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FMR Corp.

FMR Corp.

82 Devonshire St.
Boston, Massachusetts 02109
U.S.A.
Telephone: (617) 563-7000
Fax: (617 476-6153
Web site: http://www.fidelity.com

Private Company
Incorporated: 1946 as Fidelity Management and Research Company
Employees: 28,000
Total Assets: $765.2 billion (1998)
NAIC: 52392 Portfolio Management (pt); 52393 Investment Advice; 52312 Securities Brokerage; 52311 Investment Banking and Securities Dealing; 523991 Trust, Fiduciary, and Custody Activities (pt); 523999 Miscellaneous Financial Investment Activities (pt)

Boston-based FMR Corp. is a diversified financial services company with operations in banking, mutual funds, life insurance, and retirement services. FMR is the parent company of Fidelity Investments, the largest mutual fund group in the world with more than $765 billion under management. The companys Fidelity Brokerage Services Inc. subsidiary is the second largest discount brokerage house in the United States. FMR has direct investments covering a wide range of industries, including telecommunications, real estate, publishing, and transportation. The privately held financial giants extraordinary growth is closely tied to the powerful influence of one family, that of Edward Ned Johnson III.

The Early Decades: 1930s60s

FMR traces its history to 1930, when the Boston money management firm of Anderson & Cromwelllater Cromwell & Cabotorganized Fidelity Shares. Designed to serve smaller investment accounts, the firms steady $3 million in assets were invested in Treasury notes rather than stocks. Efforts to boost the shareholder base using various distribution arrangements proved unsuccessful, although the firm did become a pioneer in shareholder communications by regularly updating shareholders through letters and reports on portfolio holdings. In 1938 Fidelity Fund opened its own offices, and Cromwell & Cabot began receiving a fee for its investment advice. Later that year, as the fund evolved and became more of an independent entity, Fidelitys president and treasurer began to draw salaries from the fund itself. Two years later a regulatory statute, the Investment Company Act of 1940, went into effect and enabled the accelerated growth of such mutual fund houses as Fidelity.

When Fidelity Funds president resigned in 1943, the funds directors recruited Edward C. Johnson II to take over, while he retained his position as treasurer and counsel to the large Boston investment trust Incorporated Investors. Johnson, a graduate of Harvard Law School, came from a wealthy Boston familyhis father was last in the line of Johnson family partners in Bostons premier retail dry goods store, C.F. Hovey & Company. Serving his father as trustee on family trust funds, Johnsons position with Fidelity Fund provided him with an opportunity to consolidate his familys investments and give free rein to his fascination with picking stocks.

Johnson had found his calling, and his uncanny gift for choosing moneymaking stocks provided the fuel for the companys remarkable expansionby 1945 the funds assets had risen to $10 million, and Johnson gave up his position with Incorporated Investors to devote his time to Fidelity. The following year Fidelitys contract with Cromwell & Cabot expired, and rather than renew it, Johnson chose to manage the fund himself and create a new firm, Fidelity Management & Research Company, to act as advisor. Also in 1946 Johnson began developing a group of Fidelity funds, beginning with the launch of the Puritan Fund. In the ensuing decade a variety of different investment groups were started, all under the umbrella of the Fidelity Group of Funds. Johnson continued to supervise Fidelitys portfolio until the mid-1950s, when the companys rapid growth necessitated shifting his attention to executive and administrative tasks. In the decade from 1947 to 1957, under his guidance, assets under management at Fidelity soared from $16 million to $262 million.

A well-established leader of the Boston financial community and a Wall Street legend, Johnson was a strong-willed chief executive who took an almost paternalistic interest in the company and in nurturing talent at the fund. Throughout his life, he never wavered in his fascination with the vagaries of the stock market, keeping a daily stock market diary for over 50 years, in order to sharpen his understanding of market fluctuations.

One of the talented young men who came under Johnsons tutelage was his son, Edward C. Ned Johnson III, who joined Fidelity in 1957 after working at State Street Bank. In that year two growth funds were added to the Fidelity Group. Ned was put in charge of the Trend Fund, while Gerry Tsai, another protege of the senior Johnson, became manager of the Capital Fund. Tsai was a young, inexperienced immigrant from Shanghai when Johnson hired him as a stock analyst in the early 1950s. Tsai bought such speculative stocks as Polaroid and Xerox when he took control of the Capital Fund. His performance gained him fame and customers, and in less than ten years he was managing more than $1 billion. Tsai, considered the prodigy of the investment world, eventually left Fidelity in 1965 after recognizing that it was Ned who was destined to succeed the elder Johnson as CEO.

The 1960s were a golden period for Fidelity, with the Trend and Capital Funds the high-performance heroes of that decade. From 1960 to 1965 assets under management swelled from $518 million to $2.3 billion. In 1962 the company established the Magellan Fund, which eventually became the largest mutual fund in the world. The firm also launched FMR Investment Management Service Inc., in 1964, for corporate pension plans; the Fidelity Keogh Plan, a retirement plan for self-employed individuals, in 1967; and, to attract foreign investments, established Fidelity International the following year in Bermuda. In addition, it formed Fidelity Service Company in 1969 to service customer accounts in-house, one of the first fund groups to do so.

Diversification and Expansion: 1970s-Early 1990s

By 1972, when Ned Johnson took over executive control from his father, the seemingly boundless growth of the 1960s had dissipated, and Fidelity was experiencing an uncharacteristic downturn in businessduring the two years from 1972 to 1974, assets had shrunk 30 percent. Under Neds control, the company began an ambitious expansion program, diversifying from its mutual fund base into a broad range of financial services. The new strategy seemed to work and by the late 1970s, Fidelity regained the momentum it had lost. Among the new services made available by the company was the Fidelity Daily Income Trust (FDIT), the first money market fund to offer check writing, which was launched in 1974. Bypassing traditional brokerage distribution channels, Fidelity offered the new fund directly to the public, using print advertising and direct mail. Two years later, Fidelity launched the first open-end, no-load municipal bond fund, and in 1979 Fidelity became the first major financial institution to offer discount brokerage services. That year Fidelity also organized an arm of the company to serve institutional investors.

During the late 1970s and much of the 1980s, Fidelity became the envy of the investment industry with the remarkable success of its Magellan equity fund. Under the management of investment wizard Peter Lynch, Magellan became the best-performing mutual fund in the nation. Beginning in 1977, when Lynch became manager, the mutual fund seemed to take off through a run of inspired stockpicking. Leading the ten-year fund performance rankings for most of the 1980s, Magellan consistently posted higher percentage gains than the Standard & Poor (S&P) 500 stock index. Typical of its performance, the fund scored an average annual gain of 21.1 percent in the five-year period ending March 31, 1989, which compared favorably to the 17.4 percent annual gain posted by the S&P 500.

Magellan had more than 1,000 companies in its portfoliomany more than the 200 or so that most big equity funds held. Industry observers traced Magellans success to the combination of Lynchs remarkable knowledge, his gift for picking stocks, a willingness to take risks, and the heavy promotion undertaken for the fund by Fidelity. During the 13 years that Lynch was in charge, Magellan grew at a breakneck pacefrom $20 million in 1977 to $12 billion by 1990.

Because Lynch did not invest heavily in conservative stocks and kept very little liquid capital, the Magellan Fund was hit hard by the crash that shook Wall Street on October 19, 1987. Caught off-guard, Fidelity was forced to sell shares heavily in a plummeting market to meet redemptions. On that day alone, nearly $1 billion worth of stock was sold. By the end of the week, Fidelitys assets had dropped from $85 billion to $77 billion. Still, almost all of the firms equity funds beat the market on Black Monday. In 1988, the year following the crash, Fidelitys revenues were down a quarter and profits were 70 percent lower. Determined never to suffer another Black Monday, Johnson cut personnel by almost a third (from a pre-crash high of 8,100), began sharpening the companys international presence, and prepared to enter the lucrative insurance field. In 1989, with more than $80 billion in assets under management, the firm had captured about nine percent of the entire mutual fund industry; a year later these figures leapt to nearly $119 billion in assets with over 35 million mutual fund transactions in 1990, the year Peter Lynch surprised the industry by resigning from the Magellan Fund to spend more time with his family and write (he rejoined the company as a part-time adviser in 1992).

