2018 Investment Company Fact Book

Transcript

1 2018 Investment Company Fact Book A Review of Trends and Activities in the Investment Company Industry 58th edition www.icifactbook.org

2 2017 Facts at a Glance Total net assets of worldwide regulated open-end funds* $49.3 trillion $22.1 trillion United States Europe $17.7 trillion $6.5 trillion Asia-Pacific Rest of the world $2.9 trillion $22.5 trillion US-registered investment company total net assets Mutual funds $18.7 trillion Exchange-traded funds $3.4 trillion Closed-end funds $275 billion $85 billion Unit investment trusts US-registered investment companies’ share of: US corporate equity 31% US and foreign corporate bonds 20% US Treasury and government agency securities 13% US municipal securities 25% Commercial paper 25% US household ownership of US-registered investment companies Number of households owning funds 57.3 million Number of individuals owning funds 101.9 million Percentage of households owning funds 45.4% Median mutual fund assets of mutual fund – owning households $120,000 Median number of mutual funds owned among mutual fund – 3 owning households US retirement market Total retirement market assets $28.2 trillion Percentage of households with tax-advantaged retirement savings 61% IRA and DC plan assets invested in mutual funds $8.8 trillion * Regulated open-end funds include mutual funds, exchange-traded funds (ETFs), and institutional funds. Note: Components may not add to the total because of rounding.

3 2018 Investment Company Fact Book

4 2018 Investment Company Fact Book A Review of Trends and Activities in the Investment Company Industry 58th edition www.icifactbook.org

5 The Investment Company Institute (ICI) is the leading association representing regulated funds globally, including mutual funds, exchange-traded funds (ETFs), closed-end funds, and unit investment trusts (UITs) in the United States, and similar funds offered to investors in jurisdictions worldwide. ICI seeks to encourage adherence to high ethical standards, promote public understanding, and otherwise advance the interests of funds, their shareholders, directors, and advisers. ICI carries out its international work through ICI Global, with offices in London, Hong Kong, and Washington, DC. Although information or data provided by independent sources is believed to be reliable, ICI is not responsible for its accuracy, completeness, or timeliness. Opinions expressed by independent sources are not necessarily those of the Institute. If you have questions or comments about this material, please contact the source directly. Fifty-eighth edition ISBN 1-878731- 6 4-5 Copyright © 2018 by the Investment Company Institute. All rights reserved.

6 CONTENTS viii Letter from the Chief Economist ICI Research Staff and Publications x PART ONE Analysis and Statistics Chapter Five 104 List of Figures 2 US Closed-End Funds 10 Chapter One Worldwide Regulated Open-End Funds 116 Chapter Six US Fund Expenses and Fees C h a p t e r Tw o 32 140 US-Registered Investment Companies Chapter Seven Characteristics of US Mutual Fund Owners 56 Chapter Three US Mutual Funds Chapter Eight 162 US Retirement and Education Savings Chapter Four 82 US Exchange-Traded Funds PART TWO Data Tables 204 List of Data Tables Section Five 250 Additional Categories of US Mutual Funds Section One 208 268 US Mutual Fund Totals Section Six Institutional Investors in the US Mutual S e c t i o n Tw o 216 Fund Industry US Closed-End Funds, Exchange-Traded Funds, and Unit Investment Trusts Section Seven 270 Retirement Account Investing in 222 Section Three US Mutual Funds US Long-Term Mutual Funds 272 Section Eight Section Four 242 Worldwide Regulated Open-End US Money Market Funds Fu n d Tot als 278 Appendix A How US-Registered Investment Companies Operate and the Core Principles Underlying Their Regulation 302 Appendix B Significant Events in Fund History 305 Glossary 319 Index

7 Letter from the Chief Economist

8 LETTER FROM THE CHIEF ECONOMIST How do we see the world? Our eyes are flooded with light, bearing signals about the shape and movement of people and objects around us. But those signals don’t make sense until they’re processed through our eyes, our nerves, and our brains, where we apply accumulated knowledge and models of the world to turn patterns of light into the recognized image of a landmark or a friend’s face. Those of us who have worn glasses most of our lives know that one of the most crucial elements in this process is the right lens. A bad lens warps the light and distorts the signals—so our brains never have a chance to make sense of the patterns. The right lens sharpens the image and enhances our understanding. This is a useful metaphor for the work that ICI Research does in providing informed analysis to guide public policy. Through our voluminous collections and surveys, we gather large amounts of data—signals about the behavior of funds, markets, and investors. But finding the patterns in these signals requires the right lens—accumulated knowledge provided by context, economic insights, and understanding of institutions. The Investment Company Fact Book is one very visible result of this process and its many elements. Data. The Fact Book provides objective data and information about investment companies and their investors—high-quality signals to send through the lens. Each chapter, as well as extensive data tables, was developed with great care by the research staff. All of the data in this book are available on ICI’s website—in addition to data from the more than 300 statistical releases produced throughout the year under the direction of Judy Steenstra, ICI’s senior director of statistical research. The Fact Book also provides a wealth of information on investor characteristics. These are derived from unique databases and surveys—updated annually under the direction of Sarah Holden, ICI’s senior director of retirement and investor research—that illuminate the success of the fund industry in helping investors save. In a recent ICI Viewpoints , Sarah Holden and I used data drawn from chapters 7 and 8 to explain why mutual fund investors reacted rather calmly to the stock market turbulence in February 2018: investors save for long-term goals such as retirement, understand that funds involve risk-return trade-offs, and make financial plans (often with the help of a financial professional) that can help them weather market downturns. Context. Chapters 2 and 3 in particular give us an example of focusing data through context. They offer informed analysis for how developments in markets affected flows to US mutual funds. Some have expressed concern that rapid growth in bond fund assets could destabilize fixed -income markets. As chapter 3 shows, bond funds have attracted more than $1.5 trillion in new money in the past decade. But even with that rapid growth, by year-end 2017, assets in funds accounted for only 20 percent of the US bond market (chapter 2). With this context, the concern over bond funds’ rapid growth dissipates. viii 2018 INVESTMENT COMPANY FACT BOOK

9 Institutional knowledge. Deep institutional knowledge—that is, an understanding of the institutions of funds, investors, and the financial and retirement markets—also is key to good vision. ICI Research spends a lot of time seeking to understand how investors and markets operate, which allows us to combine data with real world details. Chapter 4, as well as a recent ICI Viewpoints by Shelly Antoniewicz, ICI’s senior director of industry and financial analysis, offer good examples. When stock market volatility spiked in early February 2018, some commentators pointed fingers at exchange-traded funds (ETFs). We explained that the vast majority of ETF trades occur between investors on the secondary market (i.e., the stock exchanges) and don’t “touch” the stocks ETFs hold. Those stocks are affected only on the primary market—when there are net creations or redemptions of ETF shares. We showed that although ETF trading volumes did rise on the secondary market during the recent market turbulence, net redemptions of ETF shares were a tiny fraction of the value of company stocks traded. Economic insights. The life-cycle consumption model—standard fare in undergraduate economics—is simple in concept: workers improve their welfare by smoothing consumption over their lifetimes. As my colleague Peter Brady has emphasized, the life-cycle model has vast implications for correctly interpreting data on households’ preparedness for retirement. Because a worker’s earnings typically increase early in life and then level off, the model suggests workers should delay saving for retirement until later in their career. In fact, as the model predicts, younger and lower-income workers are less likely to participate in employer-sponsored retirement plans. But alarm over this pattern is misplaced: younger workers don’t stay young, and many lower- income workers advance into better-paying jobs. As we show in chapter 8, by the time households approach retirement, 81 percent have accrued benefits in a defined benefit plan; accumulated assets in a defined contribution plan or individual retirement account; or both. Global vision. Finally, to get a clear picture of the industry, we must sometimes broaden our field of vision. ICI has for years served on behalf of the International Investment Funds Association (IIFA) as a repository of data about the global funds market. Over the past decade, financial regulation has gone global in new and expansive ways that affect the fund industry. So, too, has the work of ICI, with the launch of ICI Global in 2011. As we continue to build our research and data in this area, the 2018 Fact Book introduces a new chapter—chapter 1—focusing on trends in the flows and assets of funds globally. We hope you’ll find this year’s Fact Book an illuminating lens, both as a compendium of data and information, and ultimately as a store of knowledge. As a quote commonly attributed to (the famously bespectacled) Benjamin Franklin puts it, “An investment in knowledge pays the best interest.” ix LETTER FROM THE CHIEF ECONOMIST

10 ICI RESEARCH STAFF AND PUBLICATIONS ICI Senior Research Staff Chief Economist Sean Collins leads the Institute’s Research Department. He oversees statistical collections and research on US and global funds, financial markets, the US retirement market, financial stability, and investor demographics. Before joining ICI in 2000, Collins worked at the US Federal Reserve Board of Governors and the Reserve Bank of New Zealand. He is a current member of the Group of Economic Advisers (GEA) to the European Securities and Markets Authority (ESMA). He has a PhD in economics from the University of California, Santa Barbara, and a BA in economics from Claremont McKenna College. Senior Director of Industry and Financial Analysis Rochelle Antoniewicz conducts research on the structure and trends of the US and global exchange-traded fund (ETF), mutual fund, and closed-end fund industries and on the equity and bond markets in the United States and globally. Before joining ICI, Antoniewicz spent 13 years at the Federal Reserve Board of Governors. She earned a BA in management science from the University of California, San Diego, and an MS and PhD in economics from the University of Wisconsin–Madison. Senior Director of Retirement and Investor Research Sarah Holden leads the Institute’s research efforts on investor demographics and behavior and retirement and tax policy. Holden, who joined ICI in 1999, heads efforts to track trends in household retirement saving activity and ownership of funds as well as other investments inside and outside retirement accounts. Before joining ICI, Holden served as an economist at the Federal Reserve Board of Governors. She has a PhD in economics from the University of Michigan and a BA in mathematics and economics from Smith College. Senior Director of Statistical Research Judy Steenstra leads the collection and publication of weekly, monthly, quarterly, and annual data on open-end mutual funds, as well as data on closed-end funds, exchange-traded funds, unit investment trusts, and the worldwide fund industry. Steenstra joined ICI in 1987 and was appointed director of statistical research in 2000. She has a BS in marketing from Pennsylvania State University. x 2018 INVESTMENT COMPANY FACT BOOK

11 ICI Research Department The ICI Research Department consists of 39 members, including economists and research analysts. This staff collects and disseminates data for all types of registered investment companies, offering detailed analyses of fund shareholders, the economics of investment companies, and the retirement and education savings markets. 2017 ICI Research and Statistical Publications ICI is the primary source of analysis and statistical information on the investment company Investment Company Fact Book , the Institute’s Research industry. In addition to the annual Department released 23 research and policy publications and more than 300 statistical reports in 2017. The Investment Company Fact Book remains one of ICI Research’s most visible products— garnering more than 35,000 visits and downloads in 2017. In its 58th edition, this ICI publication continues to provide the public and policymakers with a comprehensive summary of ICI’s data and analysis. The Fact Book is available at www.icifactbook.org in both PDF and HTML formats. The HTML version contains downloadable data for all charts and tables. Papers Industry and Financial Analysis » “The Closed-End Fund Market, 2016,” ICI Research Perspective , April 2017 » “Trends in the Expenses and Fees of Funds, 2016,” ICI Research Perspective , May 2017 Retirement and Investor Research » “The Role of IRAs in US Households’ Saving for Retirement, 2016,” ICI Research Perspective , January 2017 “American Views on Defined Contribution Plan Saving, 2016,” ICI Research Report , » February 2017 “Profile of Mutual Fund Shareholders, 2016,” ICI Research Report , February 2017 » “Defined Contribution Plan Participants’ Activities, First Three Quarters of 2016,” » ICI Research Report , February 2017 » “Using Panel Tax Data to Examine the Transition to Retirement,” April 2017 “Defined Contribution Plan Participants’ Activities, 2016,” ICI Research Report , June 2017 » » “The IRA Investor Profile: Roth IRA Investors’ Activity, 2007–2015,” ICI Research Report , June 2017 » “The IRA Investor Profile: Traditional IRA Investors’ Activity, 2007–2015,” ICI Research , June 2017 Report xi ICI RESEARCH STAFF AND PUBLICATIONS

12 » “The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2016,” , June 2017 ICI Research Perspective » ICI Research Perspective , July 2017 “Who Participates in Retirement Plans,” » “Ten Important Facts About IRAs,” July 2017 » “Ten Important Facts About Roth IRAs,” July 2017 “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2015,” ICI Research » Perspective , August 2017 » “Ten Important Facts About 401(k) Plans,” August 2017 » “Defined Contribution Plan Participants’ Activities, First Quarter 2017,” ICI Research Report , August 2017 » “Profile of Mutual Fund Shareholders, 2017,” ICI Research Report , October 2017 » “Ownership of Mutual Funds, Shareholder Sentiment, and Use of the Internet, 2017,” , October 2017 ICI Research Perspective » ICI Research Perspective , October 2017 “Characteristics of Mutual Fund Investors, 2017,” » “What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Account Balances, 2010–2015,” ICI Research Perspective , October 2017 “Defined Contribution Plan Participants’ Activities, First Half 2017,” ICI Research Report , » November 2017 » “The Role of IRAs in US Households’ Saving for Retirement, 2017,” ICI Research Perspective , December 2017 . www.ici.org/research ICI’s papers and more are available at xii 2018 INVESTMENT COMPANY FACT BOOK

13 Analysis and Commentary: ICI Viewpoints In addition to research papers, ICI staff produce analysis and commentary for the Institute’s blog, . Below are some examples of the analysis published in 2017. Please visit ICI Viewpoints www.ici.org/viewpoints to find these and more. For “401(k) Pioneers,” No Reason for Regrets » » Mutual Funds’ and ETFs’ Share of the Corporate Bond Market: What’s the Right Answer? » What’s the “Exposure” of Money Market Funds to Europe? Scratch That: Why Arguments of a Broken Retirement System Are Misguided » » Average Expense Ratios for Long-Term Mutual Funds Continued to Decrease in 2016 » Average Expense Ratios for Index ETFs Have Declined » Americans Trust in Their 401(k) Plans » Simulating a Crisis » In Reality, Data Tell a Different Story of Old Age in America » Applying Evidence to Theories on Regulated Funds » More People Are Building Nest Eggs with Their IRAs » Let’s Give the US Retirement System the Credit It Deserves Statistical Releases Trends in Mutual Fund Investing » Monthly report that includes mutual fund sales, redemptions, assets, cash positions, exchange activity, and portfolio transactions for the period by 42 investment objectives. Estimated Long-Term Mutual Fund Flows » Weekly report that provides aggregate estimates of net new cash flows to 16 categories of equity, hybrid, and bond mutual funds. Estimated Exchange-Traded Fund (ETF) Net Issuance » Weekly report that provides aggregate estimates of net issuance to six categories of ETFs. Combined Estimated Long-Term Mutual Fund Flows and ETF Net Issuance Weekly news release and report that provides aggregate estimates of net new cash flows » and net issuance to six categories of long-term mutual funds and ETFs. xiii ICI RESEARCH STAFF AND PUBLICATIONS

14 Money Market Fund Assets Weekly report on money market fund assets by type of fund. » Monthly Taxable Money Market Fund Portfolio Data Monthly report based on data contained in SEC Form N-MFP that provides insights into » the aggregated holdings of prime and government money market funds and the nature and maturity of security holdings and repurchase agreements. Retirement Market Data » Quarterly report that includes individual retirement account (IRA) and defined contribution (DC) plan assets, mutual fund assets inside retirement accounts, and estimates of mutual fund net new cash flows to retirement accounts by type of fund. Mutual Fund Distributions » Quarterly report that includes paid and reinvested capital gains and paid and reinvested income dividends of mutual funds by broad investment classification. Institutional Mutual Fund Shareholder Data » Annual report that includes mutual fund asset information for various types of institutional shareholders, broken out by broad investment classification. Closed-End Fund Data Quarterly report that includes closed-end fund assets, number of funds, issuance, » redemptions, distributions, use of leverage, and number of shareholders by investment objective. Exchange-Traded Fund Data » Monthly report that includes assets, number of funds, issuance, and redemptions of ETFs by investment objective. Unit Investment Trust Data » Monthly report that includes the value and number of new trust deposits by type and maturity. Worldwide Regulated Open-End Fund Data » Quarterly report that includes assets, number of funds, and net sales by broad investment classification of funds in 48 jurisdictions worldwide. These and other ICI statistics are available at www.ici.org/research/stats . To subscribe to . www.ici.org/pdf/stats_subs_order.pdf ICI’s statistical releases, visit xiv 2018 INVESTMENT COMPANY FACT BOOK

15 Acknowledgments Publication of the 2018 Investment Company Fact Book was directed by Morris Mitler, economist, and Judy Steenstra, senior director of statistical research, working with Miriam Bridges, editorial director, James Duvall, assistant economist, Candice Gullett, editor, and Angie Brownie, designer. Contributors from ICI’s research team who developed and edited analysis, text, and data are Steven Bass, Mike Bogdan, Peter Brady, Sailesh Jha, Shaun Lutz, Sheila McDonald, Matthew Nolan, Doug Richardson, Julieth Saenz, Dan Schrass, and Jason Seligman. xv ICI RESEARCH STAFF AND PUBLICATIONS

16 PART ONE Analysis and Statistics

17 FIGURES CHAPTER ONE Worldwide Regulated Open-End Funds Figure 1.7 22 Figure 1.1 13 Total Net Assets of Worldwide Regulated Number of Worldwide Regulated Open-End Funds Open-End Funds Surpassed $49 Trillion in 2017 Figure 1.8 23 15 Figure 1.2 Total Net Assets of Worldwide Regulated Stock Market Gains Were Strong in 2017 Open-End Funds Figure 1.3 25 Figure 1.9 16 Worldwide Net Sales of Regulated Impact of Changes in the Exchange Rate on Open the US Dollar Value of a European Stock -End Long-Term Funds 18 Figure 1.10 Figure 1.4 27 Worldwide Net Sales of Regulated Countries with More-Developed Stock -End Long-Term Funds Exceeded Open Markets Tend to Have More-Developed $2 Trillion in 2017 Fund Industries Figure 1.11 Figure 1.5 20 29 Worldwide Net Sales of Money Market US Households Have More of Their Wealth in Regulated Funds; Chinese Households Funds Have a Lower Share Figure 1.6 21 Net Sales of Money Market Funds in the Figure 1.12 31 Asia-Pacific Region Are Related to Chinese Worldwide Regulated Open-End Long-Term Money Market Instrument Returns Fund Share of Worldwide Equity and Debt Markets 2 2018 INVESTMENT COMPANY FACT BOOK

18 CHAPTER TWO US-Registered Investment Companies Figure 2.1 45 34 Figure 2.10 Investment Company Total Net Assets by Number of Fund Sponsors Ty p e 46 Figure 2.11 35 Positive Net Share Issuance of ETFs and Figure 2.2 Positive Net New Cash Flow to Long-Term The Majority of US Mutual Fund and ETF Mutual Funds Total Net Assets Were in Equity Funds 47 Figure 2.12 Figure 2.3 36 Share of Mutual Fund and ETF Assets at the Share of Household Financial Assets Held Largest Fund Complexes in Investment Companies Figure 2.13 49 Figure 2.4 37 Number of Mutual Funds and ETFs Entering Mutual Funds in Household Retirement and Leaving the Industry Accounts Figure 2.14 Figure 2.5 38 51 Money Market Funds Managed 16 Percent Total Net Assets and Number of UITs -Term of US Nonfinancial Businesses’ Short Figure 2.15 52 Assets in 2017 Number of Investment Companies by Type Figure 2.6 40 53 Figure 2.16 Investment Companies Channel Investment Investment Company Industry Employment to Stock, Bond, and Money Markets 54 Figure 2.17 Figure 2.7 42 Investment Company Industry Employment Index Funds Have Grown as a Share of the by Job Function Fund Market Figure 2.18 55 43 Figure 2.8 Investment Company Industry Employment Index Fund Share of US Stock Market Is by State Small 44 Figure 2.9 More Than 80 Percent of Fund Complexes Were Independent Fund Advisers 3 FIGURES

19 CHAPTER THREE US Mutual Funds Figure 3.1 Figure 3.10 72 58 Bond Mutual Funds Have Experienced Net Equity Mutual Funds Held More Than Half of Mutual Fund Total Net Assets Inflows Through Most of the Past Decade 74 Figure 3.11 59 Figure 3.2 Net New Cash Flow to Hybrid Mutual Number of Mutual Funds Entering and Funds Exiting the Industry Figure 3.3 60 76 Figure 3.12 Net New Cash Flow to Index Mutual Funds Households Held 90 Percent of Mutual Fund Total Net Assets Figure 3.13 76 61 Figure 3.4 Index Equity Mutual Funds’ Share Continued to Rise Net New Cash Flow to Mutual Funds Figure 3.5 Figure 3.14 65 77 Net New Cash Flow to Equity Mutual Funds Some of the Outflows from Domestic Equity Mutual Funds Have Gone to ETFs Typically Is Related to World Equity Returns 66 Figure 3.6 78 Figure 3.15 Net New Cash Flow to Equity Mutual Funds Fee-Based Advisers Are Driving Larger Portions of Client Portfolios Toward ETFs in 2017 79 68 Figure 3.16 Figure 3.7 Assets of Large 401(k) Plans Are Turnover Rate Experienced by Equity Mutual Fund Investors Increasingly Held in Collective Investment Tr us t s Figure 3.8 69 Net New Cash Flow to Bond Mutual Funds 80 Figure 3.17 Typically Is Related to Bond Returns Net New Cash Flow to Money Market Funds Figure 3.9 70 Figure 3.18 Net New Cash Flow to Bond Mutual Funds 81 in 2017 Net Yields of Money Market Funds Far Exceeded MMDA Rates by the End of 2017 4 2018 INVESTMENT COMPANY FACT BOOK

20 CHAPTER FOUR US Exchange-Traded Funds Figure 4.1 98 86 Figure 4.8 The United States Has the Largest ETF Net Share Issuance of ETFs by Investment Market Classification Figure 4.2 Figure 4.9 87 99 Total Net Assets of ETFs Were Total Net Assets and Number of ETFs Concentrated in Large-Cap Domestic 89 Figure 4.3 Stocks Creation of ETF Shares Figure 4.10 100 91 Figure 4.4 Number of ETFs Entering and Exiting the The Secondary Market Has Many ETF Industry Liquidity Providers 101 Figure 4.11 Figure 4.5 94 ETF-Owning Households Held a Broad Most ETF Activity Occurs on the Secondary Range of Investments Market 102 Figure 4.12 95 Figure 4.6 Characteristics of ETF-Owning Households Secondary Market Trading of High-Yield 103 Bond ETFs Increased When Yields Rose in Figure 4.13 2017 ETF-Owning Households Are Willing to Take More Investment Risk 97 Figure 4.7 Record Net Share Issuance of ETFs in 2017 CHAPTER FIVE US Closed-End Funds Figure 5.1 Figure 112 5.6 107 Total Assets of Closed-End Funds Were Preferred Shares Constituted the Majority $275 Billion at Year-End 2017 of Closed-End Fund Structural Leverage 108 Figure 5.2 113 Figure 5.7 Composition of the Closed-End Fund Use of Portfolio Leverage Market by Investment Objective 114 Figure 5.8 Figure 5.3 Closed-End Fund Investors Owned a Broad 109 Range of Investments Closed-End Fund Net Share Issuance 5.4 115 110 Figure Figure 5.9 Closed-End Fund Investors Had Above- Closed-End Fund Distributions Average Household Incomes and Financial 111 Figure 5.5 Assets Closed-End Funds Are Employing Structural and Some Types of Portfolio Leverage 5 FIGURES

21 CHAPTER SIX US Fund Expenses and Fees 128 Figure 6.8 Figure 6.1 119 Expense Ratios Incurred by Index ETF Expense Ratios Incurred by Mutual Fund Investors Have Declined in Recent Years Investors Have Declined Substantially Since 2000 Figure 6.9 129 Index ETF Expense Ratios Vary Across 120 Figure 6.2 Investment Objectives Mutual Fund Expense Ratios Tend to Fall as Fund Assets Rise 133 Figure 6.10 121 Figure 6.3 No-Load Share Classes Garnered Positive Net New Cash Flow in 2017 Fund Shareholders Paid Below-Average Expense Ratios for Equity Mutual Funds Figure 6.11 134 122 Gross Sales of Long-Term Mutual Funds Figure 6.4 Are Concentrated in No-Load Share Classes Total Net Assets Are Concentrated in Lower-Cost Mutual Funds 135 Figure 6.12 123 Total Net Assets of Long-Term Mutual Figure 6.5 Funds Are Concentrated in No-Load Mutual Fund Expense Ratios Vary Across Investment Objectives Share Classes 125 Figure 6.6 137 Figure 6.13 Total Net Assets and Number of Index A Variety of Arrangements May Be Used to Compensate 401(k) Service Providers Mutual Funds Have Increased in Recent Ye a r s Figure 6.14 139 Figure 6.7 401(k) Equity Mutual Fund Assets Are 126 Concentrated in Lower-Cost Funds Expense Ratios of Actively Managed and Index Mutual Funds Have Fallen 6 2018 INVESTMENT COMPANY FACT BOOK

22 CHAPTER SEVEN Characteristics of US Mutual Fund Owners 142 Figure 7.1 153 Figure 7.11 44.5 Percent of US Households Owned Mutual Fund Ownership Inside and Outside Mutual Funds in 2017 of Employer-Sponsored Retirement Plans Figure 7.12 154 143 Figure 7.2 Characteristics of Mutual Fund Investors Millennial Mutual Fund–Owning Households Are More Likely to Hold Funds Figure 7.3 144 Through Employer-Sponsored Retirement Incidence of Mutual Fund Ownership Plans Is Greatest Among the Baby Boom Generation and Generation X Figure 7.13 155 Baby Boom Mutual Fund–Owning 145 Figure 7.4 Households Are More Likely Than The Baby Boom Generation Is the Largest Millennials to Hold Funds Outside Shareholder Group and Holds Half of Employer-Sponsored Retirement Plans Households’ Mutual Fund Assets Figure 7.14 156 146 Figure 7.5 Households’ Mutual Fund Assets by Type Ownership of Mutual Funds Increases with of Account Household Income 157 Figure 7.15 Figure 7.6 147 Most Shareholders View the Mutual Fund Half of Households Owning Mutual Funds Industry Favorably Have Moderate or Lower Incomes 158 Figure 7.16 Figure 7.7 148 Households’ Willingness to Take Employer-Sponsored Retirement Plans Are Investment Risk Increasingly the Source of First Mutual Figure 7.17 Fund Purchase 159 Equity Funds Are the Most Commonly Figure 7.8 149 Owned Type of Mutual Fund Majority of Mutual Fund Investors Focus on 160 Retirement Figure 7.18 More Than Eight in 10 Mutual Fund– Figure 7.9 151 Owning Households Have Confidence in Mutual Fund Investments Outside Mutual Funds Retirement Plans Are Often Guided by Figure 7.19 161 Investment Professionals Internet Access Is Nearly Universal Among Figure 7.10 152 Mutual Fund–Owning Households Mutual Fund Investors Purchase Mutual Funds Through a Variety of Channels 7 FIGURES

23 CHAPTER EIGHT US Retirement and Education Savings 180 164 Figure 8.1 Figure 8.13 401(k) Asset Allocation Varies with Retirement Resource Pyramid Participant Age Figure 8.2 165 Primary Reason for Household Saving 181 Figure 8.14 Asset Allocation to Equities Varies Widely Changes with Age Among 401(k) Plan Participants 166 Figure 8.3 182 Figure 8.15 Social Security Benefit Formula Is Highly Progressive Target Date Funds’ 401(k) Market Share 183 167 Figure 8.4 Figure 8.16 Near-Retiree Households Across All 401(k) Plan Balances Tend to Increase with Income Groups Have Retirement Assets, Participant Age and Job Tenure DB Plan Benefits, or Both 185 Figure 8.17 Figure 8.5 IRA Assets Surpass $9 Trillion 169 Total US Retirement Market Assets 186 Figure 8.18 170 Nearly 44 Million US Households Owned Figure 8.6 IRAs Total US Retirement Assets and Unfunded Defined Benefit Plan Liabilities Figure 8.19 187 New Roth IRAs Often Are Opened with 171 Figure 8.7 Contributions; New Traditional IRAs Often Many US Households Have Retirement Are Opened with Rollovers Resources Outside Social Security 189 8.8 Figure 8.20 172 Figure Multiple Sources of Information Are Most Workers Maintain Spendable Income Consulted for Rollover Decisions After Claiming Social Security Figure 8.9 Figure 8.21 173 191 Nearly Nine in 10 Had Retirement IRA Asset Allocation Varies with Investor Age Resources Outside of Social Security 175 Figure 8.22 192 Figure 8.10 Roth IRA Investors Rarely Take Defined Contribution Plan Assets by Type Withdrawals; Traditional IRA Investors of Plan Are Heavily Affected by RMDs Figure 8.11 176 Large 401(k) Sponsors Use a Variety of 193 Figure 8.23 Traditional IRA Withdrawals Among Plan Designs Retirees Often Are Used to Pay for Figure 8.12 178 Living Expenses Incidence of Investment Options Offered in Large 401(k) Plans by Type of Investment 8 2018 INVESTMENT COMPANY FACT BOOK

24 Figure 8.24 Figure 8.27 198 194 Substantial Amounts of Retirement Assets Target Date and Index Funds Have Risen as Are Invested in Mutual Funds a Share of DC Plans’ Mutual Fund Assets Figure 8.25 195 199 Figure 8.28 Section 529 Savings Plan Assets Majority of Mutual Fund Retirement Account Assets Were Invested in Equities Figure 8.29 201 Characteristics of Households Saving for 197 Figure 8.26 Target Date and Lifestyle Mutual Fund College Assets by Account Type 9 FIGURES

25 CHAPTER ONE Worldwide Regulated Open-End Funds Investors across the globe have demonstrated strong demand for regulated open-end funds (referred to in this chapter as regulated funds ). Total net assets of worldwide regulated funds have more than doubled in the past 10 years, surpassing $49 trillion at year-end 2017. This demand has been influenced by a number of long-term factors, as well as cyclical and macroeconomic factors. Fund providers have responded to the increasing interest in these funds, offering more than 114,000 regulated funds that provide a vast array of choices for investors. In many countries, markets for regulated funds are well-developed and highly competitive.

26 Total net assets of worldwide regulated open-end funds have more than doubled in the past decade n More tha rillio  t n   end  r- ea t y a IN THIS CHAPTER 12 What Are Regulated Funds? 13 Investor Demand for Worldwide Regulated Funds 23 Total Net Assets and Net Sales of Worldwide Regulated Funds by Region 26 Factors Influencing Demand for Worldwide Regulated Funds 30 Size of Worldwide Regulated Funds in Global Capital Markets

27 What Are Regulated Funds? ICI, following standards set by the International Investment Funds Association (IIFA), defines regulated funds as collective investment pools that are substantively regulated, open-end investment funds.* Open-end funds generally are defined as those that issue new fund shares (or units) or redeem existing shares (or units) on demand. Such funds are typically regulated with respect to disclosure, the form of organization (for example, as either corporations or trusts), custody of fund assets, minimum capital, valuation of fund assets, and restrictions on fund investments, such as limits on leverage, types of eligible investments, and diversification of portfolio investments. † In the United States, regulated funds include mutual funds and exchange-traded funds (ETFs). In Europe, regulated funds include Undertakings for Collective Investment in Transferable Securities (UCITS)—ETFs, money market funds, and other categories of similarly regulated funds—and alternative investment funds, commonly known as AIFs. In many countries, regulated funds also may include institutional funds (funds that are restricted to being sold to a limited number of non-retail investors), funds that offer guarantees or protection of principal (those that offer a formal, legally binding guarantee of income or capital), and open-end real estate funds (funds that invest directly in real estate to a substantive degree). * The primary data source for worldwide regulated funds is the IIFA. In 2017, IIFA collected data on worldwide regulated funds from 48 jurisdictions. For data on individual jurisdictions, see the data tables on pages 272–277. For more details about the IIFA data collection, see www.ici.org/info/ww_q4_14_definitions.xls. † Two other highly regulated US investment products, unit investment trusts and closed-end funds, are discussed in chapter 2 and chapter 5, respectively. LEARN MORE IIFA Presents Expanded Worldwide Regulated Open-End Fund Assets and Flows Report www.ici.org/research/stats/worldwide/ww_q1_15_explanation 2018 INVESTMENT COMPANY FACT BOOK 12

28 Investor Demand for Worldwide Regulated Funds Worldwide regulated funds have seen robust growth in assets in the past two decades across four broad regions consisting of the United States, Europe, Asia-Pacific, and the rest of the world. Among other factors, rising demand for regulated funds has been driven by investors’ demand for professionally managed and well-diversified products offering access to capital markets and by the increasing depth and liquidity of global capital markets. Total Net Assets of Worldwide Regulated Funds Total net assets in worldwide regulated funds hit $49.3 trillion at year-end 2017, more than double their level in 2008 (Figure 1.1).* In 2017 alone, total net assets in these funds jumped nearly $9 trillion. FIGURE 1.1 Total Net Assets of Worldwide Regulated Open-End Funds Surpassed $49 Trillion in 2017 Trillions of US dollars by type of fund; year-end, 2008–2017 et y mark Mone ond B  he ot d xe r Mi Equity                                                                                                           s en d open- egulate e r d fund r of w umbe l n ta To orldwid                               1 Mixed/other funds include balanced/mixed funds, guaranteed/protected funds, real estate funds, and other funds. 2 Data for total net assets by type of fund are not available in 2008 and 2009. 3 Data for Russia are for 2017:Q3. Note: Regulated open-end funds include mutual funds, ETFs, and institutional funds. Components may not add to the total because of rounding. Source: International Investment Funds Association * In this chapter, unless otherwise noted, data for total net assets and net sales are denominated in US dollars. WORLDWIDE REGULATED OPEN-END FUNDS 13

29 Forty-four percent, or $21.8 trillion, of total net assets in regulated funds were in equity funds, which invest primarily in publicly traded stocks (Figure 1.1). Mixed/other funds* made up another $11.2 trillion, while bond funds—which invest primarily in fixed-income securities—had total net assets of $10.4 trillion. Money market funds, which are generally defined throughout the world as regulated funds that are restricted to holding only short-term, high-quality money market instruments, had $5.9 trillion in total net assets, or 12 percent of worldwide regulated fund total net assets. More than 40 percent of the increase in total net assets of regulated funds in 2017 reflected robust gains in stock markets around the world and a general appreciation of foreign currencies against the dollar. In 2017, US stocks returned nearly 19 percent (Figure 1.2). Stock markets elsewhere in the world also rose. For example, European stock markets returned 26 percent in 2017, while Asia-Pacific stock markets returned 32 percent. In addition, the euro -denominated appreciated 14 percent against the US dollar in 2017, boosting the value of euro assets when measured in US dollars (see page 16). In the Asia-Pacific region, the Australian dollar appreciated 8 percent, the Chinese renminbi appreciated 6 percent, and the Japanese yen appreciated 4 percent against the US dollar in 2017. * Mixed/other funds include balanced/mixed funds, guaranteed/protected funds, real estate funds, and other funds. LEARN MORE Worldwide Regulated Open-End Fund Assets and Flows www.ici.org/research/stats/worldwide 2018 INVESTMENT COMPANY FACT BOOK 14

30 FIGURE 1.2 Stock Market Gains Were Strong in 2017 Percent, 2010–2017  xc uros Change in e at e r hang e of e  To s quitie S e n U n o ur l ret ta  n e s quitie uropea n E n o ur l ret ta To  n A s quitie c e Pacifi sia- To ta l ret ur n o              -  -                 1 The change in the exchange rate of euros is measured as the year-over-year percent change in the exchange rate of US dollars per euro. 2 The total return on US equities is measured as the year-over-year percent change in the Wilshire 5000 Total Return Index (float-adjusted). 3 The total return on European equities is measured as the year-over-year percent change in the MSCI Daily Total Return Gross Europe Index (expressed in US dollars). 4 The total return on Asia-Pacific equities is measured as the year-over-year percent change in the MSCI Daily Total Return Gross AC Asia-Pacific Index (expressed in US dollars). Sources: Investment Company Institute, Bloomberg, and MSCI WORLDWIDE REGULATED OPEN-END FUNDS 15

31 How Exchange Rates Can Influence Measurement of Total Net Assets Held by Worldwide Regulated Funds For worldwide regulated funds holding assets denominated in currencies other than US dollars, fluctuations in US dollar exchange rates can significantly affect the value of these assets when they are expressed or measured in US dollars. For example, when foreign currencies appreciate against the dollar (or, equivalently, the US dollar depreciates against foreign currencies), it will have a positive impact on the value of any assets not denominated in US dollars when those assets are measured in US dollars. Figure 1.3 illustrates this effect using two hypothetical scenarios. FIGURE 1.3 Impact of Changes in the Exchange Rate on the US Dollar Value of a European Stock Scenario 1: No change in exchange rate between euros and US dollars Year 1 Year 2 Percent change 1. Market value of European stock expressed in euros €100 €110 10% 2. Exchange rate of euros (US dollars per euro) 1.00 1.00 0% 3. Market value of European stock expressed in US dollars $110 10% $100 Scenario 2: Market value if euro appreciates (US dollar depreciates) Year 1 Year 2 Percent change 4. Market value of European stock expressed in euros €100 €110 10% 5. Exchange rate of euros (US dollars per euro) 1.00 1.20 20% $132 32% 6. Market value of European stock expressed in US dollars $100 2018 INVESTMENT COMPANY FACT BOOK 16

32 In the first scenario, the market value of a European stock, measured in euros, rises from €100 in year 1 to €110 in year 2, an increase of 10 percent. The exchange rate between US dollars and euros, in this scenario, is unchanged at 1.00 in both years. In other words, one euro is worth one US dollar in both years. To convert the euro-denominated value of the European stock into US dollars, multiply by the exchange value of the euro (US dollar price per euro). Because this is 1.00 in both years, the value of the European stock expressed in US dollars is exactly the same as when expressed in euros: $100 in year 1 and $110 in year 2. When the US dollar exchange rate with another country is unchanged between two years, any gain or loss in assets denominated in that country’s currency translates into an identical percentage gain or loss when the value of those assets is expressed in US dollars. Exchange rates, however, rarely remain unchanged. The second scenario illustrates what happens when a European stock experiences the same 10 percent gain as in the first scenario (€100 in year 1 to €110 in year 2), but at the same time, the euro appreciates 20 percent against the US dollar. As in the first scenario, in year 1 the market value of European stock expressed in US dollars is $100. In year 2, however, one euro is now worth 1.20 US dollars. To find the US dollar value of the European stock in year 2, multiply €110 by 1.20 (US dollars per euro) to get $132. The US dollar return on the European stock is now 32 percent—higher than in the first scenario because it accounts for both the stock price gain in euros and the appreciation of the euro relative to the US dollar. WORLDWIDE REGULATED OPEN-END FUNDS 17

33 Worldwide Net Sales of Regulated Long-Term Funds In the past decade, total net assets in worldwide regulated long-term (equity, bond, and mixed/other) funds also were boosted by strong investor demand for new fund shares, with net sales totaling $11.4 trillion (Figure 1.4). In 2017 alone, investors across the globe purchased $2.1 trillion in additional shares of regulated long-term funds. Forty-two percent of those net sales ($879 billion) went to bond funds in 2017. Much of these sales were attributable to the United States, where bond funds posted exceptionally strong inflows (see chapters 3 and 4). With stock prices rising rapidly around the world, some fund investors may have felt it appropriate to add to their bond fund holdings to keep their allocations of stocks and bonds in line with their long-term objectives. FIGURE 1.4 Worldwide Net Sales of Regulated Open-End Long-Term Funds Exceeded $2 Trillion in 2017 1 Billions of US dollars by type of fund; annual, 2008–2017 ond B  d r Mi he ot xe Equity                                                                               -   - -  -                       1 Data for Ireland are not available in 2008 and 2009; are included in mixed/other in 2010; and are distributed by type of fund from 2011 to 2017. 2 Mixed/other funds include balanced/mixed funds, guaranteed/protected funds, real estate funds, and other funds. 3 Data for Russia are through 2017:Q3. Note: Regulated open-end funds include mutual funds, ETFs, and institutional funds. Long-term funds include equity funds, mixed/other funds, and bond funds, but exclude money market funds. Components may not add to the total because of rounding. Source: International Investment Funds Association 2018 INVESTMENT COMPANY FACT BOOK 18

34 Worldwide demand for regulated long-term funds has been fairly robust over most of the past decade. With the exception of 2008—the worst year of the global financial crisis—net sales of regulated long-term funds were positive. Moreover, in eight of the past 10 years (2008 and 2011 being the exceptions), each long-term fund type recorded positive net sales. Since 2008, net sales of bond funds and mixed/other funds have been particularly strong, far outpacing net sales of equity funds. Although a number of factors likely affected net flows, two stand out as the most applicable. First, some investors, such as those nearing retirement, may have reassessed their willingness to accept above-average or substantial investment risk. The global population is aging—in 2017, around 23 percent of the world’s population was individuals 50 and older, up from nearly 20 percent in 2007.* Against this backdrop, investors may have elected to weight their purchases toward regulated funds with less-variable returns. Returns on bonds tend to be less variable than those on stocks. Because of this, returns on bond funds, and some mixed/ other funds that hold substantial proportions of their total net assets in bonds, tend to be less variable than those of equity funds. Second, investor demand may have responded to favorable returns on bonds. In many countries, long-term interest rates declined during and after the financial crisis. To shore up their economies, major central banks cut short-term interest rates and held them at very low levels for much of the past decade. In addition, some major central banks, notably the US Federal Reserve and the European Central Bank, undertook “quantitative easing” policies, which added to the downward pressure on long-term interest rates. When interest rates fall, bond prices rise, boosting returns on bond funds and other funds that have substantial holdings of bonds, such as some mixed/other funds. * United Nations, Department of Economic and Social Affairs, Population Division. 2017. “World Population Prospects: The 2017 Revision” (June). Available at https://esa.un.org/unpd/wpp/. WORLDWIDE REGULATED OPEN-END FUNDS 19

35 Worldwide Net Sales of Money Market Funds Worldwide net sales of money market funds totaled $598 billion in 2017, a sharp increase from the $82 billion of net sales in 2016 (Figure 1.5). FIGURE 1.5 Worldwide Net Sales of Money Market Funds Billions of US dollars by region; annual, 2008–2017 As ia -Pac if ic Europe s nit U ta te e d S s t of th Re orld e w                                         - -  - - -  -  - -   -  - -   - - -  -  -  -  -  -  -                        1 Data for Ireland are not available in 2008 and 2009. 2 Data for Russia are through 2017:Q3. Note: Components may not add to the total because of rounding. Source: International Investment Funds Association The pattern of net sales over 2016 and 2017 primarily owed to developments in the Asia -Pacific region, where money market funds had net sales of $404 billion in 2017, after experiencing net outflows of $14 billion in the previous year. Investor demand for Chinese -Pacific money market funds strongly influenced net sales of money market funds in the Asia region. Nearly 80 percent of Asia-Pacific’s total net assets in money market funds were held in funds domiciled in China at year-end 2017. 2018 INVESTMENT COMPANY FACT BOOK 20

36 Investor demand for money market funds in the Asia-Pacific region appears to be related to changes in the total return on the short-term money market instruments held by these funds (Figure 1.6). Investors pulled back from Asia-Pacific money market funds as the total return on Chinese money market instruments declined from 4.3 percent in 2015 to 2.6 percent in 2016. As the total return on these money market instruments rose throughout 2017, investor demand for Asia-Pacific money market funds increased. FIGURE 1.6 Net Sales of Money Market Funds in the Asia-Pacific Region Are Related to Chinese Money Market Instrument Returns Annual, 2008–2017 Pe s Billions of US dollar t rcen   * l return ta To             t Ne s sale      - -                      * The total return on Chinese money market instruments is the year-over-year percent change in the ChinaBond Money Market Fund Investable Bond Index. This index includes some short-term bonds. Sources: International Investment Funds Association, Bloomberg, and China Central Depository and Clearing Corporation Limited In Europe, money market funds saw net sales of $72 billion in 2017, the third straight year of positive net sales (Figure 1.5). Europe, like the United States, has adopted reforms intended to increase the resilience of money market funds to financial shocks. US reforms, which were implemented in October 2016, had significant effects on the composition of net new cash flow to US money market funds in 2016. The influence, if any, of Europe’s impending regulatory changes on money market flows in that region is uncertain. Although European Union (EU) reforms for money market funds were adopted in 2017, existing funds are required to be in full compliance by January 2019. WORLDWIDE REGULATED OPEN-END FUNDS 21

37 In the United States, net sales of money market funds were $118 billion in 2017, the largest year of positive net sales since 2008 (Figure 1.5). Over the past decade, US money market funds have faced headwinds because of regulatory reforms and near-zero US short-term interest rates. With short-term interest rates rising in the United States in 2017, US money market funds became more attractive relative to other cash management investments. Number of Worldwide Regulated Funds At year-end 2017, fund providers across the globe offered more than 114,000 regulated funds for sale, a 36 percent increase since 2008 (Figure 1.1). Nearly half (48 percent) of these funds in 2017 were domiciled in Europe (Figure 1.7). The Asia-Pacific region accounted for 26 percent of regulated funds, the United States for 9 percent, and the rest of the world for 17 percent. About half (45 percent) of regulated funds were mixed/other funds. Equity funds accounted for 34 percent of regulated funds, and bond funds were 18 percent. Money market funds accounted for 2 percent of regulated funds. FIGURE 1.7 Number of Worldwide Regulated Open-End Funds 1 Percentage of funds by region or type of fund, year-end 2017 Ty Region fund e of p  if ia As -Pac ic   d Mi xe ot her     Europe ond B   Re of th rl d st e wo  y market Mone    ty Equi te ta U S ed nit s egulate d open- en d funds    Numbe r of w orldwid e r 1 Data for Russia are for 2017:Q3. 2 Mixed/other funds include balanced/mixed funds, guaranteed/protected funds, real estate funds, and other funds. Note: Regulated open-end funds include mutual funds, ETFs, and institutional funds. Components may not add to 100 percent because of rounding. Source: International Investment Funds Association 2018 INVESTMENT COMPANY FACT BOOK 22

38 Total Net Assets and Net Sales of Worldwide Regulated Funds by Region The total net assets of, and net sales to, regulated funds vary widely by geographic region. These differences reflect preferences for specific asset classes, differences in risk tolerances, relative development of capital markets, demographics, macroeconomic developments, and other factors. Total Net Assets of Worldwide Regulated Funds by Region The United States and Europe have the world’s largest regulated fund markets. In 2017, the United States maintained its position as the world’s largest fund market, with $22.1 trillion (45 percent) of the world’s $49.3 trillion in regulated fund total net assets (Figure 1.8). Funds domiciled in Europe held $17.7 trillion, or 36 percent of the worldwide total. The Asia-Pacific region had $6.5 trillion in total net assets, and $2.9 trillion were in funds domiciled in the rest of the world. FIGURE 1.8 Total Net Assets of Worldwide Regulated Open-End Funds Trillions of US dollars by region; year-end, 2008–2017 As ia -Pac if ic Europe U te ta d S e nit s t of th e w orld R es                                                                                                                        *      * Data for Russia are for 2017:Q3. Note: Regulated open-end funds include mutual funds, ETFs, and institutional funds. Components may not add to the total because of rounding. Source: International Investment Funds Association WORLDWIDE REGULATED OPEN-END FUNDS 23

39 United States. The relatively large size of the US market stems from a number of factors. One factor is the longevity of US-regulated funds, which have been available in the United States for around 100 years. For example, mutual funds have been available to US investors since the 1920s. Another factor is the strong regulatory framework for securities markets and regulated funds in the United States that was established in the wake of the stock market crash of 1929 and the Great Depression—most notably, the Securities Act of 1933 and the Investment Company Act of 1940. Renewed investor confidence in securities markets and regulated funds led to steady growth in US regulated funds’ assets. In recent decades, US demand has been fueled by the availability of regulated funds as investment options in tax-advantaged accounts (for example, 401(k) plans), and by a wide and growing availability of types of funds that help investors meet their investment goals (for example, ETFs and target date funds). Also, assets of regulated funds have been boosted by stock market appreciation and by reinvestment of dividends back into funds. Europe. Europe’s regulated fund market has grown briskly over the past few decades. One important factor helping to drive this growth is the UCITS regulatory framework, which includes passporting—the ability for funds domiciled in one EU country to be offered for sale and purchased by investors in another EU country. Additionally, many countries outside of Europe, such as in the Asia-Pacific region, allow UCITS to be offered for sale to their citizens. The pooling of assets from investors in a range of countries allows for economies of scale that help to lower the costs of funds to individual investors. The UCITS framework further promotes asset pooling across countries by allowing an individual fund to offer share classes that are denominated in a range of different currencies (for example, euros, US dollars, British pounds sterling) and adaptable to tax structures that differ across jurisdictions. Although the Asia-Pacific region had only 13 percent ($6.5 trillion out of Asia-Pacific. $49.3 trillion) of the worldwide total net assets of regulated funds, the market has been growing rapidly (Figure 1.8). Moreover, given the size of the population in the Asia-Pacific region, and the rapidly increasing economic development and wealth in many countries, there is potential for growth in the region’s regulated fund market. LEARN MORE How US-Registered Investment Companies Operate and the Core Principles Underlying Their Regulation Page 278 2018 INVESTMENT COMPANY FACT BOOK 24

40 Worldwide Net Sales of Regulated Long-Term Funds by Region Worldwide net sales of regulated long-term funds worldwide nearly doubled in 2017, compared with 2016, largely on the strength of flows in Europe and the United States (Figure 1.9). Net sales of regulated long-term funds (equity, bond, and mixed/other funds) in Europe more than doubled to $941 billion in 2017 from $361 billion in 2016. This increase in investor demand likely reflected strengthening economic growth in that region, which was accompanied by a robust rebound in European stock markets. Net sales of equity funds domiciled in Europe surged from $4 billion in 2016 to $201 billion in 2017. Demand for bond and mixed/other funds also strengthened as interest rates remained fairly stable and monetary policy remained accommodative in Europe. Net sales of regulated long-term funds in the United States increased to $784 billion in 2017, from $309 billion in 2016. This reflected a sharp increase in demand for US domiciled funds that invest outside the United States, and strong sales of bond mutual funds and bond ETFs (see chapters 3 and 4). FIGURE 1.9 Worldwide Net Sales of Regulated Open-End Long-Term Funds Billions of US dollars by region; annual, 2008–2017 As ia -Pac if ic   Europe   U nit e d S te s ta e w s Re orld t of th                                                                                   - -  -                         1 Data for Ireland are not available in 2008 and 2009. 2 Data for Russia are through 2017:Q3. Note: Regulated open-end funds include mutual funds, ETFs, and institutional funds. Long-term funds include equity funds, mixed/other funds (balanced/mixed, guaranteed/protected, real estate, and other funds), and bond funds, but exclude money market funds. Components may not add to the total because of rounding. Source: International Investment Funds Association LEARN MORE Trends in the European Investment Fund Industry www.efama.org/statistics WORLDWIDE REGULATED OPEN-END FUNDS 25

41 Factors Influencing Demand for Worldwide Regulated Funds Research indicates that the size of the regulated fund market in a particular country or region depends on a broad range of factors, including: access to well-developed capital markets, » » household demand for well-diversified investments, » strong and appropriate regulation of funds and financial markets, » availability of distribution structures that facilitate access to regulated funds, » regulated fund returns and costs relative to other available investment products, demographics, and » » high or improving levels of economic development. Well-Developed Capital Markets Demand for regulated funds is positively associated with the level of capital market development in a country. Residents of countries with more highly developed capital markets, such as the United States and European Union, tend to hold a larger share of their household financial wealth in regulated funds. Figure 1.10 illustrates the relationship between capital market development and size of the regulated fund market in a given country. The horizontal axis provides a measure of a country’s capital market development (a country’s stock market capitalization relative to its gross domestic product [GDP]). The vertical axis plots a measure of the size of the regulated fund market in a given country, measured by the total net assets in regulated long-term funds relative to GDP. 2018 INVESTMENT COMPANY FACT BOOK 26

42 FIGURE 1.10 Countries with More-Developed Stock Markets Tend to Have More-Developed Fund Industries Percent, 2016 Regulated open-end long-term fund total net assets * as a per oss domestic product e of gr centag       a Australi   etherlands N U ta d S e te s nit Sw it ze rlan d Canada ance Fr nit ed U K ingdom y German  apan J Republic of Korea China Pola nd Russia          St ock mark et capitalization as a percentage of gross domestic product * Regulated open-end funds include mutual funds, ETFs, and institutional funds. Long-term funds include equity funds, mixed/other funds (balanced/mixed, guaranteed/protected, real estate, and other funds), and bond funds, but exclude money market funds. Source: Investment Company Institute tabulations of data from the International Investment Funds Association, World Bank, and World Federation of Exchanges WORLDWIDE REGULATED OPEN-END FUNDS 27

43 Generally speaking, as stock market capitalization rises relative to GDP, so do total net assets in regulated funds. Countries with more-developed capital markets—such as the United States, the United Kingdom, the Netherlands, and Switzerland—tend to have a higher ratio of regulated long-term fund assets to GDP. For example, the Netherlands’ stock market capitalization slightly exceeds its GDP (110 percent, on the horizontal axis), indicating a highly developed capital market, while total net assets in regulated long-term funds are about equal to its GDP (at 99 percent on the vertical axis), indicating a more -developed fund industry. In contrast, countries with less-developed capital markets (lower ratios of stock market capitalization to GDP), such as Poland, Russia, and China tend to have fewer total net assets in regulated long-term funds relative to GDP. Other Factors Influencing Demand Other factors also influence the demand for regulated funds, and therefore, the size of the regulated fund market. For example, Japan’s stock market capitalization is 100 percent of GDP, not much lower than the Netherlands (Figure 1.10). Nevertheless, Japan has substantially less total net assets in regulated long-term funds as a proportion of its GDP (28 percent). This outcome reflects Japanese households’ tendency to save in bank deposits rather than invest in regulated funds. In some countries, especially those where banks have historically dominated the financial landscape, households have traditionally held more of their financial assets in bank products, and less in regulated funds (Figure 1.11). Households in Japan, China, and Russia hold more than half of their financial assets in bank deposits and currency and very little in regulated funds. In the United States, banks compete with capital market instruments for households’ financial assets; as a result, households hold a relatively small fraction of their assets in bank deposits (13 percent) compared with 23 percent in regulated funds. Europe is an intermediate case among industrialized nations, with 30 percent of households’ financial wealth in bank deposits and 8 percent in regulated funds. Differences in public policy and tax regimes across countries also likely have contributed to the dispersion of deposits and regulated funds held by households. LEARN MORE Regulated Funds, Emerging Markets, and Financial Stability www.iciglobal.org/iciglobal/research/industry/global 2018 INVESTMENT COMPANY FACT BOOK 28

44 FIGURE 1.11 US Households Have More of Their Wealth in Regulated Funds; Chinese Households Have a Lower Share 1 2 2017 Percentage of households’ financial wealth, epos urrenc s a n d c Ban y k d it lated funds Re gu              U ta te s Chin a Japa n Republic of Kore a European Unio n nit Russia e d S 1 Households’ financial wealth includes households and nonprofit institutions serving households; data for China exclude nonprofit institutions serving households. 2 Data for the United States, the Republic of Korea, and Japan are as of 2017:Q4; data for the European Union and Russia are as of 2017:Q3; data for China are estimated as of 2014:Q4. 3 For the United States, Japan, and Russia, regulated funds include total net assets held by mutual funds and ETFs. For the European Union, Republic of Korea, and China, regulated funds include investment fund shares as defined by their respective systems of national accounts. Source: Investment Company Institute tabulations of data from the International Investment Funds Association, Federal Reserve Board, Eurostat, Bank of Korea, Bank of Japan, Chinese Academy of Social Sciences, and Central Bank of the Russian Federation WORLDWIDE REGULATED OPEN-END FUNDS 29

45 Size of Worldwide Regulated Funds in Global Capital Markets Regulated funds are a growing source of capital for world financial markets, helping to finance businesses, governments, and household activities. As of 2017, worldwide capital markets, as measured by the value of equity and debt securities outstanding, totaled $186.3 trillion (Figure 1.12). Total net assets of regulated long-term funds constituted 23 percent ($43.4 trillion) of the $186.3 trillion in worldwide capital markets. The share of worldwide capital markets held by regulated long-term funds has grown over the past seven years. In 2010, worldwide regulated long-term funds accounted for 16 percent of worldwide capital markets, rising to 23 percent in 2017. Despite this increase, regulated long -term funds still accounted for a relatively small share of worldwide capital markets. The remaining 77 percent of worldwide capital markets are held by a wide range of investors, such as central banks, sovereign wealth funds, defined benefit pension plans, banks, insurance -dealers, and households’ direct holdings of stocks and bonds. companies, hedge funds, broker 2018 INVESTMENT COMPANY FACT BOOK 30

46 FIGURE 1.12 Worldwide Regulated Open-End Long-Term Fund Share of Worldwide Equity and Debt Markets Trillions of US dollars; year-end, 2010–2017 Ot he r inv es to rs f lated o e re rldwid s of wo sset t a e l n ta To pen-en d l on g-te rm gu unds                                                                               *  * Data for worldwide debt markets are as of September 30, 2017. Note: Regulated open-end funds include mutual funds, ETFs, and institutional funds. Long-term funds include equity funds, mixed/other funds (balanced/mixed, guaranteed/protected, real estate, and other funds), and bond funds, but exclude money market funds. Components may not add to the total because of rounding. Source: Investment Company Institute tabulations of data from the International Investment Funds Association, World Federation of Exchanges, and Bank for International Settlements WORLDWIDE REGULATED OPEN-END FUNDS 31

47 CHAPTER TWO US-Registered Investment Companies Registered investment companies are an important segment of the asset management business in the United States. US-registered investment companies play a major role in the US economy and financial markets, and a growing role in global financial markets. These funds managed more than $22 trillion in assets at year-end 2017, largely on behalf of more than 100 million US retail investors. The industry has experienced robust growth over the past quarter century from asset appreciation and strong demand from households due to rising household wealth, the aging US population, and the evolution of employer-based retirement systems. US funds supplied investment capital in securities markets around the world and were significant investors in the US stock and municipal securities markets.

48 The assets of US-registered investment companies exceeded $22 trillion in 2017 n More tha  t rillio n   end  r- ea t y a  IN THIS CHAPTER 34 Investment Company Assets in 2017 36 Americans’ Continued Reliance on Investment Companies 39 Role of Investment Companies in Financial Markets 41 Growth in Index Funds 44 Types of Intermediaries and Number of Investment Companies 53 Investment Company Employment

49 Investment Company Assets in 2017 Assets in US-registered investment companies* rose $3.3 trillion in 2017, to a record level at year-end of $22.5 trillion (Figure 2.1). Of that $22.5 trillion, mutual funds and exchange -traded funds (ETFs) accounted for the vast majority, $22.1 trillion. FIGURE 2.1 Investment Company Total Net Assets by Type Billions of dollars; year-end, 1999–2017 2 1 4 3 Mutual funds UITs Total ETFs Closed-end funds 6,846 1999 34 92 7, 1 1 9 147 2000 143 66 74 7, 2 4 7 6,96 4 6,975 141 83 49 7, 2 4 8 2001 2002 6,383 159 102 36 6,680 2003 7, 4 0 2 151 36 7, 8 0 2 214 2004 253 228 37 8,614 8,095 2005 8,891 276 301 41 9,5 0 9 2006 297 423 50 11,167 10,398 2007 12,000 312 608 53 1 2,974 531 2008 9,620 184 29 10,364 2009 11,111 38 12,150 223 777 238 13,113 51 11,833 2010 992 11,633 1,048 60 1 2,983 2011 242 13,054 264 1,337 72 14,727 2012 15,049 1,675 87 17,090 279 2013 18,238 289 1,975 101 2014 15,873 2015 15,652 261 2,101 94 18,108 2016 16,344 2,524 85 19, 21 5 263 1 8,74 6 2017 3,401 85 22,507 275 1 Mutual fund data exclude mutual funds that invest primarily in other mutual funds. 2 Closed-end fund data include preferred share classes. 3 ETF data prior to 2001 were provided by Strategic Insight Simfund. ETF data include ETFs not registered under the Investment Company Act of 1940 and exclude ETFs that primarily invest in other ETFs. 4 Total investment company assets include mutual fund holdings of closed-end funds and ETFs. Note: Data are for investment companies that report statistical information to the Investment Company Institute. Assets of these companies are 98 percent of investor assets. Components may not add to the total because of rounding. Sources: Investment Company Institute and Strategic Insight Simfund * The terms investment companies and US investment companies are used at times throughout this book in place of -registered investment companies are open-end mutual funds, closed-end US‑registered investment companies . US funds, exchange-traded funds, and unit investment trusts. 2018 INVESTMENT COMPANY FACT BOOK 34

50 The majority of US mutual fund and ETF assets at year-end 2017 were in long-term funds, with equity funds constituting 59 percent (Figure 2.2). Within equity funds, domestic funds (those that invest primarily in shares of US corporations) held 43 percent of total assets and world funds (those that invest significantly in shares of non-US corporations) accounted for 16 percent. Bond funds held 21 percent of US mutual fund and ETF assets. Money market funds, hybrid funds, and other funds—such as those that invest primarily in commodities— held the remainder (20 percent). Mutual funds recorded $174 billion in net new cash flows in 2017 (Figure 3.4). Investors on net added $67 billion to long-term mutual funds and $107 billion to money market funds. Mutual fund shareholders reinvested $257 billion in income dividends and $359 billion in capital gains distributions that mutual funds paid out during the year. Investors continued to show strong demand for ETFs with net share issuance (which includes reinvested dividends) totaling $471 billion in 2017 (Figure 4.7). Unit investment trusts (UITs) had new deposits of $49.6 billion, about the same as the previous year, and closed-end funds issued $2.7 billion in new shares, on net (Figure 5.3). FIGURE 2.2 The Majority of US Mutual Fund and ETF Total Net Assets Were in Equity Funds Percentage of total net assets, year-end 2017  s* Hybrid and other fund   Mone y market fund s   s ty Domest fund ic equi   s fund Bond   s ty rld equi Wo fund on   ssets U S m utua l fund trilli n d E T F tot a l n e t a a This category includes ETFs—both registered and not registered under the Investment Company Act of 1940—that * invest primarily in commodities, currencies, and futures. LEARN MORE Monthly Trends in Mutual Fund Investing www.ici.org/research/stats/trends US-REGISTERED INVESTMENT COMPANIES 35

51 Americans’ Continued Reliance on Investment Companies Households make up the largest group of investors in funds, and registered investment companies managed 24 percent of household financial assets at year-end 2017 (Figure 2.3). FIGURE 2.3 Share of Household Financial Assets Held in Investment Companies Percentage of household financial assets; year-end, 1980–2017                   Note: Household financial assets held in registered investment companies include household holdings of ETFs, closed- end funds, UITs, and mutual funds. Mutual funds held in employer-sponsored DC plans, IRAs, and variable annuities are included. Sources: Investment Company Institute and Federal Reserve Board The growth of individual retirement accounts (IRAs) and defined contribution (DC) plans, particularly 401(k) plans, explains some of the increased household reliance on investment companies in the past three decades. IRAs made up 11 percent of household financial assets at year-end 2017, up from 3 percent in 1987, while DC plans have risen from 5 percent of household financial assets to 10 percent over the same period (with 401(k) plans accounting for 7 percent of household financial assets at year-end 2017). Mutual funds made up a significant portion of DC plan assets (59 percent) and IRA assets (47 percent) at year-end 2017 (Figure 2.4). In addition, the share of DC plan assets held in mutual funds has nearly doubled over the past two decades, from 32 percent at year-end 1997 to 59 percent at year- end 2017. Mutual funds also managed $1.3 trillion in variable annuities outside retirement accounts, as well as $8.6 trillion of other assets outside retirement accounts. 2018 INVESTMENT COMPANY FACT BOOK 36

52 FIGURE 2.4 Mutual Funds in Household Retirement Accounts Percentage of retirement assets in mutual funds by type of retirement vehicle, 1997–2017 DC plans *                       IRAs                       * This category includes private employer-sponsored DC plans (including 401(k) plans), 403(b) plans, 457 plans, and the Federal Employees Retirement System (FERS) Thrift Savings Plan (TSP). Sources: Investment Company Institute, Federal Reserve Board, Department of Labor, National Association of Government Defined Contribution Administrators, American Council of Life Insurers, and Internal Revenue Service Statistics of Income Division. See Investment Company Institute, “The US Retirement Market, Fourth Quarter 2017.” US-REGISTERED INVESTMENT COMPANIES 37

53 Businesses and other institutional investors also rely on funds. For instance, institutions can use money market funds to manage some of their cash and other short-term assets. At year- end 2017, nonfinancial businesses held $575 billion (16 percent) of their short-term assets in money market funds (Figure 2.5). Institutional investors also have contributed to growing demand for ETFs. Investment managers—including mutual funds, pension funds, hedge funds, and insurance companies—use ETFs to invest in markets, to manage liquidity and investor flows, or to hedge their exposures. FIGURE 2.5 Money Market Funds Managed 16 Percent of US Nonfinancial Businesses’ Short -Term Assets in 2017 Percent; year-end, selected years                                 Note: US nonfinancial businesses’ short-term assets consist of foreign deposits, checkable deposits, time and savings deposits, money market funds, repurchase agreements, and commercial paper. Sources: Investment Company Institute and Federal Reserve Board LEARN MORE Money Market Fund Resource Center www.ici.org/mmfs 2018 INVESTMENT COMPANY FACT BOOK 38

54 Role of Investment Companies in Financial Markets Investment companies have been among the largest investors in the domestic financial markets for much of the past 20 years. They have held a fairly stable share of the securities outstanding across a variety of asset classes. At year-end 2017, investment companies held approximately 31 percent of the shares of US-issued equities outstanding, little changed from 30 percent in 2014 (Figure 2.6). Investment companies also held 20 percent of bonds issued by US corporations and foreign bonds held by US residents at year-end 2017. The percentage of bonds outstanding held by investment companies has been little changed since 2014, with mutual funds holding a significantly larger share of corporate bonds relative to other registered investment companies. Investment companies also held 13 percent of the US Treasury and government agency securities outstanding at year-end 2017, a share that has remained fairly stable since 2014 (Figure 2.6). As a whole, investment companies have been one of the largest groups of investors in US municipal securities, holding 25 percent of the municipal securities outstanding at year-end 2017. LEARN MORE Revised Fed Data Show Mutual Funds’ Share of Corporate Bond Market Is Small and Stable www.ici.org/viewpoints/view_16_corporate_bond_share US-REGISTERED INVESTMENT COMPANIES 39

55 FIGURE 2.6 Investment Companies Channel Investment to Stock, Bond, and Money Markets Percentage of total market securities held by investment companies, year-end 2014–2017 tual funds Mu s er egist r r he Ot t c d inv e estmen ompanie orporate c US      equity                oreign d f n S a U      corporate bonds                U S T reasur y an d     y genc t a rnmen ve go  securities             unicipal m US      securities                ercial Comm      pape r             1 Total US Treasury and government agency securities held by other registered investment companies were less than 0.5 percent in each year. 2 Other registered investment companies held no commercial paper in each year. Note: Components may not add to the total because of rounding. Sources: Investment Company Institute, Federal Reserve Board, and World Federation of Exchanges 2018 INVESTMENT COMPANY FACT BOOK 40

56 Historically, mutual funds have been one of the largest investors in the US commercial paper market—an important source of short-term funding for major corporations around the world. Mutual fund demand for commercial paper arose primarily from prime money market funds. In 2016, however, the assets of prime money market funds fell 70 percent (nearly $900 billion) as these funds adapted to the 2014 SEC rule amendments that required the money market fund industry to make substantial changes by October 2016. Consequently, prime money market funds sharply reduced their holdings of commercial paper. From year- end 2015 to year-end 2016, mutual funds’ share of the commercial paper market fell from 40 percent to 19 percent (Figure 2.6). By year-end 2017, mutual funds had increased their share of the commercial paper market to 25 percent. Growth in Index Funds Index funds are designed to track the performance of a market index. To do this, the fund manager purchases all of the securities in the index, or a representative sample of them, so that the performance of the fund tracks the value of the index. This approach to portfolio management is the primary reason that index funds —which can be formed as either mutual —tend to have below-average expense ratios. funds or ETFs Index mutual funds were first offered in the 1970s, followed by index ETFs in the 1990s. The assets of these funds reached $6.7 trillion by year-end 2017. Along with this growth, index funds have become a larger share of overall fund assets. At year-end 2017, index mutual funds and index ETFs together accounted for 35 percent of total net assets in long-term funds, up -end 2007 (Figure 2.7). Nevertheless, active mutual funds still were from 15 percent at year the majority of fund assets (65 percent) in 2017. LEARN MORE What’s the “Exposure” of Money Market Funds to Europe? www.ici.org/viewpoints/view_17_mmf_exposure US-REGISTERED INVESTMENT COMPANIES 41

57 FIGURE 2.7 Index Funds Have Grown as a Share of the Fund Market Percent, year-end 2007 and 2017  ET Index Fs  s Index mutual fund   s fund mutual Ac ed tively manag  on  trilli e n al  tot    ssets t a    Fs Index ET   s Index mutual fund  fund ed tively manag Ac s mutual   tot a l n e t a ssets    trilli on  1 The first actively managed ETF was not approved until 2008. 2 In 2017, actively managed ETFs accounted for 0.2 percent of the $19.2 trillion in total net assets. Note: The ETF category excludes non–1940 Act ETFs. The mutual fund category excludes money market fund total net assets. 2018 INVESTMENT COMPANY FACT BOOK 42

58 Much of the growth in index funds over the past decade has been concentrated in funds that invest in domestic equities. During this time frame, 44 percent of inflows into index funds went to domestic equity funds, and domestic equity index funds accounted for 63 percent of index fund assets at year-end 2017. Despite their recent rapid growth, index domestic equity mutual funds and ETFs remain a relatively small part of US stock markets, holding only 13 percent of the value of US stocks at year-end 2017 (Figure 2.8). Actively managed domestic equity mutual funds and ETFs held another 16 percent, while others—including hedge funds, pension funds, life insurance companies, and individuals—held the remaining 71 percent. FIGURE 2.8 Index Fund Share of US Stock Market Is Small Percentage of US stock market capitalization, year-end 2000–2017 s stor r inve he Ot domes equity tive Ac tic s an d ET Fs mutual fund Index domes tic equity mutual fund s an d ET Fs                                                                                          Note: In 2008 and 2009, data for index ETFs include a small number of actively managed ETFs. Components may not add to 100 percent because of rounding. Sources: Investment Company Institute and World Federation of Exchanges US-REGISTERED INVESTMENT COMPANIES 43

59 Types of Intermediaries and Number of Investment Companies A variety of financial services companies offer registered funds in the United States. At -end 2017, 81 percent of investment company complexes were independent fund year advisers (Figure 2.9), and these firms managed 70 percent of investment company assets. Other types of investment company complexes in the US market include non-US fund advisers, insurance companies, banks, thrifts, and brokerage firms. FIGURE 2.9 More Than 80 Percent of Fund Complexes Were Independent Fund Advisers Percentage of investment company complexes by type of intermediary, year-end 2017  Non-US fund advi sers   Independent fund advisers  Insurance companie s  fts Bank thri s or  erag e firms Br ok 2018 INVESTMENT COMPANY FACT BOOK 44

60 In 2017, 856 fund sponsors from around the world competed in the US market to provide investment management services to fund investors (Figure 2.10). The decline in the number of fund sponsors since year-end 2015 may be due to a variety of business decisions, including larger fund sponsors acquiring smaller ones, fund sponsors liquidating funds and leaving the business, or larger sponsors selling their advisory businesses. In recent years, the number of fund sponsors had been increasing as the economy and financial markets recovered from the 2007–2009 financial crisis. After 2009, 550 sponsors entered the market while 378 left, for a net increase of 172. FIGURE 2.10 Number of Fund Sponsors 2006–2017 l fund sponsor s at ye ar -end To ta sponsors te ring en nd Fu sponsors leavin g Fu nd                                                                        US-REGISTERED INVESTMENT COMPANIES 45

61 Many recent entrants to the fund industry have adopted solutions in which the fund’s sponsor arranges for a third party to provide certain services (e.g., audit, trustee, some legal) through a turnkey setup. This allows the sponsor to focus more on managing portfolios and gathering assets. Through an arrangement known as a series trust, the third party provides services to a number of independent fund sponsors under a single complex that serves as an “umbrella.” This can be cost-efficient because the costs of operating funds are spread across the combined assets of a number of funds in the series trust. The increased availability of other investment products has led to changes in how investors are allocating their portfolios. The percentage of mutual fund companies retaining assets and attracting net new investments generally has been lower in recent years. In 2017, 34 percent of fund complexes saw inflows to their long-term mutual funds; 93 percent of ETF sponsors had positive net share issuance (Figure 2.11). FIGURE 2.11 Positive Net Share Issuance of ETFs and Positive Net New Cash Flow to Long-Term Mutual Funds Percentage of fund complexes, 2007–2017 unds Long -t er m m utua l f ET Fs                                             Note: Data exclude funds that invest primarily in other funds. 2018 INVESTMENT COMPANY FACT BOOK 46

62 In 2017, the percentage of fund complexes attracting new money increased, despite a rising concentration of mutual fund and ETF assets managed by the largest fund complexes. The share of assets managed by the five largest firms rose from 36 percent in 2005 to 50 percent in 2017, and the share managed by the 10 largest firms increased from 47 percent to 60 percent (Figure 2.12). Some of the increase in market share occurred at the expense of the middle tier of firms—those ranked from 11 to 25—whose market share fell from 22 percent in 2005 to 17 percent in 2017. FIGURE 2.12 Share of Mutual Fund and ETF Assets at the Largest Fund Complexes Percentage of total net assets of mutual funds and ETFs; year-end, selected years 2005 2010 2015 2016 2017 36 Largest 5 complexes 42 50 45 47 Largest 10 complexes 55 56 58 60 47 Largest 25 complexes 69 74 75 76 77 Note: Data include only mutual funds and ETFs registered under the Investment Company Act of 1940. Mutual fund data exclude mutual funds that invest primarily in other mutual funds. ETFs registered as UITs and ETFs that invest primarily in other ETFs are excluded. US-REGISTERED INVESTMENT COMPANIES 47

63 At least two factors have contributed to the rise in industry concentration. First, because the 10 largest fund complexes manage most of the assets in index mutual funds, the growing popularity of index funds has increased concentration. Actively managed domestic equity mutual funds had outflows in every year since 2005, while index domestic equity mutual funds had inflows and index domestic equity ETFs had positive net share issuance in each of these years. Second, strong inflows over the past decade to bond mutual funds (Figure 3.8), which are fewer in number and are less likely to be offered by smaller fund sponsors, helped boost the share of assets managed by large fund complexes. Macroeconomic conditions and competitive dynamics can affect the supply of funds offered for sale. Fund sponsors create new funds to meet investor demand, and they merge or liquidate those that do not attract sufficient investor interest. A total of 705 mutual funds and ETFs opened in 2017, up from 664 in 2016, but well below the 2006–2015 annual average of 830 (Figure 2.13). The rate of mutual fund and ETF mergers and liquidations stayed about the same: 704 in 2016 and 706 in 2017. 2018 INVESTMENT COMPANY FACT BOOK 48

64 FIGURE 2.13 Number of Mutual Funds and ETFs Entering and Leaving the Industry 2006–2017 Opened f unds unds d f e quidat Merged Li                                                                     Note: Data include mutual funds that do not report statistical information to the Investment Company Institute and mutual funds that invest primarily in other mutual funds. ETF data include ETFs not registered under the Investment Company Act of 1940 but exclude ETFs that invest primarily in other ETFs. US-REGISTERED INVESTMENT COMPANIES 49

65 Unit Investment Trusts Unit investment trusts (UITs) are registered investment companies with characteristics of both mutual funds and closed-end funds. Like mutual funds, UITs issue redeemable shares (called units), and like closed-end funds, they typically issue a specific, fixed number of shares. But unlike either mutual funds or closed-end funds, UITs have a preset termination date based on the portfolio’s investments and the UIT’s investment goals. UITs investing in long-term bonds might have a preset termination date of 20 to 30 years, depending on the maturity of the bonds they hold. UITs investing in stocks might seek to capture capital appreciation in a few years or less. When a UIT terminates, proceeds from the securities are paid to unit holders or, at a unit holder’s election, reinvested in another trust. UITs fall into two main categories: bond trusts and equity trusts. Bond trusts are either taxable or tax-free; equity trusts are either domestic or international/global. The first UIT, introduced in 1961, held tax-free bonds, and historically, most UIT assets were invested in bonds. Equity UITs, however, have grown in popularity over the past two decades. Assets in equity UITs have exceeded the combined assets of taxable and tax-free bond UITs in recent years, and constituted 86 percent of the assets in UITs in 2017 (Figure 2.14). The number of trusts outstanding has been decreasing as sponsors created fewer new trusts and existing trusts reached their preset termination dates. Federal law requires that UITs have a largely fixed portfolio—one that is not actively managed or traded. Once the trust’s portfolio has been selected, its composition may change only in very limited circumstances. Most UITs hold a diversified portfolio, described in detail in the prospectus, with securities professionally selected to meet a stated investment goal, such as growth, income, or capital appreciation. Investors can obtain UIT price quotes from brokerage or investment firms and investment company websites, and some but not all UITs list their prices on NASDAQ’s Mutual Fund Quotation Service. Some broker-dealers offer their own trusts or sell trusts offered by nationally recognized independent sponsors. Units of these trusts can be bought through their registered representatives. Units can also be bought from the representatives of smaller investment firms that sell trusts sponsored by third-party firms. 2018 INVESTMENT COMPANY FACT BOOK 50

66 Though a fixed number of units of a UIT are sold in a public offering, a trust sponsor is likely to maintain a secondary market, in which investors can sell their units back to the sponsor and other investors can buy those units. Even absent a secondary market, UITs are required by law to redeem outstanding units at their net asset value (NAV), which is based on the underlying securities’ current market value. FIGURE 2.14 Total Net Assets and Number of UITs Year-end, 2006–2017 ) ta l t rusts ( righ t s cale To rus cale s ( t s sset ) t a Equit y t lef Ta xable debt trust asset s ( lef t s cale ) t a Ta re e d eb t t rus -f sset s ( lef t s cale ) x B usts r of tr Numbe illions of dolla rs                                                                                                      Note: Components may not add to the total because of rounding. US-REGISTERED INVESTMENT COMPANIES 51

67 The total number of investment companies has increased since 2005 (the recent low point), but it remains well below the year-end 2000 peak (Figure 2.15). This largely reflects the sharp decline in UITs in the early 2000s. The number of UITs declined to 5,035 at year-end 2017 from 5,100 at year-end 2016. The number of mutual funds decreased in 2017 to a total of 9,356 funds. The total number of closed-end funds fell to 530 at year-end 2017, the lowest level since 2001. The number of ETFs continues to grow, with 1,897 ETFs at year-end 2017, triple the total number of ETFs a decade ago. FIGURE 2.15 Number of Investment Companies by Type Year-end, 1999–2017 1 2 ETFs Closed-end funds Mutual funds Total UITs 18,958 1999 8,003 511 30 10,414 80 10,072 19,0 02 2000 8,369 481 8,517 489 102 9, 2 95 18,403 2001 1 7, 4 6 9 8,303 113 543 2002 8,510 8,425 581 119 2003 16,358 7, 2 3 3 15,685 2004 8,416 618 152 6,499 2005 8,448 634 204 6,019 15,305 2006 359 5,907 8,720 15,631 645 16,065 6,030 662 8,74 4 2007 629 16,247 2008 8,878 642 74 3 5,98 4 16,104 6,049 820 627 8,608 2009 2010 16,079 5,971 950 624 8,534 1,166 6,043 16,514 632 8,673 2011 16,372 1,239 602 8,74 4 2012 5,787 8,972 599 2013 5,552 16,455 1,332 16,658 5,381 1,451 568 9,258 2014 16,908 2015 9,517 559 1,644 5,188 16,91 3 1,7 74 5,100 532 9,5 07 2016 9, 35 6 2017 16,818 5,035 1,897 530 1 Data include mutual funds that invest primarily in other mutual funds. 2 ETF data prior to 2001 were provided by Strategic Insight Simfund. ETF data include ETFs not registered under the Investment Company Act of 1940 and ETFs that invest primarily in other ETFs. Note: Data are for investment companies that report statistical information to the Investment Company Institute. Assets of these companies are 98 percent of investor assets. Sources: Investment Company Institute and Strategic Insight Simfund 2018 INVESTMENT COMPANY FACT BOOK 52

68 Investment Company Employment Registered investment companies typically do not have employees—instead, they contract with other businesses to provide services to the fund. Except for UITs, funds in the United States have fund boards that oversee the management of the fund and represent the interests of the fund shareholders. Fund boards must approve all major contracts between the fund and its service providers, including the advisory contract with a fund’s investment adviser, who is usually also the fund’s sponsor. Fund sponsors and third-party service providers offer advisory, recordkeeping, administrative, custody, and other services to a growing number of funds and their investors. Fund industry employment in the United States has grown 56 percent since 1997, from 114,000 workers in 1997 to 178,000 workers in 2017 (Figure 2.16). FIGURE 2.16 Investment Company Industry Employment Estimated number of employees of fund sponsors and their service providers, thousands, selected years*                     * Years are those in which ICI conducted its employment survey. Fund investment advisers are one of the prominent providers of services to funds. This group of service providers is responsible for managing the fund’s business affairs, ensuring compliance with laws and regulations, overseeing other third-party service providers the fund may rely on, and directing funds’ investments by undertaking investment research and determining which securities to buy and sell. The adviser will often undertake trading and security settlement for the fund. In March 2017, 39 percent of the industry worked in support of fund management functions such as investment research, trading and security settlement, information systems and technology, and other corporate management functions (Figure 2.17). US-REGISTERED INVESTMENT COMPANIES 53

69 The second-largest group of workers (28 percent) provides services to fund shareholders and their accounts (Figure 2.17). Shareholder account servicing encompasses a wide range of activities to help investors monitor and update their accounts. These employees work in call centers and help shareholders and their financial advisers with questions about investor accounts. They also process applications for account openings and closings. Other services include retirement plan transaction processing, retirement plan participant education, participant enrollment, and plan compliance. Distribution and sales force personnel together accounted for 24 percent of the workforce (Figure 2.17). Employees in these areas may work in marketing, product development and design, or investor communications, and can include sales support staff, registered representatives, and fund supermarket representatives. Fund administration, which includes financial and portfolio accounting and regulatory compliance duties, accounted for 10 percent of industry employment (Figure 2.17). Employees performing those services are often affiliated with a fund’s investment adviser. Fund administration encompasses the middle- and back-office functions necessary to operate the fund, and includes clerical and fund accounting services, data processing, recordkeeping, internal audits, and compliance and risk management functions. FIGURE 2.17 Investment Company Industry Employment by Job Function Percentage of employees of fund sponsors and their service providers, March 2017   ve icin stor se rv In g   Fu nd manage ment   Sa les and distribution   Fu nd admini stra tion ye To ta l e mplo yment    e mplo es Note: Components do not add to 100 percent because of rounding. 2018 INVESTMENT COMPANY FACT BOOK 54

70 Typically, employees with administration duties are responsible for regulatory and compliance requirements, such as preparing and filing regulatory reports, overseeing fund service providers, preparing and submitting reports to regulators and tax authorities, and producing shareholder reports such as prospectuses and financial statements of the funds. Administration services also help to maintain compliance procedures and internal controls, subject to approval by a fund’s board and chief compliance officer. For many industries, employment tends to be concentrated in locations where the industry began. The same is true for investment companies: those located in Massachusetts and New York, early hubs of investment company operations (Figure 2.18), employ 23 percent of fund industry workers. As the industry has grown, other states—including California, Pennsylvania, and Texas—have become major centers of fund employment. Fund companies in these three states employed more than one-quarter of US fund industry employees as of March 2017. FIGURE 2.18 Investment Company Industry Employment by State Estimated number of employees of fund sponsors and their service providers by state, March 2017  o re r mo    to         to    to     to  US-REGISTERED INVESTMENT COMPANIES 55

71 CHAPTER THREE US Mutual Funds A mutual fund is an investment company that pools money from shareholders and invests in a portfolio of securities. An estimated 100 million individual Americans in 56.2 million households owned mutual funds in mid-2017. US households rely on mutual funds to meet long-term personal financial objectives, such as preparing for retirement, saving for education, purchasing a house, or preparing for emergencies. In the past 10 years, net new cash flows to mutual funds totaled $230 billion. Changing demographics and investors’ reactions to US and worldwide economic and financial conditions play important roles in determining how demand for specific types of mutual funds—and for mutual funds in general—evolves.

