On a clear day, Timothy Leach can see majestic, snow-capped Mount Hood from his corner office at U.S. Bancorp's headquarters in Portland, Ore.

Against that backdrop, Mr. Leach, president of U.S. Bancorp's Qualivest Capital Management and mutual fund unit, is out to put a dramatic mark of his own on the fund landscape.

Ahead of the pack, Mr. Leach this May created a potent line of diversified mutual funds, commonly called funds of funds, using the company's existing mutual funds as building blocks.

Those hybrid funds were the first offered by a banking company.

And they put Mr. Leach and $32 billion-asset U.S. Bank at the cutting edge of a marketing trend that is taking the fund industry by storm.

Now such mutual fund juggernauts as Charles Schwab & Co. and Fidelity Investments are following U.S. Bank's lead.

Not bad for a proprietary fund complex started in 1994 that only passed the $2 billion-asset mark last month.

"There's lots of chatter about needing big-name funds to be competitive," Mr. Leach said, "but to me that's a symptom of organizations that have slipped into product selling."

U.S. Bank's funds of funds, he said, are like the proverbial better mouse trap, attracting consumer allegiance to their simple investment solutions. That is the key to mutual fund success, he said, not fancy brands.

Funds of funds promise diversification of assets across multiple investment classes, typically comprising stocks, bonds, and money market portfolios. And they are easily matched to common investment objectives, such as growth, capital preservation, or income.

The simple yet integrated approach is particularly apt for the many bank customers or 401(k) plan participants who have never invested before, Mr. Leach said.

At U.S. Bank, the funds were rolled out first to the retirement plan market as part of the bank's grab for long-term assets. And last month they debuted as the centerpiece of a new push for retail investment product sales.

"The product by itself won't crack distribution," said A. Stewart Rose, a Boston mutual fund consultant. But funds of funds are "very clean and very easy to understand," he said.

So far, sales have been brisk.

In four months, the funds had attracted $90 million of 401(k) plan assets.

Retail sales figures had yet to be compiled, Mr. Leach said, but preliminary indications were that customers spent more as their buying decisions got easier.

"When a customer talks with an investment sales rep and the discussion is about individual funds - like how much small cap should I have - then you lose them," Mr. Leach said.

But with a fund of funds, investors are "buying a whole portfolio" and seem more willing to commit assets in bulk; "we've seen bigger tickets," he said.

That's encouraging for Mr. Leach, who is out to show that the Qualivest funds, with 30% of assets in retail shares, have what it takes to attract the walk-up investor.

"If a mutual fund complex in a bank can't be viable as a retail entity, then I question whether it can be a business or is just a feature of the trust department," Mr. Leach said.

Other bank companies, notably Norwest Corp., had blended various kinds of assets before, using market indexes and master-feeder arrangements.

Moreover, T. Rowe Price and the Vanguard Group had used highly limited blends of proprietary funds for years, but these companies succeeded only last fall in easing restrictions on the fraction of each underlying fund that could be used.

Until Mr. Leach and his staff persuaded the Securities and Exchange Commission to let U.S. Bank freely mix seven proprietary funds as sole components of the new funds, no bank had done it.

Now some of the most creative marketers in the securities industry are following U.S. Bank's lead.

Charles Schwab & Co., the innovative discount brokerage, is repackaging mutual funds available in its fund supermarket into funds of funds. The first, an international portfolio, was offered for sale at the beginning of September.

And Fidelity Investments, the mutual fund giant, is also getting into the act, filing with the SEC for its own funds of funds last month.

Among bank companies, Banc One Corp. filed for six funds of funds in June, and Great Western Financial Corp. started selling its own series of five hybrid funds in July.

By emphasizing funds of funds as a solution to an investor's problem rather than just another hot product, U.S. Bank's Qualivest family hopes to overcome its relative lack of brand-name recognition and relatively short history.

Not to be overlooked as an attraction, funds of funds promise to help boost assets in existing portfolios at the same time they satisfy consumers' investment needs.

"We didn't have all the assets in the world to work with," Mr. Leach said. "And for a complex the size of most banks', I would think it's a logical approach."

"You bring customers into a fund which invests in funds of yours and quickly get an economy of scale," said Mr. Leach.

Early this year, he had predicted the new funds would capture $100 million of 401(k) and retail assets by yearend, but $100 million is already in sight, Mr. Leach now says, and $150 million to $200 million seems a hittable target by next May's anniversary of the funds' launching. Total assets could pass $250 million to $300 million by yearend 1997, he said.

U.S. Bank's bold move came as most banks were considering whether to offer mutual fund wrap accounts as the asset allocation product of choice.

But U.S. Bank went one better by getting SEC approval to use just proprietary funds for its funds of funds, something most wrap accounts don't, and embedding a modest fee for asset allocation of about 25 basis points inside the funds themselves.

A wrap account is still possible, Mr. Leach said, but the bank's emphasis on platform sales and the warm retail reception for the funds of funds make that initiative less urgent.

U.S. Bank is in the midst of transforming its platform employees into the workhorses of investment product sales. So far, the bank has almost 450 platform workers licensed to sell packaged securities products, such as mutual funds. By mid-1997, that workforce is slated to increase to 700.

Already, more than 200 people have completed specialized training for the funds of funds and begun pitching them to customers.

How to keep the retail customers who decide to buy from U.S. Bank is the next challenge, Mr. Leach said.

As investors gain experience, they tend to migrate to low-load or no-load products, he said. While not ready to go no-load yet, he is considering pricing structures that would pay the freight for intensive advice to first-time buyers but lighten for subsequent purchases. How exactly that would work, he hasn't figured out. Neither has anybody else, though.

But a little time and Mr. Leach's fertile imagination seem to be all U.S. Bank needs to keep a step ahead of the competition. u

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