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As of December 31, 1961, there were 195 investment companies, which were members of The Investment Company Insti­tute, and had total assets of approximately $25 billion. Some 170 were open-end companies with assets of approximately $23 billion, and 25 were closed-end companies, with assets of around $2 billion.

Net capital contributions in 1961 were approximately $1.8 billion. This net capital change represents the amount of new funds raised by investment companies, less the amount of their own securities, which they have repurchased.

Table 1 compares the size of investment companies with other important types of financial institutions or of savings.

The past twenty years have seen an extraordinary expansion in almost every type of savings and savings institution. The assets of investment companies are still small in relation to those of life insurance companies, and their year-to-year growth is not dwin­dling. One difference between investment companies and other forms of savings is noteworthy. Changec in the dollar value of the other forms of savings are comparatively minor because of the nature of their assets, that is, a rise in the dollar amount of assets represents almost entirely added funds received from the insured, from depositors, or from bondholders. Common stock holdings predominate in the case of investment companies. Accordingly, changes in the dollar value of their assets do not necessarily correspond to changes in new funds contributed by shareholders. The biggest factor in the change in investment company assets may be fluctuations in the stock market. To illustrate, between the end of 1953 and 1954, net assets of open-end companies rose from about $4.1 billion to $6.1 billion, whereas the net amount of new funds raised through the sale of shares amounted to less than $500 million.

TABLE 1
Assets of Financial Institutions, 1941,1950, and 1960 (Billions of dollars)
TYPE OF INSTITUTION	ASSETS
	1941	1950	1960
Investment companies	1.0	3.4	18.0
Life insurance companies	37.8	64.0	119.7
Mutual savings banks	11.8	20.0	406
Savings and loan associations	4.6	14.0	60.1
Time deposits of commercial banks	15.9	36.3	71.4
Postal savings	1.3	3.0	0.8
United States savings bonds	2.8	49.6	48.2
Credit unions	0.2	0.9	5.0

Sources: Federal Reserve Bulletin, Investment Company Institute, U. S. Statistical Abstract, Standard & Poor's Trade and Securities Statistics.

The number of shareholder accounts of companies that are members of The Investment Company Institute is reported to exceed 4.5 million. An almost continuous growth has taken place since the early thirties. These accounts do not represent individual shareholders. Many investors hold shares in many investment companies. It is estimated that the num­ber of institutions and individuals represented by these ac­counts is around half the number of shareholder accounts. The number of shareowners of all corporations, according to studies made by the New York Stock Exchange, was 12.6 mil­lion in 1958.

A study based on a representative sampling of shareholders of twelve different mutual funds shows that the typical investor is fifty-five years old and holds mutual fund shares valued at approximately $4,200 (1958); his most recent purchase of these shares amounted to slightly less than $1,000. Apparently, aver­age holdings and purchases were smaller years ago, if accumu­lation plans involving small periodic purchases are excluded. The typical mutual fund shareholder also owns corporate stocks directly, with a value of approximately $8,200; he has bank deposits and United States Savings Bonds worth $3,200 and life insurance in the amount of $8,500. Annual family income is ap­proximately $6,500.

The average investor in closed-end investment companies is also fifty-five years old. His annual family income is almost $8,900; besides his investment company shares, he has accum­ulated individual stocks and savings worth slightly less than $22,000.

Occupationally, professional people are the largest category of holders, about 30 per cent; roughly 20 per cent are in the executive-administrative group. Retired persons are third among the "lump-sum" purchasers. Those in the over-sixty age group form the largest category of regular account holders; persons in the thirty-to-forty-years age group make up about 60 per cent of the accumulation-plan holders.

Institutional investors are important. Recent studies seem to show that at least 10 per cent of the value of the shares of mu­tual funds is held by institutional investors, such as fiduciaries (banks and individuals serving as trustees, guardians, or ad­ministrators), business organizations, including employee pen­sion and profit-sharing funds, and institutions and foundations  - churches, fraternal and welfare associations, hospitals, schools, colleges, and the like.

Retirement income is the most important objective in the purchase of open-end shares. Second is the desire to obtain a better return on savings.