Company Perspectives:

With our success, we have grown to an organization of more than 28,000 people, with businesses throughout the United States and across the globe. We must balance our growth by retaining the entrepreneurial spirit of a small company, where each individual knows how much his or her efforts count. Fidelitys culture is to build on our existing strengths as we explore future opportunities, to balance tradition with new thinking. Working together, we can provide valuable products and services for our customers.

By the early 1990s Magellan had lost its star status, although it still ranked among the top ten best-performing funds in the industry. In the meantime another Fidelity fund, Fidelity Select Health, a biotech fund, had taken over the number one spot, as Magellan moved to number three. The top five was rounded out by yet another one of Fidelitys funds, Fidelity Destiny 1. Most of Fidelitys top performers at that time came from its 36 select funds based on narrow industry segments.

Magellan was not the only fund to reap the rewards of Fidelitys advertising campaign. Beginning with Ned Johnsons leadership, the company began to more aggressively promote its services, keeping a high profile in the industry and before the general public through its big-budget marketing efforts. By the early 1990s the companys advertising budget was $28 million per year, making it the biggest advertiser in the mutual fund industry. Meanwhile, Fidelity was also reaching the public through a nationwide network of branch offices, launched in 1980.

Like his father, Ned Johnson was also fascinated by Japanese culture, inspiring him to adopt Japanese-style management. The company was vertically integrated in order to make it more self-sufficient. One of the functions brought inhouse was the account processing that banks usually handled for mutual funds. Fidelity was then able to capitalize on these operations by selling its services to other investment firms. Johnson was also prompted to create a closer relationship with employees and management. Ideas for improving business were solicited, while promoting an atmosphere of team loyalty.

In the late 1960s Fidelity beganbefore many other banking and investment firmsto invest a large share of its budget in technology, with an eye toward becoming technologically self-reliant. As a result Fidelity was able to stay on top of the data processing and telecommunications revolution that was beginning to transform the financial industry. This strategy continued, and as the company entered the 1990s Fidelity was spending more than $150 million a year in the technology realm. The company was at the forefront of the group of financial firms making the transition from traditional roles to one of technology-based customer service, offering a kind of one-stop financial services shop.

An example of these advances was the interactive, automated telephone system that Fidelity was among the first to install in 1983. The following year the firm began offering computerized trading through Fidelity Investors Express. This service allowed customers to perform their own stock trades through home personal computerswhat had become known as desktop investing. Fidelity also had custom-designed software to help representatives tap more information, including margin calculations and options analysis, while responding swiftly to customer requests. By the early 1990s Fidelity had upgraded its phone answering system to the point where it could handle 672 calls simultaneously on its automated toll-free lines, while a master console in Boston routed calls to the first available operator around the country. Fidelity also had its own electronic stock trading system, called the Investor Liquidity Network, that matched buy and sell orders from its brokerage and fund operators with those of outside institutional investors.

With the advent of the 1990s Fidelity had embarked on a new strategy to maintain its competitive advantage. Increasingly, it was aiming to be a low-cost personal financial advisor, moving in on territory traditionally associated with banks and brokers. Fidelity first crossed the line into bankings territory in 1983, by offering its USA checking service to customers with a minimum balance of $25,000. At the same time, Fidelitys enormous research and technology capabilities were being mobilized to provide customers with guidance in a wide range of areas, from retirement savings to planning for a college education.

Previously, Fidelitys custom services had been targeted at its richest clients, but by the early 1990s the firm was offering a wide range of services to all of its six million customers. After a slow start, the discount brokerage operation, which lost money in its first nine years, was expanded in the late 1980s with the addition of three new offices. This service eventually became the second largest in the country. In 1987 Fidelity also moved into the insurance and annuity business by offering its customers in certain states such products as single premium policies, deferred annuities, and variable life policies. In 1989 Fidelity offered the new Spartan Fund, which featured a low expense charge for larger, less active investors. Throughout the 1980s the companys institutional business grew, and by the end of the decade, Fidelity had become the largest manager of 401(k)s. From 1984 to the end of the decade, institutional assets under Fidelity management grew from $9.9 billion to $40 billion.

By the end of the first 20 years of Ned Johnsons reign, assets under Fidelity Investments management had grown 21 percent annually, and with the close of 1991 FMR Corp. had posted record revenues of $1.5 billion, and record profits as well. During those two decades FMR became a highly diversified corporation with some 41 companies under its umbrellaamong the financial companies were such firms as an art gallery, a limousine service, an employment agency, and a publishing concern. In addition, in April 1992 Fidelity Investments purchased 7.5 percent of banking giant Citicorps common stock. Worth $480 million, this stake made Fidelity the largest single shareholder of common stock in the nations largest banking company.

Key Dates:

1930:
Fidelity Fund is formed by Anderson & Cromwell.
1943:
Edward C. Johnson II becomes president of the Fidelity Fund.
1946:
Johnson establishes Fidelity Management and Research.
1962:
Magellan Fund is established.
1969:
Company begins serving international investors through Fidelity International.
1972:
FMR Corp. is formed. Edward Ned C. Johnson III takes over control of the company.
1977:
Peter Lynch becomes manager of the Magellan Fund.
1979:
FMR offers discount brokerage services.
1984:
Company offers computerized trading services.
1990:
Peter Lynch retires from Magellan Fund.
1993:
Assets under management surpass $200 billion mark.
1996:
Fidelity introduces its redesigned web site.

Over the course of the companys history, Fidelity proved itself time and again by taking risks and seizing opportunities, and despite a skittish investor market and a sluggish economy in the late 1980s and early 1990s, the company maintained its competitive edge. The Johnson family owned 47 percent of the stockworth approximately a billion dollarsand most of the voting shares. The other 53 percent of the stock was owned by employees, principally senior managers, who were obligated to sell their shares back to the company when they left.

Continuing Growth and Challenging Times in the 1990s

The year 1993 was a banner one for FMR, and the companys total assets under management increased 36 percent, from $190 billion to $258 billion. Performing especially well in 1993 was Fidelitys growth fund group, which included Magellan. Nearly all of Fidelitys stock funds bettered the S&P 500, and Magellan alone grew from $22 billion in 1992 to $31 billion in 1993. Much of Magellans success was attributed to manager Jeffrey Vinik, who assumed control of the fund in mid-1992. Vinik invested heavily in technology, cyclical, foreign, and natural gas stocks. Fidelitys market share in the mutual fund industry, which had hovered around the ten percent mark for four years, rose to 11.5 percent in 1993. In order to provide clients with a wide array of mutual fund choices, FMR in July launched Fidelity FundsNetwork, which offered non-Fidelity funds with no transaction fee. More than 250,000 new retail brokerage accounts and 1.5 million new retail mutual fund accounts, the highest number since 1987, were opened in 1993. John Rekenthaler, editor of the publication Morningstar Mutual Funds, which followed the activity of mutual funds, commented on Fidelitys performance in Business Week, Any way you cut the numbers, Fidelity is doing spectacularly.

Also in 1993 FMR made headway in its capital group. Its Community Newspaper Company completed the acquisition of Beacon Communications from Chronicle Publishing Company of San Francisco. The purchase, which included 15 weekly newspapers and one daily, made Community Newspaper the largest operation of weekly newspapers in New England. FMR also founded a new company, City of London Telecommunications (COLT), and started Fidelity Personal Trust Services in three New England states.

The unsurpassed growth and success were not to continue so easily, however, and FMR faced increasing challenges in the mid-1990s. Though FMR enjoyed increased revenues, 1994 also brought rising interest rates and a volatile market. Small stocks suffered, and because many Fidelity funds invested heavily in smaller companies, FMR suffered as well. The U.S. bond market was, according to FMR, one of the worst since 1927, and the firms fixed-income funds outperformed only 23 percent of their competitors. The company restructured its fixed income group management in order to increase efficiency. Gross retail sales for 1994 declined 35 percent.

In addition to Fidelitys losses in 1994, the company struggled to maintain consumer confidence after several incidents had sullied its reputation. The first occurred with the 1992 conviction of former portfolio manager Patricia Ostrander for accepting bribes from Drexel Burnham Lamberts Michael Milken in the late 1980s. Then came three revelations in 1994: the deliberate transmission of day-old prices for about 150 mutual funds; a company reversal after stating that the Magellan Fund would pay a year-end distribution, when in fact it would not; then another gaffe when incorrect 1099-DIV forms were mailed to shareholders of two international funds. Yet despite these problems and negative economic factors, Fidelity still managed to beat over 83 percent of its fund competition, posted increases for most of its business units, and raised assets under management to $297 billion, a climb of nearly 15 percent for 1994.

