November 2, 2005

Magellan Manager Steps Down

The manager of the struggling Fidelity Magellan Fund (FMAGX) has stepped down.

Fidelity Investments announced on October 31 that Robert Stansky retired from the $52.4-billion fund, which he has run since 1996. He was replaced by Harry Lange, who has been overseeing Fidelity Capital Appreciation Fund (FDCAX).

Fidelity observers said Stansky was leaving because of Magellan's poor performance in recent years, when it lagged its peers and the Standard & Poor's 500 index.

"Bob Stansky knows, as does any shareholder of Magellan, that he's been a disappointment as a manager of what was the world's largest actively managed growth fund," said Jim Lowell, editor of Fidelity Investor, a newsletter that follows Fidelity funds. "He clearly saw the writing on the wall, because it was his own handwriting."

Stansky said his decision was not tied to the fund's performance, and that he stepped down because he wanted a "break." Stansky, in a conference call with reporters, cited the "cumulative" effect of the "day-to-day effort of putting the fight into Magellan."

But Stansky and an official of Fidelity said Stansky may come back to the company after spending time away from the fund.

Stephen Jonas, executive director of Fidelity Management and Research Co., said: "We're hoping that after Bob takes some time that we can figure out some way that we can continue working together."

Asked if he were pressured by Fidelity to step down, Stansky replied that if he were going to be forced out, "I assume it would have been a while ago." He argued that Magellan's performance in 2005 has been better than it was a couple of years ago.

This year through September, Magellan returned 2.3%, versus a gain of 3.1% for the average large-cap blend fund, and 2.8% for the S&P 500. For the five years ended in September, the fund lost 3.5% on an annualized basis, versus a loss of 1.5% for its peers, and 1.5% for the index. Magellan, which is ranked 2 Stars by Standard & Poor's, is closed to new investors.

Observers applauded the change in fund managers. "I think if anybody can make a success out of the Magellan situation, he's probably as good a shot as they got," Jack Bowers, editor of Fidelity Monitor, another Fidelity newsletter, said, referring to Lange.

Bowers and Lowell said they would raise their ratings on Magellan because of the change in fund managers.

Jonas said he hopes and expects that institutions, which hold about half of Magellan's assets, will be pleased with the change in management. Several retirement plans have abandoned the fund in the past five years because of its sub-par performance. Fidelity Contrafund (FCNTX), with $55.7 billion in assets, has now taken over as the firm's largest fund.

Lange, who has been running the Capital Appreciation Fund since 1996, which invests in undervalued as well as growing companies, said he plans to buy companies of any size for Magellan.

Under Lange, Capital Appreciation has topped its peers and the S&P 500 in recent months and years. This year through September, the portfolio rose 3.9%, versus a gain of 3.1% for the average large-cap blend fund. For the five years ended last month, Capital Appreciation gained 2.3% annualized, versus a loss of 1.5% for its peers. The portfolio is ranked 5 Stars by Standard & Poor's.

Fidelity named J. Fergus Shiel to replace Lange on the Capital Appreciation Fund. Shiel will continue to manage Fidelity Advisor Dynamic Cap Appreciation/A (FARAX).

In addition to Stansky's retirement, Fidelity announced several other portfolio manager changes.

Timothy Cohen will take over Fidelity Growth & Income Fund (FGRIX). He succeeds Steven Kay, who Fidelity said is "considering a number of options" with the company.

Succeeding Cohen as manager of Fidelity Export and Multinational Fund (FEXPX) will be Victor Thay. Thay, in turn, will be replaced on Fidelity Advisor Growth & Income Fund (FGIRX) and Fidelity Growth & Income II Fund (FGRTX) by James Catudal, who continues as manager of Fidelity Stock Selector Fund (FDSSX).

Matthew Fruhan, manager of Fidelity Large-Cap Stock Fund (FLCSX, will replace Cohen on Fidelity Advisor Large-Cap Fund (FALAX. Cohen continues to run Fidelity Destiny Plan I/O (FDESX).

James Harmon will succeed Lange on the Fidelity Advisor Small-Cap Fund. (FSCDX). Succeeding Harmon on Fidelity Small-Cap Independence Fund (FDSCX) will be Rich Thompson.

Succeeding Harmon as manager of Fidelity Small-Cap Retirement Fund (FSCRX) will be Lionel Harris, who also helps run Fidelity Small-Cap Growth Fund (FCPGX).

Contact Bob Keane with questions or comments at: bkeane@investmentadvisor.com.

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