As filed on November ^ 24, 1997
File No. 33-70154
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
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Post-Effective Amendment No. ^ 8 [X]
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. ^ 9 [X]
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INVESCO VARIABLE INVESTMENT FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
7800 E. Union Avenue, Denver, Colorado 80237
(Address of Principal Executive Offices)
P.O. Box 173706, Denver, Colorado 80217-3706
(Mailing Address)
(303) 930-6300
(Registrant's Telephone Number)
Glen A. Payne, Esq.
7800 E. Union Avenue
Denver, Colorado 80237
(Name and Address of Agent for Service)
Copies to:
W. Randolph Thompson, Esq.
Of Counsel, Jones & Blouch L.L.P.
1025 Thomas Jefferson St., N.W., Suite 405 West
Washington, D.C. 20007
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Approximate Date of Proposed Public Offering: As soon after the
effective date of this registration statement as is practicable.
It is proposed that this filing will become effective (check appropriate
box)
- --- ^ immediately upon filing pursuant to paragraph (b)
- --- on ------------, pursuant to paragraph (b)
- --- 60 days after filing pursuant to paragraph (a)(1)
- --- on ----------,pursuant to paragraph (a)(1).
- --- 75 days after filing pursuant to paragraph (a)(2)
^ X on February 9, 1998, pursuant to paragraph (a)(2) of rule 485
- ---
If appropriate, check the following box:
- --- This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has previously elected to register an indefinite number of shares of
its common stock pursuant to Rule 24f-2 under the Investment Company Act.
Registrant's Rule 24f-2 Notice for the fiscal year ended December 31, 1996, was
filed on February 21, 1997.
Page 1 of 262
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Exhibit index is located at page 94
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NOTE
This Post-Effective Amendment (Form N-1A) is being filed to ^ add a new fund of
the Registrant, INVESCO Variable Investment Funds, Inc. and does not affect the
Prospectus for the VIF-Industrial Income, VIF-Small Company Growth ^, VIF-Total
Return, VIF-High Yield ^, VIF-Utilities, VIF-Dynamics, VIF-Growth, VIF-Health
Sciences and VIF-Technology Funds.
<PAGE>
INVESCO VARIABLE INVESTMENT FUNDS, INC.
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CROSS-REFERENCE SHEET
Form N-1A
Item Caption
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Part A Prospectus
1.............................. Cover Page
2.............................. Summary
3.............................. Performance Information
4.............................. Cover Page; Summary; Investment
Objectives and Policies; Risk
Factors; Investment Restrictions
5.............................. Summary; Management; Risk Factors
5A............................. Not Applicable
6.............................. Cover Page; Summary; Tax Status,
Dividends and Distributions;
Additional Information
7.............................. Purchases and Redemptions
8.............................. Purchases and Redemptions
9.............................. Not Applicable
Part B Statement of Additional Information;
Supplement to Statement of Additional
Information
10.............................. Cover Page
11.............................. Table of Contents
12.............................. Not Applicable
13.............................. Investment Policies; Investment
Restrictions; Appendix A
14.............................. Management
15.............................. Additional Information
-i-
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Form N-1A
Item Caption
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16.............................. Management; Additional
Information
17.............................. Portfolio Brokerage
18.............................. Additional Information
19.............................. How Shares are Valued;
Redemptions
20.............................. (Prospectus: Tax Status,
Dividends and Distributions)
21.............................. (Prospectus: Purchases and
Redemptions; Management)
22.............................. Performance
^
Part C Other Information
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
-ii-
<PAGE>
Prospectus
February ---, 1998
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-REALTY FUND
INVESCO Variable Investment Funds, Inc. (the "Company"), a Maryland
corporation, is an open-end management investment company that offers shares of
common stock of ten diversified investment portfolios (the "Funds"), including
the INVESCO VIF - Realty Portfolio (the "Realty Fund" or "Fund"). The Company's
shares are not offered directly to the public, but are sold exclusively to life
insurance companies ("Partici pating Insurance Companies") as a pooled funding
vehicle for variable annuity and variable life insurance contracts issued by
separate accounts of Participating Insurance Companies. If other Funds are
available under a Participating Insurance Company's contracts, a prospectus
describing them will be available from the Participating Insurance Company.
The Realty Fund seeks to provide long-term capital growth. Above- average
current income is an additional consideration in selecting securities for the
Fund's investment portfolio. The Realty Fund normally invests at least 65% of
its total assets in publicly-traded stocks of companies principally engaged in
the real estate industry. The remaining assets are invested in other
income-producing securities such as corporate bonds.
This Prospectus sets forth concisely the information about the Fund that a
prospective purchaser should know before purchasing a variable contract from a
Participating Insurance Company or allocating contract values to the Fund or to
one or more of the other Funds. Please read this Prospectus and retain it for
future reference. Additional information about the Fund has been filed with the
Securities and Exchange Commission and is available upon request by writing
INVESCO Distributors, Inc., Post Office Box 173706, Denver, Colorado 80217-
3706, by calling 1-800-525-8085, or by contacting a Participating Insurance
Company and requesting the "Statement of Additional Information for INVESCO
Variable Investment Funds, Inc." (the "Statement of Additional Information").
The Statement of Additional Information dated February --- 1998, is incorporated
by reference into this Prospectus.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES
OF THE FUNDS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
TABLE OF CONTENTS
Page
SUMMARY......................................................................7
INVESTMENT OBJECTIVE AND POLICIES............................................8
RISK FACTORS.................................................................9
INVESTMENT RESTRICTIONS.....................................................17
MANAGEMENT..................................................................17
PURCHASES AND REDEMPTIONS...................................................18
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS.....................................19
PERFORMANCE INFORMATION.....................................................20
ADDITIONAL INFORMATION......................................................21
APPENDIX....................................................................23
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SUMMARY
The Company is a registered, open-end management investment company that was
organized as a Maryland corporation on August 19, 1993, and is currently
comprised of ten diversified investment portfolios ("Funds"), the INVESCO VIF -
Dynamics Portfolio, the INVESCO VIF - Growth Portfolio, the INVESCO VIF - Health
Sciences Portfolio, the INVESCO VIF - High Yield Portfolio, the INVESCO VIF -
Industrial Income Portfolio, the INVESCO VIF - Small Company Growth Portfolio,
the INVESCO VIF-Realty Fund Portfolio, the INVESCO VIF - Total Return Portfolio,
the INVESCO VIF - Technology Portfolio and the INVESCO VIF - Utilities
Portfolio. This Prospectus relates to shares of the INVESCO VIF - Realty
Portfolio only. Additional portfolios may be created from time to time. The
overall supervision of each Fund is the responsibility of the Company's board of
directors.
The Company is intended to be a funding vehicle for variable annuity
contracts and variable life insurance contracts to be offered by separate
accounts of certain life insurance companies ("Participating Insurance
Companies"). Fund shares are not available for purchase other than through the
purchase of such contracts. The variable annuity and variable life insurance
contracts are described in separate prospectuses of the Participating Insurance
Companies (the "Separate Account Prospectuses"). The Company assumes no
responsibility for the Separate Account Prospectuses. A contract owner should
refer to the Separate Account Prospectuses for information on how to purchase or
surrender a contract, make partial withdrawals of contract values, allocate
contract values to one or more of the Funds, or change existing allocations
among investment alternatives, including the Fund.