In 1995 the S&P 500 had a return of 37.58 percent, its top performance since 1958. Still, because a large percentage of the rise resulted from a small number of large company stocks, FMR struggled to maintain its pace. Though some of FMRs stock funds, such as the growth group, performed well in 1995, others did not. The growth and income group, with heavy investments in retail and energy industries, did poorly, as did the asset allocation group and the international group. FMRs high-income funds outperformed more than 75 percent of its peers, but the Capital & Income funds poor performance impacted the group. A considerable Capital & Income investment in Harrahs Jazz went sour when the company declared bankruptcy.

In 1996 revenues and assets under management increased, but net income dropped from $4.31 billion in 1995 to $4.23 billion. The U.S. economy was strong, inflation low, and the stock market active, but just as in 1995, the best-performing stocks were a small number of large companies. As a result, only about 26 percent of Fidelitys stock funds outperformed the S&P 500. Magellan was one of the funds that performed poorly; its holdings in cash and bonds hurt results, and it was not as invested in well-performing industries, such as healthcare and technology. FMR restructured its equity group, reassigning a number of managers and dividing the group into eight business units. The restructuring of the fixed income group in 1994 had led to increased performancein 1996 its funds outperformed 74 percent of the competitionand FMR hoped the same would happen with the equity division.

Despite some challenging years, FMR continued to expand and diversify. In 1994 the company announced plans to open a fifth regional operations center, in Marlborough, Massachusetts, and Fidelity Capital Markets opened a new trading floor at the World Trade Center in Boston. Fidelitys market share in the mutual fund market grew to 12.8 percent, up from 11.5 percent, and almost 1.5 million new customer accounts were opened. Also in 1994 Ned Johnson gave daughter Abigail Johnson a 24 percent interest in FMR, leading many to speculate that she was being groomed to take over the company upon Ned Johnsons retirement.

FMR opened its fifth regional operations center, in Merriack, New Hampshire, in 1996. The company entered the commercial software business with the establishment of Fidelity Technologies, a company geared toward developing and marketing software to other businesses. FMR advanced on the technology front in another aspect with the redesign and relaunch of a new web site. By year-end, the Fidelity web site was being visited about 476,000 times a day, up from 43,000 during the fourth quarter of 1995. FMRs telecommunications company, COLT, went public in late 1996.

FMR and Fidelity faced many changes in 1997 and 1998 as the financial services climate grew increasingly competitive. In November Fidelity Investments announced a company reorganization effort designed to streamline operations and help boost mutual fund sales, which were sluggish during the first half of the year. James Curvey, who became FMRs chief operating officer that year, explained to USA Today, The key reason why we made the change: We need to simplify our organization. Absolutely, we will become more efficient. Though the firms fund performance began to improve toward the end of 1997, it was still not doing as well as the company hoped. According to Financial Research Corp., a firm that tracked mutual fund purchases, sales of Fidelitys mutual funds fell for the fourth year in a row in 1997. Also during this transition year FMR sold some non-strategic operations, such as its credit card business and its stake in Wentworth Gallery Ltd. FMR also closed its retail brokerage operations in the United Kingdom due to poor performance. The company was able to open some new operations in 1997 as well, including client service offices in Latin America. Energized by COLTs promising performance, Fidelity formed MetroRed, a telecommunications start-up business in South America.

In 1998, just months after closing its discount brokerage operations in the U.K., Fidelity opened a similar operation in Tokyo, Japan. Japan represented an untapped market, with the majority of personal finances stored in low-interest savings accounts. Also in 1998 Fidelity opened a sixth regional operations center, in Rhode Island. The company divested its Capital Publishing unit, publisher of Worth, Civilization, and The American Benefactor, presumably to focus on building its mutual fund operations. To reinforce its brand, Fidelity launched a national advertising and marketing campaign in 1998. Television and print ads featured Peter Lynch and the tag line, Know What You Own, and Know Why You Own It.

Management changes in the late 1990s included the appointment of Bob Pozen as president of FMR in 1997, the same year James Curvey became chief operating officer. J. Gary Burkhead was promoted to vice-chairman of FMR from director, and Abigail Johnson took on a management role, leading the specialized growth group. In 1998 James Curvey took on the additional role of president of FMR. Pozen remained president of Fidelity Management & Research Company.

The stock market continued to perform strongly into the late 1990s, and the S&P 500 increased more than 28 percent in 1998, achieving more than 20 percent rises for the fourth straight year. Fidelitys mutual fund assets under management rose 25 percent over 1997, reaching $694.4 billion. In addition, the firms funds beat 73 percent of their competitors, the best performance since 1993, and Fidelity funds made up 42 percent of the U.S. mutual funds that outperformed the S&P 500 in 1998. Despite such positive performances and a sales increase of 15 percent over 1997, net income fell from $535.6 million to $445.7 million. The company attributed the decline to drops in brokerage commissions, increasing expenses, and performance penalty fees.

As FMR neared 2000, the outlook appeared positive. For the first quarter of 1999, revenue shot up 27 percent to reach $2 billion, thanks to increases in brokerage commissions and mutual fund management fees. Net income increased more than fourfold to reach $294.1 million. In June FMR announced plans to raise $750 million, its most significant effort to raise money in company history. The firm indicated the money was needed to finance expansion of facilities and fund investment opportunities. FMR also planned to launch a savings and loan, called Fidelity Personal Trust Company.

With a long and rich history, FMR was by the late 1990s a global financial giant. The diverse conglomerate was not only the largest mutual fund company in the world but also the top provider of individual retirement plans in the United States, as well as the second largest discount brokerage firm. FMR had more than 15 million customers, more than $765.2 billion in assets under management, and more than 280 funds under its administration. With the U.S. economy showing no signs of a slowdown, and FMR demonstrating a willingness to advance and adapt with the times, it seemed likely FMR and the Fidelity name would continue to succeed and dominate the financial services sector.

Principal Subsidiaries

Fidelity Institutional Retirement Services Company; Fidelity Investments Actuarial Consulting Services; Fidelity Investments Public Sector Services Company; Fidelity Employer Services Company; Fidelity Investments Tax-Exempt Services Company; Fidelity Group Pensions International; Fidelity Group Pensions Japan; Fidelity Management Trust Company; Fidelity Brokerage Services Inc.; Fidelity Customer Marketing and Development Group; Fidelity Distributors Corporation; Fidelity Retail Distribution and Services; Fidelity Retail Operations and Technology; Fidelity Service Company, Inc.; National Financial Services Company; Fidelity Investments Canada Limited; Fidelity Money Management, Inc.; Strategic Advisers, Inc.; BostonCoach; Fidelity Interactive Company; J. Robert Scott; Community Newspaper Co.; Fidelity Investments Life Insurance Company; The Seaport Hotel; Devonshire Custom Publishing; Fidelity Investments Personal Trust Company; Tempworks/Tempsource; World Trade Center Boston.

Principal Operating Units

Fidelity Investments Institutional Retirement Group; Fidelity Personal Investments & Brokerage Group; Fidelity Investments Institutional Services Company, Inc.; Fidelity Brokerage Services Japan, LLC; Fidelity Management & Research Company; Fidelity Corporate Systems and Services; Fidelity Capital; Fidelity Ventures.

Principal Competitors

The Charles Schwab Corporation; T. Rowe Price Associates, Inc.; The Vanguard Group, Inc.

Further Reading

Browning, Lynnley, Fidelitys Unassuming Heir, Boston Globe, August 8, 1999, p. A1.

Churbuck, David, Watch Out, Citicorp, Forbes, September 16, 1991.

Eaton, Leslie, Junk Ethics: Michael Milkens Powers of Persuasion Included Bribery, Barrons, August 3, 1992, pp. 89, 2026.

Fidelity Fights Back, Economist, August 8, 1992, pp. 6768.

Fierman, Jaclyn, Fidelitys Secret: Faithful Service, Fortune, May 7, 1990, pp. 8692.

Helm, Leslie, et al, Fidelity Fights Back: Can CEO Johnson Revive the Behemoth of the Mutual Fund Industry?, Business Week, April 17, 1989, pp. 6873.

Hechinger, John, Fidelity Investments Unveils Plan for Raising $750 Million in Debt, Wall Street Journal June 16, 1999, p. A4.

