Morningstar Category

While the investment objective stated in a fund’s prospectus may or may not reflect how the fund actually invests, the Morningstar category is assigned based on the underlying securities in each portfolio. Morningstar categories help investors and investment professionals make meaningful comparisons between funds. The categories make it easier to build well-diversified portfolios, assess potential risk, and identify top-performing funds. 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 may change a category assignment based on recent changes to the portfolio.

Stock Funds

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, medium growth, medium blend, medium value, small growth, small blend, small value. Domestic-equity funds that specialize in a particular sector of the market are placed in a specialty category: communications, consumer discretionary, consumer staples, equity energy (funds that hold stocks of energy companies), financials, health care, industrials, natural resources, real estate, technology, utilities, and miscellaneous.

Also see Conservative Allocation and Moderate Allocation in the Balanced Funds section below.

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 an international-stock category.

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/book and price/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/book and price/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/book and price/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/book and price/cash-flow ratios, relative to the MSCI EAFE Index. These funds typically will have less than 20% of assets invested in U.S. stocks.

World Stock. an international fund having more than 20% of stocks invested in the United States.

Diversified Emerging Markets. at least 50% of stocks invested in emerging markets.

Diversified Pacific Asia. at least 65% of stocks invested in Pacific countries, with at least an additional 10% of stocks invested in Japan.

Asia/Pacific ex-Japan. at least 75% of stocks invested in Pacific countries, with less than 10% of stocks invested in Japan.

China Region. 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.

Broad Asset Class Index: MSCI EAFE NR USD

Category Index: Russell China TR USD

Europe. at least 75% of stocks invested in Europe.

Japan. at least 75% of stocks invested in Japan.

Latin America. at least 75% of stocks invested in Latin America.

Global Real Estate. Global real estate portfolios invest primarily in non-U.S. real estate securities but may also invest in U.S. real estate securities. Securities that these portfolios purchase include: debt and equity securities, convertible securities, and securities issued by real estate investment trusts (REITs) and REIT-like entities. Portfolios in this category also invest in real-estate operating companies.

Also see World Allocation in the Balanced Funds section below.

Bond Funds

Funds with 80% or more of their assets invested in bonds are classified as bond funds. Bond funds are divided into two main groups: taxable bond and municipal bond. (Note: For all bond funds, maturity figures are used only when duration figures are unavailable.)

Taxable-Bond Funds

Long-Term Government. A fund with at least 90% of its bond portfolio invested in government issues with a duration of greater than or equal to six years or an average effective maturity of greater than 10 years.

Intermediate-Term Government. A fund with at least 90% of its bond portfolio invested in government issues with a duration of greater than or equal to 3.5 years and less than six years or an average effective maturity of greater than or equal to four years and less than 10 years.

Short-Term Government. A fund with at least 90% of its bond portfolio invested in government issues with a duration of greater than or equal to one year and less than 3.5 years, or average effective maturity of greater than or equal to one year and less than four years.

Long-Term Bond. A fund that focuses on corporate and other investment-grade issues with an average duration of more than six years, or an average effective maturity of more than 10 years.

Intermediate-Term Bond. A fund that focuses on corporate, government, foreign or other issues with an average duration of greater than or equal to 3.5 years but less than or equal to six years, or an average effective maturity of more than four years but less than 10 years.

Short-Term Bond. A fund that focuses on corporate and other investment-grade issues with an average duration of more than one year but less than 3.5 years, or an average effective maturity of more than one year but less than four years.

Ultrashort Bond. Used for funds with an average duration or an average effective maturity of less than one year. This category includes general- and government-bond funds, and excludes any international, convertible, multisector, and high-yield bond funds.

High-Yield Bond. A fund with at least 65% of assets in bonds rated below BBB.

World Bond. A fund that invests at least 40% of bonds in foreign markets.

Emerging-Markets Bond. at least 65% assets in emerging-markets bonds.

Multisector Bond. Used for funds that seek income by diversifying their assets among several fixed-income sectors, usually U.S. government obligations, foreign bonds, and high-yield domestic debt securities.

Inflation-Protected Bond. Inflation-protected bond portfolios invest primarily in debt securities that adjust their principal values in line with the rate of inflation. These bonds can be issued by any organization, but the U.S. Treasury is currently the largest issuer for these types of securities.