The Fund seeks long-term capital growth. Current income is an additional
consideration in selecting securities for the Fund's investment portfolio. The
Fund normally invests 65% of its total assets in publicly-traded stocks of
companies principally engaged in the real estate industry. The remaining assets
are invested in other income-producing securities such as mortgage-backed
securities and corporate bonds. There is, of course, no guarantee that the Fund
will achieve its investment objective.
The Fund focuses on equity securities of companies in the real estate
industry. As such, in addition to the normal market risks associated with
investments in securities generally, the Fund is particularly sensitive to
conditions in the real estate industry. Real estate is a cyclical industry that
is sensitive to, among other things, interest rates, property tax rates,
national, regional and local economic conditions and availability of materials.
The Fund's investments in debt securities are subject to credit risk and market
risk, both of which are increased by investing in lower rated securities. The
returns on foreign investments may be influenced by the risks of investing
overseas. Rapid portfolio turnover may result in higher brokerage commissions
and the acceleration of taxable capital gains. These and other risks are
discussed below under the caption "Risk Factors."
INVESCO Funds Group, Inc. ("IFG"), the Funds' investment adviser, is
primarily responsible for providing the Company with various administrative
services and supervising the Company's daily business affairs. Portfolio
management is provided to the Fund by its sub- adviser (referred to collectively
with IFG as "Fund Management"). INVESCO Realty Advisors, Inc. ("IRAI") serves as
sub-adviser to the Fund. The Fund pays IFG an advisory fee for the management of
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its investments and business affairs. INVESCO Distributors, Inc. ("IDI") is
responsible for providing the Company with services related to distribution. A
discussion of these fees and additional information about IFG, IRAI and IDI is
provided below under the caption "Management."
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks to provide long-term capital growth and current income while
following sound investment practices. This investment objective is fundamental
and may be changed only by vote of a majority of the outstanding shares of the
Fund. There is no assurance that any Fund will achieve its investment objective.
Any investment policy of the Fund may be changed by the Company's board of
directors without shareholder approval unless the policy is one required by the
Fund's fundamental investment restrictions set forth in the Statement of
Additional Information.
The Fund normally invests at least 65% of its total assets in equity
securities of companies principally engaged in the real estate industry. A
company is "principally engaged" in that industry if at least 50% of its assets,
gross income or net profits are attributable to the ownership, construction,
management or sale of residential, commercial or industrial real estate. Such
companies may include, for example, real estate investment trusts ("REITs"),
real estate brokers, home builders or real estate developers, companies with
substantial real estate holdings (such as paper and lumber producers,
agricultural businesses and lodging and entertainment companies) and companies
with significant involvement in the real estate industry, such as building
supply companies and financial institutions that write real estate mortgages. In
addition to common stocks, "equity securities" may include preferred stocks,
securities convertible into common stock and warrants.
The Fund's investments in equity securities are diversified by both property
type and geographic region. Under normal circumstances, no one property type
will represent more than 50% of the Fund's total assets. The remaining assets of
the Fund are invested in debt securities, including mortgage-backed securities
and debt or equity securities of companies which may or may not be principally
engaged in the real estate industry, including non-investment grade and unrated
debt securities. The Fund may invest up to 25% of its total assets in foreign
securities.
The Fund may invest up to 15% of its total assets in debt securities that are
rated below investment grade quality (commonly called "junk bonds") and rated BB
or lower by Standard & Poor's Ratings Services, a division of The McGraw Hills
Companies, Inc. ("S&P") or Ba or lower by Moody's Investors Service, Inc.
("Moody's") or, if unrated, are judged by Fund Management to be of equivalent
quality). These include issues which are of poorer quality and may have some
speculative characteristics, according to the ratings services. Investments in
unrated securities may not exceed 25% of the Fund's total assets. Never, under
any circumstances, is the Fund permitted to purchase bonds which are rated below
B- by S&P and B by Moody's. Bonds rated B- or B generally lack characteristics
of a desirable investment and are deemed speculative with respect to the
issuer's capacity to pay interest and repay principal over a long period of
time. While Fund Management continuously monitors all of the corporate bonds in
the Fund's investment portfolio for the issuer's ability to make required
principal and interest payments and other quality factors, it may retain a bond
<PAGE>
whose rating is changed to one below the minimum rating required for purchase
of the security.
In periods of abnormal economic or market conditions, as determined by Fund
Management, the Fund may depart from its basic investment objective and assume a
temporary defensive position, with up to 100% of its assets invested in U.S.
government and agency securities, investment grade corporate bonds or cash
securities such as domestic certificates of deposit and bankers' acceptances,
repurchase agreements and commercial paper. The Fund reserves the right to hold
equity, fixed-income and cash securities in whatever proportion is deemed
desirable at any time for temporary defensive purposes. While the Fund is in a
defensive position, the opportunity to achieve capital appreciation will be
limited; however, the ability to maintain a defensive position enables the Fund
to seek to avoid capital losses during market downturns. Under normal
circumstances, the Fund does not expect to have a substantial portion of its
assets invested in cash securities.
Because prices of stocks fluctuate from day to day, the value of an
investment in any of the Funds will vary based upon the specific Fund's
investment performance. The Fund's performance is tied closely to conditions
affecting the real estate industry, which has historically been cyclical. The
real estate industry is highly sensitive to national, regional and local
economic conditions, in addition to such factors as interest rates, changes in
property taxes and real estate values, overbuilding, and changes in rental
income. The structure, management and cash flow of many of the companies in the
industry also may heavily impact their performance. Although the Fund does not
intend to invest directly in private real estate assets, it conceivably could
own real estate directly as a result of default on debt securities that it holds
in its portfolio. Therefore, the Fund may be subject to certain risks associated
with the direct ownership of real estate, including, among others, difficulties
in valuing and trading real estate and declines in the value of real estate.
RISK FACTORS
Contract owners should consider the special factors associated with the
policies discussed below in determining the appropriateness of allocating
contract values to one or more of the Funds. See the Statement of Additional
Information for a discussion of additional risk factors.
Potential Conflicts. The Company has received an exemptive order of the
Securities and Exchange Commission that permits the sale of Fund shares to
variable annuity separate accounts and variable life insurance separate accounts
of affiliated and unaffiliated Participating Insurance Companies. The Company
currently does not foresee any disadvantages to the owners of variable annuity
or variable life insurance contracts arising from the fact that the interests of
those owners may differ. Nevertheless, the Company's board of directors will
monitor events in order to identify any material irreconcilable conflicts which
may possibly arise due to differences of tax treatment or other considerations
and to determine what action, if any, should be taken in response thereto.
Credit and Market Risks. All securities, including those purchased by the
Fund, are subject to some degree of credit risk and market risk. Credit risk
refers to the ability of an issuer of a debt security to pay its principal and
<PAGE>
interest, and to the earnings stability and overall financial soundness of
an issuer of an equity security. Market risk refers to the volatility of a
security's price in response to changes in conditions in securities markets in
general and, particularly in the case of debt securities, changes in the overall
level of interest rates. An increase in interest rates will tend to reduce the
market values of debt securities, whereas a decline in interest rates will tend
to increase their values.