72 Bond mutual funds had largest inflows since 2012  n  b illio ash flo ew c o net n w int bond mutual funds in   IN THIS CHAPTER 58 Mutual Fund Total Net Assets 61 Developments in Mutual Fund Flows 64 Equity Mutual Funds 69 Bond Mutual Funds 74 Hybrid Mutual Funds 80 Money Market Funds

73 Mutual Fund Total Net Assets With $18.7 trillion in total net assets, the US mutual fund industry remained the largest in the world at year-end 2017 (Figure 3.1). The majority of US mutual fund assets at year -end 2017 were in long-term mutual funds, with equity funds alone making up 55 percent of US mutual fund total net assets. Bond mutual funds were the second-largest category, with 22 percent of total net assets. Money market funds (15 percent) and hybrid funds (8 percent) held the remainder. FIGURE 3.1 Equity Mutual Funds Held More Than Half of Mutual Fund Total Net Assets Percentage of total net assets, year-end 2017   y market Mone     ty Equi Bond  Hybrid on U S m utua l fund tot al n e t a ssets  trilli Investor Demand for US Mutual Funds A variety of factors influence investor demand for mutual funds, such as funds’ ability to assist investors in achieving their investment objectives. For example, US households rely on equity, bond, and hybrid mutual funds to meet long-term personal financial objectives, such as preparing for retirement. US households, as well as businesses and other institutional investors, use money market funds as cash management tools because they provide a high degree of liquidity and competitive short-term yields. 58 2018 INVESTMENT COMPANY FACT BOOK

74 Domestic equity mutual funds continued to experience outflows in 2017, likely reflecting an ongoing shift by investors to index-based products. Although domestic equity mutual funds have had net outflows for the past four years, the year-over-year change in the pace of outflows slowed in 2017. Despite the Federal Reserve raising the federal funds target rate three times in 2017, demand for bond mutual funds strengthened, in part because of the aging of the US population. Investor demand also increased for some types of money market funds as yields increased and the effects of recent regulatory reforms stabilized. Entry and Exit of US Mutual Funds Mutual fund sponsors create new funds to meet investor demand, and they merge or liquidate those that do not attract sufficient investor interest. A total of 464 mutual funds opened in 2017 (Figure 3.2), up modestly from the previous year, in part because of an increase in the number of new offerings of domestic equity and world equity mutual funds. The total number of mutual funds that exited the industry dipped slightly in 2017, as fewer domestic equity and money market funds were liquidated, essentially offsetting an increase in the number of merged funds. FIGURE 3.2 Number of Mutual Funds Entering and Exiting the Industry 2008–2017 unds l f utua d m Opene d m Merge utua unds l f l f utua d m e Liquidat unds                                                                                                  Note: Data include mutual funds that do not report statistical information to the Investment Company Institute and mutual funds that invest primarily in other mutual funds. 59 US MUTUAL FUNDS

75 Investors in US Mutual Funds Demand for mutual funds is, in part, related to the types of investors who hold mutual fund shares. Retail investors (i.e., households) held the vast majority (90 percent) of the $18.7 trillion in US mutual fund total net assets at year-end 2017 (Figure 3.3). The proportion of long-term mutual fund total net assets held by retail investors is even higher (95 percent). Retail investors also held substantial money market fund assets ($1.8 trillion), but that amounts to a relatively small share (10 percent) of their total mutual fund assets. In contrast, institutional investors such as nonfinancial businesses, financial institutions, and -end nonprofit organizations held a relatively small portion of mutual fund assets. At year 2017, institutions held 10 percent of mutual fund total net assets. The majority (57 percent) of the $1.9 trillion that institutions held in mutual funds was in money market funds, because one of the primary reasons institutions use mutual funds is to help manage their cash balances. FIGURE 3.3 Households Held 90 Percent of Mutual Fund Total Net Assets Trillions of dollars, year-end 2017   y ds mone Househol  mark et fund s      Institutional in ve stors ds long -ter m Househol mone y market fund s   s fund mutual   stors Institutional in ve  s fund mutual m -ter long Mu tual fund total net asset s    trillio n t a Long-t utua l fund  tot a l n e m m ssets     trilli on er Mone y m ar ke t fund tot a l n e t a ssets    trilli on 1 Mutual funds held as investments in individual retirement accounts, defined contribution retirement plans, variable annuities, 529 plans, and Coverdell education savings accounts are counted as household holdings of mutual funds. 2 Long-term mutual funds include equity, bond, and hybrid mutual funds. Note: Components may not add to the totals because of rounding. 60 2018 INVESTMENT COMPANY FACT BOOK

76 Developments in Mutual Fund Flows Overall demand for mutual funds as measured by net new cash flow—new fund sales less redemptions plus net exchanges—rebounded in 2017 (Figure 3.4), following two consecutive years of outflows. In 2017, mutual funds had inflows of $174 billion (1.1 percent of year-end 2016 total net assets), following outflows of $227 billion in 2016. Increased investor demand for world equity, bond, and money market funds offset continued outflows from domestic equity mutual funds. Investors purchased $67 billion, on net, of long-term mutual funds in 2017, and $107 billion, on net, of money market funds. A number of factors—including broad-based gains in financial markets, ongoing demographic trends, and increased demand for indexed products—appeared to influence long-term mutual fund flows in 2017. Inflows to money market funds were likely driven by the Federal Reserve’s decision to increase the federal funds rate three times in 2017. FIGURE 3.4 Net New Cash Flow to Mutual Funds Billions of dollars; annual, 2008–2017 Equity  b ond unds l f utua d m ybri d h n  a Mone y mark et funds                            -   -  -  -  -  -  - -   - - -  -       *                * In 2012, investors withdrew less than $500 million from money market funds. Note: Components may not add to the total because of rounding. 61 US MUTUAL FUNDS

77 The Global Economy and Financial Markets in 2017 Economic activity picked up in the United States in 2017 with real gross domestic product (GDP) expanding at a 2.6 percent rate, up from 1.8 percent in 2016. A couple of major items contributed to the acceleration in GDP growth. Businesses increased their investment in factories and machinery as economic activity accelerated around the globe in 2017, and the prospect for continued global economic growth strengthened. At the same time, US households increased their spending on durable goods, likely reflecting higher levels of consumer confidence, strong gains in stock prices, and a modest uptick in wages. A variety of metrics indicated that the US economy continued to improve in 2017. The labor market continued to strengthen, with the unemployment rate dropping from 4.7 percent at year-end 2016 to 4.1 percent at year-end 2017. In addition, average hourly earnings, which had lagged job growth through most of the recovery from the 2007–2009 financial crisis, rose 2.7 percent in 2017. Strong growth in domestic stock prices and house prices fueled an 8 percent increase in US household net worth in 2017. The Wilshire 5000 index returned 19 percent and the S&P CoreLogic Case-Shiller US National Home Price Index rose 6.3 percent. The December 2017 level of the home price index indicated that house prices had surpassed their previous peak in 2006. Strengthening economic growth prompted the Federal Reserve to increase the federal funds rate three times in 2017. This tightening in monetary policy was widely expected, so the quarter-point moves in short-term rates in March, June, and December 2017 had little impact on the markets. The decision to raise the federal funds rate was made easier by moderate inflation. The Consumer Price Index rose 2.1 percent in 2017, as it did in 2016, which is close to Federal Reserve’s target of 2 percent inflation. The yield on the 10-year Treasury fluctuated somewhat during the year, but ultimately ended 2017 only 5 basis points* below where it began. * Basis points simplify percentages written in decimal form. A basis point equals one-hundredth of 1 percent (0.01 percent), so 100 basis points equals 1 percentage point. 62 2018 INVESTMENT COMPANY FACT BOOK

78 The rest of the world also saw an increase in economic activity, with global GDP expanding by 3.8 percent in 2017, up from 3.2 percent in 2016. Advanced economies collectively grew 2.3 percent in 2017, while emerging markets grew 4.8 percent. Most geographic regions of the world posted higher levels of GDP growth in 2017 relative to 2016. As a region, Europe reported GDP growth of 2.4 percent in 2017, up from 1.7 percent in 2016. Within Europe, Russia’s economy grew 1.5 percent in 2017, after contracting by 0.2 percent in 2016. In Western Europe, other large economies such as France and Germany reported increases in GDP. On average, Asian economies continued to expand as well, with Japan posting GDP growth of 1.7 percent in 2017, up from 0.9 percent in 2016. China reported a slight improvement in economic growth in 2017—6.9 percent, up from 6.7 percent in 2016. South America as a whole also posted positive economic growth of 0.7 percent in 2017, a sharp rebound from a 2.4 percent contraction in 2016. In 2017, both Argentina (2.9 percent) and Brazil (1.0 percent) reported positive economic growth after their economies contracted in 2016 by 1.8 percent and 3.5 percent, respectively. Monetary policies varied around the globe. Central banks in Europe and Japan maintained existing accommodative policies, while the Bank of England and the US Federal Reserve began to increase their respective headline interest rates. The Federal Reserve’s more aggressive monetary policy stance, however, was not enough to offset depreciation of the US dollar,* which declined 7.0 percent over the year. The depreciation of the dollar provided a boost to American exports in 2017, which contributed to the increase in reported 12-month earnings per share for the S&P 500 to $110 in 2017 from $95 in 2016. Global stock markets marched higher in 2017, buoyed by a positive outlook for the pace of economic activity, reduced concern about deflationary pressure, and historically low volatility. In the United States, the S&P 500 advanced 19 percent, while the NASDAQ Composite Index gained 28 percent. In the United Kingdom, the Financial Times Stock Exchange (FTSE) 100 Index was up almost 8 percent for the year, and in Germany, the Deutscher Aktienindex (DAX) rose about 13 percent. The MSCI Emerging Markets Index indicated that stock prices in emerging market countries jumped 34 percent in 2017. * As measured by the Trade Weighted US Dollar Index: Broad. 63 US MUTUAL FUNDS

79 Long-Term Mutual Fund Flows Net new cash flows into long-term mutual funds, though correlated with market returns, tend to be moderate as a percentage of total net assets even during episodes of market turmoil. Several factors may contribute to this phenomenon. One factor is that households (i.e., retail investors) own the vast majority of US long-term mutual fund assets (Figure 3.3). Retail investors generally respond less strongly to market events than do institutional investors. Most notably, households often use mutual funds to save for the long term, such as for college or retirement. Many of these investors make stable contributions through periodic payroll deductions, even during periods of market stress. In addition, many long-term fund shareholders seek the advice of financial advisers, who may provide a steadying influence during market downturns. These factors are amplified by the fact that assets in mutual funds are spread across 100 million investors and that fund investors have a wide variety of individual characteristics (such as age or appetite for risk) and goals (such as saving for the purchase of a home, for education, or for retirement). They also are bound to have a wide range of views on market conditions and how best to respond to those conditions to meet their individual goals. As a result, even during months when funds as a whole see net outflows, some investors continue to purchase fund shares. Equity Mutual Funds Flows to equity mutual funds tend to rise and fall with stock prices (Figure 3.5). The MSCI All Country World Daily Gross Total Return Index, a measure of returns on global stock markets, increased 24.6 percent in 2017, following an 8.5 percent increase in 2016. Despite strong stock market performance around the globe, equity mutual funds experienced net outflows totaling $160 billion in 2017 (or 1.9 percent of December 2016 total net assets), on the heels of $258 billion in net outflows in 2016. The outflows in equity mutual funds were concentrated in domestic equity funds. 64 2018 INVESTMENT COMPANY FACT BOOK

80 FIGURE 3.5 Net New Cash Flow to Equity Mutual Funds Typically Is Related to World Equity Returns Monthly, 2002–2017 t assets Pe of to rcen t Pe rcentage ta l ne     To ta l return              - -    -  Ne t n ash flow ew c -  -    -  -              1 Net new cash flow is the percentage of previous month-end equity mutual fund total net assets, plotted as a six-month moving average. 2 The total return on equities is measured as the year-over-year percent change in the MSCI All Country World Daily Gross Total Return Index. Sources: Investment Company Institute, MSCl, and Bloomberg With the exception of February and May, equity mutual funds had net outflows in every month in 2017 (Figure 3.6). In the first three months of the year, investors had redeemed, on net, only $18 billion from equity funds. Flows to mutual funds, in general, tend to be higher in the first quarter than at other times of the year because investors who receive year-end bonuses may invest that money relatively quickly in the new year. In addition, some investors wait to make contributions to their individual retirement accounts (IRAs) before filing their tax returns. As the year progressed, net outflows from equity mutual funds accelerated, with investors redeeming, on net, $142 billion from April through December. 65 US MUTUAL FUNDS

81 Although major US stock indexes hit record highs in 2017, domestic equity mutual funds had net outflows of $236 billion in 2017 (Figure 3.6). Volatility does not appear to have been a major factor in the outflows, as the equity market was quiet during 2017. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), which tracks the volatility of the S&P 500 index, is a widely used measure of market risk. Values greater than 30 typically reflect a high degree of investor fear and values less than 20 are associated with a period of market calm. During 2017, the daily VIX average was near a historical low of 11, with the peak at 16 in mid-August. FIGURE 3.6 Net New Cash Flow to Equity Mutual Funds in 2017 Billions of dollars; monthly, January–December 2017 s fund mutual rld equity Wo s mutual ty ic equi Domest fund              - -  -  -  -  -  - -   -  -  - - - -  -  - -   - -   -  - -  -  r l n Ja b Fe g Ma r Ap y Ma n Ju Au p Se t Oc v No c De Ju Note: Components may not add to the total because of rounding. 66 2018 INVESTMENT COMPANY FACT BOOK

82 Rather than volatility, net outflows from domestic equity mutual funds appear to have been driven by investor demand for domestic equity exchange-traded funds (ETFs). As discussed in chapter 4, demand for ETFs has been very strong over the past several years. Domestic equity ETFs had net redemptions in only a single month, May 2017. Overall, demand for domestic equity ETFs resulted in $186 billion in net share issuance in 2017 (Figure 4.8). In contrast, domestic equity mutual funds had net redemptions of $236 billion over the same period. Demand for world equity mutual funds strengthened in 2017, with investors purchasing $77 billion (Figure 3.6), on net, up from net redemptions of $23 billion in 2016. Throughout 2017, world equity funds received fairly steady inflows—most of which went to international equity funds. A few developments may have attracted investors to world equity mutual funds in 2017. First, economic activity increased around the globe, including in emerging markets. In 2017, countries in Europe, Asia, and South America all reported levels of economic activity that surpassed their respective 2016 levels, without meaningful increases in inflation. Second, the growth between 2012 and 2017 in the prices of US stocks has made international equities look relatively attractive on a price-earnings basis. Third, and perhaps most important, the US dollar depreciated in 2017, reversing its gains from the previous year. Depreciation of the US dollar generally makes foreign investment more attractive to US investors, because it increases the rate of return US investors earn on their holdings of foreign securities. Another factor that likely contributed to boosting flows to world equity mutual funds is that some types of funds, such as target date mutual funds (discussed in more detail on page 73), rebalance portfolios automatically as part of an asset allocation strategy. The assets in funds offering asset allocation strategies have grown considerably over the past decade. These funds typically held higher weights in foreign equities and bonds than many US investors had traditionally allocated to foreign investments. In addition, as the US domestic equity market rose over the past several years, these kinds of asset allocation funds rebalanced their portfolios away from domestic stocks toward foreign stocks. 67 US MUTUAL FUNDS

83 Asset-Weighted Turnover Rate The turnover rate—the percentage of a fund’s holdings that have been bought or sold over a year—is a measure of a fund’s trading activity. The rate is calculated by dividing the lesser of purchases or sales (excluding those of short-term assets) in a fund’s portfolio by average net assets. To analyze the turnover rate that shareholders actually experience in their funds, it is important to identify those funds in which shareholders are most heavily invested. Neither a simple average nor a median takes into account where fund assets are concentrated. An asset-weighted average gives more weight to funds with more assets, and accordingly, indicates the average portfolio turnover actually experienced by fund shareholders. In 2017, the asset-weighted annual turnover rate experienced by equity mutual fund investors was 30 percent, well below the average of the past 34 years 3.7). (Figure Investors tend to own equity funds with relatively low turnover rates. In 2017, about half of equity mutual fund total net assets were in funds with portfolio turnover rates of less than 23 percent. This reflects the propensity for mutual funds with below-average turnover to attract shareholder dollars. FIGURE 3.7 Turnover Rate Experienced by Equity Mutual Fund Investors 1984–2017       Av erag e ov er   –                           Note: The turnover rate is an asset-weighted average. Data exclude mutual funds that invest primarily in other mutual funds. 68 2018 INVESTMENT COMPANY FACT BOOK

84 Bond Mutual Funds Bond fund flows typically are correlated with the performance of US bonds (Figure 3.8), which, in turn, is largely driven by the US interest rate environment. Long-term interest rates fluctuated in 2017, but finished the year only 5 basis points below where they started. The -year Treasury began 2017 at 2.45 percent, and declined 14 basis points by June 30. 10 Over the same period, the total return on bonds fell to zero. During the second half of 2017, long -term interest rates increased, and finished the year at 2.40 percent. Despite the modest increase in interest rates during the second half of the year, bond mutual funds received positive net new cash flows in every month. In 2017, bond mutual funds had net inflows of $260 billion, more than double the $107 billion in net inflows received in 2016. FIGURE 3.8 Net New Cash Flow to Bond Mutual Funds Typically Is Related to Bond Returns Monthly, 2002–2017 t Pe rcen Pe t assets l ne ta of to rcentage     To ta l return                   -  - -   - -   -  ash flow ew c t n Ne  - -              1 Net new cash flow is the percentage of previous month-end bond mutual fund total net assets, plotted as a -month moving average. Data exclude high-yield bond mutual funds. three 2 The total return on bonds is measured as the year-over-year percent change in the Citi US Broad Investment Grade Corporate Bond Index. Sources: Investment Company Institute, Citigroup, and Bloomberg LEARN MORE Fund Investors Will “Run”? Sorry, Charlie Brown www.ici.org/viewpoints/view_18_charlie_brown 69 US MUTUAL FUNDS

85 During the first half of 2017, when long-term interest rates were declining, taxable bond funds received $121 billion in net inflows (Figure 3.9). During the second half of the year, investors added $113 billion, on net, to taxable bond mutual funds even though long-term interest rates were moving up. Investor demand varied across specific categories of taxable bond mutual funds in 2017. Investment grade bond funds (and multisector bond funds) were the most sought after, receiving $202 billion of net inflows in 2017, while investors redeemed $17 billion from high -yield bond funds in 2017. World bond funds, which typically hold a mix of bonds denominated in US dollars and foreign currencies, saw net inflows of $47 billion. These inflows were, in part, attributable to a weaker US dollar. Depreciation of the US dollar increases dollar returns on bonds denominated in foreign currencies, and makes it less expensive for foreign companies to pay off their dollar-denominated debts. Demand for municipal bond funds was fairly steady through the first 11 months of 2017, with inflows amounting to $28 billion, before turning slightly negative in December (Figure 3.9). FIGURE 3.9 Net New Cash Flow to Bond Mutual Funds in 2017 Billions of dollars; monthly, January–December 2017 s xable bond mutual fund Ta s ipal bond mutual fund Munic                                    - Ja Oc t p Au g Ju l Ju n Ma y Ap Se r Ma r Fe b v No c De n Note: Components may not add to the total because of rounding. 70 2018 INVESTMENT COMPANY FACT BOOK

86 How Bond Mutual Funds Manage Investor Flows Since the 2007–2009 financial crisis, some observers have expressed concerns that outflows from bond mutual funds could pose challenges for fixed-income markets. There are many reasons to believe such concerns are overstated. First, although US bond mutual fund total net assets have risen in the past decade, they were only 11 percent of the US bond market (US government bonds, corporate bonds, and tax-exempt bonds) in December 2017, up from 7 percent at year-end 2007. This means that 89 percent of the US bond market is held by investors outside of mutual funds. Second, bond mutual fund managers have means of meeting redemption requests other than selling bonds. Each day, bond mutual funds receive cash in the form of interest income from bonds held in the portfolio and proceeds from matured bonds. Also, mutual funds in general have cash coming in from new sales of fund shares on any given day. Bond fund managers can often fulfill the vast majority of redemption requests using these cash sources. In addition, bond fund managers employ a wide range of strategies to prepare to meet shareholder redemptions, including holding short-term assets or using derivatives. Derivatives can be more liquid than their physical counterparts, and funds are required to segregate liquid assets to support their derivatives positions. As these positions are closed, this cash collateral provides a ready source of liquidity to meet redemptions. This is especially true for many funds commonly referred to as liquid alternative funds, which are explicitly designed to allow frequent investor trading, and do so in large measure through the use of derivatives. 71 US MUTUAL FUNDS

87 Finally, when meeting redemptions, managers use a nuanced approach in their bond trading, with their actions guided by market conditions, expected investor flows, and other factors. For example, during a market downturn, a manager might determine that the fund can add shareholder value by buying some less-liquid bonds. With liquidity at a premium, the manager might judge that the prices of such bonds are depressed relative to their fundamental values and thus represent a buying opportunity. On the other hand, the fund might seek to add shareholder value by selling some of its more-liquid bonds (which, being in high demand, are trading at a premium to fundamental value). Other fund managers may conclude that it is necessary and appropriate to meet outflows by selling a “slice” of the fund’s portfolio. Despite several periods of market turmoil, bond mutual funds have experienced net inflows through most of the past decade. Bond mutual funds received $2.2 trillion in net inflows and reinvested dividends from 2008 through 2017 (Figure 3.10). A number of factors have helped sustain this long-term demand for bond mutual funds. FIGURE 3.10 Bond Mutual Funds Have Experienced Net Inflows Through Most of the Past Decade Cumulative flows to bond mutual funds, billions of dollars; monthly, January 2008–December 2017                                 Note: Bond mutual fund data include net new cash flow and reinvested dividends. LEARN MORE Revised Fed Data Show Mutual Funds’ Share of Corporate Bond Market Is Small and Stable www.ici.org/viewpoints/view_16_corporate_bond_share 72 2018 INVESTMENT COMPANY FACT BOOK

88 Demographics influence the demand for bond mutual funds. Older investors tend to have higher account balances because they have had more time to accumulate savings and take advantage of compounding. At the same time, as investors age, they tend to shift toward fixed-income products. Over the past decade, the aging of Baby Boomers has boosted flows to bond funds. Although net outflows from bond funds would have been expected when long- term interest rates rose over the second half of 2017, they were likely mitigated, in part, by the demographic factors that have supported bond fund flows over the past decade. The continued popularity of target date mutual funds also likely helped to limit outflows from bond mutual funds in 2017. Target date funds invest in a changing mix of equities and fixed- income investments. As the fund approaches and passes its target date (which is usually specified in the fund’s name), the fund gradually reallocates assets from equities to fixed- income investments, including bonds. Target date funds usually invest through a fund-of- funds approach, meaning they primarily hold and invest in shares of other equity and bond funds or ETFs. Over the past 10 years, target date mutual funds have received net inflows of $521 billion. In 2017, target date mutual funds had net inflows of $68 billion and ended the year with assets of $1.1 trillion. The growing investor interest in these funds likely reflects their automatic rebalancing features as well as their inclusion as an investment option in many defined contribution (DC) plans. The adoption of the Pension Protection Act of 2006 and the Department of Labor’s regulations including target date funds as qualified default investments for DC plans also contributed to their growth. LEARN MORE Simulating a Crisis www.ici.org/viewpoints/view_17_boe 73 US MUTUAL FUNDS

89 Hybrid Mutual Funds Over the past few years, investors have moved away from hybrid mutual funds, which had been a popular way to help investors achieve a managed, balanced portfolio of stocks and bonds (Figure 3.11). In 2017, hybrid mutual funds had negative net new cash flow of $34 billion (or 2.4 percent of prior year-end assets), following $46 billion in outflows in 2016 and $21 billion in 2015. Many factors likely contribute to this change in the use of hybrid funds. Investors may be, for example, shifting out of hybrid funds and into portfolios of ETFs that are periodically rebalanced, often with the assistance of a fee-based financial adviser. In addition, investors may be shifting assets toward target date funds and lifestyle funds as an alternative way to achieve a balanced portfolio. For example, in 2017, assets in target date funds reached $1.1 trillion, up $229 billion from year-end 2016 (Figure 8.26).* FIGURE 3.11 Net New Cash Flow to Hybrid Mutual Funds Billions of dollars; annual, 2008–2017        - -  -  -                      * ICI generally excludes funds of funds from total net asset and net new cash flow calculations to avoid double counting. Although target date funds are classified as hybrid funds by ICI, 99 percent of target date fund assets are in funds of funds, and therefore their flows are excluded from the hybrid mutual fund flows presented in Figure 3.11. 74 2018 INVESTMENT COMPANY FACT BOOK

90 Hybrid funds (also called asset allocation funds or balanced funds) invest in a mix of stocks and bonds. This approach offers a way to balance the potential capital appreciation of stocks with the income and relative stability of bonds over the long term. The fund’s portfolio may be periodically rebalanced to bring the fund’s asset allocation more in line with prospectus objectives, which could be necessary following capital gains or losses in the stock or bond markets. Net outflows from hybrid funds over the 2015–2017 period were concentrated in flexible portfolio funds, which can hold any proportion of stocks, bonds, cash, and commodities, both in the United States and overseas. Following the 2007–2009 financial crisis, many investors sought to broaden their portfolios and lower the correlation of their investments with the market or limit downside risk. Flexible portfolio funds can help investors achieve those goals. As a result, flexible portfolio funds saw net inflows of $88 billion between 2009 and 2014. However, after a long bull market and comparably lower returns in funds offering downside protection, investors have redeemed, on net, almost $76 billion from flexible portfolio funds in the past three years. The Growth of Other Investment Products Some of the outflows from long-term mutual funds in 2017 reflect a broader shift, driven by both investors and retirement plan sponsors, toward other pooled investment vehicles. This trend is reflected in the outflows from actively managed funds and the growth of index mutual funds, ETFs, and collective investment trusts (CITs) since 2007. In 2017, index mutual funds—which hold all (or a representative sample) of the securities in a specified index—remained popular with investors. Of households that owned mutual funds, 38 percent owned at least one equity index mutual fund in 2017. As of year-end 2017, 453 index mutual funds managed total net assets of $3.4 trillion. For 2017 as a whole, investors added $223 billion in net new cash flow to these funds (Figure 3.12). Of the new money that flowed to index mutual funds, 32 percent was invested in funds tied to domestic stock indexes, 44 percent was invested in funds tied to bond or hybrid indexes, and the remainder (about 25 percent) went to funds tied to world stock indexes. Assets in index equity mutual funds made up 26.6 percent of all equity mutual fund assets in 2017 (Figure 3.13). 75 US MUTUAL FUNDS

91 FIGURE 3.12 Net New Cash Flow to Index Mutual Funds Billions of dollars; annual, 2008–2017 nde und l f utua ond m Index b n d i x h ybri d m utua l f unds s a  y m unds l f utua Index w orl quit d e quit l f mestic e o Index d unds utua y m                                                  Note: Components may not add to the total because of rounding. FIGURE 3.13 Index Equity Mutual Funds’ Share Continued to Rise Percentage of equity mutual funds’ total net assets; year-end, 2008–2017                                      76 2018 INVESTMENT COMPANY FACT BOOK

92 Index domestic equity mutual funds and index-based ETFs have particularly benefited from increased investor demand for index-based investment products. From 2008 through 2017, index domestic equity mutual funds and ETFs received $1.6 trillion in net new cash and reinvested dividends, while actively managed domestic equity mutual funds experienced a net outflow of $1.3 trillion (including reinvested dividends) (Figure 3.14). Index domestic equity ETFs have grown particularly quickly—attracting more than one and a half times the net inflows of index domestic equity mutual funds since 2008. Part of the recent increasing popularity of ETFs is likely attributable to more brokers and financial advisers using them in their clients’ portfolios. In 2016, full-service brokers and fee-based advisers had 14 percent and 24 percent, respectively, of their clients’ household assets invested in ETFs, up from 6 percent and 10 percent in 2011 (Figure 3.15). FIGURE 3.14 Some of the Outflows from Domestic Equity Mutual Funds Have Gone to ETFs Cumulative flows to domestic equity mutual funds and net share issuance of index domestic equity ETFs,* billions of dollars; monthly, January 2008–December 2017  y m utual fund Index domestic equit s         TF E ty Index domestic equi s  c equity m utual funds Ac tively manage d d omesti  -  -  -   -   -                     * Prior to October 2009, index domestic equity ETF data include a small number of actively managed domestic equity ETFs. Note: Equity mutual fund data include net new cash flow and reinvested dividends. 77 US MUTUAL FUNDS

93 FIGURE 3.15 Fee-Based Advisers Are Driving Larger Portions of Client Portfolios Toward ETFs Percentage of household assets invested in investment category by adviser type, 2011 and 2016                s ET Fs Va riable annuitie s Mutual fund ET Fs Va riable annuities Mutual fund s 2 , 3  based adviser e- Fe s s ice broker Fu rv -se ll 1 This category includes wirehouses as well as regional, independent, and bank broker-dealers. 2 This category includes registered investment advisers and dually registered investment adviser broker-dealers. 3 This category excludes an unknown portion of assets from investors who received fee-based advice but implemented trades themselves through discount brokers and fund supermarkets. Source: Cerulli Associates, “The State of US Retail and Institutional Asset Management, 2017” CITs are an alternative to mutual funds for DC plans. Like mutual funds, CITs pool the assets of investors and (either actively or passively) invest those assets according to a particular strategy. Much like institutional share classes of mutual funds, CITs generally require substantial minimum investment thresholds, which can limit the costs of managing pooled investment products. Unlike mutual funds, which are regulated under the Investment Company Act of 1940, CITs are regulated under banking laws and are not marketed as widely as mutual funds; this can also reduce their operational and compliance costs as compared with mutual funds. 78 2018 INVESTMENT COMPANY FACT BOOK

94 More retirement plan sponsors have begun offering CITs as options in 401(k) plan lineups. As Figure 3.16 demonstrates, this trend has translated into a growing share of assets held in CITs by large 401(k) plans. That share increased from 6 percent in 2000 to an estimated 19 percent in 2016. This recent expansion is due, in part, to the growth in target date fund CITs. FIGURE 3.16 Assets of Large 401(k) Plans Are Increasingly Held in Collective Investment Trusts Percentage of assets in 401(k) plans with 100 participants or more, selected years                            Note: Assets exclude Direct Filing Entity assets that are reinvested in collective investment trusts. Data prior to 2016 come from the Form 5500 Research data sets released by the Department of Labor. Data for 2016 are preliminary, based on Department of Labor 2016 Form 5500 latest data sets. Source: Investment Company Institute tabulations of Department of Labor Form 5500 data 79 US MUTUAL FUNDS

95 Money Market Funds In 2017, money market funds received $107 billion in net new cash flows (Figure 3.17). Prime money market funds received the bulk of the inflows ($76 billion), followed by government money market funds with $30 billion in inflows. The increased demand for money market funds likely stems from the Federal Reserve’s decision to raise the federal funds target rate three times in 2017, which increased the attractiveness of money market funds as an investment for excess cash. Yields on prime and government money market funds ratcheted up in 2017 and far exceeded the stated rate on money market deposit accounts (MMDAs) (Figure 3.18). FIGURE 3.17 Net New Cash Flow to Money Market Funds Billions of dollars; monthly, January–December 2017 t rnmen ve Go  e Prim Ta x-ex empt                             - - - - - -  -   -  - -   - -  -   - -   -     Au b Jan r Ma r Ap y Ma n Ju l Ju g Fe p Se t Oc v No De c 1 In January, February, and March 2017, tax-exempt money market funds had net inflows or outflows of less than $500 million. 2 In December 2017, prime money market funds had net outflows of less than $500 million. Note: Components may not add to the total because of rounding. 80 2018 INVESTMENT COMPANY FACT BOOK

96 FIGURE 3.18 Net Yields of Money Market Funds Far Exceeded MMDA Rates by the End of 2017 Percent; month-end, January 2015–December 2017      ark ey m on e m Prim et    e n fund ld t yie     rnment Go ve   ey m et mon ark  ld fund n e t yie  e MM DA r at      Jan  n  Ju v  No Apr  p  Se b  Fe l  Ju c  De 1 The money market deposit account (MMDA) rate is calculated based on a simple average of rates paid on high-yield savings accounts by all insured depository institutions and branches for which data are available. 2 Net yields of money market funds are annualized seven-day compound net yields. Sources: iMoneyNet, Bank Rate Monitor, and Federal Deposit Insurance Corporation 81 US MUTUAL FUNDS

97 CHAPTER FOUR US Exchange-Traded Funds ETFs are a convenient, cost-effective tool for investors seeking to gain or shed exposure to broad market indexes, particular sectors or geographical regions, or specific rules- based investment strategies. Over the past decade, demand for ETFs has grown markedly as investors—both institutional and retail—increasingly turn to them as investment options. In the past 10 years, net share issuance of ETFs has totaled $2.1 trillion. As investor demand has increased, sponsors have offered more ETFs with a greater variety of investment objectives. With $3.4 trillion in assets at year -end 2017, the US ETF industry remained the largest in the world. Though ETFs share some basic characteristics with mutual funds, there are key operational and structural differences between the two types of investment products.

98 Net share issuance at record high in 2017  illio n   b  n  i  IN THIS CHAPTER 84 What Is an ETF? 85 ETFs and Mutual Funds 86 ETF Total Net Assets 87 Origination of an ETF 92 How ETFs Trade 96 Demand for ETFs 101 Characteristics of ETF-Owning Households

99 What Is an ETF? An exchange-traded fund (ETF) is a pooled investment vehicle with shares that investors can buy and sell throughout the day on a stock exchange at a market-determined price. Investors may buy or sell ETF shares through a broker or in a brokerage account just as they would the shares of any publicly traded company. In the United States, most ETFs are structured as open-end investment companies, like mutual funds, and are governed by the same regulations. Other ETFs—primarily those investing in commodities, currencies, and futures— have different structures and are subject to different regulatory requirements. ETFs have been available as an investment product for 25 years in the United States. The Securities and Exchange Commission (SEC) approved the first ETF—a broad-based domestic equity fund tracking the S&P 500 index—in 1993. Until 2008, the SEC had only approved ETFs that tracked specified indexes. These ETFs, commonly referred to as index-based ETFs, are designed to track the performance of their designated indexes or, in some cases, a multiple or an inverse (or a multiple of an inverse) of their indexes. At year-end 2017, there were 1,569 index-based ETFs with $3.3 trillion in total net assets. In early 2008, the SEC granted approval to several fund sponsors to offer fully transparent, actively managed ETFs meeting certain requirements. Each business day, these actively managed ETFs must disclose on their publicly available websites the identities and weightings of the component securities and other assets held by the ETF. Actively managed ETFs do not seek to track the return of a particular index. Instead, an actively managed ETF’s investment adviser, like that of an actively managed mutual fund, creates a unique mix of investments to meet a particular investment objective and strategy. At year-end 2017, 194 actively managed ETFs—with $45 billion in assets—were registered with the SEC as investment companies. LEARN MORE Exchange-Traded Funds Resource Center www.ici.org/etf_resources 84 2018 INVESTMENT COMPANY FACT BOOK

100 ETFs and Mutual Funds An ETF is a registered investment company that is similar to a mutual fund because it offers investors a proportionate share in a pool of stocks, bonds, and other assets such as derivatives or bank loans. Like a mutual fund, an ETF is required to post the mark-to-market net asset value (NAV) of its portfolio at the end of each trading day and must conform to the main investor protection mechanisms of the Investment Company Act of 1940, including limitations on leverage, daily valuation and liquidity requirements, prohibitions on transactions with affiliates, and rigorous disclosure obligations. Also like mutual funds, creations and redemptions of ETF shares are aggregated and executed just once per day at NAV. Despite these similarities, key features differentiate ETFs from mutual funds. Key Differences One major difference is that retail investors buy and sell ETF shares on the secondary market (stock exchange) through a broker-dealer, much like they would any other type of stock. In contrast, mutual fund shares are not listed on stock exchanges, but are purchased and sold through a variety of distribution channels, including through investment professionals—full service brokers, independent financial planners, bank or savings institution representatives, or insurance agents—or directly from a fund company or discount broker. Pricing also differs between mutual funds and ETFs. Mutual funds are “forward priced,” which means that although investors can place orders to buy or sell shares throughout the day, all orders placed during the day will receive the same price—the NAV—the next time it is computed. Most mutual funds calculate their NAV as of 4:00 p.m. eastern time because that is the time US stock exchanges typically close. In contrast, the price of an ETF share is continuously determined on a stock exchange. Consequently, the price at which investors buy and sell ETF shares on the secondary market may not necessarily equal the NAV of the portfolio of securities in the ETF. Two investors selling the same ETF shares at different times on the same day may receive different prices for their shares, both of which may differ from the ETF’s NAV, which—like a mutual fund—is calculated as of 4:00 p.m. eastern time. LEARN MORE Understanding Exchange-Traded Funds: How ETFs Work www.ici.org/perspective 85 US EXCHANGE-TRADED FUNDS

101 ETF Total Net Assets The US ETF market—with 1,832 funds and $3.4 trillion in total net assets at year-end 2017— remained the largest in the world, accounting for 72 percent of the $4.7 trillion in ETF total net assets worldwide (Figures 4.1 and 4.2). The vast majority of assets in US ETFs are in funds registered with and regulated by the SEC under the Investment Company Act of 1940 (Figure 4.2). At year-end 2017, 2 percent of total net assets were held in non–1940 Act ETFs, which are not registered with or regulated by the SEC under the Investment Company Act of 1940; these ETFs invest primarily in commodities, currencies, and futures. Non–1940 Act ETFs that invest in commodity or currency futures are regulated by the Commodity Futures Trading Commission (CFTC) under the Commodity Exchange Act and by the SEC under the Securities Act of 1933. Those that invest solely in physical commodities or currencies are regulated by the SEC under the Securities Act of 1933. FIGURE 4.1 The United States Has the Largest ETF Market Percentage of total net assets, year-end 2017  st of th e wo Re rld  ific As ia-Pac   Europe   es at St ed Unit on rldwide ETF total net assets: $ Wo 7 trilli 4. Sources: Investment Company Institute and ETFGI LEARN MORE Mutual Funds and ETFs’ Share of the Corporate Bond Market: What’s the Right Answer? www.ici.org/viewpoints/view_17_corp_bond_etf 86 2018 INVESTMENT COMPANY FACT BOOK

102 FIGURE 4.2 Total Net Assets and Number of ETFs Billions of dollars; year-end, 2008–2017     t E TF  n  s – No  Ac    Ac  s  TF t E                                                                               of ET Fs Number                         1 The funds in this category are not registered under the Investment Company Act of 1940 and invest primarily in commodities, currencies, and futures. 2 The funds in this category are registered under the Investment Company Act of 1940. Note: Data exclude ETFs that invest primarily in other ETFs. Components may not add to the total because of rounding. Origination of an ETF An ETF originates with a sponsor—a company or financial institution—that chooses the investment objective of the ETF. In the case of an index-based ETF, the sponsor chooses both an index and a method of tracking its target index. Many early ETFs tracked traditional indexes, mostly those weighted by market capitalization. More-recently launched index- based ETFs follow benchmarks that use an array of index construction methodologies, with weightings based on market capitalization, as well as other fundamental factors, such as sales or book value. Others follow factor-based metrics—indexes that first screen potential securities for a variety of attributes, including value, growth, or dividend payments—and then weight the selected securities equally or by market capitalization. Other customized index approaches include screening, selecting, and weighting securities to minimize volatility, maximize diversification, or achieve a high or low degree of correlation with the market. 87 US EXCHANGE-TRADED FUNDS

103 Index-based ETFs track their target index in various ways. An index-based ETF may replicate its index (that is, it may invest 100 percent of its assets proportionately in all the securities in the target index) or it may sample its index by investing in a representative sample of securities in the target index. Representative sampling is a practical solution for ETFs that track indexes that contain thousands of securities (such as broad-based or total stock market indexes), that have restrictions on ownership or transferability (certain foreign securities), or that are difficult to obtain (some fixed-income securities). The sponsor of an actively managed ETF determines the investment objective of the fund and may trade securities at its discretion, much like an actively managed mutual fund. For instance, the sponsor may try to achieve an investment objective such as outperforming a segment of the market or investing in a particular sector through a portfolio of stocks, bonds, or other assets. Creation and Redemption of ETF Shares—Primary Market Activity The creation or redemption of ETF shares—activity directly involving the ETF’s underlying securities—is categorized as primary market activity. The creation and redemption mechanism in the ETF structure allows the number of shares outstanding in an ETF to expand or contract based on demand (Figure 4.3). Each business day, ETFs are required to publish the creation and redemption baskets for the next trading day. The creation and redemption baskets are specific lists of names and quantities of securities, cash, and/or other assets. Often baskets will track the ETF’s portfolio through either a pro rata slice or a representative sample. At times, baskets may be limited to a subset of the ETF’s portfolio and contain a cash component. For example, the composition of baskets for bond ETFs may vary from day to day with the mix of cash and the selection of bonds in the baskets based on liquidity in the underlying bond market. Typically, the composition of an ETF’s daily creation and redemption baskets mirror one another. Creation ETF shares are created when an authorized participant, or AP (see page 90), submits an order for one or more creation units. A creation unit consists of a specified number of ETF shares, generally ranging from 25,000 to 250,000 shares. The ETF shares are delivered to the AP when the specified creation basket is transferred to the ETF. The ETF may permit or require an AP to substitute cash for some or all of the securities or assets in the creation basket. This generally occurs when an instrument in the creation basket is difficult to obtain or may not be held by certain types of investors (such as certain foreign securities). An AP also may be charged a cash adjustment or transaction fee to offset any transaction expenses the fund undertakes. The value of the creation basket and any cash adjustment equals the value of the creation unit based on the ETF’s NAV at the end of the day on which the transaction was initiated. 88 2018 INVESTMENT COMPANY FACT BOOK

104 FIGURE 4.3 Creation of ETF Shares Primar y mark et et Secondar y mark Se ll ers Creation bas ke t F share ET s Authoriz ed ET F shar es   F ET rticipan t pa On ation unit e cre ET F)  g (e s of an share ers Buy Directly invo lves no t directly Does lve invo securities underlying securities underlying Note: The creation basket represents a specific list of securities, cash, and/or other assets. The AP can either keep the ETF shares that make up the creation unit or sell all or part of them to its clients or to other investors on a stock exchange, in a “dark pool” (private exchange), or in other trading venues. Any purchases and sales of existing ETF shares among investors, including APs, are referred to as secondary market trading or activity. Redemption The redemption process in the primary market is simply the reverse of the creation process. A creation unit is redeemed when an AP acquires the number of ETF shares specified in the ETF’s creation unit and returns the creation unit to the ETF. In return, the AP receives the daily redemption basket of securities, cash, and/or other assets. The total value of the redemption basket and any cash adjustment is equivalent to the value of the creation unit based on the ETF’s NAV at the end of the day on which the transaction was initiated. LEARN MORE The Creation and Redemption Process and Why It Matters www.ici.org/viewpoints/view_12_etfbasics_creation 89 US EXCHANGE-TRADED FUNDS

105 What Is an AP? An authorized participant (AP) is typically a large financial institution that enters into a legal contract with an ETF distributor to create and redeem shares of the fund. In addition, APs are US-registered, self-clearing broker-dealers that can process all required trade submission, clearance, and settlement transactions on their own account; they are also full participating members of the National Securities Clearing Corporation (NSCC) and the Depository Trust Company (DTC). APs play a key role in the primary market for ETF shares because they are the only investors allowed to interact directly with the fund. APs do not receive compensation from an ETF or its sponsor and have no legal obligation to create or redeem the ETF’s shares. Rather, APs typically derive their compensation from acting as dealers in ETF shares. Also, APs create and redeem shares in the primary market when doing so is a more effective way of managing their firms’ aggregate exposure than trading in the secondary market. Some APs are clearing brokers (rather than dealers) and receive payment for processing creations and redemptions as an agent for a wide array of market participants such as registered investment advisers and various liquidity providers, including market makers, hedge funds, and proprietary trading firms. Some APs also play another role in the ETF ecosystem by acting as registered market makers in ETF shares that trade on an exchange. Secondary market trading of ETFs, however, does not rely solely on these APs. In fact, a host of entities other than APs provide liquidity in the form of offering quotes to both buy and sell ETF shares. These other liquidity providers also help facilitate trading of ETF shares in the secondary market. Domestic equity ETFs have the most liquidity providers (Figure 4.4). But other types of ETFs—such as emerging market equity, domestic high-yield bond, and emerging market bond—also have multiple liquidity providers in the secondary market. LEARN MORE The Role and Activities of Authorized Participants of Exchange-Traded Funds www.ici.org/research/reports 90 2018 INVESTMENT COMPANY FACT BOOK

106 FIGURE 4.4 The Secondary Market Has Many ETF Liquidity Providers December 2014  TF n E r a s fo er rovid y p uidit umber of liq n n a Medi  n ET or ha s t P s f umber of A n n er a Medi r e r egist F er e d mark t a e t mak a               B l Al ond and Domest l rnationa Inte ic E merging Domest ic E merging hy brid equity equity mark et high-yield marke t equity bond bond Mem o 1 For this figure, liquidity provider is defined as an entity that regularly provides two-sided quotes in an ETF’s shares. 2 A registered market maker is registered with a particular exchange to provide two-sided markets in an ETF’s shares. Source: Investment Company Institute, The Role and Activities of Authorized Participants of Exchange-Traded Funds 91 US EXCHANGE-TRADED FUNDS

107 How ETFs Trade The price of an ETF share on a stock exchange is influenced by the forces of supply and demand. Though imbalances in supply and demand can cause the price of an ETF share to deviate from its underlying value, substantial deviations tend to be short-lived for many ETFs. Two primary features of an ETF’s structure promote trading of its shares at a price that approximates its underlying value: portfolio transparency and the ability for APs to create or redeem ETF shares at the NAV at the end of each trading day. Transparency of an ETF’s holdings—either through full disclosure of the portfolio or through established relationships of the components of the ETF’s portfolio with published indexes, financial or macroeconomic variables, or other indicators—enables investors to observe and attempt to profit from discrepancies between the ETF’s share price and its underlying value during the trading day. ETFs contract with third parties (typically market data vendors) to calculate an estimate of an ETF’s underlying value. This calculation, often called the intraday indicative value (IIV), is based on the prior day’s portfolio holdings and is disseminated at regular intervals during the trading day (typically every 15 seconds). Some market participants also can make this assessment in real time using their own computer programs and proprietary data feeds. When there are discrepancies between an ETF’s share price and the value of its underlying securities, trading can more closely align the ETF’s price and its underlying value. For example, if an ETF is trading at a discount to its underlying value, investors may buy ETF shares or sell the underlying securities or do both. The increased demand for the ETF should raise its share price and the sales of the underlying securities should lower their share prices, narrowing the gap between the ETF and its underlying value. If the ETF is trading at a premium to its underlying value, investors may choose to sell the ETF or buy the underlying securities or do both. These actions should bring the price of the ETF and the market value of its underlying securities closer together by reducing the ETF share price or raising the price of the underlying securities or both. LEARN MORE Understanding the Regulation of Exchange-Traded Funds Under the Securities Exchange Act of 1934 www.ici.org/pubs/white_papers 92 2018 INVESTMENT COMPANY FACT BOOK

108 The ability to create or redeem ETF shares at the end of each trading day also helps an ETF trade at market prices that approximate the underlying market value of the portfolio. When a deviation between an ETF’s market price and its underlying value occurs, APs (on their own behalf or on behalf of other market participants) may create or redeem creation units in the primary market in an effort to capture a profit. For example, when an ETF is trading at a discount, market participants may find it profitable to buy the ETF shares and sell short the underlying securities. At the end of the day, APs return ETF shares to the fund in exchange for the ETF’s redemption basket, which is used to cover the short positions in the underlying securities. When an ETF is trading at a premium, market participants may find it profitable to sell short the ETF during the day while simultaneously buying the underlying securities. At the end of the day, the APs (on their own behalf or on behalf of other market participants) will deliver the creation basket to the ETF in exchange for ETF shares that are used to cover the short sales. These actions by market participants, commonly described as arbitrage , help keep the market -determined price of an ETF’s shares close to its underlying value. Secondary Market Trading in ETF Shares ETF investors trading in the secondary market (e.g., on an exchange) do not interact with the ETF directly and, for the most part, do not create transactions in the underlying securities, because only the ETF shares are changing hands. Although many large institutional investors can access ETFs in both the primary and secondary markets, retail investors generally can access them only in the secondary market. Many ETF investors trading in the secondary market generally are not motivated by arbitrage. They are using ETFs to gain or reduce exposure to particular asset classes or investment strategies. Thus, ETFs provide investors with an efficient means to transfer risk. LEARN MORE Does Liquidity in ETFs Depend Solely on Authorized Participants? www.ici.org/viewpoints/view_15_aps_etfs 93 US EXCHANGE-TRADED FUNDS

109 Across all ETFs, investors make greater use of the secondary market (trading ETF shares) than the primary market (creations and redemptions of ETF shares through an AP). On average, 89 percent of the total daily activity in ETFs occurs on the secondary market (Figure 4.5). Even for ETFs with narrower investment objectives—such as emerging market equity, domestic high-yield bond, and emerging market bond—the bulk of the trading occurs on the secondary market (95 percent, 79 percent, and 75 percent, respectively). On average, secondary market trading is a smaller proportion of total trading for bond ETFs (79 percent) than for equity ETFs (89 percent). Because bond ETFs are a growing segment of the industry, many small bond ETFs tend to have less-established secondary markets. As their total net assets increase, the secondary market for bond ETFs is likely to deepen. FIGURE 4.5 Most ETF Activity Occurs on the Secondary Market 1 2 Percentage of secondary market activity relative to total activity; daily, January 2, 2015– December 29, 2017 95 92 89 89 89 79 79 75 l Al ty All equi All bond In te rnationa l ic Domest Emerging ic Domest Emerging equity equity et mark high-yield mark et equity bond bond Mem o 1 Secondary market activity is measured as average daily dollar volume of ETF shares traded in each category over the 755 daily observations in the sample. 2 Total activity is measured as the sum of primary market and secondary market activity. Primary market activity is computed as daily creations or redemptions for each ETF, which are estimated by multiplying the daily change in shares outstanding by the daily NAV from Bloomberg. Aggregate daily creations and redemptions are computed by adding creations and the absolute value of redemptions across all ETFs in each investment objective each day. Average daily creations and redemptions are the average of the aggregate daily creations and redemptions over the 755 daily observations in the sample. Sources: Investment Company Institute and Bloomberg 94 2018 INVESTMENT COMPANY FACT BOOK

110 ETF secondary market trading also can act as a source of liquidity to the broader financial markets. During 2017, the effective yield on the ICE BofAML US High Yield Master II Index ranged between 5.43 percent and 6.19 percent, at times increasing abruptly (Figure 4.6). For example, in early 2017, the index’s yield had drifted down to 5.61 percent on March 1, 2017, then ratcheted up quickly to 6.19 percent by March 14, 2017. When bond yields increase, prices on existing bonds—such as those that funds hold in their portfolios—and bond ETFs fall. Sellers of high-yield bond ETFs were able to find willing buyers in the secondary market during this two-week period despite declining prices for high-yield bond ETFs. The weekly dollar volume of high-yield bond ETFs that were traded on the secondary markets (blue bars, Figure 4.6) increased to an average of $12.7 billion in the first two weeks of March compared with an average of $6.7 billion in the prior nine weeks. In addition, redemptions of high- yield bond ETFs (green bars, Figure 4.6) were fairly modest in the first two weeks of March, totaling $3.5 billion, or 6.1 percent of total net assets, in high-yield bond ETFs as of the end of February 2017. FIGURE 4.6 Secondary Market Trading of High-Yield Bond ETFs Increased When Yields Rose in 2017 December 29, 2016–December 29, 2017* xi t a Sec lef e ( olum r v olla s) t d e y mark ondar s) t s Ne ssuanc xi t a lef e ( e i har t Billion s of dollar s Pe rcen    eld bonds Yield on high -yi                - Ma r Ja b De n c No v Oc t Se p Au g Ju l Ju n Ma y Ap r Fe * Data for the effective yield of the ICE BofAML US High Yield Master II Index are daily. Data for high-yield bond ETFs’ secondary market dollar volume and net share issuance are week-ended Wednesday. Sources: Investment Company Institute, Federal Reserve Bank of St. Louis, and Bloomberg LEARN MORE High-Yield Bond ETFs: A Source of Liquidity www.ici.org/viewpoints/view_15_hybf_etf 95 US EXCHANGE-TRADED FUNDS

111 This basic pattern repeated itself later in 2017 when the effective yield on the index jumped from 5.54 percent on November 1, 2017, to 6.02 percent on November 15. At the same time, trading in high-yield bond ETFs increased, peaking at $16.1 billion for the week ended November 14. As in the episode earlier in the year, redemptions of high-yield bond ETFs were limited during this two-week period—amounting to $2.9 billion, or 4.6 percent of their October 2017 total net assets. The relative magnitudes of secondary market trading in and net share issuance of high-yield bond ETFs are also noteworthy—secondary market trading activity is many multiples higher than primary market activity for these ETFs. As investors seek to shed or gain exposure, depending on their risk appetites and expectations of future returns, high-yield bond ETFs provide an efficient means of transferring risk among themselves while limiting the impact on the underlying high-yield bond market. Demand for ETFs In the past decade, demand for ETFs has increased as institutional investors have found ETFs to be a convenient vehicle for participating in, or hedging against, broad movements in the stock market. Increased awareness of these investment vehicles by retail investors and their financial advisers also has influenced demand for ETFs. Total net assets in ETFs accounted for about 15 percent of total net assets managed by investment companies at year-end 2017. For 2017 as a whole, net share issuance of ETF shares (which includes reinvested dividends) hit a record $471 billion (Figure 4.7). 96 2018 INVESTMENT COMPANY FACT BOOK

112 FIGURE 4.7 Record Net Share Issuance of ETFs in 2017 Billions of dollars; annual, 2008–2017    TF s t E  Ac   Non–    t E TF  s  Ac                                            -  -                     1 The funds in this category are not registered under the Investment Company Act of 1940 and invest primarily in commodities, currencies, and futures. 2 The funds in this category are registered under the Investment Company Act of 1940. Note: Data for net share issuance include reinvested dividends. Data exclude ETFs that invest primarily in other ETFs. Components may not add to the total because of rounding. In 2017, net share issuance of ETFs increased across all broad asset classes, except commodities (Figure 4.8). Demand for global and international equity ETFs surged in 2017 with net share issuance totaling $160 billion, up from $20 billion in 2016 and $110 billion in 2015. This rebound in demand likely reflected the strong performance in international stocks,* which returned 28 percent in 2017, up from only 5 percent in 2016, and a depreciation † (7 percent) in the value of the US dollar, which generally increases the attractiveness of international investments to US investors. Net share issuance of broad-based domestic equity ETFs remained strong in 2017, with $156 billion in net new shares issued, up slightly from $148 billion in 2016. Double-digit return performance of domestic stocks over the previous two years—19 percent in 2017 and 11 percent in 2016—likely boosted demand for domestic ‡ equity ETFs. Demand for bond and hybrid ETFs strengthened further in 2017, with net new share issuance totaling $123 billion, up from $85 billion in 2016. * As measured by the MSCI All Country World Daily ex-US Gross Total Return Index. † As measured by the Trade Weighted US Dollar Index: Broad. ‡ As measured by the Wilshire 5000 Total Return Index (float-adjusted). 97 US EXCHANGE-TRADED FUNDS

113 FIGURE 4.8 Net Share Issuance of ETFs by Investment Classification Billions of dollars; annual, 2015–2017                             Global Int Bond Br a nd hyb ri d Commodities ic Domest oad-based tional erna ic equit equity se ct or e quity domest y 1 Bond ETFs represented 98 percent of net issuance in the bond and hybrid category in 2017. 2 This category includes funds—both registered and not registered under the Investment Company Act of 1940—that invest primarily in commodities, currencies, and futures. Note: Data for net share issuance include reinvested dividends. Data exclude ETFs that invest primarily in other ETFs. ETFs have been available for 25 years, and in that time, large-cap domestic equity ETFs have accounted for the largest proportion of ETF total net assets. At year-end 2017, assets in large-cap domestic equity ETFs totaled $927 billion, or 27 percent, of ETF assets (Figure 4.9). Fueled by strong investor demand over the past few years, bond and hybrid ETFs held 16 percent ($561 billion) of ETF assets. International equity ETFs accounted for 14 percent, or $477 billion of ETF total net assets. LEARN MORE Plenty of Players Provide Liquidity for ETFs www.ici.org/viewpoints/view_14_ft_etf_liquidity 98 2018 INVESTMENT COMPANY FACT BOOK

114 FIGURE 4.9 Total Net Assets of ETFs Were Concentrated in Large-Cap Domestic Stocks Billions of dollars, year-end 2017                    he p arge-ca Small-ca L p Mid-ca p r Ot rnationa s ic Domest Global l ommoditie Inte C merging E Bond mark s se ct or and et  brid equity hy yG Broad- based domestic equit y lobalInternational equit 1 This category includes international, regional, and single country ETFs, but excludes emerging market ETFs. 2 Bond ETFs represented 99 percent of total net assets in the bond and hybrid category in 2017. 3 This category includes funds—both registered and not registered under the Investment Company Act of 1940—that invest primarily in commodities, currencies, and futures. Note: Data exclude ETFs that invest primarily in other ETFs. LEARN MORE ICI Seeks Market Improvements for ETFs and Their Investors www.ici.org/fof_cap_mkts_etfs 99 US EXCHANGE-TRADED FUNDS

115 Increased investor demand for ETFs has led to a rapid increase in the number of ETFs created by fund sponsors, with 1,852 new ETFs offered to investors in the past decade (Figure 4.10). In 2016 and 2017, domestic equity ETFs accounted for about half of newly offered ETFs. International and global equity ETFs accounted for about one-quarter of new ETFs in 2017. Few ETFs had been liquidated until 2008 when market pressures appeared to come into play and sponsors began liquidating ETFs that had failed to attract sufficient demand. In 2012, the number of liquidations jumped to 81 as two sponsors exited the index-based ETF market. Since 2013, the number of ETF liquidations has risen steadily—a natural result of a maturing industry. In 2017, ETF liquidations rose to 114, as sponsors eliminated some small international equity ETFs from their lineups. FIGURE 4.10 Number of ETFs Entering and Exiting the Industry 2008–2017 Opened   Liquidat ed M erge d                                                  Note: Data include ETFs not registered under the Investment Company Act of 1940 but exclude ETFs that invest primarily in other ETFs. 100 2018 INVESTMENT COMPANY FACT BOOK

116 Characteristics of ETF-Owning Households An estimated 7.8 million, or about 6 percent of, US households held ETFs in mid-2017. Of households that owned mutual funds, an estimated 13 percent also owned ETFs. ETF-owning households tended to include affluent investors who owned a range of equity and fixed- income investments. In mid-2017, 95 percent of ETF-owning households also owned equity mutual funds, individual stocks, or variable annuities (Figure 4.11). Sixty-nine percent of households that owned ETFs also held bond mutual funds, individual bonds, or fixed annuities. In addition, 44 percent of ETF-owning households owned investment real estate. FIGURE 4.11 ETF-Owning Households Held a Broad Range of Investments Percentage of ETF-owning households holding each type of investment, mid-2017 Equity mutual funds, individual stocks, or variable annuities (total) 95 Bond mutual funds, individual bonds, or fixed annuities (total) 69 Mutual funds (total) 91 Equity 89 Bond 56 Hybrid 49 Money market 63 Individual stocks 75 Individual bonds 24 Fixed or variable annuities 33 44 Investment real estate Note: Multiple responses are included. 101 US EXCHANGE-TRADED FUNDS

117 Some characteristics of ETF-owning households are similar to those of households that own mutual funds and those that own stocks directly. For instance, households that owned ETFs— like households owning mutual funds and those owning individual stocks—tended to have household incomes above the national median and to own at least one defined contribution (DC) retirement plan account (Figure 4.12). ETF-owning households, however, also exhibit some characteristics that distinguish them from other households. For example, ETF-owning households tended to have higher education levels and greater household financial assets; they were also more likely to own individual retirement accounts (IRAs) than households that own mutual funds and those that own individual stocks. FIGURE 4.12 Characteristics of ETF-Owning Households Mid-2017 Households Households owning Households owning All owning ETFs US households mutual funds individual stocks Median 1 51 52 51 53 Age of head of household 2 Household income $59,000 $125,000 $100,000 $102,000 3 $90,000 $500,000 $350,000 Household financial assets $200,000 Percentage of households Household primary or co-decisionmaker for saving and investing 72 Married or living with a partner 57 77 72 Widowed 9 4 5 6 57 College or postgraduate degree 34 68 51 60 69 74 Employed (full- or part-time) 68 31 29 29 23 Retired from lifetime occupation Household owns IR A(s) 35 75 64 66 48 72 85 DC retirement plan account(s) 81 1 Age is based on the sole or co-decisionmaker for household saving and investing. 2 Total reported is household income before taxes in 2016. 3 Household financial assets include assets in employer-sponsored retirement plans but exclude the household’s primary residence. LEARN MORE The Liquidity Provided by ETFs Is No Mirage www.ici.org/viewpoints/view_16_mirage_response 102 2018 INVESTMENT COMPANY FACT BOOK

118 ETF-owning households also exhibit more willingness to take investment risk (Figure 4.13). Fifty-two percent of ETF-owning households were willing to take substantial or above-average investment risk for substantial or above-average gain in 2017, compared with 22 percent of all US households and 34 percent of mutual fund–owning households. This result may be explained by the predominance of equity ETFs, which make up 81 percent of ETF total net assets (Figure 4.9). Investors who are more willing to take investment risk may be more likely to invest in equities. FIGURE 4.13 ETF-Owning Households Are Willing to Take More Investment Risk Percentage of all US households, mutual fund–owning households, and ETF-owning households; mid-2017 Level of risk willing to take with financial investments l gain r substantia fo l risk Substantia ov r ab fo e risk erag av e- ov Ab e gain erag av e- fo e gain erag r av e risk erag Av w-av Belo e risk erag fo r belo w-av erag e gain willing Un to ta ke an y risk                      F- owning households Mutual fund–o wning households All US households ET 103 US EXCHANGE-TRADED FUNDS

119 CHAPTER FIVE US Closed-End Funds Closed-end funds are one of four types of investment companies, along with mutual (or open-end) funds, exchange-traded funds (ETFs), and unit investment trusts. Closed-end funds generally issue a fixed number of shares that are listed on a stock exchange or traded in the over-the-counter market. The assets of a closed-end fund are professionally managed in accordance with the fund’s investment objectives and policies, and may be invested in stocks, bonds, and other securities.

120 More than half of closed-end fund total assets were in bond funds at year-end 2017 n bond closed- end funds i   IN THIS CHAPTER 106 What Is a Closed-End Fund? 107 Total Assets of Closed-End Funds 109 Net Issuance of Closed-End Funds 110 Closed-End Fund Distributions 111 Closed-End Fund Leverage 114 Characteristics of Households Owning Closed-End Funds

121 What Is a Closed-End Fund? A closed-end fund is a type of investment company whose shares are listed on a stock exchange or traded in the over-the-counter market. The assets of a closed-end fund are professionally managed in accordance with the fund’s investment objectives and policies, and may be invested in equities, bonds, and other securities. The market price of a closed-end fund share fluctuates like that of other publicly traded securities and is determined by supply and demand in the marketplace. A closed-end fund is created by issuing a fixed number of common shares to investors during an initial public offering. Subsequent issuance of common shares can occur through secondary or follow-on offerings, at-the-market offerings, rights offerings, or dividend reinvestments. Closed-end funds also are permitted to issue one class of preferred shares in addition to common shares. Preferred shares differ from common shares in that preferred shareholders are paid dividends but do not share in the gains and losses of the fund. Issuing preferred shares allows a closed-end fund to raise additional capital, which it can use to purchase more securities for its portfolio. Once issued, shares of a closed-end fund generally are bought and sold by investors in the open market and are not purchased or redeemed directly by the fund, although some closed-end funds may adopt stock repurchase programs or periodically tender for shares. Because a closed-end fund does not need to maintain cash reserves or sell securities to meet redemptions, the fund has the flexibility to invest in less-liquid portfolio securities. For example, a closed-end fund may invest in securities of very small companies, municipal bonds that are not widely traded, or securities traded in countries that do not have fully developed securities markets. LEARN MORE Closed-End Fund Resource Center www.ici.org/cef 106 2018 INVESTMENT COMPANY FACT BOOK

122 Total Assets of Closed-End Funds At year-end 2017, 530 closed-end funds had total assets of $275 billion (Figure 5.1). This total -based gains in represents a 4.6 percent increase from year-end 2016, and was driven by broad global financial markets. FIGURE 5.1 Total Assets of Closed-End Funds Were $275 Billion at Year-End 2017 Billions of dollars; year-end, 2007–2017                                             Numbe r of clo sed- en d fund s                      Total as set s is the fair value of assets held in closed-end fund portfolios funded by common and preferred shares Note: less any liabilities besides preferred shares. , “The Closed-End Fund Market, 2017” Source: ICI Research Perspective Historically, bond funds have accounted for a large share of assets in closed-end funds. At year-end 2007, 54 percent of all closed-end fund assets were held in bond funds, with the remainder held in equity funds (Figure 5.2). At year-end 2017, 60 percent of closed-end fund assets were held in bond funds, and totaled $166 billion. The remainder of closed-end fund assets were held in equity funds, and totaled $109 billion. The share of assets in bond closed-end funds has been increasing as demand for bond closed-end funds has outpaced that of equity closed-end funds. Cumulative net issuance of bond closed-end fund shares has exceeded that of equity fund shares over the past 10 years, even though the total returns on † bonds,* had been lower than the total returns on US stocks. * As measured by the Citi US Broad Investment Grade Bond Index. † As measured by the Wilshire 5000 Total Return Index (float-adjusted). 107 US CLOSED-END FUNDS

123 The number of closed-end funds available to investors declined from 2011 to 2016 (Figure 5.1). In that period, more closed-end funds were liquidated and others converted into open-end mutual funds or exchange-traded funds than new closed-end funds were launched. The number of closed-end funds decreased slightly in 2017, and remains well below its recent peak in 2011. FIGURE 5.2 Composition of the Closed-End Fund Market by Investment Objective Percentage of closed-end fund total assets, year-end 2007 and 2017  GlobalInt erna tional b ond   ic equit y Domest   ic municipal bond Domest   erna quit y GlobalInt tional e   Domest ic taxable bond  billi   tot on    ssets a al  tional b ond GlobalInt erna   y ic equit Domest   Domest ic municipal bond   erna GlobalInt y tional e quit   ic taxable bond Domest   tot a l a ssets   billi on Note: Components may not add to 100 percent because of rounding. Source: ICI Research Perspective , “The Closed-End Fund Market, 2017” LEARN MORE The Closed-End Fund Market, 2017 www.ici.org/pdf/per24-02.pdf 108 2018 INVESTMENT COMPANY FACT BOOK

124 Net Issuance of Closed-End Funds Net issuance of closed-end fund shares increased to $2.7 billion in 2017 from $1.6 billion in 2016, as investor demand for domestic municipal bond closed-end funds increased (Figure 5.3). Equity closed-end funds had net redemptions—for the first time since 2009— of $548 million in 2017 compared with net issuance of $58 million in 2016. Net issuance for bond closed-end funds increased to $3.3 billion from $1.5 billion in 2016. FIGURE 5.3 Closed-End Fund Net Share Issuance Millions of dollars, 2008–2017 Bond Equity Domestic Global/ Domestic Global/ International Domestic municipal To t a l To t a l International To t a l taxable -$6,770 -$6,089 -$700 -$22,298 -$8,739 - $ 7, 0 5 2 2008 -$13,560 -$1,687 2009 -7 8 8 -2 3 8 287 -3,259 -2,520 -2,36 6 -1 5 4 -7 3 9 59 1,900 1,119 357 2010 5,430 2,054 1,9 95 3,376 1,551 724 825 2 3,206 4,466 6,018 2011 1,260 113 8,432 3,249 3,102 2,081 2012 11,385 2,953 2,840 -491 4,097 -2 20 6,459 3,605 13,765 2013 10,159 3,921 621 567 -21 2 494 266 3,819 4,314 4,935 2014 2015 678 -87 -1 0 4 1,753 1,267 224 1,043 486 -1 8 4 1,509 1,432 576 -498 2016 1,567 58 242 -401 2017 2,146 312 2,722 -548 812 -1 4 7 3,270 Note: Components may not add to the total because of rounding. Net share issuance is the dollar value of gross issuance (proceeds from initial and additional public offerings of shares) minus gross redemptions of shares (share repurchases and fund liquidations). A positive number indicates that gross issuance exceeded gross redemptions. A negative number indicates that gross redemptions exceeded gross issuance. ICI Research Perspective , “The Closed-End Fund Market, 2017” Source: 109 US CLOSED-END FUNDS

125 Closed-End Fund Distributions In 2017, closed-end funds distributed $16.8 billion to shareholders (Figure 5.4). Closed-end funds may make distributions to shareholders from three possible sources: income from interest and dividends, realized capital gains, and return of capital. Income from interest and dividends made up 70 percent of closed-end fund distributions, with the majority of income distributions paid by bond closed-end funds. Return of capital constituted 19 percent of closed-end fund distributions, and capital gains distributions accounted for 11 percent. FIGURE 5.4 Closed-End Fund Distributions Percentage of closed-end fund distributions, 2017   Return of capital   Income distribution s*   pital gains distributions Ca d fund d istributions  billion To ta l clo sed- en * Income distributions include payments from interest and dividends. , “The Closed-End Fund Market, 2017” ICI Research Perspective Source: 110 2018 INVESTMENT COMPANY FACT BOOK

126 Closed-End Fund Leverage Closed-end funds have the ability, subject to strict regulatory limits, to use leverage as part of their investment strategy. The use of leverage by a closed-end fund can allow it to achieve higher long-term returns, but also increases risk and the likelihood of share price volatility. Closed-end fund leverage can be classified as either structural leverage or portfolio leverage. At year-end 2017, at least 341 funds, accounting for 64 percent of closed-end funds, were using structural leverage, types of portfolio leverage (tender option bonds or reverse repurchase agreements), or both as a part of their investment strategy (Figure 5.5). FIGURE 5.5 Closed-End Funds Are Employing Structural and Some Types of Portfolio Leverage Number of funds; end of period, 2014–2016, 2017:Q1–2017:Q4  To ta l  St tural ruc  Po foli o rt                                           Q            Q   Q    Q  1 Components do not add to the total because funds may employ both structural and portfolio leverage. 2 Structural leverage affects the closed-end fund’s capital structure by increasing the fund’s portfolio assets through borrowing and issuing debt and preferred stock. 3 Portfolio leverage is leverage that results from particular types of portfolio investments, including certain types of derivatives, reverse repurchase agreements, tender option bonds, and other investments or types of transactions. Data are only available for reverse repurchase agreements and tender option bonds. Given data collection constraints, and the continuing development of types of investments/transactions with a leverage characteristic (and the use of different definitions of leverage), actual portfolio leverage may be materially different from what is reflected above. Source: ICI Research Perspective , “The Closed-End Fund Market, 2017” LEARN MORE Frequently Asked Questions About Closed-End Funds and Their Use of Leverage www.ici.org/cef/background/faqs_closed_end 111 US CLOSED-END FUNDS

127 Structural leverage, the most common type of leverage, affects the closed-end fund’s capital structure by increasing the fund’s portfolio assets. Types of closed-end fund structural leverage include borrowing and issuing debt and preferred shares. At the end of 2017, 302 funds had a total of $50.4 billion in structural leverage, with slightly more than half (53 percent) from preferred shares (Figure 5.6). Forty-seven percent of closed-end fund * across those structural leverage was other structural leverage. The average leverage ratio closed-end funds employing structural leverage was 26 percent at year-end 2017. Among closed-end funds employing structural leverage, the average leverage ratio for bond funds was somewhat higher (28 percent) than that of equity funds (22 percent). FIGURE 5.6 Preferred Shares Constituted the Majority of Closed-End Fund Structural Leverage Percentage of closed-end fund structural leverage, year-end 2017    her leve rage structural Ot    d shar es Preferre To ta l clo sed- en d fund s t ructura l l ev er age     billi on 1 A closed-end fund may issue preferred shares to raise additional capital, which can be used to purchase more securities for its portfolio. Preferred stock differs from common stock in that preferred shareholders are paid income and capital gains distributions, but do not share in the gains and losses in the value of the fund’s shares. 2 Other structural leverage includes bank borrowing and other forms of debt. Source: ICI Research Perspective , “The Closed-End Fund Market, 2017” leverage ratio * The is the ratio of the amount of preferred shares and other structural leverage to the sum of the amount of common assets, preferred shares, and other structural leverage. 112 2018 INVESTMENT COMPANY FACT BOOK

128 Portfolio leverage is leverage that results from particular portfolio investments, such as certain types of derivatives, reverse repurchase agreements, and tender option bonds. At the end of 2017, 154 closed-end funds had $18.1 billion outstanding in reverse repurchase agreements and tender option bonds (Figure 5.7). FIGURE 5.7 Use of Portfolio Leverage Billions of dollars; end of period, 2014–2016, 2017:Q1–2017:Q4 Reve rs e r epur chase a s eement gr Te r o ption bond s nde                         Q        Q       Q     Q Note: Portfolio leverage is leverage that results from particular types of portfolio investments, including certain types of derivatives, reverse repurchase agreements, tender option bonds, and other investments or types of transactions. Data are only available for reverse repurchase agreements and tender option bonds. Given data collection constraints, and the continuing development of types of investments/transactions with a leverage characteristic (and the use of different definitions of leverage ), actual portfolio leverage may be materially different from what is reflected above. , “The Closed-End Fund Market, 2017” Source: ICI Research Perspective 113 US CLOSED-END FUNDS

129 Characteristics of Households Owning Closed-End Funds An estimated 3.6 million US households owned closed-end funds in 2017. These households tended to include affluent investors who owned a range of equity and fixed-income investments. In 2017, 96 percent of households owning closed-end funds also owned equity mutual funds, individual stocks, or variable annuities (Figure 5.8). Sixty-five percent of households that owned closed-end funds also held bond mutual funds, individual bonds, or fixed annuities. In addition, 46 percent of these households owned investment real estate. FIGURE 5.8 Closed-End Fund Investors Owned a Broad Range of Investments Percentage of closed-end fund–owning households holding each type of investment, mid-2017 96 Equity mutual funds, individual stocks, or variable annuities (total) Bond mutual funds, individual bonds, or fixed annuities (total) 65 89 Mutual funds (total) Equity 82 Bond 50 Hybrid 46 58 Money market Individual stocks 71 Individual bonds 33 36 Fixed or variable annuities 46 Investment real estate Note: Multiple responses are included. ICI Research Perspective Source: , “The Closed-End Fund Market, 2017” Because a large number of households that owned closed-end funds also owned stocks and mutual funds, the characteristics of closed-end fund owners were similar in many respects to those of stock and mutual fund owners. For instance, households that owned closed-end funds (like stock- and mutual fund–owning households) tended to be headed -educated individuals and tended to have household incomes above the national by college median (Figure 5.9). 114 2018 INVESTMENT COMPANY FACT BOOK

130 Nonetheless, households that owned closed-end funds exhibited certain characteristics distinguishing them from mutual fund–owning households. For example, households with closed-end funds tended to have greater household financial assets (Figure 5.9). Also, 38 percent of households owning closed-end funds were retired from their lifetime occupations, compared with 23 percent of households owning mutual funds. FIGURE 5.9 Closed-End Fund Investors Had Above-Average Household Incomes and Financial Assets Mid-2017 Households Households Households owning owning All owning closed-end funds US households mutual funds individual stocks Median 1 53 51 56 51 Age of head of household 2 Household income $59,000 $100,000 $100,000 $102,000 3 $200,000 Household financial assets $350,000 $90,000 $250,000 Percentage of households Household primary or co-decisionmaker for saving and investing 57 72 72 Married or living with a partner 57 9 6 Widowed 6 5 College or postgraduate degree 34 58 51 57 Employed (full- or part-time) 60 69 74 69 Retired from lifetime occupation 38 23 31 29 Household owns IR A(s) 35 66 64 66 DC retirement plan account(s) 48 77 85 72 1 Age is based on the sole or co-decisionmaker for household saving and investing. 2 Total reported is household income before taxes in 2016. 3 Household financial assets include assets in employer-sponsored retirement plans but exclude the household’s primary residence. ICI Research Perspective Source: , “The Closed-End Fund Market, 2017” LEARN MORE A Guide to Closed-End Funds www.ici.org/cef/background/bro_g2_ce 115 US CLOSED-END FUNDS

131 CHAPTER SIX US Fund Expenses and Fees Mutual funds provide investors with many investment-related services, and for those services investors incur two primary types of expenses and fees: ongoing expenses and sales loads. Average expense ratios paid by mutual fund investors have fallen substantially over time. For example, on an asset-weighted basis, average expense ratios for equity mutual funds fell from 0.99 percent in 2000 to 0.59 percent in 2017, a 40 percent decline.

