Star Banc Corp. of Cincinnati likes to buck the trends. So far, its unorthodox approach seems to be paying off.

Since entering the retail mutual fund market in 1991, Star Banc has built its retail investment business around equity and asset-allocation mutual funds rather than the conservative products favored by most banks.

Last fall, the $8 billion-asset company introduced an aggressive growth fund that invests in options, real estate investment trusts, and other arcane instruments to give what the bank called "junk bond yields at half the risk."

Critics doubted the wisdom of offering a fund based on unusual instruments at a time when Congress and the public was scrutinizing banks' use of derivatives. Today the fund is the company's second-largest seller.

This spring, Star Banc diverged from its peers again. In introducing a new retirement plan, the All-Star 401(k), Star Banc didn't look to nationally known funds from Putnam or Fidelity to supplement its proprietary fund family. Instead, it chose a handful of funds managed by midwestern investment houses that are well regarded in the region but little known outside it.

Star Banc, which wanted to fill gaps in its own product line and enhance its own fund family's appeal, says these small investment firms have local name recognition but don't compete directly with Star.

The bank didn't want to be like all the other companies offering funds run by money managers based in Boston, California, or New York, said B. Randolph Bateman, Star Banc's chief investment officer. Nor did it want to offer entire fund families - just a few handpicked, well-managed funds.

"For this product, we wanted accessibility to fund managers," Mr. Bateman said. "There's a certain provincialism in the Midwest. There's a strong work ethic, and people tend to identify with one another."

"Going with a Putnam or a Fidelity would have defeated the whole purpose of the program," he said.

Observers said that by not offering the best-known funds, Star may limit the appeal of its retirement plan.

"If their strategy is to raise the Ohio flag and bring in the local accounts, that may work," said Ellen Landry, a consultant with Cerulli Associates, Boston. "But it might hinder them in their efforts outside the region."

W. Joseph Harper, a Columbus, Ohio, financial planner, said: "It may make sense from a marketing standpoint, but I personally wouldn't select funds based on whether they were located close by."

George Walper, a principal at the Spectrem Group, a financial services consulting firm, commented that "the key is, what do the participants want?"

"Most participants are clamoring for big-name-brand funds," he said.

But Mr. Bateman said Star Banc had no second thoughts about its regional strategy. Since introducing the program in May, the bank has had "reasonable success," signing up close to 50 retirement plans, Mr. Bateman reported.

He declined to identify any of the clients but said most involved existing plans that had moved their business from other banking companies.

Apart from the All-Star product, Star Banc has been providing 401(k) and pension services for about two years. The bank will tailor a plan to include funds from any investment firm a plan sponsor requests. But its All-Star 401(k) product is its only package to offer such 401(k) services as employee education, including videos explaining different options.

All-Star, which the bank expects to be its "blockbuster" retirement product, was the brainchild of Mr. Bateman and two other Star Banc officers - Janet McDonald, head of employee benefits, and Tom Scheper, head of operations.

They used Morningstar and Lipper ratings to select the funds, which include products from Bartlett & Co., Cincinnati; Maxus Investment Group, Cleveland; Gateway Trust, Milford, Ohio; R. Meeder & Associates, Columbus, Ohio; Midwest Financial Services, Cincinnati; and Ryback Management Corp., St. Louis.

"We think they're good funds for the long term, and we have a great deal of confidence in the managers," Mr. Bateman said.

All the funds are well regarded in Star Banc's markets in Ohio, Kentucky, and Indiana, said Mr. Harper, the financial planner.

Two of the funds received Morningstar's top rating of five stars - Flexfunds' Muirfield Fund, managed by R. Meeder, and the Lindner Dividend Fund, managed by Ryback.

Other funds on Star's regional list include Maxus Equity Fund, Midwest's Intermediate-Term Government Income Fund and its Utility Fund, Gateway Index Plus Fund, and Bartlett Value International.

Also available to All-Star participants are five of the Star Funds - the Relative Value, U.S. Government, Stellar, Stable Asset, and U.S. Treasury funds.

From its first foray into the retail mutual fund industry, Star Banc has tried to break away from the pack. Its first product, the Stellar Fund, is an asset-allocation fund introduced in 1991, when most banks relied heavily on money market funds. It's the company's biggest seller, and has earned a 12% rate of return so far this year.

Star's Strategic Sector Income Fund, which invests in options and REITs, is next in popularity, and has a 7.75% current yield. It's followed by the Relative Value Equity fund, with a 28% rate of return this year.

Star Banc has succeeded in bringing in new assets to bolster its proprietary Star Funds, a family of eight funds, said Ms. Landry of Cerulli Associates. Mr. Bateman reported that assets stand at $1.276 billion, up 46% for the year to date - due to a combination of new assets, market appreciation, and conversion of trust assets.

As of June 30, the bank had $630 million assets in money market funds, $243 million in equity funds, and $146 million in fixed-income.

Revenues for the funds are up 44% in the first eight months of this year from a year earlier. The funds constitute 3% of all trust revenue; trust revenue itself contributes 9% of all bank revenues, according to Anthony Lombardi, a securities analyst at Dean Witter in New York.

"The funds are growing rapidly, though it's still a relatively small piece of total trust," Mr. Lombardi said. "They're making a lot of investments in new products."

Star Banc says it can make the investments because it runs an efficient shop. Its investment group is highly automated.

"It's amusing to us to see reports from other mutual fund companies that you can't make any money in this business unless you have billions of dollars under management," Mr. Bateman said. "Our profit margins are quite high."

At a time when many banking companies are wondering if mutual funds can be profitable, it's just another example of how Star Banc manages to buck the trends.

Ms. Brokaw is a freelance writer in San Francisco.

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