Massachusetts Financial Services Co. of Boston is practicing diversification, but not just the investment diversification generally associated with a mutual fund.

MFS has used a diversified distribution network to build its mutual fund assets at a compound annual growth rate of 44 percent for the two-year period ending Dec. 31, 1999, better than twice the fund industry's 18 percent growth rate. Those mutual fund assets have come in the door through a mix of broker/dealers, financial advisors and financial institutions such as banks and credit unions. The three channels accounted for 58 percent, 30 percent and 12 percent, respectively, of MFS' fund sales in 1999.

Big sellers of MFS funds among broker/dealers are Merrill Lynch, Solomon Smith Barney and PaineWebber, all of New York.

The breakdown of MFS' sales is disclosed in a registration statement that Sun Life Financial Services of Canada of Toronto filed with Canadian securities regulators March 23. Sun Life, which owns a majority stake in MFS, filed the registration statement as part of its initial public offering.

The registration statement marked the first time MFS has disclosed the breakdown of its distribution by channel, information that mutual fund firms usually closely guard. Firms also seldom identify in public filings those broker/dealers that are key to their distribution.

MFS ranks 11th among fund companies in assets under management for open-end stock and fixed-income funds, according to Financial Research Corp. of Boston, a financial services tracking and consulting firm. MFS had approximately $150 billion in fund, variable annuity and institutional account assets as of March 31, according to a company spokesperson.

Investment performance has been what MFS described as the "key driver" in its growth, according to Sun Life's registration statement. In fact, 67 percent of MFS' mutual fund assets as of Dec. 31 were in funds that had either a four- or five-star rating from Morningstar of Chicago, the fund rating firm, according to the registration statement.

Nevertheless, distribution is an important part of MFS' growth, Sun Life said in the registration statement. Sun Life's and MFS' success in selling financial products through multiple distribution channels represents a competitive advantage as investors increasingly use a variety of alternatives to purchase financial products and services, Sun Life said.

"It's a good business practice to be diversified across distribution channels," said John Reilly, an MFS spokesperson.

Merrill Lynch, Salomon Smith Barney and PaineWebber rank first, second and third, respectively, among MFS' broker/dealer distributors, Reilly said. A breakdown of distribution on a company-by-company basis was not immediately available, Reilly said. The distribution among broker/dealers, financial advisors and banks has been largely constant in recent years, he said. MFS executives believe their own distribution mix is in line with those in the industry, Reilly said.

Because such statistics are not widely shared, it is difficult to find a benchmark for distribution among sales channels, mutual fund industry executives, consultants and fund industry analysts said. But the MFS distribution mix appears to be desirable, they said.

"It sounds like a healthy mix," said Neal Epstein, a vice president at Putnam, Lovell, de Guardiola & Thornton of San Francisco, an investment banking and research firm that tracks the financial services industry.

One firm with which MFS is often compared, Putnam Investments of Boston, has roughly 25 to 30 percent of its sales through the bank channel, a spokesperson said. He declined to provide additional details about Putnam's distribution. A spokesperson for Alliance Capital Management LP of New York, another firm consultants identified as an MFS competitor, does not make its channel distribution statistics available to the public, a spokesperson said.

Diversified distribution is a valuable asset, according to fund industry consultants. There is an abundance of mutual funds and a relative dearth of effective distribution, consultants said. That has given distributors leverage and poses a threat for fund firms if they become overly reliant on any one distribution channel, consultants said.

"Distribution right now is king," said Edward J. Boudreau, managing director of E.J. Boudreau & Associates LLC of Winchester, Mass., a financial services consulting firm.

Distribution through wirehouses is highly sought after but tends to be more expensive than fund sales made through financial planners, Boudreau said. Wirehouses generally seek more personnel and financial support of marketing efforts than do financial advisors, consultants said.

Although MFS' leading broker/dealer sellers are wirehouses, its broker/dealer distribution includes approximately 800 firms, according to the registration statement. The MFS distribution is a good mix because it is not exclusively dependent on wirehouses, said Geoffrey Bobroff, president of Bobroff Consulting of East Greenwich, R.I., a mutual fund consulting firm.

Bobroff attributed MFS' success in large part to the willingness of Sun Life to give top MFS executives an equity stake in MFS. Equity has helped MFS attract and keep top people, Bobroff said.

"That has paid handsome dividends," Bobroff said of the equity ownership stake.

MFS senior managers and key money managers owned 16 percent of MFS as of Dec. 31, 1999, according to the registration statement. Those executives had options that, if exercised, would enable the executives to own nearly 20 percent of the company, according to the registration statement.

Sun Life expects to make up to two percent more of an ownership stake available to MFS executives in 2000, according to the registration statement. MFS also provided loans to MFS executives to make equity purchases, according to the registration statement. The terms of the loans and their recipients were not disclosed.

The registration statement did not identify by name who received a stake in MFS or how the interests were apportioned among management. Reilly declined to comment on the issue.

Despite the employees' ownership stake, Sun Life said in the registration statement that it plans to keep a substantial majority ownership stake in MFS. Reilly declined to comment on whether MFS would prefer to see itself spun off as a separate public company from Sun Life. Sun Life may be better able to realize MFS' market value by making such a move, consultants said.

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