MUTUAL FUND CEO FIGHTS RUMORS WITH SILENCE.

Byline: Edward Wyatt The New York Times

The knives are out for Jeffrey N. Vinik.

After nearly four years at the helm of the nation's biggest mutual fund, Fidelity Magellan, a period in which it nearly tripled in size, to $56 billion in assets, Vinik is suddenly the most beleaguered manager in the industry.

In the past six months, shifts in the fund's portfolio have been relentlessly scrutinized and roundly criticized as its performance lagged further and further behind the overall stock market.

More than a dozen lawsuits have accused Vinik, 37, of stock manipulation, contending that he extolled a stock in public to keep its price up as he quietly sold large holdings - a claim that he denies. And a handful of particularly aggressive critics have predicted that Fidelity Investments, Vinik's employer, would fire him in the next few months, or move him to a less visible post, ending what one of the critics calls ``a persistent public relations problem.''

But unlike a politician who responds to a frenzy of negative publicity by cranking up his own publicity machine to offer a spirited defense, Vinik has barely been heard from lately. As a result of the flap over alleged stock manipulation, he, along with all other Fidelity fund managers, has been ordered by the company not to discuss specific investment decisions; it is apparently his own decision not to talk about more general topics.

Where one year ago Vinik repeatedly and pointedly defended his bold move to put 45 percent of Magellan's assets in technology stocks, in recent months he has steadfastly refused to explain his later sudden shift away from that sector and into cash and bonds - a move that left him sitting on the sidelines while the stock market roared on. Indeed, he declined to be interviewed for this article.

As a result, Fidelity, which can be close-mouthed even in the best of times, has taken on the look of an institution under siege.

All of which undoubtedly has left many of Magellan's more than four million shareholders worried and bewildered. Legions of these investors have flocked to mutual funds only recently.

And many were drawn in by Fidelity's relentless marketing machine, which makes no small effort to remind shareholders of the Magellan fund's stellar

long-term record: for the past five years, the fund has produced an average annual return of 15.7 percent, 1-1/2 percentage points better than the S&P.

The dearth of ``official'' information these days about the fund's recent shifts between stocks and bonds has only served to fuel interest in the cottage industry of Fidelity watchers.

Those watchers track the performance of Magellan and its sister funds for individual investors and institutional clients, and their comments appear frequently in the financial press. With the field left largely to themselves, these self-appointed experts, some of whom are former employees of Fidelity, have played a major role in shaping the criticism of Vinik and his fund - and presumably in determining the decisions of some investors.

But while there is no question that Vinik and Fidelity are enduring a rough patch, the track records of some of their critics have also been uneven, raising concerns about the accuracy of what little information investors have to go on.

Indeed, a close look at the predictions and analyses of what Vinik was supposed to be doing, and why, shows that some of the most pointed of the critics have sometimes been wide of the mark.

In at least one case, a critic said Magellan had made a certain investment, unaware that such a move was not permitted by the fund's prospectus. In other cases, they have issued inflated claims about their success rates in making predictions, a key credential in a crowded field where newsletter subscriptions and research fees can add up to small fortunes.

Making things even murkier, the critics, many of whom hold themselves out as objective observers, sometimes have positions in stocks that could be affected by what they say about Magellan's investment plans.

The critics defend the accuracy of their reports and say they do not have a vendetta against Magellan or Vinik. And they say they would never color their analysis to benefit their own portfolios.

In any event, Vinik's silence, while frustrating to Magellan shareholders, has clearly been a boon to those who are watching him.

``Ned Johnson certainly helped my business when he told his managers not to talk to anyone,'' said Robin L. Carpenter, referring to Fidelity's chairman, Edward C. Johnson III, and his directive in December that Vinik and other fund managers no longer talk to the press about specific stocks.

Carpenter runs a Hanover, N.H., firm that tries to ferret out information about changes in Magellan and other Fidelity funds by analyzing stock market data. He sells his research to individual and institutional investors.

When an institution is the largest in its field, it naturally attracts attention and criticism. Fidelity dominates the mutual fund field; its $400 billion in assets account for 13 percent of the $3 trillion Americans have invested in mutual funds.

The flagship Magellan fund is more than twice the size of the next-largest competitor, the $27 billion Investment Company of America fund.

To be sure, the Magellan fund's recent performance leaves something to be desired. In the past six months, since Vinik started to rapidly reduce the fund's technology investments, Magellan has produced a total return of 0.25 percent, including reinvested dividends. That pales next to the 10.3 percent gain of the Standard & Poor's 500-stock index.

Most of the underperformance can be traced to one factor: a bet on bonds. At the end of February, the most recent period for which Fidelity has disclosed details, half of the Magellan fund's top 10 holdings, and nearly 20 percent of the entire portfolio, were long-term bonds.

Cash accounted for an additional 15 percent of assets; six months earlier, those two classes of assets amounted to less than 5 percent of assets.

Though Vinik has been reluctant to defend his investment strategy, one Fidelity executive has not: Peter Lynch, vice chairman of Fidelity and the former Magellan manager who built much of the fund's spectacular performance record.

``This is a business where you have to stick your neck out and take risk,'' Lynch said. ``Great ideas and turnarounds in the market by definition should not be obvious to everyone.''

Asked what investors in Magellan should focus on, Lynch points to long-term performance. And he notes that he, too, had several periods in which he underperformed the market. From mid-1983 to mid-1984, for example, stocks took a horrific slide. In that period, Magellan, under Lynch, lost 14 percent of its value, nearly three times the decline in the S&P 500.

What makes Vinik's recent underperformance more striking, however, is that it has occurred while stock prices have been rising, and many competing equity funds are generating big returns for investors.

Vinik's problems have extended beyond simply not picking the right stocks; he has bet on long-term bonds, which have declined in value as stocks have risen.

Which doesn't bother Lynch nearly as much as the kind of attack Vinik has been under. ``A lot of the coverage has been unfair,'' Lynch said. ``It has not been balanced. It has not been factual.'' He added, ``What we're trying to do is to beat the market. We've done it before and we'll do it again.''

The mutual fund industry has changed drastically since Lynch left Magellan in May 1990. At the time, total assets in stock and bond mutual funds were less than one-fifth the current $3 trillion. The number of publications, including this one, that devote substantial coverage to mutual funds has grown just as fast.

One consequence of the increased scrutiny was Johnson's order forbidding fund managers from discussing specific investments. The edict followed the filing in December of the first of more than a dozen lawsuits against Fidelity and Vinik.

The lawsuits, which are awaiting consolidation into a class action in federal district court in Boston, claim that Vinik tried to manipulate the share price of Micron Technology Inc., a manufacturer of semiconductors, by making positive public statements about the company at roughly the same time that he was eliminating shares of the stock from the Magellan portfolio.

After the communications clampdown, business boomed for analysts like Carpenter, who has made no secret of his feeling that Magellan's stellar days are over.

CAPTION(S):

3 Photos, Box

Photo: Robin L. Carpenter

(2) William Fleckenstein

(3) Eric M. Kobren

Box: A LOOK AT SOME OF VINIK'S CRITICS