PITTSBURGH -- The mutual fund mavens at Federated Investors have little patience for gimmickry.

The company, which administers more than $72 billion of mutual fund assets, including $20 billion managed by banks, prides itself on its no-frills approach to fund management.

So about six months ago, when Federated discovered that one of its bank clients had beeR, buying derivatives for a bond fund it managed, the company's fixed-income investment chief hit the roof.

"We insisted they take the derivatives out of their funds," said William D. Dawson, an executive vice president of Federated Research Corp., the company's investment management arm. Had the client refused, he said, Federated employees would have resigned from the mutual fund's board of directors.

The bank, which Mr. Dawson declined to name, took its mutual fund distributor's advice, dumpins the derivatives just before the investment began to wreak havoc with the fund portfolios of such industry leaders as BankAmerica Corp. and Wilmington Trust Co.

Mr. Dawson said it's not as if Federated is afraid of derivatives. It's just that it believes there are no short cuts to success in mutual fund management.

"It's not a magic act," Mr. Dawson said. "If somebody does discover something more efficient, the whole world beats a path to their door."

A tour through Federated's Pittsburgh offices suggests that not everything in the works these days is plain-vanilla.

The company recently introduced a line of asset allocation funds tailored to the bank trust departments that make up the bulk of its clientele.

The funds, known as the Managed Series Trust, have attracted $110 million since they were launched in May, said Mark R. Gensheimer, vice president of the company's sales arm, Federated Securities Corp.

He said he believes the asset allocation portfolios have been a hit in part because they give trust customers investment choices that match their needs at different stages of life.

That's important to banks, which "are trying to capture an emerging affluent client at an earlier stage in the life cycle."

Some of the excitement over banks' entry into the mutual fund business has died as the market has softened. But James J. Dolan, president of Fedorated's largest unit, Federated Administrative Services, isn't worried.

"It's a market we understand," Mr. Dolan said. "Our brand of conservative investment product is geared to it."

Despite the current lull, Mr. Dolan expects a Continued expansion of the mutual fund business at banks.

"The customer is going to find the product somewhere," Mr. Dolan said. "He should find it with his banker."

James Getz, who 'heads Federated's Sales through broker-dearler channels, including those at banks, said the challenge for banks is to anticipate rather than react to market trends.

When interest rates were falling, it was easy for banks to pick up mutual fund business from customers who were unhappy with the yields on deposits, Mr. Getz said.

But in the future, "they really are going to have to be financial counselors."

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