This article describes the Morningstar Category and delivers a glossary of Morningstar terminology.

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 might 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
> Financials
> Health care
> Natural resources
> Precious metals
> Real estate
> Technology
> Utilities
> Convertible bond
> Domestic hybrid

(Precious-metals funds are assigned star ratings in the international-stock asset class.)

•  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.
Europe: Funds with at least 75% of stocks invested in Europe.

Japan: Funds with at least 75% of stocks invested in Japan.

Latin America: Funds with at least 75% of stocks invested in Latin America.

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

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

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

Foreign: An international fund having no more than 10% of stocks invested in the United States.

World: An international fund having more than 10% of stocks invested in the United States.

International Hybrid: Used for funds with stock holdings of greater than 20% but less than 70% of the portfolio where 40% of the stocks and bonds are foreign.

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 funds and municipal bond funds. (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 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: 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 six years, or an average effective maturity of more than four but 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.

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

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

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

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.

• 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 New York Long-Term: A fund with at least 80% of assets in New York municipal debt, with average duration of more than seven years, or an average maturity of more than 12 years.

Municipal New York Intermediate-Term: A fund with at least 80% of assets in New York municipal debt, with an average duration of between 4.5 years and seven years.

Municipal California Long-Term: A fund with at least 80% of assets in California municipal debt, with average duration of more than seven years, or an average maturity of more than 12 years.

Municipal California Intermediate-Term: A fund with at least 80% of assets in California municipal debt, with an average duration of between 4.5 years and seven years.

Municipal Single-State Long-Term: A single-state fund with an average duration of more than seven years, or average maturity of more than 12 years.

Municipal Single-State Intermediate-Term: A single-state 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 Bond Short-Term (national and single state): 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.


In the event you are in need of additional assistance with financial terminology, go to Yahoo!'s financial glossary.