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Fidelity Reopens Two Huge Funds

Plus, more Morgan Stanley changes and ProShares' latest ETFs.

Morningstar Analysts, 12/08/2008

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.

Fidelity plans to reopen two offerings, merge two away, and rename three others.

Large-growth Fidelity Contrafund FCNTX and mid-blend Fidelity Low-Priced Stock FLPSX will start accepting assets from new investors Dec. 16. Both funds are run by top stock-pickers. Will Danoff, Morningstar Domestic-Stock Manager of the Year in 2007, has demonstrated a knack for selecting companies with improving prospects and strong earnings growth during his 18 years at Contrafund. Since its April 2006 close, the fund's assets have fallen by roughly $13 billion through October 2008, primarily because of shareholder redemptions and steep losses. With $52 billion in assets, the Contrafund is not small or nimble, but Danoff has demonstrated that his approach can be successful over the long haul despite the fund's enormous asset base. At 0.89%, Contrafund also is cheaper than most no-load, large-cap offerings.

Low-Priced Stock, which has been closed since December 2003, has seen its assets shrink from its April 2007 peak of $41 billion to $18 billion as of October 2008. It remains the largest actively managed offering in its category, though. Manager Joel Tillinghast, Morningstar Domestic-Stock Manager of the Year in 2002, is more willing to delve into large caps and foreign stocks than his peers. The fund has an impressive long-term track record. Its 0.96% expense ratio is cheap compared with other no-load, mid-cap offerings.

Fidelity also asked for shareholder approval to merge Fidelity Select Paper & Forest Products FSPFX into Fidelity Select Materials FSDPX, and Fidelity Select Network & Infrastructure FNINX into Fidelity Select Communications Equipment FSDCX. The firm restructured its sector funds in 2006 to correspond with the Global Industry Classification Standards codeveloped by MSCI Barra, and Select Paper & Forest Products and Select Network & Infrastructure don't fit neatly into the MSCI GICS scheme. Both Select Materials and Select Communications Equipment have lower expense ratios than the funds to be merged away, charging 0.89% and 0.93%, respectively.

Foreign large-growth Fidelity Aggressive International FIVFX will be known as Fidelity International Capital Appreciation starting Dec. 30, 2008. Ironically, the fund has depreciated 56.8% for the year to date through Dec. 3 and is one of the worst performers in its category. And on Jan. 29, 2009, Fidelity Aggressive Growth FDEGX and Fidelity Advisor Aggressive Growth FGVAX will be renamed as Fidelity Growth Strategies and Fidelity Advisor Growth Strategies.PAGEBREAK

Morgan Stanley's Latest Changes
Morgan Stanley recently said goodbye to two of its fixed-income managers. Lead fixed-income manager Steven Kreider of balanced offerings Van Kampen Equity and Income ACEIX and Morgan Stanley Balanced BGRAX and lead manager Richard Scott of the struggling Morgan Stanley Limited Duration Bond MSLDX left the firm. Sanjay Verma, co-head of U.S. fixed income, will take over Kreider's responsibilities, and Virginia Keehan will take over for Scott.

The disruption should be minimal as Morgan Stanley uses a team-managed approach and all other members of the fixed-income team are staying put. Verma and his team will continue running the fixed-income sleeves of Equity and Income and Balanced with the goal of providing stability and current income. Management will keep the bulk of the portfolio in high-quality bonds and make minimal interest-rate bets. Both Equity and Income and Balanced have held up relatively well in the last turbulent year.

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