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Friday, October 04, 2002

American Century Places Its Bet

by: Sean Hanna, Editor in Chief

Yet another fund firm is giving up retail investors to woo advisors. American Century filed paperwork with the Securities and Exchange Commission (SEC) this week as part of plan to spin off a family of 10 advisor-only sold funds. The new family would include a pair of the Kansas City-based firm's flagship products.

The Advisor Funds initiative is headed by David Larrabee, senior vice president of Third Party Sales at American Century.

The move is not a surprise. American Century has added advisor class shares and 12b-1 fees to many of its funds in order to win distribution through advisors and third-party administrators in the retirement plan market.

The strategy also follows the now entrenched conventional wisdom among fund industry executives that third-party distribution is more predictable than selling directly to investors.

Still, it may also be something of a risk for the firm. Until the past decade American Century had positioned itself as a "pure" no-load shop. That changed as the firm started adding 12b-1 fees and advisor classes to appeal to indirect distribution channels.

With the new structure the American Century brand will come in two distinct flavors. This is a change that could create channel conflicts for the firm. Strong Funds and Scudder Funds also both made a similar shift in distribution strategy. Amvescap is following an alternative strategy of offering a distinct brand for each distribution channel (AIM and Invesco).

American Century may be hoping to minimize channel conflict with its brand by creating the second, distinct fund family for advisors.

The filings with the SEC outline the plan to add sales loads to eight existing American Century funds. The named funds include both the $4.2 billion Select fund and the $2.6 billion Value fund. The California High-Yield Municipal, Diversified Bond, High-Yield, High-Yield Municipal, International Growth, Large Company Value, New Opportunities II andPrime Money Market Fund round out the family.

The funds would make the conversion in January if the plans are approved by the funds' shareholders.

The new funds will look like a traditional load family. Each fund will sport "A" with a front-end sales charge of 5.75 percent; back-end load "B" and level-load "C" shares.  

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