Citibank and Bankers Trust plan to market mutual funds to retail investors in Japan, beating Japanese banks to the punch. Bankers Trust is the No. 1 fund manager in Australia. U.S. managers are rapidly exporting their expertise at money-market funds to countries that haven't previously had such funds. And State Street Bank is exporting its expertise as a global custodian to Europe.

What's happening here?

Nothing less than a full-scale invasion of foreign markets by U.S. companies in the mutual fund business. Some have engaged foreign partners, while others are recruiting foreign talent to help with the effort.

Remarkably, they are facing only slight competition in most markets.

What's attracting the Americans is the large amounts of untapped wealth in the mature markets and the rapid income growth in emerging markets.

The foreign markets are not only expanding. They are also ripe for shifts in their investment preferences. Millions of people abroad, many of them a new generation of investors, are looking for higher returns. And millions more are taking responsibility for their own retirement incomes for the first time as a shift to 401(k)-like defined-contribution plans becomes more widespread.

But even with juicy markets and minimal competition, the U.S. managers still face some formidable obstacles. The biggest is a lack of understanding about what a mutual fund is. In countries where U.S. managers are using local banks as distributors, for example, they must get acrossthe concept that the bank is not insuring people against losses-a difficult premise in some countries.

Brian Scullin, president of Japan Bankers Trust Co., put it succinctly. "The amount of money invested in mutual funds is only a minuscule fraction of Japanese wealth," he said. But he added that training programs would have to teach even the staff "the difference between guaranteed deposits and mutual funds."

This risk factor may be a deterrent to many potential investors. In Europe, for example, wealth is still concentrated in the hands of an older, conservative, and entirely risk-averse group of people. Luring them to mutual funds is a major challenge.

Meanwhile, the domestic market for global mutual funds is also growing but, like the foreign market, some investor resistances are apparent.

With the U.S. market at such a lofty level, many Americans are reluctant to accept the diversification message that is the principal selling point for owning foreign investments. "How one overcomes that is an educational process," said Joy Montgomery, president of Money Marketing Initiatives, Basking Ridge, N.J. "To be just in U.S. investments, you are ignoring a significant percentage of the world's markets."

Despite the resistance, global mutual funds have been growing rapidly. A total of 29 were formed in 1997, some with remarkable results. Formed in October, Merrill Lynch Global Growth B had accumulated $1.2 billion of assets by the end of March and ranked 15th in size among all global funds. And Morgan Stanley's Global Equity B, also formed in October, reached $581 million and 20th place.

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