1st Chicago sets trust conversions to boost funds.

First Chicago Corp. has embarked on an ambitious plan to make its family of proprietary mutual funds a more viable competitor in the rough-and-tumble funds business.

The $64 billion-asset banking company, which manages a relatively thin $1.3 billion in fund assets, plans to more than triple the business by restructuring roughly $4 billion in trust assets into an unspecified number of new portfolios. The company ehrrently manages nine.

First Chicago is also preparing to launch five or six new mutual funds that will primarily contain new money from investors and little from trust assets.

"In a very short period of time, we want to have a mutual fund family that is several times its current size," said Richard A. Davies, president of First Chicago's investment services unit, which oversees the bank's proprietary funds and retail brokerage.

First Chicago is not alone in trying to grow its mutual fund business through trust conversions. Indeed, Northern Trust Corp. this year launched a $1.8 billion retail fund family that consists principally of assets from trust accounts.

But First Chicago's plans underscore the pressure banks feel to bulk up their fledgling mutual fund businesses. While the promise of fee income has drawn many banks to manage and sell mutual funds, only a few institutions have amassed enough assets to ensure a steady stream of profits.

First Chicago lags its peers in fund assets. While the institution is the nation's 10th-largest banking company, it ranks only 47th among bank managers of mutual funds.

To help with the expansion, First Chicago this week announced plans to switch its mutual fund distribution and administration contract to Concord Holding Corp., New York. Those duties, which include developing a game plan for the trust conversions, had been handled by Dreyfus Corp., which recently merged with Mellon Bank Corp.

First Chicago's mutual fund expansion push grew out of a reorganization in April. At that time, the investment management units of its First National Bank and American National Bank and Trust Co. subsidiaries were merged into the new investment management group.

Senior management of the new unit decided that First Chicago needed a more robust mutual fund family in order to compete effectively in the investment management business, Mr. Davies said.

For one thing, all but $89 million of the First Prairie Funds' assets are in money market funds, which generate slim fees and are used more for cash management than for investing.

The trust fund conversions and new fund launches will beef up First Chicago's lineup of stock and bond funds, Mr. Davies said.

First Chicago aims to convert a substantial portion, though no more than one-third, of the $15 billion of common and collective trust funds it manages, Mr. Davies added.

Many of the conversions are expected by early next year. Gary N. Kocher, a Concord senior executive vice president, said that close to $4 billion of trust asset conversions are scheduled.

The bank also aims to increase sales by doubling its retail brokerage force over the next couple of years, from the 50 brokers currently employed, Mr. Davies said.

He added that the mutual funds will be made available to 401 (k) investors. This plan dovetails with another initiative, due to be announced by yearend, to create a new, more robust set of services for the 401 (k) market, said David R. King, head of the company's retirement services.

First Chicago is currently a trustee for about 500 401(k) and related retirement plans. And although some First Chicago trust funds are made available to these investors, its mutual funds are not.

The switch to Concord is a boon for a company that is the country's largest distributor of bank-managed mutual funds.

First Chicago's previous distributor, Dreyfus, recently handed over its distribution activities to a unit of privately held Boston Institutional Group.

As a bank unit, Dreyfus is prohibited from underwriting mutual funds.

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