Dear Morningstar Clients,
This e-mail contains Morningstar Data Release Notes for July 2004. As always, we invite your comments and questions on our communications, products and services. Please contact any member of your account team. Thank you.
Your Morningstar Team
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IN THIS ISSUE
*Next Quarterly Fund Category Review
*Indexes added for MPT Statistics Calculations
*Regional Breakdown Modified
*Country Assignments for Stocks
*Style Box Scores for ADRs
RECAP OF PREVIOUS ANNOUNCEMENTS
*Additional After-Tax Return Calculation for ETFs
*Corporate Governance Grade Surveys
*Additions to Best-Fit Indexes List
NEWS FROM MORNINGSTAR
*Exchange-Traded Fund Licensed Content
*Morningstar Licensed Data Available for Multiple Universes
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Morningstar Data Release Notes - July 2004
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*Fund Category Review
The next quarterly Category Review will begin on August 13, with the appeal period running from August 16 through August 20. Complete details and instructions will be sent via e-mail on August 13, and the new categories will be effective with August month-end processing. New categories and the resulting Morningstar Rating(TM) can be seen on our Websites on September 3.
This review will include new funds with one year of history or less, and will use portfolio data through June 30, 2004. (Established funds with more than one year of history are reviewed semi-annually and will be assessed in November 2004.)
This review will also include funds in the five foreign style-based categories (Foreign Large Value, Foreign Large Blend, etc.), using the 10-factor Morningstar Style Box model recently expanded for use globally.
Please click here for a complete list of Morningstar Categories and their definitions:
http://datalab.morningstar.com/ClientComm/Morningstar_Categories_64.pdf
*Additional Indexes for MPT Stats
Effective July 30, 2004, Morningstar will expand the list of indexes used for regression in calculating our standard Modern Portfolio Theory statistics. Going forward, Morningstar will regress all domestic stock funds against the S&P 500 Index, all international stock funds against the MSCI EAFE Index, all taxable bond funds against the LB Aggregate Index, and all municipal bond funds against the Lehman Brothers Municipal Bond Index. This change should allow for more meaningful standard MPT statistics for both the international stock and municipal bond broad asset classes.
*Regional Breakdown Modified
Effective August 31, 2004, Morningstar will be making some slight changes to our regional breakdown. We will combine "Africa, developed" and "Africa, emerging" into one region, and create a region for the Middle East. For clients who do custom mapping or hardcode the countries/regions, please note there have been some other minor changes to how the countries map to the regions. If you need more information about where certain countries are mapped, please contact your account team.
The changes include:
*A new region for the Middle East;
*Organizing Europe by euro currency and development status, rather than by east vs. west;
*Organizing Asia by development status;
*Changes to the names of some regions (e.g. "Central and Latin America" will be renamed "Latin America");
*Changes to how some countries map into the regions (e.g. Cyprus now maps to Europe ex-euro, rather than Emerging Europe).
Current Revised as of Aug. 31
1. United States United States
2. Canada Canada
3. Central & Latin America Latin America
4. United Kingdom United Kingdom
5. Western Europe � Euro Eurozone
6. W. Europe - non-euro � Ex UK Europe ex-euro
7. Eastern Europe � emrg Europe emrg
8. Africa � Dev Africa
9. Africa � Emrg Middle East
10. Japan Japan
11. Australasia Australasia
12. Asia � 4 Tigers Asia dev
13. Asia � ex 4 Tigers � Emrg Asia emrg
From time to time, these 13 regions are rolled up into 10 (1+2 = North America, 5+6=Europe dev, 8+9=Africa/Middle East).
*Country Assignments for Stocks
Effective July 30, 2004, where the data is available, Morningstar will use the location of a stock�s primary exchange as the country assignment for that stock. Morningstar uses this data to calculate the country breakdown and region breakdown for each fund. Previously, we used each stock�s legal domicile as the country assignment for that stock. This change will result in more intuitive results for country and region breakdown in those cases where funds own stocks that have incorporated offshore to receive tax benefits.
*Style Box Scores for ADRs
Effective July 30, 2004, Morningstar will begin to incorporate Style Box scores for ADRs into the style assignment for a portfolio. Each month-end, Morningstar assigns a style box score to all primary share classes of stocks, according to Morningstar�s proprietary style methodology. Morningstar will use the style assignment for the primary share class as a proxy for the related ADRs. This enhancement will allow for greater coverage of a portfolio�s assets for the Style Box, Style Mix, and Market Cap breakdown.
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Recap of Previous Announcements
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*Additional After-Tax Calculation for Exchange-Traded Funds
Effective June 30, Morningstar began to calculate an after-tax return based on market returns for ETFs. This is in addition to our current after-tax calculation on the NAV returns. Although differences between the market and NAV returns are slight, this change will accommodate those instances when there is a difference between the two.
*Corporate Governance Grade Surveys
As previously announced, Morningstar fund analysts will introduce a new measure of corporate governance, and have begun to survey for some of the information necessary to calculate this measure. Survey forms will be sent to all fund families by year-end. If you have not yet received your survey, please expect to see it in the coming months. The corporate governance grade is intended to help investors better judge the "shareholder friendliness" of the people and companies behind the funds in which they invest. This new measure will focus on five areas: regulatory issues, independence of boards, manager compensation, fees, and overall corporate culture. These individual measures will be combined to arrive at a final grade. Please click here to read an article outlining our process from Morningstar�s FundInvestor newsletter.
http://datalab.morningstar.com/ClientComm/FundInvestorCorpGovern.pdf
*Additions to Best-Fit Index List
On June 30, we added the nine Morningstar equity indexes to our best-fit list. Please click here for an updated copy of the list:
http://datalab.morningstar.com/ClientComm/Best_Fit_Index_List_Jun_04.pdf
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News from Morningstar
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*License ETF Content and Compare Tool for your Website
Morningstar's comprehensive Investment Profiles(TM) are a true one-stop source for unbiased and timely data and research. Please click here for a sample:
http://poweredby.morningstar.com/quicktake/standard/client/shell/SAMPLE.html?ticker=QQQ&CN=SAMPLE&view=snapshot&valid=NO&set=new
In addition, help investors evaluate and compare ETFs with Morningstar�s Compare Tool. The compare tool sorts on a wide variety of performance and style-based criteria, and each listing links directly to an ETF profile to provide more in-depth data and analysis:
http://screen.morningstar.com/etf/Lists/ETFStyleNameAscAllLgVal.html
*Morningstar Data License for Multiple Universes
A Morningstar Data License allows you to use Morningstar�s data and proprietary statistics like the Morningstar Rating(TM) and Style Box(TM) to inform and educate your investors. Multiply the power of your message by using consistent data and Morningstar statistics across ETFs, mutual funds, money market funds, stocks, 529 plans, variable annuities and separate accounts � and more. Please contact your account team for more information on how a Data License can help you provide innovative solutions to investors.
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