132 Expense ratios paid by equity mutual fund investors have fallen for eight consecutive years    o paid i erage expense rat av n equit y mutual funds in    o IN THIS CHAPTER 118 Trends in Mutual Fund Expenses 124 Index Funds 132 Mutual Fund Load Fees 136 Services and Expenses in 401(k) Plans

133 Trends in Mutual Fund Expenses Mutual fund investors incur two primary types of expenses and fees: ongoing expenses and sales loads. Ongoing expenses cover portfolio management, fund administration, daily fund accounting and pricing, shareholder services (such as call centers and websites), distribution charges (known as 12b-1 fees), and other operating costs. These expenses are included in a fund’s expense ratio—the fund’s annual expenses expressed as a percentage of its assets. Because expenses are paid from fund assets, investors pay these expenses indirectly. Sales loads are paid at the time of share purchase (front-end loads), when shares are redeemed (back-end loads), or over time (level loads). On an asset-weighted basis, average expense ratios* incurred by mutual fund investors have fallen substantially (Figure 6.1). In 2000, equity mutual fund investors incurred expense ratios of 0.99 percent, on average, or 99 cents for every $100 invested. By 2017, that average had fallen to 0.59 percent, a decline of 40 percent. Hybrid and bond mutual fund expense ratios also have declined. The average hybrid mutual fund expense ratio fell from 0.89 percent in 2000 to 0.70 percent in 2017, a reduction of 21 percent. In addition, the average bond mutual fund expense ratio fell from 0.76 percent in 2000 to 0.48 percent in 2017, a decline of 37 percent. * In this chapter, unless otherwise noted, average expense ratios are calculated on an asset-weighted basis, which gives more weight to funds with greater assets. It reflects where investors are actually putting their assets, and thus, better reflects the actual expenses, fees, or performance experienced by investors than does a simple average (weighting each fund or share class equally). ICI’s fee research uses asset-weighted averages to summarize the expenses and fees that shareholders pay through funds. In this context, asset-weighted averages are preferable to simple averages, which would overstate the expenses and fees of funds in which investors hold few dollars. ICI weights the expense ratio of each fund’s share class by its year-end assets. 118 2018 INVESTMENT COMPANY FACT BOOK

134 FIGURE 6.1 Expense Ratios Incurred by Mutual Fund Investors Have Declined Substantially Since 2000 Percent, 2000–2017 Equit s l fund utua y m                                                                         Hybri utua l fund s d m                                                                         B l fund s utua m ond                                                                     Note: Expense ratios are measured as asset-weighted averages. Data exclude mutual funds available as investment choices in variable annuities and mutual funds that invest primarily in other mutual funds. Sources: Investment Company Institute, Lipper, and Morningstar LEARN MORE Trends in the Expenses and Fees of Funds, 2017 www.ici.org/perspective 119 US FUND EXPENSES AND FEES

135 Understanding the Decline in Mutual Fund Expense Ratios Several factors help account for the steep drop in mutual fund expense ratios. First, expense ratios often vary inversely with fund assets. Some fund costs included in expense ratios—such as transfer agency fees, accounting and audit fees, and directors’ fees—are more or less fixed in dollar terms. This means that when a fund’s assets rise, these costs contribute less to a fund’s expense ratio. Thus, if the assets of a fixed sample of funds rise over time, the sample’s average expense ratio tends to fall over the same period (Figure 6.2). FIGURE 6.2 Mutual Fund Expense Ratios Tend to Fall as Fund Assets Rise 1 Share classes of actively managed domestic equity mutual funds continuously in existence since 2000 Pe s Billions of dollar t rcen       pense r e ex erag Av atio t a e l n ta To ssets                                                         1 Calculations are based on a fixed sample of share classes. Data exclude mutual funds available as investment choices in variable annuities, index mutual funds, and mutual funds that invest primarily in other mutual funds. 2 Expense ratios are measured as asset-weighted averages. Sources: Investment Company Institute, Lipper, and Morningstar Another factor contributing to the decline of the average expense ratios of long-term mutual funds is the shift toward no-load share classes (see No-Load Share Classes on page 131), particularly institutional no-load share classes, which tend to have below-average expense ratios. In part, this shift reflects a change in how investors pay for services from brokers and other financial professionals (see Mutual Fund Load Fees on page 132). 120 2018 INVESTMENT COMPANY FACT BOOK

136 Mutual fund expense ratios also have fallen because of economies of scale and competition. Investor demand for mutual fund services has increased dramatically in recent years. From 1990 to 2017, the number of households owning mutual funds more than doubled—from 23.4 million to 56.2 million (see Figure 7.1 on page 142). All else equal, this sharp increase in demand would tend to boost mutual fund expense ratios. Any such tendency, however, was mitigated by downward pressure on expense ratios—from competition among existing mutual fund sponsors, new mutual fund sponsors entering the industry, competition from products such as exchange-traded funds (ETFs) (see chapter 4 and page 127 of this chapter), and economies of scale resulting from the growth in fund assets. Finally, shareholders tend to invest in mutual funds with below-average expense ratios (Figure 6.3). The simple average expense ratio of equity mutual funds (the average for all equity mutual funds offered for sale) was 1.25 percent in 2017. The asset-weighted average expense ratio for equity mutual funds (the average shareholders actually paid) was far lower at 0.59 percent. FIGURE 6.3 Fund Shareholders Paid Below-Average Expense Ratios for Equity Mutual Funds Percent, 2000–2017 atio e r ens Simple average exp d ave e ht weig t- sse A atio e r xpens e e rag                                                                                                            Note: Data exclude mutual funds available as investment choices in variable annuities and mutual funds that invest primarily in other mutual funds. Sources: Investment Company Institute, Lipper, and Morningstar 121 US FUND EXPENSES AND FEES

137 Another way to illustrate the tendency for investors to gravitate to lower-cost funds is to examine how they allocate their assets across funds according to their expense ratios. At year-end 2017, equity mutual funds with expense ratios in the lowest quartile held 77 percent of equity mutual funds’ total net assets, while those with expense ratios in the upper three quartiles held only 23 percent (Figure 6.4). This pattern holds for both actively managed and index equity mutual funds. Actively managed equity mutual funds with expense ratios in the lowest quartile held 72 percent of actively managed equity mutual funds’ total net assets at year-end 2017, and lower-cost index equity mutual funds held 78 percent of index equity mutual funds’ total net assets. FIGURE 6.4 Total Net Assets Are Concentrated in Lower-Cost Mutual Funds Percentage of total net assets, 2017 til st quar Mu owe e l in th e ratios pens tual funds with ex e e quar r th e uppe in th re pens tual funds with ex Mu es til e ratios       All equi equity ty tively manag Ac ty Index equi ed fund s fund s mutual fund mutual mutual s Note: Data exclude mutual funds available as investment choices in variable annuities and mutual funds that invest primarily in other mutual funds. Sources: Investment Company Institute and Morningstar Differences in Mutual Fund Expense Ratios Like the prices of most goods and services, the expense ratios of individual mutual funds differ considerably across the array of available products. The expense ratios of individual funds depend on many factors, including investment objective (see page 123), fund assets (see page 125), and payments to financial intermediaries (see page 132). 122 2018 INVESTMENT COMPANY FACT BOOK

138 Mutual Fund Investment Objective Mutual fund expense ratios vary by investment objective (Figure 6.5). For example, bond and money market mutual funds tend to have lower expense ratios than equity mutual funds. Among equity mutual funds, expense ratios tend to be higher for funds that specialize in a given sector—such as healthcare or real estate—or those that invest in equities around the world, because such funds tend to cost more to manage. Even within a particular investment objective, mutual fund expense ratios can vary considerably. For example, 10 percent of equity mutual funds that focus on growth stocks have expense ratios of 0.70 percent or less, while the top 10 percent have expense ratios of 1.95 percent or more. This variation reflects, among other things, the fact that some growth funds focus more on small- or mid-cap stocks and others focus more on large-cap stocks. This is important because portfolios of small- and mid -cap stocks tend to cost more to manage since information about these types of stocks is less readily available, and therefore portfolio managers spend more time doing research. FIGURE 6.5 Mutual Fund Expense Ratios Vary Across Investment Objectives Percent, 2017 Asset-weighted 10th Simple 90th percentile average Median percentile average Investment objective 1 2.00 0.66 1.18 Equity mutual funds 0.59 1.25 Growth 0.70 1.95 0.73 1.21 1.14 Sector 1.33 2.13 0.76 1.37 0.76 Value 0.68 1.10 1.89 0.70 1.18 Blend 1.00 1.80 0.36 1.04 0.40 World 0.80 1.28 2.10 0.73 1.36 1 0.65 1.15 Hybrid mutual funds 1.26 1.98 0.70 1 Bond mutual funds 0.81 1.61 0.48 0.93 0.45 0.35 1.49 0.35 0.77 Investment grade 0.69 0.65 1.00 1.80 0.61 1.12 World Government 0.29 1.60 0.40 0.82 0.74 High-yield 0.95 1.76 0.73 1.05 0.63 Municipal 0.48 0.77 1.57 0.51 0.9 0 1 Money market funds 0.17 0.40 0.66 0.25 0.40 Memo: 2 0.85 0.36 0.77 1.49 0.44 Target date mutual funds 1 0.61 0.06 0.33 1.53 0.09 Index equity mutual funds 1 Data exclude mutual funds available as investment choices in variable annuities and mutual funds that invest primarily in other mutual funds. 2 Data include mutual funds that invest primarily in other mutual funds, but exclude mutual funds available as investment choices in variable annuities. Ninety-five percent of target date mutual funds invest primarily in other mutual funds. Note: Each fund’s share class is weighted equally for the median, 10th, and 90th percentiles. Sources: Investment Company Institute and Morningstar 123 US FUND EXPENSES AND FEES

139 Index Funds An index fund generally seeks to replicate the return on a specified index. Under this approach, often referred to as passive management, portfolio managers buy and hold all, or a representative sample of, the securities in their target indexes. This approach to portfolio management is a primary reason that index funds—whether mutual funds or ETFs—tend to have below-average expense ratios. By contrast, under an active management approach, managers have more discretion to increase or reduce exposure to sectors or securities within their funds’ investment mandates. Active managers may also undertake significant research about stocks or bonds, market sectors, or geographic regions. This approach offers investors the chance to earn superior returns, or to meet other investment objectives such as limiting downside risk, managing volatility, under- or over-weighting various sectors, and altering asset allocations in response to market conditions. These characteristics tend to make active management more costly than management of an index fund. Index Mutual Fund Expense Ratios Growth in index mutual funds has contributed to the decline in asset-weighted average expense ratios of equity and bond mutual funds. From 2005 to 2017, index mutual fund total net assets grew significantly, from $619 billion to $3.4 trillion (Figure 6.6). Consequently, over the same period, index mutual funds’ share of long-term mutual fund total net assets more than doubled, from 9.0 percent in 2005 to 21.2 percent in 2017. Within index mutual funds, index equity mutual funds accounted for the lion’s share (81 percent) of index mutual fund total net assets in 2017. Index mutual funds tend to have below-average expense ratios for several reasons. First, their approach to portfolio management—in which managers generally seek to replicate the return on a specified index by buying and holding all, or a representative sample of, the securities in their target indexes—lends itself to being less costly. This is because index funds’ portfolios tend not to change frequently, and therefore have low turnover rates. Second, index mutual funds tend to have below-average expense ratios because of their investment focus. Total net assets of index equity mutual funds are concentrated more heavily in large-cap blend funds that target US large-cap indexes, such as the S&P 500. Total net assets of actively managed equity mutual funds, on the other hand, are more widely distributed across stocks of varying capitalization, international regions, or specialized business sectors. Managing portfolios of mid- or small-cap, international, or sector stocks is generally acknowledged to be more expensive than managing portfolios of US large-cap stocks. 124 2018 INVESTMENT COMPANY FACT BOOK

140 FIGURE 6.6 Total Net Assets and Number of Index Mutual Funds Have Increased in Recent Years Billions of dollars; year-end, 2005–2017 s a ond m unds l f utua d m ybri x h nde d i n Index b und l f utua    y m unds utua l f Index e quit                                                                                                              Number s fund x mutual de of in                           Note: Data exclude mutual funds that invest primarily in other mutual funds. Components may not add to the total because of rounding. Third, index mutual funds are larger on average than actively managed mutual funds, which, through economies of scale, helps reduce fund expense ratios. In 2017, the size of the average index equity mutual fund ($7.1 billion) was four times as large as the size of the average actively managed equity mutual fund ($1.8 billion). Finally, index mutual fund investors who hire financial professionals might pay for that service out of pocket, rather than through the fund’s expense ratio (see Mutual Fund Load Fees on page 132). In contrast, actively managed mutual funds more commonly have share classes that bundle those costs into the expense ratio. 125 US FUND EXPENSES AND FEES

141 These reasons, among others, help explain why index mutual funds generally have lower expense ratios than actively managed mutual funds. It is important to note that both index and actively managed mutual funds have contributed to the decline in the average expense ratios of mutual funds (Figure 6.7). From 2000 to 2017, the average expense ratio of index equity mutual funds fell from 0.27 percent to 0.09 percent, while the average expense ratio for actively managed equity mutual funds fell from 1.06 percent to 0.78 percent. Over the same period, the average expense ratio of index bond mutual funds fell from 0.21 percent to 0.07 percent and the average expense ratio of actively managed bond mutual funds fell from 0.78 percent to 0.55 percent. FIGURE 6.7 Expense Ratios of Actively Managed and Index Mutual Funds Have Fallen Percent, 2000–2017     d e tively manage Ac quity mutual funds         s utual fund d m on d b tively manage Ac         y m utual fund Index equit s        Index bond mutual fund s                                       Note: Expense ratios are measured as asset-weighted averages. Data exclude mutual funds available as investment choices in variable annuities and mutual funds that invest primarily in other mutual funds. Sources: Investment Company Institute, Lipper, and Morningstar 126 2018 INVESTMENT COMPANY FACT BOOK

142 The downward trend in the average expense ratios of both index and actively managed mutual funds reflects, in part, investors’ increasing tendency to buy lower-cost funds. Investor demand for index mutual funds is disproportionately concentrated in funds with the lowest costs. This phenomenon is not unique to index mutual funds, however; the proportion of assets in the lowest-cost actively managed mutual funds is also high (Figure 6.4). Index ETF Expense Ratios The trends in ETFs over the past decade have influenced asset-weighted average expense ratios of index equity and index bond ETFs. ETF total net assets have grown rapidly in recent years, from $301 billion at year-end 2005 to $3.4 trillion at year-end 2017 (Figure 2.1). During this time, ETFs have become a significant market participant, with assets now accounting for about 15 percent of total net assets managed by investment companies at year-end 2017. ETFs are largely index-based and registered with the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940. Actively managed ETFs and non–1940 Act ETFs represented only 3.3 percent of ETF total net assets at year-end 2017. Like index mutual funds, most of the total net assets in ETFs are in funds that focus on equities. Equity ETFs account for more than 80 percent of the total net assets of ETFs. Part of the strong growth in ETFs is attributable to their distribution structure, in which the ETF generally charges an expense ratio that provides no compensation to financial professionals. Compensation to financial professionals for distribution or account servicing and maintenance is typically paid by the investor directly.* Financial professionals often provide programs that offer investors a suite of ETFs suited to their investment goals. In such cases, investors would typically pay financial professionals an asset-based fee in addition to the expense ratios of the ETFs in the suite of ETFs selected. Also, because ETFs are generally index funds, they typically have lower expense ratios. * Some ETFs bundle distribution fees in the expense ratio to cover marketing and distribution expenses. These fees are usually small, typically ranging between 0.01 and 0.04 percent. 127 US FUND EXPENSES AND FEES

143 Like mutual fund investors, ETF shareholders tend to invest in funds with below-average expense ratios (Figure 6.8). The simple average expense ratio of index equity ETFs (the average for all index equity ETFs offered for sale) was 0.50 percent in 2017. The asset -weighted average expense ratio for index equity ETFs (the average shareholders actually paid) was less than half of that, 0.21 percent. The same holds for index bond ETFs, with a simple average expense ratio of 0.29 percent in 2017 and an asset-weighted average expense ratio of 0.18 percent. FIGURE 6.8 Expense Ratios Incurred by Index ETF Investors Have Declined in Recent Years Percent, 2005–2017 Simple average exp atio e r ens rag ave ed ht weig t- sse A atio e r e e xpens x e Inde s TF y E quit                                                                               TF Inde s x bon d E                                                        *   *              * Data for index bond ETFs are excluded prior to 2007 because of a limited number of funds. Note: Data exclude ETFs not registered under the Investment Company Act of 1940 and ETFs that invest primarily in other ETFs. Sources: Investment Company Institute and Morningstar LEARN MORE Understanding Exchange-Traded Funds: How ETFs Work www.ici.org/perspective 128 2018 INVESTMENT COMPANY FACT BOOK

144 Additionally, index ETF expense ratios differ based on their investment objectives (Figure 6.9). Among index bond ETFs, for example, expense ratios tend to be higher for ETFs that invest in either foreign or high-yield bonds because such securities are typically more costly to manage than, for example, Treasury bonds. Indeed, the asset-weighted average expense ratio for index high-yield bond ETFs was 0.46 percent in 2017, compared to the asset- weighted average expense ratio of 0.18 percent for index government bond ETFs. Even within specific investment objectives, expense ratios will vary among different index ETFs for a range of reasons. For example, expense ratios may differ because not all index ETFs in a given investment objective rely on the same index, and licensing fees that ETFs pay to index providers may vary. FIGURE 6.9 Index ETF Expense Ratios Vary Across Investment Objectives Percent, 2017 10th Simple Asset-weighted 90th percentile Median average percentile Investment objective average Index equity ETFs 0.14 0.48 0.95 0.21 0.50 Growth 0.07 0.64 0.19 0.34 0.30 Sector 0.50 0.95 0.27 0.54 0.14 Value 0.09 0.30 0.64 0.22 0.34 Blend 0.10 0.38 0.95 0.13 0.45 World 0.54 0.25 0.50 0.85 0.32 Index hybrid ETFs 0.49 0.87 0.56 0.66 0.63 0.08 0.50 0.18 0.29 Index bond ETFs 0.24 0.07 0.15 0.25 Corporate 0.17 0.10 World 0.25 0.46 0.50 0.36 0.42 Government 0.07 0.15 0.95 0.18 0.31 High-yield 0.44 0.80 0.46 0.48 0.30 Municipal 0.18 0.25 0.35 0.24 0.26 Memo: Active equity ETFs 0.48 0.83 1.05 0.86 0.84 Note: Each fund’s share class is weighted equally for the median, 10th, and 90th percentiles. Data exclude ETFs not registered under the Investment Company Act of 1940 and ETFs that invest primarily in other ETFs. Sources: Investment Company Institute and Morningstar 129 US FUND EXPENSES AND FEES

145 Mutual Fund Fee Structures Mutual funds often are categorized by the class of shares that fund sponsors offer, primarily load or no-load classes. Load classes generally serve investors who buy shares through financial professionals; no-load classes usually serve investors who buy shares without the assistance of a financial professional or who choose to compensate their financial professionals separately. Funds sold through financial professionals typically offer more than one share class in order to provide investors with alternative ways to pay for financial services. 1 2b -1 Fe e s Since 1980, when the US Securities and Exchange Commission adopted Rule 12b-1 under the Investment Company Act of 1940, mutual funds and their shareholders have had the flexibility to compensate financial professionals and other financial intermediaries through asset-based fees. These distribution fees, known as 12b-1 fees, enable investors to pay indirectly for some or all of the services they receive from financial professionals (such as their broker) and other financial intermediaries (such as retirement plan recordkeepers and discount brokerage firms). Funds also use 12b-1 fees to a very limited extent to help defray advertising and marketing costs. Load Share Classes Load share classes include a sales load, a 12b-1 fee, or both. Sales loads and 12b-1 fees are used to compensate brokers and other financial professionals for their services. Front-end load shares , which are predominantly Class A shares, were the traditional way investors compensated financial professionals for assistance. These shares generally charge a sales load—a percentage of the sales price or offering price—at the time of purchase. They also generally have a 12b-1 fee, often 0.25 percent (25 basis points). Front-end load shares are sometimes used in employer-sponsored retirement plans, but fund sponsors typically waive the sales load for purchases made through such retirement plans. Additionally, front-end load fees often decline as the size of an investor’s initial ), and many fund providers offer discounted purchase rises (called breakpoint discounts load fees when an investor has total balances exceeding a given amount in that provider’s funds. 130 2018 INVESTMENT COMPANY FACT BOOK

146 Back-end load shares , often called Class B shares, typically do not have a front- end load. Investors using back-end load shares pay for services provided by financial professionals through a combination of an annual 12b-1 fee and a contingent deferred sales load (CDSL). The CDSL is paid if fund shares are redeemed before a given number of years of ownership. Back-end load shares usually convert after a specified number of years to a share class with a lower 12b-1 fee (for example, Class A shares). The assets in back-end load shares have declined substantially in recent years. Level load shares , which include Class C shares, generally do not have front-end loads. Investors in this share class compensate financial professionals with an annual 12b-1 fee (typically 1 percent) and a CDSL (also typically 1 percent) that shareholders pay if they sell their shares within a year of purchase. No-Load Share Classes No-load share classes have neither a front-end load nor a CDSL, and have a 12b-1 fee of 0.25 percent (25 basis points) or less. Originally, no-load share classes were sold directly by mutual fund sponsors to investors. Now, investors can purchase no-load funds through employer-sponsored retirement plans, discount brokerage firms, and bank trust departments, as well as directly from mutual fund sponsors. Some financial professionals who charge investors separately for their services, rather than through a load or 12b-1 fee, help investors select a portfolio of no-load funds. 131 US FUND EXPENSES AND FEES

147 Mutual Fund Load Fees Many mutual fund investors engage an investment professional, such as a broker, an investment adviser, or a financial planner. Among households owning mutual fund shares outside employer-sponsored retirement plans, 79 percent own mutual fund shares through investment professionals (Figure 7.9). These professionals can provide many benefits to investors, such as helping them identify financial goals, analyzing an existing financial portfolio, determining an appropriate asset allocation, and (depending on the type of financial professional) providing investment advice or recommendations to help investors achieve their financial goals. The investment professional also may provide ongoing services, such as responding to investors’ inquiries or periodically reviewing and rebalancing their portfolios. Over the past few decades, the way that fund shareholders compensate financial professionals has changed significantly, moving away from front-end loads toward asset-based fees. An important element in the changing distribution structure of mutual funds has been this shift toward asset-based fees, which are assessed as a percentage of the assets that the financial professional helps an investor manage. Increasingly, these fees compensate brokers and other financial professionals who sell mutual funds. An investor may pay an asset-based fee indirectly through a fund’s 12b-1 fee, which is included in the fund’s expense ratio, or directly (out of pocket) to the financial professional, in which case it is not included in the fund’s expense ratio. In part because of the shift toward asset-based fees (either through the fund or out of pocket), the total net assets of front-end and back-end load share classes have declined in recent years, while those in no-load share classes have increased substantially. For example, over the past 10 years, front-end and back-end load share classes had $1.2 trillion in net outflows (Figure 6.10), and gross sales of back-end load share classes have dwindled almost to zero (Figure 6.11). As a result, the percentage of long-term mutual fund total net assets held in front-end and back-end load share classes fell by half, from 26 percent at year-end 2008 to 13 percent at year-end 2017 (Figure 6.12). By contrast, no-load share classes have seen net inflows and rising total net assets over the past 10 years. No-load share classes—those with neither a front-end nor a back-end load fee and a 12b-1 fee of no more than 0.25 percent—have accumulated the bulk of the net inflows to long-term mutual funds over this period (Figure 6.10). At year-end 2008, no-load share classes accounted for 53 percent of long-term mutual fund total net assets, rising to 70 percent by year-end 2017 (Figure 6.12). 132 2018 INVESTMENT COMPANY FACT BOOK

148 Some of the shift toward no-load share classes can be attributed to do-it-yourself investors. A larger factor, however, is the growth of sales through DC plans as well as sales of no-load share classes through sales channels that compensate financial professionals (for example, discount brokers, fee-based advisers, full-service brokerage platforms) with asset-based fees outside of funds. FIGURE 6.10 No-Load Share Classes Garnered Positive Net New Cash Flow in 2017 Billions of dollars, 2008–2017 2009 2014 2015 2016 2017 2008 2012 2010 2013 2011 All long-term $28 $162 $98 -$122 $244 $67 -$197 -$211 $393 $200 mutual funds -296 -70 -174 -1 3 0 -23 4 -62 Load 9 -1 5 6 -1 3 0 -7 7 1 -1 0 0 -67 -56 Front-end -1 0 1 -1 6 0 -2 21 -1 0 5 2 -56 -1 8 3 2 -2 3 -1 6 -1 1 -9 -7 -5 -2 B ack- end -24 -39 -27 3 21 6 -2 -4 -2 2 31 -7 2 Level -46 -1 3 -6 4 (*) -1 (*) (*) (*) (*) (*) Other (*) (*) (*) 5 (*) (*) (*) Unclassified (*) (*) (*) (*) (*) (*) (*) 6 322 299 270 338 77 117 447 -66 265 No-load 168 33 -46 111 8 -37 38 55 16 Retail -96 137 214 283 232 226 69 Institutional 414 30 185 210 154 8 -26 -51 -64 - 67 -21 -1 1 2 29 -26 Variable annuities -7 8 7 33 33 13 -2 -2 -2 27 37 “R” share classes 10 4 1 Front-end load > 1 percent. Primarily includes Class A shares; includes sales where front-end loads are waived. 2 Front-end load = 0 percent and contingent deferred sales load (CDSL) > 2 percent. Primarily includes Class B shares. 3 2 percent, and 12b-1 fee > 0.25 percent. Primarily includes Class C shares; Front-end load ≤ 1 percent, CDSL ≤ excludes institutional share classes. 4 This category contains all other load share classes not classified as front-end load, back-end load, or level load. 5 This category contains load share classes with missing load fee data. 6 Front-end load = 0 percent, CDSL = 0 percent, and 12b-1 fee ≤ 0.25 percent. 7 “R” shares include assets in any share class that ICI designates as a “retirement share class.” These share classes are sold predominantly to employer-sponsored retirement plans. However, other share classes—including retail and institutional share classes—also contain investments made through 401(k) plans or IRAs. (*) = inflow or outflow of less than $500 million Note: Components may not add to the totals because of rounding. Data exclude mutual funds that invest primarily in other mutual funds. Sources: Investment Company Institute, Lipper, and Morningstar 133 US FUND EXPENSES AND FEES

149 FIGURE 6.11 Gross Sales of Long-Term Mutual Funds Are Concentrated in No-Load Share Classes Billions of dollars, 2008–2017 2015 2011 2012 2013 2014 2010 2016 2017 2008 2009 All long-term $2,418 $2,375 $2,701 $2,860 $2,963 $3,940 $3,609 $3,506 $3,555 $3,510 mutual funds 544 604 566 543 509 365 559 490 427 598 Load 1 474 482 435 445 438 403 307 431 387 352 Front-end 2 20 10 7 4 3 3 2 2 1 (*) B ack- end 3 99 97 112 111 98 56 119 109 99 73 Level 4 4 4 2 2 2 1 3 1 2 1 Other 5 1 (*) 1 (*) 1 1 (*) (*) (*) (*) Unclassified 6 1,446 1,706 1,897 2,049 1,414 2,689 2,616 2,735 3,185 2,498 No-load 807 973 934 948 825 1,153 1,226 1,229 1,226 1,333 Retail 1,345 621 771 949 1,076 607 1,463 1,387 1,509 1,852 Institutional 186 308 270 318 310 295 287 236 248 246 Variable annuities 7 91 100 112 111 109 126 139 152 148 204 “R” share classes 1 Front-end load > 1 percent. Primarily includes Class A shares; includes sales where front-end loads are waived. 2 Front-end load = 0 percent and contingent deferred sales load (CDSL) > 2 percent. Primarily includes Class B shares. 3 Front-end load ≤ 1 percent, CDSL ≤ 2 percent, and 12b-1 fee > 0.25 percent. Primarily includes Class C shares; excludes institutional share classes. 4 This category contains all other load share classes not classified as front-end load, back-end load, or level load. 5 This category contains load share classes with missing load fee data. 6 Front-end load = 0 percent, CDSL = 0 percent, and 12b-1 fee ≤ 0.25 percent. 7 “R” shares include assets in any share class that ICI designates as a “retirement share class.” These share classes are sold predominantly to employer-sponsored retirement plans. However, other share classes—including retail and institutional share classes—also contain investments made through 401(k) plans or IRAs. (*) = gross sales of less than $500 million Note: Components may not add to the totals because of rounding. Data exclude mutual funds that invest primarily in other mutual funds. Sources: Investment Company Institute, Lipper, and Morningstar 134 2018 INVESTMENT COMPANY FACT BOOK

150 FIGURE 6.12 Total Net Assets of Long-Term Mutual Funds Are Concentrated in No-Load Share Classes Billions of dollars, 2008–2017 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 All long-term $5,788 $9,030 $8,942 $10,361 $12,331 $13,149 $12,897 $13,616 $15,899 $ 7, 7 9 5 mutual funds 2,614 2,352 2,176 2,361 2,651 1,722 2,440 2,370 2,382 2,185 Load 1 1, 374 1,750 1,882 1,751 1,892 1,990 2,148 1,989 1,94 6 2,115 Front-end 2 102 78 50 39 32 98 15 9 6 24 B ack- end 3 237 328 381 367 378 417 468 429 408 459 Level 4 11 8 8 7 7 7 7 6 6 10 Other 5 3 2 2 2 1 2 2 1 (*) 1 Unclassified 6 4,248 5,089 5,224 6,261 3,067 8,382 8,373 9,093 11,056 7, 5 9 8 No-load 1,951 3,464 3,067 2,991 2,659 4,142 4,639 4,586 4,875 5,647 Retail 3,456 1,589 2,022 2,233 2,798 1,116 3,74 3 3,787 4,219 5,409 Institutional 1,794 854 1,129 1,291 1,251 1,398 1,630 1,672 1,597 1,638 Variable annuities 7 146 233 297 290 340 452 480 487 514 666 “R” share classes 1 Front-end load > 1 percent. Primarily includes Class A shares; includes sales where front-end loads are waived. 2 Front-end load = 0 percent and contingent deferred sales load (CDSL) > 2 percent. Primarily includes Class B shares 3 Front-end load ≤ 1 percent, CDSL ≤ 2 percent, and 12b-1 fee > 0.25 percent. Primarily includes Class C shares; excludes institutional share classes. 4 This category contains all other load share classes not classified as front-end load, back-end load, or level load. 5 This category contains load share classes with missing load fee data. 6 Front-end load = 0 percent, CDSL = 0 percent, and 12b-1 fee ≤ 0.25 percent. 7 “R” shares include assets in any share class that ICI designates as a “retirement share class.” These share classes are sold predominantly to employer-sponsored retirement plans. However, other share classes—including retail and institutional share classes—also contain investments made through 401(k) plans or IRAs. (*) = total net assets of less than $500 million Note: Components may not add to the totals because of rounding. Data exclude mutual funds that invest primarily in other mutual funds. Sources: Investment Company Institute, Lipper, and Morningstar 135 US FUND EXPENSES AND FEES

151 Services and Expenses in 401(k) Plans Over the past two and a half decades, mutual funds have become the primary vehicle for 401(k) plan investments, with the share of employer-sponsored 401(k) plan assets invested in mutual funds rising from 9 percent at year-end 1990 to 67 percent at year-end 2017. Two competing economic pressures confront employers: the need to attract and retain quality workers with competitive compensation packages and the need to keep their products and services competitively priced. In deciding whether to offer 401(k) plans to their workers, employers must decide if the benefits of offering a plan (in attracting and retaining quality workers) outweigh the costs of providing the plan and plan services. These costs are both the contributions the employer may make to an employee’s 401(k) account and the costs associated with setting up and administering the 401(k) plan on an ongoing basis. To provide and maintain 401(k) plans, regulations require employers to obtain a variety of administrative, participant-focused, regulatory, and compliance services. Employers offering 401(k) plans typically hire service providers to operate these plans, and these providers charge fees for their services. As with any employee benefit, the employer generally determines how the costs of providing the benefit will be shared between the employer and employee. 401(k) plan fees can be paid directly by the plan sponsor (the employer), directly by the plan participant (the employee), indirectly by the participant through fees or other reductions in returns paid to the investment provider, or by some combination of these methods (Figure 6.13). One key driver of 401(k) plan fees is plan size. A BrightScope/ICI study of 2015 data for more than 15,000 large 401(k) plans found that plans with more assets had lower mutual fund expense ratios than those with less assets. For example, the asset-weighted average expense ratio for domestic equity mutual funds held in large 401(k) plans in 2015 ranged from 0.81 percent in plans with between $1 and $10 million in plan assets to 0.36 percent in plans with more than $1 billion in plan assets. These results are consistent across different investment objectives. LEARN MORE The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2016 www.ici.org/perspective 136 2018 INVESTMENT COMPANY FACT BOOK

152 FIGURE 6.13 A Variety of Arrangements May Be Used to Compensate 401(k) Service Providers p rv ic es Se rovid ed ment ay Form of fee p ment e pay Fe Direc ees ticipant ollar per par  d t f n a entag ct ansa  tr ssets ional fees d o pe rc e bas e Re eeper  cordk n Pla Employer t s er vice men Retire p rovider ke epin g an d a dministratio n Re cord vice and consulting plan ser f ees d ollar ct Dire or y l ompliance l c  a nd ega r egulat Re cord ke epin g ticipant r par pe tive stra Admini pe entage rc pa t ymen s based on asset (per centag e n vice education advice and communicatio Part icipant ser ional fees sact tran of asset s) eping ke cord Re dis n tributio t manag  inv ement se As ts estment produc Inv estment icipant s rt Pa p rovider (s ) pense r atio (percentage of asse ts ) Ex Note: In selecting the service provider(s) and deciding the cost sharing for the 401(k) plan, the employer/plan sponsor will determine which combinations of these fee arrangements will be used in the plan. ICI Research Perspective Source: , “The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2016” LEARN MORE The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, 2015 www.ici.org/research/reports 137 US FUND EXPENSES AND FEES

153 Sixty-seven percent of 401(k) assets at year-end 2017 were invested in mutual funds, mainly equity mutual funds (60 percent of 401(k) mutual fund assets or 40 percent of all 401(k) plan assets). 401(k) plan participants investing in mutual funds tend to invest in lower-cost funds and funds with below-average portfolio turnover. For example, at year-end 2016, 49 percent of 401(k) equity mutual fund assets were in funds that had average expense ratios of less than 0.50 percent, and another 41 percent had expense ratios between 0.50 and 1.00 percent (Figure 6.14). Taking into account both the funds offered in 401(k) plans and the distribution of assets in those funds, 401(k) plan participants who invested in equity mutual funds paid 0.48 percent on average in 2016, less than the asset-weighted average expense ratio of 0.63 percent for equity mutual funds industrywide. Similarly, equity mutual funds held in 401(k) accounts tend to have lower portfolio turnover in their portfolios. The asset-weighted average turnover rate of equity mutual funds held in 401(k) accounts was 28 percent in 2016, less than the industrywide asset-weighted average of 34 percent. 138 2018 INVESTMENT COMPANY FACT BOOK

154 FIGURE 6.14 401(k) Equity Mutual Fund Assets Are Concentrated in Lower-Cost Funds Percentage of 401(k) equity mutual fund assets, 2016      to      to   ≥        Ex pens e ratio Note: Data exclude mutual funds available as investment choices in variable annuities and mutual funds that invest primarily in other mutual funds. ICI Research Perspective Sources: Investment Company Institute and Morningstar. See , “The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2016.” 139 US FUND EXPENSES AND FEES

155 CHAPTER SEVEN Characteristics of US Mutual Fund Owners The percentage of US households owning mutual funds grew eightfold in the 1980s and 1990s, and has held steady for the past 17 years, averaging about 45 percent since 2000. In mid-2017, nearly 45 percent of all US households owned mutual funds. The estimated 100 million people who owned mutual funds in mid-2017 belong to all age and income groups; have a variety of financial goals; and buy and sell mutual funds through three principal sources: investment professionals, employer-sponsored retirement plans, and fund companies directly or discount brokers. Forty-eight percent of Baby Boom households owned mutual funds in mid-2017. They accounted for 37 percent of mutual fund–owning households and held half of households’ mutual fund assets.

156 Half of household mutual fund assets were held by Baby Boom households in 2017 y Baby held b s Boom household   IN THIS CHAPTER 142 Individual and Household Ownership of Mutual Funds 148 Households’ First Mutual Fund Purchase 150 Where Investors Own Mutual Funds 157 Shareholder Sentiment, Willingness to Take Investment Risk, and Confidence 161 Shareholder Use of the Internet

157 Individual and Household Ownership of Mutual Funds In mid-2017, an estimated 100 million individual investors owned mutual funds—and at year- end 2017, these investors held 90 percent of total mutual fund assets (Figure 3.3), directly or through retirement accounts. Household ownership of mutual funds has remained relatively steady since 2000. Altogether, 44.5 percent of US households—or about 56.2 million—owned mutual funds in mid-2017, nearly identical to the 2000–2017 average of about 45 percent (Figure 7.1). Mutual funds were a major component of many US households’ financial holdings in mid-2017. Among households owning mutual funds, the median amount invested in mutual funds was $120,000 (Figure 7.2). Seventy-two percent of individuals heading households that owned mutual funds were married or living with a partner, about half were college graduates, and 74 percent worked full- or part-time. FIGURE 7.1 44.5 Percent of US Households Owned Mutual Funds in 2017 Percentage of US households owning mutual funds, selected years                                                         s illions of US households owning mutual fund M                        Note: The survey methodology was changed to a dual frame sample of cell phones and landlines in 2014. ICI Research Perspective Sources: Investment Company Institute and US Census Bureau. See , “Ownership of Mutual Funds, Shareholder Sentiment, and Use of the Internet, 2017.” 142 2018 INVESTMENT COMPANY FACT BOOK

158 FIGURE 7.2 Characteristics of Mutual Fund Investors Mid-2017 How many people own mutual funds? 100.0 million individuals 56.2 million US households Who are they? 51 is the median age of the head of household 72 percent are married or living with a partner 51 percent are college graduates 74 percent are employed (full- or part-time) 10 percent are Silent or GI Generation (born 1904 to 1945) 37 percent are Baby Boomers (born 1946 to 1964) 33 percent are Generation X (born 1965 to 1980) 20 percent are Millennial Generation (born 1981 to 2004)* $100,000 is the median household income What do they own? $200,000 is the median household financial assets $120,000 is the median mutual fund assets 65 percent hold more than half of their financial assets in mutual funds 64 percent own IRAs 85 percent own DC retirement plan accounts 3 mutual funds is the median number owned 87 percent own equity funds When and how did they make their first mutual fund purchase? 53 percent bought their first mutual fund before 2000 63 percent purchased their first mutual fund through an employer-sponsored retirement plan Why do they invest? 92 percent are saving for retirement 47 percent are saving for emergencies 49 percent hold mutual funds to reduce taxable income 23 percent are saving for education * The Millennial Generation is aged 13 to 36 in 2017; however, survey respondents must be 18 or older. Sources: ICI Research Perspective , “Ownership of Mutual Funds, Shareholder Sentiment, and Use of the Internet, , “Profile of 2017”; ICI Research Perspective , “Characteristics of Mutual Fund Investors, 2017”; and ICI Research Report Mutual Fund Shareholders, 2017” 143 CHARACTERISTICS OF US MUTUAL FUND OWNERS

159 Mutual Fund Ownership by Age and Income Mutual fund–owning households span all generations, but members of the Baby Boom Generation and Generation X had the highest mutual fund ownership rates in mid -2017. Forty -eight percent of households headed by a Baby Boomer (head of household born between 1946 and 1964) and 53 percent of households headed by a member of Generation X (born between 1965 and 1980) owned mutual funds in mid-2017 (Figure 7.3). Thirty -eight percent of Millennial Generation households (born between 1981 and 2004) and 31 percent of Silent and GI Generation households (born between 1904 and 1945) owned mutual funds in mid-2017. Among mutual fund–owning households in mid-2017, 37 percent were headed by members of the Baby Boom Generation, 33 percent were headed by members of Generation X, 20 percent were headed by members of the Millennial Generation, and 10 percent were headed by members of the Silent and GI Generations (Figure 7.4). Heads of mutual fund–owning households had a median age of 51 years (Figure 7.2). FIGURE 7.3 Incidence of Mutual Fund Ownership Is Greatest Among the Baby Boom Generation and Generation X Percentage of US households within each generation owning mutual funds, mid-2017 enerat Hea d of h ousehol n d g io    tion Genera Ba by tion s nt and GI Generation Boom Genera Genera tion X Sile Millennial (head of household (head of household (head of household (head of household et we et b we en en born et b et we en born we born b b en born  and   )   a nd  )*   nd a )  )  a nd   ea e of h Ag  d in  ousehol d of h  to  r older  o   *  to to  * The Millennial Generation is aged 13 to 36 in 2017; however, survey respondents must be 18 or older. Note: Generation is based on the age of the household sole or co-decisionmaker for saving and investing. , “Characteristics of Mutual Fund Investors, 2017” ICI Research Perspective Source: LEARN MORE Ownership of Mutual Funds, Shareholder Sentiment, and Use of the Internet, 2017 www.ici.org/perspective 144 2018 INVESTMENT COMPANY FACT BOOK

160 Not only were Baby Boomers the largest shareholder group in mid-2017, they also held the largest percentage of households’ mutual fund assets, at 50 percent (Figure 7.4). Households headed by members of Generation X (32 percent), the Silent and GI Generations (10 percent), and the Millennial Generation (8 percent) held the rest. This pattern of asset ownership reflects the fact that Millennial households are younger and have not had as much time to save as Baby Boom households that are in their peak earning and saving years. FIGURE 7.4 The Baby Boom Generation Is the Largest Shareholder Group and Holds Half of Households’ Mutual Fund Assets Percentage of US households owning mutual funds and mutual fund assets by generation, mid-2017 we e n an l G  ) * ll ennia Mi enerat ion (head of household born bet d d b or n b et we e n   a n d ) tion X ( hea d of Genera househol enerat ion (head of household born bet we e n   an d  ) Ba by B oo m G enerat en  a n d  ) Silent and GI G  ions (head of household born bet we         utual fund s owning m ds mutual fund asse Househol s Household ts * The Millennial Generation is aged 13 to 36 in 2017; however, survey respondents must be 18 or older. Note: Generation is based on the age of the household sole or co-decisionmaker for saving and investing. ICI Research Perspective , “Characteristics of Mutual Fund Investors, 2017” Source: 145 CHARACTERISTICS OF US MUTUAL FUND OWNERS

161 Households with higher annual incomes are more likely to own mutual funds than those with lower annual incomes. In mid-2017, 66 percent of US households with annual income of $50,000 or more owned mutual funds, compared with 16 percent of households with annual income of less than $50,000 (Figure 7.5). In fact, lower-income households tend to have less savings of any kind than higher-income households. The typical household with less than $50,000 in annual income had $10,000 in savings and investments, while the typical household with annual income of $50,000 or more held $200,000 in savings and investments. FIGURE 7.5 Ownership of Mutual Funds Increases with Household Income Percentage of US households within each income group owning mutual funds, mid-2017 Household income r m or e     o        to   e  or  or m      to     to        to      Less than   Less than   Note: Total reported is household income before taxes in 2016. Source: , “Ownership of Mutual Funds, Shareholder Sentiment, and Use of the Internet, 2017” ICI Research Perspective 146 2018 INVESTMENT COMPANY FACT BOOK

162 US households owning mutual funds had a range of annual incomes in mid-2017: 16 percent had annual income of less than $50,000; 17 percent had between $50,000 and $74,999; 17 percent had between $75,000 and $99,999; and the remaining 50 percent had $100,000 or more (Figure 7.6). The median income of mutual fund–owning households in mid-2017 was $100,000 (Figure 7.2). FIGURE 7.6 Half of Households Owning Mutual Funds Have Moderate or Lower Incomes Percent distribution of all US households and US households owning mutual funds by household income, mid-2017 Household come in  e    o r m  or        to     to         to       to         to    Less than               g s All US household Househol ds ownin f unds mutual Note: Total reported is household income before taxes in 2016. , “Ownership of Mutual Funds, Shareholder Sentiment, and Use of the Internet, 2017” ICI Research Perspective Source: 147 CHARACTERISTICS OF US MUTUAL FUND OWNERS

163 Households’ First Mutual Fund Purchase Mutual fund–owning households often purchase their first mutual fund through employer- sponsored retirement plans. In mid-2017, across all mutual fund–owning households, 63 percent had purchased their first fund through that channel (Figure 7.7). Households that made their first mutual fund purchase more recently were more likely to have done so through employer-sponsored retirement plans. Among households that bought their first mutual fund in 2010 or later, 78 percent bought that first fund through such a plan, compared with 49 percent of households that first purchased mutual funds before 1990. FIGURE 7.7 Employer-Sponsored Retirement Plans Are Increasingly the Source of First Mutual Fund Purchase Percentage of US households owning mutual funds, mid-2017 etirement plan d r r-sponsore ye First purchase was inside emplo               All mutual    fore Be  or  to fund–o  to  wning to   to    late r household s ousehold e irst mutual fund purchas s f r of h a Ye Note: Employer-sponsored retirement plans include DC plans (such as 401(k), 403(b), or 457 plans) and employer- sponsored IRAs (SEP IRAs, SAR-SEP IRAs, and SIMPLE IRAs). Source: ICI Research Perspective , “Characteristics of Mutual Fund Investors, 2017” 148 2018 INVESTMENT COMPANY FACT BOOK

164 Savings Goals of Mutual Fund Investors Mutual funds play a key role in the long- and short-term savings goals of US households. In mid-2017, 92 percent of mutual fund–owning households indicated that saving for retirement was one of their financial goals, and 75 percent said it was their primary financial goal (Figure 7.8). Retirement, however, is not the only financial goal for mutual fund–owning households—49 percent reported reducing taxable income as a goal; 47 percent reported saving for emergencies as a goal; and 23 percent reported saving for education as a goal. FIGURE 7.8 Majority of Mutual Fund Investors Focus on Retirement Percentage of US households owning mutual funds, mid-2017 l goal * A financia l goal y financia Primar  Retirement   Reduce taxable income   Emergenc y   Current income   Educatio n   em he ot e or r large it Hous   he Ot r  * Multiple responses are included. , “Characteristics of Mutual Fund Investors, 2017” ICI Research Perspective Source: LEARN MORE Focus on Funds : Latest Data Underscore Importance of 401(k) www.ici.org/retirement/access/ret_workers/fof_12_01_17_401kebri_holden 149 CHARACTERISTICS OF US MUTUAL FUND OWNERS

165 Where Investors Own Mutual Funds The importance that mutual fund–owning households place on retirement saving is reflected in where they own their funds—94 percent of these households held mutual fund shares inside employer-sponsored retirement plans, individual retirement accounts (IRAs), and variable annuities in mid-2017. It also is reflected in the type of funds they choose—households are more likely to invest their retirement assets in long-term mutual funds than in money market funds. Indeed, defined contribution (DC) retirement plan and IRA assets held in equity, bond, and hybrid mutual funds totaled $8.5 trillion at year-end 2017, or 53 percent of those funds’ total net assets industrywide (Figure 8.24). By contrast, DC retirement plan and IRA assets in money market funds totaled just $364 billion, or 13 percent of those funds’ total net assets industrywide. In mid-2017, 81 percent of mutual fund–owning households held funds inside employer- sponsored retirement plans, with 36 percent owning funds only inside such plans (Figure 7.9). Sixty-four percent of mutual fund–owning households held funds outside employer -sponsored retirement accounts, with 19 percent owning funds only outside such plans. For mutual fund–owning households without mutual funds in employer-sponsored retirement plans, 55 percent held funds in traditional or Roth IRAs. In many cases, these IRAs held assets rolled over from 401(k) plans or other employer-sponsored retirement plans (either defined benefit or DC plans). 150 2018 INVESTMENT COMPANY FACT BOOK

166 Households owning mutual funds outside employer-sponsored retirement plans buy their fund shares through a variety of sources. In mid-2017, 79 percent of these households owned funds purchased with the help of an investment professional, including registered investment advisers, full-service brokers, independent financial planners, bank and savings institution representatives, insurance agents, and accountants (Figure 7.9). Thirty-seven percent of these households owned funds purchased solely with the help of an investment professional, and another 42 percent owned funds purchased from investment professionals and from fund companies directly or discount brokers. Fourteen percent solely owned funds purchased from fund companies directly or discount brokers. FIGURE 7.9 Mutual Fund Investments Outside Retirement Plans Are Often Guided by Investment Professionals Mid-2017 Sources for households owning mutual funds outside ources of mutual fund ownership S ntage of US households owning rce employer-sponsored retirement plans Pe mutual funds Pe rce ntage of US households owning mutual  r-sponsored retirement plan oye funds outside empl s    ve sionals In profes stment - ide employer Outs and fund companies    sponsored retirement  scount brok ers or di stment ve In plans only ionals ss profe  only an de Insi id d outs e emplo ye r-sponsore d   plan retire s ment  n ce unknow Sour r- de Insi ye emplo sponsored retirement     plans only panies or m co nd Fu brok s scount er di 1 Employer-sponsored retirement plans include DC plans (such as 401(k), 403(b), or 457 plans) and employer- sponsored IRAs (SEP IRAs, SAR-SEP IRAs, and SIMPLE IRAs). 2 Investment professionals include registered investment advisers, full-service brokers, independent financial planners, bank and savings institution representatives, insurance agents, and accountants. Source: ICI Research Perspective , “Characteristics of Mutual Fund Investors, 2017” LEARN MORE Individual Retirement Accounts Serve a Diverse Range of Investors Focus on Funds : www.ici.org/research/retirement/ira/fof_12_08_17_iras_holden 151 CHARACTERISTICS OF US MUTUAL FUND OWNERS

167 In mid-2017, 81 percent of mutual fund–owning households held mutual funds through employer-sponsored retirement plans, and 64 percent owned mutual funds outside such plans (Figures 7.9 and 7.10). This latter group purchased funds through two sources: investment professionals and the direct market channel (Figure 7.10). In mid-2017, half of households owning mutual funds held funds purchased through an investment professional and 36 percent owned funds purchased through the direct market channel. FIGURE 7.10 Mutual Fund Investors Purchase Mutual Funds Through a Variety of Channels Percentage of US households owning mutual funds, mid-2017 ye mplo e e Insid d r-sponsore   ans l t p retiremen Outsid e e mplo d r-sponsore ye     l t p retiremen ans stment ve In  al) s (tot professional er er ll-s Fu vice brok   Independent financial planner   ve In stment Bank or sa vin gs  profe ionals ss institution repr tive esenta   (tot al) d mutual Owne  Insurance agen t e fund id s outs er oy empl -sponsored plan ment retire s Acco untant    t m al) Direc t (tot ar ke  ct y dire ly fund Mutual compan   Dire ct market (tot al)  er Discount brok 1 Employer-sponsored retirement plans include DC plans (such as 401(k), 403(b), or 457 plans) and employer- sponsored IRAs (SEP IRAs, SAR-SEP IRAs, and SIMPLE IRAs). 2 Four percent of households owning mutual funds outside of employer-sponsored retirement plans did not indicate which source was used to purchase funds. This 4 percent includes 3 percent owning funds both inside and outside employer-sponsored retirement plans and 1 percent owning funds only outside of employer-sponsored retirement plans. Note: Multiple responses are included. , “Characteristics of Mutual Fund Investors, 2017” Source: ICI Research Perspective LEARN MORE Characteristics of Mutual Fund Investors, 2017 www.ici.org/perspective 152 2018 INVESTMENT COMPANY FACT BOOK

168 Younger generations are more likely to own mutual funds only inside employer-sponsored retirement plans, while older generations are more likely to own funds outside such plans. In mid-2017, 43 percent of mutual fund–owning households in the Millennial Generation owned funds only inside employer-sponsored retirement plans, compared with 31 percent of mutual fund–owning households in the Baby Boom Generation (Figure 7.11). Fifty-seven percent of mutual fund–owning households in the Millennial Generation owned funds outside of employer-sponsored retirement plans, compared with 69 percent of mutual fund–owning households headed by a Baby Boomer. Baby Boom and Generation X households that own mutual funds are more likely to own funds both inside and outside employer-sponsored retirement plans than younger or older generations. In mid-2017, 46 percent of Generation X households and 50 percent of Baby Boom households that owned mutual funds owned mutual funds both inside and outside employer-sponsored retirement plans, compared with 40 percent of Millennial Generation households and 32 percent of Silent and GI Generation households. Although Silent and GI Generation households are the least likely to own mutual funds, those that do are the most likely to hold mutual funds only outside employer-sponsored retirement plans. FIGURE 7.11 Mutual Fund Ownership Inside and Outside of Employer-Sponsored Retirement Plans Percentage of US households owning mutual funds by generation, mid-2017 Sources of mutual fund ownership plan ment d retire r-sponsore ide employe s only Outs an Inside d outs ide employe r-sponsored retire ment plan s ment Inside s only emplo ye r-sponsored retire plan                Gener Millennial All US ation X Silent and Baby Boom (head of household GI Genera ation Gener households owning Genera tions tion (head of household (head of household born between (head of household mutual funds  and ) born between born between born between  and )  and )  and )* * The Millennial Generation is aged 13 to 36 in 2017; however, survey respondents must be 18 or older. Note: Generation is based on the age of the household sole or co-decisionmaker for saving and investing. Employer- sponsored retirement plans include DC plans (such as 401(k), 403(b), or 457 plans) and employer-sponsored IRAs (SEP IRAs, SAR-SEP IRAs, and SIMPLE IRAs). , “Characteristics of Mutual Fund Investors, 2017” ICI Research Perspective Source: 153 CHARACTERISTICS OF US MUTUAL FUND OWNERS

169 As discussed earlier, where households own mutual funds tends to vary with the generation -2017, 83 percent of mutual fund–owning households in of the head of household. In mid the Millennial Generation held mutual funds inside employer-sponsored retirement plans -three percent held mutual funds only inside employer- (Figures 7.11 and 7.12).* Forty sponsored retirement plans, 43 percent owned mutual funds through investment professionals, and 32 percent held funds directly through fund companies or discount brokers. FIGURE 7.12 Millennial Mutual Fund–Owning Households Are More Likely to Hold Funds Through Employer-Sponsored Retirement Plans 1 mid-2017 Percentage of US households owning mutual funds in the Millennial Generation,    In stment ve sponsored r- ye Inside emplo    ss ionals p rofe retire t plans men      nd s c ompanie Fu co unt brok ers o r dis 1 Generation is based on the age of the household sole or co-decisionmaker for saving and investing. The Millennial Generation (head of household born between 1981 and 2004) is aged 13 to 36 in 2017; however, survey respondents must be 18 or older. 2 Employer-sponsored retirement plans include DC plans (such as 401(k), 403(b), or 457 plans) and employer- sponsored IRAs (SEP IRAs, SAR-SEP IRAs, and SIMPLE IRAs). 3 Investment professionals include registered investment advisers, full-service brokers, independent financial planners, bank and savings institution representatives, insurance agents, and accountants. Note: Figure does not add to 100 percent because 4 percent of mutual fund–owning households in the Millennial Generation owned funds outside of employer-sponsored retirement plans, but did not indicate which source was used to purchase funds. This 4 percent includes 3 percent owning funds both inside and outside employer-sponsored retirement plans and 1 percent owning funds only outside of employer-sponsored retirement plans. * This includes 3 percent of Millennial households owning mutual funds both inside and outside employer-sponsored retirement plans that did not indicate which source was used to purchase funds outside employer-sponsored retirement plans. 154 2018 INVESTMENT COMPANY FACT BOOK

170 In contrast, in mid-2017, 81 percent of mutual fund–owning households that are members of the Baby Boom Generation held mutual funds inside employer-sponsored retirement -one percent held mutual funds only inside employer- plans (Figures 7.11 and 7.13).* Thirty -five percent of these older households owned mutual funds sponsored retirement plans. Fifty through investment professionals, and 40 percent held funds directly through fund companies or discount brokers. FIGURE 7.13 Baby Boom Mutual Fund–Owning Households Are More Likely Than Millennials to Hold Funds Outside Employer-Sponsored Retirement Plans 1 mid-2017 Percentage of US households owning mutual funds in the Baby Boom Generation,    In ve stment r- Inside emplo sponsored ye   profes sionals  retire men t plans      nd s ompanie c Fu co unt brok ers o r dis 1 Generation is based on the age of the household sole or co-decisionmaker for saving and investing. The Baby Boom Generation consists of heads of household born between 1946 and 1964. 2 Employer-sponsored retirement plans include DC plans (such as 401(k), 403(b), or 457 plans) and employer- sponsored IRAs (SEP IRAs, SAR-SEP IRAs, and SIMPLE IRAs). 3 Investment professionals include registered investment advisers, full-service brokers, independent financial planners, bank and savings institution representatives, insurance agents, and accountants. Note: Figure does not add to 100 percent because 4 percent of mutual fund–owning households in the Baby Boom Generation owned funds outside of employer-sponsored retirement plans, but did not indicate which source was used to purchase funds. This 4 percent includes 3 percent owning funds both inside and outside employer-sponsored retirement plans and 1 percent only owning funds outside of employer-sponsored retirement plans. * This includes 3 percent of Baby Boom households owning mutual funds both inside and outside employer-sponsored retirement plans that did not indicate which source was used to purchase funds outside employer-sponsored retirement plans. 155 CHARACTERISTICS OF US MUTUAL FUND OWNERS

171 At year-end 2017, mutual funds held in DC plans and IRAs accounted for $8.8 trillion, or 31 percent, of the $28.2 trillion US retirement market (Figures 8.5 and 8.25). The $8.8 trillion made up 47 percent of total mutual fund assets at year-end 2017. DC plans and IRAs held 53 percent of total net assets in long-term mutual funds, but a much smaller share of total net assets in money market funds (13 percent) (Figure 8.24). Similarly, mutual funds held in DC plans and IRAs accounted for 56 percent of household long-term mutual funds but only 21 percent of household money market funds (Figure 7.14). FIGURE 7.14 Households’ Mutual Fund Assets by Type of Account Billions of dollars, year-end 2017  unts cco d a Ot he r househol    t a riabl e annuities outsid e retir emen cco Va unts  IR As  DC p lans                         -ter Househol ds money m Househol ds long et fund assets mark mutual fund assets 1 Mutual funds held as investments in 529 plans and Coverdell ESAs are counted in this category. 2 IRAs include traditional IRAs, Roth IRAs, and employer-sponsored IRAs (SEP IRAs, SAR-SEP IRAs, and SIMPLE IRAs). 3 DC plans include 401(k) plans, 403(b) plans, 457 plans, and other DC plans without 401(k) features. 156 2018 INVESTMENT COMPANY FACT BOOK

172 Shareholder Sentiment, Willingness to Take Investment Risk, and Confidence Each year, ICI surveys US households about a variety of topics, including shareholder sentiment. In mid-2017, 66 percent of mutual fund–owning households familiar with mutual fund companies had “very” or “somewhat” favorable impressions of fund companies, similar to 2016 (Figure 7.15). The share of mutual fund–owning households with “very” favorable impressions of fund companies remained around 15 percent. FIGURE 7.15 Most Shareholders View the Mutual Fund Industry Favorably Percentage of US households owning mutual funds familiar with mutual fund companies, selected years Impression of mutual fund industry Ve r y f av orable Some what f av orable Some what u nfavorable nfavorable r Ve y u o o N n pinio                                                                         Note: The survey methodology was changed to a dual frame sample of cell phones and landlines in 2014. , “Ownership of Mutual Funds, Shareholder Sentiment, and Use of the Internet, 2017” ICI Research Perspective Source: LEARN MORE Profile of Mutual Fund Shareholders, 2017 www.ici.org/research/reports 157 CHARACTERISTICS OF US MUTUAL FUND OWNERS

173 The ICI survey also asked households about their willingness to take investment risk. Households owning mutual funds are far more willing to take investment risk than other households. In mid-2017, 34 percent of households owning mutual funds were willing to take above-average or substantial investment risk, more than three times the 11 percent of households not owning mutual funds (Figure 7.16). Risk tolerance varies with the age of the head of household, and younger households tend to be more willing to take investment risk than older households. In mid-2017, around 40 percent of mutual fund–owning households in the Millennial Generation and Generation X were willing to take above-average or substantial financial risk (Figure 7.16). This willingness to take risk drops to 29 percent for mutual fund–owning households in the Baby Boom Generation and 19 percent of mutual fund–owning households in the Silent and GI Generations. FIGURE 7.16 Households’ Willingness to Take Investment Risk Percentage of US households owning mutual funds by generation, mid-2017 ve inancial in Level of risk willing to take with f s stment r substantia fo l risk Substantia l gain fo e risk Ab erag ov e gain erag r ab ov e- av av e- fo r av erag e gain Av erag e risk e gain erag w-av fo e risk erag w-av Belo r belo to ta ke an y risk Un willing                                           Memo US households Millennial Baby Boom Silent and Gener ation X US households Gener tion owning ation Genera GI Genera tions (head of (head of not owning mutual funds (head of (head of d househol household mutual funds househol d househol d born between born between born between born between  and )  and )  and )  and )* * The Millennial Generation is aged 13 to 36 in 2017; however, survey respondents must be 18 or older. Note: Generation is based on the age of the household sole or co-decisionmaker for saving and investing. , “Ownership of Mutual Funds, Shareholder Sentiment, and Use of the Internet, 2017” ICI Research Perspective Sources: , “Profile of Mutual Fund Shareholders, 2017” ICI Research Report and 158 2018 INVESTMENT COMPANY FACT BOOK

174 Mutual fund–owning households’ willingness to take investment risk is reflected in the types of mutual funds they own. Equity funds were the most commonly owned type of mutual fund in mid-2017, held by 87 percent of mutual fund–owning households (Figure 7.17). In addition, 37 percent owned balanced funds, 44 percent owned bond funds, and 54 percent owned money market funds. FIGURE 7.17 Equity Funds Are the Most Commonly Owned Type of Mutual Fund Percentage of US households owning mutual funds, mid-2017      y market fund s Bond fund s Ba lanced fund s* Equi ty fund s Ot he r fund Mone ty pe spec ified l fund own ed Ty e of m p utua hybrid * The Investment Company Institute classifies this fund category as in its data. Note: Multiple responses are included. Source: ICI Research Perspective , “Characteristics of Mutual Fund Investors, 2017” 159 CHARACTERISTICS OF US MUTUAL FUND OWNERS

175 Mutual fund–owning households’ confidence that mutual funds are helping them reach their financial goals declined in the wake of the financial crisis. In mid-2009, 72 percent of mutual fund–owning households said they were confident in mutual funds’ ability to help them achieve their financial goals, down from 84 percent in mid-2007 (Figure 7.18). From mid-2011 through mid-2013, about eight in 10 mutual fund–owning households said they were confident in mutual funds’ ability to help them achieve their financial goals, with more than 20 percent saying they were “very” confident. In mid-2014, confidence increased to 84 percent of mutual fund–owning households and remained around that level through -2017. In mid-2017, 30 percent of mutual fund–owning households said they were mid “very” confident in mutual funds’ ability to help them achieve their financial goals. FIGURE 7.18 More Than Eight in 10 Mutual Fund–Owning Households Have Confidence in Mutual Funds Percentage of US households owning mutual funds by level of confidence that mutual funds can help them meet their investment goals, selected years Ve r y c onfident Some c onfident what                                              Note: The survey methodology was changed to a dual frame sample of cell phones and landlines in 2014. This question was not included in the survey prior to 2005. The question has four choices; the other two possible responses are “not very confident” and “not at all confident.” , “Ownership of Mutual Funds, Shareholder Sentiment, and Use of the Internet, 2017” ICI Research Perspective Source: LEARN MORE More People Are Building Nest Eggs with Their IRAs www.ici.org/viewpoints/view_17_role_ira 160 2018 INVESTMENT COMPANY FACT BOOK

176 Shareholder Use of the Internet An overwhelming majority of mutual fund–owning households have internet access. In mid -2017, 95 percent of US households owning mutual funds had internet access (Figure 7.19), up from 68 percent in 2000 (the first year for which ICI collected data on shareholder access to the internet). Internet access traditionally has been greatest among younger people, in both mutual fund–owning households and the general population. Increasing access among older households, however, has narrowed the gap considerably. FIGURE 7.19 Internet Access Is Nearly Universal Among Mutual Fund–Owning Households Percentage of US households with internet access, mid-2017 Mutual fund–owning All Households with 1 households US households DC plan accounts 2 Age of head of household 97 99 92 Younger than 35 97 96 35 to 49 87 96 50 to 64 83 97 65 or older 60 86 82 Education level 87 85 High school diploma or less 64 94 96 87 Some college or associate’s degree 98 97 College or postgraduate degree 92 3 Household income 81 88 64 Less than $50,000 95 $50,000 to $99,999 90 95 97 $100,000 to $149,999 94 96 99 97 99 $150,000 or more 93 95 80 To t a l 1 DC plans include 401(k), 403(b), 457, and other DC plans. 2 Age is based on the sole or co-decisionmaker for household saving and investing. 3 Total reported is household income before taxes in 2016. Note: Internet access includes access to the internet at home, work, or some other location. , Source: Investment Company Institute Annual Mutual Fund Shareholder Tracking Survey. See ICI Research Perspective “Ownership of Mutual Funds, Shareholder Sentiment, and Use of the Internet, 2017.” 161 CHARACTERISTICS OF US MUTUAL FUND OWNERS

177 CHAPTER EIGHT US Retirement and Education Savings National policies that have created or enhanced tax-advantaged savings accounts have proven integral to helping Americans prepare for retirement and other long-term savings goals. Because many Americans use mutual funds in tax-advantaged accounts to reach these goals, ICI studies the US retirement market; the investors who use 401(k) plans, IRAs, 529 plans, and other tax-advantaged savings vehicles; and the role of mutual funds in the retirement and education savings markets.

178 DC plans and IRAs accounted for 60 percent of retirement assets at year-end 2017 o f retirement assets r- ea  t y a end    IN THIS CHAPTER 164 The US Retirement System 174 Defined Contribution Retirement Plans 184 Individual Retirement Accounts 194 The Role of Mutual Funds in Retirement Savings 199 The Role of Mutual Funds in Education Savings

179 The US Retirement System American households rely on a combination of resources in retirement, and the role each type of resource plays has changed over time and varies across households. The traditional analogy compares retirement resources to a three-legged stool, with resources divided equally among the legs—Social Security, employer-sponsored pension plans, and private savings. Americans’ retirement resources, however, are best thought of as a five-layer pyramid. Retirement Resource Pyramid The retirement resource pyramid has five layers, which draw from government programs, compensation deferred until retirement, and other savings (Figure 8.1): » Social Security » homeownership » employer-sponsored retirement plans (private-sector and government employer plans, including both defined benefit [DB] and defined contribution [DC] plans) » individual retirement accounts (IRAs), including rollovers » other assets Though the use of each layer differs by household, together they have broadly enabled recent generations of retirees to maintain their standard of living in retirement. FIGURE 8.1 Retirement Resource Pyramid Ot he r assets IR As (including rollover s) retirement plans er-sponsored Empl oy s) (DB and DC plan Home ow nershi p Social Security The Success of the US Retirement System Source: Investment Company Institute, LEARN MORE How America Supports Retirement: Challenging the Conventional Wisdom on Who Benefits www.ici.org/whobenefits 164 2018 INVESTMENT COMPANY FACT BOOK

180 The construction of each household’s retirement pyramid varies with income. For example, lower-income households tend to rely more on Social Security, reflecting the fact that Social Security benefits replace a higher share of pre-retirement earnings for workers with lower lifetime earnings. The amount and composition of retirement resources also change with age. Younger households are more likely to save primarily for reasons other than retirement, such as a home purchase, family needs, or education (Figure 8.2). By contrast, older households are more likely to save primarily for retirement, as many already have reached their other savings goals. The tendency of younger workers to focus less on saving for retirement is consistent with economic models of life-cycle consumption predicting that most workers delay saving for retirement until later in their careers. FIGURE 8.2 Primary Reason for Household Saving Changes with Age Percentage of households by age of household head, 2016 ousehol e of h Ag ea d h d  to   to    to   to    to          e r th  fo se Home pu rcha Retirement family educat ion  or r s aving o n f y r Primar easo Source: Investment Company Institute tabulations of the 2016 Federal Reserve Board Survey of Consumer Finances 165 US RETIREMENT AND EDUCATION SAVINGS

181 Social Security, the base of the US retirement resource pyramid, is the largest component of retiree income and the primary source of income for lower-income retirees. Social Security benefits are funded through a payroll tax equal to 12.4 percent of earnings of covered workers (6.2 percent paid by employees and 6.2 percent paid by employers) up to a maximum taxable earnings amount ($127,200 in 2017). The benefit formula is highly progressive, with benefits representing a much higher percentage of earnings for workers with lower lifetime earnings. By design, Social Security is the primary means of support for retirees with low lifetime earnings and a substantial source of income for all retired workers. The Congressional Budget Office (CBO) estimates that, for those in the lowest quintile (20 percent) of households ranked by lifetime household earnings, first-year Social Security benefits will replace 83 percent of inflation-indexed lifetime earnings, on average, for workers born in the 1960s who claim benefits at age 65 (Figure 8.3). That replacement rate drops to 64 percent for workers in the second quintile of households, and then declines more slowly as lifetime household earnings increase. Even for workers in the top 20 percent of households, Social Security benefits are projected to replace a considerable portion (33 percent) of earnings. FIGURE 8.3 Social Security Benefit Formula Is Highly Progressive Average scheduled Social Security replacement rates for workers in the 1960s birth cohort by quintile of lifetime household earnings, percent      Middle ur Fo t Highes Sec ond Lowe st th Quintiles of lifetime household earning s Note: The replacement rate is the ratio of Social Security benefits net of income tax to average inflation-indexed lifetime earnings. Replacement rates are for workers claiming benefits at age 65. For workers born in the 1960s, the Social Security full benefit retirement age is 67. If these workers claimed benefits at age 67, benefits would increase by about 15 percent. CBO’s 2017 Long-Term Projections for Social Security: Additional Information Source: Congressional Budget Office, 166 2018 INVESTMENT COMPANY FACT BOOK

182 For many near-retiree households, homeownership is the second most important retirement resource after Social Security. Older households are more likely to own their homes and more likely to have fully—or at least, largely—paid down any mortgage. Retired households typically benefit from this resource simply by living in their homes rent-free. Employer-sponsored retirement plans and IRAs, which complement Social Security benefits and are important resources for households regardless of income or wealth, increase in importance for households for whom Social Security replaces a smaller share of earnings. In 2016, eight out of 10 near-retiree households had accrued benefits in employer-sponsored retirement plans—DB and DC plans sponsored by private-sector and government employers— or IRAs (Figure 8.4). FIGURE 8.4 Near-Retiree Households Across All Income Groups Have Retirement Assets, DB Plan Benefits, or Both 1 2 2016 by income quintile, Percentage of near-retiree households  lan benef it s o D nl y B p   t a d retir s a it lan benef B p h D t Bo emen n ssets  Retirement asset s o nl y                         Lowest Sec ond Middle Fo urth All Highest         t o  to        to    o s es r l            or m or e  d i ncom e q u intil e Househol 1 Near-retiree households are those with a head of household aged 55 to 64, and a working head of household or working spouse. 2 Income is household income before taxes in 2015. 3 Households currently receiving DB plan benefits and households with the promise of future DB plan benefits, whether from private-sector or government employers, are counted in this category. 4 Retirement assets include DC plan assets (401(k), 403(b), 457, thrift, and other DC plans), whether from private- sector or government employers, and IRAs (traditional, Roth, SEP, SAR-SEP, and SIMPLE). Note: Components may not add to the total because of rounding. Source: Investment Company Institute tabulations of the 2016 Federal Reserve Board Survey of Consumer Finances 167 US RETIREMENT AND EDUCATION SAVINGS

183 Finally, although less important on average, retirees also rely on other assets in retirement. These assets can be financial—including bank deposits, stocks, bonds, and mutual funds owned outside employer-sponsored retirement plans and IRAs. They also can be nonfinancial—including business equity, investment real estate, second homes, vehicles, and consumer durables (long-lived goods such as household appliances and furniture). Higher-income households are more likely to have large holdings of assets in this category. Snapshot of US Retirement Market Assets Employer-sponsored retirement plans (DB and DC plans sponsored by private-sector and government employers), IRAs (including rollovers), and annuities play an important role in the US retirement system, with assets totaling $28.2 trillion at year-end 2017, up 11.2 percent from $25.4 trillion at year-end 2016 (Figure 8.5). The largest components of retirement assets were IRAs and employer-sponsored DC plans, which together represent 60 percent of all retirement market assets. Other employer-sponsored plans include private-sector DB pension plans ($3.1 trillion), state and local government DB retirement plans ($4.3 trillion), and federal government DB plans ($1.7 trillion). In addition, annuity reserves outside of retirement plans were $2.2 trillion at year-end 2017 (Figure 8.6). 168 2018 INVESTMENT COMPANY FACT BOOK

184 FIGURE 8.5 Total US Retirement Market Assets Trillions of dollars; year-end, selected years emen Ot he r retir t a ssets   C p lans  D    As IR                               e     e                               1 Other retirement assets includes private-sector DB plans; federal, state, and local government DB plans; and all fixed and variable annuities held outside retirement plans and IRAs. Federal pension plans include US Treasury security holdings of the civil service retirement and disability fund, the military retirement fund, the judicial retirement funds, the Railroad Retirement Board, and the foreign service retirement and disability fund. These plans also include securities held in the National Railroad Retirement Investment Trust. 2 DC plans include private employer-sponsored DC plans (including 401(k) plans), 403(b) plans, 457 plans, and the Federal Employees Retirement System (FERS) Thrift Savings Plan (TSP). 3 IRAs include traditional IRAs, Roth IRAs, and employer-sponsored IRAs (SEP IRAs, SAR-SEP IRAs, and SIMPLE IRAs). e . Data are estimated. Note: Components may not add to the total because of rounding. Sources: Investment Company Institute, Federal Reserve Board, Department of Labor, National Association of Government Defined Contribution Administrators, American Council of Life Insurers, and Internal Revenue Service Statistics of Income Division. See Investment Company Institute, “The US Retirement Market, Fourth Quarter 2017.” 169 US RETIREMENT AND EDUCATION SAVINGS

185 Retirement assets include individual account-based savings (IRAs and DC plans) and assets held in DB plans. Traditional DB plans promise to pay benefits in retirement typically based on salary and years of service. Some DB plans, however, do not have sufficient assets to cover promised benefits that households have a legal right to expect. The total unfunded liabilities of DB plans were $3.6 trillion at year-end 2017 (Figure 8.6), and underfunding is more pronounced in government-sector pension plans. As of year-end 2017, state and local government DB plans had $4.3 trillion in assets and $1.6 trillion in unfunded liabilities, and federal DB plans had $1.7 trillion in assets, which covered less than half of their liabilities. By comparison, private-sector DB plans had $3.1 trillion in assets and $0.2 trillion in unfunded liabilities. FIGURE 8.6 Total US Retirement Assets and Unfunded Defined Benefit Plan Liabilities Trillions of dollars, year-end 2017 Retirement asse ts plan s Unfunded liabilitie DB e                   s St at e an d lo ca l e-sect Annuitie s DC plan or Fe As dera l IR Privat government government lans p DB e Data are estimated. Sources: Investment Company Institute and Federal Reserve Board. See Investment Company Institute, “The US Retirement Market, Fourth Quarter 2017.” 170 2018 INVESTMENT COMPANY FACT BOOK

186 Ownership of Retirement Resources Many US households have accumulated resources earmarked for retirement (Figure 8.7). Across all age groups, 61 percent of US households (77 million) reported that they had employer-sponsored retirement plans, IRAs, or both in mid-2017. Fifty-five percent of US households reported that they had employer-sponsored retirement plans—that is, they had assets in DC plan accounts, were receiving or expecting to receive benefits from DB plans, or both. Thirty-five percent reported having assets in IRAs, including 29 percent who had both IRAs and employer-sponsored retirement plans. US households represent a wide range of ages, at different points in the life cycle of savings. Focus on retirement savings tends to increase with age (Figure 8.2), and older households are more likely to have retirement resources; for example, about eight out of 10 near-retiree households have retirement accumulations (Figure 8.4). FIGURE 8.7 Many US Households Have Retirement Resources Outside Social Security Percentage of US households, mid-2017   Ha ve IR A only   A t have no Do IR oy or er -sponsored empl   ment plan retire IR d ve Ha A an -sponsored empl oy er   ment retire plan   oy empl ve Ha -sponsored er  plan only ment retire ta umbe l n S h To ouseholds   m illion r of U   1 IRAs include traditional IRAs, Roth IRAs, and employer-sponsored IRAs (SEP IRAs, SAR-SEP IRAs, and SIMPLE IRAs). 2 Employer-sponsored retirement plans include DC and DB retirement plans. , “The Role of IRAs in US ICI Research Perspective Sources: Investment Company Institute and US Census Bureau. See Households’ Saving for Retirement, 2017.” 171 US RETIREMENT AND EDUCATION SAVINGS

187 US Retiree Income Most American workers maintain or increase their spendable income after claiming Social Security, according to a new study coauthored by Investment Company Institute and Internal Revenue Service Statistics of Income Division staff. The study also finds that, after claiming, most get substantial amounts of both Social Security benefits and retirement income (from employer-sponsored retirement plans, annuities, or IRAs). Lower-income workers typically had higher replacement rates of spendable income— income available after paying taxes and making contributions to retirement accounts (Figure 8.8). Three years after claiming, the median worker in the study had spendable income that was greater (103 percent) than spendable income in the year before claiming. Notably, median replacement rates were found to be highest for individuals in the lowest quintile of income in 1999 (123 percent) and lowest for individuals in the highest quintile (93 percent). FIGURE 8.8 Most Workers Maintain Spendable Income After Claiming Social Security 1 three years after claiming Social Security among Median spendable income replacement rate 2 3 percent by 1999 per capita income, individuals in the sample           l Highes t Fo ur th Al Middle Sec ond Lowest     to      t o       t o      m s  or e  or         o r l es  ncom e r c apita i  p e ( d ollars ) Quint ile of  1 Spendable income is the sum of labor income, Social Security benefits, and retirement income (DB and DC pension, annuity, and IRA income) less payroll taxes and a proportional amount of federal income taxes. The replacement rate is expressed as a percentage of spendable income in the year before Social Security was claimed. 2 Sample consists of all working taxpayers aged 55 to 61 in 1999 who claimed Social Security retirement benefits between 2000 and 2007. 3 For individuals filing a non-joint return, per capita income is income reported on the tax return. For married individuals filing a joint return, per capita income is income reported on the tax return divided by two. , available at www.ici.org/ Source: Using Panel Tax Data to Examine the Transition to Retirement transition_to_retirement 172 2018 INVESTMENT COMPANY FACT BOOK

188 In addition to Social Security, the vast majority of workers analyzed had resources from employer-sponsored retirement plans, annuities, and IRAs (Figure 8.9). Over the five-year period from one year before an individual claims Social Security to three years after claiming, 81 percent received income—either directly or through a spouse— from employer plans, annuities, or IRAs. Another 8 percent had evidence of these resources—a Form 1099-R (reporting a rollover or other retirement account transaction that did not generate income), a Form 5498 (indicating IRA ownership), or both—but were not yet drawing on them. FIGURE 8.9 Nearly Nine in 10 Had Retirement Resources Outside of Social Security 1 2 who had evidence of retirement resources outside of Social Security, Percentage of sample 3 by 1999 per capita income  t n ncom t i emen r retir Fo r m     b u - o F or m  e R o  u t n e ncom Fo r m  -R  b t i emen o retir  Retirement incom e                         Sec ond l Al Highest th Fo ur Lowest Middle  o    t     to         t o     e or m or    r l o es s     ile of  Quint e (  d ) r c e  p ncom apita i ollars 1 Sample consists of all working taxpayers aged 55 to 61 in 1999 who claimed Social Security retirement benefits between 2000 and 2007. 2 The period analyzed is the five-year period starting one year prior to claiming Social Security and ending three years after claiming. 3 For individuals filing a non-joint return, per capita income is income reported on the tax return. For married individuals filing a joint return, per capita income is income reported on the tax return divided by two. 4 Retirement income is income from DB and DC pensions, annuities, and IRAs. Note: Components may not add to the total because of rounding. Source: Using Panel Tax Data to Examine the Transition to Retirement , available at www.ici.org/ transition_to_retirement LEARN MORE ICI Analysis Shows Americans Maintain or Increase Spendable Income After Claiming Social Security www.ici.org/research/retirement/retirement/17_news_retirement_income 173 US RETIREMENT AND EDUCATION SAVINGS

189 Defined Contribution Retirement Plans DC plans provide employees with a retirement account funded with employer contributions, employee contributions, or both, plus investment earnings or losses on those contributions, less withdrawals. Assets in employer-sponsored DC plans have grown faster than assets in DB plans over the past three decades, increasing from 28 percent of total DC and DB plan -end 2017. assets in 1987 to 46 percent at year At the end of 2017, employer-sponsored DC plans—which include 401(k) plans, 403(b) plans, 457 plans, the federal Thrift Savings Plan (TSP), and other private-sector DC plans—held an estimated $7.7 trillion in assets (Figure 8.10). With $5.3 trillion in assets at year-end 2017, 401(k) plans held the largest share of employer-sponsored DC plan assets. 403(b) plans— which are similar to 401(k) plans and are offered by educational and certain nonprofit organizations—held another $1.0 trillion in assets. In addition, 457 plans—which serve employees of state and local governments and certain tax-exempt organizations—and the -sector DC plans federal Thrift Savings Plan (TSP) held a total of $0.9 trillion. Other private without 401(k) features held the remaining $0.5 trillion. 174 2018 INVESTMENT COMPANY FACT BOOK

190 FIGURE 8.10 Defined Contribution Plan Assets by Type of Plan Trillions of dollars; year-end, selected years r p rivat e-sect he o r D C p lans * Ot  l T TS ving a t S hrif s Plan P) edera d f  plans an (  lans p b)  (   lans ) p k (                                        * Other private-sector DC plans includes private-sector DC plans (profit-sharing, stock bonus, and money purchase) without 401(k) features. Note: Components may not add to the total because of rounding. Sources: Investment Company Institute, Federal Reserve Board, Department of Labor, National Association of Government Defined Contribution Administrators, and American Council of Life Insurers. See Investment Company Institute, “The US Retirement Market, Fourth Quarter 2017.” 175 US RETIREMENT AND EDUCATION SAVINGS

191 401(k) and 403(b) Plan Design and Investment Lineup Plan Design Employers that sponsor a 401(k) plan have the option to include features such as employer contributions, access to plan assets through participant loans, and automatic enrollment of employees into the plan to encourage participation. The most common of these plan features is employer contributions. In 401(k) plans, employers can make contributions without regard to employee contributions or by using a matching structure that gives employees an incentive to contribute to the plan. Recent analysis of large 401(k) plans found that nearly nine out of 10 (87 percent) made employer contributions in plan year 2015 (Figure 8.11). More than eight out of 10 (82 percent) large 401(k) plans had participant loans outstanding, and nearly three out of 10 (29 percent) included automatic enrollment in 2015. An analysis of large 403(b) plans found that they are similarly likely to have employer contributions but less likely to have loans outstanding or automatic enrollment. FIGURE 8.11 Large 401(k) Sponsors Use a Variety of Plan Designs Percentage of plans with selected plan activity combinations, 2015    s Employer contribution g loan outstandin s    and au matic enrollment to Employer contributions s and outstanding loan   tivitie ac No s   ing loans only Outstand    Outstand d ing loans an Employer contributions   matic enrollment to au and au to matic enrollment Employer   contributions only Automatic en roll ment only Note: The sample is 52,612 plans with $3.7 trillion in assets. The results include plans that filed Form 5500 Schedule H (typically plans with 100 participants or more) and had $1 million or more in plan assets and exclude 403(b) plans with a 401(k) feature. A plan was determined to allow participant loans if any participant had a loan outstanding at the end of plan year 2015. Source: Investment Company Institute tabulations of Department of Labor Form 5500 data. See BrightScope and The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, 2015 Investment Company Institute, . LEARN MORE The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, 2015 www.ici.org/research/reports 176 2018 INVESTMENT COMPANY FACT BOOK

