A novel marketing approach is attracting a big flow of assets into State Street Boston Corp.'s proprietary mutual funds.

The $25.5 billion-asset banking company has been offering its Seven Seas Funds through the 401(k) plans of other companies and banks, such as KeyCorp and Star Bank. This has attracted $700 million of long-term mutual fund assets.

"We signed our first agreement about 15 months ago, and now we have close to 60," said Gus V. Fish Jr., a principal at State Street Global Advisors. "Much of our growth came through third-party arrangements" in 1995.

State Street had little choice but to look to outside companies for distribution, because the banking company has no retail branch system of its own. Some mutual fund companies have tried similar strategies, and now more banks are taking a stab at it, experts say.

"It's more popular for banks that don't have the muscle to market bundled 401(k) plans on their own," said Dennis Dolego, a partner at Chicago-based Financial Research Corp.

In State Street's case, "this is a less costly way to distribute their funds," he said, "instead of building a retail capability."

Mr. Dolego said First Chicago NBD Corp. and Scudder Stevens & Clark also have arrangements to sell their proprietary funds through third-party 401(k) plans.

State Street's mutual fund assets grew 36%, to $7.9 billion, during 1995, according to Lipper Analytical Services. Mr. Fish said the banking company plans to double its fund assets this year, with much of the growth coming from third-party distribution.

The banking company's marketing team is soliciting business from financial planners, banks, and 401(k) record keepers who have a niche to fill in their investment product lines.

Though State Street is better known for managing funds that invest based on the movements of financial indexes, such as the Standard & Poor's 500, the company has found 401(k) managers willing to add its emerging market, international stock, and small-cap funds to their retirement plans.

Geoffrey H. Bobroff, a mutual fund consultant based in East Greenwich, R.I., said employers are increasingly demanding that banks give their employees more investment options by adding outside funds.

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