Time Periods: Last five calendar years.

Morningstar compares a stock or fund’s total return with that of the average of other stocks or funds in its peer group. A positive difference indicates the stock or fund outperformed its average peer by the indicated percentage, whereas a negative difference indicates the stock or fund underperformed its average peer by the indicated percentage.

Time Periods: Last five calendar years.

This figure represents the percentile rank the stock’s/fund’s return would have in its industry/category during the designated time frame. Returns are ranked from highest to lowest, with the best return having a 1% ranking and the worst a 100% ranking. These relative figures are a good way to locate stocks that out- or underperformed their peers during a certain time period.

Note: Cost per share displayed in Portfolio Manager is not the cost basis. The cost per share is simply to track the total amount of money you invested in your positions, and your average investment per share. Gain/Loss View in Portfolio Manager displays these costs and returns.

For mutual funds (and other managed-investment products), average credit quality gives a snapshot of the portfolio’s overall credit quality. It is an average of each bond’s credit rating, adjusted for its relative weighting in the portfolio. U.S. government bonds carry the highest credit rating, while bonds issued by speculative or bankrupt companies usually carry the lowest credit ratings. Anything at or below BB is considered a high-yield, or "junk", bond. For the purposes of Morningstar's calculations, U.S. government securities are considered AAA bonds, nonrated municipal bonds generally are classified as BBB, and other nonrated bonds generally are considered B.

Time Periods: Trailing 12 Months, Fiscal Year 1

Earnings per share is calculated by dividing net income by an average of the total shares outstanding for the year. This figure is a useful snapshot of how much a company earned in a given year, but it should always be looked at in the context of EPS figures for previous years. Note that per-share numbers are more useful than raw net income for cases where a company has issued a lot of new shares.

Time Periods: 1 Year, 3 Year

Earnings per share growth represents the compounded or annualized growth rate in a company’s earnings per share. The one-year growth rate is calculated from the end of the second fiscal year (FY2) through the most recently completed fiscal year (FY1); the three-year growth rate is calculated from the end of the fourth fiscal year (FY4) through the most recently completed fiscal year (FY1). Note that because it’s expressed on a per-share basis, growth in earnings per share takes into account dilution from new share issuances.

The idea of an economic moat refers to how likely a company is to keep competitors at bay for an extended period of time. One of the keys to finding superior long-term investments is buying companies that will be able to stay one step ahead of their competitors. The economic moat rating is meant to capture this characteristic—think of it as the strength and sustainability of a firm’s competitive advantage.

One of the first factors we consider when determining the size of a firm’s economic moat is the company’s historical financial performance. Companies that have generated returns on capital higher than their cost of capital for many years running usually have a moat, especially if their returns on capital have been rising or are fairly stable.

Of course, the past is often not a predictor of the future, so we look carefully at the source of a company’s excess economic profits before assigning a moat rating. For example, a competitive advantage created by a hot new technology usually isn’t very sustainable, because it won’t be too long until someone invents a better widget.

Here are some of the attributes that can give companies economic moats:

• Huge Market Share: When a firm enjoys economies of scale in areas such as manufacturing, sales, and marketing, it can be pretty tough for a competitor to catch up.

• Low-Cost Producer: The ability to produce products or services at a lower cost than competitors is an especially potent advantage in commodity industries.

• Patents, Copyrights, or Governmental Approvals and Licenses: Some companies generate enormous profits when the government artificially protects their products or markets.

• Unique Corporate Culture: Although you should be careful about placing too much emphasis on this attribute, since it’s such a “soft” method of determining competitive advantage, there’s no question corporate culture can make a difference.

•High Customer-Switching Costs: If a firm can make it tough for its customers to use a competitor, it’s usually easy to keep ratcheting prices up just a bit year after year—which can lead to big profits.

• The Network Effect: This is a relatively rare, but potentially quite potent, source of competitive advantage, and often applies to the first mover in an emerging technology. Since a network’s value increases as more people use it, the company that creates the network can create a massive economic moat.

Average effective maturity is a weighted average of all the effective maturities of the bonds in a portfolio. Effective maturity takes into consideration mortgage prepayments, puts, calls, adjustable coupons, and other features of individual bonds and is thus a more accurate measure of interest-rate sensitivity than nominal maturity. Longer-maturity funds are generally considered more interest-rate sensitive than their shorter counterparts.

Time Periods: Trailing 12 Months, Fiscal Year 1

Earnings per share from continuing operations is a company’s earnings per share from the day-to-day operations of its business. It does not include earnings from discontinued operations, extraordinary items, or accounting changes. EPS from continuing operations tends to be much more consistent and representative of a company’s true performance than final EPS, which is subject to manipulation by accounting rules.

