Forgotten Minus Sign Caused Magellan Fund Error
BOSTON (AP) _ An accountant who mistakenly omitted a minus sign _ turning a $1.3 billion loss into a $1.3 billion gain _ forced Fidelity Investments to withdraw a promised year-end payment to shareholders in its Magellan Fund.
In a December letter sent to Magellan shareholders, Fidelity Investments Managing Director J. Gary Burkhead said the accountant caused the error when transcribing the fund’s financial records to a spreadsheet.
Burkhead said the tax accountant, who wasn’t identified in the letter, left out the minus sign on a net capital loss of $1.3 billion and incorrectly treated it as a net capital gain. This meant the dividend estimate spreadsheet was off by $2.6 billion.
The error resulted in the fund, the world’s largest mutual fund, not making a year-end distribution of $4.32 a share as the company had predicted in November.
``When we went through the actual distribution calculations, we discovered that the November estimate was wrong,″ Burkhead said.
Burkhead’s letter was the first detailed public explanation of the cause of the $2.6 billion error.
Burkhead said the clerical error had no effect on the fund’s performance or the value of shareholders’ investment.
He also said the error had nothing to do with the level of actual gains or losses in the fund or the fund’s net asset value and only affected the calculation of the distribution estimate.
``Some people have asked how, in this age of technology, such a mistake could be made,″ Burkhead wrote. ``While many of our processes are computerized, the requirements of the tax code are complex and dictate that some steps be handled manually by our tax managers and accountants, and people can make mistakes.″
Burkhead said the company will in the future subject estimates to the same ``rigorous verification″ process it gives to the distributions the funds actually pay.