Massachusetts has cleared a path for banks to reorganize common trust funds as mutual funds, but the state's largest banks say they are in no rush to seize the opportunity.

Gov. Paul Celluci signed into law Tuesday a bill that eliminates, retroactive to Jan. 1, the state capital gains tax for investors whose common trust funds are converted into mutual funds. Massachusetts is one of a handful of states that continued to impose the tax on conversions after federal rules were revamped in August 1996 to defer the taxes until capital gains are realized.

"We're pleased that the bill went through. It gives us the flexibility to provide the best products and services to our clients," a BankBoston Corp. spokeswoman said, adding that the company will evaluate the pros and cons of converting.

"However, we're not jumping into this right away. We want to make sure it's the best strategic route for our clients," she said.

BankBoston manages nearly $1.5 billion of assets in common trust funds. A figure for Massachusetts assets was not available.

Common trust funds were created as a way to manage assets from smaller trusts that were too small to be invested effectively on their own. After establishing proprietary mutual funds, many banks that manage common trust funds with similar investment strategies sought to merge the portfolios but were held back by tax laws.

Not having the choice was a hindrance, others said. "It had to get done," said David Floreen, senior vice president of the Massachusetts Bankers Association.

There was about $6 billion in about 50 common trust funds managed by nine Massachusetts banks at the end of 1996, the most recent figure available, according to the trade group.

PNC Bank New England, a subsidiary of PNC Bank Corp., went ahead with such a conversion in May. A bank spokesman said it advised its Massachusetts common trust clients, who held half the accounts, that it was optimistic the law would be enacted. The amount of assets involved was unavailable.

Beyond Massachusetts, several banks-including Chase Manhattan Corp. and First Union Corp.-have converted personal common trust funds into mutual funds. Last year $18.1 billion of assets flowed from common trusts to mutual funds; $9.1 billion has been converted so far this year, according to the Investment Company Institute, a Washington trade group for fund companies.

While big banks weigh their options, Massachusetts banks with smaller common trust funds are eager to forge ahead.

"We're very happy the Commonwealth of Massachusetts finally came around," said Stuart J. Nickerson, vice president of personal trust at Cape Cod Bank and Trust Co., Hyannis.

By yearend Cape Cod Bank hopes to convert assets from its stock and bond common trust funds into mutual funds managed by an undisclosed investment management company. Mr. Nickerson said that assets in common trust funds at Cape Cod Bank make up "a few million" of its total trust assets managed, which exceed $650 million.

Fleet Financial Group, which manages $6.9 billion of common trust assets and $27 billion of personal total trust assets in seven states, does not have plans to convert, said Galan Daukas, chief operating officer of Fleet Investment Advisors.

Fleet, he said, has the heft to manage investments in three major types of portfolios-mutual funds, common trust funds, and commingled funds.

"More firms are finding advantages to maintaining both," Mr. Daukas said, adding that common trust funds provide for pricing flexibility and do not incur many operating costs of mutual funds, such as mass marketing and additional regulatory filings and legal fees.

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