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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Magellan Bars New Investors World’s Largest Fund Going Off Limits Sept. 30

Richard Lorant Associated Press

Here’s today’s stock market quiz. The world’s largest mutual fund has just announced it is going to be off limits to most new investors starting Sept. 30.

What do you do?

A) Buy into it, fast!

B) Get rid of it, now!

C) Relax.

The quiz is real for millions of people who either hold shares in the Fidelity Magellan Fund, or would like to someday soon.

Fortunately for those with high blood pressure, the answer is “Relax.”

The shuttering is not necessarily a reason for the 4.3 million Magellan investors to think about getting out. Fidelity says braking the $62.9 billion fund’s growth should make it easier to manage effectively.

And those who might want to buy into Magellan based on its reputation have plenty of alternatives.

Despite Magellan’s unique place in mutual fund history, its performance in recent years hasn’t been the stuff of legend.

There are thousands of other mutual funds out there - 250 offered by Boston-based Fidelity alone - many of which are now outperforming Magellan.

There were fewer options when manager Peter Lynch took over Magellan in 1977 and built its reputation by beating stock market averages consistently for 13 years.

“Magellan is an awfully big fund. It’s not what it was when Peter Lynch ran it,” said Eric Kobren, editor of Fidelity Insight in Welleseley.

Magellan was about a fifth its size in 1990 when Lynch retired and had more room to maneuver in the market.

If an investor really believes that Magellan is a must-have investment, he or she can open an Individual Retirement Account for as little as $500, or a regular account for a minimum of $2,500. Once in the fund, an investor can add to an account even after new investors are barred.

Employees of companies that offer Magellan as one of their retirement fund options can ignore the announcement. They can sign up for the fund after Sept. 30, even if they don’t presently own it.

No matter what your situation, there is no reason to fret - a fact not lost on investors like Edward Edelson of New York, who owns no Magellan shares and has no plans to buy any.

“The opportunities are better in other funds. You just have to look at the numbers. The Magellan has not been a standout,” he said.

Tom Miltenberger, who markets mutual funds for Edward Jones in St. Louis, said he would be pleased if he were a Magellan shareholder.

“From the consumer standpoint, I don’t see much downside at all,” Miltenberger said. “It’ll be tougher on Fidelity, but they have a lot of products.”

In fact, closing the fund to new investors deprives Fidelity of a marquee name to dangle before new corporations looking for someone to manage their retirement plan. Sixty percent of the fund is corporate retirement money, company officials said.

Unlike arch-rival Vanguard Group of Valley Forge, Pa., best known for its funds that mimic various market indexes, Fidelity bases its reputation on having money managers who can beat the market average.

Magellan’s full-year performance hasn’t beat the Standard & Poor’s 500-stock index since 1993, but the fund has been besting the benchmark since the stock market’s April drop.

Magellan is easily the best-known brand name in the industry, and provides Fidelity with $265 million in annual revenues, Kobren said.

Since Lynch left in 1990, however, Magellan’s record has been less stellar, although its returns have improved in the year Robert Stansky has managed the fund.

Robert Pozen, chief executive officer of Fidelity Management & Research Co., conceded that Fidelity would lose income from “loads” - the 3 percent charge assessed to new investors in Magellan.

But in a telephone news conference, Pozen and Stansky said ensuring the fund’s reputation was more important.

“If we produce good, excellent performance in Magellan in the long term, that’s going to help the company,” Pozen said. “That’s going to be more important than the short-term loss of load revenue.”

Pozen said there are no plans to create a “Magellan II” fund or close other mutual funds to new investors.