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

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1 November 2013 Data through Oct. 31 U.S. Open-End Funds Also inside: Extended tables... 5 Morningstar Direct SM U.S. Open-End Asset Flows Update A Rising Tide Lifts Active Equity Flows by Michael Rawson, CFA United States equity mutual funds attracted their strongest inflows since January, collecting $10.5 billion in October. International-equity funds also had a strong month, leading all category groups with $12.2 billion of inflows. However, continued outflows from taxable- and municipal-bond funds tempered total flows as investors put $17.8 billion into longterm mutual funds. Active U.S. equity funds had strong inflows for only the third month in 2013, a year that started with such strong flows that some began calling it a great rotation into active strategies after years of passive-fund flow dominance. While that trend has not materialized, certainly the outflows from active equity have abated. Outflows from active equity funds have totaled $15.3 billion year to date compared with $131.5 billion of outflows in all of Estimated Net Flows $Mil* October 2013 YTD 1 Year Assets $Bil Organic Growth Rate % U.S. Equity 10,515 34,084 (555) 4, Sector Equity 2,620 22,503 20, International Equity 12, , ,956 1, Allocation 4,546 42,813 40,067 1, Taxable Bond (8,102) 32,717 68,424 2,524 (0.32) Municipal Bond (5,389) (43,901) (41,838) 519 (1.03) Alternative 2,519 34,373 36, Commodities (1,142) 3,397 2, (2.30) All Long Term 17, , ,880 10, Money Market (6,221) (20,588) 130,179 2,453 (0.24) *Includes liquidated and merged funds. Source: Morningstar Direct Asset Flows. Note: The figures in this report were compiled on Nov. 11, 2013, 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. Artisan, Calamos and Schwab/Laudus are not included. Important methodology note: Morningstar computes flows using the approach that is standard in the industry: Estimated net flow is the change in assets not explained by the performance of the fund. Our method assumes that flows occur uniformly over the course of the month. Adjustments for mergers are performed automatically. When liquidated funds are included, the final assets of the fund are counted as outflows. Reinvested dividends are not counted as inflows. We use fund-level reinvestment rates to improve accuracy in this respect. We make ad hoc adjustments for unusual corporate actions such as reverse share splits, and we overwrite our estimates with actual flows if managers are willing to provide the data to us. Please click here for a full explanation of our methodology Morningstar, Inc. All rights reserved.

2 Including exchange-traded funds, U.S. equity funds brought in $25.9 billion in October, while $22.4 billion went into international-stock funds and $6.8 billion went into sector funds. Of that $55.1 billion total, $16.6 billion went into active funds. The chart below illustrates how flows to active funds have improved over the past several months. Rather than a shift from passive into active, the increased flows into active have been more a function of the rising tide lifting all boats, as flows to both passive and active have improved. Looking at flows by Morningstar Category, equity categories took the top three spots, led by foreign large blend. Foreign large-blend funds have brought in $46.7 billion year to date compared with just $1.1 billion in all of Despite its soft close earlier in the month, Oakmark International OAKIX, which has a Morningstar Analyst Rating of Gold, led the category with a $1.3 billion inflow. The fund has nearly tripled in assets from a year ago and returned 27.7% YTD compared with 16.3% for the category. Estimated Flows by Morningstar Category Estimated Net Flow $Mil October 2013 YTD 1 Year Assets $Bil Leading Foreign Large Blend 4,681 46,732 43, Large Blend 4,428 18,978 7,421 1,406 Diversified Emerging Markets 3,141 34,526 38, Nontraditional Bond 3,081 48,013 51, High-Yield Bond 2,841 (1,500) (5,577) 264 Lagging Intermediate-Term Bond (7,924) (65,101) (52,068) 942 Inflation-Protected Bond (4,831) (21,324) (21,236) 88 Intermediate Government (2,411) (29,925) (31,151) 102 Muni-National Long (1,281) (11,746) (11,399) 87 Commodities Broad Basket (1,145) 3,383 2, Source: Morningstar Direct Asset Flows Morningstar, Inc. All rights reserved.

