Definitions of terms used in reference to mutual funds (for terms from P to Z, click here):12b-1 Fee
The maximum annual charge deducted from fund assets to pay for distribution and marketing costs.Average Maturity
A fund's average maturity is the dollar-weighted average of the maturities of its fixed-income holdings. Maturity represents the date on which a bond's principal is to be repaid.Best Fit Index
The market index that shows the highest correlation with a fund over the most-recent 36 months, as measured by the highest R-squared. Morningstar regresses a fund's monthly excess returns against the monthly excess returns of several well-known market indexes. The following indexes are regressed against each equity fund: JSE Gold; MSCI Pacific, MSCI Pacific ex Japan, MSCI World ex U.S., MSCI EASEA, MSCI Europe, Russell 2000, S&P MidCap 400, MSCI All Country World, Wilshire 4500, Wilshire REIT, S&P 500, LB Long-Term Treasury, and FB High-Yield. The following indexes are regressed against each bond fund: Russell 2000, MSCI All Country World, Wilshire 4500, S&P 500, LB Long-Term Treasury, SB World Government, LB Corporate, LB Municipal, LB Government, FB High-Yield, LB Aggregate, LB Intermediate-Term Treasury, LB Mortgage-Backed.Closed Fund
An open-end fund that has closed, either temporarily or permanently, to new investors. This usually occurs when management finds the fund's increasing asset size to be disadvantageous.Expense Ratio
The percentage of fund assets paid for operating expenses and management fees, including 12b-1 fees, administrative fees, and all other asset-based costs incurred by the fund, except brokerage costs. Fund expenses are reflected in the fund's NAV. Sales charges are not included in the expense ratio.Fund Class
To accommodate the largest number of investors, many funds offer separate classes of shares, each carrying different load structures. Shares offered with a front-end load are commonly called "Class A shares," and those with a back-end load "Class B shares." A fund's performance figures and NAVs will be different for different share classes.Fund Family
A company which offers mutual funds.Fund Inception Date
The date on which the fund began its operations.Growth Persistence
A measure of how consistently a fund has outperformed its equity or fixed-income peers.Manager Name
The name of the individual or individuals who are employed by the advisor or subadvisor who are directly responsible for managing the fund's portfolio, as taken directly from the fund's prospectus. Other terms that may appear in this column include the following:
Multiple Managers: This term appears when more than two persons are involved in the fund management, and they manage independently. Where this term is used, quite often the fund has divided net assets in set amounts among the individual managers. In most cases, multiple managers are employed at different subadvisors or investment firms.
Management Team: This is used when there are more than two persons involved in fund management, and they manage together, or when the fund strongly promotes its team-managed aspect.
Et al: When this term appears just after a manager name, it indicates that while other persons are involved in fund management, the person listed acts as the leader and/or is recognized by the fund as being the principal management player.Maximum Sales Charge
A combination of the highest possible deferred fees and front-end sales charges a fund can apply. The amount is generally relative to the amount of the investment, so that larger investments incur smaller rates of charge. If 0% is listed, then the fund does not have a front-end sales charge.
Sales charges will usually decrease over time and are generally proportionate to the size of the investment.Minimum Automatic Investment
The smallest investment amount accepted for establishing an automatic investment plan.Minimum Initial Investment
The smallest investment amount accepted for establishing a new account.Minimum IRA Investment
The smallest investment amount accepted for establishing an individual retirement account.Morningstar Rating
Often simply called the Star Rating, the Risk-Adjusted Rating brings performance (returns) and risk together into one evaluation. To determine a fund's star rating for a given time period (three, five, or 10 years), the fund's Morningstar Risk Score is subtracted from its Morningstar Return Score. The result is plotted on a bell curve to determine the fund's rating for each time period: If the fund scores in the top 10% of its broad asset class (domestic stock, international stock, taxable bond, or municipal bond), it receives 5 stars (Highest); if it falls in the next 22.5% it receives 4 stars (Above Average); a place in the middle 35% earns 3 stars (Neutral); those lower still, in the next 22.5%, receive 2 stars (Below Average); and the bottom 10% get only 1 star (Lowest). Also see Morningstar Rating Broad Asset Classes.Morningstar Return
The Morningstar Return figure rates a fund's performance relative to other funds in its broad asset class (domestic stock, international stock, taxable bond, or municipal bond). After adjusting for maximum front-end loads , applicable deferred loads, and applicable redemption fees, Morningstar calculates the excess return for each fund, defined as the fund's load-adjusted return minus the return for 90-day Treasury Bills over the same period. The excess returns are then compared with the higher of the average excess return of the fund's broad asset class or the 90-day T-bill return. This last adjustment prevents distortions caused by having low or negative average excess returns in the equation's denominator, as might occur during a protracted down market.
The resulting Morningstar Return figure is listed relative to the average excess return of the broad asset class or the T-bill, whichever is higher. If the Morningstar Return is compared to the asset class, 1.00 represents the asset class average. For T-bill comparisons, the same concept is true, but 1.00 occurs when a fund's load-adjusted excess return equals the T-bill. Therefore, a score of 0.90 when compared with the T-bill indicates the fund's excess return has been 10% lower than the T-bill. In periods of low returns, funds' raw returns could hypothetically underperform T-bill returns, in which case the figure would be a negative number, such as -0.35, meaning that funds raw returns were 35% less than those of the T-bill.Morningstar Risk
Listed for three, five, and ten years, a statistic that evaluates the fund's downside volatility relative to that of others in its broad asset class. To calculate the Morningstar Risk score, we plot the fund's monthly returns in relation to T-bill returns. We add up the amounts by which the fund fell short of the Treasury Bill's return and divide the result by the total number of months in the rating period. This number is then compared with those of other funds in the same broad asset class. The resulting risk score expresses how risky the fund is, relative to the average fund in its asset class. The average risk score for the fund's asset class is set equal to 1.00; thus a Morningstar risk score of 1.35 for a taxable-bond fund reveals that the fund has been 35% riskier than the average taxable-bond fund for the period considered. The four broad asset classes are domestic stock, international stock, taxable bond, and municipal bond.
For Morningstar Category definitions, click here.