To limit exposure to credit risks, the Fund, as a matter of fundamental
policy, will be diversified. With respect to 75% of the Fund's total assets, no
more than 5% of the purchasing Fund's total assets will be invested in the
securities of any one issuer. These percentage limitations apply immediately
after a purchase or initial investment. Any subsequent change in a percentage
resulting from fluctuations in value will not require elimination of any
security from the Fund. The credit risk exposure of the Fund may be increased by
its policy of concentrating investments in a specific business sector.
See "Risk Factors -- Concentration."
Real Estate Investment Trusts. The Fund may invest in real estate investment
trusts ("REITs"). REITs are pooled investment vehicles that invest primarily in
income-producing real estate or real estate related loans or interests. REITs
are generally classified as either equity or mortgage, or a combination of the
two. An equity REIT invests the majority of its assets directly in real estate
and derives most of its income from rents. A mortgage REIT invests the majority
of its assets in real estate mortgages and derives most of its income from
interest payments. In addition to the risks inherent in any investment in the
real estate industry, investments in REITs have certain unique risks. Equity
REITs can be affected by changes in the value of the underlying property owned
by them; mortgage REITs are affected by the quality of the credit extended.
REITs are not diversified, and are subject to the risks of real estate
financing, including cash flow dependency and defaults by borrowers. REITs
attempt to qualify for beneficial tax treatment by distributing 95% of their
taxable income to their interest holders. If a REIT fails to quality for such
beneficial tax treatment, it would be taxed as a corporation, and distributions
to its shareholders (including the Fund) would be reduced. By investing in REITs
indirectly through the Fund, a Fund shareholder will bear not only a
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REIT. For taxable shareholders, a portion of the dividends paid
by a REIT may be considered return on capital and would not currently be
regarded as taxable income. Therefore, depending upon an individual's tax
bracket, the dividend yield may have a higher tax-effective yield.
Mortgage-Backed Securities. The Fund may invest in mortgage-backed
securities issued or guaranteed by the U.S. government or federal agencies such
as Government National Mortgage Association ("GNMA"), Fannie Mae (formerly known
as the Federal National Mortgage Association) and Federal Home Loan Mortgage
Corporation ("FHLMC"). Some of these securities, such as GNMA certificates, are
backed by the full faith and credit of the U.S. Treasury while others, such as
FHLMC certificates, are not. Mortgage-backed securities represent interests in
pools of mortgages which have been purchased from loan institutions such as
banks and savings & loans, and packaged for resale in the secondary market.
Interest and principal are "passed through" to the holders of the securities.
The timely payment of interest and principal is guaranteed by a federal agency,
but the market value of the security is not guaranteed and will vary. The Fund
also
<PAGE>
may invest in mortgage-backed securities issued by private, non-government
issuers such as banks and broker-dealers. When interest rates drop, many home
buyers choose to refinance their mortgages. These resulting prepayments of the
initial mortgages may shorten the average weighted lives of mortgage-backed
securities and may lower their returns. Prepayment rates cannot be predicted
with any accuracy. Under certain interest rate and prepayment rate structures,
it is possible that the Fund may fail to recoup the full amount of its
investment in mortgage-backed securities, despite any direct or indirect
governmental or agency guarantee. When the Fund reinvests amounts received
representing unscheduled prepayments of principal, it likely will receive a rate
of interest that is lower than the rate on then-existing adjustable rate
mortgage pass-through securities.
Collateralized mortgage obligations ("CMOs") may be issued by, among others,
U.S. government agencies and instrumentalities. CMOs are issued in classes, with
the principal of, and interest on, the underlying mortgage assets allocated
among the several classes. Each class is commonly referred to as a "tranche,"
and is issued at a specific or adjustable interest rate. Each tranche must be
fully retired no later than its final distribution date. Generally, interest is
paid or accrued monthly. CMOs typically are collateralized by GNMA, Fannie Mae
or FHLMC certificates. They also may be collateralized by other mortgage assets,
including whole loans or private mortgage pass-through securities. CMOs are paid
from payments of principal and interest on collateral of mortgaged assets and
any reinvestment income thereon. Risks of investing in CMOs, in addition to the
general risks of investing in the real estate industry, include failure of the
counter party to meet its commitments, the effects of prepayment on mortgage
cash flows and adverse interest rate changes. Investing in the lower tranches of
CMOs presents risks similar to investments in equity securities. The yield of
CMOs may be affected by adjustability of interest rates and the possibility that
prepayments of principal may be made significantly earlier than the final
distribution dates. These practices and risks are discussed under "Investment
Objective and Policies" and "Risk Factors."
Portfolio Lending. The Fund may make loans of its portfolio securities to
broker-dealers or other institutional investors under contracts requiring such
loans to be callable at any time and to be secured continuously by collateral in
cash, cash equivalents, high quality short-term government securities or
irrevocable letters of credit maintained on a current basis at an amount at
least equal to the market value of the securities loaned. This practice permits
the Fund to earn income, which, in turn, can be invested in additional
securities to pursue the Fund's investment objective. The Fund will continue to
collect the equivalent of the interest or dividends paid by the issuer on the
securities loaned and will also receive either interest (through investment of
cash collateral) or a fee (if the collateral is government securities). The Fund
may pay finder's and other fees in connection with its securities loans.
Lending securities involves certain risks, the most significant of which is
the risk that a borrower may fail to return a portfolio security. Fund
Management monitors the creditworthiness of borrowers in order to minimize such
risks. The Fund will not lend any security if, as a result of that loan, the
aggregate value of securities then on loan would exceed 331/3% of the Fund's
total assets (taken at market value).
<PAGE>
Repurchase Agreements. The Fund may enter into repurchase agreements with
respect to debt instruments eligible for investment by the Fund. These
agreements are entered into with member banks of the Federal Reserve System,
registered broker-dealers, and registered government securities dealers which
are deemed creditworthy by Fund Management (subject to review by the Company's
board of directors). A repurchase agreement is a means of investing monies for a
short period. In a repurchase agreement, the Fund acquires a debt instrument
(generally a security issued by the U.S. government or an agency thereof, a
banker's acceptance or a certificate of deposit) subject to resale to the seller
at an agreed upon price and date (normally the next business day). If the other
party defaults on its obligation to repurchase the security, the Fund could
incur costs or delays in seeking to sell the security.
To minimize risks associated with repurchase agreements, the securities
underlying each repurchase agreement will be maintained with the Company's
custodian in an amount at least equal to the repurchase price under the
agreement (including accrued interest), and such agreements will be effected
only with parties that meet certain creditworthiness standards established by
the Company's board of directors. The Fund will not enter into a repurchase
agreement maturing in more than seven days if as a result more than 15% of the
Fund's net assets would be invested in such repurchase agreements and other
illiquid securities.
Portfolio Turnover. There are no fixed limitations regarding portfolio
turnover for the Fund. Although the Fund does not trade for short-term profits,
securities may be sold without regard to the time they have been held in the
Fund when, in the opinion of Fund Management, market considerations warrant such
action. Increased portfolio turnover would cause a Fund to incur greater
brokerage costs than would otherwise be the case. The Fund anticipates a
portfolio turnover rate between 60% and 75%. A portfolio turnover rate of 75%
would occur if three-quarters of the Fund's portfolio securities were sold
within one year. The Company's brokerage allocation policies, including the
consideration of sales of Participating Life Insurance Companies' variable
annuity and variable life insurance contracts when selecting among qualified
brokers offering comparable best price and execution on Fund transactions, are
discussed in the Statement of Additional Information.