3 While diversified emerging-markets ETFs have seen outflows of $986 million year to date, mutual funds have had inflows of $38.3 billion. Last month, PIMCO Emerging Markets Fundamental IndexPLUS AR Strategy PEFIX saw inflows of $1.0 billion. That fund is a large position in funds of funds PIMCO All Asset PAAIX, which is Gold-rated, and PIMCO All Asset All Authority PAUIX, which is Silver-rated. October was the first time since March that bank loan, nontraditional bond, or world bond did not lead all categories in flows, and it was the first time in more than a year that the bank-loan category was not in the top five. While those categories were not as dominant, investors continued to shift away from interest-rate risk. Intermediate-term bond and municipal-bond fund categories continued to suffer outflows, although the $7.9 billion outflow from intermediate-term bond funds was the smallest since April, and the $5.4 billion outflow from municipal-bond funds was the smallest since May. Inflation-protected bond funds saw their largest outflow on record as $4.8 billion left the space. The average fund in the category has lost 5.9% so far this year. Funds of Funds and Separate Accounts Distort Mutual Fund Leaders and Laggards Recently, Fidelity announced changes to the glide path of its $170 billion Freedom Funds target-date investments. These changes have resulted in a slight increase to the equity allocation and have begun to impact several Fidelity Series funds, which are only available through funds of funds. Fidelity Series Growth & Income FGLGX and Fidelity Series Equity-Income FNKLX each saw inflows of more than $1.0 billion, while Fidelity Series Inflation-Protected Bond FSIPX saw outflows of $3.3 billion and Fidelity Series Commodity Strategy FCSSX saw outflows of $1.8 billion. Vanguard Total Stock Market Index VTSAX and Vanguard Total Bond Market II Index VTBIX received strong flows. While these funds are part of Vanguard s target-retirement series, they are also available as stand-alone funds. Although JPMorgan Core Bond Fund WOBDX had an outflow of $2.4 billion, we are told that was due to a single client moving money out of the fund and into a separate account that follows a similar strategy. While Morningstar tracks separate-account and CIT assets and flows, those are reported less frequently and with a longer delay than mutual fund and ETF data. Bucking the trend of outflows from intermediate-term bond funds was a new proprietary fund from Edward Jones, Bridge Builder Bond BBTBX. Olive Street Investment Advisers, an affiliate of Edward Jones, has selected three subadvisors to run the fund: J.P. Morgan Investment Management, Prudential Investment Management, and Robert W. Baird. Top- and Bottom-Flowing Funds in October Excludes money markets and funds of funds. Estimated Net Flow $Mil Assets $Bil Top-Flowing Funds October YTD 1 Year October Bridge Builder Bond Fund 2,800 2,800 2,800 2,800 Vanguard Total Stock Market Index Fund 2,058 14,493 18, ,147 Vanguard Total Bond Market II Index Fund 1,680 5,235 7,410 68,870 Goldman Sachs Strategic Income Fund 1,478 8,552 8,701 11,208 Fidelity Series Growth & Income Fund 1,450 1,647 3,517 3,970 Bottom-Flowing Funds 2013 Morningstar, Inc. All rights reserved. PIMCO Total Return Fund (4,441) (32,499) (29,065) 247,863 Fidelity Series Inflation-Prtct Bond Index (3,266) (2,240) (2,204) 5,468 JPMorgan Core Bond Fund (2,432) (7,042) (6,320) 22,381 Fidelity Series Commodity Strategy Fund (1,781) 1,406 1,556 10,679 GMO International Growth Equity Fund (1,487) (2,594) (2,676) 167 Source: Morningstar Direct Asset Flows.