Time Periods: 1 Year, 3 Year

Equity per share growth is the compounded or annualized growth rate per share in a company’s shareholders’ equity, or book value. Equity is a company’s total assets minus its total liabilities—in other words, what’s left over for shareholders. Equity growth per share shows how quickly shareholders’ stake in the company is growing. Thus, growth in equity per share is one of the key variables in determining if a company is increasing shareholder wealth over time. Note, too, that because it’s expressed on a per-share basis, equity growth per share takes into account dilution from new-share issuances.

The Morningstar style box is a nine-square grid that provides a graphical representation of the “investment style” of stocks and mutual funds. For stocks and stock funds, it classifies securities according to market capitalization (the vertical axis) and growth and value factors (the horizontal axis).

By providing an easy-to-understand visual representation of stock and fund characteristics, the Morningstar style box allows for informed comparisons and portfolio construction based on actual holdings, as opposed to assumptions based on a fund’s name or how it is marketed. The style box also forms the basis for Morningstar’s style-based fund categories and market indexes.

How It Works:

The vertical axis of the style box defines three size categories, or capitalization bands—small, mid-size, and large. The horizontal axis defines three style categories. Two of these categories, “value” and “growth,” are common to both stocks and funds. However, for stocks, the central column of the style box represents the core style (those stocks for which neither value nor growth characteristics dominate); for funds, it represents the blend style (a mixture of growth and value stocks or mostly core stocks).

In general, a growth-oriented fund will hold the stocks of companies the portfolio manager believes will increase earnings faster than the rest of the market. A value-oriented fund contains mostly stocks the manager thinks are currently undervalued in price and will eventually see their worth recognized by the market. A blend fund might be a mix of growth stocks and value stocks, or it may contain stocks that exhibit both characteristics.

Style box assignments begin at the individual stock level. Morningstar determines the investment style of each individual stock in its database. The style attributes of individual stocks are then used to determine the style classification of stock mutual funds.

Morningstar’s Fund Family Score was designed to give investors a measure of how well a firm has done as a whole in each of four possible asset classes.

We aggregate the star ratings earned by each of the family’s funds within the domestic stock, foreign stock, municipal bond, and taxable bond asset classes. The score is an asset-weighted average of a firm’s star ratings within those four classes. We use each fund’s asset level from three years ago in order to reflect investors’ actual recent experience at the firm.

The score is intended to be a check on the quality of a firm’s management in each asset class. A score of 2 or lower indicates that a firm has performed poorly in that asset class. This may signal the firm has structural problems such as weak research or high costs. Thus, a low fund family score indicates you should be wary of a fund even if the fund itself has a high rating.

The score is not intended to serve as a ranking among fund families. The law of averages dictates that a firm with a lot of funds in an asset class is more likely to have a fund family score near the average (3). Conversely, a smaller firm is more likely to have a score near the low or high end because only a few funds are being measured. If you want to compare fund family scores, be sure to do it using firms that offer a similar number of funds.

To generate Morningstar Business Risk, our analysts score companies on several risk factors:

• How cyclical is the company’s industry?

• How wide is the company’s economic moat?

• How strong is the company’s balance sheet?

• How does the company’s free cash flow compare with its sales?

• How sustainable is the company’s operating cash flow?

• How big is the company?

• Is there a nonfinancial issue that could materially affect the company’s fortunes?

The scores are summed to produce a composite score, which is translated into the ratings below average, average, above average, or speculative.

The stock star rating is calculated by comparing a stock’s current market price with Morningstar’s assessment of the stock’s fair value. A stock’s risk and economic moat are also considered. Thus, a stock with a lower risk score and a wider economic moat is likely to receive a higher star rating than a stock with a higher risk score and a smaller economic moat, given an equal discount (or premium) to fair value. Star ratings for stocks range from 1 (lowest) to 5 (highest).

Morningstar rates only stocks that our analysts have under full coverage. Ratings are updated using each day’s closing stock price and can therefore change daily. They can change because of a move in the stock’s price or a change in the analyst’s estimate of the stock’s fair value, risk rating, or economic moat rating—or any combination thereof. If the price of a stock our analysts cover falls significantly below $5, we generally will not rate the stock, because the low price will make the star rating too volatile to be meaningful.

Under Review
We may place a stock’s rating temporarily “under review” if a company releases significant news after the market’s close, and we need time to review our estimate of fair value. You can expect stocks that are “under review” to have a new Analyst Report and fair value estimate within a few days.

Pending
When we publish a new analysis during the trading day, the star rating and market price will display “pending” until after that day’s market close. We do this to obtain a stable reference price on which to base the star rating, which means waiting for a closing price to become available.

