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Morningstar Report: Mutual Fund Data Definitions

 

 

 

 Total Returns

 

Growth of $10,000
The Growth of $10,000 graph shows a fund's performance based on how $10,000 invested in the fund would have grown over time. The returns used in the graph are not load-adjusted. The growth of $10,000 begins at the date of the fund's inception, or the first year listed on the graph, whichever is appropriate.

Located alongside the fund's graph line is a line that represents the growth of $10,000 in either the S&P 500 index (for stock funds and hybrid funds) or the LB Aggregate index (for bond funds). The third line represents the fund's Morningstar category (see definition on Snapshot screen). These lines allow investors to compare the performance of the fund with the performance of a benchmark index and the fund's Morningstar category.

Both lines are plotted on a logarithmic scale, so that identical percentage changes in the value of an investment have the same vertical distance on the graph.

For example, the vertical distance between $10,000 and $20,000 is the same as the distance between $20,000 and $40,000 because both represent a 100% increase in investment value. This provides a more accurate representation of performance than would a simple arithmetic graph. The graphs are scaled so that the full length of the vertical axis represents a tenfold increase in investment value. For securities with returns that have exhibited greater than a tenfold increase over the period shown in the graph, the vertical axis has been compressed accordingly.
 

 

 Calendar-Year Total Returns

 

Total returns calculated on a calendar-year basis. Total return includes both income (in the form of dividends or interest payments) and capital gains or losses (the increase or decrease in the value of a security). Morningstar calculates total return by taking the change in a fund's NAV, assuming the reinvestment of all income and capital gains distributions (on the actual reinvestment date used by the fund) during the period, and then dividing by the initial NAV.

Unless marked as load-adjusted total returns, Morningstar does not adjust total return for sales charges or for redemption fees. Total returns do account for management, administrative, and 12b-1 fees and other costs automatically deducted from fund assets.

+/- Index
A benchmark index gives the investor a point of reference for evaluating a fund's performance. In all cases where such comparisons are made, Morningstar uses the S&P 500 as the primary benchmark for stock-oriented funds, and the Lehman Brothers Aggregate Bond index (an overall bond benchmark) as the benchmark index for bond funds. The +/- (Calendar Year) figure indicates the amount by which a fund over- or underperformed its primary index during a given calendar year.

Note: The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere.
+/- Category
The Morningstar category gives the investor a point of reference for evaluating a fund's performance. The +/- (Calendar Year) figure indicates the amount by which a fund over- or underperformed its category during a given calendar year.
% Rank in Category
This is the fund's total-return percentile rank for the specified calendar year relative to all funds that have the same Morningstar category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1. Percentile ranks within categories are most useful in those categories that have a large number of funds.

 

 

 Trailing Total Returns

 

All references to total return represent a fund's gains over a specified period of time. Total return includes both income (in the form of dividends or interest payments) and capital gains or losses (the increase or decrease in the value of a security). Morningstar calculates total return by taking the change in a fund's NAV, assuming the reinvestment of all income and capital gains distributions (on the actual reinvestment date used by the fund) during the period, and then dividing by the initial NAV.

Unless marked as load-adjusted total returns, Morningstar does not adjust total return for sales charges or for redemption fees. (Morningstar Return, Morningstar Risk-Adjusted Ratings, and the load-adjusted returns do incorporate those fees.) Total returns do account for management, administrative, and 12b-1 fees and other costs automatically deducted from fund assets.

+/- S&P 500
A benchmark index gives the investor a point of reference for evaluating a fund's performance. In all cases where such comparisons are made, Morningstar uses the S&P 500 as the primary benchmark for stock-oriented funds. The +/- (Trailing Time Period) figure indicates the amount by which a fund over or underperformed the S&P 500 during the specified time period.

Note: The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere.
% Rank in Category
This is the fund's total-return percentile rank for the specified time period relative to all funds that have the same Morningstar category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1. Percentile ranks within categories are most useful in those categories that have a large number of funds. 
   Historical Quarterly Returns
 

Quarterly returns break out a fund's performance over successive quarters of the calendar year. This can be useful in examining how volatile a fund has been over fairly short time periods.

Note: Adding up a fund's quarterly returns over the course of a year will not necessarily give you a number that equates with the fund's calendar-year return for that year. This is because of the effects of compounding returns over the course of a year.
 

 

 Tax Analysis

 

Pretax Return
See the trailing total returns definition above.