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

Corporate Bond :Corporate Bond portfolios concentrate on bonds issued by corporations. These tend to have more credit risk than government or agency-backed bonds. These portfolios hold more than 65% of their assets in corporate bonds, hold less than 40% of their assets in foreign bonds, less than 35% in high yield bonds, and have an effective duration of more than 75% of the Morningstar Core Bond Index.

Category Group Index: Barclays US Agg Bond TR USD

Category Index: Barclays US Corp IG TR USD

Preferred Stock. Preferred stock portfolios concentrate on preferred stocks and perpetual bonds. These portfolios tend to have more credit risk than government or agency backed bonds, and effective duration longer than other bond portfolios. These portfolios hold more than 65% of assets in preferred stocks and perpetual bonds.

Category Group Index: Barclays US Agg Bond TR USD

Category Index: BofAML Preferred Stock Fixed Rate TR

Municipal Bond Funds

Municipal National Long-Term. A national fund with an average duration of more than seven years, or average maturity of more than 12 years.

Municipal National Intermediate-Term. A national fund with an average duration of more than 4.5 years but less than seven years, or average maturity of more than five years but less than 12 years.

Municipal Short. A fund that focuses on municipal debt/bonds with an average duration of less than 4.5 years, or an average maturity of less than five years.

State-specific munis. A municipal bond fund that primarily invest in one specific state. These funds must have at least 80 percent of assets invested in municipal bonds from that state. Each state-specific muni category includes long, intermediate, and short duration bond funds. State-specific funds that do not fall into one of the below categories will occupy either the Muni Single State Long-Term or Muni Single State Intermediate category. Muni California Intermediate

Muni California Long-Term

Muni Massachusetts

Muni Minnesota

Muni New Jersey

Muni New York Intermediate

Muni New York Long-Term

Muni Ohio

Muni Pennsylvania

High Yield Muni. A fund that invest at least 50 percent of assets in high-income municipal securities that are not rated or that are rated by a major rating agency at the level of BBB (considered speculative in the municipal industry) or below.

Balanced Funds

Funds in these categories offer investors a mix of stocks and bonds to provide capital appreciation, income, diversification, or specific allocations based on planned retirement dates. This group also includes funds that invest in convertibles, which act a bit like stocks and a bit like bonds.

Convertibles. 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. 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. Moderate-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 conservative-allocation portfolios. These portfolios typically have 50% to 70% of assets in equities and the remainder in fixed income and cash.

Aggressive Allocation: 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.

Broad Asset Class Index: Morningstar Moderate Target Risk

Category Index: Morningstar Aggressive Target Risk

World Allocation. 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. Target-date portfolios provide a diversified exposure to stocks, bonds, and cash for those investors who have a specific date in 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. Over time, management adjusts the allocation among asset classes to more conservative mixes as the target date approaches. Morningstar divides target-date funds into the following categories:

Target-Date 2000-2010

Target-Date 2011-2015

Target-Date 2016-2020

Target-Date 2021-2025

Target-Date 2026-2030

Target-Date 2031-2035

Target-Date 2036-2040

Target-Date 2041-2045

Target-Date 2050+

Retirement Income

Tactical Allocation. Tactical Allocation portfolios seek to provide capital appreciation and income by actively shifting allocations between asset classes. These portfolios have material shifts across equity regions, and bond sectors on a frequent basis. To qualify for the Tactical Allocation category, the fund must first meet the requirements to be considered in an allocation category. Next, the fund must historically demonstrate material shifts within the primary asset classes either through a gradual shift over three years or through a series of material shifts on a quarterly basis. The cumulative asset class exposure changes must exceed 10% over the measurement period.

Category Group Index: Morningstar Moderate Target Risk

Category Index: Morningstar Moderately Aggr Target Risk

Alternative

Alternative funds may take short positions or invest in currencies, derivatives, or other instruments. Funds in this group may attempt to move in the opposite direction of the market or may have performance that is not correlated with the broader markets.

Bear Market. Bear-market portfolios invest in short positions and derivatives in order to profit from stocks that drop in price. Because these portfolios often have extensive holdings in shorts or puts, their returns generally move in the opposite direction of the benchmark index.

Currency. Currency portfolios invest in U.S. and foreign 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.

Long-Short. Long-short portfolios hold sizable stakes in both long and short positions. Some funds that fall into this category are market neutral—dividing their exposure equally between long and short positions in an attempt to earn a modest return that is not tied to the market’s fortunes. Other portfolios that are not market neutral will shift their exposure to long and short positions depending upon their macro outlook or the opportunities they uncover through bottom-up research.