Henderson, Barry, Magellan Steams Ahead: Fund Beats S&P, Putting Fidelity on Course for Big Revenues, Barrens, December 13, 1999, p. F3.

Hirsch, James S., Fidelity Sells Publishing Unit, Posts Gains, Wall Street Journal, April 6, 1998, p. B21.

McCartney, Robert J., Mutual Fund Firm Fidelity Buys Big Stake in Citicorp, Washington Post, April 28, 1992, pp. D1, D4.

Schwartzman, Sharon, Fidelitys Formula: Technology Keeps Customers Happy, Wall Street Computer Review, July, 1991, pp. 2732.

Smith, Geoffrey, Fidelity Jumps Feet First into the Fray, Business Week, May 25, 1992, pp. 10406.

, Whats Behind Fidelitys Riveting Results, Business Week, November 22, 1993, p. 114.

Stern, Richard L., Henry Ford Meet Ned Johnson, Forbes, September 3, 1990, pg. 42.

Waggoner, John, Fidelity Investments Retools Fund-Selling Structure, USA Today, November 4, 1997, p. B6.

Timothy Bay and Kim M. Magon

updated by Taryn Benbow-Pfalzgraf and Mariko Fujinaka

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FMR Corp.

FMR Corp.

82 Devonshire St.
Boston, Massachusetts 02109
U.S.A.
(617) 570-7000
Fax: (617) 439-0043

Private Company
Incorporated:
1946
Employees: 7,000
Operating Revenues: $1.47 billion
SICs: 6282 Investment Advice

Boston-based FMR Corp. is the holding company for, among other businesses, the largest mutual fund group in the world, Fidelity Investments, with over $170 billion under management. Since the late 1970s the privately held FMR Corp. has branched out into a wide range of financial services, from credit cards to discount brokerageFidelity Brokerage Services, Inc. is the second largest discount brokerage house in the countryto insurance. In addition, a chain of art galleries, a transportation service, real estate, and publishing concerns make up the balance in the portfolio of this financial giant, whose extraordinary growth is closely tied to the powerful influence of one family, the Johnsons, namely Edward II and his son, Edward Ned III.

FMR traces its history to 1930, when the Boston money management firm of Anderson & Cromwelllater Cromwell & Cabotorganized Fidelity Shares. Designed to serve smaller investment accounts, the firms steady $3 million in assets were invested in Treasury notes rather than stocks. Efforts to boost the shareholder base using various distribution arrangements proved unsuccessful, although the firm did become a pioneer in shareholder communications by regularly updating shareholders through letters and reports on portfolio holdings. In 1938 Fidelity Fund opened its own offices, and Cromwell & Cabot began receiving a fee for its investment advice. Later that year, as the fund evolved and became more of an independent entity, Fidelitys president and treasurer began to draw salaries from the fund itself. Two years later a regulatory statute, the Investment Company Act of 1940, went into effect and enabled the accelerated growth of such mutual fund houses as Fidelity.

When Fidelity Funds president resigned in 1943, the funds directors recruited Edward C. Johnson II to take over, while he retained his position as treasurer and counsel to the large Boston investment trust Incorporated Investors. Johnson, a graduate of Harvard Law School, came from a wealthy Boston familyhis father was last in the line of Johnson family partners in Bostons premier retail dry goods store, C.F. Hovey & Company. Serving his father as trustee on family trust funds, Johnsons position with Fidelity Fund provided him with an opportunity to consolidate his familys investments and give free rein to his fascination with picking stocks.

Johnson had found his calling, and his uncanny gift for choosing moneymaking stocks provided the fuel for the companys remarkable expansionby 1945 the funds assets had risen to $10 million, and Johnson gave up his position with Incorporated Investors to devote his time to Fidelity. The following year Fidelitys contract with Cromwell & Cabot expired, and rather than renew it, Johnson chose to manage the fund himself and create a new firm, Fidelity Management & Research Company, to act as advisor. Also in 1946 Johnson began developing a group of Fidelity funds, beginning with the launch of the Puritan Fund. In the ensuing decade a variety of different investment groups were started, all under the umbrella of the Fidelity Group of Funds. Johnson continued to supervise Fidelitys portfolio until the mid-1950s, when the companys rapid growth necessitated shifting his attention to executive and administrative tasks. In the decade from 1947 to 1957, under his guidance, assets under management at Fidelity soared from $16 to $262 million.

A well-established leader of the Boston financial community and a Wall Street legend, Johnson was a strong-willed chief executive who took an almost paternalistic interest in the company and in nurturing talent at the fund. Throughout his life, he never wavered in his fascination with the vagaries of the stock market, keeping a daily stock market diary for over 50 years, in order to sharpen his understanding of market fluctuations.

One of the talented young men who came under Johnsons tutelage was his son, Edward C. Ned Johnson III, who joined Fidelity in 1957 after working at State Street Bank. In that year two growth funds were added to the Fidelity Group. Ned was put in charge of the Trend Fund, while Gerry Tsai, another protégé of the senior Johnson, became manager of the Capital Fund. The 1960s were a golden period for Fidelity, with the Trend and Capital Funds the high-performance heroes of that decade. From 1960 to 1965 assets under management swelled from $518 million to $2.3 billion. However, Tsai, who was considered the prodigy of the investment world, eventually left Fidelity in 1965 after recognizing that it was Ned who was destined to succeed the elder Johnson as CEO.

The first hint of FMRs later growth came in 1969, when Fidelity International was organized in order to serve overseas investors. Based in Bermuda, the firm became independent from the U.S. holding company in 1980, at which time its mutual fund and pension assets had risen to $10 billion. By the end of the decade, however, the foreign operation had reunited with the U.S. operation.

By 1972, when Ned Johnson took over executive control from his father, the seemingly boundless growth of the 1960s had dissipated, and Fidelity was experiencing an uncharacteristic downturn in businessduring the two years from 1972 to 1974, assets had shrunk 30 percent. Under Neds control, the company began an ambitious expansion program, diversifying from its mutual fund base into a broad range of financial services. The new strategy seemed to work and by the late 1970s, Fidelity regained the momentum it had lost. Among the new services made available by the company was the Fidelity Daily Income Trust (FDIT), the first money market fund to offer check writing, which was launched in 1974. Bypassing traditional brokerage distribution channels, Fidelity offered the new fund directly to the public, using print advertising and direct mail. Two years later, Fidelity launched the first open-end, no-load municipal bond fund, and in 1979 Fidelity became the first major financial institution to offer discount brokerage services. That year Fidelity also organized an arm of the company to serve institutional investors.

During the late 1970s and much of the 1980s, Fidelity became the envy of the investment industry with the remarkable success of its Magellan equity fund. Under the management of investment wizard Peter Lynch, Magellan became Americas best-performing mutual fund. Beginning in 1977, when Lynch became manager, the mutual fund seemed to take off through a run of inspired stock-picking. Leading Americas ten-year fund performance rankings for most of the 1980s, Magellan consistently posted higher percentage gains than Standard & Poors 500-stock index, the standard of the industry. Typical of its performance, the fund scored an average annual gain of 21.1 percent in the five year period ending March 31, 1989, which compared favorably to the 17.4 percent annual gain posted by S & Ps top 500 stocks.

Magellan had more than 1,000 companies in its portfoliomany more than the 200 or so that most big equity funds hold. Industry observers traced Magellans success to the combination of Lynchs remarkable knowledge, his gift for picking stocks, a willingness to take risks, and the heavy promotion undertaken for the fund by Fidelity. During the 13 years that Lynch was in charge, Magellan grew at a breakneck pacefrom $20 million in 1977 to $12 billion by 1990, the year that Lynch left the company.

By the early 1990s Magellan had lost its star status, although it still ranked among the top ten best-performing funds in the industry. In the meantime another Fidelity fund, Fidelity Select Health, a biotech fund, had taken over the number one spot, as Magellan moved to number three. The top five was rounded out by yet another one of Fidelitys funds, Fidelity Destiny 1. Most of Fidelitys top performers were now coming from its 36 select funds based on narrow industry segments.

Magellan was not the only fund to reap the rewards of Fidelitys advertising campaign. Beginning with Ned Johnsons leadership, the company began to more aggressively promote its services, keeping a high profile in the industry and before the general public through its big-budget marketing efforts. By the early 1990s the companys advertising budget was $28 million per year, making it the biggest advertiser in the mutual fund industry. Meanwhile, Fidelity was also reaching the public through a nationwide network of branch offices, launched in 1980.

