Finding your way around the tables

Kiplinger's Personal Finance Magazine, August, 1998

FUNDS are separated into five sections-U.S. stock (starting on page 93), international stock (page 129), taxable bond (page 141), tax-free bond (page 157) and single-state tax-free bond (page 163)--and alphabetized. Phone numbers to call and order a prospectus start on page 171.

Except for some top-ranked funds found in "And the Winners Are..." (see page 81), very small funds are excluded from the rankings. We've also left out funds less than a year old; those requiring a minimum investment of $100,000 or more; and closed-end funds, which issue a fixed number of shares and trade on the stock exchanges. Funds sold only to special groups--such as employees of large corporations--to institutional investors, or through IRAs, variable annuities or variable life insurance contracts are omitted as well.

Finally, when a fund has more than one class of shares--A and B shares, for example--that are sold with different fee structures but have essentially the same results, we list only the oldest class still open to new investors. In general, B shares do not levy front-end sales fees, but they do charge gradually declining redemption fees and higher annual expenses. Assume total returns of B shares will trail those of A shares by the amount of the difference in expenses between the two classes.

TOTAL RETURN measures the change in the value of an investment, assuming that distributions of dividends and capital gains were reinvested. Returns for three-and five-year periods are annualized--that is, stated on an average annual basis after compounding. Returns, minimum investments and expense data were supplied by Standard & Poor's Micropal Inc. for periods to June 15.

Expenses (management and 12b-1 fees, if any) are reflected in returns; sales and redemption fees are not. A dash in the three- or five-year column means the fund hasn't existed that long.

CATEGORY reveals how the portfolio manager intends to invest the fund's assets and gives you a sense of how risky the fund may be. A fund's category--aggressive-growth or growth-and-income, for example--should reflect your investment objectives, horizon and tolerance for risk. For an explanation of each category, turn to the beginning of the rankings for each section. For help assessing the riskiness of each category, see the table below.

Risk and Reward: How the Fund Categories Compare

WHEN CHOOSING a fund category, it helps to know the upside and the downside. We calculated the volatility of a dozen categories based on an index of 100, which represents the volatility of Standard & Poor's 500-stock index.

Then we compared long-term returns and down-market results. Volatility measures the change in value during any given period. Generally, the higher the volatility, the greater the rewards. But high volatility also signals a greater-than-normal risk of a short-term loss during poor markets. A score of 250 means the category is 2.5 times as volatile as the S&P 500. The description of the "down market" column, at right, gives dates of the down markets.

                                     20-YEAR      DOWN-
                      VOLATILITY    ANNUALIZED    MARKET
STOCK FUNDS             SCORE         RETURN      RETURN

Precious metal          245            5.1%       -10.7%
Aggressive growth       149           15.4        -10.4
Long-term growth        117           16.0         -8.8
Utility                  91           12.4         -5.9
Growth and income        89           14.6         -7.0
Balanced                 66           13.6         -5.8

                                           20-YEAR      DOWN-
                            VOLATILITY    ANNUALIZED    MARKET
BOND FUNDS                    SCORE        RETURN       RETURN

High-yield corporate bond      33           11.1%         0.3%
Investment-grade muni          26            7.5         -7.4
Government                     26            7.6         -5.6
Corporate bond                 26            9.6         -4.6
High-yield muni                25            7.7         -6.6
Mortgage                       22            8.3         -4.0

SOURCE: Standard & Poor's Micropal; data to June 1

DOWN MARKET shows performance during the last down market-October 7 to October 27, 1997, for stocks; October 15, 1993, to November 7, 1994, for taxable bonds; and October 31, 1993, to October 31, 1994, for muni bonds.

Use these numbers to see how well a fund held up relative to similar funds when the going got rough. Because down-market returns include income yields--more than a full year's worth in the case of bond funds--the actual decline in net asset value pershare was greater than the figures shown.

For international funds, we give returns during the U.S. down market to show the effect of diversification.

ASSETS are for all share classes combined. A couple of rules of thumb about the size of funds: Bigger is not better for funds that invest in small companies, primarily aggressive-growth funds, and too much money seems to drag down performance of the very largest funds.

MANAGER SINCE discloses the tenure of the manager or, if there's more than one, the lead manager. This information gives you assurance that, for example, the hot hand that racked up sterling results is still in charge. To check the record of someone who took the reins within the past five years, match the annual decile ranks with the tenure.