192 When designing 401(k) plans, employers tend to select a combination of features that their employees are likely to value. In 2015, nearly half (49 percent) of large 401(k) plans had both employer contributions and participant loans outstanding but no automatic enrollment, making this the most common combination of plan activities (Figure 8.11). The next most common plan design combined all three activities—employer contributions, automatic enrollment, and outstanding loans—and was offered by 23 percent of large 401(k) plans, followed by 13 percent having employer contributions only. About 2 percent of large 401(k) plans did not report any of the three activities. Investment Lineup In addition to choosing how to structure contributions to the 401(k) plan, employers also select the investment options that are available to plan participants. In 2015, domestic equity funds, international equity funds, and domestic bond funds were offered in nearly all large 401(k) plans (Figure 8.12). Although these three fund types are equally likely to be offered, when these funds are available in the plan, employers tend to offer more domestic equity funds (10 funds on average) than domestic bond funds (three funds) or international equity funds (three funds). Target date funds also are common investment choices, with about 80 percent of large 401(k) plans offering 10 of these funds on average. In addition, about half of large 401(k) plans offered one money fund on average and 75 percent offered one guaranteed investment contract (GIC). In total, the average large 401(k) plan offered 29 funds to participants in 2015. Large private-sector 403(b) plans also offer participants a diverse array of investment options to choose from. LEARN MORE 401(k) Resource Center www.ici.org/401k 177 US RETIREMENT AND EDUCATION SAVINGS

193 FIGURE 8.12 Incidence of Investment Options Offered in Large 401(k) Plans by Type of Investment Percentage of plans with audited 401(k) filings in the BrightScope database, 2015 Ty pe of inve stment option fund Equity s .8 99 ic Domest .0 99 In l rnationa te  fund s Balanced 2 79 .5 te rget da s Ta fund 64 .9 s balanced fund te target da Non– ond B s fund 98 .7 ic Domest 32 .8 te l rnationa In Ot he r options 49 .6 Mone y fund s 75 .3 GICs 3 68.4 Ot r he Mem o s Index fund 92 .3 1 The Investment Company Institute classifies balanced funds as hybrid in its data. 2 A target date fund typically rebalances its portfolio to become less focused on growth and more focused on income as . it approaches and passes the target date of the fund, which is usually included in the fund’s name. 3 Other includes commodity funds, real estate funds, and individual stocks (including company stock) and bonds. Note: The sample is 19,422 plans with 41.5 million participants and $3.3 trillion in assets. Participant loans are excluded. Funds include mutual funds, collective investment trusts, separate accounts, and other pooled investment products. BrightScope audited 401(k) filings generally include plans with 100 participants or more. Plans with fewer than four investment options, more than 100 investment options, or less than $1 million in plan assets are excluded from BrightScope audited 401(k) filings for this analysis. Source: BrightScope Defined Contribution Plan Database. See BrightScope and Investment Company Institute, The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, 2015 . 178 2018 INVESTMENT COMPANY FACT BOOK

194 401(k) Participants: Asset Allocation, Account Balances, and Loan Activity Asset Allocation The income that 401(k) plan accounts provide in retirement depends, in part, on the asset allocation decisions of plan participants. On average, younger participants allocate more of their portfolios to equities compared with older participants. According to research conducted by ICI and the Employee Benefit Research Institute (EBRI), at year-end 2015, participants in their twenties had about 80 percent of their 401(k) assets invested in equities, on average, while those in their sixties had investments in equities amounting to 55 percent of their 401(k) assets (Figure 8.13). 401(k) plans can offer investment in equities through equity mutual funds and other pooled equity investments, the equity portion of balanced funds (including target date funds), and employer company stock. EBRI/ICI research also finds differences between younger and older participants in the places where they hold equities. At year-end 2015, on average, 401(k) plan participants in their twenties had 28 percent of their 401(k) assets invested in equity funds, 47 percent in target date funds, 8 percent in non–target date balanced funds, and 5 percent in company stock (Figure 8.13). By comparison, older 401(k) plan participants had higher allocations to equity funds (38 percent of their 401(k) assets), lower allocations to target date funds (17 percent), and similar allocations to non–target date balanced funds (6 percent) and company stock (6 percent). These older participants also had higher allocations to fixed- income investments. At year-end 2015, on average, 401(k) plan participants in their sixties had about one-quarter of their 401(k) account assets in money funds, bond funds, and GICs and other stable value funds, while participants in their twenties allocated a much lower 8 percent to those investments, on average. LEARN MORE Target Retirement Date Funds Resource Center www.ici.org/trdf 179 US RETIREMENT AND EDUCATION SAVINGS

195 FIGURE 8.13 401(k) Asset Allocation Varies with Participant Age Average asset allocation of 401(k) account balances, percentage of account balances, year-end 2015 Par ticipan ts in th eir tw en ties ies eir sixt in th ts ticipan Par   ty Equi fund s      Target da te fund s      te balanced fund s Non– target da     s fund Bond     Mone s y fund     d ot an GICs s fund ue val r stable he     k Compan y stoc     r Ot he      ties  equi Memo   1 A target date fund typically rebalances its portfolio to become less focused on growth and more focused on income as it approaches and passes the target date of the fund, which is usually included in the fund’s name. 2 The Investment Company Institute classifies balanced funds as hybrid in its data. 3 Equities include equity funds, company stock, and the equity portion of balanced funds. Note: Funds include mutual funds, bank collective trusts, life insurance separate accounts, and any pooled investment product primarily invested in the security indicated. Percentages are dollar-weighted averages. Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. See ICI Research , “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2015.” Perspective 180 2018 INVESTMENT COMPANY FACT BOOK

196 Portfolio allocation also varies widely within age groups. At year-end 2015, 75 percent of 401(k) participants in their twenties held more than 80 percent of their account in equities, while participants in their sixties were much less inclined to hold such high equity allocations (only 21 percent of them did so) (Figure 8.14). By comparison, 9 percent of those in their twenties and 33 percent of those in their sixties allocated 40 percent or less of their account to equities. FIGURE 8.14 Asset Allocation to Equities Varies Widely Among 401(k) Plan Participants percentage of Asset allocation distribution of 401(k) participant account balance to equities, participants, year-end 2015 s ccount balance invested in equitie ) a (k e of  rcentag Pe t   pe rc en t en   to  pe rc  to  pe t en rc    t en rc pe   to t to  pe rc en  Ze ro            Pa eir si in th ies rticipants in their twenties xt Part icipants Note: Equities include equity funds, company stock, and the equity portion of balanced funds. Funds include mutual funds, bank collective trusts, life insurance separate accounts, and any pooled investment product invested primarily in in its data. hybrid the security indicated. The Investment Company Institute classifies balanced funds as Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. See ICI Research Perspective , “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2015.” 181 US RETIREMENT AND EDUCATION SAVINGS

197 Target Date Funds Target date funds, introduced in the mid-1990s, have grown rapidly in recent years. A target date fund (including both target date mutual funds and other pooled target date investments) follows a predetermined reallocation of assets over time based on a specified target retirement date. Typically, the fund rebalances its portfolio to become less focused on growth and more focused on income as it approaches and passes the target date, which is usually indicated in the fund’s name. Target date funds still make up a relatively small portion of 401(k) assets, but they have grown rapidly in recent years—from 5 percent at year-end 2006 to 20 percent at year-end 2015 (Figure 8.15). The share of 401(k) plans that offer target date funds and the share of 401(k) plan participants offered target date funds also have increased. At year-end 2015, 65 percent of 401(k) plans offered target date funds, and 74 percent of 401(k) plan participants were offered target date funds. Participant use of target date funds also has increased and percent percent of 401(k) plan participants in 2015 held these funds—up from less than 20 50 in 2006. FIGURE 8.15 Target Date Funds’ 401(k) Market Share Percentage of total 401(k) market; year-end, 2006 and 2015             d Plans of fe ring te Part Part ts holdin g Target da icipan ts of fe re icipan fund s target da te fund target da te fund s fund assets s target da te Note: Funds include mutual funds, bank collective trusts, life insurance separate accounts, and other pooled investment products. Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. See ICI Research , “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2015.” Perspective 182 2018 INVESTMENT COMPANY FACT BOOK

198 Account Balances Account balances tend to be higher the longer 401(k) plan participants have been working for their current employers and the older the participant. Participants in their sixties with more than 30 years of tenure at their current employer had an average 401(k) plan account balance of $281,000 at year-end 2015 (Figure 8.16). Participants in their forties with 10 to 20 years of tenure at their current employer had an average 401(k) plan account balance of $114,600. The median 401(k) plan participant was 45 years old at year-end 2015, and the median job tenure was eight years. FIGURE 8.16 401(k) Plan Balances Tend to Increase with Participant Age and Job Tenure Average 401(k) plan account balance by participant age and tenure, 2015         s   s         s      s      s   to   to   to   to       to     Pa ears ) rticipant job tenu re (y Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. See ICI Research Perspective, “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2015.” LEARN MORE Individual Retirement Account Resource Center www.ici.org/iraresource 183 US RETIREMENT AND EDUCATION SAVINGS

199 Loan Activity Most 401(k) participants do not borrow from their plans, although the majority have access to loans. At year-end 2015, 18 percent of participants eligible for loans had loans outstanding, down from 20 percent one year earlier. Not all participants, however, have access to 401(k) plan loans—factoring in all 401(k) participants with and without loan access in the EBRI/ICI 401(k) database, only 16 percent had loans outstanding at year-end 2015. Unpaid loan balances among participants with loans averaged about 12 percent of the remaining 401(k) account balance. In aggregate, US Department of Labor data indicate that outstanding loan amounts were less than 2 percent of 401(k) plan assets in 2015. Individual Retirement Accounts The first type of IRA—known as a traditional IRA—was created under the Employee Retirement Income Security Act of 1974 (ERISA). IRAs provide all workers with a contributory retirement savings vehicle and, through rollovers, give workers leaving jobs a means to preserve the tax benefits and growth opportunities that employer-sponsored retirement plans provide. Roth IRAs, first available in 1998, were created to provide a contributory retirement savings vehicle on an after-tax basis with qualified withdrawals distributed tax-free. In addition, policymakers have added employer-sponsored IRAs (SEP IRAs, SAR-SEP IRAs, and SIMPLE IRAs) to encourage small businesses to provide retirement plans by simplifying the rules applicable to tax-qualified plans. IRA assets totaled $9.2 trillion at year-end 2017, accounting for 33 percent of US retirement assets (Figure 8.17). Mutual funds were 47 percent of IRA assets ($4.3 trillion) at year-end 2017, up from $3.7 trillion at year-end 2016. The other assets category—which includes ETFs, closed-end funds, individual stocks and bonds, and other non–mutual fund securities held through brokerage accounts—had 43 percent of IRA assets, and rose from $3.4 trillion at year-end 2016 to $3.9 trillion at year-end 2017. 184 2018 INVESTMENT COMPANY FACT BOOK

200 FIGURE 8.17 IRA Assets Surpass $9 Trillion Trillions of dollars; year-end, selected years  e he ssets r a Ot    s ompanie e i nsuranc e c Lif  it s hrif n t d epos d t k a Ban e   Mu tual funds   e   e                                                                             1 includes individual stocks, individual bonds, closed-end funds, ETFs, and other assets held through Other assets brokerage or trust accounts. 2 Life insurance company IRA assets are annuities held by IRAs, excluding variable annuity mutual fund IRA assets, which are included in mutual funds. 3 Bank and thrift deposits include Keogh deposits. e Data are estimated. Note: Components may not add to the total because of rounding. Sources: Investment Company Institute, Federal Reserve Board, American Council of Life Insurers, and Internal Revenue Service Statistics of Income Division. See Investment Company Institute, “The US Retirement Market, Fourth Quarter 2017.” 185 US RETIREMENT AND EDUCATION SAVINGS

201 IRA Investors More than one-third of US households, or nearly 44 million, owned at least one type of IRA as of mid-2017 (Figure 8.18). Traditional IRAs—those introduced under ERISA—were the most common type, owned by 35 million US households. Roth IRAs, created as part of the Taxpayer Relief Act of 1997, were owned by 25 million US households. Nearly eight million US households owned employer-sponsored IRAs (SEP IRAs, SAR-SEP IRAs, or SIMPLE IRAs). FIGURE 8.18 Nearly 44 Million US Households Owned IRAs Number of Percentage of Assets in IRAs US households US households with type of IRA with type of IRA Billions of dollars, Mid-2017 Mid-2017 year-end 2017 Year created 1974 e (Employee Retirement 35.1 million 2 7. 8 % Traditional IRA $7,850 Income Security Act) 1978 SEP IRA (Revenue Act) 1986 e SAR-SEP IRA 7.6 6.0% million $540 (Tax Reform Act) 1996 SIMPLE IRA (Small Business Job Protection Act) 1997 e Roth IRA 24.9 million 19.7% $810 (Taxpayer Relief Act) e Any IRA 43.9 million 34.8% $9, 20 0 e Data are estimated. Note: Households may own more than one type of IRA. SEP IRAs, SAR-SEP IRAs, and SIMPLE IRAs are employer -sponsored IRAs. , “The Role of IRAs Sources: Investment Company Institute and US Census Bureau. See ICI Research Perspective in US Households’ Saving for Retirement, 2017” and Investment Company Institute, “The US Retirement Market, Fourth Quarter 2017.” 186 2018 INVESTMENT COMPANY FACT BOOK

202 Investment returns and rollovers from employer-sponsored retirement plans, more than new contributions, have fueled the growth of IRAs. For example, the Internal Revenue Service Statistics of Income Division reports $473 billion was rolled over to IRAs in tax year 2015, compared with $64 billion that was contributed. Although most US households are eligible to make contributions to IRAs, few do so. Indeed, only 12 percent of US households contributed to traditional or Roth IRAs in tax year 2016 and very few eligible households made “catch-up” contributions (the additional contributions individuals aged 50 or older are allowed to make). Analysis of The IRA Investor Database—which contains information on nearly 17 million IRA investors—finds that rollovers play a particularly important role in opening traditional IRAs. In 2015, most new traditional IRAs (85 percent) were opened only with rollovers (Figure 8.19). In contrast, most new Roth IRAs (71 percent) were opened solely with contributions. FIGURE 8.19 New Roth IRAs Often Are Opened with Contributions; New Traditional IRAs Often Are Opened with Rollovers Percentage of new IRAs opened in 2015 by type of IRA ac tivitie n of Combinatio s   only Contribution  Conversion only Rollov er only     ional IR Tr adit As Roth IR As Note: New IRAs are accounts that did not exist in The IRA Investor Database in 2014 and were opened in 2015 by one of the paths indicated. The calculation excludes IRAs that changed financial services firms. The samples are 0.4 million new Roth IRA investors aged 18 or older at year-end 2015 and 1.0 million new traditional IRA investors aged 25 to 74 at year-end 2015. Source: The IRA Investor Database™. See ICI Research Report , “The IRA Investor Profile: Roth IRA Investors’ Activity, 2007–2015.” 187 US RETIREMENT AND EDUCATION SAVINGS

203 A substantial share of traditional IRA investors has rolled over assets from an employer- sponsored retirement plan. In any given year, only a small portion of traditional IRA investors have a rollover, but, for the most part, the groups that make rollovers differ from year to year. For example, in each year from 2007 through 2015, about one in 10 traditional IRA investors in The IRA Investor Database had a rollover, but more than half of investors with traditional IRAs at year-end 2015 had a rollover at some point during this period. Traditional IRA–owning households generally researched the decision to roll over money from their former employers’ retirement plans into traditional IRAs. The most common source of information was a professional financial adviser. Advisers were consulted by 60 percent of traditional IRA–owning households with rollovers; about half indicated that they primarily relied on these financial professionals (Figure 8.20). Older households were more likely to consult professional financial advisers than younger households. Six percent of traditional IRA–owning households with rollovers indicated their primary source of information was online materials from financial services firms, with younger households more likely to rely on online resources as their primary source of information than were older households. Twelve percent of households with rollovers primarily relied on information from their employers. 188 2018 INVESTMENT COMPANY FACT BOOK

204 FIGURE 8.20 Multiple Sources of Information Are Consulted for Rollover Decisions Percentage of traditional IRA–owning households with rollovers, mid-2017  Sour ce Primar y sour ce  ss ional financial advise r Profe   te online d or Employer (prin s) shop rk  wo ma te rial s seminars   Spouse or pa r rtne   te d mate rials provided by Prin s firm vices financial ser   publications s or S rule IR  nars  wo rk shop s or phone Semi  l financia s from tive presenta re  firm vices s ser  rials from mate line On financial ser firm vices s    or er friend rk Cowo family member    he Ot r  1 Multiple responses are included; 66 percent of traditional IRA–owning households with rollovers consulted multiple sources of information. 2 Other responses given included: myself, other online information, bank, and books and magazines. , “The Role of IRAs in Source: Investment Company Institute IRA Owners Survey. See ICI Research Perspective US Households’ Saving for Retirement, 2017.” 189 US RETIREMENT AND EDUCATION SAVINGS

205 Households owning IRAs generally are headed by middle-aged individuals (median age of 54 years) with moderate household incomes (median income of $90,000). These households held a median of $62,500 in traditional or Roth IRAs. In addition, many households held multiple types of IRAs. For example, in mid-2017, 50 percent of households with traditional IRAs also owned Roth IRAs, and 15 percent also owned employer-sponsored IRAs. IRA Portfolios As with 401(k) participants, younger IRA investors tend to have more invested in equities, equity funds, and target date funds than older investors, according to The IRA Investor Database. Older investors tend to be more invested in non–target date balanced funds and fixed-income investments. In 2015, traditional IRA investors in their thirties had, on average, a combined 72 percent of their assets in equities, equity funds, and target date funds (Figure 8.21). Traditional IRA investors in their sixties held a lower share of their assets (58 percent) in these combined categories, while holding much higher allocations across bond and non–target date balanced funds. Roth IRA investors display a similar pattern of investing by age, although Roth IRA investors of all ages tended to have higher allocations to equities and equity funds compared with traditional IRA investors. 190 2018 INVESTMENT COMPANY FACT BOOK

206 FIGURE 8.21 IRA Asset Allocation Varies with Investor Age Average asset allocation of IRA balances, percentage of assets, year-end 2015 he r inve stment s Ot y mark s Mone et fund s an d bond funds Bond target da te balanced funds Non– Target da te fund s funds Equities and equi ty IR aditional Tr A inve stors                        ies xt s in their si stor ve In ties s in their thir stor ve In Roth IR A inve stors                         ties s in their thir stor ve In ies xt s in their si stor ve In 1 includes certificates of deposit and unidentifiable assets. Other investments 2 Bond funds include bond mutual funds, bond closed-end funds, and bond ETFs. 3 The Investment Company Institute classifies balanced funds as hybrid in its data. 4 A target date fund typically rebalances its portfolio to become less focused on growth and more focused on income as it approaches and passes the target date of the fund, which is usually included in the fund’s name. 5 Equity funds include equity mutual funds, equity closed-end funds, and equity ETFs. Note: Percentages are dollar-weighted averages. Components may not add to 100 percent because of rounding. Source: The IRA Investor Database™. See ICI Research Report , “The IRA Investor Profile: Traditional IRA Investors’ , “The IRA Investor Profile: Roth IRA Investors’ Activity, 2007–2015.” ICI Research Report Activity, 2007–2015” and 191 US RETIREMENT AND EDUCATION SAVINGS

207 Distributions from IRAs Withdrawals from IRAs tend to occur later in life, often to fulfill required minimum distributions (RMDs) under the law. The RMD is calculated as a percentage of the IRA balance, based on remaining life expectancy. Traditional IRA owners aged 70½ or older generally must withdraw at least the minimum amount each year, or pay a penalty. In tax year 2016, 71 percent of households that took traditional IRA withdrawals said they calculated the withdrawal amount based on RMD rules. Individuals appear to respond to distribution rules and penalties. For example, there is a large increase in traditional IRA withdrawal activity as RMD rules kick in (Figure 8.22). This pattern does not occur in Roth IRAs because, unlike traditional IRAs, there are no RMD rules for Roth IRAs (unless the account was inherited). Because early withdrawal penalties can apply to both Roth and traditional IRA investors younger than 59½ years old, however, withdrawal activity is lower among investors younger than 60 compared with investors aged 60 or older. FIGURE 8.22 Roth IRA Investors Rarely Take Withdrawals; Traditional IRA Investors Are Heavily Affected by RMDs Percentage of IRA investors with withdrawals by type of IRA and investor age, 2015 Roth I rs to es A inv R  to Tr aditiona l I R A inv rs es        to  r  de r ol  o   to   esto e of I R A inv Ag r Note: The samples are 5.5 million Roth IRA investors aged 25 or older at year-end 2015 and 11.5 million traditional IRA investors aged 25 or older at year-end 2015. , “The IRA Investor Profile: Roth IRA Investors’ Activity, Source: The IRA Investor Database™. See ICI Research Report 2007–2015.” 192 2018 INVESTMENT COMPANY FACT BOOK

208 Withdrawals from IRAs tend to be retirement related. Of the 26 percent of traditional IRA– owning households that reported taking withdrawals in 2016, 81 percent reported that the head of household, the spouse, or both were retired. Among retired traditional IRA–owning households in mid-2017 that reported taking withdrawals in 2016, 43 percent reported using some or all of the withdrawal amount to pay for living expenses (Figure 8.23). Other uses included reinvesting or saving in another account (39 percent); buying, repairing, or remodeling a home (18 percent); and paying for a healthcare expense (11 percent). Nonretired traditional IRA–owning households that reported taking withdrawals in 2016 had different uses for the funds. These households were less than half as likely to indicate using some or all of the money for living expenses (21 percent) and were four times as likely to indicate they used the funds for emergencies (22 percent) as retired households (Figure 8.23). FIGURE 8.23 Traditional IRA Withdrawals Among Retirees Often Are Used to Pay for Living Expenses 1 Percentage of withdrawing traditional IRA–owning households by retirement status, mid-2017 1, 2 3 Purpose of traditional IRA withdrawal Not retired Retired Took withdrawals to pay for living expenses 43 21 Spent it on a car, boat, or big-ticket item other than a home 8 7 Spent it on a healthcare expense 11 8 Used it for an emergency 22 5 Used it for home purchase, repair, or remodeling 18 15 39 31 Reinvested or saved it in another account 1 8 Paid for education Some other purpose 9 2 1 The household was considered retired if either the head of household or spouse responded affirmatively to the question: “Are you retired from your lifetime occupation?” 2 The base of respondents includes the 21 percent of traditional IRA–owning households that were retired in mid- 2017 and took withdrawals in tax year 2016. 3 The base of respondents includes the 5 percent of traditional IRA–owning households that were not retired in mid- 2017 and took withdrawals in tax year 2016. Note: Multiple responses are included. , “The Role of IRAs in US Source: Investment Company Institute IRA Owners Survey. See ICI Research Perspective Households’ Saving for Retirement, 2017.” 193 US RETIREMENT AND EDUCATION SAVINGS

209 The Role of Mutual Funds in Retirement Savings Mutual funds play a major role in employer-sponsored DC plans (such as 401(k) plans) and IRAs. At year-end 2017, mutual funds accounted for 59 percent of DC plan assets and 47 percent of IRA assets (Figure 8.24). Investors held slightly more mutual fund assets in DC plans ($4.5 trillion) than in IRAs ($4.3 trillion). Among DC plans, 401(k) plans held the most assets in mutual funds, with $3.5 trillion, followed by 403(b) plans ($494 billion), other private-sector DC plans ($380 billion), and 457 plans ($121 billion) (Figure 8.25). Combined, the $8.8 trillion of mutual fund assets held in DC plans and IRAs at the end of 2017 accounted for 31 percent of the $28.2 trillion US retirement market. Assets in DC plans and IRAs represent a large share of mutual fund assets overall, and long- term mutual fund assets in particular (Figure 8.24). The $8.8 trillion in mutual fund retirement assets made up 47 percent of all mutual fund assets at year-end 2017. DC plans and IRAs held 53 percent of equity, hybrid, and bond mutual fund assets, but only 13 percent of money market fund assets. FIGURE 8.24 Substantial Amounts of Retirement Assets Are Invested in Mutual Funds Assets, billions of dollars, year-end 2017 s stment r inve he Ot s stor r inve he Ot s an plan DC tual fund Mu s As d IR      e       e                                et on ey mark IR Equi As  ty hy brid plan sM DC s s fund and bond mutual fund e Data are estimated. Sources: Investment Company Institute and Federal Reserve Board. See Investment Company Institute, “The US Retirement Market, Fourth Quarter 2017.” 194 2018 INVESTMENT COMPANY FACT BOOK

210 Types of Mutual Funds Used by Retirement Investors Retirement investors tend to hold equity investments. At year-end 2017, 58 percent of the $8.8 trillion in mutual fund retirement assets held in DC plans and IRAs were invested in equity funds (Figure 8.25). US domestic equity funds alone constituted about $3.9 trillion, or 44 percent, of mutual fund assets held in DC plans and IRAs; world equity funds were an additional 15 percent. Retirement investors also gain exposure to equities through hybrid funds, which invest in a mix of equity, bond, and money market securities. At year-end 2017, 24 percent of mutual fund assets held in DC plans and IRAs were held in hybrid funds (Figure 8.25). FIGURE 8.25 Majority of Mutual Fund Retirement Account Assets Were Invested in Equities Billions of dollars, year-end 2017 Equity 1 Hybrid Total Bond Money market Domestic World 2 $607 $939 $704 $240 $4,293 $1,802 IRAs 2,055 692 1,173 498 123 4,540 DC plans 363 1,550 580 971 81 401(k) plans 3,545 403(b) plans 301 95 37 18 494 43 457 plans 19 25 13 1 121 63 Other private-sector 380 24 141 50 82 85 3 DC plans Total $3,857 $1,299 $2,112 $1,201 $364 $8,833 1 Hybrid funds invest in a mix of equities and fixed-income securities. Most target date and lifestyle funds are counted in this category. 2 IRAs include traditional IRAs, Roth IRAs, and employer-sponsored IRAs (SEP IRAs, SAR-SEP IRAs, and SIMPLE IRAs). 3 includes private-sector DC plans without 401(k) features. Other private-sector DC plans Note: Components may not add to the total because of rounding. Source: Investment Company Institute, “The US Retirement Market, Fourth Quarter 2017” 195 US RETIREMENT AND EDUCATION SAVINGS

211 The remaining 18 percent of mutual fund assets held in DC plans and IRAs at the end of 2017 were invested in bond funds and money market funds. Bond funds held $1.2 trillion, or 14 percent, of mutual fund assets held in DC plans or IRAs, and money market funds accounted for $364 billion, or 4 percent (Figure 8.25). Target Date, Lifestyle, and Index Mutual Funds in Retirement Accounts Target date and lifestyle mutual funds, generally included in the hybrid fund category, have grown more popular among investors and retirement plan sponsors over the past decade. A target date fund follows a predetermined reallocation of assets over time based on a specified target retirement date. Typically, the fund rebalances its portfolio to become less focused on growth and more focused on income as it approaches and passes the target date, which is usually indicated in the fund’s name. A lifestyle fund maintains a predetermined risk level and generally uses words such as “conservative,” “moderate,” or “aggressive” in its name to indicate the fund’s risk level. Assets in target date and lifestyle mutual funds totaled $1.5 trillion at year-end 2017, up from $1.3 trillion at year-end 2016 (Figure 8.26). Target date mutual fund assets were $1.1 trillion, up 26 percent from $887 billion at year-end 2016. Assets in lifestyle mutual funds were $399 billion at year-end 2017, an increase of 7 percent from year-end 2016. At year-end 2017, most (87 percent) target date mutual fund assets were held in retirement accounts, predominantly DC plan accounts. At year-end 2017, although the majority (56 percent) of lifestyle mutual fund assets were held outside of retirement accounts, 25 percent of lifestyle mutual fund assets were held in IRAs and 19 percent were held in DC plans. 196 2018 INVESTMENT COMPANY FACT BOOK

212 FIGURE 8.26 Target Date and Lifestyle Mutual Fund Assets by Account Type Billions of dollars; year-end, selected years Ot he r inv es to rs     As IR C p D lans      s ate mutual fund rge Ta t d                                 yle mutual fund Lifest s                                    1 IRAs include traditional IRAs, Roth IRAs, and employer-sponsored IRAs (SEP IRAs, SAR-SEP IRAs, and SIMPLE IRAs). 2 DC plans include 401(k) plans, 403(b) plans, 457 plans, and other DC plans without 401(k) features. 3 A target date mutual fund typically rebalances its portfolio to become less focused on growth and more focused on income as it approaches and passes the target date of the fund, which is usually included in the fund’s name. 4 A lifestyle mutual fund maintains a predetermined risk level and generally contains “conservative,” “moderate,” or “aggressive,” in its name. Note: Components may not add to the total because of rounding. Source: Investment Company Institute, “The US Retirement Market, Fourth Quarter 2017” 197 US RETIREMENT AND EDUCATION SAVINGS

213 Focusing on the composition of mutual fund assets held in DC accounts reveals that target date mutual funds and index mutual funds have increased their share in DC plan mutual fund assets. Target date mutual funds quintupled their share of DC plan mutual fund assets between year-end 2005 and the end of 2017; they now make up 16 percent of these holdings (Figure 8.27). Over the same period, index mutual funds have doubled their share of DC plan mutual fund assets, rising from 10 percent at year-end 2005 to 21 percent at year-end 2017. FIGURE 8.27 Target Date and Index Funds Have Risen as a Share of DC Plans’ Mutual Fund Assets 1 Percentage of mutual fund assets held in DC plans; year-end, selected years  at e m utua l fund s arge T t d   unds utua l f Lifestyl e m l f unds Index mutua                             1 DC plans include 401(k) plans, 403(b) plans, 457 plans, and other DC plans without 401(k) features. 2 A target date mutual fund typically rebalances its portfolio to become less focused on growth and more focused on income as it approaches and passes the target date of the fund, which is usually included in the fund’s name. 3 A lifestyle mutual fund maintains a predetermined risk level and generally contains “conservative,” “moderate,” or “aggressive” in the fund’s name. 4 Index mutual funds are equity, bond, and hybrid funds that target specific market indexes with the general objective of meeting the performance of that index. Equity index funds are the most common type of index fund. Note: Components may not add to the total because of rounding. Source: Investment Company Institute, “The US Retirement Market, Fourth Quarter 2017” 198 2018 INVESTMENT COMPANY FACT BOOK

214 The Role of Mutual Funds in Education Savings Twenty-three percent of households that owned mutual funds in 2017 cited education as a financial goal for their fund investments (Figure 7.8). Nevertheless, the demand for education savings vehicles has been relatively moderate since their introduction in the 1990s, partly because of their limited availability and partly due to investors’ lack of familiarity with them. The Economic Growth and Tax Relief Reconciliation Act (EGTRRA), enacted in 2001, enhanced the attractiveness of two education savings vehicles—Section 529 plans and Coverdell education savings accounts (ESAs)—by making them more flexible and allowing larger contributions. When enacted, the EGTRRA enhancements were temporary. It was not until the 2006 Pension Protection Act (PPA) that the EGTRRA 529 plan enhancements were made permanent. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended the EGTRRA enhancements to Coverdell ESAs for two years; the American Taxpayer Relief Act of 2012 made these enhancements permanent. Assets in 529 Savings Plans Assets in Section 529 savings plans were $293.9 billion at year-end 2017, up 17 percent since year-end 2016 (Figure 8.28). As of year-end 2017, there were 12.2 million 529 savings plan accounts, with an average account size of approximately $24,100. FIGURE 8.28 Section 529 Savings Plan Assets Billions of dollars; year-end, selected years                             Note: Data were estimated for a few individual state observations in order to construct a continuous time series. Sources: Investment Company Institute and College Savings Plans Network. See Investment Company Institute, “529 Plan Program Statistics, December 2017.” 199 US RETIREMENT AND EDUCATION SAVINGS

215 Characteristics of Households Saving for College In mid-2017, as a group, households saving for college through 529 plans, Coverdell ESAs, or mutual funds held outside these accounts tended to be headed by younger individuals— almost half (48 percent) were younger than 45 (Figure 8.29). Heads of households saving for college had a range of educational attainment. Sixty percent had completed college, 24 percent had an associate’s degree or some college, and 16 percent had a high school diploma or less. These households also represented a range of incomes: 42 percent of households saving for college had household income of less than $100,000, including 24 percent with household income less than $75,000. Finally, about six in 10 of these households had children (younger than 18) in the home, and 42 percent had more than one child in the home. LEARN MORE 529 Plan Program Statistics www.ici.org/research/stats/529s 200 2018 INVESTMENT COMPANY FACT BOOK

216 FIGURE 8.29 Characteristics of Households Saving for College 1 Percentage of US households saving for college, mid-2017 2 Age of head of household Younger than 35 22 35 to 44 26 45 to 54 27 55 to 64 16 65 or older 9 2 Education level of head of household High school diploma or less 16 Associate’s degree or some college 24 Completed college 26 Some graduate school or completed graduate school 34 3 Household income Less than $25,000 3 $25,000 to $34,999 3 5 $35,000 to $49,999 $50,000 to $74,999 13 $75,000 to $99,999 18 $100,000 or more 58 4 Number of children in home None 38 One 20 Tw o 26 Three or more 16 1 Households saving for college are households that own education savings plans (Coverdell ESAs or 529 plans) or that said paying for education was one of their financial goals for their mutual funds. 2 Age and education level are based on the sole or co-decisionmaker for saving and investing. 3 Total reported is household income before taxes in 2016. 4 The number of children reported is children younger than 18 living in the home. 201 US RETIREMENT AND EDUCATION SAVINGS

217 PART T WO Data Tables

218 DATA TA B L E S SECTION ONE US Mutual Fund Totals 212 208 Table 1 Table 5 Mutual Funds: Total Net Assets, Number of Mutual Funds: Number of Funds Funds, and Number of Share Classes Table 6 213 Mutual Funds: Number of Funds by 209 Table 2 Composite Investment Objective Mutual Funds: Total Sales, New Sales, Exchange Sales, Redemptions, and Table 7 214 Exchange Redemptions Mutual Funds: Number of Share Classes Table 3 210 215 Table 8 Mutual Funds: Total Net Assets Mutual Funds: Number of Share Classes by 211 Table 4 Composite Investment Objective Mutual Funds: Total Net Assets by Composite Investment Objective SECTION TWO US Closed-End Funds, Exchange-Traded Funds, and Unit Investment Trusts 216 Table 9 Table 12 219 Closed-End Funds: Total Assets and Exchange-Traded Funds: Number of Funds Number of Funds by Type of Fund by Type of Fund 220 Table 13 217 Table 10 Closed-End Funds: Gross Issuance, Gross Exchange-Traded Funds: Net Issuance by Redemptions, and Net Issuance by Type of Type of Fund Fund Table 14 221 218 Unit Investment Trusts: Total Net Assets, Table 11 Number of Trusts, and New Deposits by Exchange-Traded Funds: Total Net Assets by Type of Fund Type of Trust 2018 INVESTMENT COMPANY FACT BOOK 204

219 SECTION THREE US Long-Term Mutual Funds 233 Table 15 Table 26 222 Long-Term Mutual Funds: Liquid Assets Long-Term Mutual Funds: Annual and Liquidity Ratios Redemption Rates Table 27 234 223 Table 16 Long-Term Mutual Funds: Portfolio Long-Term Mutual Funds: Liquidity Ratios by Composite Investment Objective Holdings: Value and Percentage of Total Net Assets Table 17 224 235 Long-Term Mutual Funds: Net New Cash Table 28 Flow Long-Term Mutual Funds: Portfolio Holdings as a Percentage of Total Net 225 Table 18 Assets by Type of Fund Equity Mutual Funds: Net New Cash Flow 236 and Components of Net New Cash Flow Table 29 Long-Term Mutual Funds: Paid and 226 Table 19 Reinvested Dividends by Type of Fund Hybrid Mutual Funds: Net New Cash Flow and Components of Net New Cash Flow Table 30 237 Long-Term Mutual Funds: Paid and 227 Table 20 Reinvested Capital Gains by Type of Fund Bond Mutual Funds: Net New Cash Flow 238 Table 31 and Components of Net New Cash Flow Long-Term Mutual Funds: Portfolio Table 21 228 Purchases, Sales, and Net Purchases by Long-Term Mutual Funds: Net New Cash Type of Security Flow by Composite Investment Objective Table 32 239 Table 22 229 Equity Mutual Funds: Portfolio Purchases, Long-Term Mutual Funds: New Sales by Sales, and Net Purchases by Type of Composite Investment Objective Security 230 Table 23 240 Table 33 Long-Term Mutual Funds: Exchange Sales Hybrid Mutual Funds: Portfolio Purchases, by Composite Investment Objective Sales, and Net Purchases by Type of Table 24 231 Security Long-Term Mutual Funds: Regular 241 Table 34 Redemptions by Composite Investment Bond Mutual Funds: Portfolio Purchases, Objective Sales, and Net Purchases by Type of Table 25 232 Security Long-Term Mutual Funds: Exchange Redemptions by Composite Investment Objective 205 DATA TA B L E S

220 SECTION FOUR US Money Market Funds Table 35 Table 39 246 242 Money Market Funds: Total Net Assets, Money Market Funds: Paid and Reinvested Number of Funds, and Number of Share Dividends by Type of Fund Classes by Type of Fund Table 40 247 Taxable Government Money Market Funds: Table 36 243 Money Market Funds: Total Net Assets by Asset Composition as a Percentage of Total Net Assets Type of Fund Table 37 Table 41 244 248 Money Market Funds: Net New Cash Flow Taxable Prime Money Market Funds: Asset Composition as a Percentage of Total Net by Type of Fund Assets Table 38 245 Money Market Funds: Net New Cash Flow and Components of Net New Cash Flow SECTION FIVE Additional Categories of US Mutual Funds 256 249 Table 42 Table 49 Funds of Funds: Total Net Assets, Net New Active and Index Mutual Funds: Total Net Assets Cash Flow, Number of Funds, and Number of Share Classes Table 43 250 Active and Index Mutual Funds: Net New 257 Table 50 Cash Flow Funds of Funds: Components of Net New Cash Flow Table 44 251 Table 51 Active and Index Mutual Funds: Number of 258 Inflation-Protected and TIPS Mutual Funds: Funds Total Net Assets, Net New Cash Flow, Table 45 252 Number of Funds, and Number of Share Active and Index Mutual Funds: Number of Classes Share Classes Table 52 259 253 Table 46 Mutual Funds by Market Capitalization: Alternative Strategy Mutual Funds: Total Total Net Assets and Net New Cash Flow Net Assets, Net New Cash Flow, Number of by Type of Fund Funds, and Number of Share Classes 260 Table 53 Table 47 254 Mutual Funds by Market Capitalization: Emerging Market Debt Mutual Funds: Total Number of Funds and Number of Share Net Assets, Net New Cash Flow, Number of Classes by Type of Fund Funds, and Number of Share Classes Table 54 261 Table 48 255 Sector Mutual Funds: Total Net Assets and Floating-Rate High-Yield Bond Mutual Net New Cash Flow by Type of Fund Funds: Total Net Assets, Net New Cash Table 55 Flow, Number of Funds, and Number of 262 Share Classes Sector Mutual Funds: Number of Funds and Number of Share Classes by Type of Fund 2018 INVESTMENT COMPANY FACT BOOK 206

221 SECTION FIVE (continued) 265 Table 56 Table 58 263 Target Date and Lifestyle Mutual Funds: Variable Annuity Mutual Funds: Total Net Total Net Assets, Net New Cash Flow, Assets, Net New Cash Flow, and Number of Funds Number of Funds, and Number of Share Classes 266 Table 59 Table 57 264 Variable Annuity Mutual Funds: Target Date and Lifestyle Mutual Funds: Components of Net New Cash Flow Components of Net New Cash Flow SECTION SIX Institutional Investors in the US Mutual Fund Industry 267 Table 60 Table 62 269 Taxable Money Market Funds: Total Net Mutual Funds: Total Net Assets Held in Assets of Institutional Investors by Type of Individual and Institutional Accounts Institution and Type of Fund 268 Table 61 Mutual Funds: Total Net Assets of Institutional Investors by Type of Institution and Type of Fund SECTION SEVEN Retirement Account Investing in US Mutual Funds Table 64 270 Table 63 271 Mutual Funds: DC Plan Assets and Mutual Funds: IRA Assets and Estimated Estimated Net New Cash Flow by Type of Net New Cash Flow by Type of Fund Fund SECTION EIGHT Worldwide Regulated Open-End Fund Totals 272 Table 65 Table 67 276 Worldwide Regulated Open-End Funds: Net Worldwide Regulated Open-End Funds: Total Net Assets Sales Table 66 274 Worldwide Regulated Open-End Funds: Number of Funds 207 DATA TA B L E S

222 TABLE 1 Mutual Funds: Total Net Assets, Number of Funds, and Number of Share Classes Year-end Total net assets Number of Ye a r Billions of dollars Number of funds share classes $0.45 68 – 1940 DATA SECTION 1 1.28 73 – 1945 1950 2.53 98 – 7. 8 4 125 – 1955 1 7. 0 3 1960 161 – 170 – 35.22 1965 4 7. 6 2 361 – 1970 45.87 426 – 1975 51.28 452 – 1976 1977 4 8.94 – 477 1978 55.84 505 – 1979 94.51 – 526 13 4.76 – 1980 564 241.37 665 – 1981 1982 857 – 296.68 1983 292.9 9 1,026 – 1984 370.68 1,243 1,243 1985 1,528 1,528 495.39 1986 715.67 1,835 1,835 1987 769.17 2,312 2,312 1988 80 9.37 2,737 2,737 1989 980.67 2,935 2,935 3,177 1990 1,065.19 3,079 1991 1,393.19 3,587 3,403 1992 1,642.54 4,208 3,824 2,0 69.96 5,562 1993 4,534 1994 2,155.32 5,325 7, 6 9 7 2,811.29 5,725 1995 9,0 07 1996 3,525.80 6,248 10,352 1997 4,468.20 6,684 12,002 1998 5,525.21 7, 3 1 4 13,720 1999 7, 7 9 1 15,262 6,846.34 2000 6,96 4.31 8,154 16,737 2001 6,974.6 3 8,304 18,021 2002 6,382.92 8,242 18,981 2003 7, 4 0 1 . 8 5 8,126 19,319 8,095.50 2004 8,044 20,040 2005 8,891.01 20,553 7, 9 7 6 1 0 , 3 9 7. 7 5 21,263 2006 8,122 2007 11,999.71 8,040 21,637 9,620.27 8,039 2008 22,262 2009 11,111.16 7, 6 6 3 21,646 2010 11,833.09 7,555 21,915 2011 11,632.59 7, 5 9 0 22,294 2012 7, 5 9 0 22,646 13,054.49 2013 1 5,0 4 8.98 7, 7 1 5 23,400 2014 15,873.40 7, 9 2 7 24,236 2015 15,652.06 8,115 25,062 2016 16,343.72 8,066 25,115 25,112 7, 9 5 6 2017 1 8,74 6. 2 9 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. 2018 INVESTMENT COMPANY FACT BOOK 208

223 DATA SECTION 1 TABLE 2 Mutual Funds: Total Sales, New Sales, Exchange Sales, Redemptions, and Exchange Redemptions Billions of dollars, annual Exchange 1 2 3 Exchange sales Redemptions redemptions Ye a r New sales Total sales – – $0.11 – 1945 $0.29 – 1950 0.28 – 0.52 – 1.21 – 0.44 – 1955 – 2.10 – 1960 0.84 – – 1965 $3.93 – 1.96 – 4.36 4.63 – 2.9 9 – 1970 3.84 10.06 8.94 – 9.57 – 1975 1980 2 4 7. 4 2 $10.10 216.08 $9.94 238.96 1981 452.42 14.44 362.44 14.59 472.13 1982 626.94 604.09 28.25 588.35 2 7. 8 6 1983 5 4 7. 7 7 35.67 565.83 36.03 532.04 680.12 36.66 6 0 7. 0 2 3 7. 1 1 1984 6 61 .74 953.85 933.37 46.55 864.88 46.84 1985 1986 1,20 4.9 0 1 0 7. 7 5 1,015.64 1 0 7. 9 6 1,179.4 0 1987 1,220.27 205.68 1,178.75 2 0 7. 3 5 1,251.19 1988 1,176.81 1,143.62 134.28 1,166.67 134.24 1989 1,444.84 130.66 1,327.05 131.95 1,401.21 1990 1 , 5 1 7. 4 1 138.79 1,470.83 14 0.98 1,564.81 1991 2 , 0 3 7. 6 4 1,990.53 155.75 1,879.69 154.31 1992 2,704.69 197.43 2,548.28 198.15 2,749.6 8 253.95 3,187.49 3 , 1 3 7. 7 6 24 8.79 2,904.44 1993 325.00 2,928.62 1994 3,075.63 3,019.76 317.55 1995 3,600.62 351.53 3,314.86 351.08 3,526.00 4,671.44 4,586.71 4,266.20 503.94 1996 50 4.73 5,704.83 5,324.29 618.49 5,801.23 1997 613.44 7, 1 2 6 . 9 2 742.97 6,6 49.27 74 3. 37 1998 7, 2 3 0 . 4 0 9,043.58 8,92 2.96 8,562.10 9 4 7. 3 6 1999 949.96 11,109.49 1,149.75 10,586.56 1,145.42 2000 10,970.46 12,866.19 1 2 , 74 7. 5 2 7 9 7. 3 4 2001 798.08 12,242.26 2002 13,084.29 74 7. 3 4 13,011.32 745.6 5 13,16 8.73 12,393.57 572.50 12,361.63 573.76 2003 12,315.39 12,191.17 12,101.04 409.00 12,038.93 4 1 7. 9 5 2004 2005 1 3,939.17 420.84 13,546.69 432.42 13,812.35 2006 1 7, 2 2 8 . 6 6 4 8 7. 7 2 16,751.91 492.20 1 7, 4 0 9 . 2 2 2007 23,470.56 23,236.35 606.47 22,352.14 611.96 2008 26,3 49.16 735.12 25,714.04 730.10 26,1 3 4.93 20,679.76 530.25 20,676.51 528.33 2009 20,528.37 18,20 9.4 6 18,052.70 420.17 18,319.50 434.85 2010 2011 17,837.06 448.05 1 7, 7 3 8 . 7 6 466.49 17,661.26 2012 16,832.54 422.03 16,620.95 434.03 1 7, 0 2 3 . 2 9 2013 18,158.38 1 7, 9 6 9 . 2 6 5 1 7. 7 0 17,778.55 530.97 2014 18,716.36 425.48 1 8 , 3 8 7. 6 2 433.30 18,49 9.6 4 2015 20,71 2.77 452.12 20,810.78 454.37 20,936.55 2016 21,884.84 2 1 , 6 5 7. 8 8 594.26 21,887.62 591 .74 2017 20,852.49 60 4.75 2 0 , 6 7 7. 9 2 605.62 21,10 9.30 1 Total sales are the dollar value of new sales plus sales made through reinvestment of income dividends from existing accounts, but exclude reinvestment of capital gains distributions. 2 Exchange sales are the dollar value of mutual fund shares switched into funds within the same fund group. 3 Exchange redemptions are the dollar value of mutual fund shares switched out of funds and into other funds within the same fund group. Note: Data for funds that invest primarily in other mutual funds were excluded from the series. US MUTUAL FUND TOTALS 209

224 TABLE 3 Mutual Funds: Total Net Assets Year-end Long-term funds Ye a r To t a l Money market funds Equity Bond and income 1960 $ 1 7. 0 3 $16.00 $1.02 – DATA SECTION 1 1965 35.22 32.76 2.46 – 1970 4 7. 6 2 45.13 2.49 – 1975 3 7. 4 9 4.68 $3.70 45.87 1980 13 4.76 44.42 1 3.98 76.36 1981 241.37 41.19 14.01 186.16 1982 296.68 53.63 23.21 219.8 4 179.39 1983 292.9 9 76.97 36.63 Long-term funds Bond Money market funds Equity Ye a r Hybrid To t a l Domestic World Taxable Municipal Taxable Tax-exempt $20 9.75 1984 $370.68 $74.55 $5.19 $11.15 $23.80 $25.45 $20.79 36.25 207.55 39.4 4 1 7. 6 1 83.20 7. 9 4 495.39 103.39 1985 63.81 1986 715.67 1 38.98 15.47 25.76 1 6 7. 6 3 75.67 228.35 254.68 1 7. 4 3 158.02 61.42 769.17 1987 171.40 29.25 76.97 171.40 1 7. 9 8 26.35 16 8.96 86.73 272.20 65.76 1988 80 9.37 166.25 221.45 23.59 35.64 1989 105.66 358.62 69.47 980.67 1990 1,065.19 83.78 414.56 120.25 171.14 35.98 28.30 211.18 452.46 154.20 52.04 39.52 365.21 1,393.19 89.98 239.7 7 1991 94.84 451.35 196.26 308.37 7 7. 6 3 45.68 1,642.54 468.41 1992 114.13 3 6 7. 0 5 254.60 461.88 142.33 626.54 2,0 69.96 1993 103.44 10 9.89 501.11 2 2 7. 3 1 302.84 161.40 161.19 691.57 1994 2,155.32 1,052.57 196.51 206.70 3 49.21 253.29 631.32 121.69 1995 2,811.29 1,440.81 285.20 248.36 396.56 253.07 763.94 1 3 7. 8 7 3,525.80 1996 1997 4,468.20 2,021.66 346.37 311.9 0 4 5 7. 5 0 271.89 901.23 1 5 7. 6 6 1998 5,525.21 2,586.31 391.64 360.04 536.96 298.59 1,16 6.97 18 4.71 19 9.9 0 1,413.25 271.48 545.18 374.6 4 585.25 3,456.64 6,846.34 1999 6,96 4.31 3,369.40 56 4.75 36 0.92 545.58 278.41 1,611.38 233.87 2000 444.47 2001 6,974.6 3 358.03 2 , 9 4 7. 6 4 6 42.96 296.22 2,026.23 259.08 2,272.81 6,382.92 2002 369.37 335.28 810.26 330.13 276.30 1,988.78 7, 4 0 1 . 8 5 3,118.05 535.05 4 4 7. 5 7 924.85 336.31 1,749.7 3 290.29 2003 2004 8,095.50 3,626.07 716.20 552.25 971.03 328.24 1,5 89.70 312.00 621.48 338.95 1,690.45 336.37 2005 8,891.01 3,929.35 955.73 1,018.68 2006 1 0 , 3 9 7. 7 5 4,471.73 1,360.45 731.50 1,130.52 365.09 1,969.42 369.03 821.52 374.1 5 2,617.67 1,718.57 1,305.51 4,694.19 11,999.71 2007 468.09 3,338.56 3 3 7. 7 9 1,233.18 562.26 916.34 2,738.46 9,620.27 2008 493.68 2009 7 1 7. 5 8 1 , 74 7. 4 6 458.50 2,916.96 398.94 11,111.16 3,564.18 1 , 3 0 7. 5 6 2010 4,053.51 1,5 42.70 842.20 2,117.22 473.95 2,473.51 330.01 11,833.09 291.70 11,632.59 3,855.28 1,357.72 8 83.98 2 , 3 4 7. 1 3 4 9 7. 5 3 2,39 9.25 2011 2,4 0 5.74 2 8 7. 4 3 580.17 2,810.81 2012 1,614.39 4,324.37 13,054.49 1,031.58 270.61 1 5,0 4 8.98 5,726.4 4 2,036.11 1,282.57 2,786.76 49 9.29 2,447.20 2013 2014 15,873.40 6,232.58 2,081.41 1,374.14 2,894.15 566.48 2,463.85 260.79 2015 15,652.06 1,334.26 2,820.04 593.41 2,499.81 2,104.09 25 4.93 6,045.52 16,343.72 6,414.74 2,162.53 1,388.66 3,035.96 613.70 2,597.87 130.27 2016 665.30 1,525.72 1 8,74 6. 2 9 131.13 2,716.18 7,481.78 3,402.01 2,824.18 2017 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. The data contain a series break beginning in 1984. All funds were reclassified in 1984, and a separate category was created for hybrid funds. Components may not add to the total because of rounding. 2018 INVESTMENT COMPANY FACT BOOK 210

225 DATA SECTION 1 2 8 7. 4 3 259.08 276.30 369.03 493.68 270.61 330.01 260.79 291.70 398.94 336.37 312.00 131.13 130.27 290.29 25 4.93 468.09 $233.87 Tax-exempt Money market funds Taxable 2,617.67 1,749.7 3 2,597.87 2,447.20 1,969.42 2,916.96 2,499.81 2,716.18 2,026.23 2,473.51 1,988.78 1,690.45 2,39 9.25 1,5 89.70 2,4 0 5.74 3,338.56 2,463.85 $1,611.38 muni 3 1 7. 8 0 1 8 7. 0 5 1 7 7. 4 1 410.32 210.67 191.50 29 9.24 433.57 452.84 218.21 202.70 338.64 500.30 402.64 354.47 184.15 156.44 National $146.49 1 4 7. 4 6 1 7 7. 5 3 149.26 1 59.8 4 1 59.26 165.00 1 39.78 160.86 1 55.94 135.09 144.82 144.09 152.72 156.16 156.16 158.89 154.42 $1 31.92 State muni 4 7. 5 6 7 7. 7 9 59.38 53.24 83.73 98.38 36.57 38.51 2 4 7. 8 9 174.07 160.04 273.24 $32.10 321.01 231.35 130.04 405.44 284.35 Multisector 1 6 7. 3 4 1 9 7. 9 9 176.61 242.09 210.31 239.42 265.85 218.98 280.96 253.88 153.15 298.28 290.41 188.04 225.43 158.19 154.14 $124.87 Government Bond funds 59.95 43.97 31.75 52.63 80.9 0 34.12 World 369.02 420.41 110.01 491.41 105.65 431.51 431.37 246.41 $32.98 294.42 158.07 466.87 1 6 7. 8 9 419.29 374.81 243.63 1 59.36 109.20 175.96 175.73 198.06 378.19 326.79 373.19 108.11 271.41 118.23 342.20 158.99 $10 9.94 High yield 7 3 7. 5 3 410.54 476.33 762.96 520.67 311.29 572.65 6 42.95 grade $245.69 1,241.71 1,839.94 1,569.96 1,050.98 1,511.55 1,521.96 1,365.14 1,640.39 1,448.78 Investment 7 1 7. 5 8 4 4 7. 5 7 335.28 552.25 731.50 621.48 821.52 842.20 358.03 562.26 8 83.98 $36 0.92 1,374.14 1,031.58 1,525.72 1,282.57 1,334.26 1,388.66 Hybrid funds 2 , 6 7 7. 7 9 2 , 4 7 7. 7 0 2 , 4 7 7. 5 0 1 , 5 0 7. 2 7 4 , 3 7 7. 9 0 2,076.92 1,929.1 3 4,635.47 3,151.28 2,696.54 4,002.81 3,273.41 3,006.70 4,202.20 1,842.40 2,806.43 5,388.88 $1,935.45 Total return 369.37 916.34 716.20 955.73 535.05 444.47 World $56 4.75 1 , 3 0 7. 5 6 1,357.72 1,614.39 2,824.18 2,162.53 1,718.57 2,036.11 2,104.09 2,081.41 1,5 42.70 1,360.45 Equity funds 765.54 809.33 Capital 1 , 2 4 7. 0 8 1 , 3 1 7. 6 7 1 , 1 7 7. 4 8 1,7 79.27 1,105.24 1,420.78 1,041.14 1,723.64 1,148.56 2,092.90 1,320.45 1,086.48 1,843.31 1,854.68 1,232.82 $1,433.95 appreciation 2015 2010 2014 2009 2016 2012 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. 2011 2013 2017 2008 2003 2002 2005 2001 2007 2000 2004 TABLE 4 Ye a r Billions of dollars, year-end Mutual Funds: Total Net Assets by Composite Investment Objective 2006 US MUTUAL FUND TOTALS 211

226 TABLE 5 Mutual Funds: Number of Funds Year-end Long-term funds To t a l Money market funds Ye a r Equity Bond and income 1970 361 323 38 – DATA SECTION 1 1975 426 314 76 36 1980 288 170 106 564 1981 665 306 180 179 1982 857 340 199 318 373 1983 1,026 396 257 Long-term funds Bond Money market funds Equity Ye a r Hybrid To t a l Domestic World Taxable Tax-exempt Taxable Municipal 89 29 159 1,243 1984 94 331 111 430 110 1985 1,528 519 43 103 229 174 350 360 302 121 57 621 247 1,835 1986 127 164 415 366 389 154 1987 81 2,312 74 3 177 1988 109 179 522 420 433 897 2,737 203 470 443 189 561 128 2,935 941 1989 505 236 463 584 192 155 944 3,079 1990 3,403 985 206 211 658 523 552 268 1991 239 1,086 3,824 1992 773 234 279 628 585 293 627 796 951 281 306 1,280 4,534 1993 360 1,104 1,012 649 314 1994 5,325 1,463 423 5,725 1,611 528 411 1,167 1,011 676 321 1995 668 1996 6,248 1,902 981 465 1,24 4 669 319 1997 6,684 2,183 768 500 1,287 933 685 328 339 687 900 1,351 525 890 2,622 7, 3 1 4 1998 1,375 531 7, 7 9 1 3,004 949 887 704 341 1999 508 335 704 871 1,367 1,055 3,314 8,154 2000 1,085 473 3,609 8,304 1,308 814 690 325 2001 1,018 458 1,295 770 677 311 2002 8,242 3,713 2003 8,126 3,658 929 474 1,313 779 660 313 305 2004 8,044 3,650 887 472 1,324 767 639 912 3,658 7, 9 7 6 481 1,315 74 0 593 277 2005 995 8,122 2006 500 1,320 713 573 274 3,747 3,677 260 1,060 676 545 2007 8,040 496 1,326 3,654 1,140 511 1,311 640 534 249 8,039 2008 481 7, 6 6 3 3,418 1,171 228 1,290 599 476 2009 210 442 583 1,311 495 1,194 3,320 7,555 2010 431 563 1,349 520 3,259 7, 5 9 0 2011 1,267 201 1,280 562 557 400 1,394 3,217 7, 5 9 0 2012 180 173 605 2013 7, 7 1 5 3,192 1,346 1,457 560 382 364 2014 7, 9 2 7 3,236 1,411 665 1,531 557 163 1,488 717 1,582 573 336 145 2015 8,115 3, 274 102 2016 8,066 3,233 1,518 717 1,602 575 319 83 7, 9 5 6 3,201 1,505 726 1,569 573 299 2017 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. The data contain a series break beginning in 1984. All funds were reclassified in 1984, and a separate category was created for hybrid funds. 2018 INVESTMENT COMPANY FACT BOOK 212

227 DATA SECTION 1 83 274 249 145 102 210 201 311 163 173 335 325 313 305 260 277 180 228 Tax-exempt 476 319 593 431 677 704 336 573 690 639 382 545 442 534 299 660 364 400 Money market funds Taxable 242 261 217 282 255 235 235 221 228 264 256 256 225 229 222 222 254 254 muni National 319 319 478 415 498 331 361 515 513 377 312 523 550 322 336 589 346 448 State muni 97 97 91 92 95 95 103 102 179 105 124 173 109 118 104 139 158 129 Multisector 243 192 214 275 216 281 262 190 199 187 237 323 236 256 296 284 229 223 Government Bond funds 161 370 370 169 217 347 140 151 255 183 155 126 121 354 139 290 123 122 World 242 242 242 245 219 219 217 216 224 207 231 211 221 228 212 212 212 223 High yield 576 610 624 593 595 575 615 557 596 579 620 607 572 602 580 606 604 584 grade Investment 474 495 717 717 472 473 511 496 520 726 458 562 481 481 605 665 508 500 Hybrid funds 1,976 1,919 1,978 1,759 1,876 1,928 1,930 2,027 1,903 2,077 1,867 1,98 4 1,908 1,900 2,098 2,099 2,000 1,886 Total return 929 912 887 995 1,411 1,171 1,018 1,194 1,267 1,055 1,140 1,518 1,085 1,060 1,505 1,280 1,488 1,346 World Equity funds 1,670 1,314 1,631 1,729 1,723 1,341 1,650 1,555 1,578 1,328 1,301 1,442 1,392 1,325 1,680 1,556 1,356 1,344 Capital appreciation 2017 2012 2016 2011 2010 2009 TABLE 6 2008 2007 2006 2015 2005 2004 2003 2002 2001 2000 2014 2013 Ye a r Year-end Mutual Funds: Number of Funds by Composite Investment Objective Note: Data for funds that invest primarily in other mutual funds were excluded from the series. US MUTUAL FUND TOTALS 213

228 TABLE 7 Mutual Funds: Number of Share Classes Year-end Long-term funds Money market funds Equity Bond DATA SECTION 1 Hybrid World Taxable Municipal Taxable Tax-exempt To t a l Domestic Ye a r 430 29 89 159 1984 331 94 1,243 111 1,528 519 43 103 229 174 350 110 1985 1,835 621 57 121 302 247 360 127 1986 2,312 81 164 415 366 389 154 74 3 1987 2,737 897 109 179 522 420 433 177 1988 2,935 941 128 189 561 443 470 203 1989 1990 3,177 962 166 199 598 490 522 240 1991 3,587 227 223 687 558 591 280 1,021 4,208 877 263 257 1992 708 616 298 1,189 1993 1,560 385 347 1,207 1,054 672 337 5,562 1994 7, 6 9 7 2,026 630 515 1,605 1,660 858 403 1995 2,442 845 634 1,844 1,862 953 427 9,0 07 1996 10,352 3,056 1,155 749 2,050 1,889 1,005 448 1997 12,002 3,860 1,449 873 2,293 1,978 1,075 474 490 1998 13,720 4,872 1,770 964 2,532 1,955 1,137 1,230 500 1999 15,262 5,818 1,96 8 1,026 2,722 1,998 2000 16,737 2,299 1,007 2,821 2,031 1,331 524 6,724 18,021 2,511 994 2,874 1,957 1,405 543 2001 7, 7 3 7 18,981 8,426 2,515 1,030 2002 1,939 1,463 543 3,065 2003 19,319 8,545 2,369 1,112 3,222 2,040 1,462 569 2004 20,040 9,0 01 2,357 1,202 3,377 2,050 1,477 576 2005 9, 2 5 8 2,501 1,344 3,427 1,992 1,464 567 20,553 2006 21,263 9,6 4 0 2,775 1,355 3,542 1,938 1,454 559 2007 21,637 9,705 3,030 1,354 3,640 1,893 1,447 568 3,386 2008 22,262 9,8 8 0 1,443 1,424 3,753 1,829 547 2009 21,646 3,548 1, 374 3,780 1,757 1,330 516 9, 3 41 21,915 3,715 1,450 3,995 1,7 74 1,281 500 2010 9, 20 0 22,294 9,175 3,953 1,562 2011 1,719 1,255 475 4,155 2012 22,646 9,145 4,046 1,691 4,443 1,698 1,174 449 2013 23,400 9, 2 21 4,266 1,868 4,726 1,74 8 1,141 430 2014 9,421 4,536 2,028 5,002 1,74 3 1,100 406 24,236 2015 25,062 9,63 4 4,795 2,205 5,228 1,773 1,056 371 2016 25,115 9,63 8 4,906 2,151 5,349 1,796 1,003 272 949 231 2017 25,112 9,63 4 4,874 2,186 5, 374 1,864 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. 2018 INVESTMENT COMPANY FACT BOOK 214

229 DATA SECTION 1 576 524 475 516 559 567 371 231 272 547 430 569 449 543 543 500 568 406 Tax-exempt 949 1,174 1,141 1,100 1,477 1,003 1,056 1,331 1,281 1,447 1,454 1,405 1,462 1,330 1,255 1,463 1,443 1,464 Money market funds Taxable 678 707 673 717 797 753 837 632 798 653 709 696 690 638 738 680 686 688 muni National 976 998 990 1,010 1,027 1,029 1,151 1,069 1,002 1,065 1,393 1,333 1,333 1,325 1,286 1,220 1,306 1,258 State muni 378 278 361 207 279 435 557 313 323 226 295 227 582 236 200 500 234 404 Multisector 676 679 624 591 703 592 716 626 631 652 661 590 620 601 633 630 687 666 Government Bond funds 74 4 491 367 413 311 615 291 291 302 315 892 542 292 World 1,324 1,332 1,250 1,044 1,348 749 524 867 841 695 528 490 571 661 612 709 802 623 538 858 880 680 660 High yield 1,141 1,710 1,798 1,986 1,875 1,190 1,721 1,998 1,632 1,607 1,94 6 grade 1,658 1,663 1,845 1,577 1,554 1,343 1,464 Investment 994 1, 374 1,424 1,691 2,028 1,030 2,151 1,007 2,186 1,450 1,355 1,112 1,202 2,205 1,562 1,868 1,354 1,344 Hybrid funds 5,767 3,967 5,701 4,933 3,492 5,412 5,632 4,452 5,166 5,821 4,595 5,820 5,458 5,381 5,392 5,396 5,364 5,544 Total return 4,874 3,953 4,795 3,030 2,775 3,715 4,906 2,511 2,501 2,515 2,357 2,369 4,536 4,266 4,046 3,386 2,299 3,548 World Equity funds 3,974 3,763 4,161 3,814 3,76 4 3,929 3,817 3,950 3,770 3,789 4,179 3,867 3,779 4,092 3,836 4,248 3,232 4,068 Capital appreciation 2010 2009 TABLE 8 2008 2007 2013 2006 2012 2015 2016 2017 2004 2003 2002 2001 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. 2000 2011 2014 Ye a r Year-end Mutual Funds: Number of Share Classes by Composite Investment Objective 2005 US MUTUAL FUND TOTALS 215

230 41 31 37 32 32 32 32 32 27 27 33 33 33 39 30 30 30 30 25 34 34 40 Global/ International 241 276 210 194 269 172 172 297 291 211 205 205 295 260 260 280 188 220 256 258 238 223 Bond funds Domestic municipal 105 117 124 108 109 118 131 131 137 132 132 132 126 126 127 127 115 128 128 130 123 134 taxable Domestic DATA SECTION 2 Year-end Number of funds 74 74 61 59 91 91 93 69 87 87 92 55 71 82 85 83 89 80 86 84 84 64 Global/ International Equity funds 49 75 45 52 95 53 63 50 44 117 117 117 118 131 126 128 128 120 136 125 125 122 Domestic 624 491 618 559 511 627 532 496 632 599 581 530 602 642 481 662 543 645 634 568 489 486 To t a l 9,676 9,414 9,102 19,91 2 1 8,74 6 22,910 14,965 10,891 14,422 13,079 11,91 2 10,454 20,853 23,773 12,559 15,682 11,539 12,847 10,348 13,660 20,254 Global/ $12,046 International 77,677 7 7, 1 4 0 6 7, 3 3 4 74,4 67 8 9,032 90,024 82,876 61,992 88,920 63,628 8 9,5 45 94,841 94,526 90,594 90,207 84,100 94,060 86,894 94,563 64,513 68,266 $59,540 Domestic municipal Bond funds 6 7, 9 6 2 63,935 33,673 55,428 51,720 53,612 26,559 4 8,985 53,638 62,571 56,045 28,581 56,820 25,643 28,315 63,890 34,127 30,888 44,126 48,009 58,489 taxable $28,418 Domestic Total assets 9,74 3 8,74 8 6,988 2 7, 5 9 3 2 7, 7 8 4 5 7, 3 2 9 29,610 2 9,011 32,179 16,494 25,011 18,072 33,657 33,4 41 26,217 30,422 11,986 Millions of dollars, year-end 26,525 32,480 36,239 34,489 Global/ $ 2 7, 0 74 International Equity funds 8 7, 8 6 9 77,090 62,414 79,637 42,987 45,753 81,757 24,696 63,732 24,557 52,94 0 88,962 26,596 75,587 88,013 60,461 20,536 72,201 68,461 22,529 22,309 $19,830 Domestic To t a l 2 3 7, 7 9 0 27 9, 374 1 5 5,749 151,767 275,932 297,236 260,970 141,185 263,618 275,177 242,387 184,175 213,756 143,066 289,322 14 6,94 0 312,371 262,565 253,382 222,894 158,664 $14 6,908 Ye a r 2012 2016 2011 1996 2015 2010 2009 1997 2008 2007 2006 1998 2014 Closed-End Funds: Total Assets and Number of Funds by Type of Fund 2017 TABLE 9 2005 2004 2003 1999 2013 2002 2001 2000 Note: Components may not add to the total because of rounding. Totals are inclusive of preferred share classes. 216 2018 INVESTMENT COMPANY FACT BOOK

231 TABLE 10 Closed-End Funds: Gross Issuance, Gross Redemptions, and Net Issuance by Type of Fund Millions of dollars, annual Equity funds Bond funds Global/ Domestic Global/ Domestic Ye a r taxable Domestic municipal To t a l International International DATA SECTION 2 1 Gross issuance $9,191 $3 $2,309 $13,392 $0 2002 $24,895 11,187 50 25,587 2,95 4 1,032 2003 40,810 2 7, 9 9 1 15,424 5,714 5,820 5 1,028 2004 21,388 6,628 2005 2,046 31 124 12,559 1 2,745 2,505 1,718 196 334 2006 7, 9 9 2 31,086 5,973 19,76 4 2007 433 2,695 2,221 2008 275 8 145 121 0 0 2009 3,615 549 485 876 1,389 317 2010 14,017 114 2, 374 7, 4 5 4 358 3,719 14,990 1,469 1,000 8,669 2 2011 3,850 16,844 3,815 533 4,088 6,328 2,081 2012 2013 1 7, 1 0 0 157 4,525 1,643 6,464 4,311 2014 4,263 619 677 2,897 1 8,456 2015 4,216 572 1,461 1,403 728 51 2016 3,508 156 1,870 1,132 4 346 2017 776 302 1,324 2,24 4 425 5,072 2 Gross redemptions $20 $2,717 $1,024 $105 $254 $1,313 2007 2008 22,573 7, 0 6 0 1,832 6,891 6,089 701 6,875 30 2009 1,627 2,916 639 1,664 2010 8,587 55 474 6,335 0 1,724 8,972 209 276 7, 8 4 3 0 2011 644 5,459 974 420 838 3,226 0 2012 2013 3,335 649 604 1,864 5 214 2014 444 124 411 2,330 213 3,522 2015 2,463 348 419 725 816 156 2016 1,941 340 438 556 502 104 2017 923 703 512 98 113 2,350 3 Net issuance $2,675 $28,369 $ 4,949 $19,659 $1,966 -$880 2007 2008 -22,298 -7, 0 5 2 -1 , 6 8 7 -6,770 -6,089 -70 0 2009 287 -3,259 -2,366 -1 5 4 -7 8 8 -238 2010 5,430 59 1,900 1,119 357 1,995 6,018 1,260 724 825 2 2011 3,206 11,385 2,840 113 2012 3,102 2,081 3,249 2013 13,765 4,097 -491 3,921 -2 20 6,459 2014 4,935 3,819 494 266 567 -21 2 2015 1,753 1,043 678 -87 -1 0 4 224 2016 242 -1 8 4 1,432 576 -498 1,567 2017 2,722 -1 4 7 -401 812 2,146 312 1 Gross issuance of shares is the value of net proceeds from underwritings, additional offerings, and other issuance. Data are not available prior to 2002. 2 Gross redemptions of shares is the value of share repurchases and fund liquidations. Data are not available prior to 2 0 0 7. 3 Net issuance of shares is the dollar value of gross issuance minus gross redemptions. A positive number indicates that gross issuance exceeded gross redemptions. A negative number indicates that gross redemptions exceeded gross issuance. Data are not available prior to 2007. Note: Components may not add to the total because of rounding. Totals are inclusive of preferred share classes. 217 US CLOSED-END FUNDS, EXCHANGE-TRADED FUNDS, AND UNIT INVESTMENT TRUSTS

232 4 - - - - - - - - - - - - 824 $97 9,701 5,030 1,575 2,561 2,215 1,294 Memo 10,476 11,94 4 Funds of funds 3 - - - - - 4,798 6 7, 2 8 8 74, 52 8 35,728 14,699 61,629 28,906 48,471 $1,335 63,866 56,538 - - - Act ETFs N o n –19 4 0 119,875 101,055 108,868 - - - - - - - - - - - - $245 2,759 1,014 5,039 DATA SECTION 2 28,961 14,267 16,789 4 4,924 10,211 22,891 Actively managed Legal status 1940 Act ETFs 6,707 $2,411 82,993 33,873 65,585 Index 15,568 4 0 7, 8 5 0 579,517 102,143 495,314 150,983 888,175 296,022 701,586 226,205 934,232 1 , 2 0 7, 0 3 7 2,433,798 2,029,296 1,901,223 1,596,580 3,288,485 - - - - - - 4,667 8,516 Bond 5 7, 2 0 9 $3,915 20,514 15,004 34,648 107,018 1 3 7, 7 8 1 4 2 7, 1 3 3 245,862 243,203 296,376 553,302 340,270 184,222 - - - - - - - 169 377 322 132 656 $119 7, 8 0 0 4,951 3,047 3,738 Hybrid 1,469 - - - - 2 - - - - - - - - 4,798 5 6,974 49, 317 74, 52 8 6 8,927 35,728 14,699 28,906 62,777 $1,335 64,042 10 9,176 101,081 120,016 Commodities 506 $252 3,016 2,041 5,324 1,026 1,992 Investment objective 65,210 1 3,98 4 33,644 Global/ 179,702 245,114 474,640 414,805 276,622 502,702 111,194 328,521 20 9, 31 5 792,248 398,834 113,684 International 1 - - $484 5,919 3,015 5,224 2,507 Equity 28,975 5 8, 374 43,655 11,901 82,053 64,117 20,315 Sector 267,355 2 6 7, 5 2 3 374,45 4 103,807 202,706 302,637 135,378 108,548 Domestic equity 6,200 74,752 2 9, 374 14,058 86,985 $2,159 60,529 761,798 266,161 300,930 163,730 400,702 935,825 509,350 186,832 120,430 372,377 232,487 965,338 304,044 1,603,965 1,224,187 Broad-based 6,707 To t a l $2,411 82,993 33,873 65,585 15,568 777,128 102,143 227,540 150,983 991,989 300,820 422,550 608,422 531,288 1,674,7 1 3 1,974, 5 5 0 1 , 3 3 7, 1 2 3 2,100,658 3,400,696 2,524,388 1,048,139 This category includes funds both registered and not registered under the Investment Company Act of 1940. This category includes funds—both registered and not registered under the Investment Company Act of 1940—that invest primarily in commodities, currencies, and futures. The funds in this category are not registered under the Investment Company Act of 1940. Data for ETFs that invest primarily in other ETFs are excluded from the totals. TABLE 11 2016 2010 2004 2014 2012 1999 Exchange-Traded Funds: Total Net Assets by Type of Fund 2007 2003 2000 2002 2001 2017 2009 Millions of dollars, year-end 4 2015 2011 2013 1997 Ye a r Note: Components may not add to the total because of rounding. 1996 2005 1 2008 2 1998 3 Sources: Investment Company Institute and Strategic Insight Simfund 2006 218 2018 INVESTMENT COMPANY FACT BOOK

233 4 4 - - - - - - - - - - - - 824 $97 - - - - - - - - - - - - 49 31 37 27 65 39 23 58 15 44 9,701 5,030 1,575 2,561 2,215 1,294 Memo Memo 10,476 11,94 4 Funds of funds Funds of funds 3 DATA SECTION 2 3 3 1 - - - - - - - - 49 16 69 45 28 72 72 73 73 77 66 54 - - - - - 4,798 6 7, 2 8 8 74, 52 8 35,728 14,699 61,629 28,906 48,471 $1,335 63,866 56,538 - - - Act ETFs Act ETFs N o n –19 4 0 N o n –19 4 0 119,875 101,055 108,868 - - - - - - - - - - - - 42 26 21 33 60 13 - - - - - - - - - - - - $245 149 194 108 120 2,759 1,014 5,039 28,961 14,267 16,789 4 4,924 10,211 22,891 Actively Actively managed managed Legal status Legal status 1940 Act ETFs 1940 Act ETFs 19 19 30 29 80 6,707 670 102 119 201 151 727 601 343 843 113 $2,411 82,993 33,873 65,585 Index 15,568 Index 1,076 1,163 1,029 1,501 1,402 1,569 1,232 4 0 7, 8 5 0 579,517 102,143 495,314 150,983 888,175 296,022 701,586 226,205 934,232 1 , 2 0 7, 0 3 7 2,433,798 2,029,296 1,901,223 1,596,580 3,288,485 6 8 6 6 6 - - - - - - - - - - - - 49 62 98 4,667 8,516 Bond 274 Bond 202 285 168 264 128 309 238 5 7, 2 0 9 $3,915 20,514 15,004 34,648 107,018 1 3 7, 7 8 1 4 2 7, 1 3 3 245,862 243,203 296,376 553,302 340,270 184,222 5 6 7 5 6 - - - - - - - - - - - - - - - - - - 169 377 322 132 19 656 21 33 15 22 13 $119 7, 8 0 0 4,951 3,047 3,738 Hybrid 1,469 Hybrid - - - - 2 2 1 3 - - - - - - - - - - - - - - - - 76 49 16 75 91 81 45 55 79 28 82 80 4,798 5 6,974 49, 317 74, 52 8 6 8,927 35,728 14,699 28,906 62,777 $1,335 64,042 10 9,176 101,081 120,016 Commodities Commodities 506 $252 41 49 17 17 17 17 43 85 39 25 34 3,016 2,041 5,324 1,026 1,992 Investment objective Investment objective 592 494 159 24 4 629 629 438 298 225 368 404 65,210 1 3,98 4 33,644 Global/ Global/ 179,702 245,114 474,640 414,805 276,622 502,702 111,194 328,521 20 9, 31 5 792,248 398,834 113,684 International International 1 1 - - 9 9 - - $484 42 26 32 33 65 34 5,919 3,015 5,224 2,507 Equity Equity 191 193 119 179 235 266 298 186 236 229 304 222 28,975 5 8, 374 43,655 11,901 82,053 64,117 20,315 Sector Sector 267,355 2 6 7, 5 2 3 374,45 4 103,807 202,706 302,637 135,378 108,548 2 3 2 4 Domestic equity 6,200 Domestic equity 81 39 29 60 34 34 74,752 2 9, 374 14,058 86,985 $2,159 60,529 197 243 317 275 472 361 293 288 396 133 204 222 761,798 266,161 300,930 163,730 400,702 935,825 509,350 186,832 120,430 372,377 232,487 965,338 304,044 1,603,965 1,224,187 Broad-based Broad-based 19 19 30 29 80 102 119 6,707 359 797 728 923 629 152 113 204 To t a l To t a l $2,411 82,993 33,873 65,585 15,568 1,716 1,195 1,412 1,595 1,832 1,135 1,295 777,128 102,143 227,540 150,983 991,989 300,820 422,550 608,422 531,288 1,674,7 1 3 1,974, 5 5 0 1 , 3 3 7, 1 2 3 2,100,658 3,400,696 2,524,388 1,048,139 This category includes funds—both registered and not registered under the Investment Company Act of 1940—that invest primarily in commodities, currencies, and futures. This category includes funds both registered and not registered under the Investment Company Act of 1940. The funds in this category are not registered under the Investment Company Act of 1940. This category includes funds both registered and not registered under the Investment Company Act of 1940. The funds in this category are not registered under the Investment Company Act of 1940. This category includes funds—both registered and not registered under the Investment Company Act of 1940—that invest primarily in commodities, currencies, and futures. Data for ETFs that invest primarily in other ETFs are excluded from the totals. Data for ETFs that invest primarily in other ETFs are excluded from the totals. TABLE 12 Exchange-Traded Funds: Number of Funds by Type of Fund Ye a r Year-end 2000 2008 2 2005 2014 2010 2012 1996 3 4 2017 2004 2007 1997 Sources: Investment Company Institute and Strategic Insight Simfund 2016 2015 2009 2003 2013 2011 1998 1 2006 2002 1999 2001 2006 Sources: Investment Company Institute and Strategic Insight Simfund 4 3 2 1 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 TABLE 11 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 Ye a r Millions of dollars, year-end Exchange-Traded Funds: Total Net Assets by Type of Fund Note: Components may not add to the total because of rounding. US CLOSED-END FUNDS, EXCHANGE-TRADED FUNDS, AND UNIT INVESTMENT TRUSTS 219

234 4 - - - - - - - - - - - - 433 237 505 385 -638 $107 Memo 5,726 1,106 1,058 2,365 Funds of funds 3 - - - - - - - - 9,035 9,0 62 8,475 2,627 2,859 1,128 8,129 1,530 -1 ,76 6 28,410 10,567 $1,353 11,444 -2 9,9 05 Act ETFs N o n –19 4 0 - - - - - - - - - - - - 724 $281 7,435 4,710 1,716 6,247 4,988 2,555 2,584 DATA SECTION 2 15,437 Actively managed Legal status 1940 Act ETFs 6,195 3,466 Index 87,336 55,021 11,929 15,810 $1,108 53,871 31,012 45,302 65,520 42,508 240,026 141,555 171,377 108,136 166,372 205,154 222,005 454,235 266,223 112,464 721 - - - - - - 6,756 3,778 5,729 Bond 2 9,652 45,958 22,952 5 4,949 51,007 12,195 $3,729 52,318 13,318 83,442 46,045 1 20,933 - - - - - - - - - - - 72 15 58 246 849 144 $122 Hybrid 1,110 1,629 1,088 2,500 2 - - - - - - - - 9,0 62 8,475 2,859 2,118 2,94 8 8,155 1,603 8,889 -1 , 4 2 0 28,410 10,567 11,679 $1,353 -2 9,870 Commodities 553 306 112 884 $266 Investment objective 5,76 4 3,792 1,366 20,195 41,527 39,59 9 25,243 28,423 23,455 62,807 24,250 51,896 15,645 46,642 48,842 Global/ 159,771 10 9,6 6 8 International 1 - - $484 9,674 9,78 0 6,719 6,514 2,735 1,033 3,587 1,596 Equity 2,304 19,705 Sector 10,187 2 9,533 14,307 14,329 40,593 18,122 34,434 30,296 13,368 Domestic equity $842 5,737 3,160 5,158 5 7, 74 4 49,757 16,941 26,911 35,477 28,317 61,152 88,105 2 9,0 8 4 40,591 10,221 9 9,5 45 34,657 21,589 -1 1 , 8 4 2 1 4 7, 8 0 5 156,459 102,394 Broad-based 6,195 3,466 To t a l 73,995 11,929 15,810 $1,108 31,012 45,302 56,375 56,729 42,508 1 1 7, 9 8 2 179,959 1 1 7, 6 4 6 283,914 177,220 230,970 150,617 470,800 116,469 185,399 240,84 4 The funds in this category are not registered under the Investment Company Act of 1940. This category includes funds both registered and not registered under the Investment Company Act of 1940. This category includes funds—both registered and not registered under the Investment Company Act of 1940—that invest primarily in commodities, currencies, and futures. Data for ETFs that invest primarily in other ETFs are excluded from the totals. 2006 2009 2005 2000 TABLE 13 2004 2011 2001 2008 2013 2003 2002 Exchange-Traded Funds: Net Issuance by Type of Fund 1998 2007 2010 Millions of dollars, annual Ye a r 1997 2012 1999 1996 2014 2017 2015 1 Sources: Investment Company Institute and Strategic Insight Simfund 2 2016 3 Note: Components may not add to the total because of rounding. 4 2018 INVESTMENT COMPANY FACT BOOK 220

