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American Express Shuffles Funds' Board

The American Express Funds' board of directors has chosen to play musical chairs - in its own boardroom. The group will be welcoming six new board members, pending shareholder approval.

While changes to the funds' board were not initially prompted by challenges that the Minneapolis-based fund group has been experiencing - most notably shrinking assets and pallid performance - American Express decided to take advantage of natural attrition of its board to change the group's mandate and makeup. Two overriding concerns of the new board, which oversees all 78 funds in the American Express family, will be stemming asset outflows and improving performance for investors, according to the chairman of the board.

American Express recently announced that in November it will replace six members of its board of directors, four of whom the board has just nominated. Two of these new nominees are independents.

In addition, two other new independent directors have been participating on the board since earlier this year but still need to be formally approved by shareholders. The shareholder vote to approve the six new members is scheduled for Nov. 13 and will expand the board from 11 members to 13.

Facing the current retirement of two board members and the departure of two others to pursue outside interests, American Express decided it was time for an infusion of new blood, fresh ideas and an entirely new skill set among its members, said Arne Carlson, chairman of the American Express Funds' board and the former governor of Minnesota. "American Express has had tremendous problems on the performance side. We are a company in transition," he said. "We are putting more focus on skill sets and less focus on celebrity. We want people to come in with some strength and expertise."

Consequently, the board drafted a set of complementary skills it wants new independent board members to possess, he said. Each of the board's trustees will now have expertise in the energy, biotech and emerging markets, as well as small- and large-cap companies. One board member even has experience with companies in transition, Carlson added. The new lineup of directors also allows for a broader perspective, as board members are geographically diversified, something Carlson said he had been pushing to achieve.

The departing independent fund trustees who have no formal ties to the fund advisory company include Lynne Cheney, an eight-year board veteran and wife of incumbent vice president Dick Cheney. She voluntarily chose not to stand for re-election, according to an announcement by the firm. "Lynne Cheney wants to spend more time writing books," Carlson said.

Also exiting is C. Angus Wurtele, 67, retired chairman and CEO of Valspar Corp. and a board member since 1994. He recently purchased a vineyard in California and wants to run his wine business, Carlson added.

Two additional independent trustees are stepping aside because they have met the board's self-imposed retirement age of 72, he said. They are H. Brewster Atwater, Jr., 72, retired chairman and CEO of General Mills and a board member since 1996, and long-time board member William Pearce, 75, who is the former chairman of the American Express Funds and had served on the board since 1980. Pearce had previously been "grandfathered" and allowed to continue his board service until he reached age 75.

Former affiliated directors David Hubers, the retired CEO of American Express Financial Corp. who had been a board member since 1993, and John Thomas, who served as president of the company and was a board member since 1987, are also stepping down.

In With the New

Since Hubers and Thomas are former executives of the firm, the board is proposing two other internal members to replace them. The first nominee is Barbara Fraser, executive vice president, products and marketing for American Express Financial Advisors. Fraser also served as the former president of the firm's travelers check division. Also up for election is Steve Roszell, who serves double duty as the CEO of American Express Asset Management Group and SVP of institutional financial services for American Express Financial Advisors.

The two independent trustees who were preliminarily added to the board earlier this year are Stephen Lewis, president and professor of economics at Carleton College in Northfield, Minn., and Alan Quasha, president of Quadrant Management, a private equities management firm in New York.

The fifth and sixth nominees are Philip J. Carroll, Jr., retired chairman and CEO of engineering firm Fluor Corp., and Alison Taunton-Rigby, president and CEO of Forester Biotech.

While the board of directors is required to act independently from the funds' management company, American Express executives, meanwhile, have been applying a series of tourniquets aimed at turning around the struggling fund group, which has been plagued with dismal fund performance and increasing asset outflows since 2000.

Year-to-date through May 31, the funds have lost a collective $2 billion after losing $1.5 billion in 2001, according to Financial Research Corp. (FRC) of Boston. Assets at the end of June stood at $64.3 billion, down 32% from $95.1 billion at year-end 1999, just before the start of the bear market.

While the top 50 fund groups have collectively lost 6% in assets year-to-date and 9% for the trailing one-year period ending in June, the American Express Funds have lost exactly twice the amount in assets, according to FRC.

Last September American Express hired William Truscott as SVP and chief investment officer. He is charged with spearheading efforts to improve fund performance. Then, in late July, the firm hired Michelle Keeley to head up its fixed-income group. American Express is also building satellite equity investment management offices in New York, Boston and San Diego, which will complement its Minneapolis hub office.

On the product side, the fund group continues to add to its roster of internally managed funds. And, for the first time last year, American Express began offering "partner" mutual funds that are externally managed by well-known money managers.