Profile: Morningstar, Inc. (MORN.O)

Morningstar, Inc. (Morningstar) is a provider of independent investment research to investors globally. The Company offers a range of Internet, software, and print-based products for individual investors, financial advisors, and institutional clients. The Company provides asset management services for advisors, institutions, and retirement plan participants. In addition to the United States-based products and services, Morningstar offer local versions of the products designed for investors in Asia, Australia, Canada, Europe, Japan, and South Africa. During the year ended December 31, 2008, the Company introduced hedge fund ratings and Style Boxes, a Morningstar Rating for collective investment trusts, a new series of hedge fund categories and indexes, analyst-driven fair value estimates for exchange traded funds (ETFs), new glide path data for target-date funds, estimated cash flow and market share data for investments in global markets, and rider descriptions for variable annuities.

In May 2009, Morningstar's Morningstar Research Inc. acquired Andex Associates Inc., a privately held firm based in Windsor, Ontario, Canada, which produces financial charts and communications materials for financial advisors. On September 2, 2008, the Company completed the acquisition of Financial Computer Support, Inc. On October 2, 2008, Morningstar completed the acquisition of Fundamentals Data Limited. On December 4, 2008, the Company completed the acquisition of 10-K Wizard Technology, LLC. On December 17, 2008, Morningstar completed the acquisition of Tenfore Systems Limited. On December 29, 2008, the Company completed the acquisition of InvestData (Proprietary) Limited. In April 2009, the Company announced that it acquired the global financial filings database business of Global Reports LLC, a provider of online financial and Corporate and Social Responsibility (CSR) reports for publicly traded companies around the world. In October 2009, the Company increased its ownership in Morningstar Korea Co., Ltd. to 80%.

The Company operates in three business segments: individual, advisor and institutional. The individual segment focuses on products and services for individual investors. The advisor segment focuses on products and services for financial advisors. The institutional segment focuses on the products and services for institutional clients, including banks, brokerage firms, insurance companies, mutual fund companies, media outlets, and retirement plan providers and sponsors.

Individual Segment

For the individual investors, the product-based on revenue is the Website, Morningstar.com, which includes the Premium Membership service and sales of Internet advertising space. The individual business segment also includes Morningstar Equity Research, which is distributed through several channels. Investors can access the equity research through the Premium Membership service on Morningstar.com. The independent equity research is also distributed through six banks to meet the requirement for independent research under the Global Analyst Research Settlement.

In addition, the Company distribute the research to several other companies that provide the analyst reports and research to their affiliated financial advisors or to the individual investors.

The Company also offer several print and online publications focusing on stocks, mutual funds, personal finance, and other investing topics, including newsletters and other publications for investors in Australia. The Websites and publications for individual investors reach approximately 6.5 million investors globally. Morningstar promotes the individual investor products, through direct mail, e-mail, promotions on the 24 investor Websites globally, public relations, and advertising on related Websites.

The Company competes with AOL Money and Finance, Google Finance, MarketWatch, MSN Money, The Motley Fool, The Street.com, The Wall Street Journal Online, Yahoo!Finance, Agora Publishing, Phillips Investment Resources, Value Line, Fat Prophets, Intelligent Investor, The Rivkin Report, Renaissance Capital, Standard & Poor’s and Zacks Investment Research.

Advisor Segment

For the financial advisors, the products of the Company include Morningstar Advisor Workstation, a Web-based investment planning system, and Principia, the compact disk-read only memory (CD-ROM)-based investment research and planning software. Morningstar also offers Morningstar Managed Portfolios, a fee-based discretionary asset management program distributed through financial advisors.

Morningstar sells the advisor-related products both directly to independent financial advisors and through enterprise licenses, which allow financial advisors associated with the licensing enterprise to use the products. During the year ended December 31, 2008, the Company had established relationships with approximately globally.

Morningstar Advisor Workstation, is a Web-based investment planning system, provides financial advisors with a set of tools for conducting their business, including investment research, planning, and presentations. It allows advisors to build and maintain a client portfolio database that can be integrated with the firm’s back-office technology and resources. It help advisors create customized reports for client portfolios that combine mutual funds, stocks, separate accounts, variable annuity/life subaccounts, exchange traded funds (ETFs), hedge funds, and closed-end funds.

In 2008, about 1, 90,000 advisors in the United States were licensed to use Advisor Workstation, which is available in two editions: the Office Edition for independent financial advisors and the Enterprise Edition for financial advisors affiliated with larger firms. Advisor Workstation Enterprise Edition includes a range of modules, including Retirement Income Strategist, Retirement Income Education Center, Portfolio Builder, Hypothetical Illustrator, and a range of tools to measure the relative cost and portfolio fit of various types of investments.

In 2008, the Company introduced an in-retirement solution for Portfolio Builder that incorporates asset allocation research from Ibbotson Associates, launched a new Variable Annuity Analyzer tool, and upgraded the technology platform and development process. It also introduced a new Analyst Research Center, which allows financial advisors to access Morningstar’s library of independent research on stocks, initial public offerings, mutual funds and ETFs.

The modules offered in Principia provide data on mutual funds, stocks, separate accounts, variable annuity/life subaccounts, closed-end funds, defined contribution plans, asset allocation, presentations and education, and exchange-traded funds. Each module is available separately or together and features searching, screening, and ranking tools. Principia allow advisors to create integrated portfolios for clients and offer three-page Portfolio Snapshot reports that provide a picture of the client’s portfolio. The Snapshot report shows overall style and sector weightings, as well as the cumulative exposure to individual stocks. The Snapshot report is among those approved by the National Association of Securities Dealers for financial advisors to distribute and review with their clients.

