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Fund Times

Fund Times: Openings, Closings, & Manager Changes

AIM, Invesco, Fidelity, Scudder, Munder, Gabelli, T. Rowe Price, MFS, and more.

October Wasn’t Black for Stock Funds
October was the best month for domestic-stock funds in nearly a year. We’re not about to guess whether the rally was the turning point between bear and bull markets. However, we did look at some of the largest funds in last month’s strongest-performing fund categories to see which ones were best-positioned to exploit the surge.

Nearly every stock fund category rose in October, while most bond fund groups fell. Technology and communications funds, as well as large-growth offerings, on average, had the best months. The typical Japan stock, real estate, and precious-metals funds lost money. All municipal bond categories shed money last month, while long- and intermediate-term government and corporate bond fund categories also retreated. Emerging-markets, international, and shorter-term corporate and government fixed-income groups advanced.

Among the larger-than-average technology funds, Fidelity Select Software & Computers  (FSCSX) and Munder NetNet  (MNNAX) each rose more than 25% and finished October in the top 10% of the category. T. Rowe Price Science & Technology  (PRSCX) advanced nearly 21% and beat more than two thirds of its peers. Resurgent Internet, software, and hardware names such as Yahoo , Microsoft (MSFT), and Cisco Systems (CSCO), helped the funds during the month.

Among bigger-than-average communications funds, Fidelity Select Telecommunications  (FSTCX) led with a 22% gain during October. Scudder Flag Communications  (TISHX) and Gabelli Global Telecommunications  (GABTX) followed with returns of nearly 13% each. A focus on phone-service providers such as SBC Communications (SBC) and Verizon Communications (VZ), which jumped 19% and 16%, respectively, during the month, buoyed all of the funds. Only Fidelity Select Telecommunications' month-end returns, however, ranked in the top half of the category. It beat 92% of its peers. The other two funds finished in the middle of the pack.

Strong-performing large-growth funds with large asset bases included Fidelity Aggressive Growth  (FDEGX), which rose more than 17%, and Fidelity Growth Company  (FDGRX) and MFS Strategic Growth  , which each returned between 11% and 12% in October. The Fidelity funds have healthy stakes of hardware, software, and biotechnology stocks that rebounded smartly during the month. MFS Strategic Growth’s software, media and health-care stocks helped it.

Among the biggest domestic-stock funds, Fidelity Magellan  (FMAGX) edged Vanguard 500  (VFINX) during the month 8.9% to 8.3%. PIMCO Total Return  (PTTRX), currently the biggest mutual fund in the business, gained less than 1% during the month.

Layoffs Hit Another Growth-Oriented Firm
AIM Funds said it's cutting jobs while its corporate parent reorganizes.

AIM said it expects to cut about 120 positions, or about 5% of its workforce, through a combination of voluntary and involuntary departures. It also will reduce travel costs and advertising spending. AIM joins a number of fund families specializing in growth investing, such as Janus Capital, that have laid people off and retrenched as the nearly three-year-long bear market has eroded their asset bases. AIM Funds had $183 billion in assets in March 2000 and has $117 billion now.

A week ago London-based Amvescap (AVZ), which owns the AIM and Invesco fund families, said it would reduce costs across the board. Invesco, which eliminated 115 positions during the summer, doesn’t expect to make any more changes.

Amvescap this week also announced a corporate level realignment. Effective Jan. 1, Amvescap will consolidate its five divisions into its AIM and Invesco units in an effort to simplify its structure. Mark H. Williamson will become chief executive officer of AIM, which will include Houston-based AIM Funds and Amvescap’s Canadian AIM-Trimark business. John D. Rogers will become chief executive officer of Invesco, which will include Invesco's institutional and global group as well as the Denver-based Invesco funds complex. Invesco Retirement will become Amvescap Retirement and will sell funds from both brands.

MFS Makes Strategic Change
MFS Strategic Value  manager Kenneth Enright and MFS Strategic Growth  manager S. Irfan Ali have replaced Maura Shaughnessy at MFS Capital Opportunities  , according to filings with the Securities and Exchange Commission. Shaughnessy had run the fund for nearly four years. The fund has struggled this year and last. Its three-year loss of nearly 16% is near the bottom of the large-blend category.

Strategic Value's three-year record is better than 97% of all large-value funds'. Strategic Growth’s results during Ali’s tenure have been mixed. It finished 1999 and 2000 above the large-growth category’s average, but its ranking has slipped since then.

