several firms have brought new products to market, including Smith Barney and IDEX funds, while many others have indicated their intentions to do so, including Pioneer Investments, Merrill Lynch, Evergreen Investments and BlackRock. As for the insurance industry, principal protected funds are now appearing in VA sub-accounts and other insurance vehicles. In this arena they offer investors another form of insurance, just as a guaranteed minimum death benefit protects the interests of beneficiaries during a bear market.