What features appeal most to investors in mutual funds? Diversification stands first, professional management second. Convenience and ready marketability are other factors with significant appeal.

A survey of sales of mutual funds showed that in 1957 California led, with 16 per cent of the total, followed closely by New York. The next three states in importance as markets were Pennsylvania, Illinois, and Massachusetts.

SECURITIES HELD

What securities do investment companies own? Common stocks (except for special funds restricted to bonds and pre­ferred stocks and to a lesser degree, balanced funds), have always constituted by far the largest part of the portfolios of investment companies.

A general indication of the kinds of stocks in the portfolios of investment companies and the relative size of these holdings is given in Table 2, part of the "Favorite Fifty Stocks" held by investment companies—only the first twenty are shown, with their rank as of earlier dates.

The list is made up of blue chips. This is a most important characteristic of both open- and closed-end investment com­panies, with a few exceptions. From this fact flow important consequences, to be discussed later. The predominance of in­dustrial companies is also noteworthy, and the number of pub­lic utility and oil securities stands out prominently.

EXPENSES

The investor in shares of investment companies must pay his pro-rata part of the cost of management, which appears as an operating expense in the company's accounts.

Costs of management fall into three general classes: invest­ment supervision, fees for professional services, and miscellane­ous expenses.

In the case of open-end companies, as a rule expenses of management are paid to a company or group which has a man­agement contract. The prevailing fee is 0.5 per cent per annum of the average net asset value of the fund, generally determined quarterly. In a number of instances, provision is made for a reduction of the management fee when the net assets exceed a certain amount, say $50 million.

In closed-end companies, the cost of supervision and man­agement is part of the compensation of officers and other em­ployees. In some instances, a group of investment companies retains a research organization to provide statistical material, analyses of securities or industries, and advice. At times, en­gineers or economists are employed for special services.

TABLE 2
Principal Stock Holdings of Investment Companies, 1958-1960
Rank by Dollar Value					Dollar Value (millions)	Number of Investment Companies Holdings	Number of Shares Held (thousands)
1958 Dec. 31	1959 Dec. 31	1960 Sept. 30	1960 Dec. 31	Stock
1	1	1	1	International Business Machines	523	107	881.2
3	3	3	3	Texaco	247	103	2,896.6
7	18	4	3	American Telephone & Telegraph	192	96	1,795.6
2	2	3	4	United States Steel	170	93	2,250.1
27	14	10	5	International Nickel (Canada)	141	89	2,387.2
14	4	5	6	Du Pont (E.I.) De Nemours	135	93	719.8
4	8	6	7	Standard Oil (New Jersey)	132	110	3,188.0
16	7	7	8	General Electric	130	95	1,741.4
5	5	8	9	Goodyear Tire & Rubber	122	45	3,522.2
28	20	11	10	Minnesota Mining & Manufacturing	121	44	1,638.3
19	23	14	11	Continental Oil	120	68	2,150.4
17	11	18	12	Armco Steel	115	61	1,682.9
35	27	15	13	Southern Company	111	56	2,309.2
13	9	9	14	General Motors	111	99	2,726.9
6	16	19	15	Gulf Oil	109	61	3,277.3
12	6	13	16	International Paper	109	51	3,460.6
26	24	12	17	Eastman Kodak	106	56	946.0
31	31	22	18	Central & Southwest	102	55	2,531.0
24	21	20	19	Union Carbibe	100	74	840.1
8	12	17	20	Royal Dutch Petroleum	99	83	2,990.2

For both open- and closed-end companies, aggregate ex­penses have averaged between 15 and 18 per cent of annual gross income from dividends and interest. In terms of average net assets, expenses have hovered between 0.5 and 0.75 per cent of the total, with a trend toward lower expenses.

According to the provisions of the Investment Company Act, a majority of the directors of an open-end investment company must be independent of the company's sales distribution organ­ization. The law requires that at least 40 per cent of the direc­tors of all regulated investment companies must be persons who are neither officers nor investment advisers of the company. Although those identified with investment banking or sponsor firms have been prominent as board members, in recent years a number of important industrialists and bankers, as well as economists, have been elected directors of investment com­panies.

