Throughout the 1980s, the name Fidelity Magellan was synonymous with mutual fund excellence. Peter Lynch, manager from 1977 through 1990, produced sizzling returns, and his two immediate successors, Morris Smith and Jeff Vinik, continued to outpace the stock market. But under Vinik's replacement, Robert Stansky, Magellan morphed into a swollen plodder. Its asset base crossed $100 billion in 1999 but today stands at just $50 billion, a result of losses incurred during the 2000-02 bear market and a steady stream of redemptions.

Now, Magellan, which is closed to new investors, has a new skipper. Harry Lange, a lanky midwesterner with an aw-shucks, Jimmy Stewart-type demeanor, took over last October. Lange, 54, is a former auto-industry engineer who engineered market-beating returns during a nine-year stint running Fidelity Capital Appreciation. Before that, he ran several Fidelity technology sector funds.

Lange, who enjoys ballroom dancing in his off hours, showed he was quick on his feet in rapidly reshaping Magellan's holdings. A slow talker who weighs his words carefully, he recently spoke with us at one of Fidelity's Boston offices about his philosophy of picking stocks and running what remains the nation's eighth-biggest fund.

KIPLINGER'S: You've said that Magellan is a "go-anywhere fund." Practically speaking, what does that mean?

LANGE: "Go anywhere" means that the fund can invest in domestic and international, large cap and small cap, growth and value, the whole range. I have some parameters, though. The limit on foreign is 25%. As a guide, I aim for a median market capitalization for my holdings of $30 billion or more. So Magellan won't become like a small-cap international fund. The core will be large-capitalization U.S. stocks.

You're at your foreign maximum right now, right? Yes, it's pretty close.

Does that big overseas stake represent a top-down call on foreign markets versus the U.S. market? I build the portfolio from the bottom up. I'm just finding lots of attractive stocks overseas -- and I've always been interested in international stocks. I spent the past two weeks in Japan and China. There are a lot of high-growth economies out there. A lot of those markets aren't that efficient and we are finding some really amazing opportunities. But when I invest in foreign stocks, I always look for a higher potential reward for a given risk. That's because there are extra risks when you go foreign. You take currency risk, political risks and all types of other risks. But I still find many stocks that I think are compelling enough to offset that kind of risk.

Do you hedge your currency exposure? No.

Three of your ten biggest holdings, at last report, were Japanese stocks. What about Japan has caught your attention? The economy seems to have turned for real. After 15 years of deflation, real estate prices are starting up. There are indications that consumer prices are starting to rise as well. Consumer confidence is rising, business confidence is up, and there is enough momentum that it really feels like the turn. And some Japanese stocks are now cheaper than their U.S. counterparts.

So when you invest in Japanese stocks, or stocks from any foreign country, are you relying primarily on your analysts for ideas, or are you basing your decisions on your visits with the companies? It's probably 50-50. We do have a lot of analysts, internationally; we have a big office in Tokyo. So we have always worked together with the analysts there. And some ideas they start with and some are my ideas. I do really like to get out and kick the tires, whether it's an international company or a domestic company.

How small a company are you willing to invest in? Generally, we will look at anything from about $500 million and up in market cap.

And what's the most of a company you're willing to own? By prospectus, I'm allowed to own no more than 10% of a company's outstanding shares. And I do hit that limit sometimes.

Is there any top-down element in your approach to running the fund? There's no top-down element, but I do pay attention to what my bets are. I watch things like how much I have in energy, how much I have in Japan, how much I have in technology, how much I have in financials. What it does is give me a little bit of a bias. If, say, I already have a lot of energy stocks and I find another exciting energy stock, the hurdle for that stock is a little higher if I feel I already have a pretty big bet in the energy sector. If I found a great consumer stock and I was underweight that area, then that would be a positive bias for that stock.

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