Morningstar Stewardship Grade for Stocks

Time Periods: 1 Year, 3 Year

Net income growth represents the annualized growth rate in a company’s net income. The one-year growth rate is calculated from the second fiscal year (FY2) to the most recently completed fiscal year (FY1); the three-year growth rate is calculated from the fourth fiscal year (FY4) to the most recently completed fiscal year (FY1). Net income growth shows how rapidly a company has been able to boost its “bottom line.” Growth investors might look for companies with net income growth of, say, 20% or more. If net income growth shows NMF, it means the company lost money in one of the years used in the growth-rate calculation, rendering any growth rate calculated meaningless. (NMF stands for no meaningful figure.)

Time Periods: Current, 5-Year Average

Price/book (P/B) is a stock’s most recent price divided by its most recent book value per share. By comparing the current price/book ratio with its five-year average P/B ratio, you can quickly see if the company is currently valued higher or lower than it has been historically.

Time Periods: Current, 3-Year Average

Price/cash flow is a stock’s most recent price divided by its cash-flow per share during the most recent fiscal year. For international stocks, price/cash flow can be a more meaningful figure than price/earnings. Because earnings are calculated in a variety of ways worldwide, price/cash flow minimizes accounting differences and provides a more consistent standard of valuation.

Time Periods: Current, 5-Year Average

Current P/E is a stock’s current price divided by the company’s trailing 12-month earnings per share. By looking at the five-year average P/E alongside the current P/E, you can quickly tell whether a company is currently valued above or below its average P/E.

Stocks:
A stock’s price/earnings is its current market price divided by consensus expectations for EPS from continuing operations for next year. Elsewhere, it is sometimes referred to as price/forward earnings. In any case, P/E is the multiple of earnings a buyer pays for a stock. Lower P/Es are generally desirable but must be weighed against the quality of the earnings and a company’s future prospects.

Funds:
A fund’s price/earnings is the inverse of the earnings yield figure calculated and used in determining equity style-box placement. It is very similar to an average of the price/earnings of the stocks a mutual fund holds, except that instead of aggregating P/Es, the numbers are inverted to E/Ps prior to aggregation. Also, when analyst expectations are lacking for next year’s EPS from continuing operations for individual stocks, these are projected using historic growth rates. Lower P/Es are generally desirable but must be weighed against the quality of the earnings and a company’s future prospects.

Time Periods: Current, 5-Year Average

Price/sales is a stock’s current price divided by its sales per share over the trailing 12 months. By comparing the current price/sales with its 5-Yr Average P/S, you can quickly tell whether a company is currently valued above or below its historical average P/S ratio. Because the denominator of P/S, sales, tends to be fairly steady, P/S is usually a less volatile price multiple than either P/E or P/B. Thus it can be an especially useful valuation measure for cyclicals or other companies with volatile earnings.

For a mutual fund (and other managed products), projected five-year earnings growth is one of the 10 factors that determine which section of the equity style box a fund falls into. It is essentially a weighted average of the five-year EPS growth estimates of each fund's stock holdings, though there are some refinements made in aggregating the underlying numbers.

Time Periods: 1 Month, 3 Month, 1 Year, 3 Year

The relative-strength statistic measures the price return of a stock versus the price return of the S&P 500 index for the designated time period. The higher the relative-strength figure, the better the stock has performed versus the index. A negative number indicates that the stock has underperformed the index. The actual number is calculated based on comparing how an investor would have done if he or she had invested $1,000 in the stock and $1,000 in the index. If an investor buys $1,000 worth of the stock and the index at the beginning of the period, and the stock returns 20% and the index returns 10%, the ending values are $1,200 for the stock and $1,100 for the index. We then divide the ending value of the stock investment by the ending value of the index investment. In this case: $1,200 divided by $1,100 or 1.09. We then subtract 1 and multiply by 100. In our example the relative strength would be 9.

Time Periods: YTD, 4 Week, 3 Month, 12 Month, 3 Year, 5 Year, 10 Year, 15 Year

Stocks:
Morningstar compares a stock’s total return with that of other stocks in the same industry. A percentile rank of 1 means the stock lands in the top percentile in terms of total return for that time period (i.e., it has performed better than 99% of the stocks with which it is compared).

Funds:
This is the fund’s total-return percentile rank relative to all funds that fall into the same Morningstar Category during the time period measured. 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. Data for 10 Year and 15 Year are as of the latest month-end.

Time Periods: YTD, 4 Week, 3 Month, 12 Month, 3 Year, 5 Year, 10 Year, 15 Year

Stocks:
Morningstar compares a stock’s total return with that of the average of other stocks in the same industry. A positive difference indicates the stock outperformed its average peer by the indicated percentage, whereas a negative difference indicates the stock underperformed its average peer by the indicated percentage.

