Morningstar Direct SM U.S. Open-end Asset Flows Update

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1 November 2012 Data through October 31 U.S. Open-End Funds Also inside: Extended tables... 4 Morningstar Direct SM U.S. Open-end Asset Flows Update Investors Continue Their Shift Toward Fixed Income by Michael Rawson Investors added a healthy $27.7 billion to long-term mutual funds in October, the 10th straight month of inflows. Continuing their preference for fixed income over equities, investors added $29.6 billion to taxable-bond funds ($33.9 billion including exchange-traded funds) and withdrew $8.3 billion from U.S.-stock funds (a $19.6 billion outflow including ETFs). Year to date, investors have added $224 billion to the taxable-bond asset class and have withdrawn $85 billion from U.S.-stock funds. That represents a 10.8% organic growth rate for taxable-bond funds from the end of last year and negative 2.7% for U.S.-stock funds. Alternatives have had the greatest organic growth rate of any asset class in 2012, collecting $12.4 billion year-to-date inflows. Estimated Net Flows $Mil* Oct 2012 YTD One Year Assets $Bil U.S. Stock (8,291) (84,667) (110,332) 3,406 Sector Stock (226) 5,357 4, International Stock (109) 18,550 8,029 1,320 Balanced ,066 18, Taxable Bond 29, , ,094 2,456 Municipal Bond 4,881 47,974 55, Alternative 1,325 12,384 14, Commodities (383) 1,808 1, All Long Term 27, , ,545 9,051 Money Market (11,067) (139,883) (58,868) 2,492 *Includes liquidated and merged funds. Source: Morningstar Direct Asset Flows. In October 2007, prior to the financial crisis, 48% of assets in long-term funds (both open-end mutual funds and ETFs) were held in the U.S.-stock asset class, while 13% resided in taxable-bond funds. Currently, just 37% of assets are held in the U.S.-stock asset class, while 26% are in taxable-bond funds. Higher-risk segments of the bond market continued to garner investor attention. Multi-sector bond, bank loan, emergingmarkets bond, nontraditional bond, world bond, and high-yield bond categories each saw inflows of greater than $1 billion. Year to date, these six categories have taken in more than $80 billion, or 13% of beginning-period assets. Intermediate-term bond, which is heavy in corporate bonds, brought in $11.4 billion, the most of any category. Investors also found municipal bonds attractive as $917 million flowed into high-yield muni-bond funds in October, bringing the total for the category to nearly $11 billion for the year-to-date period, or 20% of beginning-period assets. National long, intermediate, and short municipals brought in a total of $3 billion for the month and about $28 billion year to date, or 10% of beginning-period assets. Within alternatives, investors were looking to hedge their equity exposure. The bear-market category collected $628 million, or 11.6% of assets at the beginning of the month, while long-short funds saw inflows of $628 billion, or 2.6% of beginning-month assets. Notes: The figures in this report were compiled November 12, 2012 and reflect only the funds that had reported net assets by that date. The figures in both the commentary and the extended tables are survivorship-bias free. Calamos is not included Morningstar, Inc. All rights reserved.

2 Among U.S.-stock funds, the large blend category took in $1.4 billion, but that inflow was offset by outflows in the asset class s other categories. Large growth, with redemptions of $4.3 billion, saw the largest outflow of any category, while large value funds had outflows of $2.0 billion. While diversified emerging-markets funds saw inflows, most other international-stock categories experienced outflows. Diversified emerging-markets collected $925 million, while China region and Latin America stock funds both lost slightly more than $100 million. World stock lost $913 million. Voters Elect Obama, but Investors Re-Anoint Bill Gross the Bond King PIMCO led all firms with inflows of $8.1 billion in October. Flagship PIMCO Total Return brought in $2.4 billion, more than any other fund for the month. The Gold-rated fund has returned 9.49% year to date, placing it among the top 13% of funds in its category. PIMCO Income and PIMCO Unconstrained Bond each brought in more than $1 billion. DoubleLine Total Return attracted $1.9 billion in October and $17.9 billion year to date, making it the most popular mutual fund so far this year. The Neutral-rated fund has rapidly grown to $35 billion since its April 2010 inception. DoubleLine Total Return s 8.52% year-to-date return ranks it in the top 21st percentile among peers. Top-10 U.S. Open-End Fund Families Ranked by October 2012 Estimated Net Flow Excludes money markets and funds of funds Estimated Net Flow $Mil Fund Family October YTD 2012 One Year AUM $Bil PIMCO 8,103 50,531 47, Vanguard 5,282 81,025 93,067 1,529 DoubleLine 2,083 19,904 22, JPMorgan 1,971 21,909 23, TIAA-CREF 1,924 6,820 10, USAA 1,562 3,608 3, Lord Abbett 1,401 10,604 11, MFS 1,118 11,560 12, Franklin Templeton 1,114 9,202 7, T. Rowe Price 1,104 16,896 18, OGR = Organic Growth Rate = Flows over the period / beginning net assets Source: Morningstar Direct Asset Flows The table only shows flows into open-end mutual funds and excludes ETFs, so inflows of $7 billion for ishares are not shown. This total is impressive since just $2 billion net flowed into ETFs during the month. ishares announced a fee reduction and rebranding of several ETFs as core portfolio building blocks intended for buy-and-hold investors. Accompanying the launch was an Internet, print, and television advertising campaign that included commercials during such high-profile programming as the presidential debates. In the alternative asset class, bear-market fund PIMCO StocksPLUS Total Return Short Strategy was the most popular for the month and year to date, bringing in $519 million and $3 billion, respectively Morningstar, Inc. All rights reserved.

