Keycorp is teaming with Putnam Financial Services to create a family of variable annuities, said the Cleveland banking company's top mutual fund executive.

Under the arrangement with the Boston-based mutual fund company, Keycorp will offer nine variable annuities under its own label, said W. Christopher Maxwell, chief executive of Keycorp's mutual funds group.

Four of the portfolios will invest in Putnam mutual funds, while the other five will invest in the Victory funds, which Keycorp manages. The annuities should be unveiled this fall, Mr. Maxwell added.

The arrangement is a twist on an increasingly popular strategy. In the past 18 months, a dozen major banks have introduced variable annuities as an extension of their proprietary mutual funds, or have announced plans to do so. Just last week,-Chase Manhattan Corp. confirmed that it is developing variable annuities investing in its proprietary Vista Funds.

Increasingly Popular

Annullies, which are tax-advantaged insurance products designed to produce retirement income, have a strong following among bank customers.

Fixed annuities are paid from fixed-yield instruments, while the managers of variable annuities generally invest in mutual funds as a way of reaching for higher returns.

Banks see offering annuities linked to proprietary mutual funds as a way to boost fee income from asset management.

By pairing with Putnam, Keycorp has found a way to jump on the variable annuity bandwagon even though it is relatively new to mutual fund management.

The Victory funds are less than a year old; Putnam, on the other hand, is a known commodity and one of the top sellers of mutual funds through banks.

Mr. Maxwell said Putnam's mutual funds have been especially popular with Keycorp customers, some of whom may be drawn to annuities that feature Putnam funds as the underlying investment.

Underwriting Prohibited

"We'll have less than 100% of the assets, but we'll get more assets than if we didn't go this way," Mr. Maxwell said.

Though banks can manage the mutual funds that underlie variable annuities, they are prohibited from underwriting the annuity contracts.

To get around this prohibition, banks team with insurance companies as underwriters.

Keycorp has selected Hartford Life Insurance Cos. as its underwriter. The company, based in Hartford, Conn., will also manage a fixed annuity that will be sold under the bank's label.

In a related development, Mr. Maxwell said Keycorp plans to add back-end loads to three of its Victory funds.

The popular pricing structure allows investors to defer payment of sales charges until they redeem shares. The longer shares are held, the lower the sales fee, so investors may be able to avoid paying any fees if they hold shares for several years.

Keycorp has not yet decided what fees its back-end loads will carry, Mr. Maxwell said.

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