A small bank in Oregon has created its first mutual fund.

West Coast Trust, a subsidiary of West Coast Bancorp, Salem, took advantage of a new tax law favoring the conversion of trust assets to mutual funds for the launching of West Coast Equity Fund in January.

West Coast executives said they hope new investment products will help the bank maintain its customer base.

"It's a good way to serve our clients after we have developed a relationship and understand what their needs are," said Andrew J. Gerlicher, president of West Coast Trust. "This style of investing is good for the typical trust customer, with a value approach and a tried and true performance over the years."

Small banks have been creating proprietary mutual funds for years, and banks of all sizes have been taking advantage of a recent tax law change to convert trust assets to mutual funds on a tax-free basis. Small banks in particular are interested in creating mutual fund products to prevent their customers from shifting deposits to third-party mutual fund companies.

West Coast Trust converted $60 million, or 25% of its total held intrust, to the fund.

Mr. Gerlicher said the fund will invest in domestic businesses that are primarily midsize or large S&P 500 companies.

The $809 million-asset bank said it has no plan to create a proprietary bond fund. West Coast Trust offers a fixed-income product from Federated Investors of Pittsburgh.

Mr. Gerlicher said the new equity fund is being marketed to trust customers without a load. Nontrust customers will pay a 4.5% load. The 10- year average compounded annual return for the trust assets on which the equity fund is based is 12.99%, he said.

The fund will be sold in the bank's 40 branches in Oregon and Washington.

Joy Montgomery, president of Money Marketing Initiatives, Morristown, N.J., said banks are typically looking for a more public market.

Small banks, she said, "normally do their best close to home and within their customer base. It is highly unusual for them to be successful outside of their footprint."

The creation of bank mutual funds, she added, is primarily coming from the conversion of trust assets.

"There is not always a monetary return" on small banks' funds, she said. "It's highly unlikely a bank of this size will show a bottom line profit from a fund."

Rather, the value of the fund comes from "customer retention, satisfaction, and enhancing the brand image from additional products."

Lipper Analytical Services Inc., Summit, N.J., has reported a decline in the number of banks starting mutual funds. In 1992 banks started 23 funds; in 1997 they started only five.

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