Funds:
Morningstar compares a fund’s total return with that of the average of other funds in the same category. A positive difference indicates the fund outperformed its average peer by the indicated percentage whereas a negative difference indicates the fund underperformed its average peer by the indicated percentage. Data for 10 Year and 15 Year are as of the latest month-end.

Time Periods: 1 Year, 3 Year

Revenue growth represents the percentage growth in a company’s revenue over the trailing time period. Growth rates over a period of more than one year are annualized.

Stock industry indicates the primary market in which a company competes. Industries are more refined than stock sectors and are designed to describe more accurately exactly what a company’s business is. See stock sector for more information.

Fund category indicates the type of securities a fund holds or the segment of the market it focuses on. Morningstar fund categories are assigned based on the underlying securities in each portfolio. We place funds in a given category based on their portfolio statistics and compositions over the past three years. If the fund is new and has no portfolio history, we estimate where it will fall before giving it a more permanent category assignment. When necessary, we change category assignments based on recent changes to the portfolio.

Domestic-Stock Funds
Funds with at least 70% of assets in domestic stocks are categorized based on the style and size of the stocks they typically own. The style and size divisions reflect those used in the Morningstar investment style box: value, blend, or growth style, and small, medium, or large median market capitalization. See Equity Style Box for more details on style methodology.

Based on their investment style over the past three years, domestic-stock funds are placed in one of the nine categories: large growth, large blend, large value, mid-growth, mid-blend, mid-value, small growth, small blend, or small value. Domestic-equity funds that specialize in a particular sector of the market are placed in a specialty category: communications, financials, health care, natural resources, precious metals, real estate, technology, or utilities.

International-Stock Funds
Stock funds that have invested 40% or more of their equity holdings in foreign stocks (on average over the past three years) are placed in one of the following international-stock categories: Europe, Japan, Latin America, diversified Pacific/Asia, Pacific/Asia ex-Japan, or diversified emerging markets. There are also the following categories:

Foreign Large Value
These funds seek capital appreciation by investing in large international stocks that are value-oriented. Large-cap foreign stocks have market capitalizations greater than $5 billion. Value is defined based on low price-to-book and price-to-cash flow ratios, relative to the MSCI EAFE index. These funds typically will have less than 20% of assets invested in U.S. stocks.

Foreign Large Blend
These funds seek capital appreciation by investing in a variety of large international stocks. Large-cap foreign stocks have market capitalizations greater than $5 billion. The blend style is assigned to funds where neither growth nor value characteristics predominate. These funds typically will have less than 20% of assets invested in U.S. stocks.

Foreign Large Growth
These funds seek capital appreciation by investing in large international stocks that are growth-oriented. Large-cap foreign stocks have market capitalizations greater than 5 billion. Growth is defined based on high price-to-book and price-to-cash flow ratios, relative to the MSCI EAFE index. These funds typically will have less than 20% of assets invested in U.S. stocks.

Foreign Small/Mid Value
These funds seek capital appreciation by investing in small- and mid-sized international stocks that are value-oriented. Small-and mid-cap stocks have market capitalizations less than $5 billion. Value is defined based on low price-to-book and price-to-cash flow ratios, relative to the MSCI EAFE index. These funds typically will have less than 20% of assets invested in U.S. stocks.

Foreign Small/Mid Growth
These funds seek capital appreciation by investing in small- and mid-sized international stocks that are growth-oriented. Small-and mid-cap stocks have market capitalizations less than $5 billion. Growth is defined based on high price-to-book and price-to-cash flow ratios, relative to the MSCI EAFE index. These funds typically will have less than 20% of assets invested in U.S. stocks.

Aggressive Allocation (AL)
Aggressive-allocation portfolios seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds, and cash. These portfolios tend to hold larger positions in stocks than moderate-allocation portfolios. These portfolios typically have 70% to 90% of assets in equities and the remainder in fixed income and cash.

China Region (CH)
China region stock portfolios invest almost exclusively in stocks from China, Taiwan and Hong Kong. These portfolios invest at least 70% of total assets in equities and invest at least 75% of stock assets in one specific region or a combination of China, Taiwan and/or Hong Kong.

Market Neutral (NE)
Market neutral portfolios seek income while maintaining low correlation to fluctuations in market conditions. Market neutral portfolios typically have net equity exposure between -20% and 20% and a beta between -0.3 and 0.3.

World
World-stock funds have 20% to 60% of stocks invested in the United States.

World Allocation
World-allocation funds have both foreign stocks and domestic (and often foreign) bonds.

Bond Funds
Bond funds are divided into two main groups: taxable bond and municipal bond.

