AIM Capital Management of Houston, Texas will become the sub-adviser to the $170 million INVESCO Tax-Free Bond Fund, pending shareholder approval. The arrangement will go into effect on May 11 and will mark the first cross-adviser relationship between the two U.S. mutual fund groups which are held as separate fund units under a common holding-company, AMVESCAP PLC of London.

AMVESCAP was created by the merger of AIM Capital and INVESCO Funds Group of Denver, Colo. in February.

The sub-advisory deal was conceived when the portfolio manager of the INVESCO Tax-Free Bond Fund decided to leave the firm, citing personal reasons. A replacement, Donovan J. Paul of INVESCO, began managing the fund on an interim basis.

But instead of searching for another outside fund manager, INVESCO approached executives at AIM, its sister mutual fund advisory company, and asked about the availability of Richard Berry to sub-advise the portfolio, said Ivy McLemore, an AIM spokesperson. Barry is a vice president and the head of AIM's municipal bond team. Berry currently is the senior portfolio manager for four other tax-free funds advised by AIM, as well as the lead manager for AIM's tax-free separate accounts.

Outside the U.S., the two fund management firms have had more interaction, said McLemore. INVESCO Global of the U.K. serves as the sub-adviser to several of the AIM Funds managed in London. These London-based AIM Funds were the former G.T. Global Funds. In May, 1998 AIM Capital Management acquired the asset management division of the Liechtenstein Global Trust, the original adviser to the GT Global family of funds. The funds dropped the GT Global label and assumed the AIM Funds name in June, 1998.

This is an unusual arrangement between these two companies that have, since their merger, sought to maintain separate brand identities and followings without crossover. AIM was founded in 1976 and has built a reputation as a money market and fixed-income manager that sells its funds through financial intermediaries.

INVESCO, whose predecessor company was founded in 1932, is better known for its domestic and international equities management prowess and predominantly sells directly to investors. INVESCO is also a leader in the 401(k) marketplace.

There are other instances of mergers having led to a corporate parent owning more than one mutual fund family and the families then trading investment advisory services.

At an upcoming shareholder meeting in June, shareholders of the $146 million Stein Roe International Fund will vote to approve the appointment of Newport Fund Management of San Francisco, Calif. as the new adviser to the fund. Both Stein Roe and Newport are subsidiaries of Liberty Financial Companies of Boston. Newport, whose investment strengths lie in international and Asian investments, was a logical choice as adviser to the fund, said a company spokesperson.

Liberty has, over the past few years, acquired fund groups with complementary competencies. In 1986, it acquired Stein Roe & Farnham of Chicago. In 1995, it purchased The Colonial Group of Boston and Newport Pacific Management in San Francisco. And in 1998, it purchased the Crabbe Huson Funds in Portland, Ore.

Liberty has spent the better part of the past year to 18 months consolidating its fund offerings and restructuring the various distribution channels through which its funds are sold. But it has also tried to use its investment management talent in the fund groups. There will be more crossovers in the future, the spokesperson said.

In December, RREEF Securities of Chicago resigned as the sub-adviser to the $96 million American Century Real Estate Fund. American Century Investments of Kansas City then enlisted its investment management partner, J.P. Morgan of New York, as the fund's sub-adviser on Jan. 2. It was the second time J.P. Morgan had agreed to co-manage a fund for American Century Funds, with $116 billion in assets under management. In January, 1998 J.P. Morgan acquired a 40 percent minority stake in American Century.

J.P. Morgan also sub-advises the American Century International Bond Fund, which had, prior to October, 1997, been known as the Benham Europe Government Bond Fund. Equity fund manager American Century and Benham Investments, a predominantly fixed-income manager of Mountain View, Calif. had merged in June, 1995.

But cross-advisory relationships are not a new phenomenon for American Century and J.P. Morgan. American Century has been the sub-adviser to the JPM International Small Company Equity Fund, an offshore fund domiciled in Luxembourg, since April of last year.

Dreyfus Corp. of New York and Founders Funds of Denver, Colo., both subsidiaries of Mellon Bank of Pittsburgh, Pa., have also had cross-advisory arrangements.

In February, 1999, Dreyfus turned Founders portfolio manager Doug Loeffler into a "dual employee" when it hired him to manage four Dreyfus portfolios: the Dreyfus Global Growth Fund, the Dreyfus International Growth Fund, the intermediary-distributed Dreyfus Premiere International Growth Fund and the Dreyfus Variable Investment International Equity Portfolio, a sub-account option for Dreyfus' variable annuity investors.

Kevin Sonnett, originally a portfolio manager at Founders, now also serves as a dual employee and manages the Dreyfus Aggressive Growth Fund and a similar fund, sold through intermediaries, the Dreyfus Premiere Aggressive Growth Fund. One of the reasons for the acquisition of Founders was to draw upon its talent as growth managers, said a Dreyfus spokesperson.

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