On Second Thought
Two days after touting Tenet Healthcare (THC) in an interview in The New York Times, noted fund manager Tom Marsico took the unusual step of issuing a press release saying he had "reassessed" his opinion of the stock and was selling it.

In the article, which ran on Sunday, Marsico said he expected Tenet, which was a major holding of his Marsico Growth  (MGRIX) and Marsico Focus  (MFOCX) funds, to average earnings growth of 15% to 18% over the next three to five years. By Tuesday he was saying he intended to reduce and possibly eliminate Tenet from his portfolios.

What changed his mind? On Monday, Wall Street analysts downgraded the stock due to concerns over "Medicare outlier payments," or costs that exceed expectations for certain procedures. Later in the week, news swirled of a federal Medicare fraud investigation into two doctors at one of Tenet's hospitals. The stock has lost more than half of its value since last Friday’s closing price. Marsico’s announcement probably didn’t help.

Citizens Ousts Subadvisor
Socially responsible investing firm Citizens Advisors will replace Citizens Value Fund  subadvisor Shelly Meyers with an in-house management team. Meyers had managed the fund, which formally was known as the Meyers Pride Value Fund, since its June 1996 inception. The $15 million no-load, mid-cap value fund uses Citizens' standard social screens, which eschew tobacco, firearms, and nuclear power stocks. Citizens took control of Meyers Pride Value last year, but kept Meyers as the offering's subadvisor. The fund's trailing returns over the past three and five years rank in the bottom quarter of the category.

Stock Funds Suffer More Outflows
Investors continued selling stock funds in August and September following a record number of fund outflows in July, according to data released by the Investment Company Institute.

The mutual fund industry trade group said stock-fund investors took more than $3 billion out of equity offerings in August, and more than $16 billion in September. Both of these numbers are dwarfed by the more than $53 billion in net outflows the ICI reported in July.

Of the total stock-fund outflows, foreign-stock funds accounted for $2.5 billion in August (more than 83%) and $1.6 billion in September.

Bond funds had inflows of more than $17 billion in August and almost $16 billion in September. In July, investors pumped more than $28 billion into bond offerings, the ICI said.

Other News
Morgan Stanley Funds plans to offer a sector rotation fund, according to SEC filings. The proposed Morgan Stanley Allocator Fund will employ a top-down investment process. That means it will take the broad market and economy’s temperature first and use that and history as its guides when picking which asset classes, sectors, industries, and stocks and bonds are most likely to outperform in the future. There was no expense ratio listed for the broker-sold offering.

Raymond Kennedy has taken over AAL High Yield Bond Fund  (AAHYX) for Ben Trosky, who is retiring. Both managers work for the fund’s subadvisor, Pacific Investment Management Company (PIMCO).

PBHG Global Technology & Communications   will merge with PBHG Technology & Communications   in March pending a Feb. 27, 2003, shareholder vote.

In March J.P. Morgan will merge JP Morgan Core Equity  and Focus  funds with JP Morgan U.S. Equity  (JUEAX); JP Morgan Balanced   with JP Morgan Diversified  (JPDVX); JP Morgan Select Large Cap Equity  with JP Morgan Tax Aware U.S. Equity  ; and JP Morgan SmartIndex with JP Morgan Disciplined Equity (JDEAX).

Maxime Lemieux has taken over as manager of Fidelity Canada  (FICDX) for Stephen Binder, who has moved to a larger Fidelity fund available to only Canadian investors. Lemieux has managed a growth equity fund available only to Canadians since 2000.

Karen Bater has taken over Gartmore High Yield   from Curtiss Barrows, who had managed the fund since its late 1999 inception. Bater joined Gartmore in 2000 from First Union Bank, where she was the senior portfolio manager for enhanced yield products.

Fleet Investment Advisors vice president William M. Garrison has taken over Galaxy Small Company Equity Fund  from Steve Barbaro, who has run the $281 million-in-assets small-growth fund since its inception in December 1991.

Payden Europportunity Fund  will close and liquidate on Nov. 29. The $13 million-in-assets Europe-stock offering's year-to-date, one-year, and three-year returns rank in its category's basement.

Excelsior Latin America Fund  will merge with Excelsior Emerging Markets Fund (UMEMX) by the end of 2003's first quarter, if shareholders approve.

Morningstar analysts Bridget Hughes and William Harding contributed to this report.

Dan Culloton has a position in the following securities mentioned above: PTTRX. Find out about Morningstar’s editorial policies.