FUNDamentals

Independent commentary on individual mutual funds Babson Value

Type: Growth and income

Size: $966 million

Phone: (800) 422-2766

Sales charge: none

Morningstar rating: HHHH

Total return: YTD: +7.4%

1996: +22.7%

1995: +31.7%

Babson Value might bring in some new recruits, but its system remains the same. Manager Nick Whitridge whittles down a universe of 1,250 large- and mid-cap stocks to 40 equally weighted holdings. The first cut, based on 10 valuation and earnings-growth measures, narrows the field to 250 candidates. Whitridge then re-screens the survivors using only the valuation measures. The entire exercise is designed to identify undervalued stocks poised to rebound. When a stock does come back, the challenge for value managers is deciding how long to keep it. Most tend to sell when they consider a stock to be fairly valued. Whitridge, by contrast, will keep a stock in the portfolio much longer, as long as it retains its price momentum. Whitridge’s method has proven effective over time. The fund has posted above-average returns for all long-term trailing periods, and despite Whitridge’s tendency to hold on to pricier stocks, its risk scores have been moderate. Thus, even hard-core value investors could find this fund to their liking.

*

--Jon Hale for Morningstar, March 28

AARP Growth & Income

Type: Growth and income

Size: $5 billion

Phone: (800) 322-2282

Sales charge: none

Morningstar rating: HHHHH

Total return: YTD: +11.0%

1996: +21.6%

1995: +31.8%

Don’t be fooled by its affiliations: AARP Growth & Income’s appeal is cross-generational. As one might expect of an offering designed to meet the needs of people over the age of 50, this fund’s risk scores are low enough to satisfy stock investors who place a premium on capital preservation. Management screens for those issues whose dividend yields are 20% higher than the S&P; 500 index’s. This discipline typically limits the fund’s exposure to the market’s priciest, and often most volatile, areas, and keeps it heavily weighted in blue-chip financials and cyclicals. The fund is thus a reliable performer in market downturns. That great safety record hasn’t come at the expense of appreciation, however. The fund looks best when value investing takes center stage, but it has also held its own in growth-powered markets such as 1995’s. No matter what their time horizons and investment goals, investors will appreciate this fund’s low expenses and low minimum-purchase requirements [$500].

--Christine Benz for Morningstar, April 11

Star ratings are risk-adjusted performance ratings on a scale of 1 to 5 (5 being the highest), based on at least three years of fund data, with greater weight given to five- or 10-year data if a fund has existed for that long. Funds less than 3 years old aren’t rated.

These evaluations are excerpted from Morningstar Mutual Funds. More information about these or other funds can be purchased directly from Morningstar in print or software form. To inquire, call (800) 735-0700.