Magellan Fund, which today is the world's largest mutual fund? A) Best-selling personal finance author Peter Lynch B) Lynch's immediate successor Morris Smith C) Lynch's immediate predecessor Richard Habermann D) Current Magellan manager Jeffrey Vinik E) None of the above Correct answer: E.

The manager who generated the biggest annual returns while running Magellan was Edward C. Johnson III, who is chairman and chief executive of Fidelity Investments today.

"Ned Johnson?'' said David Dreman, who runs a money management firm in Jersey City, New Jersey, that was recently acquired by Kemper Corp. "I never knew he managed a major fund. I thought for sure the answer would be Peter Lynch or Jeff Vinik.'' Johnson, who owns a home in Bermuda, ran the Magellan Fund from its inception in 1963 until 1972. In that nine-year period, he steered the fund to a cumulative 910-percent advance, or an annual gain of 30.6 percent, according to newsletter editor Eric Kobren. Under Lynch's watch, the fund rose 2,703 percent in 13 years, or an average annual rate of 29.2 percent.

Vinik, who took over the fund after Morris Smith abruptly resigned to move his family to Israel, has guided Magellan to an annual return of 20.4 percent since July 1992.

"For the sake of fairness, we should point out that when Ned ran Magellan the fund was closed to investors'' in mid-1965 and didn't open until 1981, Kobren said. Johnson passed control of the fund to Richard Habermann in 1972.

"That meant Ned didn't have to worry about cash flows and he had a much smaller asset base to put to work -- $10 million vs. $53 billion today,'' Kobren said.

Johnson could make quick trades, buy initial public offerings and invest in the smallest of companies -- luxuries no Magellan manager has had since Lynch's early days, Kobren said.

Lynch was named manager of the Magellan fund in May, 1977, when the fund had about $22 million in assets. By the time Lynch left Magellan in 1990, it had $12.3 billion in assets, which precluded big bets on very small companies, Kobren said.

"Johnson had a big advantage over Lynch. A small fund is much easier to manage then a big fund,'' said Stephen Janachowski, a San Francisco-based investment adviser. "Managing the Magellan fund is a lot different today than it was when Johnson ran it.'' Still, it's difficult to overlook Johnson's success. His performance was stellar, considering the Standard & Poor's 500 Index rose at an annual rate of just 7.9 percent in the nine years he ran the fund, Kobren said.

While Johnson beat the S&P 500 by 22.7 percentage points a year, Lynch beat the S&P 500 by 13.4 percentage points a year in his tenure. Vinik is outperforming the benchmark index at an annual rate of 6.3 percentage points -- Magellan is up 42.1 percent this year and the S&P 500 is up 27.8 percent.

"While it's practically impossible for Vinik to match the record of Lynch or Johnson,'' he has shown an uncanny knack for confounding the nay-sayers and outmanoeuvring the competition, Kobren said.

Magellan started out as the Fidelity International Fund in December 1962.

Shares of the fund were sold to the public for the first time in May 1963 to offer investors capital appreciation through overseas stocks.

Shortly thereafter, the US Congress passed the Interest Equalization Tax, resulting in a tax on non-US investments. The tax made it unattractive to own a fund investing outside the US, so Fidelity redefined the fund's strategy primarily toward US stocks. On March 29, 1965, it was renamed the Magellan Fund.

Magellan was closed to new investors two months later and stayed closed until July, 1981. Fidelity said it closed the fund to concentrate its marketing efforts on the Fidelity Trend Fund and the Fidelity Capital Fund. The two US stock funds merged in 1979 and became just the Fidelity Trend Fund.

Two days after Magellan Fund's assets were merged with the Fidelity Salem Fund in July of 1981, it was reopened to investors and hasn't closed since. It went on to become one of the industry's great success stories, earning huge amounts of money for Fidelity and shareholders over the years.

"Ned Johnson set a standard for the fund and the job of his successors job has been to uphold that standard,'' said Samuel Hayes, a professor of finance at the Harvard Business School. "So far, they have.''