1. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. CHAPTER 16 Securities Firms, Mutual Funds, and Financial Conglomerates

2. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. U.S. Corporate Underwriting Activity 1985-2001 (Billions of Dollars, Rounded) Year 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001* New Debt Issues $ 203.9 355.3 325.7 352.9 318.3 299.3 389.8 471.5 641.5 498.0 573.2 651.1 811.4 1,001.7 941.3 807.3 689.5* New Equity Issues $ 35.5 68.4 66.6 57.8 40.2 75.4 88.3 124.1 85.1 100.6 122.0 117.9 182.0 223.9 283.7 124.9* Total Underwritings $ 239.4 423.7 392.3 410.7 376.1 339.5 465.2 559.8 765.6 583.1 673.8 773.1 929.3 1,183.7 1,165.2 1,091.0 814.4* *Through July 2001 only. SOURCE: Board of Governors of the Federal Reserve System, Federal Reserve Bulletin, various issues.

3. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. The Value of Outstanding Shares of Investment Companies 1982-2001 (Billions of Dollars) *Through June 30, 2001 SOURCE: Flow of Funds Account of the United States, Z.1, Board of Governors of the Federal Reserve System, various issues. 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001* Year $219.9 179.5 232.2 242.4 290.6 313.8 335.0 424.7 498.3 535.0 539.5 589.6 602.9 745.3 891.1 1,048.7 1,334.2 1,584.8 1,812.1 2,014.8* Money Market Mutual Funds $76.9 112.1 135.6 245.9 426.5 480.2 500.5 589.6 608.4 769.5 992.5 1,375.4 1,477.3 1,852.8 2,342.4 2,989.4 3,610.5 4,553.4 4,457.2 4,269.9* Open-End Mutual Funds $7.5 7.4 6.4 8.3 14.5 21.3 43.2 52.5 52.9 71.2 93.5 116.1 117.8 134.4 144.7 149.4 151.0 156.3 142.8 136.3* Closed-End Investment Companies

4. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. A Sample of the Types of Mutual Funds Stock Funds Aggressive growth funds seek capital appreciation by investing in small companies with potential for growth; such funds are risky but often pay high returns. Global equity funds invest in stocks from around the world, thereby achieving greater diversification that that achieved by investing in comparable stocks provided by one country; the downside is exposure to losses if exchange rates change adversely. Growth and income funds invest in companies that are expected to to grow and that pay dividends. Income-equity funds invest in companies expected to pay high dividends. Index funds invest in a market basket of stocks that replicates the basket included in a stock market index such as the S&P 500; index funds attempt to match the performance of the index. Sector funds invest in stocks of particular industries such as biotechnology or health care; because diversification is less than that achieved in more broadly based funds, returns can be more volatile. Socially conscious funds invest in companies they believe to be ethically responsible; depending on the specific values and goals, these funds may avoid stocks of companies involved with cigarettes, alcohol, gambling, weapons, or nuclear power; they may also avoid stocks of a country whose leadership they believe is repressive.

5. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. A Sample of the Types of Mutual Funds (continued) Bond Funds Corporate bond funds invest only in corporate bonds. Global bond funds invest in bonds from around the world; the exchange rate risk can be high. Ginnie Mae funds invest in Ginnie Mae mortgage-backed securities. High-yield bond funds invest most of their portfolio in junk bonds; these funds offer the potential for high returns but also entail high risk. Long-term municipal bond funds invest in a broad base of municipal bonds; earning are exempt from federal taxes. State municipal bond funds invest in municipal bonds from one state; earning are exempt from federal taxes and from state taxes for investors living in the issuing state. U.S. government income funds invest in U.S. government bonds and government agency securities.

6. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. A Sample of the Types of Mutual Funds (continued) Stock and Bond Funds Balanced funds invest in some combination of stocks and bonds to preserve principal, generate income, and achieve long-term growth. Flexible portfolio funds can vary relative investments among stocks, bonds, and money market instruments depending on management. Income mixed funds invest in stocks and bonds to earn high dividend and interest income. Convertible securities funds invest in securities (such as preferred stock or bonds) that can be converted to common stock; such securities offer the potential to share in earnings if the company does very well by converting to common stock.

7. Copyright © 2003 by South-Western/Thomson Learning. All rights reserved. Financial Assets and Liabilities of Government-Sponsored Enterprises 1982- 2001 (Billions of Dollars) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 b Year $254.8 256.5 297.7 324.0 346.4 374.4 421.7 454.2 477.6 496.8 552.3 631.1 781.8 896.9 988.6 1,099.4 1,403.8 1,720.6 1,969.4 2,125.3 b Total Financial Assets $205.4 206.8 237.2 257.8 273.0 303.2 348.1 373.3 393.7 402.9 443.1 523.7 700.6 806.5 896.9 995.3 1,273.6 1,597.1 1,824.8 1,957.6 b GSE Securities Outstanding $249.1 250.3 291.0 319.6 342.8 370.1 416.1 447.6 469.1 486.0 538.7 614.4 761.7 873.4 964.1 1,070.3 1,368.1 1,681.1 1,922.6 2,076.3 b Total Liabilities a a Note that GSEs have other miscellaneous liabilities in addition to outstanding securities. The difference between total assets and total liabilities represents stockholder equity. b Through second quarter 2001. SOURCE: Flow of Funds Accounts of the United States, Z1, Board of Governors of the Federal Reserve System, Washington D.C., various issues.