INCOME

The income, which a shareholder may expect to receive, is de­termined by the return obtainable from securities owned. Ex­cept for specialty or balanced funds, the dominant factor is the average return on common stocks. Unless a portfolio is heavily concentrated in one or two groups, or the securities chosen have done far better than the market as a whole, it will be dif­ficult to exceed the average return on industrial common stocks of the largest companies. This, in fact, is in the nature of a ceiling, since expenses must be deducted before dividends are paid. Table 3 is a tabulation of yields over a period of years.

TABLE 3
Yields on Various Types of Securities, 2930-1962 (Percent)
YIELDS ON AAA BONDS	YIELDS ON 10 HIGH-GRADE INDUSTRIAL PREFERRED STOCKS	YIELDS ON 200 COMMON STOCKS	YIELDS ON INDUSTRIAL 125 COMMON STOCKS
1961	4.35	3.07	3.04
1960	4.41	3.60	3.48
1959	4.38	3.31	3.12
1958	3.79	4.05	3.88
1957	3.89	4.33	4.11
1956	3.36	4.07	3.89
1955	3.06	4.06	3.93
1954	2.90	4.78	4.70
1953	3.20	5.49	5.51
1952	2.96	5.50	5.55
1951	2.86	6.12	6.29
1945	2.62	4.19	4.00
1940	2.84	5.31	5.30
1935	3.60	4.06	3.52
1930	4.55	4.54	4.93

Most investment companies have followed the practice of distributing their capital gains (profits on the sale of investment securities bought at lower prices). On occasion, such distribu­tions have been substantial. The basic difference between divi­dends from income (more or less recurring) and dividends from capital gains is recognized by law; the Investment Company Act provides that the source of distributions from anything other than net investment income must be shown.

Taxes are now important in determining the actual "take-home pay" of the investor. In general, dividends paid by in­vestment companies from investment income average around 3 per cent on common stock funds, often being below this fig­ure. This is generally less than the return from investment in high-grade bonds and substantially less than the return on high-grade preferred stocks. Neither bonds nor preferred stocks have the long-term growth characteristic sought by so many inves­tors; a similar statement can be made about deposits in savings banks and in building and loan associations.

The investor will reach a fair conclusion if he assumes that investment income on the common stock of investment com­panies will generally tend to be 0.25 to 0.5 percent lower than the yield on a representative list of common stocks. Investors do not generally own many of the securities found in stock averages. Unless they are skilled or lucky, a poor choice may cut income below the average rate of return that is theoretically obtainable.

No important investment company has omitted a quarterly dividend payment, and no diversified fund need have occasion to skip a payment. Payments will vary with the general level of corporate dividend payments and management policy, but the investor may count on receiving his quarterly dividend check.

One of the most significant phenomena of recent years has been the shrinkage in the importance of dividend income to individual investors because of the high rate of individual in­come taxes. Subordination of income to capital gains has had a profound effect on the securities market.

CAPITAL GAINS

If it is difficult to generalize about the ordinary income the investor may expect, it is even more difficult to generalize about the appreciation that he may look for in shares of investment companies. Perhaps this is the most that can be hazarded—the value of a common-stock-diversified investment company's shares will tend to rise or fall in harmony with the movement of common stocks as a whole. Management policy, diversification, and the relative size of holdings of particular stocks will determine the precise degree of the rise and fall.

At this stage, the point to keep in mind is that, as a rule, ex­perience shows individual stocks will advance further or decline more drastically than a diversified common stock fund. In other words, one may make or lose more on individual stocks. One thing is certain: the investor should not buy investment com­pany shares to make a "killing." Furthermore—and this applies particularly to open-end shares—assuming the average sales commission, the investor should buy only with the intention of holding the stock for a period of at least two years and prefer­ably for a longer term. The investor will be best advised and most likely to avoid disappointment if he gives careful exam­ination to the objectives of management.

Changes in the value of balanced funds tend to be slower and of lesser magnitude than those occurring in common stock funds. Specialty funds, limiting their holdings to specific indus­tries, fluctuate in value in relation to changes in the market prices of stocks of the industries in which their investments are concentrated rather than in relation to general market changes.