235 875 782 578 698 915 438 993 563 883 debt 1,074 1,919 3,933 1,607 3,361 1,151 1,166 1,729 2,157 5,006 1,550 1,585 Tax-free $2,546 765 624 916 492 931 196 631 981 928 557 289 322 572 562 862 771 298 343 294 debt $800 DATA SECTION 2 2,201 1,236 Taxable New deposits 9,1 31 Equity 4 7, 5 6 4 16,927 45,947 10,071 53,719 35,101 63,991 14,559 16,159 42,570 Millions of dollars, annual 35,855 28,185 31,900 50,629 25,003 40,012 21,526 48,695 22,335 64,582 $18,316 To t a l 47,675 1 7, 1 2 5 19,0 49 65,949 2 9,057 30,936 55,628 36,026 49,5 8 0 43,649 12,731 49, 3 4 6 35,836 65,529 22,598 23,590 52,046 43,404 11,600 22,293 38,546 $21,662 7, 4 7 1 debt 8,924 5,707 8,149 9,6 8 0 3,739 5,038 1,992 4,022 6,690 1,879 3,136 2,287 1,839 3,268 2,808 3,466 3,466 4,464 2,544 10,795 10,517 Tax-free 414 319 324 491 591 593 327 553 320 369 635 513 512 295 438 587 639 343 366 580 304 409 debt Taxable Year-end Number of trusts 378 872 563 Equity 2,175 2,145 2,426 1,247 2,428 1,081 1,166 2,557 2,501 1,96 4 2,395 1,251 2,609 1,554 2,212 2,586 1,206 1,500 1,566 7, 2 3 3 5,971 6,019 5,787 5,907 5,035 6,030 9,295 5,98 4 5,100 6,049 6,499 5,552 5,188 6,043 5,381 8,303 To t a l 10,414 10,072 10,966 11,76 4 11,593 7, 6 8 0 9,98 0 9, 3 07 9,8 9 4 8,711 6,456 debt 3 7, 5 3 3 1 7, 3 4 5 12,675 15,757 13,491 15,691 32,151 12,114 10,362 25,559 11,432 18,999 11,113 22,599 12,094 Tax-free $40,796 2,676 2,142 3,780 4,020 2,597 3,784 2,007 3,602 2,635 2,370 3,135 3,311 4,063 3,502 3,668 2,066 4,283 2,280 5,380 6,480 3,560 debt $8,485 Taxable Total net assets Equity 19,024 24,7 74 4 0,747 80,417 14,651 51,905 26,467 70,850 56,413 20,080 85,887 62,128 73,262 28,634 23,201 40,638 43,295 71,590 34,112 38,809 48,060 $22,922 Millions of dollars, year-end To t a l 37,267 59,931 74,161 49,249 91,970 49,6 62 84,761 93,943 36,016 35,826 8 4,939 50,567 71,725 84,627 94,127 53,040 40,894 28,543 38,336 86,504 101,136 $72,204 2005 2016 1996 2008 2007 1999 2004 2002 2009 2015 2012 2000 2001 1997 2017 2014 2010 2013 2003 2006 2011 1998 Ye a r Unit Investment Trusts: Total Net Assets, Number of Trusts, and New Deposits by Type of Trust TABLE 14 Note: Components may not add to the total because of rounding. US CLOSED-END FUNDS, EXCHANGE-TRADED FUNDS, AND UNIT INVESTMENT TRUSTS 221

236 TABLE 15 Long-Term Mutual Funds: Liquid Assets and Liquidity Ratios Year-end Liquid asset Liquidity ratios* Percent Millions of dollars Equity Hybrid Bond Bond Hybrid Equity Ye a r funds funds funds funds funds funds To t a l To t a l $12,181 $878 $4,007 8.9 % 9.1% 7. 9 % 8.7% 1984 $7,295 20,593 10,452 1,413 8,728 8.2 9.4 8.0 7. 1 1985 30,611 1986 13,485 7. 2 9.5 9.8 5.5 14,612 2,514 3 7, 9 3 0 2,730 18,881 8.4 9.3 9.3 7. 6 1987 16,319 4 4,980 17,742 2,986 24,252 9.5 9.4 11.3 9.5 1988 44,603 25,602 5,747 13,253 1989 10.4 16.1 4.9 8.1 1990 48,440 2 7, 3 4 4 4,198 16,899 8.5 11.4 11.7 5.8 1991 60,385 3,309 26,419 7. 1 7. 6 6.4 6.7 30,657 73,98 4 6.7 6,560 25,007 1992 8.3 8.5 5.0 42,417 1993 5 7, 5 3 9 16,613 25,284 6.6 7. 8 11.7 4.1 9 9,43 6 1994 120,430 70,885 19,92 9 29,616 7. 8 8.3 12.3 5.6 1995 9 7, 74 3 19, 271 24,741 6.9 7. 8 9.3 4.1 141,755 1996 151,988 1 0 7, 6 6 7 1 7, 9 5 4 26,367 5.8 6.2 7. 2 4.1 1997 198,826 145,565 24,645 28,616 5.8 6.1 7. 9 3.9 DATA SECTION 3 1998 191,393 143,516 25,289 22,588 4.6 4.8 7. 0 2.7 5.6 23,427 2.9 1999 219,0 98 174,69 2 20,979 4.3 4.2 2000 2 7 7, 1 6 4 25,343 5.4 5.7 7. 4 3.1 225,023 26,798 222,469 26,911 25,203 4.7 5.0 7. 5 2.7 2001 170,355 208,938 120,499 25,423 63,016 5.1 4.6 7. 6 5.5 2002 2 59,63 8 1 5 4,874 30,654 74,1 10 4.8 4.2 6.8 5.9 2003 2004 3 0 7, 1 0 3 184,132 36,419 86,552 5.0 4.2 6.6 6.7 2005 190,898 43,133 69,1 5 0 4.4 3.9 6.9 5.1 303,181 2006 346,759 218,661 5 7, 4 6 1 70,637 4.3 3.7 7. 9 4.7 2007 381,668 266,273 56,813 58,581 4.3 4.2 6.9 3.5 3.7 2008 314,280 203,277 52,712 58,291 5.4 5.6 9.4 2009 6.5 7. 4 365,560 169,792 52,845 142,922 4.7 3.5 2010 192,608 61,022 76,525 3.7 3.4 7. 2 3.0 330,155 2011 461,852 182,548 70,74 4 208,559 5.2 3.5 8.0 7. 3 2012 516,076 200,436 100,352 215,288 5.0 3.4 9.7 6.3 149,455 2013 659,016 272,504 7. 2 2 3 7, 0 5 7 5.3 3.5 11.7 2014 291,688 165,287 285,231 5.6 3.5 12.0 8.2 742, 2 0 6 2015 670,931 258,379 179,47 7 233,075 5.2 3.2 13.5 6.8 2016 664,038 2 5 7, 8 7 2 169,521 236,645 4.9 3.0 12.2 6.5 11.9 7. 3 2017 792,223 313,496 181,411 2 9 7, 3 1 6 5.0 3.0 * The liquidity ratio is the ratio of liquid assets divided by total net assets at year-end. Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 2018 INVESTMENT COMPANY FACT BOOK 222

237 7. 6 3.7 3.2 3.5% 5.2 5.7 6.3 6.7 6.2 6.5 6.6 6.0 6.5 8.2 4.6 4.9 4.5 4.2 National muni 3.6 3.4 3.1 3.1% 4.4 2.7 2.6 2.0 2.1 2.8 2.0 2.2 2.9 2.5 2.6 2.3 1.7 1.8 State muni 7. 0 7. 1 9.4 0.6 3.6 5.2 5.2 6.4 6.9 6.6 6.7 8.0 8.3 8.7 4.5 2.6 2.7 -2.2% Multisector DATA SECTION 3 0.9 0.5 3.8 3.2 3.8 4.4 4.0 2.8 2.5 1.3 1.0 1.2 1.7 -2.5 -2.8% -0.8 -0.5 -4.1 Bond funds Government 3.3 6.1 6.1 -2.5 -2.2% -3.7 1 7. 2 1 7. 5 1 7. 0 19.3 16.5 15.4 15.1 15.0 13.7 13.0 13.5 12.5 World 7. 2 7. 9 7. 7 9.1% 5.0 5.6 5.4 5.6 5.8 5.8 5.2 6.1 6.1 4.6 4.3 4.4 4.9 10.7 High yield 7. 4 7. 2 7. 5 9.8 9.5 0.3 3.3 5.4 6.8 6.9 6.0 6.8 6.4 8.8 4.7 4.5% 2.1 1.1 grade Investment 7. 2 7. 4 7. 9 7. 4 % 7. 5 7. 6 9.7 9.4 6.9 6.6 6.9 6.8 8.0 13.5 11.9 11.7 12.0 12.2 Hybrid funds 3.0 3.6 3.7 3.7 4.2 4.1 4.8 4.9 % 4.2 4.1 2.2 2.4 2.9 2.9 2.6 2.8 2.9 2.8 Total return 7. 9 7. 7 % 3.9 5.2 5.2 5.8 5.5 5.7 6.2 4.0 4.1 4.3 4.4 4.5 4.0 4.5 4.9 4.3 World Equity funds 3.8 3.1 3.3 3.5 3.6 3.8 3.3 3.6 3.3 3.4 3.6 3.7 6.1 6.1% 4.5 4.3 4.9 4.9 Capital appreciation 2017 2016 2011 2013 2010 2015 2012 2014 2009 2008 2007 2004 2005 2006 2001 2002 2000 2003 TABLE 16 Ye a r Percent, year-end Long-Term Mutual Funds: Liquidity Ratios by Composite Investment Objective Note: The liquidity ratio is the ratio of liquid assets divided by total net assets at year-end. Data for funds that invest primarily in other mutual funds were excluded from the series. US LONG-TERM MUTUAL FUNDS 223

238 TABLE 17 Long-Term Mutual Funds: Net New Cash Flow Millions of dollars, annual Ye a r Equity funds Hybrid funds Bond funds To t a l $19,194 $4,336 1984 $13,058 $1,801 1985 73,490 6,643 3,720 63,127 1986 1 2 9,9 91 20,386 6,988 102,618 1987 19, 2 31 3,74 8 6,797 2 9,7 76 1988 -2 3,119 -1 4 ,9 4 8 -3,68 4 -4,488 1989 8,731 6,7 74 3,183 -1 , 2 2 6 1990 21,211 1 2,915 1,463 6,833 1991 7, 0 6 7 106,213 39,888 59, 2 5 8 1992 171,696 21,725 70,989 78,983 242,049 42,619 72,169 1993 1 2 7, 2 6 0 75,160 114,525 1994 -61,362 21,998 1995 122,208 124,392 3,738 -5,922 1996 2 31,874 216,937 11,795 3,141 1997 2 2 7, 1 0 6 15,757 2 9,16 6 272,030 1998 241,796 156,875 10,265 74,6 5 6 1999 169,780 187,565 -1 3 , 0 1 8 -4,767 -36,722 2000 -50,115 315,705 228,868 33,483 88,463 7, 2 8 5 2001 129,232 DATA SECTION 3 2002 8,043 141,865 -2 9, 310 120,598 215,906 144,077 39,079 32,750 2003 20 9,8 98 171,945 53,055 -1 5 , 1 0 2 2004 123,938 191,987 25,294 42,754 2005 2006 1 4 7, 8 0 4 19,857 59,4 4 8 2 2 7, 1 0 9 2007 224,300 73,307 40,384 110,609 2008 -211,243 -21 5,757 -25,525 30,039 371,123 2009 392,928 2,013 19,792 2010 232,351 35,612 243,578 -24,3 85 2011 -129,363 39,7 71 1 1 7, 7 3 4 28,142 2012 19 9,761 -1 5 2 , 67 8 46,183 306,256 2013 162,406 159,481 73,696 -70,7 7 1 9 7, 9 6 4 2014 25,458 28,905 43,600 2015 -121,715 -75,620 -20,825 -25,270 2016 -196,961 -25 8,030 -45,828 106,897 -33,682 260,162 2017 66,839 -1 5 9, 6 4 0 Note: Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 2018 INVESTMENT COMPANY FACT BOOK 224

239 TABLE 18 Equity Mutual Funds: Net New Cash Flow and Components of Net New Cash Flow Millions of dollars, annual Sales Redemptions Net new New + Regular + 3 1 4 5 2 New Ye a r cash flow exchange Exchange Exchange exchange Regular $4,336 $28,705 $16,586 $12,119 $24,369 $10,669 $13,700 1984 6,643 40,608 25,046 15,562 33,965 1 7, 5 5 8 16,406 1985 20,386 5 0,7 74 3 7, 2 2 4 67,612 26,051 41,561 1986 8 7, 9 9 7 19, 2 31 1 39,59 6 65,093 74, 5 02 120,365 38,601 81,76 4 1987 1988 -1 4 ,9 4 8 25,641 43,186 8 3,7 74 33,247 50,528 68,827 1989 89,345 46,817 42,527 82,571 37,229 45,342 6,7 74 1990 1 2,915 104,334 62,872 41,462 91,419 44,487 4 6,931 1991 146,618 90,192 56,427 106,730 53,394 53,336 39,888 61,272 78,983 201,720 134,309 6 7, 4 1 1 122,738 61,465 1992 DATA SECTION 3 1993 1 2 7, 2 6 0 213,639 93,717 180,095 91,94 4 88,151 3 0 7, 3 5 6 114,525 252,134 252,887 113,772 1994 141,097 111,037 366,659 1995 433,853 282,937 150,915 3 0 9,4 61 170,402 1 39,059 124,392 1996 216,937 674, 32 3 442,372 231,951 4 5 7, 3 8 5 240,531 216,854 1997 880,286 579,0 6 4 301,222 653,180 362,022 291,158 2 2 7, 1 0 6 1998 156,875 1,065,197 69 9,55 4 365,643 908,322 534,256 374,0 6 5 1999 187,565 1,410,846 918,600 492,245 1,223,281 74 4,145 479,1 3 6 1,320,008 624,34 4 2000 315,705 1,972,167 1,032,119 652,159 1,656,463 2001 33,483 953,604 376,207 1,296,328 8 91,74 4 404,584 1,329,811 -2 9, 310 1,214,116 320,098 1,243,426 875,635 3 6 7, 7 9 1 2002 894,018 1,074,161 707,530 236,679 930,084 144,077 222,554 2003 837,483 171,945 926,931 169,578 924,565 758,864 165,701 2004 1,096,510 123,938 1,192,549 1 , 0 1 7, 1 2 2 175,427 1,068,611 878,083 190,527 2005 2006 1 4 7, 8 0 4 1,214,383 202,657 1,269,236 1,047,314 221,922 1 , 4 1 7, 0 4 0 73,307 1,506,648 222,655 1,655,996 1,389,092 266,903 2007 1,729,303 -21 5,757 1,526,643 1,331,631 195,013 2008 1,467,414 274,9 8 6 1,742,4 0 0 2009 2,013 1,194,100 1,032,262 161,838 1,192,088 1,011,740 180,348 2010 -24,3 85 1,4 05,943 1,236,196 169,747 1,430,327 1,238,430 191,897 2011 -129,363 1,322,392 170,117 1,621,872 1,417,496 204,376 1,492,509 -1 5 2 , 67 8 1,260,225 18 9,43 0 1,602,333 1,382,129 220,203 2012 1,4 49,655 159,481 1,864,206 1,641,084 223,122 2013 1,496,823 2 0 7, 9 0 2 1,704,725 2014 25,458 2,009,016 1,797,760 211,256 1,983,558 1,773,309 210,249 2015 -75,620 2,012,607 1,795,601 2 1 7, 0 0 7 2,088,227 1,876,117 212,110 2016 1,942,392 1,722,854 219,53 8 2,200,422 1,955,1 25 245,297 -25 8,030 2017 -1 5 9, 6 4 0 2,238,000 1,945,016 292,983 2,397,640 2,080,348 317,292 1 Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. 2 New sales are the dollar value of new purchases of mutual fund shares. This does not include shares purchased through reinvestment of dividends in existing accounts. 3 Exchange sales are the dollar value of mutual fund shares switched into funds within the same fund group. 4 Regular redemptions are the dollar value of shareholder liquidation of mutual fund shares. 5 Exchange redemptions are the dollar value of mutual fund shares switched out of funds and into other funds within the same fund group. Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 225 US LONG-TERM MUTUAL FUNDS

240 TABLE 19 Hybrid Mutual Funds: Net New Cash Flow and Components of Net New Cash Flow Millions of dollars, annual Sales Redemptions Net new New + Regular + 3 1 4 5 2 New Ye a r cash flow exchange Exchange Exchange exchange Regular $1,801 $4,118 $3,842 $276 $2,318 $2,017 $301 1984 3,720 7, 5 0 2 6,976 526 3,782 3,161 621 1985 6,988 1986 1,194 6,548 5,162 1,386 13,535 12,342 3,74 8 12,419 2,528 11,200 7, 8 4 8 3,353 1987 14,94 8 -3,68 4 6,259 4,601 1,658 9,9 43 7, 5 2 1 2,422 1988 3,183 11,139 9, 33 4 1,805 7, 9 5 6 5,780 2,176 1989 1,463 1,682 9,671 7, 9 8 9 1990 8,208 5,600 2,608 1991 7, 0 6 7 13,754 3,106 9,793 7, 0 1 1 2,782 16,860 21,725 26,463 6,309 11,047 7, 2 0 9 3,838 1992 32,772 42,619 60,610 49,526 11,083 1993 11,735 6,256 1 7, 9 9 0 1994 21,998 58,541 49,0 43 9,498 36,544 25,298 11,245 1995 3,738 43,024 35,385 7, 6 4 0 39, 28 6 2 7, 8 0 7 11,479 1996 56,783 4 7, 4 3 6 9, 3 47 4 4,988 31,413 13,575 11,795 1997 15,757 68,347 55,264 13,084 52,590 38,265 14,325 1998 10,265 82,691 67,294 15,397 72,426 53,353 19,07 3 25,145 1999 -1 3 , 0 1 8 81,917 67,617 14,300 94,93 4 69,79 0 DATA SECTION 3 70,445 2 9,9 4 8 7 7, 2 1 9 2000 -36,722 107,167 56,973 13,473 2001 7, 2 8 5 1 7, 9 1 2 76,260 58,850 1 7, 4 1 0 83,546 65,634 8,043 75,664 18,021 85,642 6 7, 4 0 7 18,234 2002 93,685 39,079 115,929 96,811 19,117 76,849 63,329 13,520 2003 53,055 143,463 125,438 18,025 90,407 7 7, 5 2 0 12,887 2004 2005 42,754 14 4,267 126,616 1 7, 6 5 1 101,513 86,199 15,314 2006 146,088 1 2 7, 5 3 2 18,555 126,231 106,066 20,165 19,857 2007 40,384 206,415 183,482 22,933 166,031 144,066 21,965 2008 -25,525 181,437 155,076 26,361 206,962 165,396 41,566 2 7, 2 4 6 2009 19,792 174,217 150,048 24,169 154,425 1 2 7, 1 7 9 35,612 205,830 2010 23,672 146,546 181,871 23,959 170,218 2011 39,7 71 234,480 2 9,5 8 9 224,298 191,199 33,099 264,068 2012 266,463 2 39,810 26,653 220,280 195,767 24,513 46,183 2013 73,696 3 3 7, 6 9 9 300,924 36,775 264,003 233,080 30,923 2014 28,905 320,933 28 9,45 6 31,476 292,027 264,871 2 7, 1 5 6 2015 -20,825 34,696 296,654 265,534 31,120 3 1 7, 4 7 9 282,783 2016 296,686 258,098 38,587 342,514 302,172 40,341 -45,828 2017 -33,682 285,323 244,443 40,880 319,0 05 277,815 41,190 1 Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. 2 New sales are the dollar value of new purchases of mutual fund shares. This does not include shares purchased through reinvestment of dividends in existing accounts. 3 Exchange sales are the dollar value of mutual fund shares switched into funds within the same fund group. 4 Regular redemptions are the dollar value of shareholder liquidation of mutual fund shares. 5 Exchange redemptions are the dollar value of mutual fund shares switched out of funds and into other funds within the same fund group. Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 2018 INVESTMENT COMPANY FACT BOOK 226

241 TABLE 20 Bond Mutual Funds: Net New Cash Flow and Components of Net New Cash Flow Millions of dollars, annual Sales Redemptions Net new Regular + New + 5 2 3 1 4 Ye a r Exchange Regular exchange Exchange New cash flow exchange $13,058 $25,554 $ 2 0,7 74 $4,780 $12,497 $ 7, 3 4 4 $5,152 1984 63,127 83,359 74,4 8 5 8,874 20,232 13,094 7, 1 3 7 1985 102,618 138,240 20,634 56,256 35,776 20,480 1986 158,874 6,797 123,528 93,725 2 9,8 03 116,731 69,627 4 7, 1 0 4 1987 1988 -4,488 4 7, 3 7 8 24,796 76,662 51,558 25,103 7 2,174 1989 71,770 48,602 23,168 72,996 48,517 24,480 -1 , 2 2 6 1990 6,833 80,659 5 7, 1 0 6 23,552 73,826 4 7, 9 7 8 25,848 1991 141,674 108,095 33,580 82,416 56,177 26,239 59, 2 5 8 50,246 70,989 2 1 7, 8 6 3 171,991 45,872 14 6,874 96,628 1992 DATA SECTION 3 1993 72,169 208,605 53,696 190,131 127,294 62,838 262,300 -61,362 248,270 131,351 55,556 1994 162,823 85,448 186,908 1995 166,437 110,451 55,986 172,359 114,686 5 7, 6 7 3 -5,922 1996 3,141 203,343 137,886 65,457 200,201 125,486 74,7 1 5 1997 242,309 176,275 66,034 213,143 14 0,906 72,237 2 9,16 6 1998 74,6 5 6 314,429 230,93 4 83,495 2 39,7 7 3 160,071 79,702 1999 -4,767 2 9 9,198 2 1 7, 4 3 1 81,767 303,965 2 0 7, 2 5 4 96,711 80,165 250,918 2000 -50,115 220,868 187,188 63,730 301,033 2001 88,463 301,477 92,733 3 0 5,74 8 226,197 79,551 394,211 141,865 515,028 113,009 373,163 285,070 88,093 2002 402,020 520,683 376,840 92,130 4 8 7, 9 3 4 32,750 111,094 2003 428,553 -1 5 , 1 0 2 340,549 5 4,902 410,554 341,466 69,0 8 8 2004 395,451 25,294 402,734 351,116 51,617 3 7 7, 4 4 0 321,640 55,799 2005 2006 59,4 4 8 391,126 55,251 386,929 32 9,4 62 5 7, 4 6 7 446,377 110,609 506,96 4 85,796 482,151 410,366 71,785 2007 592,760 30,039 70 9,5 41 580,855 128,686 2008 582,615 96,888 679,5 03 2009 371,123 1,006,552 856,710 149,8 41 635,428 525,205 110,224 2010 232,351 1,089,708 964,467 125,241 857,357 742,6 2 9 114,728 2011 1 1 7, 7 3 4 976,235 1 2 7, 5 9 9 986,099 870,191 115,908 1,103,833 306,256 1,121,300 125,526 940,570 838,280 102,289 2012 1,246,826 -70,7 7 1 1,308,455 1,1 59, 285 149,170 2013 1,190,855 188,371 1, 379, 2 2 5 2014 43,600 1,278,590 1,174,510 104,080 1,23 4,990 1,138,147 96,843 2015 -25,270 1,197,117 1,090,671 106,446 1,222,387 1,119,9 93 102,395 2016 1,316,219 1,188,357 1 2 7, 8 6 2 1,209,322 1,102,532 106,790 106,897 2017 260,162 1,416,653 1,268,447 148,206 1,156,492 1,032,629 123,863 1 Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. 2 New sales are the dollar value of new purchases of mutual fund shares. This does not include shares purchased through reinvestment of dividends in existing accounts. 3 Exchange sales are the dollar value of mutual fund shares switched into funds within the same fund group. 4 Regular redemptions are the dollar value of shareholder liquidation of mutual fund shares. 5 Exchange redemptions are the dollar value of mutual fund shares switched out of funds and into other funds within the same fund group. Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 227 US LONG-TERM MUTUAL FUNDS

242 7,621 5,983 1,471 3,480 -7, 4 1 0 -1 ,7 2 6 10,119 2 9,051 41,633 14,109 14,499 28,332 11,549 20,548 64,295 11,229 -$9,010 -3 6,074 National muni 682 3,876 5,337 2,454 8,539 6,293 3,358 6,084 1,232 -7, 9 3 9 -2,010 -1 , 0 6 4 -2,302 -2,83 8 -9,8 9 0 -8,309 -2 2,420 -$5,456 State muni 4,475 5,171 3,160 8,736 9,6 4 6 8,552 2,436 5,539 -6,628 16,427 24,801 63,718 14,210 21,559 20,266 11,203 40,285 -$4,439 Multisector 5,752 4,059 2,061 3,393 -2,242 3 3,74 3 24,769 18,950 12,431 20,600 11,328 53,048 -1 7, 8 3 4 -1 4 , 2 1 1 -2 2,1 24 -26,259 -51,214 Bond funds -$16,663 Government -7 1 4,310 4,029 6,087 6,404 -1 , 1 5 1 DATA SECTION 3 4 7, 2 4 0 70,076 World 10,936 42,969 24,402 21,132 32,554 66,239 44,468 -39,53 8 -$4,631 -2 3,5 6 8 880 2,953 6,811 3,044 -3,045 -4,822 -6,360 19, 3 45 21,945 56,034 21,654 34,287 22,384 -1 7, 4 8 4 -3 6,741 -1 3 , 5 2 9 -44,125 -$15,376 High yield -7 3 6 9, 317 8,522 grade 3 6,749 75,916 49, 2 53 30,199 36,993 83,735 51,100 64,575 22,080 $5,460 - 9 7, 5 4 7 110,784 202,055 104,800 138,304 Investment 7, 2 8 5 8,043 19,792 39,079 19,857 39,7 71 42,754 53,055 28,905 35,612 73,696 46,183 40,384 -20,825 -33,682 -25,525 -45,828 -$36,722 Hybrid funds 2 7, 5 2 9 79,4 69 23,692 92,591 42,379 21,085 -1 8 , 6 9 6 -89,102 -96,757 -25,369 -20,3 4 8 -$4,580 -54,340 111,859 -1 0 1 , 0 8 7 -1 3 3 , 1 4 0 -115,662 -1 2 0 , 2 1 8 Total return 4,124 6,563 -4,451 2 9,624 56,679 24,361 76,686 85,387 71,583 94,296 -2 2,89 9 -2 3,20 6 World -66,686 141,788 106,918 150,935 141,377 $58,195 Equity funds -7, 2 6 3 -2,981 2 7, 1 2 6 - 4 7, 9 8 4 -1 1 , 4 9 7 -26,724 -39,02 2 -25,359 -26,823 -22,779 -52,387 -41,233 -43,112 -54,254 -44,385 Capital -1 0 3 , 1 8 7 -1 3 8 , 3 74 $262,090 appreciation 2013 2016 2005 2006 2011 2014 2012 2004 2003 2010 2002 2009 2001 2017 TABLE 21 2008 2000 2015 2007 Ye a r Millions of dollars, annual Long-Term Mutual Funds: Net New Cash Flow by Composite Investment Objective Note: Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. Data for funds that invest primarily in other mutual funds were excluded from the series. 228 2018 INVESTMENT COMPANY FACT BOOK

243 69,98 3 43,168 4 6,985 90,501 32,282 38,331 54,582 44,688 34,548 117,425 $24,180 113,737 10 9, 2 5 0 111,661 148,095 128,058 154,531 113,264 National muni 19,797 21,959 30,91 2 24,301 25,028 2 9,59 0 16,820 22,423 23,833 28,530 30,562 28,886 26,360 28,386 25,566 20,546 34,344 $16,989 State muni 1 7, 9 2 3 5 7, 8 7 5 3 7, 5 2 7 2 9,478 $6,787 20,628 14,537 38,826 12,245 76,840 20,084 71,230 176,854 106,453 116,834 126,835 128,570 132,484 Multisector DATA SECTION 3 93,874 74,6 3 6 74, 5 07 71,167 90,702 2 9,69 0 58,987 80,030 90,988 32,063 79,4 6 4 34,593 72,240 64,527 38,512 70,546 109,826 Bond funds $24,359 Government 8,94 8 10,920 69, 216 2 9,02 5 23,786 18,94 6 $8,267 18,132 53,469 45,546 World 193,007 132,763 160,039 1 2 9,6 02 194,845 114,885 138,829 154,000 4 7, 4 2 5 45,724 42,175 70,370 39,6 65 55,721 96,171 65,577 36,277 48,346 1 4 7, 8 9 4 $ 2 7, 4 0 5 173,017 1 24,920 1 2 9,052 125,797 124,216 130,664 High yield grade 1 2 7, 7 1 1 172,174 277,361 1 8 7, 5 4 5 489,072 4 4 8,976 173,496 426,898 248,106 $79, 20 0 492,808 554,140 450,221 184,658 466,425 530,460 166,268 466,850 Investment 96,811 65,634 75,664 1 2 7, 5 3 2 155,076 300,924 2 39,810 126,616 28 9,45 6 $56,973 181,871 265,534 183,482 258,098 125,438 244,443 150,048 234,480 Hybrid funds 7 8 7, 6 7 9 557,457 474,10 9 474, 5 3 3 5 4 7, 2 2 0 616,737 561,719 913,178 658,926 398,810 51 3,960 829,577 381,649 395,391 838,058 583,581 734,288 $403,176 Total return World 479,18 0 379,531 584,767 374,6 0 4 245,152 2 39,620 362,982 511,267 398,432 614,258 500,317 354,878 251,663 543,065 184,371 284,643 205,236 Equity funds $342,511 4 1 7, 5 8 1 335,524 425,118 268,027 423,155 250,597 273,511 250,056 3 0 9,4 45 263,542 384,479 395,529 368,541 340,379 302,048 306,550 Capital 340,290 $574,322 appreciation 2001 2005 Note: New sales are the dollar value of new purchases of mutual fund shares. This does not include shares purchased through reinvestment of dividends in existing accounts. Data for funds that invest 2003 2009 2014 2002 2010 2015 2007 2011 2004 2017 2006 2012 2000 2008 2016 2013 Ye a r Millions of dollars, annual Long-Term Mutual Funds: New Sales by Composite Investment Objective TABLE 22 primarily in other mutual funds were excluded from the series. 229 US LONG-TERM MUTUAL FUNDS

244 6,435 6,135 6,869 1 7, 7 6 7 2 0,874 19,42 2 16,171 20,037 15,107 10,218 10,680 13,602 22,131 1 3,94 4 14,222 13,686 15,280 $10,870 National muni 7, 0 3 9 5,161 5,706 2,983 2,750 3,736 4,106 5,625 3,852 3,450 4,900 3,685 3,600 3,899 4,122 4,288 5,348 $5,304 State muni 7, 0 2 4 4,742 9,71 2 9,7 3 8 9, 391 5,035 8,6 41 4,314 3,460 2,860 4,664 10,791 10,756 14,063 1 2,957 10,305 $1,662 10,048 Multisector 7, 0 2 3 7, 2 3 1 9,1 51 5,972 6,575 2 7, 4 9 5 3 7, 2 8 0 14,91 2 10,613 24,779 14,512 10,226 14,323 18,355 18,336 13,320 11,255 Bond funds $15,829 Government 7, 9 7 6 2,74 0 9,8 07 9,4 82 2,780 2,057 3,528 2,056 4,630 2,373 8,506 World 10,140 26,824 10,801 1 3,955 $3,011 18,661 15,466 DATA SECTION 3 7, 4 1 4 7, 9 3 1 7, 2 7 0 7,295 8,94 4 1 7, 1 1 0 13,419 19,000 14,180 13,071 14,820 12,179 14,502 13,182 11,378 14,309 11,201 $10,298 High yield 50,417 grade 59, 218 76,507 52,783 41,326 32,627 33,966 52,690 20,833 23,681 21,900 39,4 6 8 41,588 54,575 46,085 58,253 66,504 $16,756 Investment 1 7, 9 1 2 1 7, 6 5 1 19,117 31,476 24,169 23,959 22,933 18,021 26,653 36,775 18,025 26,361 2 9,5 8 9 18,555 31,120 38,587 40,880 $13,473 Hybrid funds 92,973 96,951 86,998 69,4 6 4 81,392 81,686 81,24 4 96,843 71,888 84,373 101,717 10 4,74 0 110,827 116,359 14 4,783 114,363 100,330 $1 39,1 53 Total return 47,478 47,473 2 7, 6 3 0 49,0 01 55,916 55,766 56,926 85,824 41,777 68,791 83,047 49,364 44,075 71,084 40,006 World 48,136 38,396 Equity funds $169, 3 8 8 57,575 41,943 55,786 54,178 58,651 45,113 65,153 61,403 60,892 68,219 48,425 94,572 64,339 64,289 44,896 Capital 176,020 14 4, 274 $343,618 appreciation TABLE 23 2000 2001 Long-Term Mutual Funds: Exchange Sales by Composite Investment Objective Ye a r Millions of dollars, annual 2002 2011 2003 2010 2005 2009 2013 2017 2008 2012 2016 2007 2015 2006 2014 2004 Note: Exchange sales are the dollar value of mutual fund shares switched into funds within the same fund group. Data for funds that invest primarily in other mutual funds were excluded from the series. 230 2018 INVESTMENT COMPANY FACT BOOK

245 2 7, 4 0 1 8 9,798 63,070 39,62 5 4 6,949 56,421 92,168 41,4 43 33,434 92,128 93,398 36,205 34,488 1 39,02 2 102,699 121,955 $31,908 1 3 4,988 National muni 2 9,101 23,917 22,762 31,051 28,412 21,692 20,457 25,700 23,870 22,817 30,533 20,889 22,815 25,838 40,542 32,200 18,584 $21,877 State muni 19,03 6 69,1 57 14,628 10,367 70,307 55,216 14,856 11,082 28,060 44,521 35,644 15,546 1 1 5,745 $10,431 119,4 49 110,856 101,509 114,212 Multisector DATA SECTION 3 3 7, 9 3 9 59,781 69,920 43,975 7 7, 3 9 4 79,437 53,918 43,91 3 74, 2 3 9 69,57 2 74,4 6 4 58,824 6 8,938 63,799 81,462 38,850 117,158 Bond funds $35,865 Government 9,53 8 World 26,374 13,819 49,4 8 8 18,602 62,812 40,269 92,006 15,501 95,480 18,358 11,383 119,059 170,248 141,365 181,379 $11,447 155,357 5 7, 1 6 3 47,355 49,051 79,9 07 51,012 52,217 42,462 92,202 36,207 51,338 34,381 1 5 7, 1 1 7 $ 3 7, 5 6 0 142,278 186,795 108,351 121,790 126,400 High yield 8 7, 9 8 6 grade 147,491 3 4 7, 9 5 5 1 8 7, 1 3 1 142,701 407,090 459,0 63 $71,781 393,758 428,595 248,851 52 9,4 6 8 118,157 136,661 490,363 466,541 282,544 152,548 Investment 6 7, 4 0 7 7 7, 5 2 0 86,199 63,329 58,850 195,767 1 2 7, 1 7 9 $ 7 7, 2 1 9 277,815 191,199 282,783 302,172 264,871 233,080 165,396 106,066 144,066 146,546 Hybrid funds 6 5 7, 4 2 7 6 4 7, 2 3 1 300,910 455,983 510,265 678,271 8 49, 2 51 591,359 355,287 366,980 483,124 721,341 320,298 933,288 660,153 894,585 $375,927 1,023,983 Total return World Equity funds 3 1 7, 4 9 6 347,697 1 8 3,74 3 459, 219 243,479 374, 2 8 5 26 4,414 383,010 512,824 413,224 148,065 501,098 223,271 254,623 354,582 548,269 122,228 $288,253 Capital 3 0 7, 0 3 1 377,058 367,394 274,03 6 375,920 269,65 6 32 9,575 276,869 273,993 5 0 9,01 3 313,778 401,196 394,164 508,096 480,434 222,877 464,838 $ 3 6 7, 9 3 9 appreciation 2016 2013 2012 2007 2011 2014 2005 2006 2004 2010 2003 2015 2017 2009 2002 2001 TABLE 24 2000 Long-Term Mutual Funds: Regular Redemptions by Composite Investment Objective Ye a r Millions of dollars, annual 2008 Note: Regular redemptions are the dollar value of shareholder liquidation of mutual fund shares. Data for funds that invest primarily in other mutual funds were excluded from the series. US LONG-TERM MUTUAL FUNDS 231

246 6,798 6,420 8,467 1 7, 2 3 0 19,8 69 10,692 16,632 11,787 14,043 12,797 11,992 14,562 11,150 11,313 30,844 12,583 12,584 $12,153 National muni 7, 7 0 3 7, 4 4 3 3,170 4,702 4,945 6,119 5,011 5,758 4,692 3,243 5,499 3,449 6,099 3,253 3,648 4,484 10,611 $5,872 State muni 7, 1 8 6 9,703 9,6 82 6,071 8,817 6,425 4,653 6,155 4,450 2,301 6,263 4,354 8,225 2,440 10,379 $2,457 11,420 11,454 Multisector 7, 8 1 2 9,521 8,936 8,811 8,210 9,366 8,225 15,678 24,188 20,168 1 2,969 13,597 13,601 21,058 11,642 21,882 32,209 $20,986 Bond funds Government 7, 5 9 4 2,670 9,6 81 6,195 1,981 2,945 2,618 2,059 6,401 4,371 2,227 1,804 World DATA SECTION 3 10,144 14,532 10,335 12,402 $4,463 12,228 7, 5 1 3 9,9 9 0 9,830 1 7, 4 0 2 14,193 10,757 11,762 10,187 11,147 19,0 4 6 11,706 13,867 15,183 11,311 13,387 12,393 11,284 $15,519 High yield 8 7, 1 9 3 19,597 2 2,074 5 3,74 4 49,7 3 4 grade 38,76 4 26,647 42,371 52,499 25,168 39, 21 2 50,005 36,712 45,090 23,098 30,232 40,445 $18,715 Investment 1 7, 4 1 0 2 7, 2 4 6 2 7, 1 5 6 41,190 30,923 20,165 23,672 21,965 24,513 15,314 40,341 33,099 34,696 41,566 13,520 12,887 18,234 $2 9,9 4 8 Hybrid funds 80,797 96,942 80,067 88,478 82,090 96,843 1 6 7, 1 1 8 1 1 7, 8 8 6 109,988 105,708 130,037 100,738 118,628 102,689 104,893 126,551 120,734 $170,982 Total return 4 7, 8 74 3 7, 5 9 7 7 7, 4 3 0 7 7, 2 0 8 49, 311 38,910 59, 393 18,190 39,6 8 0 23,033 61,271 45,138 51,303 46,595 96,279 72,349 58,486 World Equity funds $165,451 6 7, 4 4 3 7 7, 8 2 5 62,916 79,432 70,651 68,019 51,677 95,166 65,533 71,005 52,265 78,381 61,264 56,130 48,536 Capital 198,317 169,8 4 8 $ 2 8 7, 9 1 0 appreciation 2009 2016 Note: Exchange redemptions are the dollar value of mutual fund shares switched out of funds and into other funds within the same fund group. Data for funds that invest primarily in other mutual funds were 2008 excluded from the series. 2007 2006 2005 2015 2003 2012 2002 2014 2017 2001 2011 2000 2013 2010 Ye a r Millions of dollars, annual Long-Term Mutual Funds: Exchange Redemptions by Composite Investment Objective TABLE 25 2004 2018 INVESTMENT COMPANY FACT BOOK 232

247 TABLE 26 Long-Term Mutual Funds: Annual Redemption Rates Percent 2 1 Narrow redemption rates Broad redemption rates Equity Hybrid Bond Bond Hybrid Equity Ye a r funds funds funds funds funds funds To t a l To t a l 1 7. 4 % 22.0% 15.5% 29.8% 35.6% 26.3% 24.0% 1985 18.4% 19.8 19.6 23.8 19.6 38.6 50.9 30.2 30.7 1986 26.5 28.5 28.3 56.7 73.0 4 0.7 4 7. 5 1987 23.4 20.0 18.2 2 7. 1 20.5 36.9 45.9 35.8 30.4 1988 1989 1 7. 9 18.7 18.4 31.9 38.0 25.7 2 7. 7 1 7. 1 1990 18.4 15.6 1 7. 0 31.0 3 7. 7 2 2.9 26.2 1 7. 5 1991 16.4 16.6 1 5.9 16.4 28.1 33.1 22.2 24.1 1992 13.4 11.1 21.5 28.8 26.7 1 7. 0 32.7 1 7. 0 33.8 1 7. 8 14.7 10.7 22.6 29.9 28.7 16.4 1993 DATA SECTION 3 1994 21.6 16.7 28.3 35.2 31.6 24.1 43.1 1 7. 7 1 7. 4 28.9 15.1 20.3 1995 29.4 21.3 30.4 16.2 1996 16.2 13.8 20.0 30.0 30.7 19.8 32.0 1 7. 0 1997 1 7. 9 1 7. 7 13.7 20.4 30.5 31.9 18.8 30.9 1998 20.0 1 5.9 20.5 32.2 34.0 21.6 30.6 19.7 36.8 21.7 21.2 19.0 25.1 34.5 3 4.9 25.8 1999 36.7 25.9 2000 25.7 29.1 21.0 26.9 39.9 41.5 2001 24.0 16.4 25.7 34.2 35.4 21.2 3 4.7 24.3 2 7. 9 19.4 2 7. 4 38.7 41.2 24.7 35.9 2002 29.0 24.2 22.5 16.2 31.4 2003 29.5 19.6 40.6 31.5 2004 20.4 19.0 15.5 26.7 24.7 23.1 18.1 32.1 2005 19.7 19.0 14.7 24.2 23.7 23.2 1 7. 3 28.4 2006 19.5 15.7 23.1 23.9 23.7 18.7 2 7. 1 19.9 2007 2 2.9 22.7 18.6 25.8 2 7. 2 2 7. 0 21.4 30.4 2008 30.1 29.2 23.9 35.8 35.8 34.6 29.9 41.8 28.0 2009 24.5 23.7 19.9 2 7. 8 29.2 24.1 33.6 2010 25.3 18.8 31.0 29.2 2 7. 3 21.8 35.7 23.7 2 7. 6 22.2 32.0 31.5 30.0 26.0 36.3 2011 26.2 25.0 24.8 20.4 26.9 2012 28.7 23.0 30.2 28.6 2013 25.7 21.8 20.1 35.7 29.5 24.9 22.8 41.3 2014 24.9 22.1 19.9 33.7 2 7. 6 24.7 22.0 36.6 2015 22.8 20.9 32.6 2 7. 9 25.4 23.4 35.6 25.2 2016 25.3 23.4 22.2 31.2 28.3 26.3 25.2 34.2 25.4 2017 22.0 19.1 26.8 26.2 23.0 21.9 30.0 1 The narrow redemption rate is calculated by taking the sum of regular redemptions for the year as a percentage of average net assets at the beginning and end of the period. 2 The broad redemption rate is calculated by taking the sum of regular redemptions and exchange redemptions for the year as a percentage of average net assets at the beginning and end of the period. Note: Data for funds that invest primarily in other mutual funds were excluded from the series. 233 US LONG-TERM MUTUAL FUNDS

248 TABLE 27 Long-Term Mutual Funds: Portfolio Holdings: Value and Percentage of Total Net Assets Year-end Long-term Common and preferred US government Corporate Municipal Liquid To t a l n e t Ye a r stocks bonds assets bonds Other assets bonds Millions of dollars $2,058,275 $259,107 $190,837 $245,331 $141,755 $6,026 1995 $1,215,218 1,718,203 26 4,972 238,003 245,183 151,988 5,645 1996 2,623,994 3,4 0 9, 31 5 2,358,258 282,272 292,770 266,324 198,826 10,866 1997 4,173,531 286,592 3 8 9, 21 3 292,395 191,393 9,753 1998 3,004,184 5,233,194 4,059,470 293,552 388,445 267,426 219,0 98 5,203 1999 5,119,0 6 0 269, 33 4 3 0 9,752 3 4 8,926 2000 2 7 7, 1 6 4 4,008 3,909,876 4,689,315 28 9,651 379,735 371,428 2001 222,469 1,767 3,424,265 2002 2 , 6 8 7, 7 1 8 481,476 4 1 7, 3 2 6 320,477 208,938 1,910 4 , 1 1 7, 8 4 4 2003 5,361,827 3,760,765 504,545 501,862 331,980 2 59,63 8 3,038 2004 6,193,796 537,296 533,252 318,354 3 0 7, 1 0 3 8,482 4,489,310 2005 5,054,747 612,803 5 49,97 3 330,945 303,181 12,539 6,864,188 2006 8,059,303 6,024,408 6 4 4,745 668,271 359,163 346,759 15,956 2007 8,91 3,94 6 6,608,704 749,4 32 784,010 3 69,055 381,668 21,078 DATA SECTION 3 2008 5,788,038 705,026 676,686 336,877 314,280 21,530 3,733,637 7, 7 9 5 , 2 7 0 8 49,81 5 1,021,475 451,151 365,560 1 7, 4 1 1 2009 5,0 8 9,857 9,02 9,575 5,869,372 1,084,900 1,258,517 2010 330,155 6,96 4 479,667 2011 8,941,635 5,507,505 1,186,177 1,318,996 506,843 461,852 -39,7 37 2012 10,361,321 6,294,176 1,379,382 1,605,036 592,848 516,076 -26,195 2013 8,222,968 1,208,980 1,730,764 512,640 659,016 -3,196 12,331,172 2014 13,148,758 8,795,567 1,213,148 1,841,337 568,192 742, 2 0 6 -1 1 , 6 9 4 2015 12,897,314 8,623,484 1,252,987 1,794,328 582,722 670,931 - 2 7, 1 3 8 -2 3,187 664,038 1,362,998 2016 13,615,579 9,0 69,103 6 0 7, 8 9 3 1,93 4,733 2017 15,898,985 2,1 1 3, 274 661,765 792,223 1,76 4 10,816,939 1,513,020 Percent 1995 59.0 % 12.6% 9.3% 11.9 % 6.9 % 0.3% 100.0% 100.0 65.5 10.1 9.1 9.3 5.8 0.2 1996 100.0 8.3 8.6 7. 8 5.8 0.3 69.2 1997 0.2 72.0 6.9 9.3 7. 0 4.6 1998 100.0 1999 100.0 7 7. 6 5.6 7. 4 5.1 4.2 0.1 2000 100.0 6.1 6.8 5.3 5.4 0.1 76.4 2001 73.0 8.1 7. 9 6.2 4.7 0.0 100.0 2002 100.0 65.3 11.7 10.1 7. 8 5.1 0.0 2003 100.0 70.1 9.4 9.4 6.2 4.8 0.1 0.1 2004 100.0 72.5 8.7 8.6 5.1 5.0 4.4 0.2 2005 100.0 73.6 8.9 8.0 4.8 2006 100.0 8.0 8.3 4.5 4.3 0.2 74.8 2007 74.1 8.4 8.8 4.1 4.3 0.2 100.0 2008 100.0 64.5 12.2 11.7 5.8 5.4 0.4 2009 65.3 10.9 13.1 5.8 4.7 0.2 100.0 2010 100.0 65.0 12.0 1 3.9 5.3 3.7 0.1 13.3 2011 100.0 61.6 5.2 14.8 5.7 -0.4 2012 100.0 13.3 15.5 5.7 5.0 -0.3 60.7 2013 66.7 9.8 14.0 4.2 5.3 0.0 100.0 2014 100.0 6 6.9 9.2 14.0 4.3 5.6 -0.1 2015 6 6.9 9.7 1 3.9 4.5 5.2 -0.2 100.0 -0.2 100.0 66.6 10.0 14.2 4.5 4.9 2016 0.0 5.0 2017 100.0 68.0 9.5 13.3 4.2 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 2018 INVESTMENT COMPANY FACT BOOK 234

249 TABLE 28 Long-Term Mutual Funds: Portfolio Holdings as a Percentage of Total Net Assets by Type of Fund Year-end Common and Long-term Total net assets preferred To t a l n e t Corporate Municipal Liquid US government bonds assets bonds stocks assets Other bonds Millions of dollars Ye a r Equity funds 2004 95.2% 0.1% 0.4% 0.0% 4.2% 0.1% $4,342,272 100.0% 100.0 95.5 0.1 0.4 0.0 3.9 0.1 4,885,079 2005 2006 100.0 95.6 0.1 0.4 0.0 3.8 0.1 5,832,181 2007 100.0 0.1 0.4 0.0 4.2 0.2 6,412,760 95.2 2008 93.5 0.2 0.5 0.0 5.6 0.3 3,654,798 100.0 2009 100.0 95.8 0.1 0.5 0.0 3.5 0.1 4,871,736 DATA SECTION 3 2010 95.7 0.2 0.5 0.0 3.4 0.1 5,596,202 100.0 100.0 95.6 0.3 0.6 0.0 3.5 0.0 5,212,995 2011 2012 100.0 95.6 0.3 0.6 0.0 3.4 0.0 5,938,757 2013 100.0 0.2 0.6 0.0 3.5 0.0 7, 7 6 2 , 5 5 6 95.6 100.0 0.2 0.6 0.0 3.5 0.1 8,313,989 2014 95.7 100.0 96.1 0.2 0.5 0.0 3.2 0.1 8,149,607 2015 2016 100.0 0.2 0.5 0.0 3.0 0.1 8 , 5 7 7, 2 6 6 96.2 2017 96.3 0.2 0.4 0.0 3.0 0.1 10,305,955 100.0 Hybrid funds 2004 100.0% 11.0% 18.4% 0.4% 6.6% 0.1% $552,250 63.5% 2005 62.6 10.5 19.5 0.4 6.9 0.0 621,479 100.0 2006 100.0 61.2 10.0 19.5 0.3 8.9 0.1 731,503 2007 60.5 10.3 20.8 0.3 8.0 0.1 821,522 100.0 562,262 100.0 55.4 9.8 24.3 0.4 9.6 0.4 2008 0.4 7 1 7, 5 8 0 2009 100.0 58.3 9.8 23.4 0.5 7. 7 2010 100.0 22.3 0.5 7. 3 0.4 842,198 60.7 8.9 59.3 22.1 0.5 7. 9 0.8 883,981 100.0 2011 9.4 59.5 8.8 21.1 0.5 9.4 0.8 1,031,581 2012 100.0 100.0 61.3 18.6 0.4 11.2 0.6 1,282,571 2013 7. 8 100.0 8.2 19.6 0.5 11.7 0.4 1, 374,14 3 2014 59.5 100.0 5 7. 7 8.8 19.6 0.6 13.3 -0.1 1,334,258 2015 100.0 2016 20.7 0.6 11.9 0.0 1,388,659 5 7. 7 9.1 100.0 10.2 19.9 0.6 11.6 0.2 1,525,721 2017 5 7. 5 Bond funds 100.0% 0.8% 36.2% 31.7% 24.2% 6.6% 0.4% $1,299,274 2004 100.0 0.8 39.6 30.0 23.9 5.1 0.6 1 , 3 5 7, 6 3 0 2005 33.5 100.0 0.8 3 7. 4 1,495,619 23.6 4.3 0.5 2006 2007 100.0 38.9 35.0 21.6 3.0 0.6 1,679,664 1.0 100.0 40.8 33.2 21.2 3.6 0.5 1,570,978 2008 0.6 100.0 0.8 34.8 3 7. 4 20.1 6.4 0.4 2,205,95 4 2009 2010 100.0 38.2 40.0 18.1 3.0 -0.1 2,591,175 0.9 2011 0.8 3 7. 8 38.2 1 7. 4 7. 4 -1 .7 2,844,659 100.0 2012 100.0 0.9 3 7. 0 39.5 1 7. 1 6.5 -1 . 0 3,390,98 4 2013 100.0 32.9 43.7 15.2 7. 4 -0.4 3,286,045 1.1 2014 1.1 31.3 43.9 16.1 8.4 -0.7 3,460,626 100.0 2015 100.0 0.9 32.7 43.7 16.7 6.9 - 0.9 3,413,449 2016 100.0 0.7 33.3 43.8 16.3 6.6 -0.8 3,649,654 4,067,310 2017 100.0 0.7 32.8 43.3 1 5.9 7. 4 -0.2 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 235 US LONG-TERM MUTUAL FUNDS

250 TABLE 29 Long-Term Mutual Funds: Paid and Reinvested Dividends by Type of Fund Millions of dollars, annual Reinvested dividends Paid dividends Equity Bond Hybrid Hybrid Bond Equity To t a l Ye a r funds funds funds funds To t a l funds funds e 1984 $7,238 $2,613 $583 $4,042 $4,655 $1,881 $432 $2,342 1985 12,719 3,229 1,098 8,392 7, 7 3 1 2,321 768 4,642 1986 22,689 1,499 14,862 13,991 3,706 1,087 9,197 6,328 1987 7, 2 4 6 1,93 4 22,528 18,976 4,841 1,476 12,659 31,708 1988 31,966 6,554 1,873 23,539 1 7, 4 9 4 4,476 1,217 11,801 1989 34,102 10,235 2,165 21,702 20,584 7, 1 1 9 1,383 12,082 1990 8,787 33,156 2,350 22,018 21,124 6,721 1,717 12,686 1991 35,145 2,337 23,801 24,300 7, 2 5 5 1,898 15,147 9,0 07 58,608 4,483 3 7, 1 0 2 30,393 8,845 2,923 18,625 1992 1 7, 0 2 3 73,178 20,230 6,810 46,137 1993 1 2,174 4,239 21,703 38,116 1994 61,261 1 7, 2 7 9 6,662 3 7, 3 2 0 39,1 3 6 12,971 4,907 21,258 1995 67,229 22,567 8,856 35,806 46,635 18,286 6,792 21,558 1996 25,061 9,5 8 0 38,642 53,213 21,345 8,031 23,837 73,282 1997 79,52 2 2 7, 5 9 7 11,319 40,606 58,423 23,100 9,41 3 25,910 1998 81,011 25,495 11,104 4 4,413 60,041 22,377 9, 328 28,336 10,544 69,97 3 32,096 1999 95,443 32,543 12,4 41 50,458 2 7, 3 3 2 DATA SECTION 3 2000 88,194 50,325 66,259 23,768 9,537 32,95 4 2 7, 0 2 1 10,848 82,96 4 10,361 51,216 62,304 19, 24 8 9, 270 33,786 2001 21,386 82,057 20,465 9,74 0 51,853 62,406 18,552 8,778 35,076 2002 85,924 24,356 9,920 51,648 66,868 22,125 8,840 35,903 2003 2004 98,126 34,702 12,186 51,237 78,247 31,421 10,668 36,158 2005 42,413 16,691 56,397 94,024 38,435 14,579 41,011 115,502 2006 143,497 60,109 19,1 3 4 64,254 119,071 54,207 16,989 4 7, 8 7 5 2007 180,988 7 7, 5 3 8 25,058 78,393 151,756 69, 5 74 22,092 60,090 66,421 2008 182,116 70,594 26,032 85,490 153,097 63,631 23,045 2009 6 7, 8 7 3 19, 3 8 8 168,004 58,862 22,213 86,930 140,346 53,084 2010 23,277 95,517 152,315 56,369 20,671 75,275 62,178 180,971 202,451 68,701 2 9,026 104,724 172,531 62,432 25,630 84,469 2011 215,308 83,226 24,937 1 0 7, 1 4 5 186,540 76,125 22,678 8 7, 7 3 8 2012 100,791 209,509 84,509 24,209 83,793 183,916 7 7, 9 7 8 22,146 2013 2014 101,050 2 9,951 106,065 211,720 93,770 2 7, 7 0 0 90,250 2 3 7, 0 6 7 2015 242,387 108,258 31,360 102,769 218,451 100,841 2 9,14 0 88,469 2016 24 4,401 115,463 30,253 98,684 221,592 1 0 7, 7 1 5 28,309 85,568 30,606 2017 271,213 128,072 32,673 110,468 246,133 119,414 96,113 e Portions of the paid dividend totals for equity, hybrid, and bond funds are estimated; the total is not estimated. Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 2018 INVESTMENT COMPANY FACT BOOK 236

251 TABLE 30 Long-Term Mutual Funds: Paid and Reinvested Capital Gains by Type of Fund Millions of dollars, annual Paid capital gains Reinvested capital gains Equity Hybrid Bond Bond Hybrid Equity funds funds Ye a r funds funds funds funds To t a l To t a l e $5,247 $553 $219 $5,122 $4,655 $338 $129 1984 $6,019 4,895 3,699 739 457 3,751 3,091 398 261 1985 17,661 1,240 2,478 14,275 11,851 778 1,646 1986 1 3,942 22,926 18,603 1,605 2,718 1 7, 8 1 6 15,449 1,056 1,312 1987 1988 6,354 620 948 4,769 3,883 364 522 4,785 1989 12,665 540 1,562 9,710 8,74 4 348 617 14,766 1990 8,017 6,833 443 742 5,515 4,975 255 285 1991 11,961 861 1,095 9, 3 03 8,242 484 577 1 3,917 1,542 22,089 17,294 1,488 3,306 14,906 12,233 1,130 1992 DATA SECTION 3 1993 35,905 3,496 4,704 25,514 19,95 4 2,687 2,872 2 7, 7 0 5 2 9,74 4 24,864 2,399 993 1994 22,038 2,086 74 0 26,351 1995 50,204 3,322 745 46,866 43,550 2,832 484 54,271 1996 100,489 88,212 10,826 1,451 8 7, 4 1 6 76,638 9,769 1,009 1997 16 0,74 4 19,0 8 0 2,941 164,916 145,358 17,360 2,198 182,764 3,935 16 4,989 138,681 21,572 4,737 151,105 1 2 7, 4 7 3 19,698 1998 190,300 979 1999 2 3 7, 6 2 4 219,4 8 4 16,841 1,299 206,508 15,229 2000 325,841 18,645 1,202 298,429 279,8 91 1 7, 5 0 6 1,032 305,994 68,626 6,105 2,433 64,820 56,965 5,790 2,065 2001 60,088 16,097 10,538 907 4,651 2002 9,8 3 8 887 4,024 14,749 2003 14,397 7, 7 8 2 758 5,857 1 2,956 7, 1 8 8 703 5,065 2004 5 4,741 41,581 6,600 6,560 49,8 9 6 38,074 6,167 5,655 2005 1 2 9,05 8 11,895 3,995 1 1 7, 5 6 6 103,208 10,955 3,403 113,167 2006 235,853 18,720 2,342 236,465 2 1 7, 0 1 0 1 7, 5 0 9 1,94 6 256,915 2007 413,6 41 3 7 7, 6 8 2 32,163 3,795 380,921 347,633 30,011 3,277 2008 132,404 110,883 9,78 6 11,735 123,272 103,801 9,0 6 4 10,407 2009 15,300 5,74 0 771 8,789 13,994 5,418 702 7, 8 74 2010 42,950 1,290 25,921 38,961 14,785 1,199 22,977 15,739 73,285 5,503 16,327 6 7, 4 3 8 48,120 5,275 14,043 2011 51,455 100,185 66,771 5,563 2 7, 8 5 1 2012 62,866 5,328 25,157 93,350 2013 2 39,185 201,807 22,834 14,544 2 2 7, 5 7 2 191,963 22,138 13,471 2014 39 9,5 81 3 45,74 4 40,526 13,312 382,164 330,047 39,5 6 4 12,554 2015 331,234 35,248 1 2,937 363,839 316,955 34,580 12,304 379,419 2016 220,403 1 9 7, 8 2 0 14,504 8,079 213,382 191,403 14,277 7,701 322,894 2017 333,628 32,439 3,977 358,548 370,045 31,830 3,824 e Portions of the paid capital gains totals for equity, hybrid, and bond funds are estimated; the total is not estimated. Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add Capital gains distributions include long-term and short-term capital gains. to the total because of rounding. 237 US LONG-TERM MUTUAL FUNDS

252 -5,518 8 7, 2 5 8 38,917 98,561 417,841 147,900 274,916 $57,373 410,432 168,141 176,96 8 378,195 181,420 336,737 724,320 4 82,907 6 41,906 113,173 518,864 118,220 406,638 136,233 Net purchases Sales 8 39,9 97 962,76 4 $809,618 1,367,774 3,910,193 5 , 5 0 7, 3 5 3 3,578,976 4,779,297 5,093,437 1,135,757 1,820,695 2,114,054 1,783,456 4,634,194 2,988,1 21 1,921,362 4,114,294 1,665,638 4,848,782 2,225,886 4,521,348 4,866,446 Other securities 9 2 7, 2 5 5 $866,991 1,174,674 3 , 6 9 7, 1 9 6 Purchases 1,919, 2 5 6 2 , 4 0 7, 3 0 6 1,951,597 2,227,227 4,524,726 2,0 69, 262 5,573,101 3,263,037 5,153,057 5,500,075 1,098,997 5,421,203 1,842,606 5,284,287 1,362,255 5,004,254 5,844,090 4,288,388 -632 DATA SECTION 3 3 7, 3 9 2 75,772 59, 3 0 4 34,622 -59,74 4 -54,647 1 5 7, 8 6 1 102,414 1 2 7, 3 0 2 169,6 8 3 173,962 183,497 230,319 192,353 165,255 101,468 188,401 154,259 -1 4 9, 2 5 3 -1 24 ,7 2 0 $223,996 Net purchases Sales $927,266 3,619,051 3,557,983 2 , 8 2 7, 1 0 6 1 , 5 9 7, 3 1 1 3,172,193 2,141,723 2,610,777 3,733,124 2,198,559 3,033,850 3,330,319 3,225,193 2,752,134 3,536,420 2,609,609 3,715,554 3,445,821 1,26 8,983 2,543,343 1,884,689 2,088,544 Common stock 2,765,037 3,4 69,798 3,411,700 1,457,384 3,655,810 2,736,911 3,033,217 2,176,345 1,762,565 3,595,375 2,772,459 3,521,592 2,390,91 2 3,835,539 2,811,438 3,330,054 3,408,690 2,054,372 2,644,810 3,560,638 2,262,505 Purchases $1,151,262 58,476 5 8 7, 2 5 9 3 7 7, 3 3 0 479,663 275,659 575,067 558,679 4 69,7 3 6 290,915 302,159 339, 28 0 212,878 394,144 455,233 224,800 295,442 282,856 301,487 211,590 520,234 406,005 $281,370 Net purchases Sales 7, 9 6 7, 1 6 8 3,9 9 8,74 3 8,170,614 8 , 4 6 7, 8 3 3 3,807,362 8,127,287 7, 6 0 6 , 4 0 3 2, 5 6 0,074 8,424,429 2,108,981 7,294,530 4,019, 2 5 4 6,721,245 4,698,093 5,398,079 6,453,536 3,224,301 6,866,428 4,393,065 4,532,139 8,732,546 $1,736,884 Total portfolio 7,098,576 3 , 4 3 7, 1 8 0 5,737,360 7, 3 5 3 , 0 0 6 7,336,164 4,018,952 6,933,199 4,310,169 9,042,900 8,193,662 8,879,6 62 9, 2 52,78 0 4,922,893 8,525,847 8,564,757 2,861,562 8,533,292 4,281,599 2,384,639 4,834,298 4,688,508 Purchases $2,018,253 2009 2001 2008 2012 2007 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 1999 2014 2003 2016 2011 2000 1998 2004 2010 2013 2002 2005 2015 2017 2006 1997 1996 Ye a r Millions of dollars, annual Long-Term Mutual Funds: Portfolio Purchases, Sales, and Net Purchases by Type of Security TABLE 31 238 2018 INVESTMENT COMPANY FACT BOOK

253 7,016 7, 3 1 0 9, 2 55 8,036 6,082 3,634 4,854 1,209 -1 ,9 1 0 -2,0 67 -5,440 10,019 10,519 23,717 10,111 15,956 $1,865 22,499 18,863 12,312 -20,81 3 -35,853 Net purchases 9 7, 6 7 9 56,953 56,814 81,827 64,611 72,083 Sales 1 8 7, 1 0 1 3 3 7, 4 5 9 1 5 7, 9 4 5 2 2 7, 0 5 4 1 5 7, 6 6 2 19 9, 3 03 11 2,931 108,035 296,191 114,518 124,450 128,867 271,813 168,221 $64,157 116,340 Other securities DATA SECTION 3 87,909 62,701 69,1 26 79,0 98 61,807 1 7 7, 4 7 6 1 9 7, 2 1 2 266,374 105,96 8 20 9,821 250,771 101,313 140,405 316,646 1 22,950 136,177 158,871 $66,022 135,203 260,338 180,443 122,554 Purchases 8 7, 7 1 5 35,824 18,032 66,703 94,092 92,554 -7 2 , 2 74 -82,767 -2 9,53 8 -64,581 139,766 163,705 24 8,966 160,458 166,595 163,303 185,436 106,622 144,592 185,355 -102,639 $218,397 Net purchases Sales $832,486 1,999,797 3,033,031 2 , 8 7 7, 0 6 4 3,490,169 3,144,017 3,426,439 3,128,195 2,966,114 2, 339,01 3 2,053,633 3,172,270 1,941,505 2,785,232 3,121,591 1,166,649 1,758,120 2,532,499 1,475,384 2,571,685 2,452,229 2,464,538 Common stock 2,017,830 2,499,411 2,755,693 3,1 2 0,74 6 2,216,937 3,1 2 9,818 2,433,105 3,0 8 9,5 03 1,902,71 2 2,591,996 3,043,658 3,025,556 1,635,842 3,392,98 4 2,571,160 3,582,723 1,352,085 3,188,293 3,361,858 2,126,860 2,568,323 Purchases $1,050,884 -2 9 76,814 28,051 73,278 -70,0 2 1 -59,05 0 -28,32 9 1 9 7, 74 8 -92,120 -56,318 1 6 7, 3 3 9 2 5 7, 0 0 2 11 3,931 110,214 146,782 142,682 185,457 101,809 168,157 183,288 166,540 $220,262 Net purchases Sales $896,644 3 , 3 2 7, 4 9 8 3,190,975 2,676,473 1 , 5 5 7, 2 1 2 3,063,793 3,399,324 2,942,894 2,110,587 Total portfolio 1,822,731 2,696,135 2,593,405 2,524,312 3,698,253 2,049,540 3,308,692 2,993,4 0 4 2,112,729 2,828,689 3,658,390 3,258,536 1,223,463 2,749,751 2,707,337 3,760,199 2,639,817 2, 278,74 4 3,178,861 1,723,752 2,140,780 1,965,41 3 2,671,094 2,914,56 4 3, 3 4 0, 274 2,828,661 3,628,232 3,301,189 1,421,211 3,235,378 3,231,132 3,515,538 2,232,828 3,385,506 Purchases $1,116,906 2001 2010 2009 2008 2007 TABLE 32 2006 2005 2016 2004 2003 2002 2013 2012 2000 2015 1999 1998 2017 1997 2014 1996 2011 Ye a r Millions of dollars, annual Equity Mutual Funds: Portfolio Purchases, Sales, and Net Purchases by Type of Security Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. US LONG-TERM MUTUAL FUNDS 239

254 3,893 2,528 8,363 -9,751 2 7, 7 9 4 1 7, 2 5 5 28,424 45,692 24,837 36,907 10,005 36,114 58,171 60,013 32,865 81,890 90,550 53,233 63,485 21,254 38,564 $18,011 Net purchases Sales 1 5 7, 9 2 7 3 6 7, 2 3 5 492,924 19 9,79 4 145,694 501,921 303,980 198,326 423,087 191,387 478,387 196,094 258,950 160,533 234,194 248,305 506,873 466,104 1 39,8 4 4 204,253 184,256 $113,408 Other securities 1 6 7, 9 3 2 2 8 7, 3 74 287,428 2 1 7, 1 2 2 5 8 3,474 1 5 7, 0 9 9 241,160 526,117 276,099 150,782 195,280 166,94 8 223,163 405,799 202,322 468,780 312,342 232,208 565,406 560,277 565,044 $131,420 Purchases 6,081 8,159 3,132 4,301 -5,380 1 7, 3 7 5 10,778 16,166 20,826 23,706 $4,021 25,152 30,829 15,321 20,868 16,200 DATA SECTION 3 -1 0 , 6 2 0 -1 4 , 6 5 2 -1 6 ,9 6 0 -55,976 -24,6 6 8 -25,362 Net purchases 94,976 Sales 1 9 7, 1 2 0 174,9 9 8 385,024 326,715 194,826 273,655 113,785 236,492 2 2 9,51 3 138,923 403,131 378,004 230,855 150,166 132,966 111,401 373,358 129,204 204,365 $88,464 134,368 Common stock 98,109 3 7 7, 7 6 9 1 3 7, 4 9 0 191,74 0 241,633 163,795 145,370 281,814 115,703 225,191 200,907 370,372 252,692 322,028 165,487 158,039 $92,485 155,235 128,303 254,665 348,690 344,090 Purchases -615 6 7, 7 3 6 67,238 2 7, 4 8 5 33,876 63,716 20,059 3 4, 5 74 49, 2 5 0 51,435 80,859 16,521 61,892 64,011 25,555 20,387 35,345 32,809 23,396 48,542 -26,711 $22,033 Net purchases Sales 3 3 7, 2 1 9 59 6,747 5 7 7, 6 3 5 2 5 7, 0 9 6 870,928 910,005 320,591 334,161 863,411 381,376 659,580 335,531 839,463 828,636 312,111 465,049 443,131 234,820 296,850 463,315 346,260 $201,872 Total portfolio 3 9 7, 6 9 5 357,557 4 7 7, 0 0 6 874,8 07 52 9,0 61 909,495 282,651 930,649 721,472 942,813 4 0 4,955 360,653 255,207 594,156 308,821 905,502 408,861 340,650 296,235 512,564 660,464 $223,905 Purchases 2009 2002 2013 2011 2001 Millions of dollars, annual Ye a r 1997 2005 2016 2008 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. TABLE 33 2014 2010 2012 1998 2004 1996 2017 2007 1999 2003 Hybrid Mutual Funds: Portfolio Purchases, Sales, and Net Purchases by Type of Security 2015 2006 2000 240 2018 INVESTMENT COMPANY FACT BOOK

255 -3,803 5 7, 6 9 1 30,978 56,801 90,246 4 1 7, 8 6 1 $ 3 7, 4 9 7 610,052 3 49,559 14 4,921 163,057 378,518 104,770 371,214 108,897 212,428 115,297 158,303 580,258 366,864 448,332 254,390 Net purchases Sales 8 69,79 6 735,242 643,340 $632,052 1,943,950 3,559,1 53 3,96 8,787 4,172,471 3,324,429 3,885,016 4,889,091 3,003,183 1,851,117 4,231,760 1,653,185 1,559,4 8 9 2,585,706 1,092,722 1,454,796 4,128,805 1,361,320 4,568,541 Other securities 701,031 900,774 844,139 DATA SECTION 3 $ 6 69,5 49 3,977,014 4 , 4 1 7, 1 1 9 1 , 7 5 7, 9 5 5 Purchases 1,088,919 1,524,376 5,143,481 4,812,017 4,935,4 05 3,695,643 1,941,363 4,738,857 2,798,134 1,616,290 1,613,099 2,088,871 4,522,030 3,118,480 4,263,534 496 423 -1 67 -1 8 8 -7 7 3 -917 -473 -828 -464 3,754 2,709 1,427 2,654 2,587 1,295 1,386 -3,949 -1 ,7 7 9 -1 , 6 8 8 -3,321 $1,578 -10,510 Net purchases 7, 3 5 8 9,5 03 8,960 8,115 8,382 Sales 2 7, 7 6 6 19,105 10,703 11,959 18,929 21,415 33,261 10,525 12,785 $6,316 12,100 15,271 12,723 68,777 11,303 15,460 34,866 Common stock 7, 1 9 0 7, 3 4 2 7, 5 5 4 9,615 8,496 1 7, 9 2 5 $ 7, 8 9 3 3 7, 4 5 4 20,942 14,171 10,798 10,181 30,475 10,515 2 9, 31 2 11,020 58,267 13,146 22,859 11,183 20,356 12,138 Purchases -5,491 5 7, 5 2 3 91,632 55,022 30,205 450,919 $39,075 103,942 370,618 111,975 253,918 345,610 10 9, 392 420,515 59 9,5 43 211,511 144,456 163,480 581,685 381,226 158,115 372,509 Net purchases Sales 745,767 8 7 7, 9 1 1 650,698 $638,368 4 , 1 9 7, 5 8 2 3, 5 74,424 1,952,910 2,597,806 3,91 2,782 1, 374,0 42 4 , 5 8 7, 6 4 6 3,333,933 4,910,506 1,104,026 3,018,643 4,003,653 1,863,902 4,205,732 1,661,567 1,465,499 4,250,688 1,571,448 Total portfolio 855,159 908,117 708,221 $ 6 7 7, 4 4 2 Purchases 4 , 7 9 7, 1 2 5 2,097,367 1,537,522 3,994,939 1,623,614 1,626,470 5,164,424 3,130,618 1,955,533 2,8 0 9, 317 1,765,509 3,706,4 42 4,958,26 4 4,832,373 4,551,343 4,454,573 1,098,534 4,294,009 TABLE 34 2000 1999 1998 1997 1996 Ye a r Millions of dollars, annual Bond Mutual Funds: Portfolio Purchases, Sales, and Net Purchases by Type of Security 2014 2010 2003 2012 2002 2007 2001 2011 2015 2017 2006 2008 2005 2013 2004 2016 2009 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. US LONG-TERM MUTUAL FUNDS 241

256 474 576 524 475 516 559 567 371 490 231 272 547 430 569 449 543 543 500 500 568 406 448 Tax-exempt 742 769 675 245 875 592 797 859 655 533 737 832 711 285 873 633 633 894 882 890 588 900 Prime Taxable 5 74 519 413 570 561 718 579 581 704 512 523 572 573 577 442 534 462 508 584 488 544 544 Number of share classes Government To t a l 1,781 2,031 2,031 1,427 2,053 2,015 1,627 2,013 1,453 1,730 1,730 1,94 8 1,990 1,275 1,623 1,855 1,180 1,571 2,006 1,549 1,506 1,846 83 274 249 319 145 102 210 341 201 311 163 173 328 335 325 313 339 305 260 277 180 228 Tax-exempt 74 89 410 242 418 421 216 190 265 429 423 372 392 342 277 358 230 334 296 399 406 409 Prime DATA SECTION 4 Taxable Number of funds 275 269 165 281 279 240 259 251 203 146 166 148 277 277 152 180 215 221 230 200 225 158 Government 870 421 527 555 973 652 632 783 847 704 805 382 481 988 988 580 944 To t a l 1,026 1,039 1,015 1,013 1,045 2 8 7, 4 2 6 157,658 2 59,0 81 19 9,8 97 369,029 270,612 260,787 398,935 276,297 254,931 291,697 493,680 311,999 184,711 233,869 330,006 131,126 336,373 290,291 130,266 468,092 $137,871 Tax-exempt Prime 6 4 7, 0 0 5 455,428 375,999 854,061 $540,146 1,476,993 1,429,178 1 , 8 5 7, 2 8 0 1,079,52 3 1,453,071 1,8 0 9,92 3 1, 20 9,9 95 1,243,598 1,535,621 1,291,119 1,339,689 1,273,077 1,485,187 1,618,488 1,564,598 1,848,349 1,542,584 Taxable Total net assets Millions of dollars 3 6 7, 7 8 0 9 2 8,749 410,041 970,075 379,70 6 333,726 855,021 31 2,907 453,157 461,631 426,838 760,389 39 9, 33 0 962,009 254,223 $223,790 1 , 1 0 7, 0 3 5 1,010,783 2,260,750 1,226,735 1,490,208 2,221,873 Government To t a l $901,807 2 , 7 1 7, 8 0 8 2,754,743 2,693,169 2,724,6 41 2 , 8 4 7, 3 0 4 3,085,760 2,690,950 1,901,700 2,265,075 1,351,678 2,803,514 1,613,146 2,728,137 2,026,822 2,285,310 3,315,893 2,338,451 2,040,022 3,832,236 1,845,248 1,058,886 2006 2014 1999 2016 TABLE 35 2008 Money Market Funds: Total Net Assets, Number of Funds, and Number of Share Classes by Type of Fund 2011 Year-end 2000 2007 1998 2013 1996 2001 2015 2017 2010 1997 2005 2002 2004 2003 2012 2009 Ye a r Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 242 2018 INVESTMENT COMPANY FACT BOOK

257 5,004 4,238 9 9,679 69,597 74, 3 5 0 95,247 70,784 3 4,911 70,188 84,451 42,585 55,154 44,111 84,272 $ 2 7, 7 5 8 124,031 190,467 14 4,986 163,553 1 32,96 8 182,503 120,205 2 Tax-exempt Prime 9 49,674 207,059 675,076 819, 324 1 8 6,074 935,701 74 4, 276 936,194 402,933 123,119 511,900 898,455 878,654 863,496 732,326 282,227 788,466 $152,302 1,101,955 1,178,872 1,070,489 1,055,482 Taxable 879,970 2 91,74 8 5 74,8 6 3 191,243 215,943 268,793 756,95 4 273,085 766,398 296,146 665,327 200,812 892,556 153,232 253,233 811,250 286,354 723,236 $1 2 9,0 03 1,614,549 1,200,476 1,649,329 Government Institutional money market funds To t a l 6 4 7, 8 5 6 516,054 782,996 395,202 $3 0 9,0 6 4 1,19 9,74 3 1 , 8 1 7, 7 3 5 1,741,906 1,149,810 1,74 3,8 81 1,780,978 1,740,298 1,859,321 1,100,798 1,329,796 2,461,433 2,23 4,981 1,048,514 1,150,328 1,813,654 1,840,407 1,844,840 1 2 2,747 1 8 4,74 3 205,975 178,716 202,975 191,794 192,025 196,451 142,126 190,612 190,003 155,785 126,028 224,043 196,262 285,590 18 9,4 8 4 126,121 203,406 303,212 235,383 DATA SECTION 4 $110,113 Tax-exempt 1 Prime 5 1 7, 3 7 0 676,590 607,364 439,9 4 6 777,860 755,324 776,132 269, 35 4 631,052 53 4,920 716,297 731,699 535,512 550,525 563,005 4 0 9,5 82 540,799 571,834 252,880 546,843 644,129 $ 3 8 7, 8 4 4 Taxable 1 5 7, 0 1 1 6 0 7, 3 2 3 28 9,7 31 214,478 18 9,69 4 100,991 169,8 8 3 19 9,533 203,677 141,248 611,421 1 32,915 346,765 $94,786 205,056 185,526 126,473 151,837 205,513 140,483 126,24 4 121,664 Retail money market funds Government To t a l 9 5 8,674 876,493 835,624 9 49, 287 939, 2 24 853,187 950,652 941,089 936,830 906,906 663,683 986,231 965,289 $ 59 2,74 3 1,080,91 3 1,370,803 1,065,333 1,008,656 1,062,252 1,006,896 1,135,500 1,226,440 2 8 7, 4 2 6 157,658 2 59,0 81 19 9,8 97 369,029 270,612 260,787 398,935 276,297 254,931 291,697 493,680 311,999 184,711 233,869 330,006 131,126 336,373 290,291 130,266 468,092 $137,871 Tax-exempt Prime 6 4 7, 0 0 5 455,428 375,999 854,061 $540,146 1,476,993 1,429,178 1 , 8 5 7, 2 8 0 1,079,52 3 1,453,071 1,8 0 9,92 3 1, 20 9,9 95 1,243,598 1,535,621 1,291,119 1,339,689 1,273,077 1,485,187 1,618,488 1,564,598 1,848,349 1,542,584 Taxable All money market funds 3 6 7, 7 8 0 9 2 8,749 410,041 970,075 379,70 6 333,726 855,021 31 2,907 453,157 461,631 426,838 760,389 39 9, 33 0 962,009 254,223 $223,790 1 , 1 0 7, 0 3 5 1,010,783 2,260,750 1,226,735 1,490,208 2,221,873 Government To t a l $901,807 2 , 7 1 7, 8 0 8 2,754,743 2,693,169 2,724,6 41 2 , 8 4 7, 3 0 4 3,085,760 2,690,950 1,901,700 2,265,075 1,351,678 2,803,514 1,613,146 2,728,137 2,026,822 2,285,310 3,315,893 2,338,451 2,040,022 3,832,236 1,845,248 1,058,886 account participants. or fiduciary on behalf of its clients, employees, or owners; employer-sponsored retirement plans; and certain qualified individual investors, which includes high net worth individuals and fee-based or wrap employer-sponsored retirement plans. Fund shares sold to both employer-sponsored retirement plans and institutional investors are not included in this category. Retail includes mutual funds offered through a network of broker-dealers; by fund companies without intermediaries; through variable annuity and variable life insurance contracts; and predominantly to Institutional includes fund shares sold primarily to institutional investors or institutional accounts. This also includes accounts that are purchased by or through an institution such as an employer, trustee, 2003 1999 2015 2014 1998 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 2008 1997 2006 2013 2017 2012 2005 1996 2001 2007 2010 2000 Ye a r Millions of dollars, year-end Money Market Funds: Total Net Assets by Type of Fund TABLE 36 2004 1 2016 2009 2 2011 2002 243 US MONEY MARKET FUNDS

