Fidelity Investments Trims Magellan Fees Fund’s Performance Trails S&P; 500 Over Three Years

Fidelity Investments is reducing the management fees of its flagship Magellan Fund because of lagging investment performance, the company said.

The decision could result in millions of dollars in lost fees for the nation’s No. 1 fund group, and may put more pressure on Magellan’s manager Jeffrey Vinik, the Wall Street Journal reported last week.

Fidelity will cut a component of the management fee of the $56 billion fund because its returns trailed the Standard & Poor’s 500 Index over the past three years, the company said. Currently, shareholders pay about 75 basis points, or $7.50 for each $1,000 invested, in management fees to Fidelity.

“There will be a downward adjustment to the fund’s basic management fee based on the fund’s trailing 36-month performance relative to the market,” said Robyn Tice, Fidelity’s spokeswoman. “We release performance fee figures twice a year in the funds’ shareholder reports. We don’t release the figures on a monthly basis.”

Magellan’s shareholder report should be available in the “next few weeks,” Tice said.

Fidelity adjusts the fees of many of its stock funds each month depending on how they perform relative to the S&P 500. In the three-year period ended April 30, Magellan gained at an annual rate of 16.08 percent, compared with an annual rise of 17.23 percent for the S&P 500, according to Lipper Analytical Services Inc.

It’s only the second time in the past 20 years that the three-year return of the benchmark S&P 500 was better than the Magellan Fund, the research group reported.

Magellan is ranked No. 635 of 649 “growth” stock funds tracked by Lipper Analytical in the first four months of 1996. The fund is up 2.3 percent this year, compared with the 6.3 percent gain of the S&P 500.

The fund’s returns have been hurt by Vinik’s decision to sell stocks and buy long-term Treasury bonds.

Fidelity charge first-time investors of the Magellan Fund a sales fee equal to 3 percent, or $30 for each $1,000 invested, plus other operational fees of about 22 basis points, or $2.20 for each $1,000 invested, the company said. These fees won’t be changed as a result of the fund’s lagging performance.