4 Silver-rated GMO International Growth Equity GMGFX saw $1.5 billion of outflows, leaving the fund with just $167 million in assets, down from $2.3 billion a year ago. The fund is used within several GMO funds of funds and its performance year to date places in in the top 11th percentile of all foreign large-growth funds. Neutral-rated Goldman Sachs Strategic Income GSZAX brought in $1.5 billion for the month. With a 6.99% return over the past year, the fund ranks near the top of the nontraditional bond category. Vanguard Dominates Flows for the Month At the provider level, Vanguard raked in by far the most flows in October with $6.0 billion, led by a $2.1 billion inflow to Vanguard Total Stock Market Index Fund. That fund is part of Vanguard s index-fund-based target-retirement series, so it benefits from a stable source of flows. The fund also made headlines last month as it surpassed PIMCO Total Return PTTRX as the largest mutual fund, a testament to the popularity of low-cost index investing. It s not surprising that an index fund is the largest, as indexing investors benefit from the fund s large scale, which helps spread fixed costs over greater assets. Vanguard s market share of mutual fund assets now stands at 17.5%, up from 15.6% three years ago, while American Funds market share has fallen to 10.0% from 12.0% three years ago. PIMCO s market share has fallen to 5.1% after peaking at 6.1% late last year. Oakmark brought in $1.8 billion, bringing its market share to 0.64% from 0.47% a year ago. For the second month in a row, Dreyfus experienced sharp redemptions driven by outflows from Dreyfus Emerging Market Debt Local Currency Fund. The fund has fallen to $2.7 billion in assets from $4.1 billion at the end of May. Top-10 U.S. Open-End Fund Families Ranked by assets, excluding money markets and funds of funds. Estimated Net Flow $Mil Assets Market Fund Family October YTD 1 Year October $Bil Share % Vanguard 6,007 60,009 65,093 1, Fidelity Investments (965) 4,719 1,044 1, American Funds (1,227) (14,971) (27,896) 1, PIMCO (4,682) (12,909) (841) T. Rowe Price 1,661 5,676 3, Franklin Templeton Investment Funds 44 7,665 7, JPMorgan ,143 20, Dimensional Fund Advisors 1,621 18,372 19, OppenheimerFunds ,720 16, BlackRock 1,677 8,504 7, Source: Morningstar Direct Asset Flows Morningstar, Inc. All rights reserved.

5 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 QTD YTD 1-Yr Mkt Sh % Mkt Sh % 1-Mo YTD 1 Large Blend 4,428 4,428 18,978 7,421 1, , Large Growth (20,180) (32,460) 1, Intermediate-Term Bond (7,924) (7,924) (65,101) (52,068) , (0.71) 4 Large Value 2,062 2,062 8,097 9, Foreign Large Blend 4,681 4,681 46,732 43, Moderate Allocation 1,732 1,732 12,092 8, World Stock 1,868 1,868 16,083 13, World Allocation 1,533 1,533 12,176 10, Diversified Emerging Mkts 3,141 3,141 34,526 38, High Yield Bond 2,841 2,841 (1,500) (5,577) Mid-Cap Growth (2,718) (6,588) Short-Term Bond ,199 26, Mid-Cap Blend ,996 6, Conservative Allocation ,144 13, Small Blend 1,047 1,047 6,804 5, Multisector Bond ,788 11, World Bond ,600 25, (1.96) 18 Small Growth 1,156 1,156 3,713 1, Foreign Large Growth (1,079) (1,079) 3,522 3, Foreign Large Value 2,097 2,097 7,618 6, Mid-Cap Value ,528 6, Bank Loan 2,828 2,828 54,309 58, Muni National Interm (1,123) (1,123) (8,965) (7,177) (1.83) 24 Nontraditional Bond 3,081 3,081 48,013 51, Intermediate Government (2,411) (2,411) (29,925) (31,151) (1.67) 26 Muni National Short (153) (153) 1,775 1, (0.01) 27 Small Value ,867 1, Inflation-Protected Bond (4,831) (4,831) (21,324) (21,236) (5.86) 29 Muni National Long (1,281) (1,281) (11,746) (11,399) (3.99) 30 Real Estate ,499 5, Emerging Markets Bond (332) (332) 1,636 4, (5.01) 32 Health ,931 6, Corporate Bond (609) (609) (5,383) (1,740) (0.71) 34 High Yield Muni (672) (672) (8,264) (8,302) (5.25) 35 Ultrashort Bond (50) (50) 9,360 10,