After all, the best way to understand how investment com­panies function and how their investors have actually fared is to review the record of several investment companies, as is done in the case studies that appear in Chapter Eight.

TAXATION

Investment companies that are regulated or registered under the Investment Company Act of 1940 as management compa­nies have received special treatment since the Revenue Act of 1942 was passed. Up to that time all investment companies other than open-end companies were subject to normal income taxes and surtaxes. Net realized profits also were taxable. This involved an extra layer of tax. First, the investment company paid taxes on 15 per cent of its dividend income, 85 per cent of dividend income being exempt as in the case of all other cor­porations. Secondly, the investment company was subject to capital gains taxes. Thirdly, the stockholder had to pay taxes on the dividends that he received from his investment company holdings, and a capital gains tax if he realized a profit from the sale of his stock.

To amend the tax structure so as to recognize that the in­vestment company is simply a conduit through which income from other securities flows to the investor, the Revenue Act of 1942 provided special treatment for regulated investment com­panies, both open-end and closed-end, that satisfied certain conditions. These conditions are:

1. It must be a domestic corporation—not a personal holding company.



2. It must be registered at all times during the taxable year under the Investment Company Act of 1940.



3. At least 90 per cent of its gross income for any taxable year must be derived from dividends, interest, and gains from the sale or other disposition of securities.



4. No more than 30 per cent of its gross income can be de­rived from the sale of securities held less than three months.



5. It must distribute as taxable dividends not less than 90 per cent of its net income, exclusive of capital gains, for any taxable year.



6. Its investments must have the requisite diversification. At least 50 per cent of its assets must be in cash, cash items (including receivables), government securities, or in a diver­sified list of securities limited to not more than 5 per cent of its assets in securities of any one issuer and not more than 10 percent of the voting securities of that issuer. Not more than 25 percent of the company's assets may be invested in the securi­ties of any one issuer, or of two or more issuers, which the tax­payer controls and which are engaged in the same, similar, or related business.



7. It must elect to be treated as a regulated investment com­pany rather than as an ordinary corporation. The election is an irrevocable one, though in any year when the above require­ments are not met, special tax treatment will be lost.

If a regulated investment company distributes to its share­holders as taxable dividends at least 90 per cent of its net in­come, the amount so distributed is not subject to either the normal corporate tax or the surtax. In the event that all of the net investment income (interest and dividends less expenses) and any net realized short-term capital gains are paid out in the form of dividends, there will be no corporate income or surtax thereon. All of the pay-out is, of course, taxable to the shareholder as ordinary income. The individual shareholder is then entitled, as with any dividend payment received, to ex­clude from reportable income the first $50 of income dividends and to deduct 4 per cent of additional dividends received as provided in the income tax revision of 1954. Also, long-term capital gains may be treated by the shareholder as long-term gains to himself, taxable at one-half the regular rate, with a maximum tax of 25 per cent. A stockholder who received a dividend representing capital gains may report the income as a long-term gain even if he has held the underlying stock less than six months. As described elsewhere, many open-end com­panies permit stockholders to receive dividends in the form of stock. No matter whether dividends are taken in cash or rein­vested in additional shares they are subject to federal income taxes.

An important provision of tax law as it applies to capital gains and the investment company should be clarified. Under an amendment to the Internal Revenue Code that became ef­fective on January 1, 1957, a regulated investment company may elect to retain long-term capital gains and pay a 25 per cent tax on such gains for the account of its stockholders. Each shareholder then reports his share of the taxable long-term gain retained by the company, takes credit or claims refund for the 25 per cent tax paid for his account by the company and in­creases the cost basis of his stock for tax purposes by 75 per cent of his share of the undistributed capital gain. The tax effect on the individual is substantially the same as if gains were distributed to him, taxes were paid at the applicable personal rate, and then 75 per cent of the gain was immediately reinvested by the stockholder in the investment company. A major advan­tage of this tax provision is that those shareholders whose long-term capital gains tax rates are less than 25 per cent or who are exempt from tax or who have offsetting losses would be able to utilize all or part of the tax paid for their accounts to meet other federal income tax obligations; and they could claim a refund for any unused portion of such taxes.

