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Fund Times: T. Rowe Price Shuffles Managers

Plus, news on Fidelity's Reynolds retirement, Janus' Sallie Mae win, and more.

Morningstar Analysts, 04/23/2007

We've said it before: It's unusual to see so many manager changes at T. Rowe Price funds. We've learned recently that Bob Smith is leaving T. Rowe Price Growth Stock PRGFX for T. Rowe Price International Stock PRITX, where he'll be taking the lead and working with comanager Mark Bickford-Smith. At the same time, Rob Bartolo heads to Growth Stock from T. Rowe Price Media & Telecom PRMTX; both changes will occur this October. Henry Ellenbogen, comanager on Media & Telecom with Bartolo, will then run that fund solo. Our thoughts on these changes are mixed.

International Stock, long a middling performer, is getting a big upgrade. Smith has proved his mettle as a large-growth investor, producing strong long-term returns during his 10 years on Growth Stock. During his tenure, he beat out 91% of large-growth category rivals, and bested the S&P 500 Index. We also like that Smith has some international investing experience: He was formerly a comanager on T. Rowe Price Global Stock PRGSX, and he invested a healthy slice of Growth Stock overseas, although his experience in some market areas is limited. Additionally, we're encouraged to see a single manager lead the show at International Stock. While his comanager remains named on the portfolio, Smith will be the decision-maker when it comes to portfolio construction. Previously, the fund had three managers who each ran separate regional sleeves.

However, these changes are worrisome for Growth Stock and Media & Telecom. While we've been impressed with Bartolo's stock-picking ability in the past--and he's shown talent in comanaging Media & Telecom--Growth Stock will be the first diversified fund he's run. In addition, it's not a small fund. With $21.5 billion in assets and an average market cap nearly four times the size of his previous fund, Bartolo will be fishing in a much larger pond. And although Media & Telecom's Ellenbogen is a talented manager, having served as an analyst (as did Bartolo) under respected T. Rowe veteran Rob Gensler, the loss of Bartolo's talent on the fund is still disappointing. As a result, we'll be keeping a close watch on these funds.

Longtime Fidelity Leader Retires
Bob Reynolds, Fidelity's chief operating officer who also held the title of president of the mutual fund division, is retiring. This comes in the wake of the January retirement of Steve Jonas, who served as executive director of the funds group. It's hard to know what, if any, impact this will have on Fidelity funds. A trio of executives, who have been in place since May 2005, continue to oversee day-to-day operations. Walter Donovan, Boyce Greer, and Dwight Churchill have been involved since the start with a campaign to expand and reorient Fidelity's domestic equities operation. And of course, Ned Johnson, Fidelity Investments chairman, is by all accounts still quite involved in the funds group. Fidelity has not replaced Reynolds in the role of COO, although Ellyn McColgan, who runs the firm's booming brokerage business, has been promoted into a new role of president of distribution. And Johnson's daughter Abigail remains in charge of the employer services division. Change in Fidelity's executives ranks is not uncommon. The constant is Ned Johnson, Fidelity's chairman since 1972. PAGEBREAK

Janus Scores Big on Sallie Mae LBO
On April 16, several funds run by Janus benefited when student-lending giant Sallie Mae SLM announced that it has agreed to be acquired by a group consisting of two private-equity firms, J.C. Flowers and Friedman Fleischer & Lowe, as well as Bank of America BAC and J.P. Morgan Chase & Co. JPM. The acquiring group's $60 per-share cash offer is 20% above Morningstar's equity analysts' fair value estimate for the stock. Also, the announcement caused a near 20% jump in the stock's price that day, benefiting funds like Janus Contrarian JSVAX, which had purchased nearly 2.7 million shares of the lender over the past few months. The stock now represents the sixth-largest holding in the fund, recently comprising over 4% of total assets. Other Janus funds with significant stakes in Sallie Mae include Janus Balanced JABAX and Janus JANSX.

Oppenheimer Closes Small-Mid Cap Fund
Oppenheimer Funds will be closing Oppenheimer Small & Mid Cap Value QVSCX to new investors as of May 31. Current investors and those who invest in retirement plans, among others, will continue to be able to add to their accounts. This move comes a little over a year and a half after the fund, formerly a small-cap offering, altered its mandate to allow stocks up to $10 billion in market cap into the portfolio, and it added the "mid cap" to its name. While the close is intended to limit asset flows into the fund, we've found that "soft closing" funds (that is, closing them to new investors, but not existing investors) often are only marginal successful in stemming asset flows into popular funds. We'll keep a close eye on asset growth here.

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