Load A mutual fund that comes with a sales charge or commission.

The fund investor pays the load, which goes to compensate a sales intermediary (broker, financial planner, investment advisor, etc.) for his or her time and expertise in selecting an appropriate fund for the investor. The load is either paid up front at the time of purchase (front-end load), when the shares are sold (backend load), or as long as the fund is held by the investor (level-load).If a fund limits its level load to no more that 0.25% (the maximum is 1%), it can call itself a "no-load" fund in its marketing literature. Expenses The expense ratio is the annual fee that all funds or ETFs charge their shareholders. It expresses the percentage of assets deducted each fiscal year for fund expenses, including 12b-1 fees, management fees, administrative fees, operating costs, and all other asset-based costs incurred by the fund.The expense ratio, which is deducted from the fund's average net assets, is accrued on a daily basis. Turnover The percentage of a mutual fund or other investment vehicle's holdings that have been "turned over" or replaced with other holdings in a given year. The type of mutual fund, its investment objective and/or the portfolio manager's investing style will play an important role in determining its turnover ratio.All things being equal, investors should favor low turnover funds. High turnover equates to higher brokerage transaction fees, which reduce fund returns.

Also, the more portfolio turnover in a fund, the more likely it will generate short-term capital gains, which are taxable at an investor's ordinary income rate. Fundamental Analysis A method of valuing securities such as stocks and bonds that attempts to discover their true value (intrinsic value) by examining related economic and financial factors. Debt Load - The amount of debt or leverage that a company is carrying on its books. The amount of debt a firm is carrying can be found in the company's balance sheet, which most firms provide on a quarterly basis. Companies may incur this debt for numerous reasons such as expanding their business or making an acquisition. Margin - The difference between a products (or service's) selling price and the cost of production. Price Multiple - Any ratio that uses the share price of a company in conjunction with some specific per-share financial metric in order to evaluate a company's financial situation. The share price is typically divided by a chosen per-share metric to form a ratio.

Book Value - NBV The net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities. Cash Flow - A revenue or expense stream that changes a cash account over a given period. Cash inflows usually arise from one of three activities - financing, operations or investing - although this also occurs as a result of donations or gifts in the case of personal finance. Cash outflows result from expenses or investments. This holds true for both business and personal finance. P/E Ratio Price-Earnings Ratio - A valuation ratio of a company's current share price compared to its per-share earnings. Calculated as: Market Value per Share Earnings per Share (EPS) P/B Ratio Price-To-Book Ratio - A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. Also known as the "price-equity ratio". Calculated as:

Technical Analysis Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. 1. The Market Discounts Everything A major criticism of technical analysis is that it only considers price movement, ignoring the fundamental factors of the company. However, technical analysisassumes that, at any given time, a stock's price reflects everything that has orcould affect the company - including fundamental factors. Technical analystsbelieve that the company's fundamentals, along with broader economic factorsand market psychology, are all priced into the stock, removing the need toactually consider these factors separately. This only leaves the analysis of pricemovement, which technical theory views as a product of the supply and demandfor a particular stock in the market. 2. Price Moves in Trends In technical analysis, price movements are believed to follow trends. This meansthat after a trend has been established, the future price movement is more likelyto be in the same direction as the trend than to be against it. Most technicaltrading strategies are based on this assumption. 3. History Tends To Repeat Itself Another important idea in technical analysis is that history tends to repeat itself,mainly in terms of price movement. The repetitive nature of price movements isattributed to market psychology; in other words, market participants tend toprovide a consistent reaction to similar market stimuli over time. Technicalanalysis uses chart patterns to analyze market movements and understandtrends.

Portfolio Manager - The person or persons responsible for investing a mutual, exchange-traded or
closed-end fund's assets, implementing its investment strategy and managing the day-to-day portfolio trading.

The portfolio manager is one of the most important factors to consider when looking at fund investing. Portfolio management can be active or passive (index tracking). Historical performance records indicate that only a minority of active fund managers beat the market indexes.

Efficient Market Hypothesis - An investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments. Degrees of Efficiency Accepting the EMH in its purest form may be difficult; however, there are three identified classifications of the EMH, which are aimed at reflecting the degree to which it can be applied to markets. 1. Strong efficiency - This is the strongest version, which states that all information in a market, whether public or private, is accounted for in a stock price. Not even insider information could give an investor an advantage. 2. Semi-strong efficiency - This form of EMH implies that all public information is calculated into a stock's current share price. Neither fundamental nor technical analysis can be used to achieve superior gains. 3. Weak efficiency - This type of EMH claims that all past prices of a stock are reflected in today's stock price. Therefore, technical analysis cannot be used to predict and beat a market. Miller stated that he believes the market is "pragmatically efficient," meaning that although he believes a manager can outperform the market, it is no easy task, since investing is extremely competitive. With so many managers mercilessly compiling and interpreting all available information, it is very difficult to earn market-beating returns, as witnessed by the fact that the average manager will return below the market, especially as time progresses. Legg Mason Value's 2005 showing is more impressive than it might seem. In terms of performance, manager Bill Miller has had better years here. Yes, the fund beat the S&P 500 Index for the 15th straight year in 2005. However, the margin of victory was thin, and the fund's return for the year was actually slightly below that of its median large-blend peer. That said, it's well worth noting that the fund had no exposure at all to the soaring energy sector--easily the best-performing area of the U.S. stock market in 2005. To grasp the magnitude of that sector's performance, it's worth looking at the numbers. The S&P 500 ended the year up 4.9%. The average energy stock gained 33%. The next best-performing sector was utilities, which rose 15% in 2005 on average. So, although Miller's decision not to invest in energy proved dead wrong in the short term, it's impressive that his research added enough value to more than make up for that lost performance.