The net result of the various tax regulations described is that a layer of taxes is avoided under the "conduit theory." In other words, the tax law provides that the composite tax burden to the company and the shareholder will be comparable to that which would be borne by the direct investor alone.

A number of companies with substantial capital losses on securities owned have elected to be taxed as ordinary corpora­tions. In such cases, dividends may be tax-free in the hands of stockholders, to be applied to the reduction of the cost of their stockholdings. Stockholders with sizable incomes thus are in a position to take advantage of the maximum long-term capital gains tax, 25 per cent, as against much higher personal income tax rates.

As a result of the rise in the stock market in the past decade many regulated investment companies had large unrealized ap­preciation of portfolio securities. Were they to sell stocks and realize a substantial part of these gains, distribution to share­holders would have the consequence of shrinking the size of the portfolio. Thus the present form of taxation may have the effect of making management more reluctant to accept profits than would otherwise be the case. In turn, this may be an in­fluence toward raising the level of stock prices.

CONVENIENCES OF SHARE OWNERSHIP

Investment companies offer many services and conveniences of ownership to holders of their securities. Of course, the pri­mary goals of investment companies are the investment objectives stated in their charters: capital gains, income, capital sta­bility, or any one of various combinations thereof. Among the services and conveniences extended by investment companies in addition to accumulation plans elsewhere discussed at length are:

1. One stock certificate. A diversified investment portfolio can be achieved while holding only one certificate. This avoids the necessity of handling numerous dividend checks and simplifies bookkeeping and record keeping for the stockholder and the broker concerned. Tax appraisals, estate valuations, raising cash for taxes and expenses, and division of assets among bene­ficiaries all are simplified.



2. Automatic investment of dividends. This may be done in several ways, depending upon the specific rules of the individ­ual investment company. Some insist upon a stated minimum holding in order to qualify for automatic investment of dividends; some invest such income at the regular offering price and some at net asset value. In addition to income dividends, most investment companies distribute realized long-term cap­ital gains dividends through an optional plan offering the stockholder a choice of receiving stock or cash. (No matter which way the dividend is received, taxes must be paid on the full amount.)



3. Withdrawal plans. These plans are offered by many in­vestment companies, usually only to those who have a certain fixed amount of capital invested. Payments may be in fixed dollar amounts or may be variable, i.e. at a fixed percentage of the value of the particular shares at time of payment. The holder may determine to receive an amount which can be paid out of investment income or decide to receive at least a part of his regular withdrawal payment in the form of capital. Often, in fact, investors do decide on a method of planned exhaustion of earlier pay-ins of capital to meet fixed obligations of the fu­ture such as mortgage or educational payments.



4. Life insurance. Certain accumulation plans provide life insurance programs, deducting the cost thereof from the in­vestor's regular monthly payment. Upon the death of an investor whose payments have been kept up, the plan can be completed and the beneficiary will receive the total number of shares that the completed plan provides. Insurance protection normally covers the difference between the total investment outlined in the contract and the total amount (exclusive of divi­dends reinvested) paid up until the time of death. As a result, the amount of insurance coverage and premiums due are stead­ily reduced by the amount invested.



5. Custodianship. The custodian bank for an investment com­pany may hold in safekeeping the securities owned by the various shareholders. Although the shareholder may if he so desires have his shares delivered to him, it is often much safer and more convenient to have shares held by the custodian. Any chance of shares being lost, damaged, or destroyed is signifi­cantly less; and liquidation of holdings will usually be much more easily and rapidly effected.



6. Provision for beneficiaries. Many contractual plans make it possible for a plan holder to have his shares legally become the property of a previously named beneficiary upon the death of the plan holder. This simplifies various estate problems and places financial resources in the hands of beneficiaries shortly after death.



7. Tax reporting. Almost all investment companies advise shareholders of the federal tax status of all distributions, thereby considerably reducing the problem of reporting dividend and capital gains income.



8. Information. Since investment companies are closely regu­lated by various agencies of the government and impose self-regulation, a great deal of information is available to the invest­ing public, through periodic reports, prospectuses, and industry studies.