258 411 752 -528 7, 6 4 2 7, 9 4 4 9, 276 4,473 Ta x- -9,993 -3,621 -1,345 10,103 14,925 16,160 14,682 $2,715 33,329 11,297 - 3 7, 2 4 9 - 2 7, 7 2 5 -11,117 -29,389 -40,968 exempt 3 6,74 8 -2,5 6 6 6 7, 4 0 1 93,937 36,901 20,159 32,790 54,697 62,248 Prime -75,621 -1 3 , 5 5 6 1 6 7, 9 5 5 -96,358 -63,882 1 0 7, 8 7 3 $19, 376 101,812 1 2 9,0 4 6 254,502 -1 3 1 ,9 3 7 -1 8 0 , 1 6 9 -603,716 Taxable -957 9, 243 20,103 30,491 54,075 10,297 2 9, 3 43 1 3,908 73,043 16,834 86,833 15,347 38,464 -20,25 4 -30,389 -42,563 59 9,176 280,471 $14,391 681,063 - 2 2 7, 9 6 2 -310,891 Government Institutional money market funds 1,017 2 7, 2 4 7 To t a l 59,7 28 16,192 56,721 40,097 36,898 34,128 - 6 7, 9 7 5 148,619 523,027 481,755 115,789 338,842 $36,481 101,464 104,386 111,466 -2 3 0,74 4 -1 1 2 , 0 6 5 -1 2 2 ,7 2 5 -400,867 -269 7, 1 8 7 9,75 8 9,827 2,433 1,328 Ta x- -9, 265 -6,792 -4,908 -4,156 -6,486 10,791 $ 7, 2 0 0 13,763 50,624 14,728 10,043 18,655 16,157 exempt - 6 7, 9 0 6 -7 8, 8 3 9 -28,4 0 4 2 2,099 -7, 6 0 2 -4,781 -4,275 24,417 14,039 73,145 71,069 12,827 32,206 83,264 Prime -75,331 -71,219 -18,335 -1 1 , 1 5 3 - 69,82 9 -1 2 , 5 4 4 $39,559 100,508 -161,149 -1 2 5 , 8 2 2 -136,444 Taxable DATA SECTION 4 504 -7 8 1 -75 7 9, 317 4,781 -1 , 1 4 3 -3,652 -8,376 -5,843 38,769 98,267 $6,181 20,461 20,579 15,835 13,579 -1 0 , 1 74 -1 5 , 8 7 1 -25,9 6 4 -20,609 169,635 -1 0 4 , 0 5 7 Retail money market funds Government 5,270 5,394 2,358 -1 , 1 9 5 To t a l -1 , 3 4 8 4 6,745 43,576 36,449 82,215 96,543 -70, 3 5 3 -1 2 , 2 1 0 -88,769 -30,663 -80,065 172,657 114,128 $52,94 0 131,072 -1 24 , 1 9 7 -1 5 1 , 3 3 8 -308,406 483 9,7 74 Ta x- -3,930 -5,501 $9,91 5 83,953 18,593 25,432 14,231 20,895 26,599 22,370 10,238 16,254 13,235 21,340 exempt -10,107 -1 6 ,7 8 4 -95,631 -69,372 -38,654 -1 1 6 , 0 8 8 by Type of Fund 1 2,473 4 7, 0 9 6 69,107 76,287 Prime 28,009 -1 3 ,7 1 9 -7 3, 5 2 3 -28,571 -31,890 -51,060 167,909 2 6 7, 3 2 9 174,9 5 7 $58,935 251,219 200,115 118,354 -1 9 2 ,7 1 3 -201,765 -139,213 -76 4, 8 6 5 -222,179 Taxable 8,486 19,615 45,178 14,412 86,621 13,182 30,088 20,129 40,682 2 9, 3 4 8 48,232 All money market funds -1 1 , 1 3 1 -50,998 -36,125 -43,343 107,294 6 9 7, 4 4 3 319, 24 0 850,698 $20,572 -253,927 -414,94 8 Government -1 7 8 6,235 15,037 To t a l 62,085 21,462 -45,937 -30,256 6 3 7, 1 5 5 245,162 193,681 $89,422 159,365 375,291 235,457 106,857 654,412 103,466 -1 5 6 ,74 4 -1 24 , 0 7 3 -263,4 03 -539,1 5 0 -525,064 account participants. employer-sponsored retirement plans. Fund shares sold to both employer-sponsored retirement plans and institutional investors are not included in this category. or fiduciary on behalf of its clients, employees, or owners; employer-sponsored retirement plans; and certain qualified individual investors, which includes high net worth individuals and fee-based or wrap Retail includes mutual funds offered through a network of broker-dealers; by fund companies without intermediaries; through variable annuity and variable life insurance contracts; and predominantly to Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. Institutional includes fund shares sold primarily to institutional investors or institutional accounts. This also includes accounts that are purchased by or through an institution such as an employer, trustee, Ye a r 2011 Money Market Funds: Net New Cash Flow 2000 2007 1998 2013 1996 2001 2015 2017 2010 1997 2005 2002 2004 2003 2012 2009 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. TABLE 37 2014 1999 1 2016 2 Millions of dollars, annual 2008 3 2006 244 2018 INVESTMENT COMPANY FACT BOOK

259 TABLE 38 Money Market Funds: Net New Cash Flow and Components of Net New Cash Flow Millions of dollars, annual Sales Redemptions Regular + New + Net new 3 5 1 4 2 Ye a r exchange New Regular cash flow Exchange Exchange exchange 1984 $35,077 $640,021 $620,536 $19,485 $60 4,94 4 $586,990 $ 1 7, 9 5 3 1985 -5,293 848,451 826,858 21,592 8 5 3,74 3 831,067 22,676 1986 33,552 978,041 48,704 993,193 948,656 44,537 1,026,745 1987 1 , 1 4 7, 8 7 7 1,049,034 98,843 1,137,805 1,062,671 75,133 10,072 1988 106 1,130,639 1,066,003 64,636 1,130,534 1,074, 3 4 6 56,188 1989 64,132 1,359,616 1,296,458 63,158 1,295,484 1,235,527 59,957 72,098 1990 23,179 1,461,537 1,389,439 65,594 1,438,358 1,372,764 1991 6,068 1,778,491 62,640 1,835,063 1,763,106 71,957 1,841,131 -1 6 , 0 0 6 2,371,925 7 7, 8 4 1 2,465,772 2,382,976 82,796 1992 2,4 49,76 6 -1 3 , 8 9 0 2,756,282 2,665,987 90,295 1993 2,673,464 96,707 2,770,172 1994 8,525 2,725,201 2,586,478 138,722 2,716,675 2,59 9,4 0 0 1 1 7, 2 7 5 1995 89,381 3,234,216 3 , 0 9 7, 2 2 5 136,990 3,144,834 3,001,96 8 142,866 1996 8 9,42 2 3,959,014 197,971 4 , 0 6 7, 5 6 3 3,868,772 198,791 4,156,985 1997 5 , 1 2 7, 3 2 8 4,894,226 233,102 5,023,863 4,783,096 240,767 103,466 1998 235,457 6 , 4 0 7, 5 74 6,129,140 278,434 6,172,116 5,901,590 270,526 1999 193,681 8,080,959 7, 7 1 9 , 3 1 0 361,649 7, 8 8 7, 2 7 8 7,540,912 346,367 9,4 0 6, 287 410,962 2000 159,365 9,826,677 9, 2 5 6, 35 0 420,391 9 , 6 6 7, 3 1 2 DATA SECTION 4 2001 375,291 11,426,804 310,487 11,362,000 11,065,468 296,533 11,737,291 -45,937 12,008,801 296,215 12,054,738 11,783,209 271,530 2002 11,712,587 11,177,118 11,213,929 2 24, 5 74 11,440,521 -263,4 03 226,592 2003 10,952,5 4 4 -1 5 6 ,74 4 10,708,117 166,492 11,031,353 10,861,076 170,277 2004 10,874,6 0 8 62,085 12,493,636 12,317,491 176,145 12,431,551 12,260,771 170,779 2005 2006 245,162 15,495,624 211,255 15,461,717 1 5, 269,074 192,643 15,706,879 654,412 21,039, 2 53 275,086 20,659,927 20,408,620 251,307 2007 21,314,339 6 3 7, 1 5 5 24,452,430 24,067,371 385,059 2008 23,498,612 316,663 23,815,275 2009 -539,1 5 0 18,683,752 18,489,354 194,399 19,222,902 19,01 2, 3 8 6 210,516 2010 -525,064 15,771,387 15,670,167 101,220 16,296,451 16,191,894 104,558 2011 -1 24 , 0 7 3 15,128,158 1 2 0,74 4 15,372,976 15,259,873 113,102 15,24 8,902 -1 7 8 14,211,202 80,417 14,291,797 14,204,776 8 7, 0 2 1 2012 14,291,619 15,037 14,976,597 1 4 , 8 6 7, 9 6 9 108,629 2013 1 4 , 8 5 7, 7 9 2 103,769 14,961,561 2014 6,235 15,316,582 1 5 , 2 3 7, 9 1 0 78,672 15,310,347 15,211,292 9 9,055 2015 21,462 17,658,517 1 7, 5 6 0 , 9 6 6 9 7, 5 5 1 1 7, 6 3 7, 0 5 6 1 7, 5 3 1 , 8 9 1 105,164 2016 18,696,848 18,488,574 2 0 8, 274 1 8 , 7 2 7, 1 0 4 1 8 , 5 2 7, 7 9 4 19 9, 3 0 9 -30,256 2017 106,857 1 7, 5 1 7, 2 5 9 17,394,583 122,677 17,410,402 1 7, 2 8 7, 1 2 4 123,278 1 Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. 2 New sales are the dollar value of new purchases of mutual fund shares. This does not include shares purchased through reinvestment of dividends in existing accounts. 3 Exchange sales are the dollar value of mutual fund shares switched into funds within the same fund group. 4 Regular redemptions are the dollar value of shareholder liquidation of mutual fund shares. 5 Exchange redemptions are the dollar value of mutual fund shares switched out of funds and into other funds within the same fund group. Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 245 US MONEY MARKET FUNDS

260 TABLE 39 Money Market Funds: Paid and Reinvested Dividends by Type of Fund Millions of dollars, annual Paid dividends Reinvested dividends Taxable Tax-exempt Tax-exempt Taxable money market money market money market money market funds funds funds Ye a r funds To t a l To t a l $15,435 $1,000 $13,730 $13,061 $669 $16,435 1984 15,708 14,108 1,600 12,758 11,760 998 1985 14,832 1,533 2,400 11,514 9,981 1986 12,432 15,654 11,94 6 2,821 1987 10,136 1,810 12,833 1988 1 7, 9 7 6 3,642 15,692 13,355 2,337 21,618 1989 28,619 24,683 3,936 23,050 20,294 2,756 1990 26,448 3,810 26,282 23,226 3,056 30,258 1991 28,604 25,121 3,483 22,809 19,9 98 2,811 1992 20,280 1 7, 1 9 7 3,083 14,596 12,567 2,029 3,302 1993 18,991 15,690 11,615 10,007 1,607 1994 23,737 3,233 16,739 14,626 2,113 20,504 1995 32,855 4,183 2 7, 9 8 5 24,873 3,111 3 7, 0 3 8 1996 42,555 38,446 4,108 31,516 28,448 3,068 1997 44,185 4,658 3 7, 9 7 9 34,425 3,554 48,843 3,863 5 7, 3 7 5 52,164 5,211 43,443 39,5 8 0 1998 46,602 63,229 4,046 1999 69,0 0 4 50,648 5,775 2000 90,158 8,061 72,771 66,890 5,881 98,219 2001 79, 3 07 73,361 5,94 6 56,367 51,949 4,418 2002 32,251 2 9, 397 2,854 22,033 19,9 4 0 2,093 2003 1 7, 0 4 1 15,124 1,917 11,314 9,916 1,398 2004 15,899 2,491 11,889 10,080 1,809 18,390 4,852 50,186 43,547 6,638 32,803 2 7, 9 5 1 2005 8,220 53,268 61,488 2006 96,423 85,018 11,405 DATA SECTION 4 2007 14,730 82,457 71,938 10,519 113,177 1 2 7, 9 0 7 93,857 82,727 11,130 61,134 53,455 7, 6 8 0 2008 2009 18,619 16,590 2,030 11,035 9,999 1,037 2010 7, 1 6 1 6,708 453 4,447 4,196 252 187 2011 5,237 4,888 349 3,261 3,074 6,345 273 2012 6,618 144 4,068 4,212 2013 7, 7 9 4 226 5,206 5,089 117 8,020 124 7,565 7, 3 2 3 242 5,000 4,876 2014 7, 7 0 3 2015 7, 9 0 7 204 5,328 5,223 105 2016 8,618 8,262 356 5,367 5,170 198 10,256 418 2017 18,503 1 7, 7 2 2 781 10,675 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 2018 INVESTMENT COMPANY FACT BOOK 246

261 47 47 49 31 32 45 45 27 52 52 52 55 33 36 50 40 46 46 48 48 48 44 Days Average maturity 3 0.2 0.9 0.8 0.4 0.3 0.7 0.5 3.3 2.4% 2.9 2.1 2.0 2.9 1.9 1.5 1.7 1.4 1.0 1.2 -1 . 2 Other -0.3 -0.1 assets 2 – – 0.2 0.8 0.1 0.4 0.1 0.1 0.1 0.8 0.1 0.0 0.0 0.2% 0.0 0.4 0.3 1.7 1.8 1.5 1.1 1.2 notes Corporate 1 0.2 0.1 0.1 0.0 0.0 0.0 0.1 0.1 0.0 0.0% 0.0 0.1 0.0 0.0 0.0 0.1 0.1 0.0 0.1 0.0 0.0 0.1 Bank notes 0.9 0.5 0.2 0.5 0.5 0.2 0.0 0.5 0.7% 0.0 0.7 0.9 0.1 0.1 0.9 0.3 1.0 1.2 1.6 1.7 1.0 1.4 paper Commercial DATA SECTION 4 0.0 0.0 0.1% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 CDs Eurodollar 0.0 0.0 0.0 0.1 0.3 0.3 0.0 0.0 0.0 0.2 0.0 0.0% 0.0 0.1 0.3 0.0 0.0 0.2 0.1 0.1 0.0 0.1 deposit Certificates of 3 7. 9 3 7. 8 2 7. 9 39.0 26.8 35.5 35.2% 35.9 53.7 33.0 33.0 33.4 33.0 31.6 31.7 30.6 32.2 28.2 50.0 36.3 58.6 3 4.7 Repurchase agreements 3 7. 1 24.1 29.4 26.7 35.4 33.2 33.8 33.3 30.0 31.3 30.5 30.4 32.0 32.8 28.1 28.9 25.1 25.4% 21.5 36.2 34.5 34.5 agency issues US government 7. 2 9.2 5.1 6.2 6.4 6.0 8.5 4.1 4.9 4.4 1 7. 7 1 7. 6 1 7. 2 10.1 10.5 14.3 16.8 18.5% 13.2 13.0 13.5 12.6 securities Other Treasury 1 7. 1 1 7. 2 1 7. 7 % 1 7. 8 2 7. 1 19.2 19.4 bills 14.3 14.9 14.2 16.3 20.0 20.5 30.5 25.6 25.6 23.2 21.4 21.2 15.2 15.8 2 2.9 US Treasury 3 6 7, 7 8 0 9 2 8,749 410,041 970,075 379,70 6 333,726 855,021 31 2,907 453,157 461,631 426,838 760,389 39 9, 33 0 962,009 254,223 $223,790 1 , 1 0 7, 0 3 5 1,010,783 2,260,750 1,226,735 1,490,208 2,221,873 Total net assets Millions of dollars Other assets include banker’s acceptances, municipal securities, and cash reserves. Prior to 1994, bank notes are included in other assets. Prior to 1998, corporate notes are included in other assets. 2009 2001 2012 2015 1998 2005 2002 2011 1997 2008 2000 1996 2017 2010 2004 1999 2007 2014 2006 2003 Ye a r Year-end Taxable Government Money Market Funds: Asset Composition as a Percentage of Total Net Assets TABLE 40 3 1 2013 2 2016 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to 100 percent because of rounding. 247 US MONEY MARKET FUNDS

262 41 47 49 49 59 31 45 53 57 30 50 38 56 58 58 34 54 40 46 44 44 44 Days Average maturity 3 7. 4 7. 1 9.6 3.8 3.5 5.7 5.2 5.8 6.5 6.3 6.1 4.9 4.0 4.2 4.8 4.6 4.5 2.9 2.3 10.4 14.8 13.5% Other assets 2 9.3 – – 0.8 3.0 3.5 3.9 5.8% 6.4 6.2 8.4 4.5 4.2 1.1 1 7. 9 1 7. 9 10.5 16.7 16.2 21.6 11.1 12.0 notes Corporate 1 0.3 0.8 3.2 3.9 3.1 3.5 3.2 3.1 3.6 4.0 2.2 2.7 2.3 2.0 2.7 2.9 2.6 2.3% 2.0 1.5 1.4 1.6 Bank notes 49.2 39.6 24.6 24.3 41.7 26.8 35.6 33.9 51.0% 32.5 52.0 28.1 50.9 23.9 23.4 23.0 23.1 36.9 40.1 38.5 34.1 4 8.7 paper Commercial 7. 3 7. 0 0.8 0.5 0.9 3.9 3.6 3.0 3.1 3.7 5.5 5.5 5.1 5.7 6.7 6.0 6.6 4.4 4.3% 4.7 2.3 1.7 CDs Eurodollar 39.2 29.5 14.9 14.5 14.1 14.7 35.7 33.3 31.6 28.4 28.6 21.5 15.2 13.0 1 3.9 13.8 38.6 11.7 11.6 3 4.7 12.8 12.8% deposit DATA SECTION 4 Certificates of 9.9 3.9 5.1% 5.3 6.0 8.1 8.3 8.1 8.4 8.5 4.6 4.8 16.5 16.8 20.9 18.0 23.9 15.7 13.5 11.8 11.3 12.8 Repurchase agreements 7. 8 9.6 9.0 % 9.2 0.2 0.7 3.1 5.9 5.1 5.7 5.1 5.4 6.9 6.8 8.9 4.1 2.9 14.9 11.8 12.0 1 2.7 12.3 agency issues US government 0.6 0.1 0.5 0.3 0.3 0.1 0.8 0.2 0.3 0.1 0.2 0.5 0.3 3.8 4.3 4.2 2.0 2.8 2.6 1.6% 1.3 1.9 securities Other Treasury 0.6 0.3 0.4 0.1 0.3 0.3 0.4 0.5% 0.4 0.8 3.4 3.1 5.2 5.1 2.3 2.2 2.7 2.1 1.3 1.9 1.9 1.4 bills US Treasury 6 4 7, 0 0 5 455,428 375,999 854,061 $540,146 1,476,993 1,429,178 1 , 8 5 7, 2 8 0 1,079,52 3 1,453,071 1,8 0 9,92 3 1, 20 9,9 95 1,243,598 1,535,621 1,291,119 1,339,689 1,273,077 1,485,187 1,618,488 1,564,598 1,848,349 1,542,584 Total net assets Millions of dollars Prior to 1994, bank notes are included in other assets. Prior to 1998, corporate notes are included in other assets. Other assets include banker’s acceptances, municipal securities, and cash reserves. 3 1 2 2017 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to 100 percent because of rounding. 2010 2016 2015 1997 2014 1998 2013 1999 2012 2000 2005 2001 2011 2002 1996 Ye a r Year-end Taxable Prime Money Market Funds: Asset Composition as a Percentage of Total Net Assets TABLE 41 2008 2004 2007 2003 2009 2006 2018 INVESTMENT COMPANY FACT BOOK 248

263 3,863 6,009 8,538 45,952 20,193 26,923 70,518 50,903 82,91 3 60,163 26,307 36,381 13,894 $3,396 Hybrid 417,701 1 5 7, 9 0 3 496,619 372,959 192,736 120,672 106,577 280,534 238,098 304,835 625,399 and bond 7, 9 6 2 4,124 2,095 5,329 2,846 6 7, 8 7 1 World 42,792 95,695 $1,281 92,507 11,050 66,647 18,218 11,128 13,130 28,236 12,644 242,924 524,331 122,751 363,721 161,212 302,890 215,545 121,445 3,863 6,442 69,426 35,051 11,241 73,598 $3,338 72,009 21,221 63,386 Other Equity 1 4 7, 8 1 9 1 7 7, 9 7 5 3 5 7, 6 2 4 2 5 7, 8 5 0 439,633 325,276 218,166 795,436 768,289 171,377 962,815 638,869 256,365 112,480 Index funds 1,228,273 Domestic 41,74 4 22,752 73,856 317,826 379,765 249,452 $19,79 0 375,949 9 8 7, 4 8 8 42 9,698 6 69,057 S&P 500 201,791 273,691 5 74, 3 8 0 376,582 252,956 806,070 200,989 328,647 1 2 9,857 394,593 690,528 334,012 272,462 284,588 9 7, 7 5 9 5 7, 0 4 2 32,573 To t a l 747,491 619,474 3 2 7, 4 1 7 3 8 7, 4 1 1 $ 2 7, 8 0 5 170,302 618,699 835,422 26 4,998 370,560 455,293 854,715 384,039 554,044 1,0 93,749 1,016,713 3,365,491 2,629,226 1,733,629 1,311,077 2,053,230 2,206,554 DATA SECTION 5 687,693 Hybrid 803,189 8 8 9,4 4 6 and bond $760,581 4,967,631 1,657,824 1 , 1 5 7, 9 8 3 1 , 0 2 7, 3 9 6 1,42 9,710 4,142,031 2,765,631 4,263,781 4,541,693 1,791,361 1,16 4,993 1,908,591 1,175,394 2,012,567 3,490,542 3,240,636 4,330,006 1,260,823 4,461,809 2,144,209 2,394,609 World 6 8 7, 9 6 6 193,659 552,107 281,075 383,675 516,828 341,039 1 59,0 9 9 91 2,93 4 358,319 433,341 848,471 572,123 $112,849 1,419,9 4 4 1,453,175 1,798,810 1,622,873 1,293,801 1,801,202 1,820,566 1,838,487 1,236,275 2,299,844 1,215,048 Equity Active funds 66 4,955 Domestic $603,409 4,0 41,749 2,979,169 3,024,931 2 , 3 0 7, 5 2 6 3,160,424 2,624,591 4,559,552 3,423,965 3,455,039 5,266,019 1,870,578 4,795,231 4,513,196 3,873,802 2,731,882 1,355,715 3,121,069 3,108,666 4,645,850 3,352,282 2,002,398 2, 3 49,4 6 4 1,004,386 To t a l 7, 8 4 7, 8 8 6 5,639,751 1,511,747 7, 3 1 1 , 8 1 2 9,05 0, 245 8,059,231 3,790,427 4,735,021 6,959,8 4 8 4,318,755 3, 2 39,01 3 4,845,783 3,908,533 8,012,862 6,245,489 4,906,53 4 2,526,235 2,001,233 5,168,564 10,597,543 10,690,760 $1,476,839 10,986,353 11,095,527 12,533,494 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 2016 2017 2015 2014 2003 1999 2011 2010 2005 2006 2001 2004 2013 2007 2008 2000 1998 2002 2012 2009 Millions of dollars, year-end 1993 1995 1996 1997 Ye a r 1994 Active and Index Mutual Funds: Total Net Assets TABLE 42 249 ADDITIONAL CATEGORIES OF US MUTUAL FUNDS

264 525 $980 9,924 8,074 7, 5 8 2 5,197 6,616 6,651 3,591 8,007 2,108 2,477 5,099 2,266 1,446 9 7, 4 9 9 2 7, 1 3 5 49,0 91 19,8 95 Hybrid 16,473 33,98 4 24,268 28,525 66,96 4 43,804 and bond 818 436 512 $501 7, 9 5 1 7, 6 9 7 2,241 5,661 2,199 1,033 1,181 8,456 1,669 1,664 1,568 World 10,674 19,076 74,932 1 7, 2 0 2 16,915 55,262 4 4,982 38,403 15,523 28,309 515 $953 3,192 8,859 8,499 1,038 5,230 Other Equity 2 9,192 16,078 16,102 15,024 49,009 11,731 63,118 24,600 10,668 32,311 16,538 23,337 20,134 46,541 16,646 12,153 54,833 22,134 Index funds Domestic -317 -808 7, 1 5 0 7,666 8,195 9,11 3 4,818 5,541 1,871 8,820 -7, 1 3 9 -1 , 4 4 0 -5,908 -6,868 14,678 10,783 30,977 $3,994 14,231 11,739 18,447 30,395 12,559 38,063 25,208 S&P 500 3,348 Total 32,974 27,877 59,928 5 7, 5 6 0 59,0 43 24,780 26,735 48,624 61,603 46,143 $6,428 25,592 61,139 11,815 54,828 40,130 34,847 25,255 35,234 1 9 7, 1 74 149,062 165,724 114,376 223,030 ON 5 -5,411 -3,630 -5,895 23,414 79,82 2 60,041 69,5 63 41,332 88,166 31,302 71,231 12,829 -31,059 -2 2,982 -39,8 9 0 -89,313 -89,899 137,610 323,914 Hybrid 243,695 363,780 143,292 1 28,980 134,520 and bond $113,808 DATA SECTI 5,959 8,983 -8,960 -6,120 3 7, 0 2 8 3 7, 6 0 3 21,424 65,922 21,672 World 19,364 22,162 4 6,983 43,812 56,531 98,462 11,000 46,483 -1 3 , 0 7 8 - 6 7, 8 8 1 -74, 3 8 3 -24,3 87 $ 3 7, 9 4 0 1 24,874 140,261 113,068 Equity Active funds 5,606 6 7, 8 9 1 88,947 38,717 72,544 -1 7, 3 5 7 -33,978 -52,452 -41,829 1 4 7, 7 8 2 -95,280 -96,233 10 9,87 2 103,022 122,176 236,059 $83,873 158,823 Domestic -1 8 0 , 0 74 -1 74 , 2 3 6 -1 2 1 , 4 9 6 -216,9 0 4 -1 5 1 , 2 1 8 -320,358 -306,594 Total 48,030 71,812 95,343 -26,6 8 6 -51,098 2 0 7, 0 9 4 2 3 7, 1 8 3 169,76 8 140,719 163,161 102,497 195,653 203,276 180,672 333,001 186,018 108,177 194,135 110,393 164,109 - 2 8 7, 4 3 9 -1 5 6 , 1 9 1 -2 59,8 6 8 -394,135 $235,621 Components may not add to the total because of rounding. Note: Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. Data for funds that invest primarily in other mutual funds were excluded from the series. 2016 2017 2015 2014 2012 2013 2009 2006 2010 2008 2011 2007 2005 2004 1993 1998 2001 1994 1999 1995 2003 2002 2000 Year Millions of dollars, annual Active and Index Mutual Funds: Net New Cash Flow TABLE 43 1997 1996 250 2018 INVESTMENT COMPANY FACT BOOK

265 14 47 10 16 26 26 45 45 27 27 52 43 21 21 28 18 33 33 57 65 29 29 15 46 44 Hybrid and bond 7 7 7 6 24 49 42 81 37 26 28 28 33 57 20 63 30 73 29 50 58 58 15 58 12 World 17 59 37 27 18 22 15 99 147 197 161 214 169 171 194 110 163 124 159 146 151 166 183 157 134 Other Equity Index funds Domestic 97 93 43 39 94 94 94 72 96 86 60 48 103 119 111 111 132 126 127 128 113 120 125 125 122 S&P 500 70 87 82 197 421 105 371 321 271 328 453 357 372 313 322 365 132 382 382 286 403 343 354 360 156 Total DATA SECTION 5 2,674 2,018 2,576 2,706 2,758 2,494 2,720 2,429 2,837 2,575 2,699 2,772 2,326 2,461 2,537 2,820 2,803 2,569 2,536 2,505 2,387 2,465 2,509 2,468 2,346 Hybrid and bond 416 875 859 521 661 756 929 962 300 883 899 990 World 1,424 1,061 1,029 1,425 1,023 1,210 1,144 1,098 1,353 1,445 1,122 1,288 1,222 Equity Active funds 2,959 2,979 2,942 2,925 2,986 3,457 3,095 2,499 2,94 8 3,393 3,373 3,369 3,392 1,820 3,377 3,465 2,894 1,403 3,154 2,084 3,048 3,396 1,226 1,545 2,848 Domestic 7, 0 1 8 7, 0 0 3 7, 2 2 4 7, 1 2 1 Total 7, 2 3 1 6,941 6,932 6,576 6,789 4,6 41 6,784 5,155 6,602 6,772 6,832 6,132 6,638 6,881 5,539 6,549 6,896 6,538 4,280 6,844 3,544 2007 2015 2013 2001 1999 1995 2005 1998 1994 2004 2000 2016 2012 1997 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. 2014 TABLE 44 2002 2006 2009 2011 2017 2003 1996 2010 2008 Year Year-end Active and Index Mutual Funds: Number of Funds 1993 251 ADDITIONAL CATEGORIES OF US MUTUAL FUNDS

266 47 49 49 17 10 31 31 27 21 65 38 15 99 54 40 48 64 147 101 162 137 126 127 115 122 Hybrid and bond 6 10 70 31 55 43 43 21 62 53 11 11 83 25 96 56 World 161 107 196 148 144 180 153 121 156 19 17 52 95 25 38 15 197 243 316 269 437 337 163 279 301 433 291 303 349 312 221 403 469 364 Other Equity Index funds Domestic 43 63 86 54 247 276 278 262 259 231 272 166 148 255 260 253 253 233 221 228 115 258 238 234 234 S&P 500 74 96 143 776 755 518 110 871 578 756 601 205 252 633 735 323 881 647 699 856 998 465 908 964 Total 1,055 ON 5 7, 7 1 0 7, 1 1 8 7, 3 2 1 9,149 3,765 6,941 5,424 9,0 69 6,781 5,985 9, 262 5,785 4,667 5,715 6,715 5,821 8,647 2,598 5,113 6,812 6,823 6,325 4,323 6,582 8,215 Hybrid and bond DATA SECTI 379 620 834 World 1,745 4,678 2,947 1,937 2,705 4,726 4,110 1,428 3,4 41 3,893 3,594 2,439 1,144 4,634 2,302 3,809 2,462 2,313 3,290 2,256 2,468 4,388 Equity Active funds 7, 9 5 0 7, 3 0 2 9,117 3,707 8,937 8,967 9,0 65 8,791 8,470 8,787 1,955 2,945 4,672 8,721 8,049 9, 28 6 8,96 8 8,623 5,557 8,578 8,549 1,502 8,646 2,360 6,340 Domestic 7, 5 1 7 Total 4,479 8,756 6,340 1 7, 8 7 5 19,70 8 1 7, 3 5 4 19,517 14,417 19, 35 8 19,0 4 4 22,671 16,687 10,248 20,94 8 20,152 18,551 16,397 11,841 18,887 15,555 21,822 22,842 22,877 13,209 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. 2011 2014 2008 2009 2010 2015 2003 2013 2016 2012 2007 2004 2005 2006 2017 2001 2002 2000 Year-end 1994 1995 1996 1997 1998 Year 1999 Active and Index Mutual Funds: Number of Share Classes TABLE 45 1993 2018 INVESTMENT COMPANY FACT BOOK 252

267 – – – – – – 803 82 57 65 38 3,412 124 118 118 World 136 -2,3 8 0 15,156 28,560 -1 7, 9 3 0 -1 4 ,9 7 8 $13,256 Bond funds 12 -46 241 424 420 116 313 41 41 123 70 52 52 52 66 48 6 4 6 4 4 4 -1 8 6 -445 -$546 Multisector 98 80 54 198 208 -382 412 502 536 536 157 577 238 340 3,030 4,358 funds -$632 -1 , 0 9 3 Hybrid 14,930 10,789 14,798 23,493 Year-end Net new cash flow* 35 65 85 72 58 824 726 822 954 Millions of dollars, annual Number of share classes -742 -$47 -446 145 145 103 172 104 157 World 2,618 2,054 2,572 1,298 Equity funds 440 361 429 423 320 422 330 350 296 300 366 408 $445 7, 2 4 1 7,295 6,959 9,8 0 4 6,088 -3,747 -1 , 0 1 3 -5,646 -4,446 Domestic 426 507 499 6 49 903 800 Total -$780 -1 , 1 8 5 -1 , 2 3 9 21,025 12,026 64,028 15,838 22,443 1,319 1,243 1,012 36,448 1,292 1,358 -1 5 , 1 6 2 -23,366 DATA SECTION 5 – – – – – – 8 14 16 32 33 11 30 38 World 6 7, 9 9 3 25,143 51,124 34,179 51,857 35,520 21,366 $21,680 Bond funds 17 26 27 18 18 20 30 29 23 23 23 1,174 2,145 1,796 1,96 8 2,337 1,638 2,136 1,862 2,288 2,294 $1,392 Multisector 27 52 79 21 34 176 175 159 111 189 130 55,078 1 2, 5 74 80,421 64,171 28,892 funds Hybrid $18,619 102,491 110,367 110,393 116,126 122,522 Year-end Total net assets Number of funds 431 Millions of dollars, year-end 24 24 61 42 16 52 55 35 57 39 22 7, 9 2 0 3,987 1,776 3,897 3,355 6,666 10,907 $1,149 World 10,349 12,556 Equity funds 167 149 179 177 185 132 126 153 139 138 154 1 7, 0 9 7 51,931 49, 201 50,193 24,432 58,766 41,045 32,620 33,729 54,213 $20,343 Domestic 243 478 437 472 181 337 301 490 208 204 36 4 Total 31,276 58,317 2 2 7, 4 2 6 1 2 9,167 2 39,457 11 2,951 225,76 4 148,873 213,164 220,211 $41,504 investment objective. Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 2013 2009 TABLE 46 2012 2016 2008 2011 2014 2007 2010 2015 Year Alternative Strategy Mutual Funds: Total Net Assets, Net New Cash Flow, Number of Funds, and Number of Share Classes 2007 2010 2012 2017 2009 2013 2015 2011 2008 2016 2014 2017 * Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. Note: Alternative strategy mutual funds in this table are funds that employ alternative investment approaches like long/short, market neutral, leveraged, inverse, or commodity strategies to meet their 253 ADDITIONAL CATEGORIES OF US MUTUAL FUNDS

268 TABLE 47 Emerging Market Debt Mutual Funds: Total Net Assets, Net New Cash Flow, Number of Funds, and Number of Share Classes Total net Net new cash flow* assets Number of Number of share classes funds Millions of dollars, Millions of dollars, Year-end annual year-end Year-end Year $2,442 23 -$288 2000 48 2001 -412 24 50 2,129 2002 2,585 311 22 46 2003 4,297 691 19 43 2004 5,543 635 19 43 42 2005 7, 5 9 0 1,245 18 1 2,962 60 2,193 23 2006 2007 2,275 28 79 16,966 2008 13,589 257 31 98 2009 19,7 39 2,016 33 104 2010 37,888 14,902 36 126 2011 45,009 12,568 48 165 2012 75,322 19,8 91 66 217 2013 -4,701 88 291 64,668 2014 58,881 -5,627 103 351 2015 44,812 -1 0 ,7 2 1 97 355 2016 51,046 502 108 408 398 6,936 105 66,377 2017 * Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. Note: Emerging market debt funds in this table are funds that invest primarily in debt from underdeveloped regions of the world. Data for funds that invest primarily in other mutual funds were excluded from the series. ON 5 DATA SECTI 2018 INVESTMENT COMPANY FACT BOOK 254

269 TABLE 48 Floating-Rate High-Yield Bond Mutual Funds: Total Net Assets, Net New Cash Flow, Number of Funds, and Number of Share Classes Total net Net new Number of Number of assets cash flow* funds share classes Millions of dollars, Millions of dollars, Year-end annual Year-end year-end Year $23,791 -$2,626 16 2000 30 2001 19,718 -5,114 23 56 2002 -5,792 22 52 13,392 2003 14,96 8 -310 20 49 2004 24,032 7, 4 4 9 23 62 2005 2 7, 4 8 5 2,195 25 73 84 2006 33,619 5,445 23 2007 103 29 33,667 -2,4 4 8 2008 -8,169 31 126 1 7, 1 2 8 2009 28,330 4,362 31 122 2010 4 7, 2 6 2 15,050 33 132 2011 60,108 10,225 39 161 2012 76,899 10,655 42 174 2013 205 141,661 59,974 52 -22,097 53 209 119,1 59 2014 -2 2,3 82 94,484 231 57 2015 2016 106,364 3,409 62 242 264 2017 121,100 10,973 67 * Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. Note: Floating-rate high-yield funds in this table are funds that invest in income-producing senior loans, floating-rate loans, and other floating-rate debt securities, which typically are of below investment grade quality. Data for funds that invest primarily in other mutual funds were excluded from the series. DATA SECTION 5 ADDITIONAL CATEGORIES OF US MUTUAL FUNDS 255

270 TABLE 49 1 Funds of Funds: Total Net Assets, Net New Cash Flow, Number of Funds, and Number of Share Classes 2 Total net assets Net new cash flow Millions of dollars, annual Millions of dollars, year-end Equity Total Bond Total Equity Hybrid Bond Year Hybrid $638,073 $96,660 $540,520 $894 $126,407 $ 1 7, 2 7 6 $108,858 $273 2007 469,333 425,207 1,265 60,480 5,712 54,311 457 42,860 2008 680,121 55,266 622,820 2,035 70,169 4,146 65,278 745 2009 9,4 02 914,591 80,580 824,609 2,448 118,365 4,96 4 110,953 2010 2011 1,035,613 939,19 4 15,726 119,67 3 3,010 111,795 4,868 80,693 2012 93,065 1,150,398 28,102 93,817 -2,653 85,602 10,869 1,271,565 2013 1,560,334 128,757 1,393,525 38,051 10 9,43 6 12,612 86,470 10,354 2014 1 2 7, 8 8 6 1,519,6 6 0 4 7, 2 5 4 68,291 11,458 51,963 4,869 1,694,800 11,213 1,722,386 136,723 1,531,641 54,021 5 7, 5 8 6 8,849 3 7, 5 2 4 2015 245 2016 1,870,302 149,8 65 1,663,519 56,918 18,781 -2,6 83 21,219 66,846 7, 1 1 7 25,463 714 2017 2,216,420 178,991 1,970,58 4 33,295 Number of share classes Number of funds Year-end Year-end Bond Equity Hybrid Bond Total Equity Hybrid Year Total 704 124 573 7 2,331 295 2007 21 2,015 2008 839 123 706 10 2,782 312 2,443 27 2009 945 131 804 10 3,051 325 2,709 17 19 2010 979 147 819 13 3,135 348 2,768 21 43 3,396 2011 1,083 157 905 2,997 356 2012 163 961 30 3,728 404 3,249 75 1,154 2013 1,257 173 1,050 34 3,993 411 3,493 89 1,116 2014 1,331 174 414 41 4,229 3,709 106 2015 178 1,185 39 4,549 438 4,005 106 1,402 106 1,4 41 173 1,227 41 4,666 432 4,128 2016 93 415 4,177 2017 1,400 164 1,195 41 4,685 1 Funds of funds are mutual funds that invest primarily in other mutual funds. ON 5 2 Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. Note: Components may not add to the total because of rounding. DATA SECTI 2018 INVESTMENT COMPANY FACT BOOK 256

271 TABLE 50 2 1 Funds of Funds: Components of Net New Cash Flow Millions of dollars, annual 3 4 New sales Exchange sales Equity Hybrid Bond Total Equity Hybrid Year Total Bond $193,640 $26,126 $ 1 6 7, 1 0 9 $406 $33,336 $ 7, 2 8 4 $26,017 $35 2007 181,188 20,752 1 59,718 719 29,613 4,276 25,273 64 2008 171,433 152,102 1,021 19,079 1,479 1 7, 5 5 7 43 18,309 2009 18 20,330 241,726 3,134 25,235 1,201 24,016 2010 265,189 2011 322,737 19,618 295,384 7, 7 3 4 2 7, 7 3 2 1,111 26,600 21 2012 304,688 272,255 15,335 26,003 1,364 24,229 410 1 7, 0 9 7 2013 30,706 314,224 1 7, 5 8 1 40,058 2,597 3 7, 1 1 7 343 362,512 2014 368,294 32,584 320,104 15,605 40,588 1,916 38,210 462 2015 3 7, 0 0 4 339,8 6 6 26,356 52,215 1,958 49,71 3 544 403,226 527 372,759 30,677 325,963 16,119 3 7, 6 0 5 1,695 35,384 2016 23,792 2017 421,011 34,702 362,517 4 6,938 2,470 4 3,874 594 5 6 Exchange redemptions Regular redemptions Total Equity Hybrid Bond Total Equity Hybrid Bond Year $81,898 $13,073 $68,681 $144 $18,671 $3,061 $15,587 $23 2007 2008 119,87 2 16,056 103,539 277 30,449 3,260 2 7, 1 4 0 49 2009 14,236 8 7, 5 5 9 296 18,252 1,406 16,822 24 102,091 6 150,064 15,167 134,199 698 21,995 1,400 20,590 2010 26,610 8 2011 202,694 16,236 183,579 2,879 28,101 1,482 2012 19,614 187,295 4,667 25,297 1,500 23,587 209 211,577 2013 259,959 19,196 233,468 7,295 33,175 1,495 31,404 276 256,770 2014 28 9,411 21,665 222 10,976 51,180 1,377 49,5 81 2015 28,087 295,305 15,312 59,1 52 2,026 56,750 376 338,704 405 345,060 32,924 296,141 15,996 46,523 2,131 43,987 2016 411 53,061 2017 378,824 34,100 3 2 7, 8 6 7 16,857 55,829 2,357 1 Funds of funds are mutual funds that invest primarily in other mutual funds. DATA SECTION 5 2 Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. 3 New sales are the dollar value of new purchases of mutual fund shares. This does not include shares purchased through reinvestment of dividends in existing accounts. 4 Exchange sales are the dollar value of mutual fund shares switched into funds within the same fund group. 5 Regular redemptions are the dollar value of shareholder liquidation of mutual fund shares. 6 Exchange redemptions are the dollar value of mutual fund shares switched out of funds and into other funds within the same fund group. Note: Components may not add to the total because of rounding. 257 ADDITIONAL CATEGORIES OF US MUTUAL FUNDS

272 687,874 9 0 7, 9 8 5 62 9,798 493,352 925,826 950,906 69 9,0 4 0 632,531 965,363 - 49,076 -1 6 , 8 41 -31,176 -1 1 , 4 7 7 -2 9,81 3 -2 3,626 -$ 4,918 -43,937 -42,219 -41,291 -62,828 Multi cap Multi cap $873,932 1,125,190 2 -1 2 0 37 37 26 26 27 28 -951 30 34 2,780 1,370 5,547 4,845 1,525 TIPS $1,835 3,507 3,534 4,24 4 -3,491 816,907 40,276 22,026 636,957 29,290 911,626 922,811 -1 0 ,9 0 5 -1 0 , 0 6 8 -1 2 , 3 5 3 -$ 4,994 Large cap Large cap 1,401,939 1,038,038 1,633,260 2,236,375 1,621,360 1,8 49, 3 4 4 $1,016,543 Blend funds Blend funds 1 3 -503 -985 8,020 -1,565 -2,0 4 6 -5,649 -5,515 278,493 286,797 171,699 303,518 108,90 4 265,240 148,326 181,664 Mid cap Mid cap 344,597 191,544 -14,033 -12,615 -10,540 -$4,562 $201,214 821 197 170 205 205 9,900 183 226 230 234 5,487 8,289 -5,821 -5,869 $ 7, 3 4 6 -31,383 Year-end 150 -472 -506 7, 7 6 8 1,383 96,987 71,867 -7, 4 9 2 Net new cash flow -7, 5 5 1 -7,609 Inflation-protected -4,113 -6,223 207,615 196,653 116,873 258,119 120,735 208,371 144,896 234,820 -$5,886 Small cap Small cap $119,792 Millions of dollars, annual Number of share classes -1 3 0 9,0 49 -1 ,7 5 6 -5,761 -2,275 -3,438 -6,424 14,452 $5,730 14 0,989 175,270 273,179 1 59,6 8 6 243,129 335,730 285,395 258,045 111,339 156,211 -1 5 , 1 8 7 -1 0 , 6 8 4 Multi cap Multi cap $203,448 -976 242 7, 3 3 8 217 252 232 260 2,192 200 258 234 Total -3,089 $9,181 11,425 11,034 -31,504 -7, 5 8 4 416,722 339,613 615,901 471,659 435,524 591,338 630,297 563,658 666,148 456,880 -1 3 , 5 1 9 -18,593 -25,918 -1 8 , 8 9 2 -20,6 69 -$4,610 -2 9,4 85 -2 3,736 -43,271 -46,488 Large cap Large cap $577,987 Annual Year-end Value funds Value funds 375 Total net assets Net new cash flow* 2,880 2,486 -7, 4 2 1 -7, 2 7 8 -7, 2 8 2 88,564 -3,928 -8,76 4 -4,838 209,693 242,527 121,027 152,990 224,280 Mid cap Mid cap 200,505 146,334 222,068 135,540 -1 0 , 5 41 -$1,511 $158,450 2 ON 5 9 9 9 9 10 11 12 12 TIPS 27,617 2 1,749 19,570 14,96 8 13,226 12,218 13,266 $10,112 1,124 1,313 78,536 -7, 3 2 9 -1 ,9 3 6 -3,930 -4,981 -8,705 -8,699 145,762 180,191 170,461 175,869 104,214 133,265 120,523 171,304 130,444 -1 0 , 1 9 9 -1 3 ,9 8 3 -$4,619 Small cap Small cap $122,045 DATA SECTI 1 -9, 317 $9,0 05 3 9 7, 7 5 9 275,749 3 7 7, 0 6 7 5 0 7, 1 5 1 503,947 36 4,987 490,856 600,779 354,800 508,483 -1 9, 3 4 2 -32,476 -33,671 -28,491 -1 6 , 6 6 8 -21,692 -30,908 -1 1 , 3 0 0 -38,496 Multi cap Multi cap $480,751 59 52 57 50 56 56 56 58 95,942 9 9,63 0 90,706 92,360 86,206 Year-end 1 3 7, 1 1 6 $98,326 120,065 Total net assets Number of funds 1,624 6,618 Inflation-protected -9, 39 6 3 2 7, 8 9 7 633,114 508,149 521,029 295,647 386,181 554,827 328,486 -1 6 , 676 563,046 -1 7, 5 5 4 225,666 -12,751 -1 3 ,9 1 5 -31,929 -1 2 , 3 8 0 -50,273 Large cap Large cap $393,96 8 Millions of dollars, year-end - $ 2 7, 2 0 4 Growth funds Growth funds -$755 92,473 -1 , 0 2 8 -2,982 -9,187 -9,6 87 -1 , 2 6 4 -5,520 -6,854 1 59,9 45 186,763 161,472 146,471 220,649 213,551 128,430 200,529 Mid cap Mid cap 212,405 -1 1 , 6 0 3 -21,618 -1 5 , 2 0 4 $178,978 67 59 69 65 63 66 68 68 Total 1 0 7, 3 2 8 1 2 7, 2 4 6 105,776 108,160 112,455 150,342 133,330 $108,438 6 7, 7 8 7 3,136 1,860 94,830 -3,970 -1 ,7 8 3 -2,89 6 -5,467 -4,980 -6,430 107,182 193,013 165,727 116,796 158,867 115,862 153,505 158,834 -1 0 , 3 1 6 -10,104 -$4,434 Small cap Small cap $119,593 $5 billion), and multi cap (generally not limited to company size). Data for funds that invest primarily in other mutual funds were excluded from the series. rate remains fixed. TIPS funds invest in Treasury inflation-protected securities, which are backed by the US government and provide protection against inflation, as measured by the Consumer Price Index, while the interest Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. Inflation-protected funds are funds that invest in inflation-protected or inflation-indexed securities other than TIPS (Treasury inflation-protected securities). 2011 2013 2014 2016 2008 2015 * Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. 2009 Note: Market capitalization indicates the size of the companies in which a fund invests: small cap (generally up to $2 billion), mid cap (generally $1 billion to $7 billion), large cap (generally more than 2007 2010 2017 2012 2016 2013 2007 Year 2010 2014 2011 2012 2008 2009 2015 2017 TABLE 52 Mutual Funds by Market Capitalization: Total Net Assets and Net New Cash Flow by Type of Fund Millions of dollars Year Inflation-Protected and TIPS Mutual Funds: Total Net Assets, Net New Cash Flow, Number of Funds, and Number of Share Classes TABLE 51 Year 2010 2014 2012 2013 2015 2017 2010 2011 2016 2012 2011 2 2017 2013 2014 1 2016 3 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 2015 258 2018 INVESTMENT COMPANY FACT BOOK

273 687,874 9 0 7, 9 8 5 62 9,798 493,352 950,906 925,826 69 9,0 4 0 632,531 965,363 - 49,076 -1 6 , 8 41 -31,176 -1 1 , 4 7 7 -2 9,81 3 -2 3,626 -$ 4,918 -43,937 -42,219 -41,291 -62,828 Multi cap Multi cap $873,932 1,125,190 3,507 3,534 4,24 4 -3,491 816,907 22,026 40,276 29,290 636,957 911,626 922,811 -1 0 ,9 0 5 -1 0 , 0 6 8 -1 2 , 3 5 3 -$ 4,994 Large cap Large cap 1,401,939 1,038,038 1,633,260 2,236,375 1,8 49, 3 4 4 1,621,360 $1,016,543 Blend funds Blend funds -503 -985 8,020 -1,565 -5,649 -2,0 4 6 -5,515 278,493 286,797 171,699 303,518 108,90 4 265,240 148,326 181,664 Mid cap Mid cap 344,597 191,544 -14,033 -12,615 -10,540 -$4,562 $201,214 150 -472 -506 7, 7 6 8 1,383 96,987 71,867 -7, 4 9 2 -7, 5 5 1 -7,609 -4,113 -6,223 207,615 196,653 258,119 116,873 120,735 208,371 144,896 234,820 -$5,886 Small cap Small cap $119,792 -1 3 0 9,0 49 -1 ,7 5 6 -5,761 -2,275 -3,438 -6,424 14,452 $5,730 14 0,989 175,270 273,179 243,129 335,730 1 59,6 8 6 285,395 258,045 111,339 156,211 -1 5 , 1 8 7 -1 0 , 6 8 4 Multi cap Multi cap $203,448 -7, 5 8 4 416,722 339,613 615,901 471,659 435,524 591,338 630,297 563,658 666,148 456,880 -1 3 , 5 1 9 -18,593 -25,918 -1 8 , 8 9 2 -20,6 69 -2 9,4 85 -$4,610 -2 3,736 -43,271 -46,488 Large cap Large cap $577,987 Annual Year-end Value funds Value funds 375 Total net assets Net new cash flow* 2,880 2,486 DATA SECTION 5 -7, 4 2 1 -7, 2 7 8 -7, 2 8 2 88,564 -3,928 -8,76 4 -4,838 209,693 242,527 121,027 152,990 224,280 200,505 Mid cap Mid cap 146,334 222,068 135,540 -1 0 , 5 41 -$1,511 $158,450 1,124 1,313 78,536 -7, 3 2 9 -1 ,9 3 6 -3,930 -4,981 -8,705 -8,699 145,762 180,191 170,461 175,869 104,214 133,265 120,523 171,304 130,444 -1 0 , 1 9 9 -1 3 ,9 8 3 -$4,619 Small cap Small cap $122,045 -9, 317 $9,0 05 3 9 7, 7 5 9 275,749 3 7 7, 0 6 7 5 0 7, 1 5 1 503,947 36 4,987 490,856 600,779 354,800 508,483 -1 9, 3 4 2 -32,476 -33,671 -28,491 -1 6 , 6 6 8 -21,692 -30,908 -38,496 -1 1 , 3 0 0 Multi cap Multi cap $480,751 1,624 6,618 -9, 39 6 3 2 7, 8 9 7 633,114 508,149 521,029 295,647 386,181 554,827 328,486 -1 6 , 676 -1 7, 5 5 4 563,046 225,666 -12,751 -1 3 ,9 1 5 -31,929 -1 2 , 3 8 0 -50,273 Large cap Large cap $393,96 8 - $ 2 7, 2 0 4 Growth funds Growth funds -$755 92,473 -1 , 0 2 8 -2,982 -9,187 -9,6 87 -1 , 2 6 4 -5,520 -6,854 1 59,9 45 186,763 161,472 146,471 220,649 213,551 128,430 200,529 Mid cap Mid cap 212,405 -1 1 , 6 0 3 -21,618 -1 5 , 2 0 4 $178,978 6 7, 7 8 7 3,136 1,860 94,830 -3,970 -1 ,7 8 3 -2,89 6 -5,467 -4,980 -6,430 107,182 193,013 165,727 116,796 158,867 115,862 153,505 158,834 -1 0 , 3 1 6 -10,104 -$4,434 Small cap Small cap $119,593 $5 billion), and multi cap (generally not limited to company size). Data for funds that invest primarily in other mutual funds were excluded from the series. 2012 2013 2011 2017 2010 2017 2014 2016 2009 2015 2013 2015 2014 2008 * Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. Note: Market capitalization indicates the size of the companies in which a fund invests: small cap (generally up to $2 billion), mid cap (generally $1 billion to $7 billion), large cap (generally more than 2007 2009 2016 2008 Year 2007 2012 2011 2010 Millions of dollars Mutual Funds by Market Capitalization: Total Net Assets and Net New Cash Flow by Type of Fund TABLE 52 Year ADDITIONAL CATEGORIES OF US MUTUAL FUNDS 259

274 741 7 74 74 6 695 718 708 783 700 715 777 684 245 226 226 253 235 239 236 229 234 234 254 Multi cap Multi cap 416 416 413 420 457 423 490 463 489 404 440 1,191 1,242 1,224 1,224 1,184 1,184 1,248 1,302 1,235 1,213 1,256 Large cap Large cap Blend funds Blend funds 145 379 371 361 373 373 373 148 377 350 350 356 135 402 133 128 139 139 130 134 134 134 Mid cap Mid cap 167 478 471 179 171 431 196 201 173 199 521 596 177 450 436 438 603 186 188 200 568 480 Small cap Small cap 616 516 551 570 532 621 599 503 545 605 584 192 201 190 203 218 211 213 213 206 206 200 Multi cap Multi cap 979 954 998 994 948 324 321 328 369 395 339 323 323 322 358 400 1,024 1,025 1,106 1,109 1,009 1,004 Large cap Large cap Value funds Value funds Number of funds 191 616 592 196 187 187 202 177 533 182 607 601 549 530 189 180 186 188 563 554 543 540 Number of share classes Mid cap Mid cap ON 5 197 610 219 214 593 210 595 598 626 561 203 202 205 221 582 582 213 213 209 645 643 560 Small cap Small cap DATA SECTI 474 493 169 165 473 181 190 467 520 160 160 530 155 164 208 209 465 485 158 466 548 544 Multi cap Multi cap 917 817 875 957 892 905 845 960 888 904 267 317 310 351 331 262 287 289 288 300 348 1,004 Large cap Large cap Growth funds Growth funds 245 198 702 179 179 611 570 207 695 173 594 246 557 635 189 558 180 164 565 220 560 546 Mid cap Mid cap 191 591 198 179 575 207 246 652 596 182 653 237 581 183 550 213 188 204 580 560 560 606 Small cap Small cap Year 2016 2012 2013 2017 2008 $5 billion), and multi cap (generally not limited to company size). Data for funds that invest primarily in other mutual funds were excluded from the series. 2014 Note: Market capitalization indicates the size of the companies in which a fund invests: small cap (generally up to $2 billion), mid cap (generally $1 billion to $7 billion), large cap (generally more than 2011 2009 2007 2017 2010 2015 2016 2010 2015 2011 2014 2013 2012 Year-end Year 2008 Mutual Funds by Market Capitalization: Number of Funds and Number of Share Classes by Type of Fund TABLE 53 2009 2007 260 2018 INVESTMENT COMPANY FACT BOOK

275 TABLE 54 Sector Mutual Funds: Total Net Assets and Net New Cash Flow by Type of Fund Millions of dollars Total net assets Year-end Natural Precious Real Technology/ Other Consumer Health Financial Telecom Utilities metals sectors Year resources estate 2000 $ 45,921 $2,920 $1,143 $11,675 $103,853 $22,908 $3,917 $1,042 $16,087 1,290 40,545 2,390 1,314 1 3,901 62,339 1 7, 74 4 2,94 0 2001 13,509 1,096 10,885 30,087 2,175 2,486 1 7, 74 5 31,308 11,275 2,082 2002 1,436 3,237 36,803 2003 4,227 31,653 4 6,929 13,481 2,412 13,138 1,631 40,147 5,789 4,270 49,927 42,403 19, 201 2,974 2004 1 2,917 1,405 11,837 45,398 11,972 7, 0 0 3 2005 34,366 28,390 3,189 59,158 2006 12,269 44,744 14,588 1,928 81,329 32,891 34,589 3,950 9,875 2007 2,147 8,518 43,967 22,050 12,066 53,738 34,169 45,669 4,826 2008 1,776 4,857 31,337 9,9 07 7, 8 3 6 33,503 16,331 23,240 1,766 44,126 2009 2,439 5,941 32,440 1 7, 3 8 0 14,901 27,610 30,327 2,986 2010 3,113 32,507 22,714 23,065 55,120 30,738 33,332 4,597 6,286 3,546 60,155 35,884 20,797 1 7, 1 0 2 2011 26,680 34,785 3,906 4,548 2012 5,901 44,105 21,712 15,338 75,340 28,570 35,400 5,001 4,675 2013 6,431 9, 285 74,767 30,696 6,811 77,363 41,486 40,149 8,173 2014 9,41 5 103,447 36,630 6,019 104,288 45,358 41,556 8,969 7, 0 1 7 2015 9,514 10,222 124,538 28,988 4,487 101,459 4 7, 0 8 8 32,516 7, 0 0 6 2016 8,962 12,025 93,121 39, 2 5 6 6,882 105,701 4 6,956 38,543 8,014 35,539 9,7 27 2017 8,94 6 14,099 104,465 3 7, 7 2 0 7, 2 7 7 110,899 62,461 Net new cash flow* Annual Technology/ Natural Precious Real Other resources Consumer metals Financial Health estate Year Telecom Utilities sectors 2000 -$122 -$534 $9, 2 5 6 $246 -$214 $339 $43,837 $1,015 -$187 -1 9 8 -953 2001 254 -962 236 -182 -2 9 430 -4,458 DATA SECTION 5 2002 11 -2,895 -7 3 484 3,612 -6,211 -2,076 -28 8 -1 , 6 0 3 9 -767 336 447 5,177 73 -2 92 -1 4 5 2003 -940 3 -1 , 5 3 5 -387 1,435 398 2004 -6,165 1,571 148 7, 0 5 0 2005 -1 , 5 8 6 836 3,471 -20 9 3,000 -8,541 3,311 121 1,027 2006 29 -1 , 0 1 7 -4,137 769 736 4,395 -4,456 556 -49 2007 -2,617 -3,378 1,662 -1 5 2 -1 5 , 2 8 2 -2,745 1,992 257 94 2008 209 96 -3,025 -20 6 769 1,791 -3,8 47 -3,397 -488 2,253 2009 -457 -3,163 1,76 4 82 492 1,768 254 386 2010 101 724 -626 -2,4 07 1,493 2,330 1,74 6 -1 , 3 9 1 -848 2011 262 478 1,152 -1 , 3 5 9 1,018 -2,3 4 6 701 -28 6 -885 544 4,490 1,385 460 112 2012 -1 , 5 1 5 -1 ,9 9 4 173 56 2013 859 8,582 5,451 -1 , 4 3 3 315 1,972 -1 , 4 0 9 977 794 2014 47 -25 6 7, 6 4 5 5,776 -1 6 6 5,279 85 3,783 91 2015 978 11,007 -688 -37 -4,552 288 -2,5 85 -1 , 5 1 0 2,235 2016 -913 49 -1 7, 6 0 2 3,053 325 -7 7 1 -3,953 -1 , 1 5 5 154 -1 0 8 2017 208 -8,496 -2,4 89 -1,481 -6,603 -927 -5,234 74 * Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. Note: Sector funds are funds that invest solely in companies that operate in related fields or specific industries. Data for funds that invest primarily in other mutual funds were excluded from the series. 261 ADDITIONAL CATEGORIES OF US MUTUAL FUNDS

276 TABLE 55 Sector Mutual Funds: Number of Funds and Number of Share Classes by Type of Fund Year-end Number of funds Technology/ Precious Real Natural Other Health Financial metals Telecom Utilities resources sectors Year Consumer estate 34 2000 18 12 74 132 34 16 7 38 9 57 17 11 41 155 40 17 2001 75 12 42 63 14 12 79 145 35 19 2002 11 2003 15 12 91 124 33 19 38 58 14 59 16 12 94 115 34 20 2004 40 14 41 53 17 12 93 103 32 19 2005 18 40 57 19 13 97 108 38 23 2006 2007 19 40 52 19 12 96 98 39 25 2008 19 48 20 12 92 88 41 22 38 19 90 41 19 12 2009 79 37 23 36 2010 35 38 20 12 87 74 35 21 19 2011 19 32 34 24 11 83 69 33 21 2012 33 35 26 12 84 66 36 24 20 24 19 32 35 30 12 87 68 41 2013 2014 19 31 34 34 12 87 67 37 24 2015 31 34 42 12 90 67 39 24 19 23 19 30 34 42 12 89 67 39 2016 38 68 88 23 2017 20 30 34 44 11 Number of share classes Natural Precious Real Technology/ Other metals Health Year estate resources Telecom Consumer Financial sectors Utilities 2000 73 91 32 12 151 283 75 23 20 2001 17 88 145 31 22 156 350 89 25 2002 92 171 25 25 172 348 91 28 22 2003 19 85 155 32 27 214 290 88 28 27 2004 159 92 29 33 28 238 279 91 2005 95 137 37 28 240 260 94 27 26 ON 5 33 93 147 40 31 246 267 107 37 2006 2007 41 95 133 46 35 252 249 113 42 2008 91 124 51 38 246 218 117 33 42 41 42 80 101 49 38 246 199 105 2009 36 190 96 2010 42 79 97 53 39 246 DATA SECTI 238 2011 80 70 34 72 184 89 36 43 2012 47 73 83 80 37 241 182 100 43 44 2013 41 72 83 92 35 256 188 109 101 35 2014 41 70 80 40 96 266 181 39 39 70 80 135 35 281 180 101 2015 136 2016 37 72 79 33 275 178 101 36 101 36 2017 39 74 78 141 31 269 184 Note: Sector funds invest solely in companies that operate in related fields or specific industries. Data for funds that invest primarily in other mutual funds were excluded from the series. 262 2018 INVESTMENT COMPANY FACT BOOK

277 4 243 492 179 792 837 901 802 881 912 365 898 394 127 836 213 682 284 868 900 848 848 Lifestyle 3 67 67 14 27 20 36 105 248 770 449 2,176 1,753 1,516 1,494 1,038 2,034 1,623 2,353 2,469 2,505 1,369 Year-end Target date Number of share classes 141 74 0 351 432 279 199 240 499 Total 3,074 2,491 2,93 4 2,601 2,217 1,131 3,381 2,353 2,330 1,562 3,386 3,254 1,840 4 96 68 249 242 149 267 261 114 275 269 201 271 271 251 160 264 264 150 125 125 254 Lifestyle 3 9 14 42 16 81 21 22 22 492 413 378 181 124 6 41 429 246 632 599 339 542 380 Year-end Target date Number of funds 77 241 147 614 763 192 910 495 171 677 110 423 146 325 813 639 Number of Funds, and Number of Share Classes 883 130 683 866 644 Total 2 4 DATA SECTION 5 8,674 4,918 2,314 4,030 3,812 4,327 4,184 3,609 -1 , 0 8 4 -2,9 0 8 -2,6 6 0 35,059 35,711 33,704 $4,010 11,788 12,527 15,485 Lifestyle -2 9,17 7 -2 3,678 -1 3 , 5 41 3 $128 7, 2 5 2 3,768 1,319 3,551 1,097 3,884 6 7, 5 8 1 41,917 52,941 52,932 33,101 41,552 43,4 41 6 4,929 12,851 44,425 56,211 66,349 22,122 44,588 Target date Net new cash flow Millions of dollars, annual 7, 6 9 6 7, 5 8 1 4,928 6,015 8,095 Total 57,182 19,0 4 0 41,681 91,922 52,116 41,252 55,255 50,272 52,808 28,336 38,403 66,805 $4,138 48,609 40,468 54,444 Total Net Assets, Net New Cash Flow, 1 4 33,706 86,035 28,261 3 4,992 31,501 56,359 21,255 2 3 7, 9 5 8 175,591 3 9 4,74 4 18 9,8 49 $13,181 230,950 358,789 372,001 398,735 371,587 264,155 262,046 131,585 292,588 Lifestyle 3 4,158 8,215 6,588 70,476 11,761 2 5, 374 14,433 43,135 $1,133 702,702 762,789 159,900 618,061 182,973 375,881 339,8 3 6 255,655 113,807 886,686 480,800 1,115,766 Target date Total net assets Millions of dollars, year-end Total 39,716 49,42 5 45,467 81,733 25,413 34,849 6 3 7, 9 2 7 420,931 $14,314 1 2 9,170 335,491 976,850 603,991 303,656 202,062 486,605 773,388 1 , 0 9 7, 4 4 6 1,514,501 1,134,790 1,258,273 A lifestyle fund maintains a predetermined risk level and generally use words such as “conservative,” “moderate,” or “aggressive” in their names to indicate the fund’s risk level. rebalance their portfolios to become more conservative and income producing as the fund approaches and passes its target date. Categories include data for funds that invest primarily in other funds. Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. A target date fund is designed to satisfy investors’ investment objective by a particular target date, which is usually included in the name of the fund. These funds invest in a mix of asset classes and typically 2015 2014 2012 2011 2004 2007 2000 1999 2017 2013 2010 2008 2005 2006 2001 Year 2002 Note: Components may not add to the total because of rounding. Target Date and Lifestyle Mutual Funds: TABLE 56 2016 1 1998 2 2003 3 1997 2009 4 263 ADDITIONAL CATEGORIES OF US MUTUAL FUNDS

278 8 $ 74 6 2,141 1,419 1,781 1,107 6,938 4,102 5,172 4,737 1,243 1,723 4,481 5,129 2,305 4,688 4,277 1,609 3,230 4,221 4,588 4,364 Lifestyle 7 6 $0 823 9,053 1,167 1,717 2,696 3,532 1,467 1,511 1,658 5,356 8,468 1 7, 2 1 5 37,806 14,376 14,626 12,437 40,658 46,596 22,150 44,388 Exchange Target date $ 74 6 2,776 5,673 2,930 2,824 Total 3,772 4,477 3,381 2,066 8,586 1 7, 0 2 5 49,076 19,107 42,978 26,514 21,314 51,333 12,570 44,879 13,329 22,343 8 Redemptions 5,190 8,721 8,655 6,909 6,990 2,96 8 3 7, 5 6 7 1 7, 4 5 4 59,143 41,014 45,424 41,198 35,492 18,792 $1,438 28,301 54,015 28,805 60,805 11,458 58,253 Lifestyle 7 5 912 589 $325 8,467 1,601 2,180 6,113 1,312 2,383 6 7, 3 9 2 39,410 90,813 92,090 38,397 28,346 12,448 Regular 169,53 6 1 2 9,0 61 20 9, 357 166,823 121,606 Target date 6,102 8,510 3,557 8,302 Total 1 7, 5 7 1 10,901 $1,763 25,921 11,038 31,240 73,889 68,215 56,646 1 6 7, 0 3 0 1 8 7, 3 1 4 10 4,959 132,011 133,104 220,838 230,342 268,500 2 8 5,979 3,618 5,051 3,983 1,953 4,029 4,779 5,990 5,687 2,089 3,315 3,680 4,320 1,403 6,445 4,356 1,660 5,500 1,460 1,448 $1,067 Lifestyle ON 5 7 4 $0 7,618 2,519 2,532 5,398 1,335 2,288 3,368 1,684 1 7, 9 1 4 1 7, 0 1 1 16,623 40,479 30,891 28,093 15,988 16,120 35,090 25,301 11,123 11,554 Exchange Target date DATA SECTI 3,691 4,179 2,782 4,621 8,713 3,144 5,321 Total 1 7, 1 1 3 19,6 67 30,989 $1,067 33,593 15,172 39,8 6 8 45,530 11,647 23,456 35,211 20,606 22,271 22,099 Components of Net New Cash Flow Sales 1 8 7, 6 8 1 8,94 8 3 7, 9 8 0 19,597 2 9,876 49,7 3 6 39,1 55 10,784 4 8,978 54,067 50,625 $5,127 46,415 40,160 42,356 61,668 13,065 40,887 38,138 25,409 11,236 Lifestyle 7 3 $453 7, 9 8 4 4,624 5,171 1,175 3,798 1,715 New 39,781 76,013 16,261 78,570 26,503 80,350 1 0 7, 6 3 1 143,661 241,381 2 39, 28 9 186,214 131,665 171,396 286,236 Target date 8,856 Total 2 7, 5 8 1 41,670 7 7, 1 2 9 8 9,517 10,663 15,034 18,235 $5,580 15,408 2 1 7, 8 1 1 149,987 1 3 7, 6 8 2 279,4 49 316,111 1 2 7, 5 4 8 182,816 279,360 172,552 240,280 118,488 A lifestyle fund maintains a predetermined risk level and generally use words such as “conservative,” “moderate,” or “aggressive” in their names to indicate the fund’s risk level. rebalance their portfolios to become more conservative and income producing as the fund approaches and passes its target date. New sales are the dollar value of new purchases of mutual fund shares. This does not include shares purchased through reinvestment of dividends in existing accounts. Categories include data for funds that invest primarily in other funds. Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. Exchange sales are the dollar value of mutual fund shares switched into funds within the same fund group. Regular redemptions are the dollar value of shareholder liquidation of mutual fund shares. Exchange redemptions are the dollar value of mutual fund shares switched out of funds and into other funds within the same fund group. A target date fund is designed to satisfy investors’ investment objective by a particular target date, which is usually included in the name of the fund. These funds invest in a mix of asset classes and typically Year TABLE 57 Target Date and Lifestyle Mutual Funds: Millions of dollars, annual 2003 1998 2017 2012 2013 2009 2008 1997 2005 2007 2016 2004 Note: Components may not add to the total because of rounding. 1999 8 1 2001 2 2006 3 2011 4 2010 5 2015 6 2002 7 2000 2014 264 2018 INVESTMENT COMPANY FACT BOOK

279 70 81 81 78 87 92 43 43 79 79 53 82 57 83 89 73 80 56 60 88 64 Money market 470 497 431 413 526 437 455 453 422 323 377 536 523 449 449 454 443 443 404 540 448 Hybrid and bond Year-end Number of funds 703 535 868 Equity 1,195 1,102 1,051 1,367 1,351 1,180 1,126 1,094 1,391 1,248 1,150 1,369 1,356 1,389 1,306 1,256 1,222 1,364 937 Total 1,7 74 1,926 1,705 1,903 1,162 1,677 1,750 1,739 1,725 1,729 1,897 1,681 1,900 1,828 1,734 1,881 1,353 1,882 1,562 1,889 327 136 $411 7, 2 5 1 8,267 8,687 5,501 6,040 1,806 -9,711 -3,867 -2,63 8 -2,0 63 -2,337 -2,6 65 -2,6 83 -1,299 -5,132 19,53 8 Money market -1 8 , 8 0 6 -1 2 , 1 5 0 -460 7, 1 9 2 5,018 6,929 8,035 2,595 4,449 -7, 7 9 0 -5,7 74 2 7, 2 3 3 29,111 10,297 10,362 $6,316 11,151 33,090 22,94 8 Hybrid 32,440 -12,975 -1 3 , 6 3 3 -21,75 4 and bond DATA SECTION 5 Net new cash flow* 4,861 1,581 -3,665 1 7, 0 1 8 2 7, 8 5 7 Equity Millions of dollars, annual 33,592 30,736 3 4,969 58,314 13,254 -1 2 ,76 3 -89,763 -30,690 -25,43 4 -55,367 -53,813 -61,392 -58,536 -64,863 -48,213 $ 3 3,74 3 9,9 69 -2,055 -1 , 2 8 6 2 9,749 -6,134 Total 2 9,71 2 31,780 33,505 16,404 48,461 21,583 38,543 44,259 -53,733 -66,975 -20,8 4 4 -31,388 -6 4,982 -80,833 $40,470 -1 1 5 , 3 8 4 Money 3 7, 1 2 4 74,97 1 market 39,792 57,296 43,932 42,192 33,037 39,0 43 33,732 32,196 35,652 48,070 33,699 52,723 35,892 33,361 23,853 44,756 48,873 48,554 $16,474 Hybrid 337,576 217,090 249, 210 6 0 7, 2 0 4 579,457 405,076 610,356 255,199 292,727 202,106 152,276 523,453 116,337 $92,571 182,773 450,685 590,680 131,342 128,349 638,122 138,848 and bond Total net assets 474,961 619,018 Equity 975,532 652,421 598,713 791,878 822,105 875,004 438,603 656,877 558,654 800,129 886,357 738,444 Millions of dollars, year-end $364,286 1 , 0 2 7, 8 5 0 1,050,470 1,052,868 1,065,125 1,156,265 1,006,454 Total 8 3 7, 4 4 3 973,910 742, 2 5 8 818,958 638,949 615,152 816,800 928,883 $473,331 1,674,0 9 8 1,6 69,719 1, 339,987 1,709,454 1,636,178 1,186,750 1,072,894 1,266,93 4 1,299,687 1,826,583 1,398,318 1,442,389 Components may not add to the total because of rounding. 2017 * Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. Note: This category includes mutual funds offered through variable annuity and variable life insurance contracts. Data for funds that invest primarily in other mutual funds were excluded from the series. 2007 2014 1998 2005 2006 2013 1997 2016 2003 1999 2004 2002 2008 2015 2009 2010 Year Variable Annuity Mutual Funds: Total Net Assets, Net New Cash Flow, and Number of Funds TABLE 58 2001 2000 2011 2012 265 ADDITIONAL CATEGORIES OF US MUTUAL FUNDS

280 7,693 9,570 3,102 4,102 5,706 1,795 6,472 9, 35 6 5,104 3,189 8,351 6,555 3,139 6,397 2,515 1,293 1,377 Money market 12,017 $9,298 14,856 11,254 689 5 3,174 6,7 74 5,916 4,959 4,616 2,702 1,178 3,413 3,412 1,473 6,526 2,647 5,281 3,403 1,999 5,325 2,288 3,546 3,346 Hybrid $1,417 and bond Exchange 8,875 8,517 6,998 9,8 4 0 6,335 6,448 Equity 1 7, 9 2 1 18,574 16,922 12,616 21,267 13,319 12,376 14,382 21,853 20,542 14,543 11,666 20,444 12,564 $12,871 Total 1 7, 5 7 8 19,47 2 10,163 24,826 11,610 16,015 35,199 21,816 33,425 39,8 8 3 30,623 16,251 35,571 22,778 15,087 31,550 13,537 26,340 28,444 22,344 $23,586 Redemptions 4 7, 5 5 2 3 7, 5 7 8 36,910 33,824 51,750 32,859 93,561 42,401 31,043 30,153 31,089 34,867 78,231 72,144 70,468 36,094 45,488 32,846 Money market 1 0 7, 1 8 9 110,942 $22,063 4 2 7, 5 1 0 69,714 2 7, 4 8 3 $9,9 05 8 9, 270 14,96 4 90,601 55,877 38,908 46,632 22,275 44,472 44,350 44,382 Hybrid 1 2 7, 5 9 2 103,993 126,314 108,772 113,615 1 25,958 111,566 and bond Regular 54,024 Equity 1 9 7, 9 1 4 1 8 7, 7 8 6 227,422 19 4, 374 190,977 18 9,7 7 3 18 9,8 81 215,814 148,067 190,532 154,776 166,186 181,579 100,392 136,061 173,300 188,579 $33,408 201,508 136,344 Total 9 9,141 3 1 7, 1 8 0 174,41 8 325,676 339,752 2 8 7, 2 3 0 3 49,9 9 0 253,161 320,030 351,472 353,104 302,720 324,809 333,186 341,361 230,118 390,168 228,278 $65,377 250,509 34 4,224 9,0 97 7,540 3,145 1,410 8,070 3,316 3,635 5,595 2,859 3,828 9, 2 20 3,256 2,589 4,294 6,300 1 Money market 15,753 11,652 10,604 10,583 12,668 $8,846 ON 5 3 7, 1 6 0 6,742 3,767 3,031 5,114 6,198 2,102 8,247 5,962 5,711 2,985 3,425 5,185 4,013 5,94 4 3,403 1,852 5,502 6,865 1,577 Hybrid $2,348 and bond Exchange DATA SECTI 7, 3 5 8 6,755 Equity 6,576 6,816 4,94 8 4,669 19,701 18,967 10,720 16,428 15,928 10,823 10,599 14,353 14,396 14,589 15,307 11,112 22,080 22,822 $13,017 9,5 62 Total 3 7, 0 4 5 1 7, 3 2 5 3 7, 1 3 6 19,598 31,716 28,791 34,170 23,173 16,269 14,231 26,407 40,818 36,326 12,106 22,650 22,318 13,645 16,409 25,445 $24,210 Sales 3 0,74 8 59,1 28 59,1 20 35,789 28,91 2 45,042 88,169 61,528 28,575 33,127 32,96 4 32,361 34,780 28,201 91,863 51,336 36,252 36,846 Money market 114,628 $22,926 110,256 9 7, 3 3 0 33,707 73,991 65,958 94,051 48,179 20,128 51,529 46,592 23,227 98,308 54,392 22,004 48,220 Hybrid 2 124,476 140,079 154,145 112,593 and bond 100,386 151,298 $15,290 New 83,457 Equity 1 3 7, 1 4 1 1 9 7, 8 3 1 $ 6 7, 0 0 5 169,0 43 170,082 191,872 142,685 183,758 164,907 10 9,6 6 8 124,422 144,692 198,184 150,905 222,945 128,108 162,387 130,900 1 32,90 4 218,138 Total 267,810 3 3 7, 9 5 0 297,909 270,143 342,193 310,829 261,715 332,243 33 4,936 141,46 4 312,818 212,025 280,246 258,435 246,396 282,563 343,465 346,166 204,538 380,404 $105,222 Components may not add to the total because of rounding. Regular redemptions are the dollar value of shareholder liquidation of mutual fund shares. Exchange redemptions are the dollar value of mutual fund shares switched out of funds and into other funds within the same fund group. Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. New sales are the dollar value of new purchases of mutual fund shares. This does not include shares purchased through reinvestment of dividends in existing accounts. Exchange sales are the dollar value of mutual fund shares switched into funds within the same fund group. 2005 2011 1997 2010 2006 1998 2009 1999 2000 Year Millions of dollars, annual Variable Annuity Mutual Funds: Components of Net New Cash Flow TABLE 59 2001 2002 2003 2004 2008 2007 2014 Note: This category includes mutual funds offered through variable annuity and variable life insurance contracts. Data for funds that invest primarily in other mutual funds were excluded from the series. 2012 1 2016 2 2015 3 2017 4 2013 5 266 2018 INVESTMENT COMPANY FACT BOOK

281 TABLE 60 Mutual Funds: Total Net Assets Held in Individual and Institutional Accounts Millions of dollars, year-end Money Bond funds Total market funds Equity funds Year Hybrid funds To t a l $3,653,100 $ 4 4 7, 5 7 0 $1,261,157 $2,040,022 2003 $ 7, 4 0 1 , 8 4 9 4,342,272 2004 1,299,274 1,901,700 8,095,496 552,250 8,891,010 621,479 1,357,630 2,026,822 2005 4,885,079 5,832,181 731,503 1,495,619 2,338,451 2006 10,397,754 11,999,706 6,412,760 821,522 1,679,664 3,085,760 2007 9,6 2 0, 274 562,262 1,570,978 3,832,236 2008 3,654,799 11,111,163 4,871,736 7 1 7, 5 8 0 2,205,95 4 3,315,893 2009 11,833,089 2,591,175 842,198 2010 2,803,514 5,596,202 11,632,585 2,844,659 883,981 2011 2,690,950 5,212,995 2012 5,938,757 1,031,581 3,390,98 4 2,693,169 13,054,490 2013 15,0 4 8,980 7, 7 6 2 , 5 5 6 1,282,571 3,286,045 2 , 7 1 7, 8 0 8 2014 15,873,399 1, 374,143 3,460,626 2,724,641 8,313,989 2015 8,149,607 1,334,258 3,413,449 2,754,743 15,652,058 2016 16,343,717 8 , 5 7 7, 2 6 7 1,388,659 3,649,654 2,728,137 2017 1 8,74 6, 2 8 9 10,305,955 1,525,721 4,067,310 2,847,304 Individual accounts 2003 $6,554,007 $435,131 $1,168,216 $ 1 , 4 8 7, 3 3 8 $3,463,322 7, 2 0 3 , 9 7 6 1,205,962 536,248 2004 1,368,522 4,093,243 2005 4,576,26 4 600,437 1,235,488 1,390,586 7, 8 0 2 , 7 7 5 2006 9,0 98, 2 24 5,437,183 704,116 1,358,138 1,598,787 2007 5,986,138 792,386 1,521,986 2,092,040 10,392,550 2008 7, 8 6 6 , 3 2 0 3,405,469 544,230 1,425,757 2,490,863 2009 9,293,020 4,502,277 693,742 2,008,822 2,088,180 2010 1,783,575 2,339,473 10,062,693 5,130,989 808,656 2011 9,938,069 845,148 2,579,6 03 1,734,114 4,7 79, 20 4 2012 5,4 49, 3 87 98 9, 3 8 4 3,068,044 1,733,812 11,240,627 2013 13,065,532 7, 1 5 6 , 8 7 6 1,224,828 2 , 9 5 7, 1 3 9 1,726,689 2014 13,768,894 7,662,416 1,314,179 3,108,088 1,684,210 2015 7, 5 0 0 , 1 0 8 13,539,546 1,277,560 3,059,216 1,702,662 2016 7,903,600 1,331,651 3,281,321 1,691,233 1 4 , 2 0 7, 8 0 4 p 1,464,268 16,354,839 9,4 8 9,14 4 2017 3,645,725 1,755,702 Institutional accounts* 2003 $847,842 $18 9,7 78 $12,439 $92,941 $552,684 533,178 93,312 2004 891,520 249,028 16,002 DATA SECTION 6 2005 1,088,235 21,042 122,143 636,235 308,815 1, 2 9 9,530 394,998 1 3 7, 4 8 1 7 39,6 6 4 2006 2 7, 3 8 6 1 , 6 0 7, 1 5 7 2 9,1 3 6 1 5 7, 6 7 8 993,721 2007 426,622 1,753,95 4 249, 32 9 18,031 2008 1,341,374 145,220 2009 3 69,459 23,839 1 9 7, 1 3 2 1,227,714 1,818,143 1,770,396 465,213 33,542 251,702 1,019,939 2010 2011 1,694,516 433,791 38,832 265,056 956,837 2012 1,813,863 42,196 322,94 0 959,357 489,369 1,983,4 49 328,906 5 7, 74 3 2013 991,120 605,680 2014 651,572 59,9 6 4 352,538 1,040,431 2,104,505 2015 2,112,512 6 49,5 0 0 56,697 354,233 1,052,081 2016 673,667 5 7, 0 0 8 368,333 1,036,90 4 2,135,912 p 2,391,450 2017 816,812 61,453 421,584 1,091,602 * Institutional accounts include accounts purchased by an institution, such as a business, financial, or nonprofit organization. Institutional accounts do not include primary accounts of individuals issued by a broker-dealer. p Data are preliminary. Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 267 INSTITUTIONAL INVESTORS IN THE US MUTUAL FUND INDUSTRY

