Nine leading mutual fund companies saw their combined sales through banks plunge by one-third in 1994, to $10.8 billion, according to a report by a Boston consulting firm.

Seven of the nine fund companies studied by Cerulli Associates reported that their business through the once-booming bank channel had shriveled, by 20% to 70%.

But two - Fidelity Investments and Oppenheimer Management Corp. - managed to buck the trend, boosting sales in the face of volatile markets and rising interest rates.

The study offered the first solid evidence that, after brisk sales in 1993, the bank mutual fund business slowed significantly in 1994.

Industry observers said the slowdown began after the Federal Reserve started raising interest rates last February. The move undercut the value of bond funds, which had been popular with bank customers.

As a result, fund sales "dropped off a cliff in March," said Richard A. Davies, president of First Chicago Investment Services, the brokerage arm of First Chicago Corp.

With rising interest rates, yields on certificates of deposit also rose, dampening bank customers' enthusiasm for mutual funds, said Eric M. Rubin, managing director of mutual funds at Banc One Investment Advisors Corp., Banc One Corp.'s brokerage unit.

Because mutual fund companies do not routinely release sales data, Cerulli Associates based its report on a survey of brokerage operations of 150 large banks. Cerulli estimated total sales for the past two years after interviewing top executives at these firms, which include banks' own brokerage subsidiaries and unaffiliated brokerages that operate on bank premises.

"None of this is precise, but it is a reasonable ballpark estimate," said Kurt Cerulli, the firm's principal.

According to the study, Putnam Mutual Funds and Franklin Resources Inc. retained their leadership positions in bank fund sales. But their 1994 volume - $3.6 billion and $2.2 billion, respectively - was well below 1993 levels. Neither company could be reached for comment.

While several fund companies said the survey's findings were on the mark, some disputed its conclusions, saying Cerulli's methods gave an incomplete picture.

For instance, while the data show that the Colonial Group's sales through banks dropped from $1 billion in 1993 to $300 million in 1994, Craig Howard, director of Colonial's bank sales division, said sales were "closer to $400 million."

An executive at Alliance Capital Management also disputed data that showed the New York company's bank sales had slid from $1.3 billion in 1993 to $400 million last year.

"While business was off, it wasn't nearly that bad," said William O'Grady, Alliance's national sales manager for banks. He said sales through banks totaled $605 million last year. However, he was including money market funds and closed-end funds, in addition to the open-end stock and bond funds reflected in the Cerulli data.

Companies that fared well in the survey were especially quick to endorse it.

Boston-based Fidelity, the nation's largest mutual fund company, boosted its bank sales 50%, to $1.5 billion in 1994. Company executives said this shows that banks view Fidelity as a partner, not a rival.

"The old story about us being the competitor isn't true anymore," said David Liebrock, chief of Fidelity's bank broker-dealer division.

Mr. Liebrock attributed Fidelity's gains to the company's extensive product line, which includes a wide selection of equity funds. "My competitors were primarily selling fixed income, and fixed income was a rocky road in 1994," he said.

Mr. Cerulli agreed with that assessment. Companies whose product lines were heavily weighted toward fixed-income funds tended to fare worse than competitors with broad-based products, he said.

At Oppenheimer, sales through banks rose 18%, to $825 million last year, according to the Cerulli data. Maryann Bruce, director of Oppenheimer's financial institutions division, credited the company's product line and service with driving the increase in bank sales.

"We're not totally reliant on income funds," she said.

Despite 1994's experience, fund company executives said they remain committed to marketing products through banks and expect sales to improve this year.

Massachusetts Financial Services was "not overly disappointed" with 1994 sales overall, since its volume of variable annuities rose 70%, said Jeremiah M. Potts, chief of sales development at the Boston-based company.

Mr. Cerulli said he expected sales through banks to improve.

"I don't think they (1994 sales data) paint a bleak picture for banks as a distribution channel," he said.

Fidelity's Mr. Liebrock is expecting an upturn in sales through banks, too. His company would boost sales through banks by more than 50% in 1995, he said.

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