When it comes to selling mutual funds, performance is king. That's one of the hard facts banks have begun to face in the drive to establish themselves as serious players in the mutual fund business. A few years ago, when banks were brand new to fund management, most were preoccuppied with amassing fund assets by boosting sales forces and converting trust assets. Investment results, it seemed, were a secondary consideration. Returns on bank-managed funds frequently lagged those of funds run by mainstream managers. One reason: Banks' generally conservative investment style meant they didn't participate in the robust bull markets of the past decade, where aggressive investing was richly rewarded.

But as banks settle into the job of running their own mutual fund companies, they are becoming more focused on producing the steadily-above- market returns needed to win customers. Indeed, in a recent analysis, the American Banker found evidence that the handful of bank funds with at least a five-year track record stack up favorably against their nonbank rivals. That analysis, based on data from Lipper Analytical Services, Summit, N.J., also showed a strong correlation between bank funds' performance and their ability to attract assets from beyond the bank lobby.

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