Like his father, Ned Johnson was also fascinated by Japanese culture, inspiring him to adopt Japanese-style management. The company was vertically integrated in order to make it more self-sufficient. One of the functions brought in-house was the back-office account processing that banks usually handle for mutual funds. Fidelity was then able to capitalize on these operations by selling its services to other investment firms. Johnson was also prompted to create a closer relationship with employees and management. Ideas for improving business were solicited, while promoting an atmosphere of team loyalty.

In the late 1960s Fidelity beganbefore many other banking and investment firmsto invest a large share of their budget in technology, with an eye toward becoming technologically self-reliant. As a result Fidelity was able to stay on top of the data-processing and telecommunications revolution that was beginning to transform the financial industry. This strategy continued, and as the company entered the 1990s Fidelity was spending more than $150 million a year in the technology realm. The company was at the forefront of the group of financial firms making the transition from traditional roles to one of technology-based customer service, offering a kind of one-stop financial services shopping convenience.

An example of these advances was the interactive, automated-service telephone system that Fidelity was one of the first to install in 1983. The following year the firm began offering computerized trading through Fidelity Investors Express. This service allowed customers to do their own stock trades through home personal computerswhat had become known as desktop investing. Fidelity also had custom-designed software to help representatives tap more information, including margin calculations and options analysis, while responding swiftly to customer requests. By the early 1990s Fidelity had upgraded its phone answering system to the point where it could handle 672 calls simultaneously on its automated toll-free lines, while a master console in Boston routed calls to the first available operator around the country. Fidelity also has its own electronic stock trading system, called the Investor Liquidity Network, that matched buy and sell orders from its brokerage and fund operators with those of outside institutional investors.

With the advent of the 1990s Fidelity had embarked on a new strategy to maintain its competitive advantage. Increasingly, it was aiming to be a low-cost personal financial advisor, moving in on territory traditionally associated with banks and brokers. Fidelity first crossed the line into bankings territory in 1983, by offering its USA checking service to customers with a minimum balance of $25,000. At the same time, Fidelitys enormous research and technology capabilities were being mobilized to provide customers with guidance in a wide range of areas, from retirement savings to planning for a college education.

Previously, Fidelitys custom services had been targeted at its richest clients, but by the early 1990s the firm was offering a wide range of services to all of its six million customers. After a slow start, the discount brokerage operation, which lost money in its first nine years, was expanded in the late 1980s with the addition of three new offices. This service eventually became the second largest in the country. In 1987 Fidelity also moved into the insurance and annuity business by offering its customers in certain states such products as single-premium policies, deferred annuities, and variable life policies. In 1989 Fidelity offered the new Spartan Fund, which offers a low expense charge for larger, less active investors. Throughout the 1980s the companys institutional business grew, and by the end of the decade, Fidelity had become the largest manager of 401(k)s. From 1984 to the end of the decade, institutional assets under Fidelity management grew from $9.9 billion to $40 billion.

The stock market crash of October 19, 1987, had its repercussions for Fidelity. The companys assets fell by almost $5 billion in the wake of that event, and Fidelity was forced to reduce the number of its employees to about 5,300 from 8,100. Eventually, Fidelity slowly began to regain its work force, now numbering over 7,000. Fidelity was also affected by the insider trading scandals that brought the curtain down on the hedonistic 1980s. In 1992 a federal district court jury in Manhattan convicted former Fidelity Investment portfolio manager Patricia Ostrander of accepting an illegal gift from Michael Milken, which she hid from Fidelity. Ostrander had invested her funds money in a particularly risky Drexel Burnham deal that in just two years turned $13,200 into $755,300.

By the end of the first 20 years of Ned Johnsons reign, assets under Fidelity Investments management had grown 21 percent annually, and with the close of 1991 FMR Corp. had posted record revenues of $1.5 billionup 16 percent from the previous year. Profits that year were also at record-breaking levels, reaching $90 billion. During those two decades FMR became a highly diversified corporation with some 41 companies under its umbrellaamong the financial companies were such firms as an art gallery, a limousine service, an employment agency, and a publishing concern. In addition, in April of 1992 Fidelity Investments purchased 7.5 percent of banking giant Citicorps common stock. Worth $480 million, this stake made Fidelity the largest single shareholder of common stock in the nations largest banking company.

Over the course of the companys history, Fidelity has proven itself time and again by taking risks and seizing opportunities, and despite a recently skittish investor market and a sluggish economy, the company has maintained its competitive edge. In the meantime the Johnson family, with 47 percent of the stockworth approximately a billion dollarsand most of the voting shares, do not give any indication that the company will go public. The other 53 percent of the stock is owned by employees, principally senior managers, who must sell their shares back to the company when they leave.

Principal Subsidiaries

FMR Texas; Advanced MobileComm Inc.; Advanced Mobile Communications International, Inc. (The London Pager); Boston Coach Corp.; Capital Publishing, Inc.; Charitable Gift Fund; COLT (City of London Telecommunications); Community Newspaper Company, Inc.; Fidelity Consumer Financial Services, Inc.; Fidelity Investments Life Insurance Company; Fidelity Publishing; Fidelity Trust Company; J. Robert Scott, Inc.; Proxy Edge; Teleport Communications Boston; Wentworth Gallery Ltd., Inc.; World Trade Center Boston; Fidelity Investments Canada Limited; Strategic Advisors, Inc.; Fidelity Investments Southwest Company; Fidelity Properties Inc.; Fidelity Security Services, Inc.; Fidelity Systems Company; FMR Kentucky, Inc.

Further Reading

Churbuck, David, Watch Out, Citicorp, Forbes, September 16, 1991.

Eaton, Leslie, Junk Ethics: Michael Milkens Powers of Persuasion Included Bribery, Barrens, August 3, 1992, pp. 89, 20-26.

Fidelity Fights Back, The Economist, August 8, 1992, pp. 6768.

Fierman, Jaclyn, Fidelitys Secret: Faithful Service, Fortune, May 7, 1990, pp. 8692.

Helm, Leslie, et al, Fidelity Fights Back: Can CEO Johnson Revive the Behemoth of the Mutual Fund Industry? Business Week, April 17, 1989, pp. 6873.

McCartney, Robert J., Mutual Fund Firm Fidelity Buys Big Stake in Citicorp, Washington Post, April 28, 1992, pp. D1, D4.

Schwartzman, Sharon, Fidelitys Formula: Technology Keeps Customers Happy, Wall Street Computer Review, July, 1991, pp. 2732.

Smith, Geoffrey, Fidelity Jumps Feet First into the Fray, Business Week, May 25, 1992, pp. 104106.

Stern, Richard L., Henry Ford Meet Ned Johnson, Forbes, September 3, 1990, pg. 42.

Timothy Bay

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FMR Corp.

FMR Corp.

founded: 1946



Contact Information:

headquarters: 82 devonshire street
boston, ma 02109 phone: (617)563-7000 toll free: (800)343-3548 url: http://www.fidelity.com

OVERVIEW

FMR Corp. is the holding company for Fidelity Investments, one of the world's largest providers of financial services, with $862.6 billion in managed assets as of April 30, 2002. Fidelity offers 323 mutual funds to its 17 million corporate and individual customers. Not until the early 2000s was Fidelity Magellan Fund usurped by the Vanguard 500 Index Fund as the largest mutual fund in the United States. Along with mutual fund management and related investment services, Fidelity also offers trust services through Fidelity Personal Trust Company, created in 2000. Non-financial assets include a 54 percent stake in COLT Telecom Group as well as various real estate and transportation holdings.



COMPANY FINANCES

Revenues for Fidelity Investments grew steadily throughout the 1990s, reaching $11.096 billion in 2000, compared to $1.474 billion in 1991 and $5.047 billion in 1996. Net income grew from $89.0 million in 1991 to $423.1 million in 1996 and $1 billion in 1999. That year, the firm's profit margin reached 11.4 percent.

The North American economic downturn that began in 2000 and continued through 2001 undercut the performance of all large mutual fund groups, including Fidelity Investments. In fact, the mutual fund manager saw its total return on investment plunge to –12.1 percent in 2001. One bright spot for FMR Corp. was its Fidelity Capital unit, which posted revenues of $1.162 billion in 2001, nearly 43 percent higher than 2000 revenues of $815 million.