Illiquid and Rule 144A Securities. The Fund is authorized to invest in
securities that are illiquid because they are subject to restrictions on their
resale ("restricted securities") or because, based upon their nature or the
market for such securities, they are not readily marketable. However, the Fund
will not purchase any such security if the purchase would cause the Fund to
invest more than 15% of its net assets in illiquid securities. Repurchase
agreements maturing in more than seven days will be considered illiquid for
purposes of this restriction. Investments in illiquid securities involve certain
risks to the extent that a Fund may be unable to dispose of such a security at
the time desired or at a reasonable price. In addition, in order to resell a
restricted security, a Fund might have to bear the expense and incur the delays
associated with effecting registration.
Certain restricted securities that are not registered for sale to the general
public, but that can be resold to institutional investors ("Rule 144A
Securities"), may be purchased without regard to the foregoing 15% limitation if
a liquid institutional trading market exists. The liquidity of a Fund's
investments in Rule 144A Securities could be impaired if dealers or
<PAGE>
institutional investors become uninterested in purchasing these securities.
The Company's board of directors has delegated to Fund Management the authority
to determine the liquidity of Rule 144A Securities pursuant to guidelines
approved by the board. In the event that a Rule 144A Security held by the Fund
is subsequently determined to be illiquid, the security will be sold as soon as
that can be done in an orderly fashion consistent with the best interests of the
Fund's shareholders. For more information concerning Rule 144A Securities, see
the Statement of Additional Information.
Foreign Securities. The Fund may invest up to 25% of its total assets,
measured at the time of purchase, directly in foreign securities. Investments in
securities of foreign companies (including Canadian securities, which are not
subject to the 25% limitation) and in foreign markets involve certain additional
risks not associated with investments in domestic companies and markets. For
U.S. investors, the returns on foreign securities are influenced not only by the
returns on the foreign investments themselves, but also by currency
fluctuations. That is, when the U.S. dollar generally rises against a foreign
currency, returns for a U.S. investor on foreign securities denominated in that
foreign currency may decrease. By contrast, in a period when the U.S. dollar
generally declines, those returns may increase.
Other risks of international investing to consider include:
-less publicly available information than is generally available about U.S.
issuers;
-differences in accounting, auditing and financial reporting standards;
-generally higher commission rates on foreign portfolio transactions and
longer settlement periods;
-smaller trading volumes and generally lower liquidity of foreign stock
markets, which may cause greater price volatility;
-less government regulation of stock exchanges, brokers and listed
companies abroad than in the United States; and
-investments in certain countries may be subject to foreign withholding
taxes, which may reduce dividend income or capital gains payable to
shareholders.
There is also the possibility of expropriation or confiscatory taxation;
adverse changes in investment or exchange control regulations; political
instability; potential restrictions on the flow of international capital; and
the possibility of the Fund experiencing difficulties in pursuing legal remedies
and collecting judgments.
Securities purchased by means of ADRs also are not subject to the 25%
limitation. ADRs are receipts, typically issued by a U.S. bank or trust company,
evidencing ownership of the underlying foreign securities. ADRs are denominated
in U.S. dollars and trade in the U.S. securities markets. ADRs may be issued in
sponsored or unsponsored programs. In sponsored programs, the issuer makes
arrangements to have its securities traded in the form of ADRs; in unsponsored
programs, the issuer may not be directly involved in the creation of the
program. Although the regulatory requirements with respect to sponsored and
unsponsored programs are generally similar, the issuers of unsponsored ADRs are
<PAGE>
not obligated to disclose material information in the United States and,
therefore, such information may not be reflected in the market value of the
ADRs. ADRs are subject to certain of the same risks as direct investments in
foreign securities, including the risk that changes in the value of the currency
in which the security underlying an ADR is denominated relative to the U.S.
dollar may adversely affect the value of the ADR.
Delayed Delivery or When-Issued Purchases. Securities may at times be
purchased or sold by the Fund with settlement taking place in the future. The
Fund may invest, and hold, up to 10% of its net assets in when-issued
securities. In the case of debt securities, the payment obligations and the
interest rates that will be received on the securities generally are fixed at
the time the Fund enters into the commitment. Between the date of purchase and
the settlement date, the value of the securities is subject to market
fluctuations, and no interest is payable to the Fund prior to the settlement
date. For more information concerning delayed delivery and when-issued
purchases, see the Statement of Additional Information.
Forward Foreign Currency Contracts. The Fund may enter into contracts to
purchase or sell foreign currencies at a future date ("forward contracts") as a
hedge against fluctuations in foreign exchange rates pending the settlement of
transactions in foreign securities or during the time the Fund holds foreign
securities. A forward contract is an agreement between contracting parties to
exchange an amount of currency at some future time at an agreed upon rate.
Although the Fund has not adopted any limitations on its ability to use forward
contracts as a hedge against fluctuations in foreign exchange rates, the Fund
does not attempt to hedge all of its foreign investment positions and will enter
into forward contracts only to the extent, if any, deemed appropriate by Fund
Management. The Fund will not enter into forward contracts for a term of more
than one year or for purposes of speculation. Hedging against a decline in the
value of a currency in the foregoing manner does not eliminate fluctuations in
the prices of portfolio securities or prevent losses if the prices of such
securities decline. Furthermore, such hedging transactions preclude the
opportunity for gain if the value of the hedged currency should rise. No
predictions can be made with respect to whether the total of such transactions
will result in a better or worse position than had the Fund not entered into any
forward contracts. Forward contracts may, from time to time, be considered
illiquid, in which case they would be subject to the Fund's limitation on
investing in illiquid securities, discussed above. For additional information
regarding forward contracts, see "Investment Policies" in the Statement of
Additional Information.
High-Risk, High-Yield Debt Securities. Although Fund Management limits the
Fund's debt security investments to securities it believes are not highly
speculative, both credit and market risks are increased by those Funds'
investments in debt securities rated below the top four grades by S&P or Moody's
(high-risk, high-yield securities commonly known as "junk bonds") and comparable
unrated debt securities. Lower rated bonds by Moody's (categories Ba, B, Caa)
are of poorer quality and may have speculative characteristics. Bonds rated Caa
may be in default or there may be present elements of danger with respect to
principal or interest. Lower rated bonds by S&P (categories BB, B, CCC) include
those which are regarded, on balance, as predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal in accordance with
their terms; BB indicates the lowest degree of speculation and CCC a high degree
<PAGE>
of speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
Because investment in medium and lower rated securities involves both greater
credit risk and market risk, achievement of the Fund's investment objective may
be more dependent on Fund Management's credit analysis than is the case for
funds investing in higher quality securities. In addition, the share price and
yield of the Fund may be expected to fluctuate more than that of funds investing
in higher quality, shorter term securities. Moreover, a significant economic
downturn or major increase in interest rates may result in issuers of lower
rated securities experiencing increased financial stress, which would adversely
affect their ability to service their principal, dividend and interest
obligations, meet projected business goals, and obtain additional financing. In
this regard, it should be noted that while the market for high yield corporate
bonds has been in existence for many years and from time to time has experienced
economic downturns in recent years, this market has experienced a significant
increase in the use of high yield corporate debt securities to Fund highly
leveraged corporate acquisitions and restructurings. Past experience may not
provide an accurate indication of future performance of the high yield bond
market, particularly during periods of economic recession. Furthermore, expenses
incurred to recover an investment by a Fund in a defaulted security may
adversely affect the Fund's net asset value. Finally, while Fund Management
attempts to limit purchases of medium and lower rated securities to securities
having an established secondary market, the secondary market for such securities
may be less liquid than the market for higher quality securities. The reduced
liquidity of the secondary market for such securities may adversely affect the
market price of, and ability of, the Fund to value, particular securities at
certain times, thereby making it difficult to make specific valuation
determinations.
