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Funds Burned by Satyam Scandal

Plus, changes at Morgan Stanley and Fidelity, and more.

Morningstar Analysts, 01/12/2009

Morningstar's fund analysts cover 2,000 mutual funds. Their full analyst reports, including Stewardship Grades, are available in Morningstar Principia Mutual Funds Advanced and Morningstar Advisor Workstation Office Edition.

India's version of the Enron scandal has started playing out, as the chairman of leading technology company Satyam Computer Services, Ltd. SAY announced that he fabricated the firm's financials over the past several years. B. Ramalinga Raju resigned his post as CEO after admitting that he had inflated profits and cash positions and understated liabilities. The stock plummeted on the Bombay exchange, and trading of Satyam ADRs on the NYSE was suspended on Jan. 7 in response to the news. The accounting fraud comes on the heels of another corruption incident that occurred in December 2008 when Raju tried to force Satyam to acquire two companies owned by family members.

The effect that the sham will have on mutual funds remains to be seen, because December 2008 portfolios are not yet available. However, as of Nov. 30, 2008, several funds owned a stake in Satyam, though position sizes were generally limited to 2% of fund assets or less. The funds with the largest stakes as of Nov. 30, 2008, included Fidelity Select Software & Computers FSCSX, Dreyfus Select Mid Cap Growth DASMX, Dreyfus S&P Stars Opportunities DPOAX, Atlantic Whitehall Mid-Cap Growth AWMCX, Sextant International SSIFX, Fidelity Overseas FOSFX, MFS International New Discovery MIDAX, and Fidelity Growth & Income FGRIX.

New Year, New Managers
Several funds rang in 2009 by shuffling their management teams.

Veteran manager Jim Gilligan has formally stepped down from several Morgan Stanley and Van Kampen funds after a successful 18-year tenure. He will stay with the firm, developing strategies that rely on ETFs and derivatives. Though Gilligan announced his decision to leave his manager role in early 2008, he stayed with the funds for most of the year to ease the transition for the team. Mary Jayne Maly, a longtime member of the firm who began her career on Gilligan's team in 1992, will take over Gilligan's sector coverage for moderate-allocation fund Van Kampen Equity & Income ACEIX and large-blend offering Van Kampen Growth & Income ACGIX, as well as mid-cap funds Van Kampen American Value MSAVX, Morgan Stanley Mid Cap Value MDFDX, Morgan Stanley Institutional US Mid Cap Value MPMVX, and Morgan Stanley Institutional Large Cap Relative Value MSIVX. Though she was officially named a comanager at the beginning of 2009, she has been working with Gilligan and the rest of the equity & income team--including new lead manager Tom Bastian, mid-cap head Tom Copper, James Roeder, Sergio Marcheli, Mark Laskin, and fixed-income head Sanjay Verma--for several months.

John Mazanec, who had a successful record at Wasatch Small Cap Value WMCVX, has also officially been added as comanager of Morgan Stanley Institutional US Mid Cap Value and Morgan Stanley Mid Cap Value. He joined the firm in late May 2008 and is already named comanager of Van Kampen American Value.PAGEBREAK

Fidelity Shuffles Managers
Fidelity has also made some changes to its specialty funds. Nicholas Price has replaced longtime manager Kenichi Mizushita on Fidelity Japan Smaller Companies FJSCX. Mizushita had run the $392 million fund since 1996, which is an extremely long tenure for a manager of a Japan-stock fund as well as for a Fidelity specialty fund. Fidelity lost another long-tenured manager, Yoko Ishibashi, from Fidelity Japan FJPNX in 2007.

Andrew Dierdorf and William Hall have taken over large-blend fund Fidelity Four-In-One Index FFNOX. Former managers Derek Young and Christopher Sharpe, who had been at the helm of the $1.4 billion fund since 2005, will continue to run several other funds, including the Fidelity Asset Manager funds (Young) and the Fidelity Freedom funds (Sharpe). Dierdorf joined the firm in 2004 and has comanaged moderate-allocation fund Fidelity Dynamic Strategies FDYSX since its launch in late 2007. Hall joined Fidelity in 2002 as an analyst.

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