Society Corp. is preparing to merge with Keycorp., but that isn't holding it back from expanding its own mutual fund business.

The Cleveland-based banking company is adding eight new portfolios to its proprietary Society Funds, bringing the lineup to 18 funds. Fund assets under management will jump from $2.4 billion to $3 billion.

The new offerings include five stock funds, two bond funds, and one balanced fund. To form the new portfolios, Society converted trust assets that had been managed in the form of collective investment funds for 401(k) plan clients.

Part of Prism

The mutual funds will be made available as part of Prism, Society's comprehensive 401(k) plan program for small and medium-sized companies. They will also be offered to retail clients through Society's broker-dealer subsidiary.

Society's merger with Keycorp., based in Albany, N.Y., was announced Oct. 4 and is expected to close by March 31. Together, the two banks will have some $4 billion in mutual fund assets under management.

Over the next few years, more banks are going to have to take the kind of radical step that Mellon Bank Corp. took last week when it agreed to acquire Dreyfus Corp., the mutual fund giant.

That's the word from Edward Furash, the highly regarded chairman of Furash & Co., a bank-consulting firm in Washington.

Right now, many banks are sitting pretty because they have reaped the benefits of cost-cutting efforts and are enjoying favorable interest margins, Mr. Furash said. But, he said, most chief executives are worried about what they are going to do for an encore."

The best hope is to go beyond traditional banking activities, he said. And mutual funds have emerged as an especially appealing option.

"Most of the banking industry recognizes that the dominant growth area in financial services for the next 30 years will be the management of investments for consumers," Mr. Furash said.

So even though the jury is still out on how such mergers actually work, "this is definitely what has to happen if banks are to become broad-range financial services companies. The current flush of mutual funds through banks is only the bare beginning of the rapid growth we're going to see."

Signature Financial Group, which invented the hub-and-spoke structure for mutual funds, threw itself a birthday party at New York's 21 Club last week.

The company, which is celebrating its fifth anniversary, is coming off a strong year. Clients now using hub-and-spoke include J.P. Morgan & Co. and Eaton Vance Corp.

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