First Union Corp.'s planned acquisition of Signet Banking Corp. would add a small but nimble mutual fund complex to the banking giant's burgeoning fund business.

Signet, based in Richmond, Va., is renowned for its direct marketing and data base mining skills, particularly in the credit card business it spun off in 1994. In 1995, when the bank bought the Blanchard Funds-a company known for its direct marketing savvy-observers said it was a natural extension for Signet.

While Signet's $1.6 billion Virtus and Blanchard funds aren't standouts in size or performance, they are well regarded for their marketing strategy.

The Blanchard Funds' direct marketing is " strong and smart," said Joy Montgomery, a mutual fund consultant in Morristown, N.J. The fund family's marketing capability was what attracted Signet in the first place, she said.

However, Signet's fund business has had its setbacks. Michael Freedman, the marketing maven behind the Blanchard funds, quit last summer. And James Eads, president of Signet Financial Services, resigned two months ago. He is to be succeeded shortly by Richard H. Graham, officer in charge of Signet Financial Services, a bank spokeswoman said.

Some industry experts see the fund business at large shifting toward selling directly to investors without charging a sales fee. But most banks, including Charlotte, N.C.-based First Union, take a more traditional approach, emphasizing their ability to advise mutual fund investors on meeting financial needs, for a fee.

Observers said one decision First Union faces is whether to keep the Blanchard Funds' no-load price structure or to adopt sales fees like those charged for First Union's proprietary Evergreen Keystone Funds. The company will also have to choose whether to streamline product lines by merging funds that have similar investment strategies.

William M. Ennis, managing director of the Evergreen Keystone Funds, said it's simply too early to say what First Union will do. He noted that though the bank is glad to add more mutual fund assets, Signet's fund business was not a big factor for First Union in sizing up the acquisition.

However, the smart money is on First Union's adopting a load-pricing structure for Signet's funds. Observers note that the bank added sales loads to the Evergreen Funds after it bought them in 1994.

First Union, with $30.4 billion of fund assets at midyear, would retain its No. 3 spot among banks that manage mutual funds after the Signet deal closes in the fourth quarter. Mellon Bank Corp. and PNC Bank Corp. are No. 1 and No. 2, respectively, according to Lipper Analytical Services, Summit, N.J.

The acquisition would, however, inch First Union's funds business a bit closer to the goal set by chairman Edward E. Crutchfield of amassing $100 billion of fund assets by 2000.

At a press briefing Monday, Mr. Crutchfield noted that First Union offers a wider array of investment products than Signet does, presenting marketing opportunities.

"My guess is First Union will look to derive larger fund portfolios and stronger investment product capabilities through existing Signet branches," said Donald McNees, principal at Towers Perrin, New York. The bank's executives will probably merge the funds to take advantage of the cost- saving opportunities from consolidating back-office operations, he said.

"The only thing that would cause them to pause their thinking is: Is Signet onto something in terms of their direct mail and data base marketing prospecting?" Mr. McNees said.

One consultant said the acquisition gives First Union a chance to experiment with a new sales strategy in the fast-changing mutual fund business.

Should the investing public shift dramatically toward buying funds directly from companies without paying a load, First Union would be wise to keep a hand in that market via Signet's funds, said Geoffrey H. Bobroff, a mutual fund consultant in East Greenwich, R.I. "Who knows what the market will do?"

But another warned that First Union shouldn't adopt Signet's no-load pricing strategy just because it's there. "Strategy is the determinant here," Ms. Montgomery said. If First Union decides to sell no-load funds, "the economies that come with the decision will support it."

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