Dear Morningstar Clients,
This e-mail contains Morningstar Data Release Notes for November 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
*Quarterly Fund Category Review
*Stable Value Funds
*Price Ratio Methodology Change
*Risk Measures
*Database Update
RECAP OF PREVIOUS ANNOUNCEMENTS
*Hedge Fund Informational Website Launched
*Extended Performance Methodology Change
NEWS FROM MORNINGSTAR
*Morningstar Data License for Multiple Universes
*Data Questions
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Morningstar Data Release Notes � November 2004
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*Quarterly Fund Category Review
This quarter�s Category Review began on Nov. 12, with the appeal period running from Nov. 12 until Nov. 18. Complete details and instructions were sent via email on Nov. 12, and the new categories will be effective with November month-end processing. New categories and the resulting Morningstar Rating(TM) can be seen on our Websites on Dec. 3. This review will include all funds, using portfolio data through Sept. 30.
*Stable Value Funds
Between now and Dec. 31, 2004, Morningstar will re-categorize any open-end mutual funds in the Stable Value category and will eliminate the category from the open-end database. Many stable-value mutual funds are in the process of liquidating, merging with other funds, or changing their structure. These changes are in response to increased scrutiny from the SEC about the stable-value structure, which relies on insurance wrapper contracts to prevent fluctuations in the funds' net asset values. The SEC questioned whether fund companies could fairly value the insurance contracts and mutual funds on a daily basis.
This change only affects stable-value mutual funds that are registered under the Investment Company Act of 1940. Stable value separate accounts and commingled accounts will not be affected. These funds are frequently offered in retirement plans, which are under the supervision of the Labor Department (not the SEC). Morningstar will continue to track stable value funds in our custom and separate account databases.
*Price Ratio Methodology Change
Morningstar will make some slight revisions to the methodology for portfolio-level price ratios (P/E, P/B, P/S, P/C and dividend yield). These changes will go into effect March 31, 2005, rather than Dec. 31, 2004, as previously announced. These changes should provide a more accurate and complete picture of each portfolio�s holdings. Please see the methodology and FAQ documents below for more detail. This is a methodology change only and will not affect the format or structure of client files.
Morningstar will apply the new methodology to all portfolios dated on or after 3/31/2005. There will be a transition period when some funds have older portfolios (old methodology) while other funds have new portfolios (new methodology). We will not recalculate historical portfolios with the new methodology.
Please click here for the methodology document and FAQ:
http://datalab.morningstar.com/ClientComm/Morningstar_Price_Ratios.pdf
http://datalab.morningstar.com/ClientComm/Morningstar_Price_Ratios_FAQ.pdf
*Risk Measures
Effective Jan. 31, 2005, Morningstar will make some minor changes to the methods we use to calculate standard deviation, Sharpe Ratio, and Modern Portfolio Theory (MPT) statistics. We will be using the sample method instead of the population method for standard deviation and covariance. Also, we are changing how we annualize standard deviation, Sharpe Ratio, and alpha. Please note that this is a methodology change only and will not affect the format or structure of client files. Methodology papers for these statistics are now available:
http://datalab.morningstar.com/ClientComm/Morningstar_Standard_Deviation_Sharpe_Ratio.pdf
http://datalab.morningstar.com/ClientComm/Morningstar_MPT_Statistics.pdf
Average Market Cap: At this time, Morningstar will not be making any changes to our measure of average market cap. Morningstar currently calculates the average size of the stocks in a fund by taking the geometric average of the market caps of the underlying stocks.
*Database Update
As of September month-end processing, our open-end database contained more than 17,000 active funds. Our separate accounts database now covers 5,000 separate accounts and more than 1,000 managers. In addition, we are pleased to remind you that our 529 and ETF databases offer 100% coverage of these investment universes. Our database teams are committed to providing complete, high-quality coverage of the all data universes we maintain. Comprehensive coverage in our databases allows us to create the very best products for investors, advisors and institutional clients.
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Recap of Previous Announcements
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*Hedge Fund Informational Website Launched
Please visit http://corporate.morningstar.com/hedgefunds to learn about Morningstar's new hedge fund database, and how the information we collect will help investors and advisors make better decisions about investing in hedge funds. On the site, you�ll find a spreadsheet that can be downloaded to get your hedge funds listed in our database. We hope you�ll take a few minutes to browse through these pages, and we invite you to forward this URL to individuals involved in the hedge fund industry.
*Extended Performance Methodology Change
Effective Nov. 30, 2004, Morningstar will change the method for determining which share class is used as the �parent� for Extended Performance calculations. The share class with the oldest inception date is designated the parent. However, in cases where a portfolio has more than one share class with that inception date, rather than using net assets to determine the parent, we will now choose the parent share class based on the following sequence of share classes: A, B, C, Inst, D, Adv, Inv, Retirement, S, T, M, N, Other, No Load.
This change in methodology will not impact the format of the data. Data feed files including this information will not have structural changes that would require a testing period.
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News from Morningstar
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*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 information on how a Data License can help you provide innovative solutions to investors.
*Data Questions
Contact your account team or our data quality department:
Phone: 312-696-6600
Fax: 312-696-6019
E-mail: dataquestions@morningstar.com
Mailing address: Data Questions
Morningstar, Inc.
225 West Wacker Drive
Chicago, Illinois 60606
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