Morningstar Managed Portfolios is an asset management service that includes a series of mutual fund, ETF, and stock portfolios tailored to meet specific investment time horizons and risk levels. This program is only available through financial advisors. The Morningstar Managed Portfolios program is offered through Morningstar Investment Services, Inc., a registered investment advisor, registered broker-dealer, member of Financial Industry Regulatory Authority (FINRA), and wholly owned subsidiary of Morningstar, Inc. In addition, the Company offers free Websites, paid advisor conferences, and a magazine for advisors.

The Company competes with Advent Software, Albridge Solutions, eMoney Advisor, MoneyGuide Pro, NaviPlan, Schwab Portfolio Center, Standard & Poor’s, SunGard, Thomson Reuters, Wall Street OnDemand, AssetMark, Brinker Capital, Envestnet PMC, FundQuest, Genworth, SEI Investments and Symmetry Partners in this segment.

Institutional Segment

The products and services for this segment include Licensed Data, a set of investment data spanning the complete range of Morningstar’s data, available through electronic feeds; Investment Consulting, which focuses on investment monitoring and asset allocation for funds of funds, including mutual funds and variable annuities. It also includes Morningstar Direct, a Web-based institutional research platform that provides advanced research and tools on the complete range of securities in Morningstar’s global database, and Retirement Advice, including the Morningstar Retirement Manager and Advice by Ibbotson platforms.

The segment also includes Licensed Tools and Content, a set of online tools and editorial content designed for institutions to use in their Websites and software; Morningstar EnCorr, an asset allocation software package; Investment Profiles and Guides, which are designed for institutions to use in communicating investment information to individual investors; Morningstar Indexes, a growing product line that covers United States equities (by style, capitalization, sector, and dividend), commodities, bonds, and equity focus index families; and financial information and data feeds on Australian stocks, which is sold to stock brokers, information providers, and financial Web sites. In 2008, the Company served approximately 3,300 clients through the segment, including banks, brokerage firms, insurance companies, mutual fund companies, media outlets, and retirement plan sponsors and providers.

The Licensed Data service gives institutions access to a set of data spanning the full range of our investment data. The data packages offered include statistics, such as the Morningstar Style Box and Morningstar Rating, and a range of other data, including information on investment performance, risk, portfolios, operations data, fees and expenses, cash flows, and ownership. Institutions can use Licensed Data in a range of investor communications, including Web sites, print publications, and marketing fact sheets, as well as for internal research and product development. The Company deliver Licensed Data through electronic data feeds and provide daily updates to clients.

In 2008, the Company introduced data licenses covering the Global Document Library, which allows the users to access portable document format (PDF) and hypertext markup language (HTML) versions of Securities and Exchange Commission (SEC) filings; new glide path data and images that allow clients to compare investment strategies and conduct competitive analysis on lifecycle funds; new information on future fund distributions; and a global data warehouse that incorporates data in multiple currencies and country-specific data points.

The investment consulting area provides a range of services, including investment monitoring and asset allocation for funds of funds, including mutual funds and variable annuities. The Company offers investment consulting services, primarily through Morningstar Associates, LLC and Ibbotson Associates, Inc., which are registered investment advisors and wholly owned subsidiaries of the Company.

Ibbotson provides a range of consulting services, including licensing its asset allocation models, providing consulting services, and acting as a portfolio sub-advisor. Ibbotson works with different types of investment options, including mutual funds, variable annuities, and exchange traded funds, and provides both strategic and dynamic asset allocation services. The Company offers consulting services and funds-of-funds subadvisory services, as well as tailored model portfolios, fund classification schemes, and questionnaire design.

Morningstar Direct is a Web-based institutional research platform that provides advanced research on a range of securities in Morningstar’s global database. The research platform allows research and marketing professionals to conduct performance comparisons and in-depth analyses of a portfolio’s underlying investment style. Morningstar Direct includes access to numerous investment universes, including United States mutual funds; European and offshore funds; funds based in most markets globally; stocks; separate accounts; hedge funds; closed-end funds; exchange-traded funds; global equity ownership data; variable annuity and life portfolios, and market indexes.

Morningstar offers two Retirement Advice offerings that help retirement plan participants plan and invest for retirement: Morningstar Retirement Manager, a service of Morningstar Associates, LLC, and Advice by Ibbotson, a service of Ibbotson Associates, Inc. Morningstar Retirement Manager is designed to help retirement plan participants determine how much to invest and which investments are most appropriate for their portfolios.

In 2008, the Company developed a new service through Morningstar Retirement Manager that allows retirement plan providers and sponsors to develop custom target retirement date or lifestyle portfolios using the plan’s investment lineup. Advice by Ibbotson offers a set of services and software to give retirement plan participants access to investment education, self-service advice, and managed retirement accounts. Morningstar offer these services through retirement plan providers. The platform includes installed software advice solutions that can be co-branded by retirement plan sponsors and providers. Advice by Ibbotson combines asset allocation and human capital methodologies that help participants determine how to prepare for retirement based on their financial assets, as well as their future earnings and savings power. Advice by Ibbotson’s customized software can be integrated with existing systems to help investors accumulate wealth, transition into retirement, and manage income during retirement.

The Company competes with Bloomberg, Eurekahedge, eVestment Alliance, FactSet Research Systems, Hedge Fund Research, Inc., Standard & Poor’s, Thomson Reuters, eVestment Alliance, FactSet Research Systems, Informa PSN, Style Research Limited, Wilshire Associates, Zephyr Associates, Mercer, Russell Investments, Financial Engines, Guided Choice, Mesirow Financial and ProManage.