ANALYSTS' OPINIONS

In the early 2000s, many financial industry analysts began to question the viability of large diversified fund companies like Fidelity. Recessionary economic conditions precipitated a prolonged depression of the stock market. As a result, profits for investment firms tumbled, prompting some to raise their fees and minimum investment requirements. According to a December 2001 article in Business Week, "The be-everything-to-everybody business model of giants such as Fidelity Investments, Dreyfus, Putnam Investments, and T. Rowe Price is showing serious chinks." Fidelity executive Richard A. Spillane, Jr. defended the business model, however, asserting that a large, diversified asset base "improves your odds of delivering the performance" and "allows us to have a 500-person equity staff spread all over the globe."



HISTORY

In 1930 investment counsel Anderson & Cromwell, a money management firm based in Boston, Massachusetts, created the Fidelity Fund. In 1938, the Fidelity Fund began to operate its own office and Anderson & Cromwell (by then named Cromwell & Cabot) began to charge fees for its investment recommendations. The first management fees introduced in 1933 were based on fund performance. However, officers and directors received no payment from the Fund prior to 1938.

In 1945 while it was still being managed by Cromwell & Cabot, Edward C. Johnson, II, a Harvard Law School graduate, left as in-house legal counsel for Incorporated Investors, one of Boston's first open-end mutual funds, and was elected to take over the Fidelity Fund as President and Director. Johnson came from a wealthy Boston family and acted as trustee on the Johnson family's investments. As President and Director of Fidelity Fund, Johnson was able to condense his family's trust funds and experiment with picking stocks. What proved to be a knack for selecting successful stocks not only helped Johnson boost his family's assets, it also fueled Fidelity Fund's rapid growth. The fund's assets reached $10 million in 1945.

In 1946 the Fidelity Management and Research Company was formed by Edward C. Johnson, II, to serve as investment adviser to Fidelity Fund, replacing Cromwell & Cabot and with Mr. Johnson managing the fund himself. Today Fidelity Management and Research Company is a subsidiary of FMR Corp.

For the next several years, Johnson concentrated on expanding Fidelity's product offerings. In 1947 Fidelity introduced the Fidelity Puritan Fund, the first income-oriented mutual fund to invest primarily in common stocks. Between 1947 and 1957, the assets managed by Fidelity grew from $15 million to $265 million.

In 1957 Johnson's son, Edward C. (Ned) Johnson, III, joined Fidelity as a research analyst. In 1958 he managed the Trend Fund, one of two new growth funds - the other was the Capital Fund - Fidelity began offering that year. The Trend and Capital Funds became two of the investment industry's first funds to be aggressively managed for performance and proved to be the firm's highest performing funds throughout the 1960s. They were merged into the Trend Fund in 1979.

Fidelity's assets grew from $500 million in 1960 to $2.3 billion in 1965. Among key developments that took place during this time, Fidelity launched the International Fund in 1963, managed by Ned Johnson. It was renamed the Fidelity Magellan Fund in 1965. In 1964, the firm began offering investment services for corporate pension plans; and in 1969, Fidelity Service Company was incorporated, making Fidelity one of the first mutual fund companies to bring servicing of shareholder accounts in-house.

In 1972 Edward C. Johnson, II, was named Director and Ned Johnson was named President of FMR Corp., which was to act as a holding company for Fidelity Investments. Ned then spearheaded a diversification program aimed at broadening Fidelity's financial services portfolio. In 1973, he began moving all shareholder servicing in-house, eliminating outside servicing and giving Fidelity more control and direct contact with customers.

The remainder of the 1970s was a time of high interest rates and sub-par returns on equity investments, and Fidelity focused its efforts on offering different and better service. In 1973, in the midst of a terrible bear market, Congress added an option to put tax sheltered 403(b) retirement account money directly into mutual funds. Fidelity was one of the first mutual fund companies to offer 403(b) accounts to not-for-profit institutions. In 1974, Fidelity introduced the Fidelity Daily Income Trust (FDIT), which was the first money market fund to offer check-writing services. Because shareholders could get money out easily, they readily put it in, and assets grew to more than $500 million in the first seven months of the fund's existence. When the stock market started to improve, many of these assets were moved into stock funds.

The year 1974 also saw Fidelity begin to sell mutual fund shares directly to the public through direct response advertising and a toll-free telephone number. Starting with one WATS line and a few newspaper ads, Fidelity found calls were soon coming in so quickly that it added eight more lines and hourglass egg timers to remind telephone representatives to take waiting calls. Direct phone mutual fund sales were so successful that in 1978, Fidelity installed a computerized telephone system to manage its growing telephone traffic, provide a high level of service to customers and minimize customer waiting. In 1979 Fidelity introduced Fidelity Information Phone, the first voice-activated computer response system for the general public, providing price and yield quotes on a 24-hour basis. The system responded to questions about prices and yields with a human voice for the ease and convenience of customers and freed telephone representatives to handle inquiries more complicated than fund quotes.

In 1976 Fidelity offered the first open-ended municipal bond fund sold without a sales charge. The Fidelity Municipal Bond Fund offered investors a way to invest in public entities around the country, receive interest tax free, and invest without having to pay a sales charge.

When the Securities and Exchange Commission in 1978 abolished fixed-rate brokerage commissions, Fidelity became the first major financial services institution to offer discount brokerage in the United States. Ned Johnson decided that since many investors bought Fidelity funds because they didn't need the advice of a broker, these same investors might also be interested in making their own decisions about individual securities, so he created Fidelity Brokerage Services, Inc. and opened several branch offices to support consolidation of an individual's stock, bond and mutual fund investments in one account. In 1979 Fidelity removed its 81/2 percent sales charges on almost all its funds and began selling its funds directly to the public with no sales charges (no load) or a low load of two to three percent. Also in 1979, because of Fidelity's success in selling its funds directly, many brokers wanted a way to sell Fidelity products, and the Fidelity Investments Institutional Services Company, Inc. was created to provide brokers with a line of Fidelity products to sell on a commission basis and also to provide advice of a third party to investors who wanted it.

The 1980s saw much growth for Fidelity, highlighted perhaps by the considerable attention it gained from the stellar performance of its Fidelity Magellan Fund. Managed by Peter Lynch since 1977, Magellan became the best performing mutual fund in the United States. In fact, it consistently posted higher percentage gains than Standard & Poor's 500 Stock Index, the standard of the industry. Between March 1984 and March 1989, it realized an average annual gain of 21.07 percent compared to the 17.48 percent average annual gain posted by S & P's 500 Index.

FAST FACTS: About FMR Corp.


Ownership: FMR Corp. is a private company with voting common stock owned by the Johnson family and employees. Abigail Johnson, granddaughter of founder Edward C. Johnson, II, owns a 25 percent share of the company.

Officers: Edward C. (Ned) Johnson, III, Chmn. and CEO; Robert L. Reynolds, VChmn.; James C. Curvey, VChmn., Dir., and COO; Stephen P. Jonas, EVP and CFO

Employees: 31,000

Principal Subsidiary Companies: FMR Corp. is the holding company for Fidelity Investments, the largest mutual fund company in the United States. Subsidiaries of FMR Corp. include Fidelity Brokerage Company, Fidelity Employer Services Company, Fidelity Investments Institutional Services Company and Fidelity Strategic Initiatives. Fidelity International Limited is a separate holding company established for all of Fidelity's international investment operations.

Chief Competitors: Fidelity Investments competes with other traditional mutual fund managers such as Vanguard Group, Putnam Investments, T. Rowe Price, and Charles Schwab, as well as newer online investment firms such as E*TRADE.



1980 also saw Fidelity introduce the country's first tax-exempt money market fund and, later, state-specific municipal bond and money market funds, enabling Fidelity investors to place portions of their assets in more conservative investments while receiving the tax benefits of owning municipal securities. Then in July 1981, Fidelity launched a group of "Select" portfolios, the first industry-specific mutual funds sold as a group to allow investors to switch back and forth between sectors at relatively low cost. Included were Select Health Care Portfolio, Select Technology Portfolio, Select Energy Portfolio, and Select Precious Metals and Minerals Portfolio, which was later merged into the Select Gold Portfolio. Fidelity became the first financial services company to offer investors a family of sector-specific funds.