Although the services discussed herein are of secondary im­portance to the specific investment goals of the investment com­pany and to the objectives of diversification, professional management and supervision, and continuous investment, they have been of value to shareholders, and may rightfully claim some of the credit for the growing popularity of investment company shares.

ACCUMULATION PLANS

Among the several services offered to investors by most in­vestment companies, one of increasing popularity is the accum­ulation plan. There are many variations of this service among the contractual and voluntary plans established by investment companies, but they all have a common purpose—to enable in­vestors to purchase shares on a regular or periodic basis. Find­ing wide acceptance only in the past decade, these plans have grown to such an extent that recently about 30 per cent of all shareholder accounts in open-end investment companies were of the accumulation type. Through the Monthly Investment Plan of the New York Stock Exchange, investors have a similar opportunity for accumulation of shares of a number of closed-end companies.

There are sound reasons for the increasing acceptance of ac­cumulation plans. First of all, this trend coincides with the rapidly growing participation by the general public of this country in the opportunity for and, indeed, responsibility for, equity investment in private enterprise. Also, a factor of para­mount importance to investors in relatively modest income tax brackets is that an opportunity is thus opened for planning and building an investment program with small purchases, using current income. There is no waiting for the accumulation of capital; yet, at the same time, buying is not done on a credit basis. The investor's money is invested in full and fractional shares at the public offering price in effect at the time payment is received. In addition, a program for the accumulation of shares at regular intervals gives added incentive for maintaining regular payments toward a long-term investment program. Nat­urally, this is most particularly true of the contractual plans. Another recommendation for accumulation plans is that regu­lar purchases of shares on a periodic basis offer the investor the logical expectation, elsewhere discussed under "dollar cost averaging," of acquiring shares at a reasonable average cost.

Basically, there are two types of accumulation plans—volun­tary and contractual. The former is also known as the level charge or informal plan, under which no definite time period or fixed payment schedule is obligatory. The investor may with­draw from such plans at any time and with no penalty, since the sales charge, or deduction for issuance and sales expense, is deducted at the same rate with every payment. On the other hand, a contractual plan commits the investor to acquiring fund shares by fixed dollar payments, usually on a monthly or quar­terly basis over a specific number of years. This plan is often known as a prepaid charge plan, penalty plan, or front-end load plan because the sales charge is deducted for the most part against payments made during the first year or two of the plan. It is this plan in particular which encourages a sustained in­vestment program, for if it should lapse a large percentage of the investment is lost, having been deducted for expenses.

There are differences in ground rules of many sorts among the accumulation plans offered by various investment compa­nies. In general, the voluntary plans are opened by filling out an application form on which is stated the amount of initial invest­ment, the amount intended to be invested regularly in the future, the dates on which such investments will be made, and whether automatic reinvestment of dividends and distributions is desired. Payments in most cases are fully invested (less the sales charge at the prevailing regular offering price on the day of receipt); fractional shares are computed to the third decimal place. Both initial and subsequent payments are subject to minimum-amount requirements by many investment compan­ies, although some have no such requirements. A confirmation of the opening of a voluntary account and of each purchase there under is sent to the investor; however, certificates are kept in safekeeping by a custodian for the fund unless the investor specifically requests delivery. Of course, under the voluntary plan the investor may withdraw at any time without penalty, liquidating his shares, if he wishes, as readily as shares bought in the regular way through any brokerage firm.

Contractual plans are opened in much the same way, as are voluntary plans. In addition, a period for the life of the plan will be fixed, and monthly payments or total investment re­quired will be specified. In most cases life insurance is available on the unpaid-plan balance. Insurance premiums are geared to decrease as each plan payment is made. Just as in the voluntary plan, shares held under a contractual plan may be easily liqui­dated. In addition, the investor may often liquidate a part of his accumulated shares without closing out his account and may replace them later without incurring a second sales charge. Many contractual plans make it possible for shareholders to designate a beneficiary who will succeed to the plan and to ownership of the underlying shares held by the plan holder upon his death. Costs assessed on contractual plans are the sell­ing charge, which usually scales down from 8 per cent as the aggregate investment increases; a small federal issuance tax levied on the face amount of the program at time of issuance; a fee to the custodian or trustee; and, often, insurance premi­ums. The investor making small monthly payments will be charged appreciably more on a contractual plan than on a vol­untary plan.