Taxable-Bond Funds
Taxable-bond funds fall into the following primary categories:

Long-Term Government
Intermediate-Term Government
Short-Term Government
Long-Term Bond
Intermediate-Term Bond
Short-Term Bond

The following are additional, less-common types of taxable-bond funds:

Ultrashort Bond
Ultrashort bonds take on very little interest-rate risk. To qualify for inclusion in this category, a fund must have an average duration or an average effective maturity of less than one year.

Bank Loan
Bank-loan funds invest primarily in floating-rate bank loans instead of bonds. In exchange for the extra credit risk they carry, these investments offer high interest payments that typically float above a common short-term benchmark.

World Bond
World-bond funds invest at least 40% of assets in foreign-market bonds.

Emerging-Markets Bond
These funds invest at least 65% of assets in emerging-markets bonds.

High-Yield Bond
High-yield funds invest at least 65% of assets in bonds rated below BBB.

Multisector Bond
This category includes funds that diversify their assets among several fixed-income sectors, usually U.S. government obligations, foreign bonds, and high-yield domestic-debt securities.

Municipal-Bond Funds
Municipal-bond funds, broadly speaking, either focus on bonds from a single state, in which case their income is exempt from both state and federal taxes, or invest in whichever states offer the most attractive opportunities. The latter are considered Muni-National funds and are divided into the following categories:

Municipal National Long-Term
Municipal National Intermediate-Term
Muni Short-Term
High-Yield Municipal

State-Specific Munis
Muni funds that focus on a single state are placed in one of the following categories:

Muni California Intermediate
Muni California Long-Term
Muni Florida
Muni Massachusetts
Muni Minnesota
Muni New Jersey
Muni New York Intermediate
Muni New York Long-Term
Muni Ohio Muni Pennsylvania

Muni funds that don’t focus on these states belong to either Muni Single State Int/Short or Muni Single State Long.

Municipal funds that invest predominantly in riskier high-yield debt are put into the High-Yield Muni category regardless of whether they are single state or national.

Balanced
The primary index for these categories is the Dow Jones Moderate Portfolio Index. This index has exposure to equities (generally around 60%), bonds (generally around 30%), and cash (generally around 10%). It also has exposure to both U.S. and international markets.

Convertibles, CV
Convertible-bond portfolios are designed to offer some of the capital-appreciation potential of stock portfolios while also supplying some of the safety and yield of bond portfolios. To do so, they focus on convertible bonds and convertible preferred stocks. Convertible bonds allow investors to convert the bonds into shares of stock, usually at a preset price. These securities thus act a bit like stocks and a bit like bonds.

Conservative Allocation, CA
Conservative-allocation portfolios seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds, and cash. These portfolios tend to hold smaller positions in stocks than moderate-allocation portfolios. These portfolios typically have 20% to 50% of assets in equities and 50% to 80% of assets in fixed income and cash

Moderate Allocation, MA
These portfolios tend to hold larger positions in stocks than conservative-allocation portfolios. These portfolios typically have 50% to 70% of assets in equities and the remainder in fixed income and cash.

Aggressive Allocation, AL
These portfolios tend to hold larger positions in stocks than moderate-allocation portfolios. These portfolios typically have 70% to 90% of assets in equities and the remainder in fixed income and cash.

World Allocation, IH
World-allocation portfolios seek to provide both capital appreciation and income by investing in three major areas: stocks, bonds, and cash. While these portfolios do explore the whole world, most of them focus on the U.S.,Canada, Japan, and the larger markets in Europe. It is rare for such portfolios to invest more than 10% of their assets in emerging markets. These portfolios typically have at least 10% of assets in bonds, less than 70% of assets in stocks, and at least 40% of assets in non-U.S. stocks or bonds.
Target-date portfolios provide diversified exposure to stocks, bonds, and cash for those investors who have specific date in mind for retirement or another goal.  These portfolios aim to provide investors with an optimal level of return and risk, based solely on the target date.  These portfolios get more conservative as the goal date approaches by investing more in bonds and cash.  Investment managers structure these portfolios differently; two funds with the same goal may different allocations to equities and therefore different levels of return and risk.

Target-Date 2000-2010

Target –Date 2011-2015

Target-Date 2016-2020

Target-Date 2021-2025

Target-Date 2026+

Retirement Income, RI
Retirement income portfolios provide a mix of stocks, bonds, and cash for those investors already in or entering retirement. These portfolios tend to be managed to more of a conservative asset-allocation strategy. These portfolios aim to provide investors with steady income throughout retirement.