While Fund Management continuously monitors all of the debt securities held
by the Funds for the issuers' ability to make required principal and interest
payments and other quality factors, a Fund may retain in the portfolio a debt
security whose rating is changed to one below the minimum rating required for
purchase.
For a detailed description of corporate bond ratings, refer to the Appendix
to this Prospectus. More information on debt securities is contained in the
Statement of Additional Information.
Concentration. While the Fund diversifies its investments by investing, with
respect to at least 75% of its total assets, not more than 5% of its total
assets in the securities of any one issuer, its assets normally will be invested
primarily in companies engaged in a single business sector. As a result of this
investment policy, an investment in the Fund may be subject to greater
fluctuations in value than generally would be the case if an investment were
made in an investment company which did not concentrate its investments in a
similar manner. For example, certain economic factors or specific events may
exert a disproportionate impact upon the prices of equity securities of
companies within a particular industry relative to their impact on the prices of
securities of companies engaged in other industries. Additionally, changes in
the market price of the equity securities of a particular company which occupies
a dominant position in an industry may tend to influence the market prices of
other companies within the same industry. As a result of the foregoing factors,
the net asset value of the Fund may be more susceptible to change than those of
<PAGE>
investment companies which spread their investments over many different business
sectors.
Futures and Options. A futures contract is an agreement to buy or sell a
specific amount of a financial instrument or commodity at a particular price on
a particular date. The Fund will use futures contracts only to hedge against
price changes in the value of its current or intended investments in securities.
In the event that an anticipated decrease in the value of portfolio securities
occurs as a result of a general decrease in prices, the adverse effects of such
changes may be offset, at least in part, by gains on the sale of futures
contracts. Conversely, the increased cost of portfolio securities to be
acquired, caused by a general increase in prices, may be offset, at least in
part, by gains on futures contracts purchased by the Fund. Brokerage fees are
paid to trade futures contracts, and the Fund is required to maintain margin
deposits.
Put and call options on futures contracts or securities may be traded by the
Fund in order to protect against declines in the value of portfolio securities
or against increases in the cost of securities to be acquired. The purchaser of
an option purchases the right to effect a transaction in the underlying future
or security at a specified price (the "strike price") before a specified date
(the "expiration date"). In exchange for the right, the purchaser pays a
"premium" to the seller, which represents the price of the right to buy or to
sell the underlying instrument. In exchange for the premium, the seller of the
option becomes obligated to effect a transaction in the underlying future or
security, at the strike price, at any time prior to the expiration date, should
the buyer choose to exercise the option. A call option contract grants the
purchaser the right to buy the underlying future or security, at the strike
price, before the expiration date. A put option contract grants the purchaser
the right to sell the underlying future or security, at the strike price, before
the expiration date. Purchases of options on futures contracts may present less
dollar risk in hedging the Fund's portfolio than the purchase and sale of the
underlying futures contracts, since the potential loss is limited to the amount
of the premium plus related transaction costs. The premium paid for such a put
or call option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise or liquidation of the option, and, unless the
price of the underlying futures contract or security changes sufficiently, the
option may expire without value to the Fund.
Although the Fund will enter into futures contracts and options on futures
contracts and securities solely for hedging or other nonspeculative purposes,
their use does involve certain risks. For example, a lack of correlation between
the value of an instrument underlying an option or futures contract and the
assets being hedged, or unexpected adverse price movements, could render a
Fund's hedging strategy unsuccessful and could result in losses. In addition,
there can be no assurance that a liquid secondary market will exist for any
contract purchased or sold, and the Fund may be required to maintain a position
until exercise or expiration, which could result in losses. Transactions in
futures contracts and options are subject to other risks as well, which are set
forth in greater detail in the Statement of Additional Information and Appendix
B therein.
The Fund may buy and sell interest rate futures contracts relating to U.S.
government securities for the purpose of hedging the value of its securities
portfolio.
<PAGE>
The risks related to transactions in options and futures to be entered into
by the Fund are set forth in greater detail in the Statement of Additional
Information, which should be reviewed in conjunction with the foregoing
discussion.
INVESTMENT RESTRICTIONS
The Fund is subject to certain fundamental restrictions regarding its
investments which may not be altered without the approval of the Fund's
shareholders. Those restrictions include, among others, limitations with respect
to the percentages of the value of the Fund's total assets which may be invested
in any one company. A list of the Fund's fundamental investment restrictions and
a list of additional, non- fundamental investment restrictions of the Fund
(which can be changed by the Company's board of directors without shareholder
approval) are contained in the Statement of Additional Information.
MANAGEMENT
Pursuant to an agreement with the Company, IFG, 7800 E. Union Avenue, Denver,
Colorado, serves as the Fund's investment adviser. IFG is primarily responsible
for providing the Fund with various administrative services and supervising the
Fund's daily business affairs. These services are subject to review by the
Company's board of directors.
Pursuant to an agreement with IFG, IRAI serves as the sub-adviser of the
Fund. Although the Company is not a party to the sub-advisory agreement, the
agreement has been approved by the Company's board of directors. The address of
IRAI is One Lincoln Center, Suite 1200, 5400 LBJ Freeway, LB-2, Dallas, Texas.
Subject to the supervision of IFG and review by the Company's board of
directors, IRAI is primarily responsible for selecting and managing the
investments of the Fund. INVESCO Distributors, Inc. ("IDI") provides services
relating to the distribution and sales of the Fund's shares.
The Fund's investments are selected by a team of IRAI portfolio managers
that is collectively responsible for the investment decisions relating to the
Fund.
IFG, IRAI and IDI are indirect wholly-owned subsidies of AMVESCAP PLC, a
publicly-traded holding company that, through its subsidiaries, engages in the
business of investment management on an international basis. AMVESCAP PLC has
approximately $177.5 billion in assets under management. IFG was established in
1932 and, as of December 31, 1996, managed 14 mutual funds, consisting of 44
separate portfolios, with combined assets of approximately $13.8 billion on
behalf of over 826,000 shareholders. IRAI, established in 1983, is a registered
investment adviser that currently manages $3.2 billion of assets (both
securities and direct investments in real estate) for its clients. IRAI's
clients include corporate plans and public pension funds, as well as endowment
and foundation accounts. It presently serves as sub-adviser to two other mutual
fund portfolios, as well as other collective investment vehicles. As of
- --------------------, 1997, the portfolio of direct investments in real estate
managed by IRAI for its clients contained ---- properties totaling more than
- ------ million square feet of commercial real estate and ----- apartment units.
<PAGE>
The Fund pays IFG a monthly advisory fee which is based upon a percentage
of the Fund's average net assets, determined daily. The advisory fee is computed
at the annual rates of [1.10%] the first $500 million of the Fund's average net
assets; [0.90%] on the next $500 million of the Fund's average net assets; and
[0.75%] on the Fund's average net assets in excess of $1 billion.
