Citi to Provide $75M in Financing for Aim Management

Citicorp has entered into a financing arrangement with mutual fund company Aim Management Group, part of a trend of banks providing fund firms with needed short-term capital.

The nation's largest banking company has agreed to provide $75 million over two years to Houston-based Aim, said Robert Graham, president of the fund firm.

Aim will use the money to pay commissions to brokers who sell funds that don't levy sales charges until the customer sells the shares, he said.

The fund company will repay the money with revenue generated by charging fees to investors. In essence, the money-center bank has acquired the revenue stream that Aim generates by charging investors what are known as 12b-1 fees and back-end sales charges.

Aim didn't enter into a traditional loan arrangement because it didn't want to carry debt on its balance sheet, Mr. Graham said.

Citicorp did not return telephone calls.

This type of lending arrangement is viewed as a growth opportunity for commercial banks.

Fund companies have proven they generate a steady flow of assets, so banks have become more comfortable lending to them, consultants said.

Known as B-share financing, these types of arrangements are becoming increasingly popular between banks and fund companies, said John A. Ketchum, division executive in the financial institutions division of Bank of Boston Corp.

Unlike management fees, 12b-1 fees are used by fund firms to cover marketing expenses and to help pay broker commissions.

Citicorp will receive these fees from Aim for the next eight years. At the end of that time, the funds will be converted from B-shares into A- shares, in which sales charges as assessed at the time of purchase.

Mr. Graham said the arrangement will help Aim finance the 4% average commission it pays up front to brokers who sell the 19 Aim mutual funds that have back-end sales charges.

The Citicorp-Aim arrangement is somewhat unusual in that the banking company isn't requiring Aim to compensate it if the fund company chooses to stop charging 12b-1 fees.

Consultants said this was the first such arrangement, and that it shows how aggressive banks are becoming about providing financing for mutual fund companies.

"Bankers these days are tripping over themselves trying to lend to the mutual fund industry," said Geoffrey Bobroff, a consultant in East Greenwich, R.I.

Fund companies are increasingly offering B-shares, which carry a back- end sales charge, because investors naturally prefer not to have to give a percentage of their investment up front to a broker.

When an investor puts money into B-shares, all of the original investment works for the customer immediately.

"If B-share sales continue at a rapid pace, then the need of mutual fund companies to borrow is going to be substantial for the whole mutual fund industry," said Mr. Ketchum.

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