Dear Morningstar Clients,
This e-mail contains Morningstar Data Release Notes for January 2005. 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
*Risk Measures
*Effective Maturity for Muni Bond Funds
*Frequently Asked Data Questions
*Morningstar Acquires VARDS Unit from Finetre
RECAP OF PREVIOUS ANNOUNCEMENTS
*Full-Month Returns for Funds' Inception Months
*Stable Value Funds
*Price Ratio Methodology Change Postponed
NEWS FROM MORNINGSTAR
*Morningstar at Industry Shows
*Data Questions
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Morningstar Data Release Notes � January 2005
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*Risk Measures
As previously announced, Morningstar is planning to make some minor changes to the methods we use to calculate standard deviation, Sharpe Ratio, and Modern Portfolio Theory (MPT) statistics. These changes will occur on Feb. 28, 2005. 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
*Effective Maturity for Muni Bond Funds
Morningstar surveys fund managers for credit quality, maturity, and duration data on fixed income funds. Beginning with March 31 portfolios, Morningstar will collect and report effective maturity across all fund categories. Previously, we collected and reported effective maturity for all categories except municipal bond funds, where we collected and reported nominal maturity. This change will allow a more direct comparison of fixed income funds across categories.
*Frequently Asked Data Questions
As you know, Morningstar established the Data Questions hotline as an additional point of contact to report issues with Morningstar data, or to ask questions. Answers to some of the more frequently asked questions have been posted on our Web site here: http://www.morningstar.com/Help/Data.html. We will continue to post the more frequently asked questions in this area. The contact information for the Data Questions hotline can be found at the bottom of this newsletter.
*Morningstar Acquires VARDS Unit from Finetre
Morningstar has acquired Finetre�s VARDS unit and we are especially pleased about the complementary nature of the two databases. Morningstar significantly enhanced our VA data in 2003 and integrating the VARDS database further strengthens Morningstar�s coverage of contract, assets and sales flows data. Morningstar will continue to support the VARDS Online product, a web-based research tool that is used by most firms that offer variable annuity products. In addition, the two firms agreed to integrate the VARDS Web-based research products with Finetre�s AnnuityNet platform. The planned integration will provide brokers with access to information and research in real time as they complete transactions.
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Recap of Previous Announcements
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*Full-Month Returns for Funds' Inception Months
Effective Feb. 28, 2005, Morningstar will no longer calculate a full-month return for a fund's inception month when that fund incepted on the first business day of the month. For example, if a fund started on Monday, Oct. 2, 2000, Morningstar calculated a one-month return on Oct. 31, 2000, a one-year return on Sept. 30, 2001, and a Morningstar Rating on Sept. 30, 2003. After the change, this fund's first full and complete month of performance will be Oct. 31, 2000 to Nov. 30, 2000 and it will be eligible for five-year returns on Oct. 31, 2005. About 25% of share classes will be affected by this change. This change only affects performance statistics calculated through a month-end; it does not affect since-inception returns or returns calculated on a daily basis.
*Stable Value Funds
As previously announced, Morningstar has re-categorized all open-end mutual funds in the Stable Value category. Fund companies have been changing the investment mandates for these funds in response to increased scrutiny from the SEC about the stable-value structure. While Morningstar has eliminated the category for open-end investments, we will continue to support the category in our custom and separate account databases. Morningstar will use the Short-Term Bond category as a proxy for assigning Morningstar Ratings and percentile ranks to stable value custom funds. (Morningstar rates and ranks custom funds against the most similar open-end category.)
*Price Ratio Methodology Change Postponed
Morningstar had planned to make some changes to the methodology for portfolio-level price ratios (P/E, P/B, P/S, P/C and dividend yield) on March 31, 2005. In order to accommodate other scheduled changes and quarter-end projects, we have postponed this project. We will provide a new roll-out date when it is available.
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News from Morningstar
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*Morningstar at Industry Shows
Morningstar will attend the P&I/Defined Contribution show at the Doral Marriott in Miami, Florida, on Feb. 23-25. We will also participate in the National Association for Variable Annuities Marketing Conference at the Westin La Paloma in Tucson, Arizona, Feb. 27 through March 2.
*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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