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Kathy Panagopouloskathy.panagopoulos@morningstar.com
Morningstar Announces Five New Fund Categories, One Broad Asset Class

CHICAGO, March 3, 2006 – Morningstar, Inc. has added five new categories and one broad asset class to its proprietary classification system for mutual fund portfolios based in the United States. Morningstar added the new categories to help investors find funds that use distinct investing strategies and provide better peer group comparisons among funds in each category.

The new mutual fund categories are:
· Long-Short: These funds hold sizable stakes in both long and short positions. Some funds in this category are “market neutral,” which means they divide their exposure equally between long and short positions in an attempt to earn a modest return that is not tied to the market’s fortunes. Other portfolios that are not market neutral will shift their exposure to long and short positions depending upon their macro outlook or the opportunities they uncover through bottom-up research.
· Inflation-Protected Bond: These funds invest primarily in debt securities that adjust their principal values in line with the rate of inflation. Most of the funds in this category display price volatility similar to that of intermediate and long-term bond funds.  These bonds can be issued by any entity, but the U.S. Treasury is currently the largest issuer for these types of securities.
· Target-Date 2000-2014, Target-Date 2015-2029 and Target-Date 2030+:
Part of the growing universe of “target-maturity” offerings, these funds are designed to provide diversified exposure to stocks, bonds, and cash for those investors who have a specific date in mind for retirement or another goal. These portfolios aim to provide investors with an optimal level of return and risk, based solely on the target date. Over time, management adjusts the allocation among asset classes to make the portfolio more conservative as the target date approaches.

Morningstar is also adding a “Balanced” broad asset class to its current set of four broad asset classes: U.S. Stock, International Stock, Taxable Bond and Municipal Bond. Broad asset classes are used to help investors narrow a search for funds; they do not impact the Morningstar® Rating for funds. The Balanced broad asset class includes the following categories: Conservative Allocation, Moderate Allocation, World Allocation, Convertibles and the three new target-date categories.    

Russel Kinnel, director of mutual fund research for Morningstar, said, “During the past few years, new investment strategies have emerged and have grown in popularity with investors.  Long-short funds give individual investors access to a new diversification tool, and inflation-protected funds help limit the losses caused by inflation in a bond portfolio. Target-date funds adjust their asset allocation over time, so investors don’t have to do it manually. The new fund categories will help investors identify these funds and evaluate them against one another.”
 
The Morningstar Categories were introduced in 1996 to classify funds based on how funds actually invest. Rather than assign a category to a fund based on the objective stated in its prospectus, Morningstar analyzes the fund’s underlying holdings. Funds are placed in a given category based on their average portfolio statistics during the past three years.

About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in the United States and in major international markets. The company offers an extensive line of Internet, software, and print-based products and services for individuals, financial advisors, and institutions. Morningstar provides data on more than 145,000 investment offerings, including stocks, mutual funds, and similar vehicles. The company has operations in 16 countries.

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©2006 Morningstar, Inc. All rights reserved.

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