6 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 QTD YTD 1-Yr Mkt Sh % Mkt Sh % 1-Mo YTD 36 Commodities Broad Basket (1,145) (1,145) 3,383 2, (0.82) (8.91) 37 Long/Short Equity 2,036 2,036 16,423 17, Equity Energy ,060 5, Short Government (673) (673) (6,178) (6,539) (0.70) 40 Global Real Estate ,286 3, Muni California Long (362) (362) (3,689) (3,816) (3.29) 42 Technology , Foreign Small/Mid Growth ,969 3, Natural Resources (172) (172) (1,135) (1,574) Tactical Allocation (35) (35) 4,192 5, Multialternative ,851 8, Muni New York Long (385) (385) (3,359) (3,486) (4.63) 48 Pacific/Asia ex-japan Stk ,088 1, Muni Single State Long (448) (448) (3,541) (3,391) (4.81) 50 Utilities (117) Market Neutral (15) (15) 3,815 3, Foreign Small/Mid Value Europe Stock ,277 2, Aggressive Allocation Foreign Small/Mid Blend ,715 1, Long-Term Bond (924) (924) (3.60) 57 Convertibles , Equity Precious Metals (29) (29) (1,626) (2,009) (0.22) (40.74) 59 Muni Single State Interm (206) (206) (1,531) (1,551) (2.37) 60 Muni California Intermediate (0.99) 61 Multicurrency (7) (351) (1.81) 62 Muni Single State Short (229) (229) (670) (665) (0.92) 63 Diversified Pacific/Asia ,721 1, Managed Futures ,033 1, (3.00) 65 Muni Pennsylvania (143) (143) (1,007) (1,038) (3.96) 66 Bear Market (164) (164) 3,657 4, (5.54) (29.81) 67 Financial Preferred Stock (180) (180) (583) (598) Muni New Jersey (93) (93) (753) (787) (4.34) 70 China Region (51) (51) (412) (409)

7 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 QTD YTD 1-Yr Mkt Sh % Mkt Sh % 1-Mo YTD 71 Muni Massachusetts (94) (94) (840) (831) (4.34) 72 Long Government (634) (634) (1,902) (1,538) (8.95) 73 Miscellaneous Region (78) (78) (1,246) (1,497) Muni Ohio (90) (90) (658) (629) (3.33) 75 Communications Muni Minnesota (76) (76) (375) (323) (2.70) 77 Consumer Cyclical Industrials Latin America Stock (50) (50) (1,090) (1,338) (7.98) 80 Muni New York Intermediate (43) (43) (325) (438) (1.76) 81 Japan Stock (660) (697) Consumer Defensive (1) (1) (66) Target Date (14) (14) Trading-Leveraged Equity Target Date Target Date (9) (9) (103) (96) Target Date Target Date (4) Target Date Retirement Income (12) (12) (208) (214) Target Date (3) (3) (90) (82) India Equity (14) (14) (237) (275) (12.79) 93 Target Date (13) (13) (143) (155) Target Date Trading-Inverse Debt (37) (37) (2.11) Miscellaneous Sector Trading-Leveraged Debt (42) (42) 142 (148) (11.95) 98 Target Date Trading-Miscellaneous (12) (12) (14) (23) (1.01) (4.09) 100 Trading-Inverse Commodities (4) (4) 11 (7) (1.20) Commodities Precious Metals (0.26) 102 Trading-Inverse Equity (5) (5) (6.91) (18.82) 103 Trading-Leveraged Commodities 1 1 (2) (4) Top 10 14,375 14,375 61,904 40,279 6, , All 17,750 17, , ,880 10, ,