In mid-1981, the 30-year fixed mortgage rate stood at 16.63 percent, the annual inflation rate was more than eight percent and the Dow Jones Industrial Average was at 948. In December 1981, Fidelity launched Select Financial Services Portfolio and Select Utilities Growth Portfolio, offering investors who were less risk averse and who wanted further ways of diversifying their portfolios a method of doing so by investing in certain industries and the companies in them. The Select line was later expanded to 41 portfolios. These portfolios also became a vehicle for training Fidelity analysts. Fidelity Management Trust Company was also established in 1981 to serve both large institutions and individuals, managing employee benefit assets for large corporations and holding individual IRA account assets in custody.

1983 saw Fidelity begin the first use of interactive automated telephone service technology. This allowed its customers, with greater ease and efficiency, to obtain price and yield quotes as well as check their account balances; and later, to make exchanges. Winning an award from the Smithsonian Institution for innovative use of technology in finance, it was further evidence of Fidelity's commitment to technology that would enable it to do a better job for its customers. Fidelity also developed and established a technology systems backup in Dallas, designed to take over if service disruptions in other technology areas occurred. Six other sites were added later. And Fidelity became the first mutual fund company to offer an asset management account through its Fidelity Ultra Service Account (USA), providing a way for customers to manage their investments and other holdings with Fidelity through one account, with check writing and other features.

CHRONOLOGY: Key Dates for FMR Corp. and Fidelity Investments


1930:

The Fidelity Fund is created

1946:

Edward C. Johnson, II, creates Fidelity Management & Research Company to manage the Fidelity Fund

1963:

International Fund (later renamed Fidelity Magellan Fund) launched, managed by Edward D. Johnson, III

1969:

Fidelity Service Company is incorporated, making Fidelity one of the first mutual fund companies to service shareholder accounts in-house

1972:

FMR Corp. is created to act as a holding company for Fidelity's operations

1974:

Fidelity creates the first money market fund to offer check writing and begins to sell mutual fund shares directly to the public

1978:

Fidelity becomes first major financial services institution to offer discount brokerage in the U.S.

1979:

Fidelity begins serving institutional investors

1980:

Fidelity introduces nation's first tax-exempt money market fund

1983:

Fidelity becomes first mutual fund company to offer an asset management account

1984:

Fidelity one of first financial services companies to offer computerized trading

1987:

Fidelity creates umbrella company for startup ventures, a life insurance company, and Canadian mutual fund subsidiary

1989:

Fidelity makes funds from other companies available to Fidelity customers

1992:

Fidelity software gives its customers direct access to financial markets through their personal computers

1995:

First industry Home Page on World Wide Web created by Fidelity

1997:

Fidelity becomes first discount broker to offer initial public offerings and third-party investment research

1998:

Fidelity announces a new college savings plan and brings wireless access to information and trading to its customers

2000:

Fidelity Personal Trust Company offers trust services

2001:

Fidelity teams with OnStar to offer industry's first in-vehicle investment services


In 1984, Fidelity Investor's Express (FIX) enabled customers to place orders through their personal computers and Fidelity became one of the first financial services to offer computerized trading. FIX later became Fidelity Online Express (FOX) in 1992, winning a Most Valuable Product Award from PC Magazine. In 1986, Fidelity created the industry's first 24-hour-a-day access to telephone representatives and became the first company in the industry to provide hourly pricing of mutual funds in its Select portfolios, enabling its customers to buy and sell shares in their portfolios based on current prices.

Fidelity's growth wasn't trouble-free, however. After the stock market crash of October 1987, its assets fell by nearly $5 billion and it was forced to trim its work force from 8,100 to 5,600 people. The late 1980s also marked a period of increased diversification for Fidelity. Ned Johnson believed that Fidelity should be developing new businesses - some not related to its core business -to teach new competencies and how to thrive through down market cycles. To this end, in 1987, Fidelity Capital was created to oversee businesses as diverse as real estate, telecommunications, retailing, publishing and transportation; Fidelity Investments Life Insurance Company was created to develop and market its own insurance products as well as those of other high-quality insurers, becoming the nation's leading writer of variable income annuities by 2001; and subsidiary Fidelity Investments Canada, Limited was launched to provide Canadian investors strong-performing mutual funds through Canadian broker/dealers.

In 1989, Fidelity became one of the first mutual fund companies to create a separate business unit, Fidelity Institutional Retirement Services Company (FIRSCo) to provide corporations with investment management, education and record keeping services for 401(k) plans which it recognized were about to explode in popularity. By the end of its first year of operation, FIRSCo had 200 employees serving 200 plan sponsors and their 200,000 participants who had $14.2 billion in assets. In response to the 1987 stock market crash and nervous investors turning to fixed-income markets, Fidelity also launched its Spartan Funds in 1989, selling a new line of money market and bond funds directly to the public and offering lower costs to investors who could meet higher minimums and thus obtain higher yields. 1989 also saw Fidelity launch FundsNetwork, a "mutual fund supermarket" enabling Fidelity's retail customers to access funds from Fidelity and dozens of other fund companies through their brokerage accounts. By 2001, Fidelity had expanded the program to include retirement accounts and its program has become the largest in the industry.

Fidelity's expansion and diversification in the 1990s was equally impressive. In 1991, it created business units to focus on retirement savings plans for small companies and for employees in the not-for-profit sector. Its Emerging Corporate Market Fund was organized to provide 401(k) services to companies with up to 1,000 employees and Fidelity Investments Tax-Exempt Services Company was formed to focus on 403(b) and 401(a) retirement savings plans for tax-exempt organizations and the public sector.

Fidelity has a long history of corporate giving and in 1992 it created the Fidelity Charitable Gift Fund as a model of the best practices for handling donor-advised funds, which was sanctioned by the IRS and emulated by many other organizations, including community foundations that offer donor-advised funds. This fund has become the nation's largest grant-maker and second largest public charity. Also in 1992, Fidelity launched Fidelity Online Express, a software package giving customers direct access to the financial markets through their personal computers, which evolved from Fidelity Investor's Express of 1984; it introduced Stages, a first-of-its-kind monthly magazine for 401(k) plan participants, containing articles on retirement planning, investing, the economy, general savings ideas and other subjects of interest to plan participants, which was lauded by both plan sponsors and participants; and it entered the telecommunications arena in 1992 when it established City of London Telecommunications (COLT) Group.

Although the Fidelity Magellan Fund continued to rank among the top ten mutual funds in the early 1990s, other funds, many created by Fidelity Investments, began to outperform Magellan. For example, the Fidelity Select Health Fund, a biotech fund, emerged as the top performer and Magellan fell to the number three spot. Another Fidelity fund, Fidelity Destiny I, also made the top ten during that period. Also, as the stock market began to boom in the mid-1990s, several fund managers left Fidelity to take positions with public investment firms that were able to offer stock options as part of their compensation packages. In 1997, Fidelity turned to outside fund managers for the first time when it contracted the management of its index funds to Bankers Trust.

FIDELITY'S EARLY LEADERSHIP

Fidelity Investments founder Edward C. Johnson, II, spent a large portion of his life watching the stock market. In fact, he kept a daily stock market diary for more than 50 years in an effort to chronicle different trends and deepen his understanding of stock investments.


In 1995, Fidelity created the first financial services industry Home Page on the World Wide Web, which was immediately welcomed by rapidly-growing numbers of Internet users. At that time, the Fidelity Web site included information on Fidelity's mutual funds and brokerage services, investor tools and information about Fidelity events and seminars around the country. Also, Fidelity Employer Services Company was created to provide employers the option of using Fidelity for benefits services beyond traditional defined contribution 401(k) plans. Later it expanded to include payroll and human resources functions. In 1996, Fidelity launched NetBenefits to provide 401(k) access and transactions over the Internet. After its first year of operation, NetBenefits was awarded a Microsoft Example of Excellence Award and went on to become a platform for several other future Fidelity innovations. 1997 also saw Fidelity create Port-folioPlanner, an online management tool for 401(k) plan sponsors providing model portfolio recommendations customized to their retirement plan options, and Plan Sponsor Webstation, an online tool for benefits administrators to use in managing their company retirement plans.

In 1998, Fidelity announced a new college savings plan, the UNIQUE College Investing Plan, and other plans that took advantage of the Taxpayer Relief Act of 1997 to provide qualified state tuition savings programs. It also offered its customers wireless access to information and trading through its new InstantBroker, which enabled customers to manage their investments from almost any location, using a pager, email, fax, or personal data assistant, and other enhancements subsequently announced.