To bring these generalities into sharper focus and offer a specific example, a description of the accumulation plans of­fered by one fund will be outlined. In order to open a "Volun­tary Open Account," an investor either (1) indicates that he owns at least ten shares of the Fund, or (2) makes an initial investment of at least $150, or (3) forwards for deposit ten Fund shares. He states his intention, on an application form, to make additional purchases of at least $50 each at regular monthly or quarterly intervals. The initial investment and all subsequent payments, less the sales charge (see table below) are applied to the purchase of full and fractional shares at the prevailing offering price. Certificates are kept by a bank (as custodian), which will automatically deduct from the initial investment $2.50 for opening the account. The bank receives all payments, and mails confirmations showing the investor the number of shares purchased, the exact price paid, and total shares owned. Dividends and distributions are automatically reinvested in additional shares. The account is flexible in that regular payments may be increased or reduced, shares in vary­ing amounts may be deposited with or withdrawn from the custodian bank, or the account may be terminated completely at any time. If previously purchased shares still owned reach a value of $25,000, an investor becomes eligible for a reduced sales charge on current and future purchases. The scale of re­duced sales charges follows:

Amount Of Transaction	Sales Charge (Percent)
Less than $25,000	8
$25,000 but less than $50,000	6
$50,000 but less than $100,000	4
$100,000 but less than $250,000	3
$250,000 but less than $500,000	2
$500,000 and over	1

A wide variety of "Systematic Accumulation Plans" are of­fered, which represent ten-year contractual agreements be­tween the investor, the Fund, and the custodian. The table below has been abstracted from the prospectus. For the sake of simplicity only a few examples of the various plans offered are reproduced. The table is intended to give an example of initial and subsequent monthly payment minimums and maximums. A double monthly payment is required to open all pro­grams of $150 per month or less. Regular monthly payments can be accelerated provided each such payment is an exact multiple of the required monthly payment. Total payments range from a $3,000 plan to a $600,000 plan, or from $3,000 to $30,000 where insurance coverage is optionally available. One can see how the total charges reduce as a percentage of net in­vestment in fund shares as the total amount invested grows.

Net Investment In Fund Shares	Total Payments	Monthly Payment	Minimum Initial Payment	Total Charges*	Total Charges As per Cent of Net Investment In Fund Shares
$2,642.62	$ 3,000	$25	$50	$357.38	13.52
10,807.19	12,000	100	200	1,192.81	11.04
27,825.26	30,000	250	250	2,174.74	7.82
115,704.92	120,000	1,000	1,000	4,295.08	3.71
289,711.76	300,000	2,500	2,500	10,288.24	3.55
586,503.52	600,000	5,000	5,000	13,496.48	2.30

* Includes creation and sales charge, federal issuance tax, and custodian fee.

As in the case of the voluntary plan, payments received are applied after deductions to the purchase of fund shares at net asset value. The bank that holds shares as custodian mails con­firmations, just as with the voluntary plan. Reinvestment of dividends and distributions at net asset value (without sales charges) is required and automatic until all program payments have been completed. Also, both the partial liquidation right and the privilege of naming a beneficiary to the plan are offered.

There are various reasons why contractual plans should not be entered into lightly. A comparison of the percentage columns of the tables above shows that the contractual plan is more costly than the voluntary plan, especially at the lower end of the scale. Table 4, which is derived from the prospectus, shows also that early discontinuance of a contractual plan will cer­tainly result in a loss to the investor.

Obviously, early withdrawal of funds from the plan will mean a loss for the investor, since less than one-half of payments in the first year are invested in shares of the Fund, a major portion of the entire sales charge of the plan being deducted during this period.

With full recognition of the foregoing factors, the investor nevertheless can wisely commit himself to a contractual plan. The financial capability and moral intention to maintain pay­ments are vital, for best results can only be achieved through regular payments at both high and low market levels. Should the figures and reasoning presented above not be convincing enough to the investor and should payments lapse, reminders— delinquency notices and personal calls—will always come from the custodian and often from the broker through whom the in­vestor obtained his shares.

