Fidelity Investments

Fidelity Investments is a provider of investment products and services. It consists of two independent but closely cooperating companies, Fidelity Management and Research LLC (FMR LLC), founded in 1946 and serving North America, and Fidelity International Limited (FIL), spun off in 1969 and serving the rest of the world.

Fidelity Investments provides a large family of mutual funds, distributors and investment advisors, as well as providing discount brokerage services, retirement services, wealth management, securities execution and clearance, life insurance and a number of other services.

Mutual funds and stock brokerage

Fidelity is a privately-held company founded by Edward C. Johnson 2nd in 1949 and still controlled by the Johnson Family. Fidelity Management & Research Company, the US investment management division of Fidelity Investments, acts as the investment adviser to Fidelity's family of mutual funds. FMR LLC has three fund divisions: Equity (headquartered in Boston, Massachusetts), High-Income (Boston) and Fixed-Income (Merrimack, New Hampshire). The company's subsidiaries serve as distributors and transfer agents to the entire Fidelity fund family.

FMR serves more than 23 million investors through individual and institutional accounts, with more than 400 different funds, and is the largest US mutual fund company with $1.57 trillion of assets under management as of September 2007. FIL manages $280 billion of international assets.

The company's largest equity mutual fund is Contrafund, which has more than $69 billion in assets, making it the largest single-manager fund in the US. The current manager of Contrafund is Will Danoff. Magellan Fund is the second largest equity fund, with $45 billion in assets. Its current manager is Harry W. Lange, who previously managed the Fidelity Capital Appreciation Fund. The Magellan Fund was for many years the largest in the United States. It was run by Ned Johnson (May 2, 1963 to Dec. 31, 1971) and Peter Lynch (May 31, 1977 to May 31, 1990).

Fidelity Investments also operates a major online discount brokerage and has investor centers in about 100 cities throughout the US and Canada, as well in Europe and Asia.

Through its subsidiary, National Financial Services LLC, Fidelity Investments provides a number of services to its correspondent broker-dealers, institutional investment firms and registered investment advisors including brokerage clearing, back office support and a suite of software products for financial services firms. National Financial custodied $659 billion in assets, in nearly 5.6 million accounts as of June 30, 2008.

Benefits outsourcing

In addition to its mutual fund and brokerage businesses, Fidelity also has a strong presence in the HR and benefits outsourcing business. Fidelity Personal and Workplace Investing (PWI) is the largest provider of 401(k) retirement plan services in the country; PWI administers $872 billion in retirement assets as of September 2007. Other services provided include pension administration, health & welfare administration, as well as payroll and other HR record-keeping services.

Other businesses

Fidelity Investments also owns many unrelated businesses, including BostonCoach a limousine charter motor coach service, a luxury hotel, and a temporary employment agency. It formerly owned Community Newspaper Company, the largest chain of newspapers in suburban Boston, sold to the Boston Herald and now owned by GateHouse Media. Fidelity has also strategically invested in the telecom/managed services/data center industries, having incubated COLT Telecom in Europe, MetroRED in South America, and KVH in Japan. (Since 2008, all MetroRED ownership has been completely divested.)

One sector in which the company has heavily invested is in commercial lumber and building materials. This new business has been developed under the Pro-Build Holdings company brand, which is a wholly-owned subsidiary of Fidelity Capital.

Pro-Build Holdings currently operates more than 500 lumber and building product distribution, manufacturing and assembly centers throughout the U.S., operating under several regional brands, including Hope Lumber, United Building Centers, Spenard Builders Supply, Lumbermens, Home Lumber Company, Dixieline Lumber Company, Parker Lumber Company, F. E. Wheaton & Company, Strober Building Supply, U.S. Components, Lanoga Corporation and the Contractor Yard. Pro-Build has more than 16,000 employees with 2006 revenues in excess of $6 billion.