Market Neutral. 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.

Broad Asset Class Index: ML USD LIBOR 3 Mon CM

Category Index: IA SBBI US 30 Day TBill TR USD

Specialty-Precious Metals. Specialty-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.

Broad Asset Class Index: S&P 500 TR

Category Index: S&P Diversified Trends Indicator TR

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%.

Broad Asset Class Index: S&P 500

Category Index: BarCap US AggBond TR

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.

Broad Asset Class Index: S&P 500 TR

Category Index: DJ UBS Commodity TR

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.

Broad Asset Class Index: S&P 500 TR

Category Index: BofAML USD Libor 3 Mon CM

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.

Broad Asset Class Index: S&P 500 TR

Category Index: BofAML USD Libor 3 Mon CM

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.

Broad Asset Class Index: S&P 500 TR

Category Index: DJ UBS Commodity TR

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.

Broad Asset Class Index: S&P 500 TR

Category Index: BofAML USD Libor 3 Mon CM

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.

Broad Asset Class Index: BarCap US AggBond TR

Category Index: BofAML USD Libor 3 Mon CM

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.

Broad Asset Class Index: BarCap US AggBond TR

Category Index: BofAML USD Libor 3 Mon CM

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.

Broad Asset Class Index: S&P 500 TR

Category Index: S&P VIX Mid Term Futures TR

Morningstar Rating for Funds

Morningstar rates mutual funds from one to five stars based on how well they’ve performed (after adjusting for risk and accounting for all sales charges) in comparison to similar funds. Within each Morningstar Category, the top 10% of funds receive five stars, the next 22.5% four stars, the middle 35% three stars, the next 22.5% two stars, and the bottom 10% receive one star. Funds are rated for up to three time periods—three-, five-, and 10 years—and these ratings are combined to produce an overall rating. Funds with less than three years of history are not rated. Ratings are objective, based entirely on a mathematical evaluation of past performance. They’re a useful tool for identifying funds worthy of further research, but shouldn’t be considered buy or sell recommendations.

NAV

A fund’s net asset value (NAV) represents its per-share price. A fund’s NAV is derived by dividing the total net assets of the fund, less fees and expenses, by the number of shares outstanding.

Day Change

The change in the price of the fund during the prior business day.

Total Assets

This figure is recorded in millions of dollars and represents the fund’s total asset base.

Expense Ratio %

This is the percentage of fund assets paid for operating expenses and management fees. The expense ratio typically includes the following types of fees: accounting, administrator, advisor, auditor, board of directors, custodial, distribution (12b-1), legal, organizational, professional, registration, shareholder reporting, sub-advisor, and transfer agency. The expense ratio does not reflect the fund’s brokerage costs or any investor sales charges.

Fund expenses (net of waivers and reimbursements) are subtracted from the fund’s assets on a daily basis. This causes the expense ratio to be accrued evenly, with little daily effect to the fund’s NAV. Most companies associated with the fund, such as the investment advisor, are actually paid on a monthly basis.

For most funds, the Expense Ratio that appears in the Snapshot view is pulled from the fund’s audited annual report. Annual-report expense ratios reflect the actual fees charged during a particular fiscal year.

For funds of funds only, the Snapshot Expense Ratio is the prospectus expense ratio from the fund’s most recent prospectus. The prospectus expense ratio reflects material changes to the expense structure for the current period and is the aggregate expense ratio as defined as the sum of the wrap or sponsor fees plus the estimated weighted average of the underlying fund fees.

Funds of Funds — The prospectus expense ratio for a fund of funds is the aggregate expense ratio as defined as the sum of the wrap or sponsor fees plus the estimated weighted average of the underlying fund fees.

Benefits

The expense ratio is useful because it shows the actual amount that a fund takes out of its assets each year to cover its expenses. Investors should note not only the current expense-ratio figure, but also the trend in these expenses; it could prove useful to know whether a fund is becoming cheaper or more costly. When considering high expenses vs. low expenses, potential investors must also consider the fund’s objective and its size. Certain objectives, such as foreign-equity funds, have higher costs and, therefore, higher expense ratios. As for size, smaller funds are normally costlier than larger funds, because they do not have the benefits of economies of scale.