These terms appear in the generated Hypothetical Report. They are listed in alphabetical order.
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Annual (Asset-based) Fee
This is a charge that is assessed periodically based upon the current market value of the portfolio/security. A wrap fee is a common type of annual fee charged on wrap accounts. Wrap accounts typically offer a group of services to investors, such as management, advisory, and brokerage services, for a regularly assessed fee-normally one to three percent of total assets per year.
In accounting for annual fees, you can specify whether the fee is to be treated as if paid out of pocket or whether shares of securities will be sold to pay fee. Further, if shares are sold to pay the fees, you can opt to have them first satisfied from the sale of any cash equivalents that may be included in your portfolio illustration.
If you assume that shares are to be sold to satisfy the fees, the market value of the portfolio will decline each time a fee is assessed. Because the market value declines, return will also decline.
On the other hand, if you opt to pay fees out of pocket, the market value will not be reduced when the fee is assessed. Morningstar will treat the fee as a cash flow from the investor. As a result, the return of the portfolio will be reduced even though the ending market value is not impacted. If an annual fee is assessed on the portfolio end date, it is subtracted from the Final Market Value in the Investment Summary. In this case, it is not added to the Total Investment. The rationale for this special treatment of out-of-pocket fees on the portfolio end date is that when looking at final values, investors want to know the net proceeds or value of their portfolio. When annual fees are paid out of pocket, they are added to the Net Dollars Invested (which represents the investor’s out-of-pocket cost of investing) and they are added to the investment value in the graph.
Average Annualized Return
As with all internal rate of return calculations, it takes into account the timing and cash flow of dollars into the portfolio or security, and fits a return to that pattern of returns. Annual fees and taxes that are paid out of pocket are considered cash flows from the investor.
Beginning Balance
This is the amount of money invested in the portfolio at the beginning of the time period listed in the Period column.
Capital Gains (Individual Hypothetical)
This is the percentage of the total market value of the holding that is attributable to the reinvestment of capital gains distributions.
Capital Gain Tax Rate
See Tax Rates.
Charges and Fees
The sum of fees charged to the investor during the period, including front- or deferred loads, VA charges, and annual fees.
Cumulative Return
The total return earned by the hypothetical portfolio over the entire investment time period. This figure is adjusted for options such as fees or taxes selected by the user. This figure is an internal rate of return. It takes into account the timing and cash flow of dollars into the portfolio or security, and fits a return to that pattern of returns. Annual fees and taxes that are paid out of pocket are considered cash flows from the investor.
Deferred Load Amount %
Also known as back-end sales charges, these loads are imposed when investors redeem shares. The percentage charged generally declines the longer shares are held. The initial amount and final amount of the deferred load are listed under Amount %.
The number of years it takes for the deferred load to decline to the final amount is listed under Over. This charge is often coupled with 12b-1 fees as an alternative to a traditional front-end load.
Distribution/Withdrl
This is the total amount taken out of the portfolio for the period listed in the Period column. It includes the sum of all dividend distributions, both income and capital gains, that were not reinvested and the sum of all investment withdrawals by the investor. The figure includes liquidations and is net of fees and sales charges.
Federal Income Tax Rate
See Tax Rates
Final Market Value
This number is the market value of the portfolio at the end of the time period shown based on the number of shares remaining in the investment selections and their price on that date. The number of shares remaining reflects all options selected by the investor, including sales charges, reinvestment of dividends and capital gains, taxes, and whether or not the portfolio has been liquidated.
For all positions liquidated on the portfolio end date, the proceeds are included in this figure. Also, this figure may differ from the last Market Value figure in the Investment Detail area of the report because any tax payments and wrap fee charges levied on the portfolio end date are subtracted here.
Holding Period
The range of time covered by the report. It includes the Start date and the End date. The Start date is the date a given investment began, and the End date is the last date covered by the report.
Income (Individual Hypothetical Illustration)
This is the percentage of the total market value of the holding that is attributable to the reinvestment of income or dividend distributions.
Initial Investment
The amount of money invested on a given investment's start date.
Investment Summary Graph
The investment summary graph plots the approximate market value of the security or portfolio over the investing horizon. It may also include the net dollars invested in the illustration and/or a benchmark. Net Dollars Invested includes dollar inflows and outflows to the investor, including inflows representing taxes and wrap fees paid out of pocket.
If a benchmark index is included on a graph, it assumes a similar pattern of investment/withdrawal as for the security or portfolio. Transaction costs are not applied to the benchmark index. Note that direct investment in an index is not possible. Indexes are unmanaged portfolios representing different asset classes, with varying levels of associated risk. The benchmark index included in the graph may or may not represent an appropriate or accurate comparison with the security or portfolio illustrated.