282 TABLE 61 Mutual Funds: Total Net Assets of Institutional Investors by Type of Institution and Type of Fund Millions of dollars, year-end Nonprofit Financial Business 1 2 institutions organizations Other corporations To t a l Ye a r $1,753,954 $904,781 $ 4 9 7, 0 7 5 2008 $216,557 To t a l $135,540 249, 32 9 6 4,978 33,135 80,491 Equity 70,726 5,702 5,708 2,717 3,90 4 Hybrid 18,031 145,220 29,355 28,624 22,868 64,373 Bond 1,341,374 Money market 76,820 6 7, 7 8 9 798,998 3 9 7, 7 6 6 1,818,143 1 4 7, 4 1 3 510,823 To t a l 273,351 2009 886,555 106,233 8 9, 278 4 4,776 1 2 9,171 Equity 3 69,459 23,839 7, 9 8 9 7, 1 2 6 3,665 5,060 Hybrid Bond 1 9 7, 1 3 2 41,527 2 9,010 79, 331 4 7, 2 6 5 Money market 725,069 372,893 69,9 63 59,79 0 1 , 2 2 7, 7 1 4 2010 To t a l 1,770,396 741 ,62 3 515,467 153,371 359,935 Equity 465,213 108,380 49,0 82 186,393 121,358 33,542 10,186 4,262 8,142 Hybrid 10,953 251,702 54,172 54,853 Bond 10 9, 2 24 33,453 Money market 1,019,939 555,140 342,048 6 6, 5 74 56,177 2011 To t a l 1,694,516 681,853 488,009 146,415 378,239 Equity 102,158 95,039 45,315 191,280 433,791 Hybrid 38,832 12,042 11,390 4,795 10,606 Bond 265,056 51,823 5 7, 9 1 1 36,247 119,075 515,830 Money market 956,837 323,670 60,058 5 7, 2 7 8 2012 1,813,863 684,218 518,708 152,295 458,642 To t a l Equity 489,369 108,787 97,975 51,714 230,893 Hybrid 11,218 1 3,941 5,186 11,851 42,196 154,648 322,94 0 59,301 68,672 40,321 Bond 50 4,91 2 5 5,074 61,251 Money market 959, 357 338,120 2013 To t a l 745,386 546,523 165,919 525,621 1,983,449 605,680 119,610 6 4, 374 285,900 Equity 135,796 5 7, 74 3 15,106 1 7, 1 8 9 Hybrid 18,017 7, 4 3 2 Bond 328,906 58,992 70,325 35,583 164,006 Money market 991,120 535,492 339,399 58,530 5 7, 6 9 8 2014 2,104,505 791,350 576,010 181,936 555,209 To t a l Equity 651,572 149,7 20 122,366 65,869 313,617 Hybrid 59,9 6 4 15,433 1 7, 9 9 6 7, 6 9 6 18,839 Bond 352,538 68,594 78,666 39,1 5 0 166,127 Money market 1,040,431 356,982 69, 2 21 56,627 5 5 7, 6 0 3 To t a l 574,631 811,803 2015 184,005 542,072 2,112,512 6 49,5 0 0 149, 397 124,322 62,832 31 2,949 Equity Hybrid 56,697 15,522 19,02 3 8,183 1 3,969 Bond 70,321 85,341 38,376 160,196 354,233 Money market 1,052,081 576,563 345,945 74,615 5 4,958 2016 To t a l 2,135,912 700,833 651,212 198,263 585,604 64,409 336,157 1 22,94 6 Equity 673,667 150,154 DATA SECTION 6 Hybrid 19,18 0 9,052 14,571 14,204 5 7, 0 0 8 89,306 72,537 Bond 40,429 166,062 368,333 Money market 1,036,90 4 4 63,937 419,78 0 84,373 68,814 p 2017 693,879 To t a l 2,391,450 752,026 732,064 213,481 816,812 183,007 Equity 398,533 75,012 160,259 Hybrid 14,738 20,652 10,377 15,686 61,453 Bond 421,584 78,799 118,501 42,570 181,714 Money market 1,091,602 475,481 432,651 85,522 9 7, 9 4 7 1 Financial institutions include credit unions, accounts of banks not held as fiduciaries, insurance companies, and other financial organizations. 2 Other institutional investors include state and local governments, funds holding mutual fund shares, and other institutional accounts not classified. p Data are preliminary. Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 2018 INVESTMENT COMPANY FACT BOOK 268

283 TABLE 62 Taxable Money Market Funds: Total Net Assets of Institutional Investors by Type of Institution and Type of Fund Millions of dollars, year-end Nonprofit Financial Business 1 2 institutions organizations Other corporations To t a l Ye a r $515,153 $270,469 $194,259 2003 $18,202 To t a l $32,223 428,443 173,539 22,473 11,870 Institutional funds 220,562 49,9 07 20,720 9,751 6,333 Retail funds 86,710 To t a l 486,612 2 7 7, 2 3 5 161,810 28,909 18,659 2004 406,634 228,594 18,93 4 12,586 Institutional funds 146,520 79,979 15,290 9,975 6,073 Retail funds 48,641 To t a l 578,538 322,944 2005 32,896 25,696 1 9 7, 0 0 2 Institutional funds 270,892 172,215 23,666 18,266 485,039 93,499 52,052 24,788 9,229 7, 4 3 0 Retail funds 2006 To t a l 677,610 388,596 221,779 3 7, 8 5 6 29, 379 Institutional funds 581,580 208,179 26,698 22,613 324,089 Retail funds 64,507 13,600 11,158 6,766 96,030 2007 To t a l 916,501 514,367 294,432 5 7, 4 7 0 50,232 Institutional funds 444,130 273,626 43,408 43,254 804,418 6,977 112,082 70,237 20,806 14,062 Retail funds 64,900 2008 To t a l 1,253,701 736,036 377,963 74 , 8 03 Institutional funds 1,1 2 9,759 350,945 60,632 58,282 659,901 1 23,941 14,171 2 7, 0 1 8 Retail funds 6,618 76,134 2009 1,150,656 668,516 356,992 68,124 5 7, 0 2 5 To t a l Institutional funds 1,052,584 606,631 336,161 5 7, 7 6 4 52,029 Retail funds 61,885 20,831 10,360 4,996 98,072 53,865 To t a l 961,045 513,038 328,890 65,252 2010 Institutional funds 49,365 56,442 872,602 459,592 3 0 7, 2 0 3 Retail funds 88,443 21,687 8,809 4,500 53,446 2011 909,996 481,122 314,508 58,686 55,680 To t a l Institutional funds 822,855 428,513 292,479 50,999 50,864 Retail funds 52,610 22,029 7, 6 8 7 4,815 8 7, 1 4 1 2012 To t a l 91 1 ,741 4 6 8,74 5 328,348 53,961 60,686 42 2,874 Institutional funds 835,786 47,368 3 0 9,051 56,492 Retail funds 75,955 19,297 6,593 4,194 45,871 2013 946,812 500,390 331,652 5 7, 5 6 8 5 7, 2 0 2 To t a l Institutional funds 875,277 452,859 317,151 55,082 50,186 Retail funds 4 7, 5 3 1 14,501 2,486 7, 0 1 7 71,535 56,006 To t a l 9 9 7, 1 4 8 523,025 350,410 67, 7 0 7 2014 49, 263 65,017 Institutional funds 9 2 7, 9 1 7 476,94 8 336,690 DATA SECTION 6 Retail funds 69, 2 31 13,720 2,690 6,74 3 46,078 2015 1,009,731 542,906 339,122 73,427 54,277 To t a l Institutional funds 943,323 49 9,7 70 326,717 70,402 46,435 Retail funds 43,136 12,405 3,025 7, 8 4 2 66,408 2016 To t a l 1,031,988 463,566 416,018 83,660 6 8,74 4 80,115 Institutional funds 9 6 7, 1 8 8 421,099 406,118 59,85 6 Retail funds 64,800 9,8 9 9 3,545 8,888 42,467 p 2017 1,087,957 475,177 430,120 84,817 9 7, 8 4 3 To t a l Institutional funds 1,024,135 432,870 421,278 81,311 88,675 Retail funds 42,307 8,842 3,506 9,16 8 63,822 1 Financial institutions include credit unions, accounts of banks not held as fiduciaries, insurance companies, and other financial organizations. 2 Other institutional investors include state and local governments, funds holding mutual fund shares, and other institutional accounts not classified. p Data are preliminary. Note: Institutional money market funds do not limit all beneficial owners of the fund to natural persons. Institutional investors include endowments, foundations, defined benefit plans, and corporate cash managers. Retail money market funds have policies and procedures reasonably designed to limit all beneficial owners of the fund to natural persons. Retail investors include defined contribution plan participants who direct their own plan investments. 269 INSTITUTIONAL INVESTORS IN THE US MUTUAL FUND INDUSTRY

284 8 8 -1 -7 (*) -5 (*) (*) 18 11 11 22 12 40 -1 0 -1 4 -1 0 -1 1 -26 -2 9 -$3 funds Money market 2 5 6 4 2 -3 19 17 10 16 26 35 11 36 29 $6 38 13 12 -1 4 -21 Bond funds 2 6 7 -1 17 37 32 32 32 52 $7 36 36 23 22 22 13 34 12 40 46 funds Hybrid Annual 7 7 6 8 4 2 -2 -3 -5 24 47 27 27 35 21 28 25 22 12 -1 4 $11 World Estimated net new cash flow* Equity funds -5 37 26 45 39 15 13 68 40 44 -1 7 -1 1 -1 2 -2 9 -39 -38 -92 -88 -40 -66 $45 Domestic 70 59 97 91 37 32 92 71 18 18 85 94 36 50 77 77 40 -1 3 -59 -41 $67 To t a l 76 92 96 141 149 170 198 119 110 124 140 146 152 132 112 130 $60 123 122 154 154 funds Money market 81 72 77 374 414 193 179 217 498 420 4 41 342 104 292 438 155 164 $58 442 139 225 Bond funds 91 874 195 102 114 326 429 108 520 118 255 $73 403 554 988 309 809 888 154 664 funds Hybrid 1,173 Year-end Total net assets 67 85 96 495 518 371 692 172 124 422 109 323 323 505 $56 481 115 334 380 229 223 World Equity funds 914 755 867 631 789 983 885 688 $527 1,762 1,017 1,070 1,247 1,105 2,055 1,621 1,778 1,694 1,131 1,211 1,298 Domestic DATA SECTION 7 994 $775 To t a l 2,475 3,709 2,493 1,102 2,196 2,510 1,711 3,855 1,423 3,481 1,656 2,850 3,640 1,226 1,880 1,294 2,223 1,284 4,540 2012 Mutual Funds: DC Plan Assets and Estimated Net New Cash Flow by Type of Fund 2016 2014 Billions of dollars * Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. 1999 2009 1997 Ye a r 2005 2000 2011 2006 2004 2017 2013 2015 2008 2001 2003 2002 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. (*) = between -$500 million and $500 million 2010 2007 1998 TABLE 63 270 2018 INVESTMENT COMPANY FACT BOOK

285 9 1 5 9 -3 -5 -4 41 19 10 27 11 36 29 12 -1 4 -1 0 -1 5 -26 -$6 -44 funds Money market 1 7 2 -1 -1 -7 24 19 47 16 69 52 21 53 11 20 $7 34 12 -1 3 -1 3 Bond funds 8 8 3 1 -1 -9 24 10 31 37 26 45 45 35 28 $5 13 34 44 -1 0 -1 1 funds Hybrid Annual 3 4 6 2 -2 24 14 16 16 16 26 33 11 20 $7 36 (*) -1 7 -1 1 -1 5 -1 5 World Estimated net new cash flow* Equity funds 5 3 3 19 30 25 50 34 68 54 -1 4 -1 7 -1 8 -1 8 -1 1 -33 -38 -67 -57 -43 $54 Domestic 3 -1 41 67 24 17 59 26 69 55 62 39 94 50 90 64 -1 3 -37 $67 110 124 To t a l 219 114 179 217 216 224 240 273 24 4 152 $90 144 132 164 153 213 230 204 229 136 138 funds Money market 376 175 107 459 270 595 196 110 $92 262 499 211 109 205 581 704 625 587 577 133 234 Bond funds 98 103 495 716 162 110 110 218 939 372 783 832 104 788 288 264 583 409 $84 340 444 funds Hybrid Year-end Total net assets 93 93 176 410 324 DATA SECTION 7 316 371 357 231 $79 607 131 450 111 137 221 309 465 136 460 464 World Equity funds 749 781 797 932 949 861 895 699 654 834 586 548 $442 1,067 1,011 1,552 1,802 1,361 1,462 1,125 1,483 Domestic 999 $787 To t a l 2,763 2,418 3,718 2,426 1,697 1,782 3,537 2,144 1,598 2,438 3,503 2,121 1,278 4,293 3,338 1,090 1,205 1,266 1,389 2017 2016 2007 Note: Data for funds that invest primarily in other mutual funds were excluded from the series. Components may not add to the total because of rounding. 2006 2005 2012 2004 2010 2003 2015 2002 2008 2001 2009 2013 2011 2000 2014 1999 1998 1997 Ye a r Billions of dollars Mutual Funds: IRA Assets and Estimated Net New Cash Flow by Type of Fund TABLE 64 (*) = between -$500 million and $500 million * Net new cash flow is the dollar value of new sales minus redemptions combined with net exchanges. 271 RETIREMENT ACCOUNT INVESTING IN US MUTUAL FUNDS

286 TABLE 65 Worldwide Regulated Open-End Funds: Total Net Assets Millions of US dollars, year-end 2013 2015 2016 2017 2012 2014 $36,351,948 $38,031,591 $38,190,086 World $49,296,857 $32,252,259 $40,556,499 16,486,391 18,862,421 2 0 , 0 0 7, 8 0 8 19,557,645 21,093,009 24,880,326 Americas 9,185 11,179 15,630 16,435 20,189 29,213 Argentina 1,070,998 989,542 74 3, 5 3 0 1,060,904 1,238,039 1,018,641 Brazil 856,504 940,580 981,804 889,610 996,090 1,292,023 Canada 37,900 39,291 44,166 39,8 98 46,214 Chile 5 4,74 4 Costa Rica 1,484 1,933 2,092 2,533 2,297 2,446 Mexico 112,201 119,5 0 4 105,94 0 92,429 10 9,4 49 120,518 6,505 6,983 7, 1 2 1 Trinidad and Tobago 6,781 7, 4 2 6 6,586 United States 16,723,693 1 7, 8 4 7, 9 4 9 17,752,716 18,868,105 22,14 6,986 14,391,614 Europe 11,929,101 13,601,725 13,804,517 1 3,74 0, 16 6 14,119, 361 1 7, 74 2 , 2 2 5 Austria 194,932 165,084 151,199 150,939 179,198 186,905 1 1 7, 9 2 4 82,695 93,389 100,790 92,115 84,294 Belgium 770 Bulgaria 324 504 496 440 548 N /A 2,982 2,571 Croatia 1,975 N /A 2,058 Cyprus N /A N /A N /A 248 1,581 N /A 5,122 7, 8 1 2 5,74 6 Czechia 8,901 12,823 5,302 Denmark 118,702 120,844 111,509 116,910 145,837 103,506 Finland 8 7, 5 2 2 103,602 86,397 88,351 93,757 110,998 France 2,115,410 1,94 0,490 1,832,073 1,880,335 2,313,588 1,992,335 Germany 1,694,689 1,93 4,4 6 8 1,842,547 1,799,754 1,893,722 2,312,051 Greece 6,011 6,742 5,256 4,292 4,111 5,390 Hungary 13,063 18,138 15,980 14,825 14,582 16,983 Ireland 1,613,201 2,003,956 2,052,437 2,197,533 2,873,630 1,845,040 193,448 2 0 7, 8 6 7 217,363 Italy 203,384 260,385 223,023 Liechtenstein 41,915 45,792 4 4,938 45,624 5 4,674 37,615 Luxembourg 3,145,220 3,606,847 3 , 7 5 7, 6 2 4 3 , 8 1 7, 2 0 1 3,901,30 4 4,988,625 Malta 4,468 4,423 3,808 2,739 3,437 4,522 923,269 681,140 781,020 801,397 7 2 9,0 9 6 771,988 Netherlands 11 3,957 102,526 138,737 Norway 98,723 10 9, 32 5 112,223 Continued on the next page DATA SECTION 8 272 2018 INVESTMENT COMPANY FACT BOOK

287 TABLE 65 CONTINUED Worldwide Regulated Open-End Funds: Total Net Assets Millions of US dollars, year-end 2013 2015 2016 2017 2012 2014 2 9,51 5 34,177 32,286 Poland 41,450 26,888 2 9,57 2 28,941 28,222 15,786 22,270 20,109 23,697 Portugal 2,613 4,000 4,932 5,038 5,072 5,827 Romania a 3,260 1,288 1,383 2,099 3,207 3,589 Russia 4,793 5,95 4 6,514 6,202 6,205 7, 8 8 9 Slovakia Slovenia 2,370 2,506 2,550 2,448 2,528 3,106 Spain 2 02,742 274,07 2 274,7 1 5 280,826 351,307 268,380 Sweden 255,822 283,683 279,97 7 286,412 355,957 211,236 Switzerland 327,360 425,662 436,431 4 5 7, 1 6 2 475,838 558,769 Tu r key 14,078 15,310 12,887 12,277 13,185 16,478 1,914,949 1,156,379 1,361,170 1,501,308 1,583,580 1,510,976 United Kingdom 6,492,544 Asia and Pacific 3,691,617 3,74 4 ,93 4 4,072,792 5,008,346 5,198,307 Australia 2,144,052 1,791,800 1 , 6 6 7, 1 2 8 1,624,081 1,610,811 1,613,044 China 4 3 7, 4 4 9 708,884 1,227,540 1,227,540 1,6 88,981 460,332 59,192 62,286 61,773 61,773 72,835 Chinese Taipei 58,049 1 16,974 136,834 216,805 216,805 3 0 7, 3 8 7 India 10 9,55 8 1,105,421 1,161,194 1 , 1 7 7, 2 3 3 Japan 1,470,910 1,759,4 49 1,459,705 Korea, Rep. of 285,172 330,168 370,600 370,600 451,886 2 6 7, 5 8 3 31,145 34,185 41,559 48,623 48,623 5 7, 4 4 1 New Zealand Pakistan 3,159 3,464 4,156 5,360 5,360 4,591 Philippines 3,566 5,098 4,896 4,896 5,922 4,662 Africa 142,868 14 6, 474 122,068 145,822 181,762 145,150 South Africa 145,150 142,868 14 6,474 122,068 145,822 181,762 a Year-end data are not available. Data are as of September. N/A = not available Note: Components may not add to the total because of rounding. Regulated open-end funds include mutual funds, exchange-traded funds (ETFs), and institutional funds. ETFs are included in Canada beginning in 2017 and China beginning in 2015. Beginning in 2014, data from Brazil, Chile, Chinese Taipei, Republic of Korea, and European jurisdictions (where applicable) include ETFs. New Zealand and Trinidad and Tobago include home- and foreign-domiciled funds. Funds of funds are excluded from these tables except where noted. Croatia, Cyprus, France, Ireland, Luxembourg, Netherlands, Norway, Romania, Spain, and Turkey include funds of funds, without providing separate data on funds of funds. Finland, Germany, and Italy exclude funds of funds beginning in 2014, Malta beginning in 2013, and Switzerland beginning in 2012. Slovakia includes funds of funds beginning in 2014. For the Netherlands, data between 2011 and 2014 are estimated based upon European Central Bank and IIFA sources. Source: International Investment Funds Association (IIFA) DATA SECTION 8 WORLDWIDE REGULATED OPEN-END FUND TOTALS 273

288 TABLE 66 Worldwide Regulated Open-End Funds: Number of Funds Year-end 2013 2015 2016 2017 2012 2014 97,920 101,238 106,523 World 114,131 94,475 110,548 22,292 23,323 24,378 25,230 25,898 2 7, 2 5 4 Americas 291 297 302 346 420 487 Argentina 7, 4 6 8 8,560 8,783 9, 2 24 9,7 74 8,072 Brazil 2,866 2,963 3,164 3,283 3,298 3,867 Canada 2,286 2,385 2,418 2,500 2,539 Chile 2,673 Costa Rica 66 66 66 65 67 67 Mexico 488 486 499 524 553 487 42 44 43 Trinidad and Tobago 44 45 43 United States 9,010 9, 339 9,710 9,782 9,78 8 8,785 Europe 51,713 52,216 51,724 53,440 53,734 55,055 Austria 1,842 1,629 1,596 1,575 1,580 1,814 890 1,543 1,446 1,231 1,164 962 Belgium 116 Bulgaria 95 98 104 104 110 N /A 94 89 Croatia 85 N /A 82 Cyprus N /A N /A N /A 30 46 N /A 83 128 108 Czechia 129 147 88 Denmark 510 526 532 558 565 495 Finland 507 492 383 371 372 380 France 11,392 11,273 11,122 10,952 10,860 11,692 Germany 5,903 5,917 5,503 5,604 5,678 5,863 Greece 177 166 143 139 135 146 Hungary 361 369 307 316 306 306 Ireland 5,305 5,833 6,201 6,470 6,831 5,599 74 4 713 687 Italy 760 832 784 Liechtenstein 923 946 1,184 1,287 1,367 769 Luxembourg 13,420 13,685 13,849 14,108 14,211 14,728 Malta 114 110 130 126 140 107 991 497 501 561 1,015 1,014 Netherlands 720 700 754 Norway 406 573 619 Continued on the next page DATA SECTION 8 274 2018 INVESTMENT COMPANY FACT BOOK

289 TABLE 66 CONTINUED Worldwide Regulated Open-End Funds: Number of Funds Year-end 2012 2014 2015 2016 2017 2013 331 398 391 423 428 Poland 324 284 243 184 399 373 34 4 Portugal 62 72 74 75 74 64 Romania a 443 378 340 296 284 Russia 464 77 88 77 87 Slovakia 87 87 Slovenia 131 110 109 102 98 114 Spain 2, 374 2,235 2,238 2,342 2,332 2,443 Sweden 475 493 522 471 496 519 Switzerland 795 843 860 858 918 690 387 351 373 404 387 396 Tu r key 2,94 8 United Kingdom 2,494 2,410 2,597 2,871 2,802 21,319 23,965 Asia and Pacific 19,503 30,196 29, 396 26,526 Australia N /A N /A N /A N /A N /A N /A 1,065 1,415 2,558 3,564 4,361 China 1,763 554 577 602 653 714 Chinese Taipei 570 726 738 768 India 795 807 804 Japan 7, 8 2 7 8,778 9,820 10,915 11,662 7, 1 5 0 9,1 21 9,876 11,235 11,918 12,626 11,828 Korea, Rep. of New Zealand 700 694 632 609 615 587 Pakistan 139 159 160 171 177 152 Philippines 47 53 55 57 60 48 Africa 967 1,062 1,171 1,327 1,520 1,626 South Africa 1,062 1,171 1,327 1,520 1,626 967 a Year-end data are not available. Data are as of September. N/A = not available Note: Regulated open-end funds include mutual funds, exchange-traded funds (ETFs), and institutional funds. ETFs are included in Canada beginning in 2017 and China beginning in 2015. Beginning in 2014, data from Brazil, Chile, Chinese Taipei, Republic of Korea, and European jurisdictions (where applicable) include ETFs. New Zealand and Trinidad and Tobago include home- and foreign-domiciled funds. Funds of funds are excluded from these tables except where noted. Croatia, Cyprus, France, Ireland, Luxembourg, Netherlands, Norway, Romania, Spain, and Turkey include funds of funds, without providing separate data on funds of funds. Finland, Germany, and Italy exclude funds of funds beginning in 2014, Malta beginning in 2013, and Switzerland beginning in 2012. Slovakia includes funds of funds beginning in 2014. For the Netherlands, data between 2011 and 2014 are estimated based upon European Central Bank and IIFA sources. Source: International Investment Funds Association DATA SECTION 8 WORLDWIDE REGULATED OPEN-END FUND TOTALS 275

290 TABLE 67 Worldwide Regulated Open-End Funds: Net Sales Millions of US dollars, annual 2015 2017 2013 2016 2012 2014 $1,807,868 $1,980,351 $1,203,622 $2,715,106 World $1,267,247 $1,269,406 67 7, 8 1 9 454,848 376,630 1,088,540 658,983 690,286 Americas a 4,511 N /A 4,421 3,248 7, 0 1 8 Argentina N /A 34,713 33,568 13,531 56,099 86,648 Brazil 1,886 50,697 90,035 82,238 52,601 84,526 Canada 6 4,965 813 5,394 8,550 983 3,269 3,422 Chile a -2 21 -305 341 427 -511 Costa Rica N /A Mexico 6,869 10,442 -1 , 2 2 6 782 5,612 7, 7 0 5 292 -2 3 292 Trinidad and Tobago 17 10 -1 3 United States 546,524 561,762 354,497 283,656 901,304 575,737 Europe 428,708 462,388 809,914 738,833 476,007 1,013,040 Austria -40 4,688 3,198 -370 3,510 417 N /A N /A N /A N /A N /A N /A Belgium 112 Bulgaria 16 129 36 (*) 116 Croatia 1,295 -1 ,9 6 9 249 N /A N /A -52 Cyprus N /A N /A N /A 45 80 N /A 161 1,426 712 Czechia 1,170 1,417 256 Denmark 7, 4 3 9 8,137 5,945 7,362 5,467 8,038 Finland 3,223 5,617 10,933 7,888 3,437 2,306 France -9 9,0 07 -26,455 24,945 31,991 51,883 11,630 Germany 98,958 116,538 1 21,923 149,78 3 108,464 112,770 Greece -330 -741 -303 -444 -242 -7 3 Hungary 37 2,856 1,297 226 -7 1 5 -41 Ireland 117,666 155,231 1 2 7, 6 0 5 154,311 335,902 74,6 4 4 -1 7, 1 4 0 11,339 38,415 Italy 9,9 0 8 22,902 14,831 Liechtenstein -7 2 6 8,364 993 -448 2,682 2,685 Luxembourg 159,722 256,919 337,851 331,873 110,662 348,648 Malta -628 122 -267 -568 152 662 -2,3 4 0 -1 , 0 1 7 875 -5,261 -5,826 13,004 Netherlands 4,639 1,733 9, 39 9 Norway 7, 0 4 8 4,727 1 7, 1 8 4 Continued on the next page DATA SECTION 8 276 2018 INVESTMENT COMPANY FACT BOOK

291 TABLE 67 CONTINUED Worldwide Regulated Open-End Funds: Net Sales Millions of US dollars, annual 2012 2014 2015 2016 2017 2013 2,610 3,167 465 -1 , 6 5 6 3,467 Poland 3,931 -538 1,354 -2 21 -94 -844 258 Portugal 432 1,288 378 80 59 1,075 Romania b 571 -940 35 238 917 Russia 6 -451 420 148 855 Slovakia 104 622 Slovenia -1 4 0 52 86 15 41 -54 Spain 3 0,74 4 4 7, 7 0 4 26,866 15,728 23,479 -1 3 , 5 8 0 Sweden 652 8,708 15,714 8,136 2,317 9, 3 85 Switzerland 5,780 30,075 31,736 1 7, 4 6 6 20,418 15,887 395 166 969 -625 -1 6 0 74 8 Tu r key 61,188 United Kingdom 30,567 26,794 40,023 10,299 -2,24 6 778,781 339,954 Asia and Pacific 134,457 1 2 7, 9 6 6 310,113 603,409 Australia N /A N /A N /A N /A N /A N /A 90,505 -3,8 42 470,457 1 2 2,74 4 395,965 China 1 6 7, 8 3 4 -1 , 0 1 5 -3,835 7, 1 2 4 -3,597 -503 Chinese Taipei 1,472 16,142 2,387 7, 9 7 8 India 42,892 40,465 33,195 Japan 131,203 9 9,6 4 4 235,590 138,354 157,018 18,896 6,822 -4,876 3 4,917 2 9,19 0 35,337 6,336 Korea, Rep. of New Zealand 2,468 231 3,551 2,966 3,839 3,104 Pakistan 10 28 -68 264 536 -89 Philippines 1,480 -4 327 121 488 629 Africa 13,796 20,069 10,022 7, 8 8 9 11,031 10,117 South Africa 20,069 10,022 7, 8 8 9 11,031 10,117 13,796 (*) = between -$0.5 million and $0.5 million a Data are only for October through December. b Data are only for January through September. N/A = not available Note: Net sales is a calculation of total sales minus total redemptions plus net exchanges. Components may not add to the total because of rounding. Regulated open-end funds include mutual funds, exchange-traded funds (ETFs), and institutional funds. ETFs are included in Canada beginning in 2017 and China beginning in 2015. Beginning in 2014, data from Brazil, Chile, Chinese Taipei, Republic of Korea, and European jurisdictions (where applicable) include ETFs. New Zealand and Trinidad and Tobago include home- and foreign-domiciled funds. Funds of funds are excluded from these tables except where noted. Croatia, Cyprus, France, Ireland, Luxembourg, Netherlands, Norway, Romania, Spain, and Turkey include funds of funds, without providing separate data on funds of funds. Finland, Germany, and Italy exclude funds of funds beginning in 2014, Malta beginning in 2013, and Switzerland beginning in 2012. Slovakia includes funds of funds beginning in 2014. For the Netherlands, data between 2011 and 2014 are estimated based upon European Central Bank and IIFA sources. Source: International Investment Funds Association DATA SECTION 8 WORLDWIDE REGULATED OPEN-END FUND TOTALS 277

292 APPENDIX A How US-Registered Investment Companies Operate and the Core Principles Underlying Their Regulation The Origins of Pooled Investing The investment company concept dates to the late 1700s in Europe, according to K. Geert Rouwenhorst in The Origins of Mutual Funds , when “a Dutch merchant and broker...invited subscriptions from investors to form a trust...to provide an opportunity to diversify for small investors with limited means.” The emergence of “investment pooling” in England in the 1800s brought the concept closer to US shores. In 1868, the Foreign and Colonial Government Trust formed in London. This trust resembled the US fund model in basic structure, providing “the investor of moderate means the same advantages as the large capitalists...by spreading the investment over a number of different stocks.” Perhaps more importantly, the British fund model established a direct link with US securities markets, helping to finance the development of the post–Civil War US economy. The Scottish American Investment Trust, formed on February 1, 1873, by fund pioneer Robert Fleming, invested in the economic potential of the United States, chiefly through American railroad bonds. Many other trusts followed that not only targeted investment in America, but also led to the introduction of the fund investing concept on US shores in the late 1800s and early 1900s. The first mutual, or open-end, fund was introduced in Boston in March 1924. The Massachusetts Investors Trust introduced important innovations to the investment company concept by establishing a simplified capital structure, continuous offering of shares, the ability to redeem shares rather than hold them until dissolution of the fund, and a set of clear investment restrictions and policies. 278 2018 INVESTMENT COMPANY FACT BOOK

293 The stock market crash of 1929 and the Great Depression that followed hampered the growth of pooled investments until a succession of landmark securities laws—beginning with the Securities Act of 1933 and concluding with the Investment Company Act of 1940— reinvigorated investor confidence. Renewed investor confidence and many innovations led to relatively steady growth in industry assets and number of accounts. Four Principal Securities Laws Govern Investment Companies The Investment Company Act of 1940 Regulates the structure and operations of investment companies through a combination of registration and disclosure requirements and restrictions on day-to-day operations. The Investment Company Act requires the registration of all investment companies with more than 100 investors. Among other things, the act addresses investment company capital structures, custody of assets, investment activities (particularly with respect to transactions with affiliates and other transactions involving potential conflicts of interest), and the duties of fund boards. The Investment Advisers Act of 1940 Regulates investment advisers. Requires all advisers to registered investment companies and other large advisers to register with the SEC. The Advisers Act contains provisions requiring fund advisers to meet recordkeeping, custodial, reporting, and other regulatory responsibilities. The Securities Exchange Act of 1934 Regulates the trading, purchase, and sale of securities, including investment company shares. The 1934 Act also regulates broker-dealers, including investment company principal underwriters and others that sell investment company shares, and requires them to register with the SEC. In 1938, the act was revised to add Section 15A, which authorized the SEC to create self-regulatory organizations. Pursuant to this authority, in 1939 a self- regulatory organization for broker-dealers—which is now known as the Financial Industry Regulatory Authority (FINRA)—was created. Through its rules, inspections, and enforcement activities, FINRA, with oversight by the SEC, continues to regulate the conduct of broker-dealers, thereby adding another layer of protection for investors. The Securities Act of 1933 Requires the registration of public offerings of securities— including investment company shares, and regulates such offerings. The 1933 Act also requires that all investors receive a current prospectus describing the fund. 279 HOW US-REGISTERED INVESTMENT COMPANIES OPERATE AND THE CORE PRINCIPLES UNDERLYING THEIR REGULATION

294 The Types of US Investment Companies Fund sponsors in the United States offer four main types of registered investment companies: mutual funds, closed-end funds, exchange-traded funds (ETFs), and unit investment trusts (UITs). mutual funds , both in terms of number of funds The majority of investment companies are and assets under management. Mutual funds can have actively managed portfolios, in which a professional investment adviser creates a unique mix of investments to meet a particular investment objective, or passively managed portfolios, in which the adviser seeks to track the performance of a selected benchmark or index. One hallmark of mutual funds is that they issue redeemable securities, meaning that the fund stands ready to buy back its shares at their next computed net asset value (NAV). The NAV is calculated by dividing the total market value of the fund’s assets, minus its liabilities, by the number of mutual fund shares outstanding. Money market funds are one type of mutual fund that offer investors a variety of features, including liquidity, a market-based rate of return, and the goal of returning principal, all at a reasonable cost. These funds, which are typically publicly offered to all types of investors, are registered investment companies that are regulated by the Securities and Exchange Commission (SEC) under US federal securities laws, including Rule 2a-7 under the Investment Company Act. That rule contains numerous risk-limiting conditions concerning portfolio maturity, quality, diversification, and liquidity. Since October 2016, institutional prime money market funds (funds that primarily invest in corporate debt securities) and institutional municipal money market funds maintain a floating NAV for transactions based on the current market value of the securities in their portfolios. Government money market funds and retail money market funds (funds designed to limit all beneficial owners of the funds to natural persons) are allowed to use the amortized cost method of pricing or penny rounding—or both—to seek to maintain a stable share price. Money market fund boards of directors also have the ability to impose liquidity fees or to suspend redemptions temporarily if a fund’s level of weekly liquid assets falls below a certain threshold. 280 2018 INVESTMENT COMPANY FACT BOOK

295 Unlike mutual funds, closed-end funds do not issue redeemable shares. Instead, they issue a fixed number of shares that trade intraday on stock exchanges at market-determined prices. Investors in a closed-end fund buy or sell shares through a broker, just as they would trade the shares of any publicly traded company. For more information on closed-end funds, see chapter 5 on page 104. ETFs are a hybrid of investment companies. They are structured and legally classified as open-end management investment companies or UITs (discussed below), but trade intraday on stock exchanges like closed-end funds. ETFs only buy and sell fund shares directly with authorized participants in large blocks, often 50,000 shares or more. For more information on ETFs, see chapter 4 on page 82. U I Ts are also a hybrid, with some characteristics of mutual funds and some of closed-end funds. Like closed-end funds, UITs typically issue only a specific, fixed number of shares, called units. Like mutual funds, the units are redeemable, but unlike mutual funds, generally the UIT sponsor will maintain a secondary market in the units so that redemptions do not deplete the UIT’s assets. A UIT does not actively trade its investment portfolio—instead it buys and holds a set of particular investments until a set termination date, at which time the trust is dissolved and proceeds are paid to shareholders. For more information on UITs, see page 50. The Organization of a Mutual Fund A mutual fund typically is organized under state law either as a corporation or a business trust (sometimes called a statutory trust). The three most popular forms of organization are Massachusetts business trusts, Maryland corporations, and Delaware statutory trusts 1 (Figure A.1). Historically, Massachusetts business trusts were the most popular—in part because the very first mutual fund was formed as a Massachusetts business trust. This was a common form of organization at the time for pools that invested in real estate or public utilities and it provided a model for others to follow. Over the past few decades, the percentage of funds organized as Massachusetts business trusts has declined as more and more funds have formed as Maryland corporations, as well as Delaware statutory trusts—the most favored form of mutual fund organization. 1 Fewer than 900 funds, or about 9 percent, have chosen other forms of organization, such as limited liability partnerships, or other domiciles, such as Ohio or Minnesota. 281 HOW US-REGISTERED INVESTMENT COMPANIES OPERATE AND THE CORE PRINCIPLES UNDERLYING THEIR REGULATION

296 Developments in the late 1980s gave asset management companies these other attractive choices. For example, in 1987, Maryland revised its law to align it with interpretations of the Investment Company Act concerning when funds are required to hold annual meetings. As a result, Maryland corporations became more competitive with the Massachusetts business trust as a form of organization for mutual funds. In 1988, Delaware—already a popular domicile for US corporations—adopted new statutory provisions devoted specifically to business trusts (since renamed statutory trusts). Benefits, such as management of the trust and limited liability afforded to the trust’s beneficial owners, have led to its current dominance over other forms of mutual fund organization. Mutual funds have officers and directors (if the fund is a corporation) or trustees (if the fund 2 is a business trust). The fund’s board plays an important role in overseeing fund operations, described in more detail on page 296. FIGURE A.1 The Most Popular Forms of Mutual Fund Organization Percentage of funds, year-end 2017  Ot r he   Ma land ry corp orat ions   tts Massachuse usts tr siness bu   y tr usts ware statut Dela or Numbe r of funds    Note: Data include mutual funds that do not report statistical information to the Investment Company Institute and mutual funds that invest primarily in other mutual funds. 2 boards of directors . For ease of reference, this appendix refers to all directors and trustees as directors and all boards as 282 2018 INVESTMENT COMPANY FACT BOOK

297 Unlike other companies, a mutual fund is typically externally managed; it is not an operating company and it has no employees in the traditional sense. Instead, a fund relies upon third parties or service providers—either affiliated organizations or independent contractors—to invest fund assets and carry out other business activities. Figure A.2 shows the primary types of service providers usually relied upon by a fund. Although it typically has no employees, a fund is required by law to have written compliance policies and procedures that govern the operations of the fund and the fund’s administrator, investment adviser, transfer agent, and principal underwriter and that are reasonably designed to ensure the fund’s compliance with the federal securities laws. All funds must also have a chief compliance officer (CCO), whose appointment must be approved by the fund’s board and who must annually produce a report for the board regarding the adequacy of the fund’s compliance policies and procedures, the effectiveness of their implementation, and any material compliance matters that have arisen. FIGURE A.2 Organization of a Mutual Fund Shareholder s rs to ec Boar d of dir Sponsor trator Adminis estment Inv r advise Independen t Principal Fu nd public unde r rite rw accountan t gent r a ansfe Tr n odia st Cu 283 HOW US-REGISTERED INVESTMENT COMPANIES OPERATE AND THE CORE PRINCIPLES UNDERLYING THEIR REGULATION

298 Fund Boards A fund board represents the interests of the fund’s shareholders by overseeing the management and operations of the fund, including the fund’s contractual arrangements with its service providers. For more information on fund boards, see page 296. Shareholders Like shareholders of other companies, mutual fund shareholders have specific voting rights. These include the right to elect directors at meetings called for that purpose and the right to approve material changes in the terms of a fund’s contract with its investment adviser, the entity that manages the fund’s assets. For example, a fund’s management fee cannot be increased and a fund’s investment objectives or fundamental policies cannot be changed unless a majority of shareholders vote to approve the increase or change. Sponsors Setting up a mutual fund is a complicated process performed by the fund’s sponsor, which is typically the fund’s investment adviser. The fund sponsor has a variety of responsibilities. For example, it must assemble the group of third parties needed to launch the fund, including the persons or entities charged with managing and operating the fund. The sponsor provides officers and affiliated directors to oversee the fund and recruits unaffiliated persons to serve as independent directors. Some of the major steps in the process of starting a mutual fund include organizing the fund under state law, registering the fund with the SEC as an investment company pursuant to the Investment Company Act, and registering the fund shares for sale to the public pursuant to 3 the Securities Act of 1933. Unless otherwise exempt from doing so, the fund also must make filings and pay fees to each state (except Florida) in which the fund’s shares will be offered to the public. The Investment Company Act also requires that each new fund have at least $100,000 of seed capital before distributing its shares to the public; this capital is usually contributed by the sponsor or adviser in the form of an initial investment. Advisers Investment advisers have overall responsibility for directing the fund’s investments and handling its business affairs. The investment advisers have their own employees, including investment professionals who work on behalf of the fund’s shareholders and determine which securities to buy and sell in the fund’s portfolio, consistent with the fund’s investment objectives and policies. In addition to managing the fund’s portfolio, the adviser often serves 3 For more information on the requirements for the initial registration of a mutual fund, see the SEC’s Investment Company Registration and Regulation Package, available at www.sec.gov/divisions/investment/invcoreg121504.htm. 284 2018 INVESTMENT COMPANY FACT BOOK

299 as administrator to the fund, providing various “back-office” services. As noted earlier, a fund’s investment adviser is often the fund’s initial sponsor and its initial shareholder through the seed money invested to create the fund. To protect investors, a fund’s investment adviser and the adviser’s employees are subject to numerous standards and legal restrictions, including restrictions on transactions that may pose conflicts of interest. Like a mutual fund, investment advisers are required to have their own written compliance programs that are overseen by CCOs and to establish detailed procedures and internal controls designed to ensure compliance with all relevant laws and regulations. Administrators A fund’s administrator handles the many back-office functions for a fund. For example, administrators often provide office space, clerical and fund accounting services, data processing, bookkeeping, and internal auditing; they also may prepare and file SEC, tax, shareholder, and other reports. Fund administrators also help maintain compliance procedures and internal controls, subject to oversight by the fund’s board and CCO. Principal Underwriters Investors buy and redeem fund shares either directly through a fund’s transfer agent or indirectly through a broker-dealer that is authorized to sell fund shares. In order to offer a particular fund’s shares, however, a broker-dealer must have a sales agreement with the fund. The role of a fund’s principal underwriter is to act as the agent for the fund in executing sales agreements that authorize broker-dealers to offer for sale and sell fund shares. Though principal underwriters must register under the Securities Exchange Act of 1934 as broker- dealers, they (1) do not operate as full-service broker-dealers, (2) typically are not involved in offering or selling fund shares to retail investors, and (3) do not establish or maintain accounts for retail investors. Transfer Agents Mutual funds and their shareholders rely on the services of transfer agents to maintain records of shareholder accounts; calculate and distribute dividends and capital gains; and prepare and mail shareholder account statements, federal income tax information, and other shareholder notices. Some transfer agents also prepare and mail statements confirming shareholder transactions and account balances. Additionally, they may maintain customer service departments, including call centers, to respond to shareholder inquiries. Auditors Auditors certify the fund’s financial statements. The auditors’ oversight role is described more fully on page 297. 285 HOW US-REGISTERED INVESTMENT COMPANIES OPERATE AND THE CORE PRINCIPLES UNDERLYING THEIR REGULATION

300 Tax Features of Mutual Funds Mutual funds are subject to special tax rules set forth in subchapter M of the Internal Revenue Code. Unlike most corporations, mutual funds are not subject to taxation on their income or capital gains at the entity level, provided that they meet certain gross income and asset requirements and distribute their income annually. To qualify as a regulated investment company (RIC) under subchapter M, at least 90 percent of a mutual fund’s gross income must be derived from certain sources, including dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of stock, securities, or foreign currencies. In addition, at the close of each quarter of the fund’s taxable year, at least 50 percent of the value of the fund’s total net assets must consist of cash, cash items, government securities, securities of other funds, and investments in other securities that, with respect to any one issuer, represent neither more than 5 percent of the assets of the fund nor more than 10 percent of the voting securities of the issuer. Further, no more than 25 percent of the fund’s assets may be invested in the securities of any one issuer (other than government securities or the securities of other funds), the securities (other than the securities of other funds) of two or more issuers that the fund controls and are engaged in similar trades or businesses, or the securities of one or more qualified publicly traded partnerships. If a mutual fund satisfies the gross income and asset tests and thus qualifies as a RIC, the fund is eligible for the tax treatment provided by subchapter M, including the ability to deduct from its taxable income the dividends it pays to shareholders, provided that the RIC distributes at least 90 percent of its income (other than net capital gains) each year. A RIC may retain up to 10 percent of its income and all capital gains, but the retained income and capital gains are taxed at regular corporate tax rates. Therefore, mutual funds generally distribute all, or nearly all, of their income and capital gains each year. The Internal Revenue Code also imposes an excise tax on RICs, unless a RIC distributes by December 31 at least 98 percent of its ordinary income earned during the calendar year, 98.2 percent of its net capital gains earned during the 12-month period ending on October 31 of the calendar year, and 100 percent of any previously undistributed amounts. Mutual funds typically seek to avoid this charge—imposed at a 4 percent rate on the underdistributed amount—by making the required minimum distribution each year. 286 2018 INVESTMENT COMPANY FACT BOOK

301 Mutual Fund Assets by Tax Status Fund investors are responsible for paying tax on the amount of a fund’s earnings and gains distributed to them, whether they receive the distributions in cash or reinvest them in additional fund shares. Investors often attempt to lessen the impact of taxes on their investments by investing in tax-exempt funds and tax-deferred retirement accounts and variable annuities. As of year-end 2017, 4 percent of all mutual fund assets were held in tax-exempt funds, and 55 percent were invested in tax-deferred accounts held by households. FIGURE A.3 59 Percent of Mutual Fund Total Net Assets Were Held in Tax-Deferred Accounts and Tax-Exempt Funds Percentage of total net assets, year-end 2017    fund s ex x- empt Ta Ta xable nonhousehold unts acco     xable household Ta x- Ta deferred unts acco d accounts househol on trilli Mu tual fund total net asset s  287 HOW US-REGISTERED INVESTMENT COMPANIES OPERATE AND THE CORE PRINCIPLES UNDERLYING THEIR REGULATION

302 Types of Distributions Mutual funds make two types of taxable distributions to shareholders: ordinary dividends and capital gains. Ordinary dividend distributions come primarily from the interest and dividends earned by the securities in a fund’s portfolio and net short-term gains, if any, after expenses are paid by the fund. These distributions must be reported as dividends on a US investor’s tax return and are taxed at the investor’s ordinary income tax rate, unless they are qualified dividends. Qualified dividend income is taxed at a maximum rate of 20 percent. Some dividends paid by mutual funds may qualify for these lower top tax rates. Long-term capital gains distributions represent a fund’s net gains, if any, from the sale of securities held in its portfolio for more than one year. Long-term capital gains are taxed at a maximum rate of 20 percent. Certain high-income individuals also are subject to a 3.8 percent tax on net investment income (NII). The tax on NII applies to interest, dividends, and net capital gains, including those received from a mutual fund. Non-US investors may be subject to US withholding and estate taxes and certain US tax reporting requirements on investments in US funds. Amounts distributed to non-US investors that are designated as interest-related dividends or dividends deriving from capital gains will generally be eligible for exemption from US withholding tax. Other distributions that are treated as ordinary dividends will generally be subject to US withholding tax (at a 30 percent rate or lower treaty rate). To help mutual fund shareholders understand the impact of taxes on the returns generated by their investments, the SEC requires mutual funds to disclose standardized after-tax returns for one-, five-, and 10-year periods. After-tax returns, which accompany before-tax returns in fund prospectuses, are presented in two ways: » After taxes on fund distributions only (preliquidation) After taxes on fund distributions and an assumed redemption of fund shares » (postliquidation) 288 2018 INVESTMENT COMPANY FACT BOOK

303 Types of Taxable Shareholder Transactions An investor who sells mutual fund shares usually incurs a capital gain or loss in the year the shares are sold; an exchange of shares between funds in the same fund family also usually results in either a capital gain or loss. Investors are liable for tax on any capital gain arising from the sale of fund shares, just as they would be if they sold a stock, bond, or other security. Capital losses from mutual fund share sales and exchanges, like capital losses from other investments, may be used to offset other capital gains in the current year and thereafter. In addition, up to $3,000 of capital losses in excess of capital gains ($1,500 for a married individual filing a separate return) may be used to offset ordinary income. The amount of a shareholder’s gain or loss on fund shares is determined by the difference between the cost basis of the shares (generally, the purchase price—including sales loads—of the shares, whether acquired with cash or reinvested dividends) and the sale price. Many funds voluntarily have been providing cost basis information to shareholders or computing gains and losses for shares sold. Tax rules enacted in 2012 require all brokers and funds to provide cost basis information to shareholders, as well as to indicate whether any gains or losses are long-term or short-term, for fund shares acquired beginning in 2012. Tax-Exempt Funds Tax-exempt bond funds distribute amounts attributable to municipal bond interest. These “exempt-interest dividends” are exempt from federal income tax and, in some cases, state and local taxes. Tax-exempt money market funds invest in short-term municipal securities or equivalent instruments and also pay exempt-interest dividends. Even though income from these funds generally is tax-exempt, investors must report it on their income tax returns. Tax-exempt funds provide investors with this information and typically explain how to handle exempt-interest dividends on a state-by-state basis. For some taxpayers, portions of income earned by tax-exempt funds also may be subject to the federal alternative minimum tax. 289 HOW US-REGISTERED INVESTMENT COMPANIES OPERATE AND THE CORE PRINCIPLES UNDERLYING THEIR REGULATION

304 Mutual Fund Ordinary Dividend Distributions Ordinary dividend distributions represent income—primarily from interest and dividends earned by securities in a fund’s portfolio—after expenses are paid by the fund. Mutual funds distributed $290 billion in dividends to fund shareholders in 2017. Bond and money market funds accounted for 45 percent of all dividend distributions in 2017. Forty percent of all dividend distributions were paid to tax-exempt fund shareholders and tax-deferred household accounts. Another 53 percent were paid to taxable household accounts. FIGURE A.4 Dividend Distributions Billions of dollars, 2000–2017 Taxable Taxable Tax-deferred household accounts and household nonhousehold accounts tax-exempt funds Ye a r accounts To t a l 2000 $ 74 $87 $25 $186 2001 72 23 162 68 2002 59 43 12 114 2003 57 37 9 103 2004 41 10 117 65 2005 84 61 21 166 2006 114 240 90 36 2007 47 309 118 143 2008 138 100 38 276 109 63 15 187 2009 112 12 188 64 2010 121 74 12 208 2011 2012 128 80 13 222 2013 81 14 218 123 2014 137 93 15 245 2015 140 94 16 250 2016 107 130 16 253 290 2017 115 153 21 Note: Components may not add to the total because of rounding. 290 2018 INVESTMENT COMPANY FACT BOOK

305 Mutual Fund Capital Gains Distributions Capital gains distributions represent a fund’s net gains, if any, from the sale of securities held in its portfolio. When gains from these sales exceed losses, they are distributed to fund shareholders. Mutual funds distributed $370 billion in capital gains to shareholders in 2017. Forty-seven percent of these distributions were paid to tax-exempt fund shareholders and tax-deferred household accounts, and another 49 percent were paid to taxable household accounts. Equity, bond, and hybrid funds can distribute capital gains, but equity funds typically account for the bulk of these distributions. In 2017, 65 percent of equity fund share classes made a capital gains distribution, and 79 percent of these share classes distributed more than 2.0 percent of their assets as capital gains. FIGURE A.5 Capital Gains Distributions Billions of dollars, 2000–2017 Tax-deferred Taxable Taxable household household accounts and nonhousehold accounts tax-exempt funds accounts To t a l Ye a r $194 $119 $13 $326 2000 51 2 69 16 2001 2002 10 5 1 16 8 6 1 14 2003 30 21 4 55 2004 2005 78 43 129 8 2006 164 79 14 257 2007 260 22 414 131 97 7 132 2008 29 11 4 1 15 2009 2010 18 3 43 22 2011 40 30 4 73 2012 58 37 5 100 2013 82 11 239 147 2014 253 130 17 400 2015 250 114 15 379 2016 117 96 8 220 370 2017 175 180 16 Note: Capital gains distributions include long-term and short-term capital gains. Components may not add to the total because of rounding. 291 HOW US-REGISTERED INVESTMENT COMPANIES OPERATE AND THE CORE PRINCIPLES UNDERLYING THEIR REGULATION

306 Core Principles Underlying the Regulation of US Investment Companies Embedded in the structure and regulation of mutual funds and other registered investment companies are several core principles that provide important protections for shareholders. Transparency Funds are subject to more extensive disclosure requirements than any other comparable financial product, such as separately managed accounts, collective investment trusts, and private pools. The cornerstone of the disclosure regime for mutual funds and ETFs is the 4 prospectus. Mutual funds and ETFs are required to maintain a current prospectus, which provides investors with information about the fund, including its investment objectives, investment strategies, risks, fees and expenses, and performance, as well as how to purchase, redeem, and exchange fund shares. Importantly, the key parts of this disclosure with respect to performance information and fees and expenses are standardized to facilitate comparisons by investors. Mutual funds and ETFs may provide investors with a summary prospectus containing key information about the fund, while making more information available on the internet and by mail upon request. Mutual funds and ETFs also are required to make statements of additional information (SAIs) available to investors upon request and without charge. The SAI conveys information about the fund that, though useful to some investors, is not necessarily needed to make an informed investment decision. For example, the SAI generally includes information about the history of the fund, offers detailed disclosure on certain investment policies (such as borrowing and concentration policies), and lists officers, directors, and other persons who control the fund. The prospectus, SAI, and certain other required information are contained in the fund’s registration statement, which is filed electronically with the SEC and is publicly available via the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. Mutual fund and ETF registration statements are amended at least once each year to ensure that financial 5 statements and other information do not become stale. These funds also amend registration statements throughout the year as necessary to reflect material changes to their disclosure. 4 Closed-end funds and UITs also provide investors with extensive disclosure, but under a slightly different regime that reflects the way shares of these funds trade. Both closed-end funds and UITs file an initial registration statement with the SEC containing a prospectus and other information related to the initial offering of their shares to the public. 5 Section 10(a)(3) of the Securities Act of 1933 prohibits investment companies that make a continuous offering of shares from using a registration statement with financial information that is more than 16 months old. This gives mutual funds and ETFs four months after the end of their fiscal year to amend their registration statements. 292 2018 INVESTMENT COMPANY FACT BOOK

307 In addition to registration statement disclosure, funds provide shareholders with several other disclosure documents. Shareholders receive audited annual and unaudited semiannual reports within 60 days after the end and the midpoint of the fund’s fiscal year, respectively. 6 These reports contain updated financial statements, a list of the fund’s portfolio securities, management’s discussion of financial performance, and other information current as of the date of the report. Following their first and third quarters, funds file Form N-Q with the SEC, which discloses 7 the complete schedule of their portfolio holdings. Additionally, funds must file census-type 8 Finally, funds annually disclose how they voted on information semiannually on Form N-SAR. specific proxy issues at portfolio companies on Form N-PX. Funds are the only shareholders required to publicly disclose each and every proxy vote they cast. Funds are not required to mail Form N-Q, Form N-SAR, and Form N-PX to shareholders, but the forms are publicly 9 available via the SEC’s EDGAR database. The combination of prospectuses, SAIs, annual and semiannual shareholder reports, Form N-Q, Form N-SAR, and Form N-PX provide the investing public, regulators, media, and other interested parties with far more information on funds than is available for other types of investments. This information is easily and readily available from most funds and the SEC. It is also available from private-sector vendors, such as Morningstar, that are in the business of compiling publicly available information on funds in ways that might benefit investors. 6 A fund is permitted to include a summary portfolio schedule in its shareholder reports in lieu of the complete schedule, provided that the complete portfolio schedule is filed with the SEC and is provided to shareholders upon request, free of charge. The summary portfolio schedule includes each of the fund’s 50 largest holdings in unaffiliated issuers and each investment that exceeds 1 percent of the fund’s NAV. 7 As of March 2019, certain non–money market funds will be required to make Form N-PORT filings monthly, providing much more detailed information about a fund’s portfolio holdings in a structured data format. The form will replace Form N-Q, as funds will attach their complete schedule of portfolio holdings at the end of the first and third fiscal quarters. The form also will require each fund to provide information regarding, among other items, each portfolio investment, flows, monthly returns, securities lending, and—for funds investing in more than a minimum amount of fixed-income securities—portfolio- level risk metrics. Beginning September 2019, Form N-PORT filings at the end of each fiscal quarter will be publicly disclosed within 60 days after the end of the reporting period. Money market funds, which already must file portfolio holdings monthly on Form N-MFP and disclose those holdings on their websites, will not need to file Form N-PORT. 8 Beginning in June 2018, Form N-CEN will replace Form N-SAR and require much more detailed census-type information annually, including information about ETFs, closed-end funds, and securities lending activities. 9 Similarly, funds will not be required to mail Form N-PORT or Form N-CEN to shareholders, but those forms will be publicly available via the SEC’s EDGAR database. 293 HOW US-REGISTERED INVESTMENT COMPANIES OPERATE AND THE CORE PRINCIPLES UNDERLYING THEIR REGULATION

308 Daily Valuation and Liquidity Nearly all funds offer shareholders liquidity and market-based valuation of their investments at least daily. ETFs and most closed-end fund shares are traded intraday on stock exchanges at market-determined prices, giving shareholders real-time liquidity and pricing. Mutual fund shares are redeemable on a daily basis at a price that reflects the current market value of the fund’s portfolio investments. The value of each portfolio investment is determined either by a market quotation, if a market quotation is readily available, or at fair value as determined in good faith by the fund’s board. The daily pricing process is a critically important core compliance function that involves numerous staff and pricing vendors. The fair valuation process, a part of the overall pricing process, receives particular scrutiny from funds, their boards of directors, regulators, and independent auditors. Under SEC rules, all funds must adopt written policies and procedures that address the circumstances under which investments may be fair valued, and must 10 establish criteria for determining how to assign fair values in particular instances. This daily valuation process results in a NAV for the fund. The NAV is the price used for all mutual fund share transactions occurring that day—new purchases, sales (redemptions), 11 and exchanges from one fund to another within the same fund family. It represents the current mark-to-market value of all the fund’s assets, minus liabilities (e.g., accrued fund expenses payable), divided by the total number of outstanding shares. Mutual funds release their daily NAVs to investors and others after they complete the pricing process, generally around 6:00 p.m. eastern time. Daily fund prices are available through fund toll-free telephone services, websites, and other means. 10 ICI has published several papers on the mutual fund valuation process. For more information, see two white papers by ICI, the Independent Directors Council, and ICI Mutual Insurance Company titled Valuation and Liquidity Issues for Mutual Funds (February 1997 and March 2002) and two installments of ICI’s Fair Value Series, “An Introduction to Fair Valuation” (2005) and “The Role of the Board” (2006). ICI also has a two-volume compendium of SEC releases, staff letters, and enforcement actions related to the mutual fund valuation process, which is available at www.ici.org/pdf/pub_15_valuation_update_ vol1.pdf and www.ici.org/pdf/pub_15_valuation_update_vol2.pdf. 11 The pricing process is also critical for ETFs, although for slightly different reasons. ETFs operate like mutual funds with respect to transactions with authorized participants that trade with the ETF in large blocks, often of 50,000 shares or more. The NAV is the price used for these large transactions. Closed-end funds are not required to strike a daily NAV, but most do so in order to provide the market with the ability to calculate the difference between the fund’s market price and its NAV. That difference is called the fund’s premium or discount. 294 2018 INVESTMENT COMPANY FACT BOOK

309 The Investment Company Act requires mutual funds to process transactions based upon “forward pricing,” meaning that shareholders receive the next computed NAV following the fund’s receipt of their transaction orders. For example, for a fund that prices its shares as of 12 4:00 p.m., orders received before 4:00 p.m. receive the NAV determined that same day as of 4:00 p.m. Orders received after 4:00 p.m. receive the NAV determined as of 4:00 p.m. on the next business day. Forward pricing is an important protection for mutual fund shareholders. It is designed to minimize the ability of shareholders to take advantage of fluctuations in the prices of a fund’s portfolio investments that occur after the fund has last calculated its NAV. When a shareholder redeems shares in a mutual fund, he or she can expect to be paid promptly. Mutual funds may not suspend redemptions of their shares (subject to certain 13 extremely limited exceptions) or delay payments of redemption proceeds for more than seven days. 14 No more than 15 percent of a mutual fund’s portfolio may be invested in illiquid assets, in part to ensure that redemptions can be made. In 2016, the SEC adopted a liquidity risk management program rule and related reporting and disclosure requirements applicable to mutual funds and open-end ETFs, which will supersede the SEC’s current liquidity guidance and substantially enhance funds’ regulatory obligations in this area. For most funds, the compliance dates for these new requirements are December 1, 2018, and June 1, 2019 (depending on the requirement). 12 Funds must price their shares at least once every business day as of a time determined by the fund’s board. Many funds price as of 4:00 p.m. eastern time or when the New York Stock Exchange closes. 13 Natural disasters and other emergencies that disrupt fund pricing do occur, but Section 22(e) of the Investment Company Act prohibits funds from suspending redemptions unless the SEC permits them to do so or declares an emergency, or the New York Stock Exchange closes or restricts trading. These occurrences are relatively rare, although funds have suspended redemptions on several occasions, such as during Hurricane Sandy in 2012. See also page 280. 14 Money market funds are held to different liquidity standards. For more information on this topic, see Types of US Investment Companies on page 280 and www.ici.org/mmfs/current/16_mmf_reg_summ. 295 HOW US-REGISTERED INVESTMENT COMPANIES OPERATE AND THE CORE PRINCIPLES UNDERLYING THEIR REGULATION

310 Oversight and Accountability All funds are subject to a strong system of oversight from both internal and external sources. Boards of directors, which include independent directors, and written compliance programs overseen by CCOs, both at the fund and adviser levels (see Compliance Programs on page 297), are examples of internal oversight mechanisms. External oversight is provided by the SEC, the Financial Industry Regulatory Authority (FINRA), and external service providers, such as certified public accounting firms. Fund Boards Mutual funds, closed-end funds, and most ETFs have boards. The role of a fund’s board of directors is primarily one of oversight. The board of directors typically is not involved in the day-to-day management of the fund company. Instead, day-to-day management is handled by the fund’s investment adviser or administrator pursuant to a contract with the fund. Investment company directors review and approve major contracts with service providers (including, notably, the fund’s investment adviser), approve policies and procedures to ensure the fund’s compliance with federal securities laws, and undertake oversight and review of the performance of the fund’s operations. Directors devote substantial time and consider large amounts of information in fulfilling these duties, in part because they must perform all their duties in “an informed and deliberate manner.” Fund boards must maintain a particular level of independence. The Investment Company Act requires at least 40 percent of the members of a fund board to be independent from fund management. An independent director is a fund director who does not have any significant business relationship with a mutual fund’s adviser or underwriter. In practice, most fund boards have far higher percentages of independent directors. As of year-end 2016, independent directors made up at least three-quarters of boards in 84 percent of fund 15 complexes. Independent fund directors play a critical role in overseeing fund operations and are entrusted with the primary responsibility for looking after the interests of the fund’s shareholders. They serve as watchdogs, furnishing an independent check on the management of funds. Like directors of operating companies, they owe shareholders the duties of loyalty and care under state law. But independent fund directors also have specific statutory and regulatory responsibilities under the Investment Company Act beyond the duties required of other types of directors. Among other things, they oversee the performance of the fund, approve the fees paid to the investment adviser for its services, and oversee the fund’s compliance program. 15 for a description of the study that collects data on this and other See Overview of Fund Governance Practices, 1994–2016 governance practices. Available at www.idc.org/pdf/pub_17_fund_governance.pdf. 296 2018 INVESTMENT COMPANY FACT BOOK

311 Compliance Programs The internal oversight function played by the board has been greatly enhanced in recent years by the development of written compliance programs and a formal requirement that all funds have CCOs. Rules adopted in 2003 require every fund and adviser to have a CCO who administers a written compliance program reasonably designed to prevent, detect, and correct violations of the federal securities laws. Compliance programs must be reviewed at least annually for their adequacy and effectiveness, and fund CCOs are required to report directly to the independent directors. Regulatory Oversight Internal oversight is accompanied by a number of forms of external oversight and accountability. Funds are subject to inspections, examinations, and enforcement by their primary regulator, the SEC. Fund underwriters and distributors also are overseen by FINRA, a self-regulatory organization. Funds affiliated with a bank may also be overseen by banking regulators. All funds are subject to the antifraud jurisdiction of each state in which the fund’s shares are offered for sale or sold. Auditors A fund’s financial statement disclosure is also subject to several internal and external checks. For example, annual reports include audited financial statements certified by a certified public accounting firm subject to oversight by the Public Company Accounting Oversight Board (PCAOB). This ensures that the financial statements are prepared in conformity with generally accepted accounting principles (GAAP) and fairly present the fund’s financial position and results of operations. Sarbanes-Oxley Act Like officers of public companies, fund officers are required to make certifications and disclosures required by the Sarbanes-Oxley Act. For example, they must certify the accuracy of the financial statements. Additional Regulation of Advisers In addition to the system of oversight applicable directly to funds, investors enjoy protections through SEC regulation of the investment advisers that manage fund portfolios. All advisers to registered funds are required to register with the SEC, and are subject to SEC oversight and disclosure requirements. Advisers also owe a fiduciary duty to each fund they advise, meaning that they have a fundamental legal obligation to act in the best interests of the fund pursuant to a duty of undivided loyalty and utmost good faith. 297 HOW US-REGISTERED INVESTMENT COMPANIES OPERATE AND THE CORE PRINCIPLES UNDERLYING THEIR REGULATION

312 Limits on Leverage The inherent nature of a fund—a professionally managed pool of assets owned pro rata by its investors—is straightforward and easily understood by investors. The Investment Company Act fosters simplicity by prohibiting complex capital structures and limiting funds’ use of leverage. The Investment Company Act imposes various requirements on the capital structure of mutual funds, closed-end funds, and ETFs, including limitations on the issuance of “senior securities” and borrowing. These limitations greatly minimize the possibility that a fund’s liabilities will exceed the value of its assets. Generally speaking, a senior security is any debt that takes priority over the fund’s shares, such as a loan or preferred stock. The SEC historically has interpreted the definition of senior security broadly, taking the view that selling securities short, purchasing securities on margin, and investing in many types of derivative instruments, among other practices, may create senior securities. The SEC also takes the view that the Investment Company Act prohibits a fund from creating a future obligation to pay unless it “covers” the obligation. A fund generally can cover an obligation by owning the instrument underlying that obligation. For example, a fund that wants to take a short position in a certain stock can comply with the Investment Company Act by owning an equivalent long position in that stock. The fund also can cover by earmarking or segregating liquid securities equal in value to the fund’s potential exposure from the leveraged transaction. The assets set aside to cover the potential future obligation must be liquid, unencumbered, and marked-to-market daily. They may not be used to cover other obligations and, if disposed of, must be replaced. The Investment Company Act also limits borrowing. With the exception of certain privately arranged loans and temporary loans, any promissory note or other indebtedness would 16 generally be considered a prohibited senior security. Mutual funds and ETFs are permitted to borrow from a bank if, immediately after borrowing, the fund’s total net assets are at least three times total aggregate borrowings. In other words, the fund must have at least 300 percent asset coverage. 16 Temporary loans cannot exceed 5 percent of the fund’s total net assets and must be repaid within 60 days. 298 2018 INVESTMENT COMPANY FACT BOOK

313 Closed-end funds have a slightly different set of limitations. They are permitted to issue debt and preferred stock, subject to certain conditions, including asset coverage requirements of 300 percent for debt and 200 percent for preferred stock. Many funds voluntarily go beyond the prohibitions in the Investment Company Act, adopting policies that further restrict their ability to issue senior securities or borrow. Funds often, for example, adopt a policy stating that they will borrow only as a temporary measure for extraordinary or emergency purposes and not to finance investment in securities. In addition, they may disclose that, in any event, borrowings will be limited to a small percentage of fund assets (such as 5 percent). These are meaningful voluntary measures, because under the Investment Company Act, a fund’s policies on borrowing money and issuing senior securities cannot be changed without the approval of fund shareholders. Custody To protect fund assets, the Investment Company Act requires all funds to maintain strict custody of fund assets, separate from the assets of the adviser. Although the act permits 17 other arrangements, nearly all funds use a bank custodian for domestic securities. Foreign securities are required to be held in the custody of an international foreign bank or securities depository. A fund’s custody agreement with a bank is typically far more elaborate than the arrangements used for other bank clients. The custodian’s services generally include safekeeping and accounting for the fund’s assets, settling securities transactions, receiving dividends and interest, providing foreign exchange services, paying fund expenses, reporting failed trades, reporting cash transactions, monitoring corporate actions at portfolio companies, and tracing loaned securities. The strict rules on the custody and reconciliation of fund assets are designed to prevent theft and other fraud-based losses. Shareholders are further insulated from these types of losses by a provision in the Investment Company Act that requires all mutual funds to have fidelity bonds designed to protect them against possible instances of employee larceny or embezzlement. 17 The Investment Company Act contains six separate custody rules for the possible types of custody arrangements for mutual funds, closed-end funds, and ETFs. UITs are subject to a separate rule that requires the use of a bank to maintain custody. See Section 17(f) of the Investment Company Act and SEC Rules 17f-1 through 17f-7. 299 HOW US-REGISTERED INVESTMENT COMPANIES OPERATE AND THE CORE PRINCIPLES UNDERLYING THEIR REGULATION

314 Prohibitions on Transactions with Affiliates The Investment Company Act contains a number of strong and detailed prohibitions on transactions between the fund and fund insiders or affiliated organizations (such as the corporate parent of the fund’s adviser). Many of these prohibitions were part of the original statutory text of the act, enacted in response to instances of overreaching and self-dealing by fund insiders during the 1920s in the purchase and sale of portfolio securities, loans by funds, and investments in related funds. The SEC’s Division of Investment Management has said that “for more than 50 years, [the affiliated transaction prohibitions] have played a vital role in protecting the interests of shareholders and in preserving the industry’s reputation for 18 integrity; they continue to be among the most important of the act’s many protections.” Although a number of prohibitions in the Investment Company Act relate to affiliated transactions, three are particularly noteworthy: » General prohibition on direct transactions between a fund and an affiliate General prohibition on “joint transactions,” where the fund and affiliate are acting together » vis-à-vis a third party » Restrictions preventing investment banks from placing or “dumping” unmarketable securities with an affiliated fund by generally prohibiting the fund from buying securities in an offering syndicated by an affiliated investment bank 18 See Protecting Investors: A Half Century of Investment Company Regulation , Report of the Division of Investment Management, Securities and Exchange Commission (May 1992), available at www.sec.gov/divisions/investment/ guidance/icreg50-92.pdf. The Division of Investment Management is the division within the SEC responsible for the regulation of funds. 300 2018 INVESTMENT COMPANY FACT BOOK

315 Diversification Both tax and securities law provide diversification standards for funds registered under the Investment Company Act. As discussed in detail above, to qualify as RICs under the tax laws, all mutual funds, closed-end funds, and ETFs, as well as most UITs, must meet a tax diversification test every quarter. The effect of this test is that a fund with a modest cash position and no government securities would hold securities from at least 12 different issuers. Another tax diversification restriction limits the amount of an issuer’s outstanding voting securities that a fund may own. The securities laws set higher standards for funds that elect to be diversified. If a fund elects to be diversified, the Investment Company Act requires that, with respect to at least 75 percent of the portfolio, no more than 5 percent may be invested in the securities of any one issuer and no investment may represent more than 10 percent of the outstanding voting securities of any issuer. Diversification is not mandatory, but all mutual funds, closed-end funds, and ETFs must disclose whether or not they are diversified under the act’s standards. In practice, most funds that elect to be diversified are much more highly diversified than they need to be to meet these two tests. As of December 2017, for example, the median number of 19 stocks held by US equity mutual funds was 79. 19 This number—tabulated using Morningstar data—is the median among domestic equity mutual funds, excluding sector mutual funds and funds of funds. 301 HOW US-REGISTERED INVESTMENT COMPANIES OPERATE AND THE CORE PRINCIPLES UNDERLYING THEIR REGULATION

316 APPENDIX B Significant Events in Fund History 1774 Dutch merchant and broker Adriaan van Ketwich invites subscriptions from investors to form a trust, the Eendragt Maakt Magt, with the aim of providing investment diversification opportunities to investors of limited means. 1868 The Foreign and Colonial Government Trust, the precursor to the US investment fund model, is formed in London. This trust provides “the investor of moderate means the same advantages as large capitalists.” 1924 The first mutual funds are established in Boston. 1933 The Securities Act of 1933 regulates the registration and offering of new securities, including mutual fund and closed-end fund shares, to the public. 1934 The Securities Exchange Act of 1934 authorizes the Securities and Exchange Commission (SEC) to provide for fair and equitable securities markets. 1936 The Revenue Act of 1936 establishes the tax treatment of mutual funds and their shareholders. Closed-end funds were covered by the Act in 1942. 1940 The Investment Company Act of 1940 is signed into law, setting the structure and regulatory framework for registered investment companies. The forerunner to the National Association of Investment Companies (NAIC) is formed. The NAIC will become the Investment Company Institute. 1944 The NAIC begins collecting investment company industry statistics. 1951 The total number of mutual funds surpasses 100, and the number of shareholder accounts exceeds one million for the first time. The first mutual fund focusing on non-US investments is made available to US investors. 1954 Households’ net purchases of fund shares exceed those of corporate stock. NAIC initiates a nationwide public information program emphasizing the role of investors in the US economy and explaining the concept of investment companies. 1961 The first tax-free unit investment trust is offered. The NAIC changes its name to the Investment Company Institute (ICI) and welcomes fund advisers and underwriters as members. 1962 The Self-Employed Individuals Tax Retirement Act creates savings opportunities (Keogh plans) for self-employed individuals. 302 2018 INVESTMENT COMPANY FACT BOOK

317 1971 Money market funds are introduced. 1974 The Employee Retirement Income Security Act of 1974 (ERISA) creates the individual retirement account (IRA). 1976 The Tax Reform Act of 1976 permits the creation of municipal bond funds. The first retail index fund is offered. 1978 The Revenue Act of 1978 creates new Section 401(k) retirement plans and simplified employee pensions (SEPs). 1981 The Economic Recovery Tax Act establishes “universal” IRAs for all workers. IRS proposes regulations for Section 401(k). 1986 The Tax Reform Act of 1986 reduces IRA deductibility. 1987 ICI welcomes closed-end funds as members. 1990 Mutual fund assets top $1 trillion. 1993 The first exchange-traded fund (ETF) shares are issued. 1996 Enactment of the National Securities Markets Improvement Act of 1996 (NSMIA) provides a more rational system of state and federal regulation, giving the SEC exclusive jurisdiction for registering and regulating mutual funds, exchange- listed securities, and larger advisers. States retain their antifraud authority and responsibility for regulating non-exchange-listed offerings and smaller advisers. The Small Business Job Protection Act creates SIMPLE plans for employees of small businesses. 1997 The Taxpayer Relief Act of 1997 creates the Roth IRA and eliminates restrictions on portfolio management that disadvantage fund shareholders. 1998 The SEC approves the most significant disclosure reforms in the history of US mutual funds, encompassing “plain English,” fund profiles, and improved risk disclosure. 1999 The Gramm-Leach-Bliley Act modernizes financial services regulation and enhances financial privacy. 2001 Enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) significantly expands retirement savings opportunities for millions of working Americans. 2003 The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) provides mutual fund shareholders with the full benefits of lower tax rates on dividends and capital gains. 303 SIGNIFICANT EVENTS IN FUND HISTORY

318 2006 The Pension Protection Act (PPA) and the Tax Increase Prevention and Reconciliation Act provide incentives for investors of all ages to save more in tax- deferred and taxable investment accounts. 2008 The SEC votes to adopt the Summary Prospectus rule. Reserve Primary Fund fails to maintain $1.00 NAV, becoming the second money market fund in 25 years to “break the dollar.” 2009 Money market fund assets hit $3.9 trillion, their highest level to date. The Money Market Working Group, a task force of senior industry executives, submits its report to the ICI Board. The board endorses the working group’s call for immediate implementation of new regulatory and oversight standards for money market funds. 2010 The SEC adopts new rules and amendments to regulations governing money market funds. In Jones v. Harris , the US Supreme Court unanimously upholds the Gartenberg standard under which courts have long considered claims of excessive fund advisory fees. Enactment of the RIC Modernization Act streamlines and updates technical tax rules, benefiting shareholders by making funds more efficient. 2011 In Business Roundtable et al. v. SEC , the United States Court of Appeals for the District of Columbia Circuit vacated the SEC’s proxy access rule for failing to adequately evaluate the rule’s costs and benefits. ICI launches ICI Global to carry out the Institute’s international work by advancing the perspective of regulated investment funds globally. 2014 The SEC adopted sweeping changes to the rules that govern money market funds, building upon the changes to money market fund regulation adopted by the SEC in 2010. 2017 Congress passes most significant tax bill in three decades. Reflecting Congressional support for the voluntary, employer-based retirement system, lawmakers reject proposals to raise revenue by limiting retirement savings tax incentives. 304 2018 INVESTMENT COMPANY FACT BOOK

319 GLOSSARY You can find more information about many of these entries in the chapters and appendix of this www.ici.org book and on . A fund that employs a portfolio manager or management team to actively managed fund. manage the fund’s investments to try to outperform their benchmarks and peer group average. adviser. See investment adviser . annual report. A report that a fund sends to its shareholders that discusses the fund’s performance over the past fiscal year and identifies the securities in the fund’s portfolio on the last business day of the fund’s fiscal year. The annual report includes audited financial statements. asset class. A group of securities or investments that have similar characteristics and behave similarly in the marketplace. Three common asset classes are equities (e.g., stocks), fixed income (e.g., bonds), and cash equivalents (e.g., money market funds). at-the-market offering. An offering of new shares at a price determined by the same class of shares currently trading in the market. At-the-market offerings tend to be smaller than follow- on offerings and are conducted through equity distribution programs using a shelf registration statement. auditor. An auditor certifies a fund’s financial statements, providing assurance that they are prepared in conformity with generally accepted accounting principles (GAAP) and fairly present the fund’s financial position and results of operations. authorized participant. An entity, usually an institutional investor, that submits orders to an exchange-traded fund (ETF) for the creation and redemption of ETF . creation units average portfolio maturity. The average maturity of all the securities in a bond or money market fund’s portfolio. back-end load. See contingent deferred sales load (CDSL) . basis point. One one-hundredth of 1 percent (0.01 percent); thus, 100 basis points equals 1 percentage point. When applied to $1.00, 1 basis point is $0.0001, and 100 basis points equals one cent ($0.01). Basis points are often used to simplify percentages written in decimal form. benchmark. A standard against which the performance of a security or a mutual fund can be measured. For example, Barclays Capital Aggregate Bond Index is a benchmark index for many bond mutual funds. Many equity mutual funds are benchmarked to the S&P 500 index. See also index . 305 GLOSSARY

320 bond. A debt security issued by a company, municipality, government, or government agency. A bond investor lends money to the issuer and, in exchange, the issuer promises to repay the loan amount on a specified maturity date; the issuer usually pays the bondholder periodic interest payments over the life of the loan. The term fixed-income is often used interchangeably with bond. A fund that invests primarily in bonds and other debt instruments. bond fund. Designated levels above which certain discounts or fee rate reductions apply. breakpoints. In the mutual fund context, breakpoints relate to the sales charges investors pay if they buy fund shares through a broker or other intermediary, or to the management fee the fund pays to its investment adviser. Many funds offer sales charge (load) discounts to investors when they initially purchase fund shares if the amount invested surpasses a specified breakpoint. The amount of the discount typically increases as the amount of the investment reaches higher breakpoints. Similarly, funds may establish breakpoints requiring a reduction in the rate of the management fee the fund’s investment adviser may charge as fund assets surpass specified levels. break the dollar. A phrase used to describe when the net asset value (NAV) of a government or retail money market fund that uses either the amortized cost method and/or the penny- rounding method to calculate its share price falls below its stable $1.00 NAV. This could be triggered by a deviation greater than one-half of 1 percent (one-half cent, or $0.0050) between the fund’s mark-to-market value (shadow price) and its stable $1.00 NAV. Also known as break the buck . broker. A firm engaged in the business of effecting transactions in securities for the accounts of others, and is often paid by commission. A broker-dealer is a firm that acts as both a broker and a dealer . Broker-dealers broker-dealer. selling mutual fund shares are required to be registered with the SEC and regulated by FINRA. They typically are compensated for their services through sales charges paid by investors and other fees paid by the fund (e.g., 12b-1 fees ). capital gains distributions. A distribution to mutual fund shareholders resulting from the fund’s sale of securities held in its portfolio at a profit. catch-up contribution. An additional contribution that individuals aged 50 or older are permitted to make to an individual retirement account (IRA) or employer-sponsored retirement savings plan in excess of the annual contribution limit. In 2017, the catch-up contribution amount was limited to $1,000 for traditional and Roth IRAs, $6,000 for 401(k) plans, and $3,000 for SIMPLE IRA plans. A type of investment company that issues a fixed number of shares that trade closed-end fund. intraday on stock exchanges at market-determined prices. Investors in a closed-end fund buy or sell shares through a broker, just as they would trade the shares of any publicly traded company. 306 2018 INVESTMENT COMPANY FACT BOOK