3 American Funds continued to experience large outflows. Approximately $4.2 billion exited the complex, with nearly half of that coming from American Funds Growth Fund of America AGRBX. That fund currently holds assets of $112 billion, down from $152 billion three years ago, despite the S&P 500 returning 13.2% per year in that period. For comparison, Vanguard Total Stock Market Index VITSX has grown from $103 billion to $178 billion during that time. Spotlight on Emerging-Markets Bond Funds There are 70 funds in Morningstar s emerging-markets bond category with total assets of $73 billion. Only 28 of these 70 funds were launched before 2010, so the vast majority lacks a three-year track record. The top-ranked fund during the past three years has been the $2.1 billion GMO Emerging Country Debt III, which returned 18.7% per year in this time frame. The largest fund in the category is the $14 billion PIMCO Emerging Local Bond, which returned 9.7% over the three-year period. Ranked in the top 6% in its category year to date and in the top 3% over the past three years, TCW Emerging Markets Income continues to shoot the lights out in terms of performance and the flows have followed. The fund brought in $263 million in October and $2 billion year to date. Penelope Foley and David Robbins took over management of the fund in the wake of Jeffrey Gundlach s high-profile departure of from TCW in late While the size of the fund has grown dramatically, from $130 million three years ago to $5.5 billion today, management does not see the size as an impediment to performance. Instead of limiting itself to either U.S. dollar sovereign, corporate, or local-currency debt, TCW Emerging Markets Income invests in all three. Foley and Robbins currently see the best opportunities in corporate and local currency sectors and the fund has a large overweighting to corporates. They see the potential for strong flows continuing, as institutional investors tend to be underweight the space. According to TCW, emerging-markets debt typically constitutes 3%-5% of investor portfolios but 10%-12% of the global fixed-income opportunity set. Sovereign balance sheets have improved with emerging-markets debt/gdp now averaging 35% as opposed to many developed-market counterparts with debt/gdp of more than 100%. While valuations are no longer cheap, they are by no means expensive. Spreads are still 125 basis points higher than the all-time tight spreads we saw in PIMCO s Lupin Rahman, executive vice president of the firm s emerging-markets portfolio management team, generally agrees, stating that global investors have been underweight EM assets with respect to both EM s current and future share of the global economy. The strong inflows into the USD and local EM markets since the 2008 crisis reflects these trends and points to the multiyear aspect of this support for the asset class. While emerging markets in general look attractive, each region faces a different dynamic. Adds Rahman, In Latin America, commodity-driven economies closely linked to China, e.g. Brazil, offer value in local rate space. At the same time, economies like Mexico, which are closely linked to the U.S., are benefiting from the Fed s anchoring of interest rates and tailwinds from the better risk environment. Meanwhile, EM currencies, particularly in Asia, remain fundamentally undervalued and, as China gradually appreciates, will be able to appreciate at a faster pace. However, she sees some risk due to the eurozone debt crisis facing emerging Europe. While the $14 billion PIMCO Emerging Local Bond brought in just $70 million last month, it leads all funds in the category with $2.4 billion year to date. The $8 billion PIMCO Emerging Markets Bond is second in year-to-date inflows with $2.4 billion Morningstar, Inc. All rights reserved.

