Morningstar Rating System

System for rating open- and closed-end mutual funds, exchange-traded funds (ETFS), separately managed accounts (SMAs), and annuities by Morningstar Inc. Of Chicago. The system rates funds from one to five stars, using a risk-adjusted performance rating in which performance equals total return of the fund. The system rates funds assessing down-side risk, which is linked to the three-month U.S. Treasury bill. If a fund underperforms the Treasury bill, it will lower the fund's rating. The score is plotted on a bell curve, and is applied to four distinct categories: all equities, fixed income, hybrids, municipals. The top 10% receive five stars; the top 22.5%, four stars; the top 35%, three stars; the bottom 22.5%, two stars; and the bottom 10%, one star. Morningstar is a subscription-based company, offering its ratings in binders, software, and CD-ROM form. It sells its data to America Online and Realities Telescan Analyzer and other databases, as well as metropolitan newspapers. Morningstar also sells information on U.S. Equities and American Depositary Receipts (ADRs), but star ratings are not calculated for them.