Liquidate
This means the investor will sell all shares of a mutual fund or stock investment on the Holding Period End date. If investors liquidate their portfolios, then taxes, deferred sales charges, and redemption fees will all be deducted from the portfolios.
Market Value
This number is the market value of the portfolio at the end of the time period shown based on the number of shares remaining in the investment selections and their price on that date. The number of shares remaining reflects all options selected by the investor, including sales charges, reinvestment of dividends and capital gains, taxes, and whether or not the portfolio has been liquidated.
Median (Hypothetical Comparison)
The total money-weighted return (internal rate of return) of the median security in the illustration for the calendar year indicated.
Net Dollars Invested
The net out-of-pocket expense for the investor. Includes new investment and annual fees and taxes due paid out of pocket. This figure is net of withdrawals, including liquidation.
New Investment
This is the total amount invested in the portfolio during the specified time period listed in the Period column. New Investment does not include the effects of sales charges.
Period
The calendar period for which portfolio information is shown. Purchase %/$ (Stocks)-Expressed in dollars or as a percentage, this is the commission paid for purchasing a stock investment.
Principal (Individual Hypothetical)
The percentage of the total market value of the holding that is attributable to new investment.
Rebalance (Planning Assumptions)
Indicates whether rebalancing is used, and its frequency. "No" indicates no rebalancing. Options for rebalancing frequency are monthly, quarterly, semi-annually, and annually.
Rebalance (Investment Assumptions)
Percentage of total asset allocation to be maintained in this holding through rebalancing.
Reinvest Distributions (MF, Stocks)
This indicates whether the illustration assumed the reinvestment of income and/or capital gains distributions from the security.
Sale%$
Expressed in dollars or as a percentage, this is the commission paid for purchasing shares of stock.
Sales Charges
The charges deducted from an investment upon purchase or sale. In the Investment Detail portion of the hypothetical report, the figure under Sales Charge is the sum of all sales charges for the time period specified in the Period column. This figure includes loads, commissions, wrap fees, contract charges, surrender charges, and redemption fees.
Securities Returns (Comparison Hypothetical)
The total money-weighted return (internal rate of return) for the holding in the calendar year indicated, taking into account cash flows, charges, and fees.
Standardized Returns
For fund holdings, the standardized total return is the total return adjusted for sales charges. For variable annuity products, standardized total return is the total return adjusted to reflect contract-level charges such as surrender charges, contract fees, and loads.
State Tax Rate
See Tax Rates
Subsequent Investment/Withdrawal
The amount, type, and frequency of subsequent investments or withdrawals from the holding. Withdrawals are represented by a negative number. Systematic investments and withdrawals may be made monthly, quarterly, semi-annually, or annually. If "Custom" is listed, a custom schedule of investments or withdrawals was used.
Surrender Charge
Surrender charges are levied by the insurance company when an investor withdraws money in excess of the acceptable amount before the specified date.
Usually, the surrender charge is expressed as a percentage of the amount of the money that is either withdrawn or surrendered, and is generally imposed on the premiums paid and not the gains.
Because the surrender charge usually declines over time, it typically reaches 0% after a number of years. This information is taken directly from the contract's prospectus.
Tax Rates
The rates at which an investor's dividends, income, and capital gains distributions will be taxed in the illustration. There is a separate tax rate for Income distributions, which includes dividend and income distributions, and Capital Gains distributions.
Taxes Due
The total amount of taxes due from the investor, determined by applying specified tax rates to distributions during the previous year and capital gains (losses) resulting from sale of shares during the previous calendar year. Taxes due are calculated on April 15 of each year.
Tax Paid
This identifies whether taxes were assumed to be paid out of pocket or by selling shares to raise the cash to pay taxes.
Total Reinvest
The sum of distributions being reinvested during the period.
Total Return %
The total money-weighted return (internal rate of return) on investments for the period.
Totals
The first row of the Investment Detail portion of the hypothetical report shows the sum of each column of data for the portfolio. The data in the Totals row reflects the entire time period covered by the hypothetical report.
Wrap Fee
This is a charge for a special type of investment program called a wrap account. Wrap accounts typically offer a group of services to investors, such as management, advisory, and brokerage services, for a regularly assessed fee-normally one to three percent of total assets per year.
In accounting for wrap fees, if investors pay the fees out of their own pockets rather than by selling shares, portfolio market values are not affected by the inclusion of wrap fees. There is one exception: if a wrap fee occurs on the portfolio end date, it is subtracted from the Final Market Value in the Investment Summary. In this case, it is not added to the Net Dollars Invested. The rationale for this special treatment of wrap fees on the portfolio end date is that when looking at final values, investors want to know the net proceeds or value of their portfolio.
Note: Total returns do reflect the additional cost incurred by the investor in paying the wrap fee. Also, because wrap fees are treated as additional investments, they are added to the investment value in the graph.
See Also