It was with this goal in mind that we published our proposals last week for the restructuring of special situations. These proposals, which we view as innovative, seek to address two challenges: the size of special situations (5.41bn at the end of July) and the succession to Anthony Bolton’s long tenure as fund manager.Doing nothing was not an option and after much careful consideration we decided that the following combination of measures would be the best way forward. First, we plan to split special situations into two equally sized funds. This is designed to forestall any performance issues that might arise if the fund would to continue grow at its current rapid rate. Second, we have impose a higher initial charge of 5.25 per cent on new contributions to the fund, except for regular contributions from investors with existing monthly savings plans. We hope that this will slow flows into the fund and so head off any issues linked to size. In addition, we have clarified our plans for management succession. As some of you may recall, Anthony Bolton gave a commitment in December 2004 that he would continue to run special situations until the end of 2006. Anthony has now extended his commitment to running money for a further year until the end of 2007. Investors will get an extra year of Anthony for half of their assets – and Anthony will then move into a new role within investment management. Fidelity is breaking new ground with these proposals and, as with anything new, they were bound to raise questions. We welcome the debate about our plans – our purpose in announcing our intentions at such an early stage – don’t forget that Anthony will continue running money for a further 27 months, about the same as the average tenure of a UK portfolio manager – was to give shareholders and advisers full opportunity to digest the information. Sure, the proposals are complex. They could not be otherwise, given the size and success of special situations. The multiplicity of wrappers through which investors are able to invest in the fund has added yet a further layer of complexity. And yes, there is more information to come. We are, after all, at the beginning of a process that will take the best of three years to completion. We have also been pleased to receive so much support from our distribution partners to implement these measures, particularly those to ensure existing monthly savers do not pay the higher charge. From the start, it has been our firm intention that all existing monthly savers should not be subject to the higher initial charge. But to do this for non-Fidelity clients, we are dependent on our partners – they are the only ones who can identify whether their clients are existing monthly savers. It is pleasing to note that virtually all our partners have been able to do this. And what could more clearly demonstrate our desire to protect the interests of existing shareholders than our decision to pay a sum equivalent to the additional revenue raised from the higher initial charge of 5.25 per cent back into special situations? This means that shareholders benefit, not Fidelity. In addition, Fidelity itself is bearing a considerable amount of cost arising from the split of special situations. So what of the question of succession? Many advisers will remember that we have been here before, when Anthony handed over the stewardship of his European funds two to three years ago. Tim McCarron has continued to produce first-quartile returns on the Fidelity European. The fund is first out of 86 funds in its sector over three years. The handover of the European funds serves as a blueprint for the handover of the two funds that would result from the split of special situations. Advisers may also recall that, in the case of the European funds, we set an industry precedent by giving six months’ notice of the new manager and we intend to give a similar period of notice for the manager who takes over one half of special situations at the end of 2006.
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