321 commercial paper. Short-term, unsecured notes issued by a corporation to meet immediate short-term needs for cash, such as the financing of accounts payable, inventories, and short- term liabilities. Maturities typically range from overnight to 270 days. Commercial paper usually is issued by corporations with high credit ratings and sold at a discount from face value. common stock. An investment that represents a share of ownership in a corporation. Also preferred stock known as common shares. See also . contingent deferred sales load (CDSL). A fee that may be imposed by a fund on shareholders who redeem (sell back to the fund) shares during the first few years of ownership. A CDSL is disclosed to shareholders in the fund’s prospectus. Also known as a back-end load. creation unit. Financial institutions (called authorized participants) interact directly with an ETF by purchasing and redeeming ETF shares in large blocks called creation units. A creation unit authorized participant . generally contains between 25,000 and 200,000 ETFs shares. See also dealer. A firm engaged in the business of buying and selling securities for its own account. defined benefit (DB) plan. An employer-sponsored pension plan in which the amount of future benefits an employee will receive from the plan is defined, typically by a formula based on salary history and years of service. The amount of contributions the employer is required to make will depend on the investment returns experienced by the plan and the benefits promised. Contrast defined contribution plan . defined contribution (DC) plan. An employer-sponsored retirement plan, such as a 401(k) plan or a 403(b) plan, in which contributions are made to individual participant accounts. Depending on the type of DC plan, contributions may be made by the employee, the employer, or both. The employee’s benefits at retirement or termination of employment are based on the employee and employer contributions and earnings and losses on those contributions. See also 401(k) plan 403(b) plan . Contrast defined benefit plan . and director. A person serving on the board of directors of a mutual fund. Mutual fund directors oversee the management and operations of a fund organized as a corporation. Directors also have significant and specific responsibilities under the federal securities laws. Among other things, they oversee the performance of the fund, approve the fees paid to the investment adviser for its services, and oversee the fund’s compliance program. All directors have a fiduciary duty to represent the interests of shareholders. See also independent director and trustee . distribution. (1) A fund’s payment of dividends and capital gains to shareholders, (2) a method of selling fund shares to the public, which could involve either direct sales from the fund to retail or institutional investors, or sales through intermediaries, such as broker-dealers, who interact directly with the purchaser of fund shares, or both, or (3) a term used to describe a withdrawal of funds from a retirement plan. 307 GLOSSARY

322 dividend. Money that a fund or company pays to its shareholders, typically from its investment income, after expenses. The amount is usually expressed on a per-share basis. A dividend is a type of . distribution Generally, economies that are in the process of growth and industrialization, emerging market. for example, many countries in Africa and Latin America. Though relatively undeveloped, these economies may hold significant growth potential in the future. May also be called developing markets. employer-sponsored retirement plan. A type of employee benefit plan that an employer offers to help its employees accumulate assets for retirement. These can include defined contribution plans defined benefit plans . or equity. A security or investment representing ownership in a company. By contrast, a bond represents a loan from the investor (owner of the bond) to a borrower (the issuer of the bond). The term equity is often used interchangeably with stock . A fund that concentrates its investments in equities. Also known as a equity fund. stock fund . exchange-traded fund (ETF). An investment company, typically a mutual fund or unit investment trust, whose shares are traded intraday on stock exchanges at market-determined prices. Investors may buy or sell ETF shares on the secondary market through a broker, just as they would the shares of any publicly traded company. Authorized participants are the only entities allowed to purchase and redeem ETF shares directly from the ETF. See also authorized . participant expense ratio. A measure of what it costs to operate a fund, expressed as a percentage of its assets. This ratio is disclosed in the fund’s prospectus and shareholder reports. fac tor. Any variable that can explain differences in the returns on securities, such as: macroeconomic variables, returns on prespecified portfolios, or returns on benchmarks. The amount a fund might reasonably expect to receive upon a current sale of a fair value. security. Where the value of the security cannot be readily determined from transactions occurring on an exchange or otherwise, a fund must have a process in place to determine how to value the amount it would expect to receive upon a current sale. federal funds rate. The interest rate at which banks lend to each other in overnight borrowings to maintain their bank reserves at the Federal Reserve. Financial Industry Regulatory Authority (FINRA). A self-regulatory organization that was created under the Securities Exchange Act of 1934 and that is charged with regulating broker- dealers. To fulfill its responsibilities, FINRA adopts regulatory rules that broker-dealers must comply with, conducts inspections of such broker-dealers, and imposes sanctions on those broker-dealers that violate its rules. FINRA’s activities are overseen by the SEC. 308 2018 INVESTMENT COMPANY FACT BOOK

323 529 plan. An investment program designed to help pay future qualified higher education expenses through a tax-advantaged account. These plans are offered by state governments and may also be offered by private consortiums. States offer two types of 529 plans: prepaid tuition programs allow contributors to establish an account in the name of a student to cover the cost of a specified number of academic periods or course units in the future; and college savings plans allow individuals to contribute to an investment account to pay for a student’s qualified higher education expenses. fixed-income security. See bond . The concept describing the price at which mutual fund shareholders buy or forward pricing. redeem fund shares. Shareholders must receive the next computed share price following the fund’s receipt of a shareholder transaction order. follow-on offering. An offering of new shares of a same class of shares that is already publicly traded. The new shares are offered at a price established by the fund that is generally lower than the current price traded in the market. 457 plan. An employer-sponsored retirement plan that enables employees of state and local governments and certain tax-exempt employers to make tax-deferred contributions from their salaries to the plan. 401(k) plan. An employer-sponsored retirement plan that enables employees to make tax- deferred contributions from their salaries to the plan. See also defined contribution plan . An employer-sponsored retirement plan that enables employees of universities, 403(b) plan. public schools, and nonprofit organizations to make tax-deferred contributions from their salaries to the plan. See also . defined contribution plan front-end load. A fee imposed by some funds at the point of purchase to cover selling costs. Any front-end load imposed by a fund will be described in detail in the fund’s prospectus. full-service broker. A licensed broker-dealer firm that provides a variety of services, including trade execution, research and investment advice, retirement planning, tax advice, and other services. fund complex. A group of funds usually having the same investment adviser and distributor. Each fund in a complex may have different investment objectives and follow different investment strategies. Also known as fund family. funds of funds. Mutual funds that primarily invest in shares of other mutual funds rather than investing directly in individual securities. Also, ETFs that primarily invest in shares of other ETFs rather than investing directly in individual securities. government bond. A debt security issued by a government or its agencies (e.g., in the United States: savings bonds, Treasury bonds, Treasury inflation-protected securities [TIPS]). 309 GLOSSARY

324 government money market fund. A money market fund that seeks to maintain a stable share price and invests at least 99.5 percent of its total assets in cash, government securities, and/or repurchase agreements collateralized by government securities or cash. See also money market fund . Any debt obligation issued by a government or its agencies (e.g., government securities. Treasury bills issued by the United States). See also US Treasury securities . hedge fund. A private investment pool for qualified (typically wealthy) investors that, unlike a mutual fund, is exempt from SEC registration. A mutual fund that invests in a mix of equity and fixed-income securities, which hybrid fund. can change proportionally over time or remain fixed. independent director. A fund director must satisfy a number of specific and stringent requirements to be “independent.” In general, under the 1940 Act, an independent director cannot currently have, or at any time during the previous two years have had, a significant business relationship with the fund’s adviser, principal underwriter (distributor), or affiliates. An independent director also cannot own any stock of the investment adviser or certain related trustee entities, such as parent companies or subsidiaries. See also director and . independent public accountant. The entity that audits a fund’s financial statements. As part of the audit, the independent public accountant must consider the fund’s internal control over financial reporting, including controls for safeguarding the fund’s securities. The independent public accountant reports to the board’s audit committee. index. A portfolio of assets that tracks the performance of a particular financial market or subset of it (e.g., stock, bond, or commodity markets) and serves as a benchmark against which to evaluate a fund’s performance. The most common index for equity funds is the S&P 500. See also benchmark . index fund. A fund designed to track the performance of a market index. The fund’s portfolio of assets is either a replicate or a representative sample of the designated market index. Often passively managed portfolios . referred to as individual retirement account (IRA). A tax-advantaged account set up by or for an individual to hold and invest funds for retirement. institutional investor. Businesses, nonprofit organizations, and other similar investors that own funds and other securities on behalf of their organizations. This classification of investors differs from individual or household investors who own the majority of investment company assets. A money market fund that does not qualify as either a retail institutional money market fund. or government money market fund and does not limit all beneficial owners of the fund to natural persons. 310 2018 INVESTMENT COMPANY FACT BOOK

325 intraday indicative value (IIV). A real-time estimate of an exchange-traded fund’s (ETF) intraday value. Typically, third-party providers calculate and disseminate this measure every 15 to 60 seconds during securities market trading hours. investment adviser. An organization retained by an investment company to give professional advice on the fund’s investments and asset management practices. All investment advisers to registered investment companies, such as mutual funds, must be registered with the SEC under the Investment Advisers Act of 1940. investment company. A corporation, trust, or partnership that invests pooled shareholder dollars in securities appropriate to the organization’s objective. Mutual funds, closed-end funds, unit investment trusts, and exchange-traded funds are the main types of SEC-registered investment companies. investment objective. The goal (e.g., current income, long-term capital growth) that a fund pursues on behalf of its investors. The fund’s investment objective is disclosed to investors in the fund’s prospectus and the fund’s investments must be consistent with the stated investment objective. level load. A combination of an annual 12b-1 fee (typically 1 percent) and a contingent deferred sales load fee (also often 1 percent) imposed by funds when shares are sold within the first year after purchase. See also contingent deferred sales load and 1 2 b -1 f e e . lifecycle fund. See target date fund . lifestyle fund. Mutual funds that maintain a predetermined risk level and generally use words such as “conservative,” “moderate,” or “aggressive” in their names to indicate the fund’s risk level. Also known as target risk fund . The ability to gain ready access to invested money. Mutual funds are liquid because liquidity. their shares can be redeemed for the next computed net asset value (NAV) on any business day. In the securities market, a security is said to be liquid if the spread between bid and ask prices is narrow and reasonably sized trades can take place at those quotes. load. See sales charge . load fund. A mutual fund that imposes a sales charge—either when fund shares are purchased (front-end load) or redeemed (contingent deferred sales load)—or a fund that charges a 12b-1 fee greater than 0.25 percent. See also 1 2 b -1 f e e . long-term funds. A mutual fund industry designation for all mutual funds other than money market funds. Long-term funds are broadly divided into equity (stock), bond, and hybrid funds. management fee. The amount paid by a mutual fund to the investment adviser for its services. The date by which an issuer promises to repay a bond’s face value. maturity. 311 GLOSSARY

326 money market. The global financial market for short-term borrowing and lending where short- term instruments such as Treasury bills (T-bills), commercial paper, and repurchase agreements are bought and sold. money market fund. A mutual fund regulated pursuant to Rule 2a-7 under the Investment Company Act of 1940 that invests in short-term, high-quality, fixed-income securities, and seeks the highest level of income consistent with preservation of capital (e.g., maintaining a stable share price). mutual fund. An investment vehicle that offers investors professional money management and diversified investment opportunities. All mutual funds are investment companies that are registered with the SEC under the Investment Company Act of 1940. Mutual funds buy a portfolio of securities selected by the fund’s investment adviser to meet a specified investment objective. One hallmark of mutual funds is that they are considered a liquid investment because they issue redeemable securities, meaning that the fund stands ready to buy back its shares at their next computed net asset value (NAV). See also . open-end investment company The per-share value of an investment company, calculated by net asset value (NAV). subtracting the fund’s liabilities from the current market value of its assets and dividing by the number of shares outstanding. Mutual funds calculate their NAVs at least once daily on each day the financial markets are open. net new cash flow. The net amount of “new” money flowing into a mutual fund. The amount is determined by calculating the dollar value of new sales of the fund minus redemptions, plus net exchanges. A positive number indicates new sales plus exchanges into funds exceeded redemptions plus exchanges out of funds. A negative number indicates redemptions plus exchanges out of funds exceeded new sales plus exchanges into funds. net share issuance. The dollar value of gross issuance (proceeds from initial and additional public offerings of shares) minus the dollar value of gross redemptions of shares (share repurchases and fund liquidations). A positive number indicates that gross issuance exceeded gross redemptions. A negative number indicates that gross redemptions exceeded gross issuance. no-load fund. A mutual fund whose shares are sold without a sales charge and without a 12b-1 fee of more than 0.25 percent per year. See also 1 2 b -1 f e e . open-end investment company. The legal name for a mutual fund, indicating that it stands ready to redeem (buy back) its shares from investors. See also mutual fund . operating expenses. Business costs paid from a fund’s assets. These include management fees, 12b-1 fees, and other expenses. pooled investing. The basic concept behind mutual funds and other investment companies in which a fund aggregates the assets of investors who share common financial goals. A fund uses the pooled assets to buy a portfolio of investments, and each share purchased represents a shareholder’s pro rata ownership interest in the fund’s portfolio. 312 2018 INVESTMENT COMPANY FACT BOOK

327 portfolio. A collection of investments owned by an individual or an institution (such as a mutual fund) that may include stocks, bonds, money market instruments, and other investments. portfolio manager. A specialist employed by a fund’s adviser to invest the fund’s assets in accordance with predetermined investment objectives. A measure of how frequently securities are bought and sold within a portfolio turnover rate. fund during a year. The portfolio turnover rate usually is expressed as a percentage of the value of a fund. preferred stock. An investment that represents a share of ownership in a corporation that has a higher claim on the corporation’s assets and earnings than common stock. Preferred stock differs from common stock in that preferred stock generally pays a fixed dividend that must be paid out before dividends to common stock shareholders. Also known as preferred shares. See also common stock . The market in which investors buy securities directly from the companies primary market. issuing them. Contrast . secondary market prime money market fund. A money market fund that invests primarily in corporate debt securities. principal underwriter. A mutual fund underwriter enters into sales agreements with retail distributors (e.g., broker-dealers) of the mutual fund. To sell fund shares, a retail distributor must have executed a contract with a fund or its principal underwriter, which authorizes the distributor to offer and sell fund shares to the public. Generally speaking, a fund’s underwriter is not involved in the offer or sale of fund shares to investors. prospectus. The official document that describes an investment company to prospective investors. The prospectus contains information required by the SEC, such as investment objectives and policies, risks, services, and fees. Federal law requires that every mutual fund investor receive a prospectus. See also summary prospectus . redeem. To sell mutual fund shares back to the fund. Mutual fund shares may be redeemed on any business day. An investor receives the next computed share price, called net asset value (NAV), minus any deferred sales charge or redemption fee. redemption price. The amount per share that mutual fund shareholders receive when they redeem. See redeem . registered investment company. Any fund—including a mutual fund—that is registered as an investment company with the SEC under the Investment Company Act of 1940. In addition to registering as an investment company under the Investment Company Act of 1940, shares of the registered investment company must be registered under the Securities Act of 1933 (if they are offered to the public) and the investment company’s investment adviser must be registered with the SEC under the Investment Advisers Act of 1940. Each of these acts imposes regulatory responsibilities on the entities or securities registered under such acts. 313 GLOSSARY

328 regulated investment company (RIC). A fund eligible under subchapter M of the Internal Revenue Code to eliminate tax at the entity level by distributing all of its taxable income to its shareholders. The fund’s income thus is taxed only once, at the investor level. A RIC may be organized in either corporate or trust form—but is treated in all cases as a corporation. To qualify as a RIC, a corporation must be registered at all times during the taxable year under the Investment Company Act of 1940 and must derive at least 90 percent of its income from certain sources, including dividends, interest, and capital gains. It also must distribute at least 90 percent of the dividends and interest received. repurchase agreements. A form of short-term funding that is typically used by dealers and other institutional investors. In a repurchase transaction, one party sells securities to another party and agrees to buy back the securities at a specified time (e.g., the next day) for a specified price. Also known as a repo. Rules under the Internal Revenue Code that generally required minimum distribution (RMD). require a person who owns a traditional IRA or 401(k) account to take annual distributions from the IRA or 401(k) account beginning at age 70½. The annual distribution amount is determined by formulas established by the IRS and must be calculated each year based on the owner’s age (or the ages of the owner and the owner’s spouse). The IRS formula is intended to ensure that the entire amount of a traditional IRA or 401(k) account be distributed over the expected life of the individual (or the joint lives of the individual and the individual’s spouse). Distributing less than the required amount may result in a tax penalty. Roth IRAs are not subject to required minimum distributions during the account holder’s lifetime. retail investor. An individual investor who buys and sells securities for his or her personal account, and not for a company or organization. A money market fund that has policies and procedures reasonably retail money market fund. designed to limit all beneficial owners of the fund to natural persons. RIC. See regulated investment company . rights offerings. Fund shareholders are issued rights to purchase additional fund shares at a price established by the fund, usually at a discount to NAV. rollover. The transfer of an investor’s assets from one qualified retirement plan (including an IRA) to another—due to changing jobs, for instance—without a tax penalty. Roth IRA. An individual retirement plan, first available in 1998, that permits only after-tax contributions; earnings are not taxed, and qualified distributions of earnings and principal are generally tax-free. sales charge. The sales fee that may be imposed on mutual fund shares that are purchased through a broker-dealer or other financial intermediary. By regulation, mutual fund sales charges are capped. Sales charges may vary depending on where the shares are acquired (e.g., a fund supermarket or a broker-dealer), the amount invested, and the fund purchased. Also known as the load. 314 2018 INVESTMENT COMPANY FACT BOOK

329 SAR-SEP IRA (salary reduction simplified employee pension). A SEP IRA with a salary ). The Small Business Job Protection Act of 1996, which created SEP IRA reduction feature (see SIMPLE IRAs, prohibited the formation of new SAR-SEP IRAs, which were created in 1986. secondary market. Market in which an investor purchases or sells certain assets (such as closed-end fund, UIT, and ETF shares) from another investor through an intermediary such as a . broker-dealer. Contrast primary market A fund that invests in a particular or specialized segment of the sector mutual fund. marketplace, such as stocks of companies in the software, healthcare, or real estate industries. An insurance company account that is segregated or separate from the separate account. insurance company’s general assets. Also refers to a fund managed by an investment adviser for a single plan. SEP IRA (simplified employee pension plan). A retirement program created in 1978 that consists of individual retirement accounts for all eligible employees, to which the employer can contribute according to certain rules. A fairly simple, inexpensive plan to establish and administer, a SEP IRA can be attractive to small businesses and self-employed individuals. series trust fund. A group of different mutual funds, each with its own investment objective and policies, that is structured as a single corporation or business trust. share classes. Some mutual funds offer investors different types of shares known as classes (e.g., Class A, institutional shares). Each class will invest in the same portfolio of securities and will have the same investment objectives and policies, but each class will have different shareholder services and/or distribution arrangements with different fees and expenses and, therefore, different performance results. A multiclass structure offers investors the ability to select a fee and expense structure that is most appropriate for their investment goals (including the time that they expect to remain invested in the fund). short-term fund. See money market fund . SIMPLE IRA (savings incentive match plan for employees). A simplified tax-favored retirement plan created in 1996 that small employers can set up for the benefit of their employees. S&P 500 index. A daily measure of stock market performance based on 500 US stocks chosen by Standard & Poor’s for market size, liquidity, and industry group representation. sponsor. A company or financial institution that creates a fund and determines its investment objective. When a new fund complex is launched, the fund sponsor (often an investment adviser) typically is the initial and sole shareholder of the new funds and elects the initial slate of directors. An investment fund that seeks to preserve principal and to provide stable value fund. consistent returns and liquidity. Stable value funds include collective investment funds sponsored by banks or trust companies or contracts issued by insurance companies. 315 GLOSSARY

330 summary prospectus. SEC rules permit mutual funds to provide their investors with a brief summary (generally three to four pages) of key fund information instead of the fund’s long- form, statutory prospectus if they make the statutory prospectus available online or by mail upon request and meet certain additional conditions. The summary prospectus must contain the following items in standardized order and cannot include additional information, nor omit required information: investment objectives/goals; fee and expense tables; principal investment strategies, principal risks and performance table; and management information. See also prospectus . target date fund. Funds designed to satisfy their investors’ investment objective by a particular target date, which is usually included in the name of the fund. For example, a Target Date 2025 fund may be designed for persons who plan to retire in 2025. To fulfill the investor’s investment objective, the fund is typically constructed as a hybrid fund that follows a predetermined reallocation of risk over the lifetime of the investment. These funds invest in a mix of asset classes and typically rebalance their portfolios over time to become more conservative and income producing as the fund approaches and passes its target date. Target date funds are most commonly used to save for retirement or education, where the owner of the account expects to use the account proceeds at a known future date. Also known as lifecycle fund . target risk fund. See lifestyle fund . tender offer. In a closed-end fund tender offer, shareholders are given a limited opportunity to sell a portion of their shares back to the fund at a price—the tender price. Generally, the tender price is close to the fund’s net asset value (NAV) and is higher than the market price. total net assets. The total amount of assets, less any liabilities, a fund holds as of a certain date. A measure of a fund’s performance that encompasses all elements of return: total return. dividends, capital gains distributions, and changes in net asset value (NAV). Total return is the change in value of an investment over a given period, assuming reinvestment of any dividends and capital gains distributions, expressed as a percentage of the initial investment. traditional IRA. The first type of IRA, created in 1974. Individuals may make tax-deductible or nondeductible (depending on income and other requirements) contributions to these accounts. See also individual retirement account (IRA) . transfer agent. A transfer agent is the entity within a fund complex that maintains all shareholder account records, processes all transactions effected by shareholders, and provides shareholders who own shares directly with the fund communications regarding the fund or the shareholder’s account. Typically, when a mutual fund shareholder contacts the fund to discuss the shareholder’s account, it is the transfer agent that handles such inquiries. The transfer agent must be registered with the SEC under the Securities Exchange Act of 1934 and must perform its services pursuant to an agreement with the fund’s board. 316 2018 INVESTMENT COMPANY FACT BOOK

331 Treasury bill (T-bill). A short-term debt obligation of the US government with a maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks), or six months (26 weeks). trustee. A member of the board of trustees of a fund organized as a business or statutory trust. Mutual fund trustees oversee the management and operations of the fund and have a fiduciary duty to represent the interests of shareholders. Fund trustees have the same responsibilities as fund directors. See also director . 12b-1 fee. A mutual fund fee, named for the SEC rule that permits it, used to pay distribution costs such as compensation to financial advisers for initial and ongoing assistance. If a fund has a 12b-1 fee, it will be disclosed in the fee table of a fund’s prospectus. underwriter. See principal underwriter . unit investment trust (UIT). A type of fund that blends characteristics of mutual funds and closed-end funds. Like mutual funds, UITs issue redeemable shares. Like closed-end funds, however, UITs typically issue only a specific, fixed number of shares. A UIT does not actively trade its investment portfolio. Instead it buys and holds a fixed portfolio of securities until the UIT’s set termination date, at which time the trust is dissolved and proceeds are paid to shareholders. US Treasury securities. Debt securities issued by the US government and secured by its full faith and credit. Treasury securities are the debt financing instruments of the US federal government, and they are often referred to simply as Treasuries . There are four types of Treasury securities: Treasury bills, Treasury bonds, Treasury notes, and Treasury inflation protected securities (TIPS). See also Treasury bill . variable annuity. An investment contract sold by an insurance company. Capital is accumulated, often through mutual fund investments, with the option to convert to an income stream in retirement. wirehouse. An integrated broker with a national or worldwide business model as opposed to a regional one. worldwide regulated open-end fund. A substantively regulated, open-end fund that is constrained by some diversification limits, concentration limits, and/or leverage limits with a view to offering a high level of investor protection; includes mutual funds, exchange-traded funds (ETFs), institutional funds, guaranteed/protected funds, (open-end) real estate funds, and other substantively regulated funds. 317 GLOSSARY

332 Index t A page number with an f indicates a figure; an n indicates a note; a indicates a table. Page numbers in indicate a definition. bold A amortized cost method of pricing, 280 accountants 305 annual reports, 293, 310 independent public, 283, 283f, variable annuities See also annuities. as mutual fund purchase sources, 151, 151f, 152f assets, 168 actively managed bond funds, 126, 126f, 249t, 250t, closed-end fund holder ownership of, 114, 114f 251t, 252t ETF-owning households holding, 101, 101f actively managed domestic equity funds, 43f, 48, 77, IRA assets in, 185f 77f, 249t retiree income and, 173, 173f actively managed equity funds, 122, 122f, 124, 249t, arbitrage, 93 250t, 251t, 252t Argentina, 63 actively managed ETFs, 42n, 43n, 84, 88, 129f, 218t, 219t, 220t Asia-Pacific region actively managed hybrid funds, 249t, 250t, 251t, 252t assets, 14 actively managed mutual funds, 305 ETF market, 86f advisers and, 280 GDP growth, 63 expense ratios, 124, 126–127, 126f investor demand for regulated funds, 13 market share, 42f market gains (2017), 14 total net assets, 249t money market funds, 21f administrators, mutual fund, 283, 283f, 285 net sales, 277t advisers, 311 (investment advisers) net sales of regulated long-term funds, 25f as authorized participants, 90 number of funds, 275t compensation of, 118, 127, 130, 131, 132 stock market gains (2017), 15f fund management, 53 total net assets, 23f, 24, 273t as purchase sources, 151, 151f asset allocation, 67 regulation of, 285, 297 hybrid funds See also asset allocation funds, 75. responsibilities, 284–285 asset allocation strategy, 67 rollover decision research and, 188, 189f asset-based fees, 127, 130, 132, 133 affiliated transaction prohibitions, 300 305 asset class, Africa region, 273t, 275t, 277t asset-weighted turnover rate, 68, 68f after-tax returns, 288 305 at-the-market offerings, 106, age demographics 305 auditors, 285, 297, of closed-end fund owners, 115, 115f authorized participants (APs), 88–89, 89f, 90, 91f, 93, 305 demand for regulated funds and, 19 average hourly earnings, 62 of education savers, 200, 201f 305 average portfolio maturity, of ETF owners, 102f B 401(k) account balances and, 183, 183f Baby Boom Generation 401(k) asset allocation and, 179, 180f, 181, 181f bond funds and, 73 households owning IRAs, 190 employer-sponsored retirement plans and, 153, internet use and, 161f 153f, 155f IRA and Roth IRA asset allocation and, 190, 191f mutual funds and, 140, 141f, 143f, 14 4–145, IRA distributions and, 192, 192f 14 4f, 145f of mutual fund owners, 143f, 144–146, 144f, 145f, risk tolerance, 158, 158f 146f, 153–155, 153f, 155f back-end load, 131, 132, 133f, 134f, 305 . See also contingent of retirement savers, 164, 164f deferred sales load rollover decision research and, 188 See also balanced funds, 75. hybrid funds; lifestyle funds; agency securities, 39, 40f, 247t, 248t target date funds alternative investment funds (AIFs), 12 assets, 13f alternative minimum tax, 289 equity fund portion, 181f alternative strategy funds, 253t as 401(k) investment options, 178f, 179, 180f American Taxpayer Relief Act of 2012, 199 non–target date, 190, 191f Americas region, 63, 67, 272t, 274t, 276t shareholder risk tolerance for, 159, 159f 319 INDEX

333 (continued) bond funds Bank of England, 63 trends, 57f banker’s acceptances, 247t, 248t in US mutual fund total net assets, 58, 58f banks as custodians, 299 variable annuity, 265t, 266t 401(k) asset allocation and, 180f, 181f worldwide net sales, 18f as intermediaries, 44, 44f bond funds of funds, 256t, 257t IRA assets in, 185f bond index funds. index bond funds See bond market, 39 as mutual fund purchase sources, 151, 151f, 152f retirement assets held by, 168 bond trusts, as UITs, 50 basis points, 62n, 305 See also bond funds . 306 bonds, directly held, 114, 114f benchmark, 305 blend funds, 259t, 260t ETF-owning households holding, 101 expense ratios, 123f government, 234t, 235t boards of directors, 53, 282, 283f, 284, 296 as investment company assets, 39, 40f IRA assets in, 184, 185f, 191f bond and income funds, 210t, 212t bond closed-end funds, 105f, 107, 108f, 109f, 191f, as retirement resource, 168 216t, 217t tender option, 111, 113, 113f bond ETFs, 94f, 97, 98, 98f, 99f, 191f, 218t, 219t, 220t borrowing, limits on, 298 bond funds, 306 . See also bonds; government bond funds; Brazil, 63 high-yield bond funds; index bond funds; breakpoints, 130, 306 investment grade bond funds; multisector bond broad-based domestic equity ETFs, 97, 98f, 99f, 218t, funds; municipal bond funds; world bond funds 219t, 220t alternative strategies, 253t brokerage accounts, 84, 184 assets, 35, 35f brokerage firms, 44, 44f assets in regulated funds, 12, 13f, 14 broker-dealers, 306 capital gains paid and reinvested, 237t 306 brokers, 120, 151, 151f, closed-end, 105f, 107, 191f, 216t business corporation assets, 38, 268t, 269t DC plan assets in, 270t business equity, 168 dividends paid and reinvested, 236t business investments, 62 ETF-owning households holding, 101, 101f exchange redemptions, 232t C capital appreciation equity funds exchange sales, 230t exchange redemptions, 232t expense ratios, 118, 119f, 123f exchange sales, 230t as 401(k) investment options, 178f, 180f liquidity ratios, 223t household ownership of, 114, 114f net new cash flow, 228t individual accounts, 267t new sales, 229t institutional accounts, 267t, 268t number of funds, 213t IRA assets in, 190, 191f, 271t number of share classes, 215t liquidity assets, 222t redemptions, 231t liquidity ratios, 222t, 223t total net assets, 211t in long-term mutual funds, 60n capital gains managing investor flows, 71–72 distributions, 110, 110f, 288, 291, 291f, 306 net new cash flow, 61f, 69–70, 69f, 70f, 224t, 227t, 228t paid and reinvested, 237t new sales, 229t tax liability for, 289 number of, 213t capital market development, 26, 27f number of share classes, 214t cash reserves, 247t, 248t redemptions, 233t catch-up contributions, 187, 306 regular redemptions, 231t CBO (Congressional Budget Office), 79f, 166 retirement assets in, 150, 194, 194f, 195f, 196 CCO (chief compliance officer), 283, 285, 296, 297 sales/redemptions, 227t CDSL (contingent deferred sales load), 131, 307 shareholder risk tolerance for, 159, 159f certificates of deposit, 191f, 247t, 248t taxable long-term, 214t CFTC (Commodity Futures Trading Commission), 79f, 86 tax-exempt, 289 Chicago Board Options Exchange Volatility Index (VIX), 66 total net assets, 210t, 211t, 267t chief compliance officer (CCO), 283, 285, 296, 297 total portfolio, common stock, and other securities: purchases, sales, net purchases, 241t 320 2018 INVESTMENT COMPANY FACT BOOK

334 See also Asia-Pacific region China, 21f, 29f, 63. D DB plans. See defined benefit plans CITs (collective investment trusts), 75, 78–79, 79f defined contribution plans See DC plans. civil service retirement and disability fund, 169f 307 dealers, See share classes Class A, B, or C shares. defined benefit (DB) plans, 150, 164, 164f, 167, 167f, 168, 306 closed-end funds, 104, 307 170, 170f, 172f, assets, 34f, 216t See also 307 defined contribution (DC) plans, 457 plans; . bond, 105f, 107, 108f, 109f, 191f, 216t, 217t 401(k) plans; 403(b) plans; Thrift Savings Plans characteristics of, 106, 281 asset location, 195–196, 195f composition, by investment objective, 108f assets, 163f, 168, 169f, 170, 170f, 175f, 270t custody rules, 299n characteristics of, 174, 175f distributions, 110, 110f CITs in, 78, 79f diversification standards, 301 in closed-end fund–owning households, 115f domestic bond, 108f, 109f, 216t, 217t in ETF-owning households, 102, 102f domestic equity, 108f, 109f, 216t, 217t household ownership of, 36, 37f, 156, 156f equity, 107, 109, 109f, 191f, 216t, 217t index funds in, 198, 198f global/international, 108f, 109f, 216t IRA rollovers from, 150 gross issuance/redemptions, 217t lifestyle funds in, 196, 197f household ownership of, 114–115, 114f, 115f mutual fund assets in, 60n, 150, 194, 194f IRA assets in, 184, 185f net new cash flow, 270t leverage, 111–113, 111f, 112f, 113f, 299 purchase sources, 151, 151f, 152, 152f, 155f municipal bond, 108f, 109f, 216t, 217t retiree income and, 172f net issuance, 35, 107, 109, 109f, 217t as retirement resource, 164, 164f, 167f number of funds, 52, 107f, 108, 216t target date funds in, 73, 197f, 198 number of investment companies for, 52f total net assets, 270t preferred shares, 24f, 106, 107f, 112, 112f, 216t, 217t Delaware statutory trusts, 281, 282, 282f pricing, 294, 294n11 age demographics; income See also demographics. regulation of, 292n4, 293n8 demographics shareholder characteristics, 114–115, 114f, 115f bond fund demand and, 73 taxable bond, 108f, 109f, 216t, 217t closed-end fund investors, 114–115, 114f, 115f total assets, 107–108, 107f education level, 102, 102f, 161f, 200, 201f collective investment trusts (CITs), 75, 78–79, 79f of education savings investors, 200, 201f 307 commercial paper, 40f, 41, 247t, 248t, ETF investors, 102, 102f commodity ETFs, 84, 98f, 99f, 218t, 219t, 220t 401(k) investors, 179, 180f, 181, 181f, 183, 183f Commodity Exchange Act, 86 internet use by shareholders, 161, 161f Commodity Futures Trading Commission (CFTC), 79f, 86 long-term mutual fund flows and, 64 common stock, 307 mutual fund investors, 143f as portfolio holdings, 234t, 235t retirement plan investors, 164f purchases, sales, and net purchases of, 238t, 239t, savings goals and, 165, 165f 240t, 241t trends in, 56, 61 company stock holdings, 179, 180f, 181f worldwide regulated fund trends and, 23, 26 confidence of consumers, 160, 160f Depository Trust Company (DTC), 90 Congressional Budget Office (CBO), 166 derivative instruments, 71, 113, 298 consumer durables as retirement resource, 168 Deutscher Aktienindex (DAX), 63 Consumer Price Index, 62 307 directors, 53, 282, 283f, 284, 296, 307 contingent deferred sales load (CDSL), 131, disclosure, 92, 288, 292–293 corporate bond funds. See high-yield bond funds; investment discount brokers, 151, 151f, 152, 152f, 154f grade bond funds discount calculation, closed-end funds and, 294n11 corporate bonds, 39, 40f, 71, 234t, 235t 307 distributions, cost basis, 289 capital gains, 110, 110f, 237t costs. See mutual fund expenses and fees charges, 118 Coverdell education savings accounts (ESAs), 60n, 156f, dividends, 236t, 246t, 288, 290, 290f 19 9, 2 01f ETF fees, 127n creation units, 88, 89f, 307 from IRAs, 192–193, 192f currency ETFs, 84, 99n diversification, 301 custodians, 283f, 299 321 INDEX

335 308 emerging market debt mutual funds, 254t dividends, emerging market equity ETFs, 90, 94f, 99f exempt-interest, 289 308 ordinary distributions, 288, 290, 290f emerging markets, 67, Employee Benefit Research Institute (EBRI), 179 paid and reinvested, 236t, 246t reinvestments, 106 Employee Retirement Income Security Act of 1974 (ERISA), 184, 186, 186f domestic bond closed-end funds, 108f, 109f, 216t, 217t employer-sponsored retirement plans, 308 See also . domestic bond funds, 177, 178f defined benefit plans; defined contribution plans; domestic equity closed-end funds, 108f, 109f, 216t, 217t 457 plans; 401(k) plans; 403(b) plans; SAR-SEP domestic equity ETFs IRAs; SEP IRAs; SIMPLE IRAs index, 48, 77, 77f assets, 168 large-cap, 98, 99f Baby Boom Generation and, 155, 155f liquidity providers, 90 fee structures for, 136 net issuance, 67, 97, 98, 98f as first mutual fund purchase, 148, 148f number of funds, 218t household accounts, 150 total net assets, 99f, 218t Millennial Generation and, 154, 154f trading, 94f mutual fund assets in, 150, 194–198 domestic equity funds purchase sources, 150–152, 151f, 152f actively managed, 43f, 48, 77, 77f, 249t retiree income and, 172–173, 172f alternative strategies, 253t as retirement resource, 164f, 167, 167f assets, 35, 35f rollovers from, 150 DC plan assets in, 270t employment, investment industry, 53–55, 53f, 54f, 55f entering and exiting industry, 59 308 stock . e q uit y, See also expense ratios, 120f equity closed-end funds, 109, 109f, 191f, 216t, 217t as 401(k) investment options, 177, 178f equity ETFs, 94f, 191f, 218t, 220t index domestic equity ETFs and, 77, 77f equity funds, See also capital appreciation equity . 308 IRA assets held in, 271t funds; domestic equity funds; index equity funds; net new cash flow, 64, 66f, 250t total return equity funds; world equity funds new sales, 100 alternative strategies, 253t number of funds, 212t, 251t assets, 12, 13f, 14 number of share classes, 214t, 252t capital gains paid and reinvested, 237t retirement assets in, 195, 195f closed-end, 107, 109, 109f, 191f, 216t, 217t total net assets, 210t, 249t DC plan assets in, 270t trends, 66–67 dividends paid and reinvested, 236t domestic equity index funds, 43–44, 43f, 249t in ETF-owning households, 101, 101f domestic high-yield bond ETFs, 90, 94f, 95–96, 95f exchange redemptions, 232t domestic municipal bond closed-end funds, 108f, 109f, exchange sales, 230t 216t, 217t expense ratios, 118, 119f, 121f, 122, 123f, 138, 139f domestic taxable bond closed-end funds, 108f, 109f, as 401(k) investment options, 138, 139f, 178f, 179, 216t, 217t 180f, 181f household ownership of, 114, 114f E index equity funds as share of, 76f economic climate, 45, 62–66, 65f individual accounts, 267t Economic Growth and Tax Relief Reconciliation Act institutional accounts, 267t, 268t (EGTRRA) of 2001, 199 IRA assets in, 190, 191f, 271t economies of scale, expense ratios and, 121 liquidity, 222t, 223t EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system, 292, 293 in long-term mutual funds, 60n education net new cash flow, 61f, 64–65, 65f, 66f, 224t, 225t, 228t IRA withdrawals for, 193, 193f new sales, 225t, 229t as savings goal, 56, 64, 149, 149f, 164, 199–200 number of funds, 212t, 213t See education IRA. Coverdell education savings accounts emergencies number of share classes, 214t, 215t fund pricing disruptions due to, 295n13 redemptions, 225t, 233t IRA withdrawals for, 193, 193f regular redemptions, 231t preparation for, as savings goal, 56, 149, 149f retirement assets in, 150, 194, 194f emerging market bond ETFs, 90, 94f Roth IRA assets in, 190 322 2018 INVESTMENT COMPANY FACT BOOK

336 exchange-traded funds (ETFs) (continued) equity funds (continued) sales/redemptions, 225t expense ratios, 127–129 shareholder risk tolerance for, 159, 159f funds of funds structure, 218t, 219t, 220t futures, 84, 99n total net assets, 210t, 249t, 267t global/international equity, 97, 98, 98f, 100, 218t, total portfolio, common stock, and other securities: 219t, 220t purchases, sales, net purchases, 239t high-yield bond, 90, 94f, 95–96, 95f turnover rate, 68f history, 84 in US mutual fund total net assets, 58, 58f variable annuity, 265t, 266t household assets invested by adviser type, 77 households owning, 101–103, 101f, 102f worldwide net sales, 18f equity funds of funds, 256t, 257t hybrid, 97, 98, 98f, 99f, 218t, 219t, 220t index equity funds equity index funds. index-based, 77 See international equity ETFs, 94f, 98f, 99f, 100 equity unit investment trusts (UITs), 50, 51f, 221t ESAs (Coverdell education savings accounts), 60n, 156f, IRA assets in, 184, 185f 19 9, 2 01f leverage limits, 298 See ETFs. exchange-traded funds liquidations, 48, 49f, 100 euro, exchange rate for, 15n, 16–17, 16f mergers, 48, 49f eurodollar CDs, 247t, 248t mutual funds compared with, 85 Europe net asset value, 85–86 ETF market, 86f net issuance, 83f, 96–97, 97f, 220t GDP growth, 63 non–1940 Act (nonregistered), 86, 97f, 98f, 99f, 127, net sales, 25, 25f, 276–277t 218t, 219t, 220t nonfinancial business assets, 38 number of funds, 274–275t number of funds, 87f, 218t, 219t regulated open-end funds, 272–273t number of investment companies for, 52f stock market gains (2017), 15f origination of, 87–88 total net assets, 23f, 24 European Central Bank, 19 overview, 82 pricing, 294, 294n11 exchange rates, 15n, 16–17, 16f primary markets, 88–89, 89f, 90, 93, 94 exchange redemptions, 225t redemptions, 88, 89, 94f exchange sales, 226t registered, 86, 97f, 98f, 99f, 127, 218t, 219t, 220t exchanges of shares, 289 domestic . exchange-traded funds (ETFs), regulation of, 12, 293n8 See also 308 equity ETFs secondary markets, 85, 89, 89f, 90, 91f, 93–96, 95f actively managed ETFs, 42n, 43n, 84, 88, 129f, 218t, sector equity, 218t, 219t, 220t 219t, 220t shareholder risk tolerance, 103, 103f adviser purchase recommendations, 78f total net assets, 34f, 86, 86f, 87f, 96, 218t assets, 34f, 35, 35f trading, 92–96, 94f, 95f assets at largest complexes, 47–48, 47f transparency and disclosure, 84, 92, 292 assets worldwide, 18, 18f trends, 46, 46f authorized participants, 88–89, 89f, 90, 91f, 93 exempt-interest dividends, 289 bond, 94f, 97, 98, 98f, 99f, 191f, 218t, 219t, 220t expense ratios, See . mutual fund expenses and fees 308 also broad-based domestic equity, 97, 98f, 99f, 218t, asset-based fees and, 132 219t, 220t asset-weighted average, 118n, 120, 121f, 126f, 136, characteristics of, 84, 281 137f, 138 commodity-based, 84, 98f, 99f, 218t, 219t, 220t competition, 121 creation of, 88–89, 89f, 94f equity funds, 117f, 121f currency-based, 84, 99n ETFs, 127–129 custody rules, 299n mutual funds, 119f, 120–122, 120f, 121f, 124–127, 126f demand for, 35, 38, 48, 67, 82, 92, 96–98, 97f, 98f, F 99f, 100 factor, 308 distribution fees, 127n 308 fair value, diversification standards, 301 Federal Employees Retirement System (FERS), 37f, 169f emerging market bond, 90, 94f federal funds rate, 61, 62, 308 emerging market equity, 90, 94f, 99f federal government employee retirement plans, 168, 174 entering and exiting industry, 48, 49f, 100, 100f Federal Reserve, 19, 59, 61, 62, 63, 80 equity, 94f, 191f, 218t, 220t 323 INDEX

337 309 fee-based advisers, 77, 78f 403(b) plans, See also sales charge assets, 169f, 174, 175f fees, asset-based, 127, 130, 132, 133. as first mutual fund purchase, 148f financial advisers. See advisers household financial assets in, 37f financial crisis of 2007–2009, 19, 45, 62, 71, 75 household mutual fund assets in, 156f Financial Industry Regulatory Authority (FINRA), 279, 296, 308 2 9 7, index funds in, 198f financial institution assets, 268t, 269t investment options, 177 advisers; investment professionals financial professionals. See lifestyle funds in, 197f financial services companies, 44, 189f mutual fund assets in, 194, 195f Financial Times Stock Exchange (FTSE), 63 plan design, 176–177 309 529 plans, 60n, 156f, 199, 199f, 200f, 201f, purchase sources, 151f, 152f, 155f fixed annuities, 101, 101f, 114, 114f as retirement resource, 167f fixed-income investments, 190 target date funds in, 197f, 198f fixed-income markets, 71 Europe See also France, 63. fixed-income securities, 14, 179, 180f, 309 front-end load, 130, 132, 133f, 134f, 309 flexible portfolio funds, 75 FTSE (Financial Times Stock Exchange), 63 floating-rate high-yield bond funds, 255t full-service brokers, 77, 78f, 309 follow-on offerings, 106, 309 See fund board. boards of directors foreign bonds, 39, 40f fund complexes, 47–48, 47f, 309 See global/international entries; foreign securities. funds of funds, 74n, 217t, 218t, 219t, 220t, 256t, 257t, 309 international entries; world entries futures ETFs, 84, 99n foreign service retirement and disability fund, 169f G 309 forward pricing, 85, 295, GDP (gross domestic product), 26, 27f, 28, 62, 63 309 457 plans, Generation X, 143f, 144–145, 144f, 145f, 153, 153f, assets, 169f, 174, 175f 158, 158f as first mutual fund purchase, 148f Europe also Germany, 63. See household financial assets in, 37f GICs (guaranteed investment contracts), 177, 178f, household mutual fund assets in, 156f 179, 180f index funds in, 198f GI Generation, 143f, 144–145, 144f, 145f, 153, 153f, lifestyle funds in, 197f 158, 158f mutual fund assets in, 194, 195f global economic climate, 62–63 purchase sources, 151f, 152f, 155f global/international bond closed-end funds, 108f, 109f, as retirement resource, 167f 216t, 217t target date funds in, 197f, 198f global/international equity closed-end funds, 108f, 109f, 309 401(k) plans, 216t, 217t account balances, 183, 183f global/international equity ETFs, 97, 98, 98f, 100, 218t, 19t, 220t asset allocation, 179, 180f global/international index funds, 124 assets, 169f, 174, 175f government agency securities, 39, 40f, 247t, 248t CITs in, 79, 79f government bond funds employer contributions to, 176, 176f, 177 exchange redemptions, 232t as first mutual fund purchase, 148f exchange sales, 230t household financial assets in, 37f expense ratios, 123f household mutual fund assets in, 156f liquidity ratios, 223t index funds in, 198f net new cash flow, 228t investment options, 177, 178f new sales, 229t IRA rollovers from, 150 number of, 213t lifestyle funds in, 197f number of share classes, 215t loan activity, 184 regular redemptions, 231t mutual fund assets in, 150, 194, 195f total net assets, 211t plan design, 176–177, 176f government bond portfolio holdings, 234t, 235t purchase sources, 151f, 152f, 155f government bonds, 234t, 235t, 309 as retirement resource, 167f government money market funds, 242t, 243t, 244t, 247t, services and expenses, 136, 137f, 138, 139f 310 280, target date funds in, 182, 182f, 197f, 198f government securities, 310 324 2018 INVESTMENT COMPANY FACT BOOK

338 gross domestic product (GDP), 26, 27f, 28, 62, 63 (continued) household mutual fund accounts growth funds, 123, 123f, 259t, 260t retail investors, 60, 60f, 64 guaranteed investment contract (GIC), 177, 178f, 179, 180f as share of financial assets, 56 guaranteed/protected funds, 13f as share of US mutual fund total net assets, 60, 60f by tax status, 287, 287f H hybrid ETFs, 97, 98, 98f, 99f, 218t, 219t, 220t hedge funds, 38, 310 target date funds hybrid funds, 310 . See also high-yield bond ETFs, 90, 94f, 95–96, 95f alternative strategies, 253t high-yield bond funds assets, 35, 35f exchange redemptions, 232t capital gains paid and reinvested, 237t exchange sales, 230t closed-end fund holder ownership of, 114f expense ratios, 123f DC plan assets in, 270t floating-rate, 255t dividends paid and reinvested, 236t liquidity ratios, 223t ETF-owning households holding, 101f net new cash flow, 70, 228t exchange redemptions, 232t new sales, 229t exchange sales, 230t number of, 213t expense ratios, 118, 119f, 123f number of share classes, 215t individual accounts, 267t regular redemptions, 231t institutional accounts, 267t, 268t total net assets, 211t IRA assets held in, 191f, 271t home price index, 62 lifestyle funds, 196, 197f, 198, 198f, 263t, 264t home purchase, repair, or remodeling liquidity, 222t, 223t IRA withdrawals for, 193, 193f in long-term mutual funds, 60n as savings goal, 56, 149f, 164 net new cash flow, 61f, 74–75, 74f, 224t, 226t, 228t homeownership as retirement resource, 164, 164f, 167, 168 new sales, 226t, 229t demographics; household financial assets. See also number of funds, 212t, 213t household IRAs; household mutual fund accounts; number of share classes, 214t, 215t individual investors; retirement market assets redemptions, 226t, 231t, 233t asset location of, 28, 29f, 36, 37f, 77, 78f retirement assets in, 150, 194, 194f, 195f, 196 capital gains distributions, 291, 291f shareholder risk tolerance for, 159, 159f closed-end funds as, 114–115, 114f, 115f total net assets, 210t, 211t, 267t employer-sponsored retirement plans, 150–156 total portfolio, common stock, and other securities: ETFs, 101–103, 101f, 102f, 103f purchases, sales, net purchases, 240t investment company holdings, 36, 37f in US mutual fund total net assets, 58, 58f long-term mutual funds as, 64 variable annuity, 265t, 266t purchase sources, 150–152, 151f, 152f hybrid funds of funds, 256t, 257t retirement resource pyramid and, 164–165, 164f hybrid index funds. index hybrid funds See savings goals of investors, 56, 58, 64, 149, 149f, 165, 165f I taxable accounts, 287, 287f, 290f, 291f IIV (intraday indicative value), 92, 311 tax-deferred accounts, 287, 287f, 290f, 291f income demographics tax-exempt accounts, 287, 287f closed-end fund owners, 115, 115f trends, 62 education savers, 200, 201f household IRAs ETF owners, 102, 102f age and income demographics, 190 households owning IRAs, 190 asset location, 150–156 internet use and, 161f IRA rollover decision research, 188, 189f mutual fund owners, 143f, 144–147, 144f, 145f, IRA withdrawals, 193, 193f 146f, 147f in near-retiree households, 167, 167f near-retiree households, 167f household mutual fund accounts retiree income and, 171–172, 172f asset location, 150–156 retirement savings and, 164–166, 165f, 166f first purchases, 148, 148f income distributions, 110, 110f, 288 owner characteristics, 142, 143f 310 independent directors, 296, owner confidence in funds, 160, 160f independent financial planners, 151, 151f, 152f owner risk tolerance, 159, 159f independent fund advisers, 44, 44f purchase sources, 151, 151f, 152f 310 independent public accountants, 283, 283f, 325 INDEX

339 individual investors index, (continued) 310 savings goals, 149 index-based ETFs (index ETFs) characteristics of, 84 shareholder sentiment, 157, 157f expense ratios, 127–129 total net assets held by, 267t See also . 310 individual retirement accounts (IRAs), net issuance, 220t Roth IRAs; SAR-SEP IRAs; SEP IRAs; SIMPLE IRAs number of funds, 219t age and income demographics, 190 origination of, 87, 88 asset allocation, 190, 191f trends, 75, 77, 77f asset location, 150–156, 195–196, 195f index bond ETFs, 128, 128f, 129, 129f assets, 163f, 168, 169f, 170, 170f, 184, 185f index bond funds bonds and bond funds in, 184, 185f, 191f, 271t net new cash flow, 76f, 250t catch-up contributions, 187 number of funds, 251t characteristics of, 184 number of share classes, 252t closed-end fund owners and, 115f total net assets, 125f, 249t closed-end funds in, 184, 185f index domestic equity funds, 43, 43f, 249t as component of US retirement assets, 164, 164f, index equity ETFs, 128, 128f, 129f 167, 167f index equity funds contributions to, 187–188, 189f, 190 in DC plans, 198n distributions, 192–193, 192f, 193f domestic, 76f, 77, 249t equities and equity funds in, 190, 191f, 271t expense ratios, 122–129, 123f estimated net new cash flow, 271t net new cash flow, 250t ETF-owning households and, 102, 102f number of funds, 251t household assets in, 36, 37f, 156, 156f number of share classes, 252t investor demographics, 186–188, 186f total net assets, 249t lifestyle funds in, 196, 197f world, 249t, 250t, 251t, 252t money market funds in, 191f, 271t See also index funds, 310 . index bond funds; index equity mutual funds in, 60n, 150–156, 184, 185f, 194–198, funds; index hybrid funds; index-based ETFs 194f asset share at largest complexes, 48 in near-retiree households, 167, 167f bond, 249t net new cash flow, 65 DC plan assets in, 198, 198f retiree income and, 172–173, 172f demand for, 41, 61 as retirement resource, 164f, 167, 167f expense ratios, 124–129 rollovers into, 150, 187–188, 187f, 189f as 401(k) investment options, 178f target date funds in, 197f net new cash flow, 75, 76f total net assets, 271t number of, 125f inflation, 67 retirement assets in, 196, 198, 198f inflation-protected mutual funds, 258t total net assets, 124, 125f, 249t initial public offerings (IPOs), 106 trends, 41 institutional funds, 12 index hybrid ETFs, 129f 310 institutional investors, index hybrid funds bond funds held by, 267t, 268t net new cash flow, 76f, 250t equity funds held by, 38, 268t number of funds, 251t ETFs held by, 96 number of share classes, 252t hybrid funds held by, 267t, 268t total net assets, 125f, 249t mutual fund holdings by, 60, 60f index world equity funds, 76f, 249t, 250t, 251t, 252t total net assets held by, 267t, 268t, 269t individual investors. demographics; mutual fund See also types, 268t, 269t shareholders institutional money market funds, 310 bond funds held by, 267t municipal, 280 equity funds held by, 267t net new cash flow, 244t ETFs held by, 93–96 prime, 280 hybrid funds held by, 267t taxable, 269t mutual fund ownership by, 142, 142f, 143f total net assets, 243t, 267t, 268t, 269t non-US, tax requirements for, 288 institutional no-load share classes, 120, 134f, 135f regulated open-end funds held by, 13–14, 13f insurance companies, 38, 44, 44f, 151, 151f, 152f risk tolerance of, 103, 103f, 158–159, 158f, 159f 326 2018 INVESTMENT COMPANY FACT BOOK

340 interest income, bond fund redemption requests and, 71 advisers See also investment professionals. asset-based fee structure, 127, 130, 132, 133 interest rates, 19, 22, 25, 63, 69–70, 73, 258n2. See also economic climate; federal funds rate ETF purchases through, 127 intermediaries, 44, 44f as mutual fund purchase sources, 120, 125, 132, Internal Revenue Code, 286 151–152, 151f, 152f, 154f rollover decision research and, 188, 189f international bond closed-end funds, 108f, 109f, 216t, 217t See also world bond funds investment risk, 103, 103f. risk tolerance See also international bond funds, 178f. investors. international equity closed-end funds, 108f, 109f, 216t, 217t individual investors; institutional investors See also international equity ETFs, 94f, 98f, 99f, 100, 218t, 219t, 220t confidence of, 160, 160f, 278, 279 See international equity funds. sentiment of, 157, 157f, 279 world equity funds See international index equity funds. IRA Investor Database, 187, 188, 190 world index equity funds international index funds, 124 See IRAs. individual retirement accounts International Investment Funds Association (IIFA), 12, 12n, J 273t, 275t, 277t Asia-Pacific region Japan, 14, 28, 63. also See international stock market performance, 15f, 63, 97 internet use by shareholders, 161, 161f L 311 intraday indicative value (IIV), 92, labor market, 62 investment advisers, 283, 283f, 311 large-cap blend funds, 124 Investment Advisers Act of 1940, 279 large-cap domestic equity ETFs, 98, 99f . investment companies, 311 closed-end funds; See also large-cap mutual funds, 259t, 260t ; mutual fund entries exchange-traded funds; 311 level load, 118, 131, 133f, 134f, 135f, regulation of investment companies; unit leverage, 111–113, 112f, 113f, 298–299 investment trusts See target date funds lifecycle funds. assets, 33f, 34–35 life insurance, 180f, 181f, 185f definition, 34n 311 lifestyle funds, 196, 197f, 198, 198f, 263t, 264t, employment data, 53–55, 53f, 54f, 55f limited liability partnerships, 281n financial markets, role of, 39, 40f, 41 liquid alternative funds, 71 history, 278–279, 302–303 liquid asset portfolio holdings, 234t, 235t household ownership of, 36, 36f, 37f liquidity, 72, 222t, 223t, 280, 294–295, 298, 311 index funds as share of market, 41, 42f, 43, 43f liquidity providers, 90, 91f, 91n intermediary types, 44, 44f 314 load (sales charge), 130–133, 133f, 134f, 135f, nonfinancial business assets in, 38, 38f load funds, 311 number of, 47–48, 47f, 52–53, 52f load share classes, 130–131 total net assets by type, 34f, 35f local government employee retirement plans, 168, 174 types, 280–281 long-term bond funds Investment Company Act of 1940 taxable, 214t ETF authorization by, 85, 86, 87f, 97f, 98f, 99f, 127, long-term capital gains, 289, 291f 218t, 219t, 220t long-term interest rates, 19, 69, 70 regulatory authority of, 78, 279, 280, 284, 295, 296, also bond funds; equity . 311 long-term mutual funds, See 298, 299 mutual fund entries funds; hybrid funds; 12b-1 fees, 130 annual redemption rates, 233t investment grade bond funds capital gains paid and reinvested, 237t exchange redemptions, 232t demand for, 46, 46f, 58 exchange sales, 230t dividends paid and reinvested, 236t expense ratios, 123f exchange redemptions, 232t liquidity ratios, 223t exchange sales, 230t net new cash flow, 228t gross sales, 134f new sales, 229t household mutual fund assets in, 156f number of funds, 213t liquid assets, 222t number of share classes, 215t liquidity ratios, 222t, 223t redemptions, 231t net new cash flow, 64–67, 224t, 228t total net assets, 211t new sales, 229t 311 investment objectives, 123, 123f, 129, 129f, 211t, 213t, no-load share classes, 134f, 135f 327 INDEX

341 money market funds (continued) long-term mutual funds (continued) number of funds, 212t number of funds, 212t, 213t, 242t number of share classes, 214t, 215t, 242t number of share classes, 214t prime, 41, 80, 80f, 81f, 242t, 243t, 244t portfolio holdings and percentage of total net assets, 234t, 235t redemptions, 245t redemptions, 231t, 233t as regulated funds, 12 retirement assets in, 150 regulation of, 293n7 size of, in global capital markets, 31f retail, 243t, 244t, 269t, 280 total net assets, 135f, 210t, 234t retirement assets in, 150, 194, 194f, 195f, 196 total portfolio, common stock, and other securities: shareholder risk tolerance for, 159, 159f purchases, sales, net purchases, 238t total net assets, 210t, 211t, 242t, 243t, 267t in US mutual fund total net assets, 60f in US mutual fund total net assets, 58, 58f, 60, 60f worldwide net sales, 18, 18f variable annuity, 265t, 266t worldwide net sales by region, 25, 25f worldwide net sales, 20–22, 21f long-term US government bonds, 234t, 235t money purchase plans, 175f Morningstar, 293, 301n M multi-cap mutual funds, 259t, 260t management fees, 284, 311 multisector bond funds margin purchases, 298 alternative strategies, 253t market capitalization, 259t, 260t exchange redemptions, 232t Maryland corporations, 281, 282, 282f exchange sales, 230t Massachusetts business trusts, 281, 282f liquidity ratios, 223t 311 maturity, net new cash flow, 70, 228t mid-cap domestic equity ETFs, 99f new sales, 229t mid-cap index funds, 124 number of, 213t mid-cap mutual funds, 259t, 260t number of share classes, 215t Millennial Generation regular redemptions, 231t mutual fund–owning, 143f, 144–145, 144f, 145f, total net assets, 211t 153–154, 153f, 154, 154f municipal bond closed-end funds, 108f, 109f, 216t, 217t risk tolerance, 158, 158f See also municipal bond funds. national municipal bond monetary policies, global, 63 funds; state municipal bond funds money market, 312 closed-end fund assets, 106 money market deposit accounts (MMDAs), 80, 81f, 81n demand for, 70, 70f See also institutional money 312 money market funds, . expense ratios, 123f market funds; taxable money market funds; tax-exempt money market funds interest distributions, 289 asset composition, 247t, 248t net new cash flow, 70, 70f assets, 12, 13f, 14, 35, 267t number of funds, 212t characteristics of, 280 number of share classes, 214t closed-end fund holder ownership of, 114f total net assets, 210t commercial paper holdings, 40f municipal bond portfolio holdings, 234t, 235t DC plan assets in, 270t municipal bonds, 106, 234t, 235t dividends paid and reinvested, 246t municipal money market funds, 280 ETF-owning households holding, 101f municipal securities, 39, 40f, 247t, 248t exchange redemptions, 245t mutual fund industry See also mutual fund characteristics. data; regulation of investment companies exchange sales, 245t bond fund inflows, 57f expense ratios, 123f definition and overview, 56 as 401(k) investment options, 177, 178f, 179, 180f distribution types, 288 government, 242t, 243t, 244t, 247t, 280 ETFs compared with, 85 household mutual fund assets in, 156, 156f pricing, 294–295 individual accounts, 267t redeemable securities, 280, 294 IRA assets in, 191f, 271t tax features, 286–291, 287f net new cash flow, 61f, 80, 80f, 81f, 244t, 245t turnover rate, 68, 68f new sales, 245t valuation, 294–295 nonfinancial business assets in, 38, 38f 328 2018 INVESTMENT COMPANY FACT BOOK

342 mutual fund companies household mutual fund See also . 312 mutual funds, accounts; investment companies; long-term characteristics of, 280–281 mutual funds; mutual fund characteristics; mutual purchases directly from, 151, 152, 152f fund industry data; regulation of investment specific classification, See also mutual fund expenses and fees. companies; retirement mutual funds equity funds such as asset location, 150–156 actively managed funds, 126, 126f assets, 10, 13f, 23f, 24, 34f, 35, 35f asset-based, 127, 130, 132, 133 asset-weighted turnover rate, 68, 68f asset-weighted vs. simple average, 118n, 120, 121f, bond funds, 69–73, 69f, 70f, 72f 126f, 136, 137f, 138 commercial paper holdings by, 41 back-end load, 131, 132, 133f, 134f creation of, 284 competition and, 121 demand for, 58–59 decline in, 119f, 120–122, 120f, 124–127, 126f, education savings role of, 199–200 128, 128f entering and exiting industry, 48, 49f, 59, 59f distribution charges, 118 ETF investments by, 38 economies of scale and, 121 expense ratios, 122 expense ratios, 119f, 120–122, 120f, 121f, 124–127, 126f as 401(k) investment options, 181f fee structures, 130–131 history, 278–279, 302–303 401(k) plans, 136, 137f, 138, 139f household assets invested by adviser type, 78f hybrid funds, 74–75, 74f front-end load, 130, 132, 133f, 134f fund size and, 120, 120f index funds, 75, 76f index funds, 124–129 as investment companies, 280 investor demand for, 58–59 institutional no-load share classes, 120, 134f, 135f investors in, 60, 60f investment objectives and, 123, 123f, 129, 129f IRA assets in, 150–156, 184, 185f level load, 118, 131, 133f, 134f, 135f largest inflows to, 57f load fees, 116, 132–134 by market capitalization, 259t, 260t no-load shares, 120, 131, 132–133, 133f, 134f mergers and liquidations, 48, 49f ongoing expenses, 116, 118 shareholder views about, 121, 121f money market funds, 80, 80f, 81f trends, 118, 119f, 120–122, 120f, 121f, 122f, 123f net new cash flow, 61–67, 61f, 65f, 66f 12b-1 fees, 118, 130, 131, 132 number of investment companies for, 52f See also organization of, 281–283, 282f, 283f bond funds; mutual fund industry data, 216t. equity funds; exchange-traded funds; hybrid prime money market fund holdings, 41 funds; long-term mutual funds; money market purchase sources, 150–152, 151f, 152f funds; retirement mutual funds; worldwide as regulated funds, 12 regulated open-end funds as retirement resource, 168 asset composition, 211t, 213t retirement savings role of, 194–198 asset share at largest complexes, 47–48, 47f securities held by, 40f assets worldwide, 13f tax features of, 286–291 capital gains distributions, 110, 110f, 288, 291, 291f total net assets, 58, 58f dividend distributions, 236t, 246t, 288, 290, 290f mutual fund shareholders. See also demographics; retirement exchange redemptions, 209t account holders exchange sales, 209t asset location of investments, 150–156 new sales, 209t confidence of, 160, 160f, 278, 279 number of funds, 22, 22f, 208t, 212t, 274–275t ETF ownership by, 101–103, 101f, 102f, 103f number of share classes, 208t, 214t, 215t first fund purchase by, 143f, 148, 148f redemptions, 209t internet use by, 161, 161f research publications, xi–xiv investor sentiment, 157, 157f total net assets, 208t, 210t, 211t, 249t, 267t, 268t lower expenses, preferences for, 121, 121f total sales, 209t risk tolerance, 103, 103f, 158–159, 158f, 159f worldwide net sales, 276–277t savings goals of, 56, 58, 64, 149, 149f worldwide number of funds, 274–275t taxable transactions by, 289 worldwide total net assets, 272–273t voting rights, 284 329 INDEX

343 See also mutual fund expenses and fees mutual fund trends. portfolio leverage, 111, 111n, 113, 113f portfolio managers, adviser purchase recommendations, 78f 313 313 portfolio turnover rate, 68, 68f, 138, assets, 34–35, 34f, 35f PPA (Pension Protection Act) of 2006, 73, 199 expenses and fees, 118, 119f, 120–122, 120f, 121f, 122f, 123f precious metals funds, 261t, 262t global economic and financial markets, 62–63 313 preferred stock, index ETFs, 75, 77, 77f as portfolio holdings, 234t, 235t index funds, 41, 42f, 43, 43f premium calculation, closed-end funds and, 294n11 investor demand for funds, 13–14, 13f, 26, 27f, 28, pricing process, 294–295, 294n11 58–59 313 primary markets, 88–89, 89f, 90, 93, 94, long-term funds, 46, 46f prime money market funds, 41, 80, 80f, 81f, 242t, 243t, 313 24 4t, N 313 principal underwriters, 283, 283f, 285, national municipal bond funds private-sector retirement plans. defined benefit plans; See exchange redemptions, 232t defined contribution plans exchange sales, 230t profit-sharing plans, 175f liquidity ratios, 223t prohibited transactions, 300 net new cash flow, 228t summary prospectus, 279, 292, 292n, . 313 See also new sales, 229t prospectus number of funds, 213t Public Company Accounting Oversight Board (PCAOB), 297 number of share classes, 215t redemptions, 231t R real estate funds, 12, 13f total net assets, 211t real estate investments, 100, 101f, 114, 114f, 168 National Securities Clearing Corporation (NSCC), 90 redeem, 313 natural disasters, fund pricing disruptions due to, 295n13 redeemable securities, 280, 294 near-retiree households, 167n3, 167f redemption price, 313 net asset value (NAV), 94n, 312 redemption requests, bond fund management of, 71–72 for ETFs, 85, 88, 294n11 advisers See registered investment advisers. for mutual funds, 280, 294–295 See also 313 registered investment companies, 32–55, . for UITs, 50 regulation of investment companies; unit net investment income (NII), 288 investment trusts net new cash flow, 61f, 64–67, 65f, 66f, 72, 72f, 224t, registered market makers, 90, 91n 225t, 312 regulated funds. See worldwide regulated open-end funds 312 net share issuance, regulated investment companies (RICs), 286, 301, 314 312 no-load funds, 120, 131, 132–133, 133f, 134f, regulation of investment companies non–1940 Act ETFs, 86, 97f, 98f, 99f, 127, 218t, 219t, 220t advisers and, 297 nonprofit organization assets, 268t, 269t auditors, 297 non–target date mutual funds, 178f, 179, 180f, 190, 191f boards of directors, 296 non-US fund advisers, 44, 44f compliance programs, 297 non-US investors, US tax requirements for, 288 core principles, 292–300 O custody rules, 299 officers, mutual fund, 282 diversification, 301 worldwide regulated open-end funds See open-end funds. ETFs, 12, 84, 293n8 312 open-end investment companies, 84, 281, . See also legislation, 279 mutual fund entries leverage limits, 298–299 312 operating expenses, liquidity, 294–295 money market funds, 12, 293n7 P oversight and accountability, 296, 297 index funds See also passive management, 124. prohibited transactions, 300 PCAOB (Public Company Accounting Oversight Board), 297 Sarbanes-Oxley Act, 297 penny rounding, 280 taxation and, 286–291, 287f, 290f, 291f See also pension funds, 38, 43, 169f. defined benefit plans transparency and disclosure, 292–293 Pension Protection Act (PPA) of 2006, 73, 199 valuation, 294–295, 294n10 pooled investing, 180f, 181f, 182, 278–279, 312 reinvesting, IRA withdrawals for, 193, 193f 313 portfolio, 330 2018 INVESTMENT COMPANY FACT BOOK

344 replacement rate, Social Security, 166, 166f, 172, 172f RMD (required minimum distribution), 192, 192f, 314 314 repurchase agreements, 106, 247t, 248t, rollovers, 150, 187, 187f, 188, 189f, 314 314 required minimum distribution (RMD), 192, 192f, Roth IRAs, 314 research publications, xi–xiv asset allocation, 190, 191f household financial assets; See . retail investors, 314 also asset location, 150–156 individual investors; retirement account holders assets, 169f retail money market funds, 243t, 244t, 269t, 280, 314 catch-up contributions, 187 retail no-load share classes, 133f, 134f, 135f distributions, 192, 192f retiree income, 172–173, 172f index funds in, 198f retirement investors in, 186, 186f, 190 IRA withdrawals and, 193 lifestyle funds in, 197f as savings goal, 56, 58, 64, 149, 149f, 165, 165f mutual funds in, 150 retirement account holders near-retiree accounts, 167f demographics, 115, 115f as retirement resource, 167f, 184 investment goals of, 56, 58 rollovers into, 187, 187f retirement market assets target date funds in, 197f, 198f DC plans, 37f, 102, 163f, 174, 175f “R” share classes, 133f, 134f employer-sponsored retirement plans, 37f Russia, 63 ETFs, 102, 102f S 457 plans, 169f, 174, 175f SAIs (statements of additional information), 292 401(k) plans, 169f, 174, 175f, 176–181 See salary reduction simplified employee pensions. 403(b) plans, 169f, 174, 175f SAR-SEP IRAs IRAs, 102, 102f, 115f, 150–156, 163f, 184, 185f, 314 sales charge (load), 130–133, 133f, 134f, 135f, 194–198, 194f Sarbanes-Oxley Act, 297 lifestyle funds, 196, 197f, 198, 198f SAR-SEP IRAs (salary reduction simplified employee in mutual funds, 37f 315 pensions), retirement resource pyramid and, 164–168, 164f, assets, 169f 165f, 166f, 167f as first mutual fund purchase, 148f target date funds, 190, 191f, 196, 197f, 198, 198f, 263t household mutual fund assets in, 156f total US, 169f index funds in, 198f unfunded benefit plan liabilities and, 170, 170f investors in, 186, 186f employer-sponsored See also retirement mutual funds. lifestyle funds in, 197f retirement plans; individual retirement accounts; mutual fund assets in, 195f mutual fund expenses and fees; retirement market assets; specific classification, such as bond funds near-retiree accounts, 167f asset location, 150–156 purchase sources, 151f, 152f, 155f assets, 194–198 as retirement resource, 167f, 184 as first fund purchase, 148, 148f target date funds in, 197f, 198f household accounts, 36, 37f, 150–156 savings goals of investors, 56, 58, 64, 149, 149f, 165, 165f purchase sources, 150–152, 151f, 152f savings incentive match plan for employees. SIMPLE IRAs See “R” share classes, 133f, 134f savings institutions, 151, 151f, 152f types used by investors, 195, 195f 315 secondary markets, See also defined benefit plans; defined retirement plans. for ETFs, 85, 89, 89f, 90, 91f, 93–96, 94f, 95 contribution plans; employer-sponsored for UITs, 51 retirement plans; individual retirement accounts Section 529 plans, 60n, 156f, 199, 199f, 200f, 201f, 309 as first mutual fund purchase, 148, 148f sector equity ETFs, 218t, 219t, 220t research publications, xi–xii sector funds, 123, 123f, 124, 261t, 262t, 315 . See also sponsors offering CITs for, 79, 79f multisector bond funds unfunded pension liabilities, 170, 170f Securities Act of 1933, 86, 279, 284, 292n retirement resource pyramid, 164–165, 164f See also Securities and Exchange Commission (SEC). return of capital, 110, 110f regulation of investment companies reverse repurchase agreements, 111, 113, 113f affiliated transaction prohibitions, 300 RICs (regulated investment companies), 286, 301, 314 custody rules, 299n 314 rights offerings, 106, disclosure requirements, 288, 292, 293 risk tolerance, 103, 103f, 158–159, 158f, 159f ETF regulation by, 84, 127 331 INDEX

345 (continued) Securities and Exchange Commission (SEC) S&P 500 index funds, 124, 249t, 250t, 251t, 252t sponsors, 45, 45f, 50, 53, 283f, 284, registration with, 284, 292–293 315 stable value funds, 179, 180f, regulatory authority of, 279, 280 315 12b-1 fees, 130 state government employee retirement plans, 168, 174 statements of additional information (SAIs), 292 valuation and liquidity requirements, 294–295 state municipal bond funds Securities Exchange Act of 1934, 279, 285 seed capital, 284, 285 exchange redemptions, 232t selling short, 298 exchange sales, 230t semiannual reports, 293 liquidity ratios, 223t senior securities, 298 net new cash flow, 228t SEP IRAs (simplified employee pension plans), 315 new sales, 229t number of funds, 213t assets, 169f number of share classes, 215t as first mutual fund purchase, 148f household mutual fund assets in, 156f redemptions, 231t total net assets, 211t index funds in, 198f statutory trusts, 281, 282 investors in, 186, 186f stock lifestyle funds in, 197f common, 234t, 235t, 238t, 239t, 240t, 241t mutual fund assets in, 195f purchase sources, 151f, 152f, 155f company, 179, 180f, 181f as retirement resource, 167f, 184 directly held, 101, 101f, 102, 102f, 114, 114f, 115f, 178f target date funds in, 197f, 198f IRA assets in, 184, 185f, 190, 191f as portfolio holdings, 234t, 235t separate accounts, 315 preferred, 234t, 235t series trust funds, 46, 315 as retirement resource, 168 service providers, 53, 283, 284–285 returns on, 64 share classes, 120, 130–133, 133f, 134f, 208t, 242t, 315 shareholder sentiment, 157, 157f, 279 Roth IRA assets in, 190 mutual fund shareholders; retirement shareholders. See short positions, 298 account holders stock bonus plans, 175f short positions, 298 stock funds. See equity funds short-term capital gains, 289, 291f stock market performance money market funds short-term funds. See equity fund correlation to, 64–67, 65f, 66f Silent Generation, 143f, 144–145, 144f, 145f, 153, 153f, ETF demand and, 97 158, 158f index fund share, 43f SIMPLE IRAs (savings incentive match plan for international, 15f, 63, 97 employees), 315 investment company assets and, 40, 40f assets, 169f US stock markets, 15f, 63, 64–67 as first mutual fund purchase, 148f volatility and, 66 household mutual fund assets in, 156f world equity funds and, 67 index funds in, 198f structural leverage, 111, 111f, 112, 112f investors in, 186, 186f summary portfolio schedule, 293n6 lifestyle funds in, 197f summary prospectus, 316 mutual fund assets in, 195f near-retiree accounts, 167f T target date fund CITs, 79 purchase sources, 151f, 152f, 155f target date funds, 316 as retirement resource, 167f, 184 asset allocation and, 67 target date funds in, 197f, 198f characteristics of, 67, 73, 74n, 182 See SEP IRAs simplified employee pension plans. exchange redemptions, 264t Small Business Job Protection Act of 1996, 186f exchange sales, 264t small-cap equity ETFs, 99f expense ratios, 123f small-cap index funds, 124 as 401(k) investment options, 177, 178f, 179, 180f small-cap mutual funds, 123, 259t, 260t IRA assets in, 190, 191f Social Security, 164–167, 164f, 166f, 171f, 172–173, 172f market share, 182f South America, 63 315 S&P 500 index, 63, 66, 84, 332 2018 INVESTMENT COMPANY FACT BOOK

346 (continued) target date funds Taxpayer Relief Act of 1997, 186, 186f net new cash flow, 263t, 264t Taxpayer Relief Act of 2012, 199 T-bills (Treasury bills), 247t, 248t, 317 new sales, 264t 316 tender offer, number of funds, 263t number of share classes, 263t tender option bonds, 111, 113, 113f redemptions, 264t thrift deposits, 167f, 185f retirement assets in, 190, 191f, 196, 197f, 198, 198f thrifts, 44, 44f Thrift Savings Plans (TSPs), 37f, 169f, 174, 175f total net assets, 263t TIPS mutual funds, 258t target risk (lifestyle) funds. See lifestyle funds 316 total net assets, taxable bond closed-end funds, 108f, 109f, 216t, 217t total return, taxable bond funds, 70, 70f, 210t, 212t 316 total return equity funds taxable bond trusts, 50 taxable debt unit investment trusts, 51f, 221t exchange redemptions, 232t taxable government money market funds, 242t, 243t, exchange sales, 230t 24 4t, 247t liquidity, 223t taxable income reduction, as savings goal, 149 net new cash flow, 228t taxable long-term bond mutual funds, 214t new sales, 229t taxable money market funds number of funds, 213t asset composition, 247t number of share classes, 215t dividends paid and reinvested, 246t redemptions, 231t government, 242t total net assets, 211t institutional, 243t, 244t, 267t, 268t, 269t . See also individual retirement traditional IRAs, 316 accounts (IRAs) net new cash flow, 244t number of funds, 212t, 213t, 242t transfer agents, 283, 283f, 285, 316 transparency, 92, 292–293 number of share classes, 214t, 215t, 242t 317 Treasury bills, 247t, 248t, prime, 242t total net assets, 210t, 211t, 242t, 243t, 269t Treasury inflation-protected mutual funds, 258t Treasury securities, 39, 40f, 62, 247t, 248t, 317 taxable nonhousehold accounts, 287f, 290f, 291f trustees, 282, 317 . taxable prime money market funds, 242t See also directors turnover rate tax-exempt bond funds, 289 tax-exempt money market funds asset-weighted, 68, 68f portfolio, 313 dividend distributions, 289 12b-1 fees, 118, 130, 131, 132, dividends paid and reinvested, 246t 317 institutional, 243t, 244t, 267t, 268t, 269t U net new cash flow, 244t Undertakings for Collective Investment in Transferable number of funds, 212t, 213t, 242t Securities (UCITS), 12, 24 number of share classes, 214t, 215t, 242t underwriters, 283, 283f, 285, 297, 317 total net assets, 210t, 211t, 242t, 243t unemployment rate, 62 tax-exempt mutual funds, 287f, 289 unfunded benefit plan liabilities, 170, 170f tax features of mutual funds, 286–291 unit investment trusts (UITs), 317 assets by tax status, 287, 287f characteristics of, 50–51, 243, 281 capital gain or loss, 291 custody rules, 299n distributions, 290, 290f, 291f diversification standards, 301 distribution types, 288 new deposits, 35, 221t diversification standards, 301 number of, 50, 52 net investment income tax, 288 number of investment companies for, 52f non-US investors, 288 number of trusts, 221t RIC qualification, 286 regulation of, 292n4, 299n taxable transactions, 289, 290f, 291f total net assets, 34f, 51f, 221t tax-free bond trusts, 50 See also United Kingdom, 28, 63, 273t, 275t, 277t. Europe tax-free debt unit investment trusts, 51f, 221t US bond market, 71 Tax Reform Act of 1986, 186f US dollar performance, 14, 16–17, 16f, 67, 97 Tax Relief, Unemployment Insurance Reauthorization, and US fund expenses and fees. See mutual fund expenses Job Creation Act of 2010, 199 and fees 333 INDEX

347 US government agency issues, 39, 40f, 247t, 248t W wirehouse, 78f1n, 317 government See US government bond portfolio holdings. bond funds; government bonds world bond funds investment companies; US investment companies. See alternative strategies, 253t regulation of investment companies exchange redemptions, 232t US Labor Department, 73 exchange sales, 230t US mutual fund expenses and fees. See mutual fund expense ratios, 123f expenses and fees liquidity ratios, 223t US mutual fund owner characteristics. See mutual fund net new cash flow, 70, 228t shareholders new sales, 229t US mutual funds. See mutual funds number of funds, 213t US retirement system, 164–170, 164f, 165f, 166f, 167f, number of share classes, 215t See also defined contribution plans; 169f, 170f. redemptions, 231t individual retirement accounts; retirement resource pyramid; Social Security total net assets, 211t US stock market. See stock market performance world equity funds US Treasury securities, 39, 40f, 62, 247t, 248t, 317 alternative strategies, 253t assets, 35, 35f V DC plan assets in, 270t See also net asset value valuation of funds, 294–295. entering and exiting industry, 59 value funds, 123f, 259t, 260t exchange redemptions, 232t 317 variable annuities, exchange sales, 230t ETF-owning households holding, 101 expense ratios, 123, 123f holdings by tax status, 287 as 401(k) investment options, 177, 178f household ownership of, 78f, 114, 114f, 156f IRA assets held in, 271t mutual fund assets in, 150 liquidity ratios, 223t no-load share classes, 133f, 134f net new cash flow, 66f, 67, 228t, 250t in US mutual fund total net assets, 60n new sales, 229t variable annuity mutual funds number of funds, 212t, 213t, 251t bond, 265t, 266t number of share classes, 214t, 215t, 252t equity, 265t, 266t redemptions, 231t exchange redemptions, 266t retirement assets in, 195f exchange sales, 266t total net assets, 210t, 211t, 249t gross sales, 134f world index equity funds, 249t, 250t, 251t, 252t hybrid, 265t, 266t worldwide regulated open-end funds, 317 money market, 265t, 266t assets, 10, 11f net new cash flow, 265t, 266t exchange rates and, 16–17, 16f new sales, 266t factors influencing demand for, 26, 27f, 28 number of funds, 265t household ownership of, 28, 29f redemptions, 266t investor demand for, 13–14, 13f total net assets, 265t net sales, 276–277t VIX (Chicago Board Options Exchange Volatility Index), 66 number of funds, 22, 22f, 274–275t size of, in global capital markets, 30, 31f total net assets, 13–14, 13f, 15f, 272–273t total net assets and net sales by region, 23–25, 23f, 25f types, 12 worldwide net sales, 18–22, 18f, 20f, 21f 334 2018 INVESTMENT COMPANY FACT BOOK

348 Level 19, Two Chinachem Central 110 Bishopsgate 1401 H Street, NW, Suite 1200 26 Des Voeux Road Central 19th Floor, Suites 19-06 and 19-07 Washington, DC 20005-2148 Central, Hong Kong London EC2N 4AY, United Kingdom 202-326-5800 +852 2168 0 +44 (0) 207 961 0830 www.ici.org www.iciglobal.org

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