Alternative

Bear Market, BM
These funds dedicate a majority of the fund’s assets to equities. Most of the portfolio is dedicated to short stock positions in an attempt to take advantage of anticipated market or stock declines producing a net exposure to equities of less than or equal to negative 20%. Some managers invest the proceeds from their short positions in low-risk assets, while others dedicate a portion to long stock positions in order to hedge against broad market rallies. In the event of a broad market rally, these funds will lose money on their short positions but will experience a gain on their long positions. Short positions typically account for 60% to 85% of fund assets, although some managers may be 100% short. These funds will typically have a beta of less than negative 0.3 to equity indexes such as the S&P 500 or MSCI World.

Currency, CR
Currency portfolios invest in multiple currencies through the use of short-term money market instruments; derivative instruments including and not limited to forward currency contracts, index swaps, and options; and cash deposits. These funds include both systematic currency traders and discretionary traders.

Long-Short Equity, LO
Long-short portfolios hold sizable stakes in both long and short positions in equities and related derivatives. Some funds that fall into this category will shift their exposure to long and short positions depending on their macro outlook or the opportunities they uncover through bottom-up research. Some funds may simply hedge long stock positions through exchange-traded funds or derivatives. At least 75% of the assets are in equity securities or derivatives.

Market Neutral, NE
These funds attempt to reduce systematic risk created by factors such as exposures to sectors, market-cap ranges, investment styles, currencies, and/or countries. They try to achieve this by matching short positions within each area against long positions. These strategies are often managed as beta-neutral, dollar-neutral, or sector-neutral. A distinguishing feature of funds in this category is that they typically have low beta exposures (< 0.3 in absolute value) to market indexes such as MSCI World. In attempting to reduce systematic risk, these funds put the emphasis on issue selection, with profits dependent on their ability to sell short and buy long the correct securities.

Multialternative, AM
These funds offer investors exposure to several different alternative investment tactics. Funds in this category have a majority of their assets exposed to alternative strategies. An investor’s exposure to different tactics may change slightly over time in response to market movements. Funds in this category include both funds with static allocations to alternative strategies and funds tactically allocating among alternative strategies and asset classes. Average Gross short exposures is greater than 20%.

Equity Precious Metals, SP
Precious-metals portfolios focus on mining stocks, though some do own small amounts of gold bullion. Most portfolios concentrate on gold-mining stocks, but some have significant exposure to silver-, platinum-, and base-metal-mining stocks as well. Precious-metals companies are typically based in North America, Australia, or South Africa.

Managed Futures, FF
These funds primarily trade liquid global futures, options, swaps, and foreign exchange contracts, both listed and over-the-counter. A majority of these funds follow trend-following, price-momentum strategies. Other strategies included in this category are systematic mean-reversion, discretionary global macro strategies, commodity index tracking, and other futures strategies. More than 60% of the fund's exposure is invested through derivative securities. These funds obtain exposure primarily through derivatives; the holdings are largely cash instruments.

Volatility, VY
Volatility strategies trade volatility as an asset class. Directional volatility strategies aim to profit from the trend in the implied volatility embedded in derivatives referencing other asset classes. Volatility arbitrage seeks to profit from the implied volatility discrepancies between related securities.

Trading-Leveraged Commodities, LC
These funds seek to generate returns equal to a fixed multiple of short-term returns of a commodity index. The compounding of short-term returns results in performance that does not correspond to those of investing in the index with external leverage. For example, a fund attempting to achieve 2 times the returns of a given index on a daily basis is unlikely to deliver anything like 2 times the index’s returns over periods longer than one day. Many of these funds seek to generate a multiple of the daily or weekly return of the reference index. Trading funds are not considered suitable for a long-term investor and are designed to be used by traders.

Trading-Inverse Commodities, IC
These funds seek to generate returns equal to an inverse multiple of short-term returns of a commodity index. The compounding of short-term returns results in performance that does not correspond to those of investing in the index with external leverage. For example, a fund attempting to achieve negative 2 times the returns of a given index on a daily basis is unlikely to deliver anything like negative 2 times the index’s returns over periods longer than one day. Many of these funds seek to generate a multiple typically negative 1 to negative 3 times of the daily or weekly return of the reference index. Trading funds are not considered suitable for a long-term investor and are designed to be used by active traders.

Trading-Leveraged Debt, GD
These funds seek to generate returns equal to a fixed multiple of the short-term returns of a fixed-income index. The compounding of short-term returns results in performance that does not correspond to those of investing in the index with external leverage. For example, a fund attempting to achieve 2 times the returns of a given index on a daily basis is unlikely to deliver anything like 2 times the index’s returns over periods longer than one day. Many of these funds seek to generate a multiple of the daily or weekly return of the reference index. Trading funds are not considered suitable for a long-term investor and are designed to be used by active traders.