8 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) 1-Mo QTD YTD 1-Yr Mkt Sh % Mkt Sh % 1 Vanguard 6,007 6,007 60,009 65,093 1, , Fidelity Investments (965) (965) 4,719 1,044 1, American Funds (1,227) (1,227) (14,971) (27,896) 1, PIMCO (4,682) (4,682) (12,909) (841) Franklin Templeton Investments ,665 7, T. Rowe Price 1,661 1,661 5,676 3, JPMorgan ,143 20, Dimensional Fund Advisors 1,621 1,621 18,372 19, OppenheimerFunds ,720 16, BlackRock 1,677 1,677 8,504 7, Columbia (735) (735) (10,450) (13,580) MFS ,435 18, Dodge & Cox (474) (3,157) Invesco (157) (157) 1,714 1, Lord Abbett ,859 7, Wells Fargo Advantage (425) (425) (1,657) (2,492) Janus (930) (930) (10,758) (12,393) John Hancock ,302 9, Principal Funds 6 6 5,851 7, American Century Investments (384) (384) (4,160) (4,293) Hartford Mutual Funds (682) (682) (8,333) (10,045) Harbor (7) (7) 1,554 1, Goldman Sachs 1,680 1,680 11,390 11, Eaton Vance (102) (102) 8,331 8, Legg Mason MainStay 1,796 1,796 11,779 12, GMO (836) (836) ING Retirement Funds (596) (596) (4,240) (5,396) First Eagle ,363 5, Oakmark 1,822 1,822 11,436 11, Ivy Funds 1,322 1,322 5,865 5, TIAA-CREF Mutual Funds ,435 6, Prudential Investments (377) (377) 2,976 4, Thornburg ,265 2, Putnam ,820 2,

9 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 ($bil) 1-Mo QTD YTD 1-Yr Mkt Sh % Mkt Sh % 36 Dreyfus (1,058) (1,058) Federated (103) (103) (3,686) (3,874) AllianceBernstein (450) (1,061) Nuveen (65) (65) (354) SEI 8 8 (1,161) (1,432) USAA (9) (9) Natixis Funds ,175 1, Northern Funds ,809 2, DWS Investments (293) (293) (2,564) (2,743) Russell (82) (82) Delaware Investments (204) (204) (443) (399) DoubleLine (1,006) (1,006) (2,849) (951) Neuberger Berman ,954 2, Allianz Funds 6 6 (1,165) (1,450) Managers Funds ,444 4, Top 10 5,482 5, , ,839 6, , Top 50 9,230 9, , ,362 9, , Other 8,519 8,519 64,382 57,833 1, , All 17,750 17, , ,195 10, , Asset Classes Name Estimated Net Flow ($mil) Assets Under Management ($bil) 1-Mo QTD YTD 1-Yr Mkt Sh % Mkt Sh % US Equity 10,515 10,515 34,084 (555) 4, , Sector Equity 2,620 2,620 22,503 20, International Equity 12,182 12, , ,956 1, , Allocation 4,546 4,546 42,813 40,067 1, Taxable Bond (8,102) (8,102) 32,717 68,424 2, , Municipal Bond (5,389) (5,389) (43,901) (41,838) Alternative 2,519 2,519 34,373 36, Commodities (1,142) (1,142) 3,397 2, All Long Term 17,750 17, , ,880 10, ,

10 Morningstar Direct SM Publishing Date: Page 6 of 6 Morningstar Ratings Name Estimated Net Flow ($mil) Total Net Assets ($bil) 1-Mo QTD YTD 1-Yr Mkt Sh % Mkt Sh % QQQQQ 15,209 15, , ,765 1, , QQQQ 7,434 7,434 83,533 86,054 4, , QQQ (8,094) (8,094) (40,042) (68,934) 3, , QQ (10,547) (10,547) (61,288) (82,874) Q (1,282) (1,282) (22,089) (30,022) Not Rated 15,029 15, , , Total 17,750 17, , ,880 10, ,