TABLE 4
Systematic Accumulation Plan: $25 Monthly Payment
					Percent to Total Payments
	Total Payment	Creation & Sales Charge	Custodian Fees	Total Charge*	Creation & Sales Fees	Net Investment
6 months	$175	$87.50	$5.25	$92.77	50.0	47.0
1 year	325	162.50	9.75	172.27	50.0	47.0
2 years	625	174.26	18.75	193.03	27.9	69.1
10 years	3,000	267.36	90.00	357.38	8.9	88.1

* Includes federal issuance tax of $0.02. Does not include delegated service charge not exceeding $2.00 per year.

Finally, it might be well to stress that funds in an accumula­tion plan are not to be considered as the equivalent of liquid savings, such as a bank checking account or savings deposit balance. Such a program is subject to the same risks as any securities account in that it does not assure a profit or offer pro­tection against depreciation in declining markets. Just such a statement as this will be found in the various publications of a great many investment companies.

THE INVESTMENT COMPANY INSTITUTE

As with so many industries, the investment company indus­try has its trade association, now known as The Investment Company Institute. Its predecessor, The National Association of Investment Companies was founded in 1941; and by Septem­ber 1960 it had a membership totaling 150 open-end and 26 closed-end investment companies. The Institute is voluntary, and has no such enforcement powers as does the National As­sociation of Securities Dealers over its membership. Neverthe­less the Institute, through its membership, certainly can be credited with encouraging the maintenance of high standards of responsibility in the industry and promoting public confi­dence in it.

The major functions performed by the Institute are represent­ing its membership, which consists of the mutual funds and their shareholders, in matters of legislation, taxation, regulation, and public information; acting as a medium through which the membership may make its views known to government author­ities and to the general public; and acting as a central clearing house where any persons and agencies may acquire information about the investment company industry in the United States.

PUBLICITY

A number of periodicals publish news and comments on in­vestment companies. A number have special columns regularly devoted to investment company developments, and several fea­ture computations of investment company quarterly results. An increasing number of newspapers also publish news items con­cerning investment companies. In addition to the news and quotations of open-end investment companies that appear in an increasing number of daily newspapers, several syndicated columns by financial writers have appeared as the importance of the subject to investors has gained recognition. The writers have not hesitated to voice their criticism and to make sugges­tions to the industry, which they believed would be helpful to investors.

Investment companies and sponsors of funds advertise freely. In consequence, newspapers and periodicals should be careful not to slant the material in favor of investment companies and leave themselves open to criticism. I have in mind the unfor­tunate caption that appears from time to time: "X Investment Company Assets Increase." The caption is correct, but the reader often finds in the second paragraph that the per share net asset value has declined. This figure is more important to the shareholder than the increase in assets arising from the sale of additional shares. It is a rise in the net asset value per share that should be given most prominence.

Similarly, investment companies should not attempt to gloss over unfavorable periods or examples of poor decision. The intelligent shareholder will accept errors of judgment from which no one is exempt, yet will resent a lack of frankness.

QUOTATIONS

Prices of open-end securities are determined by their net as­set value. Open-end securities are not listed on any national securities exchange, but bid-and-asked prices may be found in the financial pages of leading newspapers. Quotations are changed twice a day in most instances, the "asset value" being determined by dividing the current market value of the com­pany's assets, less liabilities, by the number of its own shares outstanding. Holdings are redeemed at the asset value. The offering, or asking price, is the price the investor pays for his shares. It is usually net asset value plus a sales charge or com­mission, generally about 8 to 8.5 per cent of the offered, or asked, price.

On the other hand, the price of closed-end shares, many of which are listed on a national security exchange, is determined by supply and demand, as are the prices of all other securities except mutual fund shares. As a result, current market price of closed-end shares may be higher or lower than their net asset value. In the twenties, many stocks sold at high premiums (prices above prevailing net asset value); in the thirties, many sold at heavy discounts (below prevailing net asset value). Somewhat smaller discounts, 10 to 15 per cent, have generally prevailed during recent years, with a few closed-end-company stocks selling at premiums. The premium or discount may de­pend on such factors as the economic climate as a whole, the company's record, and its capital structure.