Trading-Inverse Debt, IT
These funds seek to generate returns equal to an inverse fixed multiple of short-term returns of a fixed-income index. The compounding of short-term returns results in performance that does not correspond to those of investing in the index with external leverage. For example, a fund attempting to achieve negative 2 times the returns of a given index on a daily basis is unlikely to deliver anything like negative 2 times the index’s returns over periods longer than one day. Many of these funds seek to generate a multiple typically negative 1 to negative 3 times of the daily or weekly return of the reference index. Trading funds are not considered suitable for a long-term investor and are designed to be used by active traders.

Trading-Leveraged Equity, LE
These funds seek to generate returns equal to a fixed multiple of the short-term returns of an equity index. The compounding of short-term returns results in performance that does not correspond to those of investing in the index with external leverage. For example, a fund attempting to achieve 2 times the returns of a given index on a daily basis is unlikely to deliver anything like 2 times the index’s returns over periods longer than one day. Many of these funds seek to generate a multiple of the daily or weekly return of the reference index. Trading funds are not considered suitable for a long-term investor and are designed to be used by active traders.

Trading-Inverse Equity, IE
These funds seek to generate returns equal to an inverse fixed multiple of short-term returns of an equity index. The compounding of short-term returns results in performance that does not correspond to those of investing in the index with external leverage. For example, a fund attempting to achieve negative 2 times the returns of a given index on a daily basis is unlikely to deliver anything like negative 2 times the index’s returns over periods longer than one day. Many of these funds seek to generate a multiple typically negative 1 to negative 3 times the daily or weekly return of the reference index. Trading funds are not considered suitable for a long-term investor and are designed to be used by active traders.

Trading-Miscellaneous, TS
These funds seek to generate returns equal to a fixed multiple (positive or negative) of short-term returns of an index. The reference index for this category is not equity, fixed-income, or commodity linked. The compounding of short-term returns results in performance that does not correspond to those of investing in the index with external leverage. For example, a fund attempting to achieve 2 times the returns of a given index on a daily basis is unlikely to deliver anything like 2 times the index’s returns over periods longer than one day. Many of these funds seek to generate a multiple of the daily or weekly return of the reference index. Trading funds are not considered suitable for a long-term investor and are designed to be used by active traders.

Commodities

Commodities Focused
These funds invest in agriculture, energy, industrial metals, and precious metals. Investment can be made directly in physical assets or commodity-linked derivative instruments.

Commodities Broad Basket, BB
Broad-basket portfolios can invest in a diversified basket of commodity goods including but not limited to grains, minerals, metals, livestock, cotton, oils, sugar, coffee, and cocoa. Investment can be made directly in physical assets or commodity-linked derivative instruments, such as commodity swap agreements.

Commodities Miscellaneous, CM
Miscellaneous portfolios invest in a specific commodity that does not fit into any of Morningstar’s existing commodity categories and for which not enough funds exist to merit the creation of a separate category.

Morningstar divides the stock market into three broad super sectors (see Stock Super Sector entry), each of which contains four specific industry sectors. Sectors are based on what companies actually do. That is, unlike some other sector classification systems, sectors aren't based on the expected behavior of the stocks of these companies. The sectors are as follows:

Software
Companies engaged in the design and marketing of computer operating systems and applications. Examples include Microsoft, Oracle, and Siebel Systems.

Hardware
Manufacturers of computer equipment, communication equipment, semiconductors, and components. Examples include IBM, Cisco Systems, and Intel.

Media
Companies that own and operate broadcast networks and those that create content or provide it to other media companies. Examples include AOL Time Warner, Walt Disney, and The Washington Post.

Telecommunication
Companies that provide communication services using fixed-line networks or those that provide wireless access and services. Examples include SBC Communications, AT&T, and Alltel.

Health Care Services
Includes biotechnology, pharmaceuticals, research services, HMOs, home health, hospitals, medical equipment and supplies, and assisted living companies. Examples include Abbott Laboratories, Merck, and Cardinal Health.

Consumer Services
Includes retail stores, personal services, homebuilders, home supply, travel and entertainment companies, and educational providers. Examples include Wal-Mart, Home Depot, and Expedia.

Business Services
Includes advertising, printing, publishing, business support, consultants, employment, engineering and construction, security services, waste management, distributors, and transportation companies. Examples include Manpower, R. H. Donnelley, and Southwest Airlines.

Financial Services
Includes banks, finance companies, money management firms, savings and loans, securities brokers, and insurance companies. Examples include Citigroup, Washington Mutual, and Fannie Mae.

Consumer Goods
Companies that manufacture or provide food, beverages, household and personal products, apparel, shoes, textiles, autos and auto parts, consumer electronics, luxury goods, packaging, and tobacco. Examples include PepsiCo, Ford Motor, and Kraft Foods.

