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A LETTER FROM ICI'S
CHIEF ECONOMIST

ICI RESEARCH:
STAFF AND PUBLICATIONS

SECTION 1:
OVERVIEW OF
U.S.-REGISTERED INVESTMENT COMPANIES

SECTION 2:
RECENT MUTUAL FUND TRENDS

SECTION 3:
EXCHANGE-TRADED FUNDS AND INDEX MUTUAL FUNDS

SECTION 4:
CLOSED-END FUNDS

SECTION 5:
MUTUAL FUND FEES AND EXPENSES

SECTION 6:
CHARACTERISTICS OF MUTUAL FUND OWNERS

SECTION 7:
THE ROLE OF MUTUAL FUNDS IN RETIREMENT AND EDUCATION SAVINGS

DATA TABLES

APPENDIX A:
HOW MUTUAL FUNDS AND INVESTMENT COMPANIES OPERATE

APPENDIX B:
ICI STATISTICAL RELEASES AND RESEARCH PUBLICATIONS

TIMELINE:
SIGNIFICANT EVENTS IN FUND HISTORY

FACT BOOK ARCHIVE

Closed-end funds are one of four types of investment companies, along with mutual (or open-end) funds, exchange-traded funds, and unit investment trusts. Closed-end funds generally issue a fixed amount 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.

Assets in Closed-End Funds

Assets in closed-end funds grew by 6 percent in 2007, marking the sixth consecutive year of increasing assets. At year-end 2007, assets in closed-end funds reached $315 billion (Figure 4.1). Since year-end 2000, closed-end fund assets have increased by $172 billion.

Figure 4.1

Closed-End Fund Assets Increase for sixth Consecutive Year

(billions of dollars, year-end, 1995–2007)

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Historically, bond funds have accounted for a large majority of assets in closed-end funds. At year-end 1998, nearly 70 percent of all closed-end fund assets were held in bond funds, but by 2007, bond fund assets made up only 53 percent of total closed-end fund assets (Figure 4.2). At the end of 2007, bond funds held $168 billion, down slightly from year-end 2006. In contrast, equity funds have fueled more than half of the recent growth in closed-end fund assets. At year-end 2007, equity funds totaled $147 billion, or 47 percent of closed-end fund assets.

Figure 4.2

Bond Funds Are Largest Segment of Closed-End Fund Market

(percent of closed-end fund assets, 2007)

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From year-end 2000 through 2007, assets in closed-end equity funds increased by $110 billion. Over the same time period, assets invested in domestic equity closed-end funds have increased by $64 billion to $88 billion while assets in global and international equity closed-end funds have increased by $47 billion to $59 billion. Assets in international and global equity funds now represent 19 percent of all closed-end fund assets compared to 8 percent in 2000.

The role of equity funds in the recent growth of closed-end fund assets is also evident when proceeds from initial and additional public offerings of closed-end equity and bond funds are compared. Between 2004 and 2007, proceeds from issuance of closed-end equity funds exceeded those of closed-end bond funds; the reverse was true in 2002 and 2003 (Figure 4.3). In 2007, proceeds from issuance of closed-end funds totaled $31 billion, of which $5 billion went to closed-end bond funds. The remaining $26 billion in proceeds was from issuance of closed-end equity funds, primarily issuance of global and international equity closed-end funds, which accounted for more than three-quarters of equity closed-end fund proceeds. Overall, the issuance of global and international closed-end funds (equity and bond) represented 74 percent of the $31 billion in total net proceeds, vastly exceeding those of domestic closed-end funds.

For more complete data on closed-end funds, see Data Table Section 2 on page this website.

Figure 4.3

Closed-End Equity Fund Share Issuance increases in 2007

(proceeds from the issuance of initial and additional public offerings of closed-end fund shares, billions of dollars, 2002–2007)1

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(*) less than $500 million
1Data are not available for years prior to 2002.
Note: Components may not add to the total because of rounding.

Number of Closed-End Funds

The number of closed-end funds available to investors has increased during the past several years. At the end of 2007, there were 668 closed-end funds, up from 482 at the end of 2000 (Figure 4.4). As with closed-end fund assets, equity funds accounted for almost 60 percent of the increase in the number of closed-end funds during this seven-year period. Equity funds now make up 35 percent of the total number of closed-end funds compared with 26 percent at year-end 2000. Bond funds, however, are still the most common type of closed-end fund, with municipal bond funds representing over 40 percent of all closed-end funds.

Figure 4.4

Number of Closed-End Funds

(year-end, 2000–2007)

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Characteristics of Closed-End Fund Investors

An estimated 2.3 million U.S. households held closed-end funds in 2007. These households tend to include affluent, experienced investors who own a range of equity and fixed-income investments. In 2007, 91 percent of closed-end fund investors also own stocks, either directly or through stock mutual funds, or variable annuities (Figure 4.5).

Figure 4.5

Closed-End Fund Investors Own a Broad Range of Investments

(percent of closed-end fund investors owning each type of investment, 2007)*

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*Multiple responses are included.

Seventy-six percent of households that own closed-end funds also hold bonds, bond mutual funds, or fixed annuities. In addition, 41 percent of these households own investment real estate. Because a large number of households that own closed-end funds also own stocks and mutual funds, the characteristics of closed-end fund owners are similar in many respects to those of stock and fund owners. For instance, households that own closed-end funds, like stock and mutual fund-owning households, tend to be headed by college-educated individuals and have household incomes above the national average (Figure 4.6).

Nonetheless, households that own closed-end funds exhibit certain characteristics that distinguish them from stock and mutual fund-owning households. For example, households with closed-end funds tend to have much greater household financial assets than either stock or mutual fund investors. Closed-end fund investors are also more likely to be retired from their lifetime occupations than either stock or mutual fund investors.

Ownership of bond investments traditionally has been greatest among older individuals and households in the highest income and wealth groups. Because bond funds account for a large portion of closed-end fund assets, households that own closed-end funds tend to have demographic characteristics similar to those of bond investors in general.

Figure 4.6

Closed-End Fund Investors Have Above-Average Household Incomes,
Financial Assets

(2007)

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1Total reported is household income before taxes in 2006.
2Household financial assets include assets in employer-sponsored retirement plans but exclude the household's primary residence.