Fidelity introduced the country's first 401(k) plan for small business sold and serviced over the Internet in 1999. Developed to help meet the retirement needs of small businesses, Fidelity's e401k offers employers all the features of a full service 401(k) plan online: plan administration by the employer, record-keeping reports, personalized communication, education, retirement planning tools and ongoing account monitoring and management. It also launched Powerstreet, a Web-based brokerage platform offering enhanced trading, research and personalization. In this complete retooling of its discount brokerage, Fidelity uses the Internet as the platform for Powerstreet through which individual investors can take advantage of a broad range of trading and cash management features including buying and selling stocks, bonds, options and more than 4,400 mutual funds from Fidelity and other well-known fund companies; access exclusive Lehman Brothers research; receive personalized news and information; and access IPOs, margin borrowing, unlimited check writing and other features. Fidelity also opened its state-of-the-art Fidelity Center for Applied Technology in 1999 to seek technology solutions that focus on wireless technology and database products designed to make it even easier for customers to use Fidelity's products and services.

In 2000, the Fidelity Electronic Payroll system for small businesses was introduced. Designed to meet the evolving technology needs of the small business market, Internet-based Fidelity Electronic Payroll followed Fidelity's successful introduction of its e401k in 1999; but while it includes Fidelity's existing Web-based Fidelity Plan Sponsor Webstation and Fidelity NetBenefits, in use by Fidelity's 7,000 clients and seven million participants, Electronic Payroll is part of a broader range of outsourcing services that includes defined contributions, defined benefits and health and welfare. Also in 2000, Fidelity offered trust services through Fidelity Personal Trust Company.

The following year, in 2001, the Frank Russell Company and Fidelity Institutional BrokerageGroup announced a strategic alliance designed to help Register Investment Advisors and correspondent broker/dealers meet the sophisticated investing needs of their affluent clients through a separately managed accounts program. Fidelity also formed an alliance with OnStar, a wholly owned subsidiary of General Motors Corporation, enabling OnStar subscribers, including many of Fidelity's 7.3 million 401(k) customers, to monitor, manage and trade in their Fidelity personal investing accounts via OnStar's hands-free, voice-enabled Virtual Advisor. Fidelity also unveiled the Fidelity Compensation Planner, its latest compensation planning service addition to Fidelity's Web-based HR/payroll tool set called Fidelity eWorkplace, a suite of integrated employee and manager self-service tools to facilitate issues resolution, making informed decisions, and the processing of HR and payroll changes through a single Web interface. Fidelity Compensation Planner allows for employee compensation data and recommendations to be submitted and approved online, greatly reducing the time associated with traditional labor-intensive paper or spreadsheet-based planning cycles. 2001 also saw Fidelity enhance its PortfolioPlanner into the first available tool to integrate data from investors' multiple accounts, then analyze up to ten financial goals and help investors develop investment strategies to meet them.


STRATEGY

Taking calculated risks is a strategy Fidelity has embraced throughout its history. In the early 1970s, Fidelity decided to diversify into a broad range of financial services. Fidelity became the first money market fund manager to offer check writing in 1974. Rather than relying on traditional brokerage distribution channels, in 1974 Fidelity began to market its funds directly to the public via print advertising and direct mail. In 1976, Fidelity once again acted as an industry pioneer when it launched the first open-end, no-load municipal bond fund. Three years later, Fidelity became the first major financial institution to offer discount brokerage services.

The risks the firm took with Magellan also proved worthwhile. Rather than placing 200 or so companies into its portfolio, as was typically done with an equity fund like Magellan, Fidelity put more than 1,000 companies into Magellan. The firm also marketed the fund aggressively. As a result, Magellan grew from $22 million in assets in 1977 to $12 billion in assets in 1990. Believing that its advertising efforts, which included targeting the general public, had paid off with Magellan, the firm increased its advertising budget to $28 million per year in the early 1990s. In fact, Fidelity spent more on advertising than any other mutual fund manager.

Internal operations were also structured differently than most other mutual fund companies. In the 1980s, CEO Ned Johnson had put in place a management style modeled after many Japanese businesses. The company became more self-sufficient by doing things like handling its own back-office account processing rather than relying upon an outside bank for that service. Eventually, Fidelity was able to sell its expertise in these areas to other investment firms.

In the early 1990s, Fidelity used its extensive technological capabilities to offer clients help with everything from retirement planning to saving for a college education. Many of Fidelity's premium services, which had once been designed to serve the firm's wealthiest customers, were offered to all six million of its clients.


CURRENT TRENDS

Fidelity began to invest a signification portion of its budget in technology in the 1960s, long before technology became a buzz word among other banking and investment firms. The firm's goal was to become technologically self-reliant. Consequently, Fidelity kept abreast of the data processing and telecommunications developments that revolutionized the financial industry in the 1980s and 1990s. In fact, by the early 1990s, Fidelity had earmarked more than $150 million a year for technology-related efforts.

Fidelity was a leader among the financial firms that began to transform themselves into technology-based customer service centers offering a wide range of financial services . For example, Fidelity installed an interactive, automated telephone system in 1983. Fidelity Investors Express, a service that permitted customers to conduct stock trades via personal computers, was offered in 1984. Fidelity also designed software that allowed its staff to access information such as margin calculations and options analysis for customers on demand. In the early 1990s, Fidelity began to operate Investor Liquidity Network, an electronic stock trading system that matched the buy and sell orders of outside institutional investors with the orders of Fidelity fund operators.

Fidelity was also quick to embrace Internet technology. In 1999, it teamed up with Charles Schwab, Donaldson, Lufkin & Jenrette, and Spear, Leeds & Kellogg to create a network that allowed investors to trade NASDAQ stocks on the Internet. That year, popular Internet gateway Lycos worked with Fidelity, to create Power-street, an online brokerage run by Fidelity allowing investors to customize their Web experiences. The firm also announced the nationwide availability of its Instant-Broker service to investors via the Palm VII organizer, the first integrated wireless hand-held computing product.


PRODUCTS

Fidelity Investments under holding company FMR Corp. offers a wide range of financial planning products and services to individual and institutional investors, such as mutual funds, annuities, life insurance, retirement planning, college tuition planning, and discount brokerage. Fidelity Capital invests private equity on behalf of Fidelity Investments using a variety of investment approaches but primarily focuses on majority-owned operating businesses in various industries including insurance, transportation, hospitality, and human resources. Fidelity Employer Services Company provides corporations and tax-exempt organizations with defined contribution retirement plans and other benefits outsourcing services. Fidelity Brokerage Company provides a full range of investment products and services to individual mutual fund and brokerage customers. Fidelity Investments Institutional Services Company, Inc. distributes Fidelity products, programs and services through a variety of financial institutions, including banks, insurance companies and broker/dealers.


CORPORATE CITIZENSHIP

To promote volunteerism among its employees, Fidelity operates an Intranet site that helps employees locate volunteer activities in their communities. The firm also operates a workplace giving program that makes it convenient for employees to make donations to their favorite non-profit organizations. Activities to promote literacy include sponsoring book fairs for Reading is Fundamental.


GLOBAL PRESENCE

In 1969, Fidelity International was founded in Bermuda to manage and administer Fidelity's offshore funds. In 1979, Fidelity International Limited (FIL) was established as a separate, independent holding company for all Fidelity's international investment operations. FIL is a privately owned company, separate from FMR Corp., with its headquarters in Bermuda. FIL provides investment management services to individual and institutional investors outside the United States. Its products and services include equity, fixed income and money funds as well as institutional portfolio management.

SOURCES OF INFORMATION

Bibliography

der hovanesian, mara. "the mutual fund mess." business week, 17 december 2001. available at http://www.businessweek.com.

dickey, sam. "financial firms confront the challenge of keeping brokers in the loop." informationweek, 11 september 2000.

egan, jack. "the $13 billion honey pot." forbes, 15 may 2000.

"fidelity unit revenue rises 30 percent."the boston herald, 1 march 2002.

"fmr corp."international directory of company histories. detroit: gale research, 1992.

fmr corp. home page, 2002. available at http://www.fidelity.com.

For additional company research:

investigate companies by their standard industrial classification codes, also known as sic codes. fmr corp.'s primary sics are:

6211 security brokers and dealers

6282 investment advice

6719 holding companies, not elsewhere classified

also investigate companies by their north american industry classification system codes, also known as naics codes. fmr corp.'s primary naics codes are:

523120 securities brokerage

523930 investment advice

551112 offices of other holding companies

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