Industrial Materials
Includes aerospace and defense firms, and companies that provide or manufacture chemicals, machinery, building materials, and commodities. Examples include Boeing, DuPont, and Alcoa.

Energy
Companies that produce or refine oil and gas, oil field service and equipment companies, and pipeline operators. Examples include ExxonMobil, Schlumberger, and BP Amoco.

Utilities
Electric, gas, and water utilities. Examples include Duke Energy, Exelon, and El Paso.

Morningstar divides most stocks into eight type designations: distressed, hard asset, cyclical, speculative growth, aggressive growth, classic growth, slow growth, and high yield. Each designation defines a broad category of stocks by investment characteristics. Stocks are assigned to a type based on objective financial criteria according to a proprietary Morningstar algorithm, so stocks of the same type have similar economic fundamentals. Every stock has individual idiosyncrasies, but in general, when evaluating investments, many of the same concerns and evaluation methods will apply across the stocks in one type.

One benefit of stock types is that they help you quickly determine the diversification level of your portfolio. For instance, you might discover that most of your holdings are categorized as speculative growth. If you want to lessen the portfolio’s risk, you could invest in other types of stocks.

You may notice that some stocks in our database do not have stock types. This is because they do not meet the criteria needed to fit into any of the stock type categories.

Detailed descriptions of the different stock types follow:

Distressed
These companies are having serious operating problems. This could mean declining cash flow, negative earnings, high debt, or some combination of these. Such “turnaround” stocks tend to be highly risky but are sometimes intriguing investments.

Hard Asset
These companies’ main business revolves around the ownership or exploitation of hard assets such as real estate, metals, timber, etc. Such companies typically sport a low correlation with the overall stock market, and investors sometimes look to them as a hedge against inflation.

Cyclical
Cyclical companies’ core business can be expected to fluctuate in line with the overall economy. In a booming economy such companies will look excellent; in a recession, their growth often stalls and they might even lose money.

Speculative Growth
Don’t expect consistency from speculative-growth companies. Their profits are at best spotty. At worst they lose money. In fact, many companies never make it beyond speculative growth, going instead to bankruptcy court. That’s why they’re speculative. But current profitability isn’t what makes speculative-growth companies interesting—it’s their prospects for future profits. Hopefully, a speculative-growth company will eventually blossom into a world-class firm.

Aggressive Growth
Aggressive-growth companies show a bit more maturity than their speculative-growth counterparts: They post rapid growth in profits, not just in sales—a sign of more staying power. At this point, it’s time to make some money.

Classic Growth
These firms are in their prime and have little left to prove. The best classic growers have blossomed into money machines, churning out steady growth, high returns on capital, positive free cash flows, and rising dividends. The catch is, their growth is nowhere near that of the aggressive-growth group.

Slow Growth and High Yield
The growth of these companies is a fading memory. Having run out of attractive investment opportunities, most of them pay out the bulk of their earnings in dividends rather than plow the profits back into their businesses.

While there may be an aging process for companies, there’s not one for stocks. Investors such as Warren Buffet have focused on finding great stocks in and around the classic-growth category—companies such as Coca-Cola and American Express. Peter Lynch was more eclectic, investing in everything from speculative growth—Dunkin’ Donuts and Pep Boys—to slow growth—DaimlerChrysler. Most of us would want a smattering of companies from across the spectrum. By putting each company in context and paying special attention to how it measures up against others in its age bracket, we can do just that.

Time Periods: 3 Year, 5 Year, 10 Year, 15 Year

This represents the percentage-point reduction in an annualized return that results from income taxes. The calculation assumes investors pay the maximum federal rate on capital gains and ordinary income. For example, if a fund made short-term capital-gains and income distributions that averaged 10% of its NAV over the past three years, an investor in the 35% tax bracket would have a tax cost ratio of 3.5 percentage points. (The 35% tax rate was used for illustrative purposes because, according to current tax law, the maximum income-tax rate will fall to that level. However, our tax-cost calculation uses the maximum income-tax rate that applied during the year in which the distribution was made.)

Time Periods: YTD, 1 Week, 4 Week, 3 Month, 12 Month, 3 Year, 5 Year, 10 Year, 15 Year

Stocks:
Trailing returns represent shareholders’ gain or loss from a stock over a given period of time. Returns include both capital gains and losses (the increase or decrease in the stock price) and income (in the form of dividend payments). They are calculated by taking the change in the stock’s price, reinvesting all dividends, dividing by the initial stock price, and expressing the result as a percentage. Returns for periods longer than one year are annualized.

Funds:
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. Data for 10 Year and 15 Year are as of the latest month-end.