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The roughly 20 percent drop in the number of companies paying out stock dividends has caused some mutual fund complexes to rethink their growth and income strategies, fund executives say.

However, not all fund portfolio managers are ready to give up on providing income for their fund customers. Despite the ever smaller pool of dividend-paying stocks, these persistent growth and income portfolio managers are turning to foreign holdings and convertible bonds to create streams of income for shareholders.

However, American Century Investment Management of Kansas City, Mo. would like to remove the investment mandate on two of its funds that requires them to invest a majority of assets under management in dividend-paying stocks, according to a proxy filing American Century submitted to the SEC on March 24.

American Century would like to eliminate requirements that the American Century Select Fund invest 80 percent of its assets in stocks producing quarterly dividends, according to the registration statement. It would also like to eliminate a requirement that its American Century Heritage Fund place 60 percent of its assets in such stocks.

American Century, in a proxy, plans to tell shareholders that the drop in dividend-paying companies is making it increasingly difficult for its growth and income portfolio managers to find investment-worthy stocks.

The number of dividend-paying companies in the S&P 500 dropped from 96.7 percent in 1990 to 74.8 percent in 1999, according to Factset Data Systems of Greenwich, Conn. Dividend-paying companies in the S&P 400 have declined from 73.3 percent in 1990 to 52.7 percent in 1999, according to Factset.

First American Asset Management of Oaks, Pa. has also found that a decrease in dividend-paying stocks in the past 10 years is presenting a challenge to growth and income portfolio managers, said Cori Johnson, a managing director at the firm. As a result, two of First American's large-cap, growth and income funds, the First American Large Cap Growth Fund and the First American Value Fund, have "migrated away from income-producing stocks," Johnson said.

More importantly, the 15-year bull run in the market has focused the majority of investors' attention on total returns, Johnson said.

Also, investors have welcomed the fact that companies in high growth industries have favored reinvesting profits in their business or buying back stock to reward investors over paying out dividends, said Russ Kinnel, an analyst with Morningstar, the fund rating agency in Chicago.

The no-holds-barred investment philosophy of the so-called New Economy that disregards old price-to-earnings ratios standards also means that earnings and dividends are no longer uppermost in the minds of many investors, said Irene O'Neill, portfolio manager of the Evergreen Income and Growth Fund, managed by Evergreen Funds of White Plains, N.Y.

Despite the decreasing popularity of income-producing funds, however, they still serve a purpose for conservative investors, said Geoffrey Bobroff, president of Bobroff Consulting of East Greenwich, R.I. Fund companies and investors should not rule out growth and income or equity income funds, which will prove quite useful once again in a down market, Bobroff said.

American Funds of Los Angeles reminded shareholders of its $8.8 billion American Funds Capital Income Builder Fund of the merits of income-producing stocks in its most recent, fourth-quarter 1999 shareholder report.

"When stock markets are soaring, it becomes all too easy for investors to forsake dividend-paying stocks," American Funds told shareholders. "In the euphoria over rising stock prices, forgotten is the relative stability a good income flow can provide in a down market and the significant contribution dividends and their reinvestment historically have made to total stock market returns."

Because American Funds Capital Income Builder Fund faces a shrinking dividend-paying universe of U.S. stocks, the fund invests heavily in foreign stocks. Six of the fund's 10 largest holdings are in foreign companies.