1. Key Trends in Mutual Fund Innovation: Beyond Traditional Strategies Sonia Mata Senior Research Analyst sonia@sionline.com

2. 2 Uncertainty, Volatility Drive Search for “Alternative” Ways to Invest

3. Close to Half of New Long-Term Open-End Funds Launched Year-to-Date are “Non-Traditional”

4. Rethinking the Traditional 60/40 “Balanced” Portfolio  The “Core” of Investors’ Portfolios increasingly Global and Risk Managed  Developed markets no longer the only anchor of the “Core”: Emerging Markets shift from the periphery towards the center  Changes in the Bond landscape drive shifts in the fixed income component  The new “cores” increasingly include allocation to Non- Traditional asset classes and may incorporate Non- Traditional Strategies

5. Post-Crisis Move Towards Portfolio Construction “Solutions”  US vs. International Exposure  Developed vs. Emerging Markets  Dollar vs. Non-Dollar  Traditional vs. Alternative Asset sleeves  Long-only fully invested vs. Incorporating Short Positions and Cash More complexity drives advisers to seek “solutions” in the form of Global Tactical Asset Allocation (GTAA) funds or single asset-class Absolute Return-oriented unconstrained Strategies.

6. Global Asset Allocation Funds Flow Pace Accelerates in 2012

7. GAA: Significant Presence in Top Selling Equity Funds over Trailing 3 Mths as of 5/2012

8. GAA also an Area of Vibrant Innovation

9. Pre-Packaged AA Funds Witness Accelerating Flow Pace, in Aggregate, YTD in 2012

10. Bond Fund Sales Explode in a Historically Low Interest Rate Environment

11. 30 Yrs of Falling Interest Rates Drove Extraordinarily Dependable Bond Fund Performance in Many Market Environments; Prospect of Secular Shift in Trend Drives Wave of Innovation

12. Non-Traditional Bond Strategies: A Secular Innovation Theme though Flows Slowed after 1H11

13. EM Stock Investing: Still High Risk Aversion + Intermittent Spikes in Global Stock Market Volatility + Many EM Fund PMs Facing Capacity Limitations ---- ˃ Sparks Balanced EM Fund Innovation

14. Commodities Funds: Accelerating Flows Post-Crisis into ’40 Act Funds Providing Diversified Exposure; Budding Active, Long-Short Category

15. Newly Launched Equity/Hybrid Funds Gaining Flows: Evolving Themes  Global Flexible AA  Multi-alternative, Long-Short / Market-Neutral  Global Income-focused Equity and Multi-Asset  Diversified EM  Large-Cap US/Foreign Equity  MLP / Global Real Estate

16. New Active Equity/Hybrid Open-End Funds Gaining Traction

17. Types of New Bond Funds Gaining Traction  Short / Ultrashort Bond  Flexible Global Bond  Floating Rate Loan  High Yield Bond  Intermediate Investment Grade  Emerging Market Debt

18. Successful New Active Bond Open-End Funds

19. Appendix

20. Top 10 Selling Active US Equity/Hybrid Funds over Trlg 3 Mths - Prominent Themes are Large-Cap, Relatively Concentrated Style Box Portfolios; Income-focused Stock and Multi-Asset

21. Top 10 Selling Active Intl/Glbl Equity/Hybrid Funds 3 Mths-5/12: GAA and Diversified EM Equity are Prominent Themes

22. Top Selling Active Open-End Bond Funds over 3 Mths-5/12

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