WASHINGTON - Banks would be allowed to offer a broader array of investment options to trust customers under legislation introduced recently in the Senate.

A bill introduced last week by Sen. William V. Roth, R-Del., and Sen. Max Baucus, D-Mont., would eliminate tax penalties on the transfer of certain trust assets into mutual funds.

"This is an important business issue for large and small banks and an important issue for their investment customers," said Sen. Roth. "It will permit all bank customers, not just those with trust funds, more options for investing their savings."

Under current law, the transfer of assets from a trust fund into a mutual fund is taxable event, which means unrealized gains on securities in trust portfolios are subjected to capital gains taxes when the transfer takes place.

The tax triggered by such a transfer could be viewed under state law as a breach of a bank's fiduciary responsibilities.

This in turn can cause banks to shy away from converting their common trust funds into mutual funds, Sen. Roth said.

"This is not a tax break, but merely a recognition that the tax code has not kept pace with changes in the investment world," Sen. Roth added. "In fact, the cost to the Treasury of my bill would be substantially less than $100 million over five years."

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