As banks search for ways to re-ignite the growth of the mutual funds they manage, U.S. Bancorp is staking a bet on a new product cobbled from its existing portfolios.

The Portland, Ore.-based banking company has asked the Securities and Exchange Commission to approve its plan to create four "funds of funds" - mutual funds that achieve an extra measure of diversification by investing in other mutual funds.

The SEC is expected to publish a notice of U.S. Bancorp's application in the Federal Register as early as today. If the SEC assents, U.S. Bancorp would be the first bank to join a small circle of fund industry leaders that have pioneered the fund-of-funds concept.

And approval is all but certain, according to an SEC lawyer, because the precedent already has been set in regulatory exemptions granted to Vanguard Group, T. Rowe Price, and a handful of other companies. "The experience that the staff had with those funds has set the stage for broader relief," said Robert E. Plaze, associate director of the SEC division of investment management.

U.S. Bancorp's move shows how banks are trying to cater to customers' growing demand for products that simplify investment decisions, while at the same time satisfying their own appetite for new assets. Because funds of funds are essentially recycled from existing offerings, they are considered easy and inexpensive to launch and manage.

According to Lipper Analytical Services, funds of funds now hold $9.4 billion - a tiny sliver of the $3 trillion mutual fund business, but one whose growth is expected to accelerate.

"They're a natural for a beginning investor who feels more comfortable with a ready mix of assets as opposed to assembling their own portfolio of funds," said John Woerth, a spokesman for the Vanguard Group, whose $5 billion-asset Star Fund dominates the category.

A fund of funds essentially invests all of its assets in other mutual funds, rather than individual securities. Thus, a single package containing many mutual funds - whose weights can be changed in response to market conditions - can be managed to meet a specified investment objective. The products are a variation on asset allocation funds, increasingly popular investments made up of a shifting mix of individual stocks, bonds, and cash instruments.

U.S. Bancorp's plan is to create four funds that invest, in various permutations, in eight of its nine Qualivest Funds. The funds will pursue aggressive growth, growth, balanced, and conservative strategies.

The bank is hoping the new funds will add about $300 million to its $1.7 billion mutual fund family within a year of their launch, according to Timothy J. Leach, president of the company's Qualivest Capital Management subsidiary.

He said the appeal of the approach is that "you bring customers into a fund which invests in funds of yours and quickly get an economy of scale."

Funds of funds have been around for decades, but on a very limited scale.

That's because the SEC, until recently, was reluctant to grant exemptions to a 1970 rule that limits a given company's mutual fund from investing more than 10% of its assets in another fund managed by the same company. The concern was that fund companies would create layers of fees, effectively double-charging consumers.

In 1985, Vanguard - the nation's second-largest mutual fund company, with $197 billion under management - became the first company to gain an exemption from the rule limiting investments by affiliates, and created the Star Fund. However, the SEC restricted its purchases to no more than 10% of any given Vanguard fund.

Last October, in a significant shift, the SEC freed the Star Fund to acquire up to 100% of any of 32 Vanguard funds. That decision, and a companion order issued to T. Rowe Price, eliminated a major headache for managing funds of funds, and cleared the way for U.S. Bancorp's move.

Other banks may follow suit. PNC Bank Corp. is following the developments closely as it eyes ways of expanding its product line, said Karen H. Sabath, president of the Pittsburgh company's Compass Capital Group.

Geoffrey H. Bobroff, a mutual fund consultant in East Greenwich, R.I., said the fund-of-funds approach may have special appeal to banks.

"Many banks are genuinely concerned about how they provide investment advice through an individual representative," Mr. Bobroff said. "But if they design these products for specific (investment styles)...it gives them a consultative type of sale without getting them into the investment advisory business."

And funds of funds could become rivals to other asset allocation products such as wrap accounts, an increasingly popular solution for investment diversification.

The SEC's granting of fund of funds exemptions "is a very important development, and we're watching it very closely," said Keith Pipes, chief financial officer at Great Western Financial Corp.'s mutual fund unit, which has $700 million in assets from wrap products.

"There's certainly a lot of overlap for this approach with mass market mutual fund wraps," he said.

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