SmartMoney - The Wall Street Journal

Introduction:

The Lipper Leader Rating System is a toolkit that helps guide investors and their advisors in selecting funds that suit individual investment styles and goals. The Lipper Leader Rating System uses investor-centred criteria to deliver a simple, clear description of a fund's success in meeting certain goals, such as preserving capital or building wealth through consistent, strong returns. The strength of Lipper Ratings are their use in conjunction with one another. They can be used together to identify funds that meet the particular characteristics of the investor.

The Lipper Ratings are derived from highly sophisticated formulas that analyze funds against clearly defined criteria. Funds are compared to similar funds, and only those that truly stand out are awarded Lipper Leader status. Each fund is ranked against its peers based on the metric used (such as Total Return or Expense), and the highest 20% of funds in each peer group are named Lipper Leaders, the next 20% receive a rating of 4, the middle 20% are rated 3, the next 20% are rated 2, and the lowest 20% are rated 1. While Lipper Leader Ratings are not predictive of future performance, they do provide context and perspective for making knowledgeable fund investment decisions.

The ratings are subject to change every month and are calculated for the following periods: three-year, five-year, ten-year, and overall. The overall calculation is based on an equal-weighted average of percentile ranks for each measure over three-, five-, and ten-year periods (if applicable).

For a complete list of the Lipper ratings for each category, as well as an explanation of the methodology used to calculate them, you can visit www.lipperleaders.com.

Lipper Leaders for Total Return

Lipper Ratings for Total Return reflect funds' historical total return performance relative to peers.

A Lipper Leader for Total Return may be the best fit for investors who want the best return, without looking at risk. This measure alone may not be suitable for investors who want to avoid downside risk. For more risk averse investors, Total Return ratings can be combined with Preservation and/or Consistent Return ratings to make a risk-return trade-off decision.

Calculation and Rating
Ratings for Total Return are computed for all Lipper Global Classifications with five or more distinct portfolios and span both equity and fixed income funds (e.g., large-cap core, general U.S. Treasury, etc.). The ratings are subject to change every month and are calculated for the following periods: three-year, five-year, ten-year, and overall. The overall calculation is based on an equal-weighted average of percentile ranks for the Total Return metrics over three-, five-, and ten-year periods (if applicable). The highest 20% of funds in each classification are named Lipper Leaders for Total Return, the next 20% receive a rating of 4, the middle 20% are rated 3, the next 20% are rated 2,and the lowest 20% are rated 1.

Lipper Leaders for Consistent Return

Lipper Ratings for Consistent Return reflect funds' historical risk-adjusted returns, adjusted for volatility, relative to peers.

A Lipper Leader for Consistent Return may be the best fit for investors who value a fund's year-to-year consistency relative to other funds in a particular peer group. Investors are cautioned that some peer groups are inherently more volatile than others, and even a Lipper Leader for Consistent Return in a volatile group may not be well-suited to shorter-term goals or less risk-tolerant investors.

Calculation and Rating
Ratings for Consistent Return are computed for all Lipper classifications with five or more distinct portfolios and span both equity and fixed income funds (e.g., large-cap core, general U.S. Treasury, etc.). The ratings are subject to change every month and are calculated for the following periods: three-year, five-year, ten-year, and overall. The overall calculation is based on an equal-weighted average of percentile ranks for the Consistent Return metrics over three-, five-, and ten-year periods (if applicable). The highest 20% of funds in each classification are named Lipper Leaders for Consistent Return, the next 20% receive a rating of 4, the middle 20% are rated 3, the next 20% are rated 2, and the lowest 20% are rated 1.

Lipper Leaders for Preservation

Lipper Ratings for Preservation reflect funds' historical loss avoidance relative to other funds within the same asset class.

Investors are cautioned that equity funds have historically been more volatile than mixed equity or fixed income funds and that even a Lipper Leader for Preservation in a more volatile asset class may not be well-suited to shorter-term goals or less risk-tolerant investors.

Calculation and Rating
Ratings for Preservation are computed from three broad asset classes—equity funds, mixed-equity funds, and bond funds (e.g., equity includes U.S. diversified, sector, and world equity funds). The ratings are subject to change every month and are calculated for the following periods: three-year, five-year, ten-year, and overall. The overall calculation is based on an equal-weighted average of percentile ranks for the Preservation metrics over three-, five-, and ten-year periods (if applicable). The highest 20% of funds in each classification are named Lipper Leaders for Preservation, the next 20% receive a rating of 4, the middle 20% are rated 3, the next 20% are rated 2, and the lowest 20% are rated 1.

Lipper Leaders for Tax Efficiency

Lipper Ratings for Tax Efficiency reflect funds' historical success in postponing taxable distributions relative to peers.

A Lipper Leader for Tax Efficiency may be the best fit for tax-conscious investors who hold investments that are not in a defined benefit or retirement plan account.

Calculation and Rating
Ratings for Tax Efficiency are computed for all Lipper classifications with five or more distinct portfolios and span both equity and fixed income funds (e.g., large-cap core, general U.S. Treasury, etc.). The ratings are subject to change every month and are calculated for the following periods: three-year, five-year, ten-year, and overall. The overall calculation is based on an equal-weighted average of percentile ranks for the Tax Efficiency metrics over three-, five-, and ten-year periods (if applicable). The highest 20% of funds in each classification are named Lipper Leaders for Tax Efficiency, the next 20% receive a rating of 4, the middle 20% are rated 3, the next 20% are rated 2, and the lowest 20% are rated 1.

Lipper Leaders for Expense

Lipper Ratings for Expense reflect funds' expense minimization relative to peers with similar load structures.

A Lipper Leader for Expense may be the best fit for investors who want to minimize their total cost and can be used in conjunction with Total Return or Consistent Return ratings to identify funds with above-average performance and lower-than-average cost.

Calculation and Rating
Ratings for Expense are computed for all Lipper Global Classifications with five or more distinct portfolios and span both equity and fixed income funds (e.g., large-cap core, general U.S. Treasury, etc.). The ratings are subject to change every month and are calculated for the following periods: three-year, five-year, ten-year, and overall. The overall calculation is based on an equal-weighted average of percentile ranks for the Expense metrics over three-, five-, and ten-year periods (if applicable). The highest 20% of funds in each classification are named Lipper Leaders for Expense, the next 20% receive a rating of 4, the middle 20% are rated 3, the next 20% are rated 2, and the lowest 20% are rated 1.