By Tim McLaughlin and Ross Kerber

BOSTON, Nov 6 (Reuters) - Mutual funds run by T. Rowe Price Group Inc and Morgan Stanley are poised to send one sweet tweet.

These early investors in Twitter Inc will reap exponential gains as the microblogging site goes public, while latecomers struggle for share allocations.

T. Rowe's New Horizons and Growth Stock funds may come out looking smartest, having scooped up millions of preferred shares for a pittance.

While mutual funds put the vast majority of investors' assets into shares of publicly traded companies, some actively managed funds jostle for additional upside by trying to get a piece of promising companies years before they go public.

From its inception in 2006 through the end of September, Twitter completed several rounds of equity financing as a private company by issuing convertible preferred stock that raised $759 million.

Such early-stage fund raising rounds once were typically reserved for venture capitalists and private equity firms but in recent years have been opened to mutual funds. Their seed investments have led to success stories like the gains reaped by Fidelity Investments on Facebook shares acquired before the social network's went public last year.

At the end of June, T. Rowe's $14.3 billion New Horizons Fund reported holding 4.6 million Twitter shares that cost $2.66 apiece. Those shares could be worth $115 million or more when the dust settles on Twitter's stock market debut on Thursday on the New York Stock Exchange.

Twitter is likely to price its IPO above the $25 top end of the range announced on Monday, according to sources familiar with the process.

T. Rowe, which was not available for comment, has been the biggest pre-IPO investor in Twitter among mutual funds, according to Morningstar data. T. Rowe stockpickers who favor investing early in some startups include Ken Allen, manager of its Science & Technology Fund, who bought Facebook and Groupon Inc shares before they went public.

One of Allen's goals is to track potential investments across many technology sectors. "The more ground you cover, the more likely you are to find the best opportunities," he said in a 2011 interview.

The Morgan Stanley Institutional Small Company Growth Fund also looks like a potential winner from Twitter's IPO. The fund is sitting on a potential nine-fold gain, after buying $6 million worth of preferred stock from the microblogging site in 2009.

For the Morgan Stanley fund, its pre-IPO Twitter stake accounts for 2.2 percent of net assets, Morningstar Inc data shows.

The fund paid $6 million, or $2.67 each, for 2.26 million Series E preferred shares that convert into Twitter common stock, U.S. regulatory filings show. That stock would be worth $56.5 million at the top end of Twitter's current expected IPO range of $23 to $25 per share.

Morgan Stanley declined to comment.

Goldman Sachs Group Inc is leading Twitter's IPO, alongside Morgan Stanley and JPMorgan Chase & Co.

Chris Bartel, chief of global equity research for Fidelity Investments, the No. 2 U.S. mutual fund company, said investing in companies before they go public allows for better understanding of their strategy, executive talent and potential for innovation.

"For every one that we invest in, we look at many, many that we pass on, including some that have gone public that we have passed on," Bartel said.

Boston-based Fidelity did not invest in Twitter during the company's early years.

But mutual fund companies that did - such as T. Rowe - are looking good as Twitter's IPO is oversubscribed.

Twitter is likely to price the hotly anticipated IPO later on Wednesday above an already bumped-up target range of $23 to $25, according to sources familiar with the process.

While pre-IPO fund-raising can allow a broader audience of investors to reap outsize gains once reserved for venture capital and private equity, shares in a company typically can be spread across dozens of funds within one mutual fund family. That tends to dilute the impact of an IPO's upside and downside on any particular fund, according to analysts.

Meanwhile, competition for IPO shares can be keen among asset managers jockeying for a hot new issue.

Andrew Cupps, president of Cupps Capital Management of Chicago, with about $1.5 billion under management, said his firm has asked for an allocation of shares from Twitter's IPO, but is not expecting a lot.

"It doesn't matter what you ask for," Cupps said. "Everyone gets a fairly nominal amount. ... Nobody gets enough."