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Mutual Fund Quarterly Report

A guide to mutual fund categories

October 11, 2009

These tables rank the top-performing stock and bond mutual funds for the third quarter of 2009 for each of the main investment categories as defined by research firm Morningstar Inc., which provided the data for these tables. The tables of top-performing funds are followed by individual performance figures for 5,400 mutual funds, organized by fund company.

Stock funds

Most of the mutual funds that invest in the stocks of U.S. companies are sorted by Morningstar into nine broad categories. First, the funds are categorized by the average market capitalization (or "cap") of the stocks they own: large-cap, mid-cap or small-cap. (A stock's capitalization is its share price times the number of shares outstanding.)

The funds are further categorized by their basic investment objective: growth, value or a blend of the two. Among other criteria, growth-oriented funds tend to focus on stocks of companies that have, or are expected to have, robust earnings growth. Value funds look for stocks that appear to be underpriced relative to the underlying value of the company.

In the tables, these broad categories are identified as large-cap growth (LG), mid-cap growth (MG), small-cap growth (SG), large-cap blend (LB), mid-cap blend (MB), small-cap blend (SB), large-cap value (LV), mid-cap value (MV) and small-cap value (SV).

Stock funds that invest more than 80% of their assets in foreign stocks are subdivided into five categories: foreign large-cap value (FV), foreign large-cap blend (FB), foreign large-cap growth (FG), foreign small/mid-cap value (FA) and foreign small/mid-cap growth (FR).

Other stock funds are categorized as follows:

* Specialty funds: These invest primarily in companies within a single industry or sector. The specialty categories are: communications (SC), financial (SF), health (SH), natural resources (SN), precious metals (SP), real estate (SR), technology (ST) and utilities (SU).

* Bear-market funds (BM): These funds use strategies, such as short-selling and put options, specifically designed to profit from falling stock prices.

* Moderate and conservative allocation (MA and CA): This includes funds that invest in a mix of stocks, bonds and cash. Conservative-allocation funds have at least 20% of their assets invested in stocks and 50% to 80% invested in fixed-income securities and cash. Moderate-allocation funds have 50% to 70% of their assets invested in stocks and more than 10% invested in fixed income.

* Convertibles (CV): These funds invest in bonds and preferred stocks that can be converted to common stocks.

* World (WS): These funds invest 40% to 80% of assets in foreign stocks and 20% to 60% of assets in U.S. stocks.

* World allocation (IH): This category invests in a mix of stocks and bonds, of which at least 40% is foreign.

* Europe (ES): At least 80% of assets are invested in Europe.

* Pacific/Asia (PJ): At least 70% of assets are invested in Pacific Rim countries, with less than 10% invested in Japan.

* Japan (JS): At least 75% of assets are invested in Japan.

* Diversified emerging markets (EM): At least 50% of assets are invested in emerging markets -- generally defined as fast-growing economies.

* Latin America (LS): At least 75% of assets are invested in Latin America.

* Global real estate (GR): These invest primarily in non-U.S. real estate securities, including debt and equity.

* Diversified Pacific/Asia (DP): At least 40% of assets are invested in Pacific Rim countries, with an additional 10% or more invested in Japan.

* Long-short (LO): These funds take long positions in stocks deemed attractive and short positions in securities considered likely to decline.

* Target-date funds: Each of these funds is designed for people who expect to retire at about the same time. The funds invest in stocks, bonds and cash, with their asset mixes gradually becoming more conservative as the target date approaches. The categories in this group include: target date 2000-2010 (TA), target date 2011-2015 (TD), target date 2016-2020 (TE), target date 2021-2025 (TG), target date 2026-2030 (TH), target date 2031-2035 (TI) and target date 2036-2040 (TJ). The most conservative category in this group is retirement income (RI), which is for investors already in or entering retirement.

Bond funds

Bond funds are broadly divided based on how their dividends are taxed. The interest from taxable bond funds is subject to federal income tax, while the interest from municipal bond funds is generally exempt from federal -- and sometimes state -- income taxes. Within these broad groupings, bond funds are categorized as follows:

* Long-term government (GL): At least 90% of the bond portfolio is invested in U.S. government issues with an average effective duration of more than six years. A bond's duration largely depends on its time to maturity.

* Intermediate-term government (GI): At least 90% of the bond portfolio is invested in U.S. government issues with an average effective duration of at least 3 1/2 to six years.

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