Health care came up especially big, with insurers UnitedHealth Group UNH, Aetna AET, and Health Net HNT and drug distributor McKesson MCK delivering huge gains. Google GOOG also helped the fund (although the rest of the fund's online exposure was mixed). It's also worth noting that Miller's aversion to energy stocks is entirely in keeping with the style that has served him so well over time: He has long avoided cyclicals on the premise that most have been poor allocators of capital in the long run, despite the occasional rally. We'd be disappointed if he were to start chasing such companies in search of short-term gains. It would be a departure from the style that has worked so well for him, and might also erode one of the big advantages of that style--low turnover, which limits trading costs. We continue to think this is a fine core holding, though we wished it offered investors a broadly available share class that was less costly than its Primary shares.

Strategy Bill Miller looks for companies that are trading cheaply relative to his estimates of what they are worth. This often leads him to beaten-down turnaround plays. Unlike many value managers, however, Miller is willing to make fairly optimistic assumptions about growth, and he doesn't shy away from owning companies in traditional growth sectors. In this portfolio, pricey Internet stocks rub elbows with bargainpriced financials and turnaround plays. Miller will also let favored names run, allowing top positions to soak up a large percentage of assets.

Management Longtime manager Bill Miller has vastly outperformed his average peer and the S&P 500 Index during his tenure. Assistant manager Nancy Dennin, who focused mostly on administrative tasks, stepped down in September 2004. Some of her duties are being taken on by David Nelson, manager of American Leading Companies. The firm has hired a new research director, Ira Malis, and a chief strategist, Michael Mauboussin, along with a handful of new analysts.

Size isn't yet a big problem for this fund, but we're keeping an eye on the matter. If you count all the money that manager Bill Miller and his team are running in this style, it totals $38 billion. That's a sizable sum, particularly when one considers that other large offerings spread their assets over many more names than Miller does here. Indeed, the typical actively managed domestic stock mutual fund with at least $35 billion in assets holds 265 stocks and stashed 22% of assets in its top 10 holdings. As of March 31, 2005, the fund held just 36 stocks and squeezed 50% of its assets into its top 10 holdings.

The worry is that as the fund grows, Miller will be forced to deviate from those ideas he thinks have the highest probability of success because he already owns too much of them. Miller discounts this as a real negative, noting that he can just buy highly correlated names if need be. However, doing so still runs the risk that those names won't be as strong as the best opportunities identified by his research. It's worth noting, though, that other aspects of Miller's style make him well-suited to running such a large portfolio. First, he usually isn't competing for liquidity with the hordes of traders that a less contrarian manager might be. Miller also just doesn't trade much: The fund's turnover rate hasn't cracked 30% since 1992. It's obvious that Miller is a brilliant portfolio manager--to glean that much, one just needs to look at his record and speak to him about how he thinks about investment opportunities. And we do not think the fund's current size is cause for concern. However, Legg Mason's recent deal with Citigroup means that a lot more brokers may suddenly be selling this fund (though it could also mean the share classes with cheaper ongoing expenses may become available). Add to that the fact that as CEO of the fund advisor, Miller has little incentive to close this offering and slow the growth of his group's business, and we think the issue bears close watching.

Strategy Bill Miller looks for companies that are trading cheaply relative to his estimates of what they're worth. This often leads him to beaten-down turnaround plays. Unlike many value managers, however, Miller is willing to make fairly optimistic assumptions about growth, and he doesn't shy away from owning companies in traditional growth sectors. In this portfolio, pricey Internet stocks rub elbows with bargainpriced financials and turnaround plays. Miller will also let favored names run, allowing top positions to soak up a large percentage of assets.

Management Longtime manager Bill Miller has vastly outperformed his average peer and the index during his tenure. Assistant manager Nancy Dennin, who focused mostly on administrative tasks, recently stepped down. Some of her duties are being taken on by David Nelson, manager of American Leading Companies. The firm has hired a new research director, Ira Malis, and a chief strategist, Michael Mauboussin, along with a handful of new analysts.

Sustainability A long-term focus Miller detailed his pursuit of "time arbitrage" to increase his probability of outperforming the market. In other words, looking out two, three, or five years is a potentially advantageous strategy in a marketplace where most investment professionals are myopically focused on what

happened this quarter or what may occur next quarter. Many managers don't look more than 12 to 18 months ahead. As such, they devote less time and manpower to thinking about future scenarios, implying less efficiency and a less likelihood of outperforming. Modern Portfolio Theory MPT R-Squared - A statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index. For fixed-income securities, the benchmark is the T-bill. For equities, the benchmark is the S&P 500. R-squared values range from 0 to 100. An R-squared of 100 means that all movements of a security are completely explained by movements in the index. A high R-squared (between 85 and 100) indicates the fund's performance patterns have been in line with the index. A fund with a low R-squared (70 or less) doesn't act much like the index. Beta - A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), a model that calculates the expected return of an asset based on its beta and expected market returns. Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market. Alpha - A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha. Treynor Ratio - A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless investment per each unit of market risk. The Treynor ratio is calculated as: (Average Return of the Portfolio - Average Return of the Risk-Free Rate) / Beta of the Portfolio