All mutual fund organizations, with one exception, are set up such that the funds offered by the organization are primarily controlled by an external management company. The company, in turn, can be privately owned, a partnership, or publicly owned by investors who buy and sell the shares outstanding. Almost all mutual fund organizations offer several different funds, and each is a mutual fund family. A fund complex is a group of funds that are under common management—it typically comprises one family, but can include more than one family of funds.

Fidelity is the largest investment company in the United States. FMR Corporation is the ultimate parent company of various affiliates in the Fidelity organization. Under the Investment Company Act of 1940, if one individual or group of individuals (such as a family) owns more than 25 percent of the voting stock of the company, it constitutes a controlling group. The Johnson family is the predominant owner of approximately 49 percent of the stock and is deemed to form a controlling group for FMR Corporation.

Let's consider one of the well-known Fidelity funds, the Equity-Income Fund. It is a diversified mutual fund that is managed by FMR, which chooses the fund's investments and handles its business affairs. The Equity-Income Fund is governed by a board of trustees, which is charged with protecting the interests of shareholders. The trustees meet periodically during the year to oversee the fund's activities and review the performance of the fund.

Fidelity offers numerous stock, bond, money market, and asset allocation mutual funds. In fact, Fidelity offers more mutual funds than any other investment company. Each category has different investment objectives; for example, the stock category has aggressive funds, equity income funds, and so forth. Fidelity also offers approximately 40 sector funds, each devoted to a different sector of the economy such as technology, electronics, and so forth.

Fidelity's structure is typical of investment company organizations except perhaps for being controlled by one family. In general, all mutual funds are managed by a company and have a board of trustees. Mutual funds are, of course, in business to make money.

The one exception to the typical mutual fund structure is the Vanguard Group, founded in 1975. The Vanguard Group is a mutual fund organization that is owned by its member funds, each of which is an independent investment company. This structure means that the shareholders of Vanguard funds, in effect, own the Vanguard Group.

The Vanguard Group provides the necessary service to run the funds on an at-cost basis. As a result, Vanguard has the lowest operating expenses in the industry. In 2001, the Vanguard funds cost, on average, 0.27 percent of assets, or about 25 percent of the industry average. The average cost to an investor is $2.70 per $1,000 invested. Vanguard is well known among investors for offering mutual funds with the lowest, or close to the lowest, annual operating expenses.

As of early 2002, Vanguard had total assets of $582 billion, and more than 15 million institutional and individual shareholder accounts. It offered 106 domestic funds and 30 funds in international markets. Vanguard's largest single mutual fund was the Vanguard 500 Index Fund, with assets on January 31, 2002 of $86 billion. This fund is one of the two largest mutual funds in the country.

Vanguard's impact as a major no-load fund company can't be overemphasized. According to one estimate, in 2001, of the dollars invested directly in mutual funds (not using a broker or financial advisor), Vanguard took in $8 out of every $10.

The number of fund complexes has grown substantially over time. In 1979 there were 119 mutual fund complexes, in 1990 there were 361, and at the end of 2000 there were 431 complexes.

At the end of 2001, the three largest fund families, as measured by assets under management, were, in order, Fidelity, Vanguard, and American Funds. Their combined assets easily exceeded the combined assets of the next seven largest fund families.

In early 2002, the largest mutual funds, in terms of assets under management, were Fidelity Magellan, Vanguard 500 Index, Investment Company of America, Washington Mutual, Growth Fund of America, Pimco Total Return, Fidelity Growth & Income, Fidelity Contrafund, New Perspective, and EuroPacific Growth. The dollar amounts involved here are large: Magellan had about $77 billion in assets under management at that point in time, and the smallest of the 10 funds, EuroPacific Growth, had about $27 billion in assets. Five of these mutual funds were part of the American Funds family, which, as noted earlier, is the third largest fund family.