Fifth Third Bancorp is eyeing a new source of assets for its mutual funds: medical savings accounts.

The Cincinnati-based bank last week said it had entered into a joint venture with Mutual Eye Claim Audits Inc., Indianapolis, to establish a medical savings account program. A pilot program of the Internal Revenue Service, the accounts are designed to allow workers at small companies to set aside money for medical costs on a tax-deferred basis.

Fifth Third, a $20.5 billion-asset banking company, will act as trustee to accounts Mutual Eye administers for small businesses and the self- employed. MECA administers vision, dental, and hearing and other plans to cover health care costs for 200,000 people.

Under the Fifth Third program, clients' contributions will initially be invested in the bank's proprietary mutual fund family, the Fountain Square funds. Other mutual funds can be added to the account upon a client's request.

"Our goal is just like any other mutual fund manager: to grow our asset base," said Sandra Lobert, senior vice president of institutional trust services for Fifth Third Investment Advisors. "We're excited to have a new source of tax-deferral assets."

The 13 Fountain Square funds have over $2 billion of assets under management.

Money held in medical savings accounts can roll over from year to year on a tax-deferred basis, much like the assets administered in a 401(k) plan. The plans, which became available on Jan. 1, are designed for companies with fewer than 50 employees. Self-employed workers are also eligible to open the accounts.

A handful of financial services companies have recently set up programs to capture medical savings assets. For instance, Mellon Bank Corp., Pittsburgh, Pa., offers payment systems and account services for medical savings accounts marketed by insurance companies, according to a spokesman.

Account holders can pay medical bills with a debit card issued by Mellon. And, if their accounts cross an undisclosed threshold, then money can be invested in the bank's proprietary Dreyfus mutual funds.

But, the experimental status and relatively limited potential of medical savings accounts is causing other money managers to hold off.

"I don't perceive we'd do anything until it became universally available to our clients," said Ralph H. Perry, a senior vice president of Dean Witter, Discover & Co. "It wouldn't make any sense for us unless it had the universal approach of the IRA."

But Fifth Third is not going out on too much of a limb with medical savings accounts, as it will not spend any marketing money on the program. Instead, Mutual Eye will pick up the clients.

Fifth Third Investment Advisors, which has a total of $99.4 billion in discretionary trust assets, will look to partner with other health care administrators for additional clients, according to Jack Rybka, its vice president of employee benefits. He added that mutual funds are well-suited to the accounts, which have to be immediately accessible for bill payments.

"You want to have the ability to put it into to some kind of investment vehicle as opposed to a passbook rate. You can't use a certificate of deposit because that's not liquid," Mr. Rybka said.

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