4 Morningstar Direct SM Publishing Date: Page 1 of 6 Morningstar Categories Ranked by Current TNA ($Mil) Rank Name Estimated Net Flow ($mil) Total Net Assets ($bil) Total Return 1-Mo YTD 1 Large Blend 1,368 1,365 (12,354) (13,127) 1, , (1.45) Intermediate-Term Bond 11,664 11,398 93, ,749 1, Large Growth (4,289) (4,338) (28,396) (38,425) (3.01) Large Value (1,997) (2,036) (18,519) (24,242) (0.65) Foreign Large Blend ,199 (3,988) Moderate Allocation (670) (670) (2,458) (9,449) (0.56) World Stock (911) (911) (6,162) (10,908) (0.34) World Allocation ,696 12, (0.50) High Yield Bond 1,179 1,179 27,900 30, Short-Term Bond 3,268 3,267 28,372 29, Diversified Emerging Mkts ,338 20, (0.13) Mid-Cap Growth (1,175) (1,183) (7,751) (11,071) (2.06) Mid-Cap Blend (765) (767) (5,174) (6,845) (0.73) Conservative Allocation 1,040 1,040 15,714 17, (0.14) World Bond 1,300 1,283 7,245 5, Multisector Bond 2,372 2,372 17,259 18, Small Blend (4,071) (5,501) (1.53) Intermediate Government ,185 6, (0.23) Muni National Interm 1,487 1,473 12,922 15, Foreign Large Growth (199) (200) Small Growth (723) (824) (4,735) (6,180) (2.80) Inflation-Protected Bond ,753 9, Foreign Large Value ,437 6, Mid-Cap Value (294) (297) (1,670) (2,497) (0.20) Muni National Long ,637 6, Muni National Short ,621 12, Small Value (499) (499) (1,998) (2,442) (0.92) Emerging Markets Bond 2,062 2,062 19,086 20, High Yield Muni ,924 11, Bank Loan 2,114 2,114 7,299 5, Real Estate ,339 4, (0.74) Nontraditional Bond 1,782 1,782 1,724 (851) Commodities Broad Basket (383) (383) 1,808 1, (3.96) Health ,281 1, (3.19) Ultrashort Bond 1,283 1,283 6,402 6,

5 Morningstar Direct SM Publishing Date: Page 2 of 6 Morningstar Categories Ranked by Current TNA ($Mil) Rank Name Estimated Net Flow ($mil) Total Net Assets ($bil) Total Return 1-Mo YTD 36 Short Government (183) (154) (0.09) Muni California Long ,181 1, Long-Term Bond ,886 4, Muni New York Long Global Real Estate ,398 2, Natural Res (208) (208) (2,274) (2,824) (1.30) Muni Single State Long ,680 1, Equity Precious Metals (166) (166) (519) (860) (2.29) Equity Energy (50) (50) (1.54) Technology (308) (837) (5.70) Long/Short Equity ,759 5, (0.87) Foreign Small/Mid Growth (124) Foreign Small/Mid Blend Pacific/Asia ex-japan Stk (176) (176) 97 (576) Utilities (724) (724) (430) Multialternative ,396 4, (0.54) Market Neutral (82) (82) (0.64) Aggressive Allocation (116) (116) (1,562) (1,863) (0.74) Muni Single State Interm Europe Stock (71) (71) (885) (1,289) Foreign Small/Mid Value (23) (23) 61 (132) Muni California Intermediate ,571 1, Currency Muni Pennsylvania Convertibles (297) (297) (1,844) (2,249) (0.87) Muni New York Intermediate , Long Government (0.43) Muni New Jersey Managed Futures (9) (9) (2.33) (7.26) 65 Muni Massachusetts Diversified Pacific/Asia China Region (123) (131) (769) (718) Muni Single State Short Bear Market ,670 2, (19.59) 70 Muni Ohio