Out of the advisory fee received from the Fund, IFG pays IRAI a monthly
sub-advisory fee. No fee is paid by the Fund to its sub-adviser. The
sub-advisory fee is computed at the annual rates of 0.30% on the first $500
million of the Fund's average net assets; 0.25% on the next $500 million of the
Fund's average net assets; and 0.2167% on the Fund's average net assets in
excess of $1 billion.
The Company also has entered into an Administrative Services Agreement with
IFG dated February 28, 1997 (the "Administrative Agreement"). Pursuant to the
Administrative Agreement, IFG performs certain administrative, recordkeeping and
internal accounting services, including, without limitation, maintaining general
ledger and capital stock accounts, preparing a daily trial balance, calculating
net asset value daily, providing selected general ledger reports and providing
certain sub-accounting and recordkeeping services for shareholder accounts. For
such services, the Company pays IFG a fee consisting of a base fee of $10,000
per year for the Fund, plus an additional incremental fee computed at the
annual rate of 0.015% per year of the average net assets of the Fund. IFG also
is paid a fee by the Company for providing transfer agent services. See
"Additional Information."
The Company has also entered into a Distribution Agreement with IDI dated
September 20, 1997 (the "Distribution Agreement"). Pursuant to the Distribution
Agreement, IDI performs all services related to distribution and sale of the
Fund's shares.
The Fund's expenses, which are accrued daily, are generally deducted from its
total income before dividends are paid. If necessary, certain Fund expenses will
be absorbed voluntarily by IFG pursuant to a commitment to the Company. This
commitment may be changed following consultation with the Company's board of
directors.
Fund Management permits investment and other personnel to purchase and sell
securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires Fund Management's personnel to conduct
their personal investment activities in a manner that Fund Management believes
is not detrimental to the Funds or Fund Management's other advisory clients. See
"Management" in the Statement of Additional Information for more detailed
information.
PURCHASES AND REDEMPTIONS
Investors may not purchase or redeem shares of the Fund directly, but only
through variable annuity and variable life insurance contracts offered through
the separate accounts of Participating Insurance Companies. A contract owner
should refer to the applicable Separate Account Prospectus for information on
how to purchase or surrender a contract, make partial withdrawals of contract
values, allocate contract values to one or more of the Funds, or change existing
allocations among investment alternatives, including the Fund. Shares of the
Fund are sold on a continuous basis to separate accounts of Participating
Insurance Companies by IDI, as the Fund's distributor. No sales charge is
imposed upon the sale of shares of the Fund. Sales charges for the variable
annuity or variable life insurance contracts are described in the Separate
<PAGE>
Account Prospectuses. IFG may from time to time make payments from its
revenues to Participating Insurance Companies, broker dealers and other
financial institutions that provide administrative services for the Fund.
The Participating Insurance Companies place orders for their separate
accounts to purchase and redeem shares of the Fund based on, among other things,
the amount of premium payments to be invested and transfer and surrender
requests to be effected on that day pursuant to variable annuity and variable
life insurance contracts. Fund shares are purchased or redeemed at the net asset
value per share next computed after receipt of a purchase or redemption order in
good form. Payment for redemptions ordinarily will be made on behalf of the
Company and the Fund by the Company's transfer agent (IFG) within seven days
after the redemption request is received. However, payment may be postponed
under unusual circumstances, such as when normal trading is not taking place on
the New York Stock Exchange or an emergency as defined by the Securities and
Exchange Commission exists.
Net asset value per share is computed for the Fund once each day that the New
York Stock Exchange is open, as of the close of regular trading on that Exchange
(usually 4:00 p.m., New York time), and also may be computed on other days under
certain circumstances. Net asset value per share for the Fund is calculated by
dividing the market value of the Fund's securities plus the value of its other
assets (including dividends and interest accrued but not collected), less all
liabilities (including accrued expenses), by the number of outstanding shares of
the Fund. If market quotations are not readily available, a security will be
valued at fair value as determined in good faith by the board of directors. Debt
securities with remaining maturities of 60 days or less at the time of purchase
will be valued at amortized cost, absent unusual circumstances, so long as the
Company's board of directors believes that such value represents fair value.
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS
Taxes. The Internal Revenue Code of 1986, as amended (the "Code"), provides
that each investment portfolio of a series fund is to be treated as a separate
taxpayer. Accordingly, the Fund intends to continue to qualify as a separate
regulated investment company under Subchapter M of the Code.
The Fund intends to comply with the diversification requirements of Code
Section 817(h). By meeting this and other requirements, the Participating
Insurance Companies, rather than the owners of variable annuity or variable life
insurance contracts, should be subject to tax on distributions received with
respect to Fund shares. For further information concerning federal income tax
consequences for the owners of variable annuity or variable life insurance
contracts, a contract owner should consult his or her Separate Account
Prospectus.
As a regulated investment company, the Fund generally will not be subject to
tax on its ordinary income and net realized capital gains to the extent such
income and gains are distributed in conformity with applicable distribution
requirements under the Code to the separate accounts of the Participating
Insurance Companies which hold its shares. Distributions of income and the
excess of net short-term capital gain over net long-term capital loss will be
treated as ordinary income, and distributions of the excess of net long-term
capital gain over net short-term capital loss will be treated as long-term
<PAGE>
capital gain by the Participating Insurance Companies. Participating Insurance
Companies should consult their own tax advisers concerning whether such distribu
tions are subject to federal income tax if they are retained as part of contract
reserves.
Dividends. In addition to any increase in the value of the Fund's shares
which may occur from increases in the value of the Fund's invest ments, the Fund
may earn income in the form of dividends and interest on its investments.
Dividends paid by the Fund will be based solely on the income earned by the
Fund. The Company's policy with respect to the Fund is to distribute
substantially all of this income, less expenses, to shareholders of the Fund. At
the discretion of the board of directors, distributions are customarily made
annually to shareholders of the Fund. Dividends are automatically reinvested in
additional shares of the Fund making the dividend distribution at its net asset
value on the ex-dividend date, unless an election is made on behalf of a
separate account to receive distributions in cash.
Capital Gains. Capital gains or losses are the result of the Fund selling its
portfolio securities at prices that are higher or lower than the prices paid by
it to purchase such securities. Total gains from such sales, less any losses
from such sales (including losses carried forward from prior years) represent
net realized capital gains. The Fund distributes its net realized capital gains,
if any, to its shareholders at least annually, usually in December. Capital
gains distributions are automatically reinvested in additional shares of the
Fund making the distribution at its net asset value per share on the ex-dividend
date, unless an election is made on behalf of a separate account to receive
distributions in cash.
PERFORMANCE INFORMATION
From time to time, the Fund's total return and/or yield may be included in
advertisements, sales literature, shareholder reports or Separate Account
Prospectuses. The Fund's total return and yield include the effect of deducting
the Fund's expenses, but do not include charges and expenses attributable to a
particular variable annuity or variable life insurance contract. Because shares
of the Fund can be purchased only through a variable annuity or variable life
insurance contract, the Fund's total return and yield data should be reviewed
along with the description of contract charges and expenses contained in the
applicable Separate Account Prospectus. Total return or yield for the Fund must
always be accompanied by, and reviewed with, comparable total return or yield
data for an associated variable annuity separate account, or data that would
permit evaluation of the magnitude of variable life insurance charges and
expenses not reflected in the Fund's total return or yield. Fund total return
and yield figures are based upon historical results and are not intended to
indicate future performance.
