A trust services unit of American Express Co. is developing a multimillion-dollar system to help mutual funds comply with the dizzing array of regulatory requirements.

The Boston Co., with $250 billion in assets under management, is carving out a niche in the $1 trillion mutual funds market dominated by State Street Boston Corp. and Bank of New York Corp.

The unit hopes to win business away from the market leaders by using advanced technology to give mutual funds highly specialized service. Boston Co. has about 40 clients and $100 billion in mutual fund assets -- giving it a 10% market share compared with State Street's 40%.

"We're in the information delivery business, and we have to have the best information and best technology at our customer's fingertips," said Peter H. Gallary, president of the Boston Company Advisers Inc., the firm's mutual fund division.

Tapping Valuable Experience

The software under development uses "expert system" technology that compiles the knowledge of seasoned executives to help less experienced managers make decisions. The expert system will incorporate rules from the Securities and Exchange Commission and elsewhere to alert customers when transactions exceed regulatory limits.

Though small, the Boston Co. is drawing on the vast resources of its parent company. American Express already has invested about $10 million in the expert system, which is being developed jointly by Mr. Gallary's department and another American Express unit, Minneapolis-based IDS Financial Services Inc.

System Runs on PCs

Boston Co. has been working on the project for about eight months, and plans to have a prototype up and running by early 1992. The expert system is designed to run on personal computers linked to the firm's mainframes.

With the software, funds managers will know as soon as a trade is entered whether it complies with regulations. For example, one regulation states that no more of 30% of annual gains can be from holdings of less than 90 days. Currently, funds managers would discover this after a trade had already been entered.

The Boston Co. also recently installed a new global mutual fund accounting system, which allows account managers and corporate clients to track both currency positions and security positions in foreign holdings.

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