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Mutual Funds Glossary (Page 3)

Glossary #1 (A - N)   |   Glossary #2 - Morningstar Categories   |   Glossary #3 (P - Z)
If you're having trouble finding a certain term, try our larger Business Glossary.



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.

The name of the stock or fund.

Net Assets
The total amount of assets held by the fund.

Net Asset Value
NAV, or Net Asset Value, is the share price of a mutual fund. It is calculated by dividing the total net assets of the fund by the total number of shares outstanding. Value Line lists NAV as of the latest available month end prior to the issue date; for instance, for issue date February 24, the NAV is from January 31.

An investor purchasing shares of a fund with a front-end sales charge will pay a higher price--the offer price--which is calculated by dividing the amount invested by the actual number of shares purchased. For example, a person investing $1,000 in a fund with a 5 percent load and NAV of $10 actually invests only $950. He or she receives 95 shares and thus pays an offer price of $1,000 ~ 95 or $10.53.

Percent of Net Assets
The percentage of a fund's entire net assets represented by an individual holding.

Price/Book Ratio
A ratio of the price of a stock to its company's book value per share. Companies that are older, slower-growing, or depressed in price because of poor current earnings performance generally sell at low price/book value.

Price/Earnings Ratio
The price of a stock divided by its earnings per share.

The percentage of a fund's assets invested in each of six credit-quality levels, along with the average quality of the fund's fixed-income holdings.

Redemption Fees
An annual amount charged when assets are withdrawn from some funds. Unlike deferred fees, however, some redemption fees go back into the fund itself, rather than into the fund company's pockets, and thus do not represent a net cost to shareholders.

The number of shares of a particular stock held by a fund.

Standard Deviation
A measure of the variability of a fund's returns. The figure indicates the number of percentage points above or below the fund's average annual return within which any given annual return can be expected to fall two-thirds of the time.

The NASDAQ assigned symbol commonly used to locate the fund on electronic price-quoting systems.

Turnover %
This is a measure of the fund's trading activity which is computed by taking the lesser of purchases or sales (excluding all securities with maturities of less than one year) and dividing by average monthly net assets. A turnover ratio of 100% or more does not necessarily suggest that all securities in the portfolio have been traded. In practical terms, the resulting percentage loosely represents the percentage of the portfolio's holdings that have changed over the past year.

Weighted-Average Market Capitalization
Market capitalization is the value of a corporation as measured by multiplying the number of common shares outstanding by the current market price of a share.

Copyright 1999 The Washington Post Company