Defined Methodology for Lipper, Inc.'s

New U.S. Diversified Equity Classification Structure

February 1, 2000

(from Lipper Research : Methodology)

Lipper continually revises and expands its fund classification structure. Its goal is to have fund classifications that are the most useful to fund directors and management companies as a basis for performance evaluation and to retail investors by communicating some expectations about a fund. Lipper believes that the confidence one has in any fund evaluation is directly related to the comparability of the categories used in the evaluation. [italics added]

The communicated expectations are not specified, and a request for clarification received no response. Yet Lipper follows convention and builds a sophisticated classification scheme on the arbitrary foundation of company size as measured by market capitalization.

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Lipper Classification Methodology

Fund Classification--Step 1: Market Capitalization Category

Lipper's new classification methodology is a three-step process. The first step is to calculate the percentage of a fund's equity holdings that fall into Lipper's newly defined market capitalization ranges.

To remain dynamic, the Lipper structure uses market-sensitive boundaries in determining the market capitalization ranges. The boundaries are based on a multiple of the dollar-weighted median market capitalization of the S&P Mid-Cap 400 Index and the S&P Small-Cap 600 Index. A multiple of 300% is used as the Large-Cap floor and Mid-Cap Ceiling, and a multiple of 250% is used as the Small-Cap ceiling. Historically appropriate, and therefore different, boundaries or breakpoints between size categories are used for prior years.

Style Classification--Step 2: Value / Core / Growth

Lipper developed a composite portfolio characteristic measure, the L-measure, to classify funds into one of three style classifications. The new composite measure is calculated using a three-factor model based on a comparison to each fund's market capitalization range average. The three factors are price-to-earnings ratio (P/E), price-to-book ratio (P/B), and three-year earnings per share growth (EPS).

The final weighted composite L-measure Z score is used to classify each fund into the appropriate style classification (see example on page 9).

The Z score calculation for each style classification has the following ranges on the distribution curve:

Specialized Equity Funds--Step 3: Equity Income and S&P 500 Index Funds

Once each fund has been classified into one of four market-capitalization distinctions, and into one of three style categories, Lipper segregates out two additional groups. S&P 500 Index funds are funds designed to replicated the index's performance. Equity income funds must commit by prospectus to investing at least 65% or more of its portfolio in dividend-paying equity securities. In addition, Equity Income funds must pass a yield. test. These funds' gross yield (reported total expense ratio plus 12-month yield) or net yield (Lipper 12-month distribution yield) must be at least 25% higher than the U.S. diversified equity fund gross or net yield average.

The Lipper Grade reveals different levels of variability. The Lipper Grade is derived by measuring the relative difference between a fund's best and worst consecutive three-month return over a three year time period. This difference is called "Performance Range", a proxy for so-called investment risk developed by Lipper.

The Z score calculation for each aggressiveness grade has the following ranges on the distribution curve:

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