6 Morningstar Direct SM Publishing Date: Page 3 of 6 Morningstar Categories Ranked by Current TNA ($Mil) Rank Name Estimated Net Flow ($mil) Total Net Assets ($bil) Total Return 1-Mo YTD 71 Latin America Stock (113) (121) (829) (1,028) (0.69) Financial Muni Minnesota Communications (3.09) Japan Stock (47) (47) (719) (529) (1.47) Target Date (0.54) Consumer Defensive (1.21) Industrials (24) (24) (200) (244) Target Date (0.78) Target Date (0.61) Consumer Cyclical (58) (58) (1.14) Miscellaneous Sector Target Date (0.96) Retirement Income (2) (2) (0.32) India Equity (6) (6) (168) (250) (3.06) Target Date (0.83) Target Date (0.36) Target Date (25) (40) (0.30) Target Date (1.00) Target Date (0.91) Trading-Inverse Debt (190) (190) (88) (50) (9.64) 92 Trading-Inverse Commodities (5.21) 93 Target Date (0.91) Trading-Miscellaneous (2) (16.97) Top 10 10,049 9,659 96,214 81,730 5, , All 27,654 27, , ,545 9, , Top Fund Families Ranked by Current TNA ($Mil) Rank Name Estimated Net Flow ($mil) Assets Under Management ($bil) 1 Vanguard 5,282 5,282 81,025 93,067 1, , American Funds (4,194) (4,194) (48,708) (64,700) Fidelity Investments ,957 (1,116) PIMCO 8,103 8,103 50,531 47, Franklin Templeton Investment Funds 1,114 1,114 9,202 7,

7 Morningstar Direct SM Publishing Date: Page 4 of 6 Top Fund Families Ranked by Current TNA ($Mil) Rank Name Estimated Net Flow ($mil) Assets Under Management ($bil) 6 T. Rowe Price 1,104 1,104 16,896 18, JPMorgan 1,971 1,961 21,909 23, Columbia (1,050) (1,050) (12,023) (14,449) Dimensional Fund Advisors ,376 13, BlackRock ,993 4, OppenheimerFunds ,889 3, John Hancock (81) (81) (266) (559) Dodge & Cox (202) (202) (5,232) (7,597) Invesco ,383 1, MFS 1,118 1,118 11,560 12, Wells Fargo Advantage (699) (699) 5,035 6, Janus (634) (634) (6,130) (7,477) American Century Investments (125) (125) 912 1, Lord Abbett 1,401 1,401 10,604 11, Hartford Mutual Funds (629) (629) (7,668) (9,790) Principal Funds ,800 8, Harbor ,384 4, Legg Mason/Western ,916 1, Eaton Vance (3,232) (4,659) ING Retirement Funds (2,872) (3,560) GMO ,412 7, Goldman Sachs (725) (1,796) First Eagle ,205 5, Federated , Thornburg (154) (154) 1,662 1, Dreyfus ,606 1, Putnam (176) (176) (2,276) (3,311) Ivy Funds (84) (84) 2,206 2, Prudential Investments ,340 5, MainStay ,158 6, AllianceBernstein Nuveen ,066 2, TIAA-CREF Mutual Funds 1,924 1,924 6,820 10, USAA 1,562 1,562 3,608 3, DWS Investments (3,270) (3,883)

8 Morningstar Direct SM Publishing Date: Page 5 of 6 Top Fund Families Ranked by Current TNA ($Mil) Rank Name Estimated Net Flow ($mil) Assets Under Management ($bil) 41 Natixis Funds ,275 3, Oakmark Northern Funds ,587 1, DoubleLine 2,083 2,083 19,904 22, Artisan ,984 2, Schwab Funds Delaware Investments ,522 2, Russell (47) (49) (1,335) (1,486) Pioneer Investments (783) (783) (3,305) (3,674) Royce (371) (371) (2,881) (3,573) Top 10 14,415 14, , ,623 5, , Top 50 24,733 24, , ,532 7, , Other 2,926 2,663 31,470 26,018 1, , All 27,658 27, , ,550 9, , Asset Classes Name Estimated Net Flow ($mil) Assets Under Management ($bil) U.S. Stock (8,291) (8,496) (84,667) (110,332) 3, , Sector Stock (226) (226) 5,357 4, International Stock (109) (155) 18,550 8,029 1, , Balanced ,066 18, Taxable Bond 29,564 29, , ,094 2, , Municipal Bond 4,881 4,867 47,974 55, Alternative 1,325 1,310 12,384 14, Commodities (383) (383) 1,808 1, All Long Term 27,654 27, , ,545 9, , Morningstar Ratings Name Estimated Net Flow ($mil) Total Net Assets ($bil) QQQQQ 16,241 16, , ,214 1, , QQQQ 10,167 10, , ,163 3, , QQQ (1,988) (1,988) (41,244) (57,750) 2, , QQ (5,565) (5,565) (78,207) (97,146) Q (1,530) (1,530) (24,489) (30,083) Not Rated 10,333 9,765 97, , Total 27,658 27, , ,550 9, ,