Moving closer to its goal of $100 billion in mutual fund assets by 2000, First Union Corp. is poised to buy Keystone Investments Inc., a Boston-based mutual fund company.

The Charlotte, N.C., banking company could announce a deal for Keystone's $12 billion of assets as early as today, investment bankers said. First Union is expected to pay approximately $200 million for the closely held Keystone.

It would be the first significant acquisition this year of a mutual fund company by a major U.S. bank. Though many banks have expressed interest in buying money management firms, they have been unwilling to pay the prices these companies now command.

Most have sat on the sidelines as investment banks and other mutual funds agreed to pay up to 9.75 times pretax earnings for Van Kampen/American Capital and other brand-name fund companies.

First Union is expected to drive a hard bargain for Keystone, which has been burdened by debt since going private three years ago. The company has watched its assets growth slow since its 1993 management buyout. And it recently lost a team of portfolio managers who oversaw its flagship small-company stock funds.

At $200 million, Keystone's price would be approximately the 2% of managed assets that is the industry standard. But some investment bankers say the tab could go lower.

First Union "could probably buy it for a modest price compared to a vibrant, growing fund company," said Joseph Grause, managing director of Cypress Holdings, a Boston-based investment firm.

Executives at First Union and Keystone declined to comment.

Despite Keystone's slow growth, observers said it would be a good fit for First Union, which wants to expand its fund business internally and through small acquisitions. The deal would bring First Union to more than $25 billion in fund assets, according to Financial Research Corp., Chicago. That would make it the second largest bank-manager of mutual funds, behind Mellon Bank Corp., with $74.9 billion.

In addition to more fund assets, Keystone would provide First Union with a wholesale distribution channel for its existing mutual funds, said Geoffrey Bobroff, a mutual fund consultant in East Greenwich, R.I. Keystone sells its funds through such big name brokerages as Merrill Lynch & Co. and PaineWebber Inc., as well as some smaller regional companies.

"That's something First Union is anxious to gain," Mr. Bobroff said. "Except for Mellon Bank Corp., no bank has been successful (selling funds) beyond their own customer base."

First Union is no stranger to mutual fund acquisitions. The bank bought Lieber & Co., which manages the $3.3 billion-asset Evergreen Funds, in 1993, and Palm Beach Investment Management Corp., which manages the $468 million-asset ABT Funds, last year.

Sources said First Union had been in talks to buy Keystone several months ago. They speculated that the bank might have been spurred to reopen those negotiations by NationsBank Corp.'s plan to buy Boatmen's Bancshares.

That deal, announced last week, would give First Union's crosstown rival a trust and asset management division with a whopping $111 billion of assets under discretionary management, including $23 billion in proprietary mutual fund assets.

"NationsBank and First Union are competitive creatures,"said Burton Greenwald a mutual fund consultant in Philadelphia. "The Keystone acquisition gives First Union more muscle."

Keystone would also offer First Union opportunities overseas, Mr. Greenwald said. Keystone sells its funds in Japan and has a selling arrangement with Credit Lyonnais, Paris.

Bank acquisitions of mutual fund companies are very difficult propositions, consultants said. They point to a culture clash between Pittsburgh-based Mellon Bank Corp. and Dreyfus Corp, which at $1.8 billion is the largest bank acquisition of a mutual fund company.

Mr. Bobroff insisted that Mellon's cost-conscious chairman, Frank Cahouet, does not give Dreyfus executives enough marketing support. Nor does he want to pay the high salaries that portfolio managers and fund company salespeople demand, Mr. Bobroff said.

He believes, however, that First Union would have better luck with Keystone. The bank's chairman and chief executive, Edward E. Crutchfield, gives his fund executives - who were recruited from the mutual fund industry - a great deal of autonomy.

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