Morningstar’s Top-Rated Funds

With more than 10,000 mutual funds to choose from, many investors cringe at the task of making selections. With today’s special quarterly fund report, The Times and independent research firm Morningstar Inc. provide several ways to evaluate funds---including measurements designed to help investors determine a particular fund’s performance not only overall, but also relative to its peers.

The tables on the next three pages list the best-performing funds in each of Morningstar’s major fund categories over the last three years (ended March 31), as determined by the firm’s propriety rating system. That three-year period includes bull markets as well as the sharp decline in the third quarter of 1998. Only funds with the three years of history are included.

Here’s how the funds were ranked:

First, each fund has a “category rating” (Cat. Rtg.) a number between 1 and 5, with 5 being the best. This rating represents Morningstar’s assessment of how well the fund achieved its three-year returns relative to the amount of risk it took, compared with its category peers.

Second, within each category rating score (i.e., first the 5s, then the 4s, etc.) funds are ranked by actual three-year performance within the category as a whole, expressed as a percentile figure (1 to 100, with 1 being best). That is the “three-year rank” column.

For funds with multiple classes (i.e., A and B shares, etc.) only the best-performing class is included.

To determine order, ties in the first two columns were broken by manager tenure.

The more familiar Morningstar three-year “star” rating appears in the third column. The number of stars (again, on the scale of 1 to 5, with 5 being the best) is an assessment of performance and level of risk for that fund compared against its broader group: domestic stock funds, international stock funds, taxable bond funds or tax-free (muni) bond funds. See more detailed information below.

A word about categories:

Morningstar does not categorize funds based solely on a fund’s self-description. Rather, it also looks at each fund’s actual holdings to determine category.

The largest groups of funds are domestic equity funds, which Morningstar organizes by the average size (market capitalization) of stocks owned and by a fund’s general investment philosophy. These appear on the next page.

Want to see how other funds shape up? Appearing after these four pages are listings of the 4,500 largest mutual funds, listed by family names from A to Z, with category type, rankings and performance data for each. Also listed are funds’ telephone numbers---most are toll-free. (Some top-rated funds here are not among the 4,500 largest on S18-20. A small number of late-reporting funds are not ranked.)

Short List: Best Performers Among Top-Rated Funds

These three tables show some of the best performing mutual fund you’ll find on the following pages. This list shows only funds that have received Morningstar’s overall three-years “five-star” rating, ranking them by their performance for each of three periods. Naturally, most of these funds are from categories that have had a strong performance in the last three years. However, readers should consider funds in other categories on the following pages, because most financial planner argue that diversified portfolios are more successful over long periods. Category codes in parentheses are defined on the following pages.