In 2007, Fidelity Investments moved to rebrand many of these private equity investments and portfolio holdings under the "Devonshire Investments" entity/brand to avoid potential confusion with its more consumer-oriented financial services and mutual funds business.

NASD troubles

US brokerages regulator NASD fined four FMR-affiliated broker-dealers $3.75 million for alleged registration, supervision and e-mail retention violations in February 2007. The broker-dealers settled without admitting or denying the charges.

Fidelity Brokerage was ordered to pay $2 million to settle charges that employees altered and destroyed documents in 21 of its 88 branch offices from January 2001 to July 2002. Fidelity has internal inspections every year to make sure it is complying with federal regulations. The Securities and Exchange Commission accused that Fidelity management pressured branch employees to have perfect inspections and gave advance notice of the inspections and that at least 62 employees destroyed or altered potentially improper documents maintained at branch offices including new account applications, letters of authorization and variable annuity forms.

In May 2007, NASD fined two Fidelity broker-dealers $400,000 for preparing and distributing misleading sales literature promoting Fidelity's Destiny I and II Systematic Investment Plans, which were sold primarily to U.S. military personnel. As part of the settlement, for the next five years, the two broker-dealers - Fidelity Investments Institutional Services Company, Inc. of Smithfield, RI and Fidelity Distributors Corporation of Boston - are required to notify Destiny Plan holders who want to increase their investments in existing Destiny Plans that additional shares of the underlying fund can be purchased outside the Destiny Plans without paying the additional creation and sales charges of up to 50 percent on the first year's payments.

Ownership and operations

The founding Johnson family controls most of Fidelity. Edward "Ned" C. Johnson 3rd is chairman of the group. His daughter, Abigail Johnson, was once the largest single shareholder with about 25%, but in October 2005, it was reported that she had sold a "significant" portion of her shares to family trusts, and that there are doubts as to whether she is still in line to succeed her father.

The FMR mutual funds are organized as Massachusetts business trusts tied to the lifetime of the Johnsons. Some of Fidelity's best known fund managers also own a share in the company, most notably Peter Lynch.

Revenue in 2003 were US$9.2 billion, followed by US$10.5 billion in 2004. As of 2007, Fidelity had 47,000 employees.

FMR's corporate headquarters are located in Boston, Massachusetts, with the largest U.S. operations located in Marlborough, Massachusetts; Merrimack, New Hampshire; Smithfield, Rhode Island; Westlake, Texas; Covington, Kentucky; Durham, North Carolina; Cincinnati, Ohio; Salt Lake City, Utah; Jacksonville, Florida; and American Fork, Utah. It also has offices in Canada in Toronto, Montreal, Calgary and Vancouver. (In 2007, Fidelity Canada was named one of Canada's Top 100 Employers, as published in Maclean's magazine, the only mutual fund management company to receive this honour.)

Fidelity also has a very strong presence in India with nearly 7000 employees there. Its second largest software development facility (after the United States) is in Bangalore and Chennai.

Fidelity also has a presence in Europe with offices in France in Paris & Marseilles and countries like Germany, Belgium, Italy, Spain and Switzerland and London, UK & Dublin, Ireland for its HR Solution business HR Access

FIL's offices include asset management companies in 10 locations: London, Luxembourg, Frankfurt, Paris, Tokyo, Hong Kong, Bombay, Seoul, Singapore and Sydney, and an extensive network of offices in 23 countries, employing more than 4,000 people.

Innovative marketing

Fidelity has experimented with innovative marketing techniques directed to the aging baby boomers, recently releasing Never Stop Doing What You Love, a not-for-resale compilation of songs by Paul McCartney, created for Fidelity's employees and clients. The ex-Beatle became the firm's new spokesman in 2005 in a campaign entitled "This Is Paul." On the day of the disc's release, company employees were treated to a special recorded message by Paul himself informing them that "Fidelity and [he] have a lot in common" and urging them to "never stop doing what you love".

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