The "total return" of the Fund refers to the average annual rate of return of
an investment in the Fund. This figure is computed by calculating the percentage
change in value of an investment of $1,000, assuming reinvestment of all income
dividends and capital gain distributions, to the end of a specified period.
"Total return" quotations reflect the performance of the Fund and include the
effect of capital changes.
The yield of the Fund is calculated by utilizing the Fund's calculated
income, expenses and average outstanding shares for the most recent 30- day or
one-month period, dividing it by the month end net asset value and annualizing
the resulting number.
<PAGE>
In conjunction with performance reports and/or analyses of shareholder
service for the Fund, comparisons of the Fund's performance for a given period
to the performance of recognized indices and for the same period may be made.
Such indices include ones provided by Dow Jones & Company, Standard & Poor's,
Lipper Analytical Services, Inc., Lehman Brothers, National Association of
Securities Dealers, Inc., Frank Russell Company, Value Line Investment Survey,
the American Stock Exchange, Morgan Stanley Capital International, Wilshire
Associates, the Financial Times- Stock Exchange, the New York Stock Exchange,
the Nikkei Stock Average and the Deutcher Aktienindex, all of which are
unmanaged market indicators. Such comparisons can be a useful measure of the
quality of the Funds' investment performance. However, because Fund performance
data does not reflect separate account and contract charges, Fund performance
data is not an appropriate measure of the performance of a contract owner's
investment in the variable annuity and variable life insurance contracts.
In addition, rankings, ratings, and comparisons of investment performance
and/or assessments of the quality of shareholder service appearing in
publications such as Money, Forbes, Kiplinger's Personal Finance, Financial
World, Morningstar, and similar sources which utilize information compiled (i)
internally; (ii) by Lipper Analytical Services, Inc.; or (iii) by other
recognized analytical services, may be used in sales literature. The Lipper
Analytical Services, Inc. rankings and comparisons, which may be used by the
Funds in performance reports, will be drawn from the "Real Estate Funds"
variable insurance product grouping. In addition, the broad-based Lipper
variable insurance product groupings may be used for comparison to any of the
Funds. A more complete list of publications that may be quoted in sales
literature is contained under the caption "Performance" in the Statement of
Additional Information.
ADDITIONAL INFORMATION
Voting Rights. The Participating Insurance Companies and their separate
accounts, rather than individual contract owners, are the shareholders of the
Fund. However, each Participating Insurance Company will vote shares held by its
separate accounts as required by law and interpretations thereof, as amended or
changed from time to time. In accordance with current law and interpretations
thereof, a Participating Insurance Company is required to request voting
instructions from its contract owners and must vote Fund shares held by each of
its separate accounts in proportion to the voting instructions received.
Additional information about voting procedures (including a discussion, where
applicable, of circumstances under which some Participating Insurance Companies
may vote Fund shares held by variable life insurance separate accounts other
than in accordance with contract owner instructions) is contained in the
applicable Separate Account Prospectuses.
All shares of the Fund have equal voting rights. When shareholders are
entitled to vote upon a matter, each shareholder is entitled to one vote for
each share owned and a corresponding fractional vote for each fractional share
owned. Voting with respect to certain matters, such as ratification of
independent accountants and the election of directors, will be by all Funds of
the Company voting together. In other cases, such as voting upon an investment
advisory contract, voting is on a Fund-by-Fund basis. To the extent permitted by
law, when not all Funds are affected by a matter to be voted upon, only
<PAGE>
shareholders of the Fund or Funds affected by the matter will be entitled
to vote thereon. The Company is not generally required and does not expect to
hold regular annual meetings of shareholders. However, the board of directors
will call special meetings of shareholders for the purpose, among other reasons,
of voting upon the question of removal of a director or directors when requested
to do so in writing by the holders of 10% or more of the outstanding shares of
the Company or as may be required by applicable law or the Company's Articles of
Incorporation. The Company will assist shareholders in communicating with other
shareholders as required by the Investment Company Act of 1940. Directors may be
removed by action of the holders of a majority or more of the outstanding shares
of the Company.
Shareholder Inquiries. Inquiries regarding the Fund may be directed to the
Company at the telephone number or mailing address set forth on the cover page
of this Prospectus or to a Participating Insurance Company.
Transfer and Disbursing Agent. IFG acts as registrar, transfer agent, and
dividend disbursing agent for the Company pursuant to a Transfer Agency
Agreement that provides for an annual fee of $5,000 per Fund.
Master/Feeder Option. The Company may in the future seek to achieve the Fund's
investment objective by investing all of the Fund's assets in another investment
company having the same investment objective and substantially the same
investment policies and restrictions as those applicable to the Fund. It is
expected that any such investment company would be managed by IFG in
substantially the same manner as the existing Fund. If permitted by applicable
laws and policies then in effect, any such investment may be made in the sole
discretion of the Company's board of directors without further approval of the
Fund's shareholders. However, Fund shareholders will be given at least 30 days
prior notice of any such investment. Such investment would be made only if the
Company's board of directors determines it to be in the best interests of the
Fund and its shareholders. In making that determination, the board will
consider, among other things, the benefits to shareholders and/or the
opportunity to reduce costs and achieve operational efficiencies. No assurance
is given that costs will be materially reduced if this option is implemented.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
PRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE COMPANY IN ANY
JURISDICTION IN WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE.
<PAGE>
APPENDIX
BOND RATINGS
The following is a description of S&P's and Moody's bond rating categories:
S&P's Corporate Bond Ratings
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB - Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
B - Bonds rated B have a greater vulnerability to default but currently have
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC - Bonds rated CCC have a currently identifiable vulnerability to default
and are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
<PAGE>
Moody's Corporate Bond Ratings
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risk appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes, and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any longer period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
<PAGE>
Prospectus
February ---, 1998
INVESCO VARIABLE
INVESTMENT FUNDS, INC.
INVESCO VIF - Realty
Portfolio
INVESCO FUNDS
INVESCO Distributors, Inc.
Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
1-800-525-8085
PAL(R): 1-800-424-8085.
http://www.invesco.com
In Denver, visit one of our
convenient Investor Centers:
Cherry Creek
155-B Fillmore Street
Denver Tech Center,
7800 East Union Avenue,
Lobby Level
In addition, all documents filed
by the Company with the Securities
and Exchange Commission can be
located on a web site maintained
by the Commission at
http://www.sec.gov.
<PAGE>
INVESCO Variable Investment Funds, Inc.
INVESCO VIF - Health Sciences Fund
INVESCO VIF - Technology Fund
Supplement to Statement of Additional Information
dated May 1, 1997
The following unaudited financial statements of the INVESCO VIF Health
Sciences and INVESCO VIF - Technology Funds supplement the Company's 1996 Annual
Report to Shareholders which is incorporated by reference into the Company's
Statement of Additional Information.