Tax-adjusted Return  
Tax-adjusted returns and tax cost ratio are estimates of the impact taxes have had on a fund. We assume the highest tax rate in calculating these figures. These returns follow the SEC guidelines for calculating returns before sale of shares. Tax-adjusted returns show a fund's annualized after tax total return for the three-, five-, and 10-year periods, excluding any capital-gains effects that would result from selling the fund at the end of the period. Fund loads are also subtracted from the figure. To determine this figure, all income and short-term capital gains distributions are taxed at the maximum federal rate at the time of distribution. Long-term capital gains are taxed at a 15% rate. The after tax portion is then assumed to be reinvested in the fund. State and local taxes are not included in our calculations. For tax-exempt funds, we only adjust for capital gains tax, as the income from these funds is almost always nontaxable.

For domestic stock funds, which report income that qualifies for a lower tax rate under the dividend tax cut enacted in 2003, we apply the lower rate consistent with that legislation. In practice, however, most fund companies do not specify if their distributions are eligible for this lower rate. Further NASDAQ, which supplies the raw daily data feed on distributions and NAVs for mutual funds, is not currently equipped to distinguish between income distributions that are eligible for the lower rate and those that are not. For funds that do not make such a distinction in their direct reports to us, we therefore must adjust their after-tax returns using the maximum federal rate. As a result, since most stock dividends qualify for a lower tax rate, some domestic stock funds with sizable yields may have understated after-tax returns in our system.

% Rank in Category
This is the fund's tax-adjusted total-return percentile rank for the specified time period relative to all funds that have the same Morningstar category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1. Percentile ranks within categories are most useful in those categories that have a large number of funds.  

Tax Cost Ratio
This represents the percentage-point reduction in an annualized return that results from income taxes. Mutual funds regularly distribute stock dividends, bond dividends and capital gains to their shareholders. Investors then must pay taxes on those distributions during the year they were received.

The tax cost ratio is a measure of how one factor can negatively impact performance. The ratio is usually concentrated in the range of 0-5%. 0% indicates that the fund had no taxable distributions and 5% indicates that the fund was less tax efficient.

For example, if a fund had a 2% tax cost ratio for the three-year time period, it means that on average each year, investors in that fund lost 2% of their assets to taxes. If the fund had a three-year annualized pre-tax return of 10%, an investor in the fund took home about 8% on an after-tax basis. (Because the returns are compounded, the after-tax return is actually 7.8%.)

Benefit
Per the SEC's guidance, after-tax returns reflect both tax effects and sales loads. The tax cost ratio isolates the effects of taxes alone.

Origin
Morningstar calculates the tax cost ratio on a monthly basis, using load-adjusted and tax-adjusted returns for different time periods.

Potential Capital Gains Exposure
Potential capital gain exposure is an estimate of the percent of a fund's assets that represent gains. Potential capital gain exposure measures how much the fund's assets have appreciated, and it can be an indicator of possible future capital gain distributions.

Benefits
Morningstar calculates potential capital gain exposure (PCGE) to give investors some idea of the potential tax consequences of their investment in a fund. PCGE measures the gains that have not yet been distributed to shareholders or taxed. It is especially relevant for investors who are considering a new purchase of a fund. If there are a lot of gains embedded in the fund, the investor may potentially receive capital gain distributions for gains that happened before they purchased the fund.

A positive PCGE means that the fund's holdings have generally increased in value. For example, if a fund started with $2,000, gained $500 and lost $100, the fund's PCGE would be 17%, i.e. the net $400 gain divided by the total net assets of $2,400. The fund can either continue to hold the securities that appreciated or it can sell them. When a fund sells a security at a gain, it must distribute substantially all of those gains to shareholders that year. Investors then must pay taxes on those gains. So, a high PCGE can indicate the potential for upcoming capital gain distributions.

A negative PCGE means that the fund has reported losses on its books. The fund may be able to use those losses to offset future gains, thereby reducing the possibility of a capital gain distribution. Thus, investors should expect funds with negative capital gain exposure to be highly tax-efficient going forward.

Origin
Morningstar uses data from the fund's annual report as the basis for potential capital gain exposure. To keep the calculation current, we update the information between shareholder reports by accounting for a fund's recent market losses or gains, the sale or redemption of shares, and the payment of capital gains. The updates are made with the net assets, capital gains, and share prices that are provided by the fund company. This data point is recalculated on a monthly basis. The figure is more of an estimate than the one based solely on data from the shareholder report, but it is more current and therefore more relevant to the investor.

   Investor Returns
 

Morningstar investor returns (also known as dollar-weighted returns) measure how the typical investor in that fund fared over time, incorporating the impact of cash inflows and outflows from purchases and sales. In contrast to total returns, investor returns account for all cash flows into and out of the fund to measure how the average investor performed over time. Investor return is calculated in a similar manner as internal rate of return. Investor return measures the compound growth rate in the value of all dollars invested in the fund over the evaluation period. Investor return is the growth rate that will link the beginning total net assets plus all intermediate cash flows to the ending total net assets.