Definition of 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 riskadjusted 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 informatio n on U.S. equities and American Depositary Receipts (ADRs), but star ratings are not calculated for them.