Earlier this year, bankers cheered a new federal law that allows them to transfer common trust assets into mutual funds without triggering capital gains taxes.

But many remain undecided about taking advantage of the tax-free conversion law.

Bankers faced with the prospect of a conversion say they must examine what accounting methods they would need to use, what fees they would need to charge, and what other laws would apply. Many are now forming committees to study the issue before going ahead with a conversion plan.

"The federal law that permits the conversion requires you to transfer virtually all assets of the common trust funds," said Thomas K. Edelmann, vice president and trust counsel at Commerce Bancshares, St. Louis. "The question is, is it good for everybody in all the accounts?"

When President Clinton signed the conversion measure during the summer, as part of the minimum wage law, bankers said it would give their fund businesses a much-needed push.

Common trust assets are the last ready pool of money available to push proprietary mutual funds toward a critical mass that would generate meaningful management fees. The government estimated that as much as $153 billion of common trust assets would be converted.

But now, bankers say that only those with the smallest proprietary fund families will take advantage of the conversion law.

"Our mutual fund complex has $10 billion; it can stand on its own," said Alice N. Milrod, a PNC Bank Corp. vice president for trust institutional sources.

Banks that want to stay competitive, she said, probably would be loathe to forfeit their common trust fund assets. Ms. Milrod, who leads her bank's conversion task force, said PNC has yet to decide if it will convert its funds.

According to industry observers, common trust funds can be a valuable service for a bank to offer. Their reputation as a lackluster product line is largely the result of envy, some say.

Trust banks can manage the funds far from the scrutiny of the Securities and Exchange Commission - a privilege not extended to nonbanks in the mutual fund game.

John P.C. Duncan, partner at Jones, Day, Reavis, & Pogue, said common trust funds "have lower costs and less hassles" than mutual funds. Setting up common trust funds, he said, is "the first thing" many of his nonbank clients do when they launch trust companies.

Ms. Milrod's task force at PNC - made up of staff accountants, lawyers, mutual funds, and investment executives - has been discussing the conversion issue for five weeks. She said the group feels no need to rush a decision.

"There is no time limit," she said. "Common trust funds can be looked at as an elite, efficient investment vehicle that isn't open to the public."

Commerce is also taking a go-slow approach. The bank manages trust accounts in three states, each with its own statutes regarding investment management pricing.

Mr. Edelmann said the bank wants to strike a balance between trust account and mutual fund fees, adding that "there are also issues of profitability" that must be settled.

Ms. Milrod agreed that a conversion could be especially costly for banks that operate in several states. Some states mandate that each beneficiary approve a conversion.

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