Fund Times: American Launches Nine Target-Date Funds

American Funds has joined the target-date retirement fund party. This month the fund family's advisor, Capital Research and Management, filed with the SEC to add nine new target-date retirement funds to its lineup. The new funds are Capital Research's first entries in a growing segment of the mutual fund industry.

The earliest targeted retirement date for these new funds is 2010, with the other eight funds' target dates hitting at five-year increments after that through 2050. Capital Research's filings didn't include other information, such as how each offering will allocate assets among sibling funds (including how assets will be split between stocks, bonds, cash, and other investments), who will manage each one, or how much each fund costs.

The introduction of these new funds precedes the Pension Reform Act, scheduled to take effect Feb. 1, 2007, that reduces employers' legal liabilities if they offer certain types of funds in their respective 401(k) plans: target-date funds, balanced funds, and managed accounts. By offering these new funds, Capital Research safeguards its presence--for both its individual funds and its role as some employers' fund family of choice--in 401(k) plans across the nation. However, Capital Research won't offer retail shares of the funds.

Fidelity Changes Managers at Several Big Funds
Fidelity Investments announced a slew of manager changes, effective Nov. 9. Here are the changes at some of the firm's larger funds:

 Fidelity Blue Chip Growth  (FBGRX): To clear the way for John McDowell's retirement from this fund, Jennifer Uhrig will move from  Fidelity Advisor Equity Growth  (FAEGX) to Blue Chip Growth and replace both McDowell and Brian Hanson. Uhrig and McDowell put up middling returns during their tenures at their respective funds, but McDowell was focused on much larger stocks so it's a bit more understandable that he produced mediocre returns in a small-cap dominated market.

 Fidelity Advisor Equity Growth: Jason Weiner will leave  Fidelity Independence  to replace Uhrig at this fund. Weiner has done an excellent job in three years at Independence, but he'll now be replaced by Bob Bertelson. Bertelson has run a slew of Fidelity funds over his career, including a troubled stint at  Fidelity Aggressive Growth (FDEGX) during the bear market of 2001-02. While he was at the helm there, the fund lost 75% versus negative 35% for the average mid-growth fund.

 Fidelity Fifty : Jason Weiner also managed this fund successfully before leaving for Advisor Equity Growth. The fund will now be managed by Peter Saperstone, who is already in charge of more than $7.5 billion at  Fidelity Advisor Mid Cap (FMCAX). His appointment here is a bit worrisome, both because he's less experienced managing compact portfolios and because he's already in charge of a large amount of assets at another offering.

 Fidelity Equity-Income II (FEQTX): C. Robert Chow will take over for Stephen M. DuFour at this fund. Chow will continue to manage  Fidelity Advisor Equity Income (FEIRX), which he has managed since 1996. Chow has a slightly better record than DuFour, though he runs a rather plain-vanilla style. The fund has built up capital gains of about 20%, so look for it to make a sizable distribution next year because the fiscal year ended Oct. 31. DuFour will continue to manage institutional accounts at Fidelity, and the company has indicated he may become manager at another mutual fund in the near future.

Manager changes at Fidelity have become notorious for their ripple effect on other funds in recent years. A manager departure at one fund often leads to other changes at three, four, or more funds, like dominos. A common theme among these changes is strong-performing managers moving to much larger offerings.

Fidelity to Introduce New Small-Cap Fund in January 2007
Fidelity Investments will launch Fidelity Small Cap Opportunities early next year. The company has yet to announce the new fund's manager, expense ratio, or investment strategy, but according to filings, the new fund will have significant flexibility. For example, it won't be tied to one style, and its manager will be allowed to invest in foreign and domestic firms. Fidelity will charge a short-term redemption fee of 1.5% to any shares redeemed within 90 days of purchase.

Several Fund Families Announce 2006 Distributions
It's the time of year when funds plan and make distributions for income and short- and long-term capital gains. Among a slew of families that recently announced upcoming distributions are Fairholme, Royce, RS Investments, Pioneer, Wells Fargo, and ING. Investors can typically find detailed distribution break-downs on fund family Web sites.

Regardless of whether shareholders reinvest all or part of their distributions, they'll still have to pay taxes on them in the spring. Distributions of income from bond investments and short-term capital gains are taxed at an investor's nominal tax rate, while qualified equity dividends and long-term capital gain distributions are taxed at a lower rate of 15%.

Distributions can also reduce a mutual fund's net asset value (NAV), because when a fund makes a distribution, the money comes from the same pool of assets used to determine its NAV. (See this recent article on NAVs.)

Hartford Small Cap Growth Adds a Subadvisor
In a late-October meeting, shareholders of  Hartford Small Cap Growth (HSLAX) approved the addition of Hartford Investment Financial Services as a new subadvisor to the fund. The change became effective Nov. 13, 2006, on which date Hugh Whelan joined the fund as its newest manager. Hartford Mutual Funds' filing doesn't indicate how assets will be divided between Whelan and managers from the fund's other subadvisor, Wellington Management Company, though each subadvisor will work independently of the other.

SEC Begins Investigation of Allegiant
The parent of Allegiant Asset Management Company, advisor to the Allegiant fund family, has said it's cooperating with a preliminary SEC investigation into Allegiant's marketing arrangements with administrative services providers. Allegiant's parent company, Cleveland-based National City Corporation (NCC), disclosed the inquiry in its recent quarterly filing with the SEC.