Morningstar Introduces Fiduciary Grade for Mutual Funds
to Help Investors Identify Funds That Represent Industry
Best Practices

    CHICAGO, Aug. 24 /PRNewswire/ -- Morningstar, Inc., a leading provider of
independent investment research, today introduced a Fiduciary Grade for mutual
funds to help investors further research, identify, and compare fund managers
and fund companies that do a good job -- or a poor job -- of aligning their
interests with those of fund shareholders.  Morningstar fund analysts created
the grades to help investors assess the intangible traits of a fund --
including regulatory issues, the quality of a fund board, management
incentives, fees, and the firm's corporate culture -- that can make the
difference between a great investment and one to avoid.
    "Many investors begin their search for a fund by focusing on measurable,
tangible factors such as performance and volatility, but it's equally
important to consider the intangibles associated with making an investment
decision," said Kunal Kapoor, director of mutual fund analysis for
Morningstar.  "Our analysts have long considered these less-tangible factors
in an effort to help investors determine which fund companies do the best job
of safeguarding their interests.  We've included this type of information in
our written analyst commentaries for years, and now we're taking the next step
and presenting our research in a format that will make it easier for investors
to compare funds' corporate governance track records and identify the firms
that embody the industry's best practices."
    Initially, Morningstar is assigning letter grades from A (best) to F
(worst) to 500 of the largest mutual funds. The new Fiduciary Grades are based
on information compiled from public filings, responses to a detailed survey
Morningstar sent to each fund company, and Morningstar fund analyst research.
During the coming months, they will assign Fiduciary Grades to approximately
1,500 more funds.

    Components of the new Morningstar Fiduciary Grade for funds:

    -- Regulatory Issues
       Morningstar fund analysts examine any regulatory issues at the fund
       company during the past three years.  For any infraction indicating the
       advisor may not have upheld its fiduciary duty to fund shareholders,
       Morningstar reviews the remedies in place, as well as the firm's
       commitment to instituting meaningful reform.

    -- Board Quality
       As envisioned by the Investment Company Act of 1940, funds are
       corporations, and fund boards are in place to act as the vigorous
       representatives of fund shareholders.  To evaluate whether a fund's
       directors have delivered on that requirement, analysts examine whether
       directors are truly independent, oversee a manageable number of funds,
       have meaningful investments in the fund(s) they oversee, and take
       action to fix troubled funds, such as removing underperforming
       managers.

    -- Manager Incentives
       Morningstar analysts use proprietary survey information to determine
       whether a manager holds a significant investment in the fund he or she
       runs (defined as one third of his or her liquid net worth).  If it's
       not appropriate for a manager to make such an investment (for example,
       a manager who oversees a short-term bond fund), then Morningstar
       assesses whether the manager has at least one third of his or her
       liquid net worth in other funds at the same firm.  In addition,
       Morningstar analysts evaluate the compensation structure at each fund
       to determine whether incentives properly align management's interests
       with those of fund shareholders.  Specifically, analysts consider
       whether management compensation is based on short- or long-term
       performance, and/or pretax or aftertax returns.  Analysts also consider
       whether asset growth is a factor in computing a manager's compensation.

    -- Fees
       Analysts assess whether the fund's expense ratio is below average for
       its share class within its Morningstar Category.  They also determine
       whether fees decrease as assets grow and whether large or closed funds
       continue to charge 12b-1 fees.

    -- Corporate Culture
       Analysts consider a wide range of criteria to gauge how seriously a
       fund company takes its fiduciary duty to fund shareholders. Factors
       include the strength of shareholder communications; prudence of
       advertising and new fund launches, if any; use of redemption fees to
       discourage rapid trading; the firm's policy for closing funds and track
       record of doing so; retention of key personnel; and participation in
       so-called "soft-dollar" arrangements which mask costs that potentially
       erode fund returns.


    The Grading Process
    Each component is worth a maximum of two points, for a total of 10
possible points. Each component score corresponds to one of the following
qualitative terms:

     Excellent: 2 points
     Good: 1.5 points
     Fair: 1 point
     Poor: 0.5 point
     Very poor: Zero points or fewer (For the Regulatory Issues component
     only,  analysts may assign up to two negative points for serious breaches
     of fiduciary duty.)


    The overall Fiduciary Grade is based on the sum of the five component
scores as follows:

     A: 9 - 10 points
     B: 7 - 8.5 points
     C: 5 - 6.5 points
     D: 3 - 4.5 points
     F: 2.5 points or fewer


    Both the individual component scores and the overall Fiduciary Grade for
each fund can be found in the fund reports available to Premium Members of
http://www.Morningstar.com , the company's Web site for investors.  The
overall Fiduciary Grade will also be added to reports published in the twice-
monthly newsletter Morningstar(R) Mutual Funds(TM), and will be one of the
topics regularly discussed in the "Fund Company Watch" column in the monthly
newsletter Morningstar(R) FundInvestor(TM).

    The methodology for the Fiduciary Grade for funds is completely different
from the Morningstar Rating(TM) for funds (the "star rating"), and the new
Fiduciary Grade has no impact on a fund's star rating.  The Morningstar Rating
is a quantitative assessment of a fund's past performance -- both return and
risk -- as measured from 1 to 5 stars.  The Fiduciary Grade is determined
using some quantitative measures, but it is primarily based on qualitative
information gathered by Morningstar fund analysts.
    For Morningstar's "Fund Spy" commentary on the Fiduciary Grade, go to:
http://news.morningstar.com/doc/article/0,,115118,00.html .
    For a comprehensive review of the Fiduciary Grade methodology, go to:
http://news.morningstar.com/pdfs/fiduciarygrade.pdf .

    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 tracks
more than 100,000 investment offerings, including stocks, mutual funds, and
similar vehicles.  The company has operations in 16 countries.

    Contact:  Margaret Kirch Cohen, 312-696-6383,
               margaret.cohen@morningstar.com
              Kathy Habiger, 312-696-6241, kathy.habiger@morningstar.com