Statement of Investment Securities
September 30,1997
UNAUDITED
Shares
or Principal
Description Amount Value
- --------------------------------------------------------------------------------
HEALTH SCIENCES Portfolio
COMMON STOCKS 67.56%
BIOTECHNOLOGY 3.53%
Genentech Inc* 215 $12,497
-----------
DRUGS 38.77%
Abbott Laboratories 200 12,787
American Home Products 170 12,410
Bristol-Myers Squibb 160 13,240
Glaxo Wellcome PLC Sponsored ADR
Representing 2 Ord Shrs 300 13,481
Johnson & Johnson 100 5,763
Lilly (Eli) & Co 115 13,850
Merck & Co 130 12,992
Pfizer Inc 215 12,913
Schering-Plough Corp 250 12,875
SmithKline Beecham PLC Sponsored ADR
Representing 5 Ord Shrs 278 13,587
Warner-Lambert Co 100 13,494
-----------
137,392
-----------
ELECTRONICS 3.30%
Perkin-Elmer Corp 160 11,690
-----------
<PAGE>
HEALTH MAINTENANCE ORGANIZATIONS 6.75%
Oxford Health Plans* 160 11,980
PacifiCare Health Systems Class B* 175 11,922
-----------
23,902
-----------
INFORMATION MANAGEMENT 3.62%
HBO & Co 340 12,835
-----------
MEDICAL EQUIPMENT & DEVICES 7.87%
Guidant Corp 280 15,680
Medtronic Inc 260 12,220
-----------
27,900
-----------
PRIMARY CARE 3.72%
Quorum Health Group* 540 13,196
-----------
TOTAL COMMON STOCKS (Cost $227,689) 239,412
-----------
SHORT-TERM INVESTMENTS -
US GOVERNMENT AGENCY OBLIGATIONS 32.44%
Federal Home Loan Mortgage
5.550%, 10/3/1997 65,000 64,980
Federal National Mortgage Association
5.550%, 10/3/1997 50,000 49,985
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $114,965) 114,965
-----------
TOTAL INVESTMENT SECURITIES
AT VALUE 100.00%
(Cost $342,654)
(Cost for Income Tax Purposes $344,669) 354,377
===========
TECHNOLOGY Portfolio
COMMON STOCKS 92.64%
BIOTECHNOLOGY 0.53%
Aviron* 100 2,513
-----------
COMMUNICATIONS - EQUIPMENT &
MANUFACTURING 9.95%
PairGain Technologies* 500 14,250
Pittway Corp Class A 300 19,481
Scientific-Atlanta Inc 600 13,575
-----------
47,306
-----------
<PAGE>
COMPUTER SOFTWARE & SERVICES 29.77%
America Online* 200 15,087
American Software Class A* 1,600 23,400
CBT Group PLC Sponsored ADR* 200 16,050
CIENA Corp* 100 4,953
Edwards (J D) & Co* 500 16,750
Learning Co* 1,500 22,125
Novell Inc* 600 5,381
Peritus Software Services* 200 5,125
PLATINUM technology* 300 6,450
Rational Software* 300 4,800
SEEC Inc* 100 2,925
VIASOFT Inc* 300 14,850
Wonderware Corp* 200 3,675
-----------
141,571
-----------
COMPUTER SYSTEMS 2.60%
GEAC Computer Ltd* 200 12,381
-----------
COMPUTERS - HARDWARE 11.39%
Compaq Computer* 200 14,950
Data General* 500 13,312
HMT Technology* 300 4,706
International Business Machines 200 21,187
-----------
54,155
-----------
ELECTRICAL EQUIPMENT 5.20%
PCD Inc* 1,000 24,750
-----------
ELECTRONICS - INSTRUMENTS 3.89%
Sawtek Inc* 400 18,500
-----------
ELECTRONICS - SEMICONDUCTOR 9.11%
Cypress Semiconductor* 1,000 15,500
MRV Communications* 200 7,300
National Semiconductor* 500 20,500
-----------
43,300
-----------
EQUIPMENT - SEMICONDUCTOR 3.90%
Kulicke & Soffa Industries* 400 18,525
-----------
LEISURE TIME 5.10%
International Game Technology 800 18,200
WMS Industries* 200 6,038
-----------
24,238
-----------
<PAGE>
MANUFACTURING 0.82%
Flanders Corp* 500 3,875
-----------
POLLUTION CONTROL 1.69%
Laidlaw Environmental Services* 1,400 8,050
-----------
RETAIL 2.12%
Tandy Corp 300 10,088
-----------
SERVICES 0.68%
CORESTAFF Inc* 100 3,238
-----------
TELECOMMUNICATIONS - LONG DISTANCE 5.89%
Bell Canada International* 400 7,550
Premiere Technologies* 600 20,475
-----------
28,025
-----------
TOTAL COMMON STOCKS (Cost $411,688) 440,515
-----------
SHORT-TERM INVESTMENTS -
US GOVERNMENT AGENCY OBLIGATIONS 7.36%
Federal Home Loan Mortgage
5.500%, 10/1/1997
(Cost $35,000) 35,000 35,000
-----------
TOTAL INVESTMENT SECURITIES
AT VALUE 100.00%
(Cost $446,688)
(Cost for Income Tax Purposes $447,057) 475,515
===========
* Security is non-income producing.
See Notes to the Financial Statements
<PAGE>
Statement of Assets and Liabilities
September 30, 1997
UNAUDITED
Health Sciences Technology
Portfolio Portfolio
--------------------------------
ASSETS
Investment Securities:
At Cost $342,654 $446,688
=========== ===========
At Value $354,377 $475,515
Cash 3,455 34,607
Receivables:
Fund Shares Sold 0 50
Dividends and Interest 83 55
----------- -----------
TOTAL ASSETS 357,915 510,227
----------- -----------
LIABILITIES
Payables:
Investment Securities Purchased 0 16,623
Fund Shares Repurchased 1,416 25,014
----------- -----------
TOTAL LIABILITIES 1,416 41,637
----------- -----------
Net Assets at Value $356,499 $468,590
=========== ===========
NET ASSETS
Paid-in Capital* $347,453 $437,384
Accumulated Undistributed Net
Investment Income 915 1,171
Accumulated Undistributed Net
Realized Gain (Loss) on
Investment Securities (3,592) 1,208
Net Appreciation of Investment
Securities 11,723 28,827
----------- -----------
Net Assets at Value $356,499 $468,590
=========== ===========
Shares Outstanding 33,595 37,468
Net Asset Value, Offering and
Redemption Price per Share $10.61 $12.51
=========== ===========
* The Fund has 900 million authorized shares of common stock, par value of $0.01
per share. Of such shares, 100 million have been allocated to each individual
Portfolio.
See Notes to Financial Statements
<PAGE>
Statement of Operations
Period Ended September 30, 1997 (Note 1)
UNAUDITED
Health Sciences Technology
Portfolio Portfolio
---------------------------------
INVESTMENT INCOME
INCOME
Dividends $113 $64
Interest 802 1,107
----------- -----------
TOTAL INCOME 915 1,171
----------- -----------
EXPENSES
Investment Advisory Fees 0 0
Transfer Agent Fees 0 0
Administrative Fees 0 0
Custodian Fees and Expenses 0 0
Directors' Fees and Expenses 0 0
Professional Fees and Expenses 0 0
Registration Fees and Expenses 0 0
Other Expenses 0 0
----------- -----------
TOTAL EXPENSES 0 0
Fees and Expenses Absorbed by
Investment Adviser 0 0
----------- -----------
NET EXPENSES 0 0
----------- -----------
NET INVESTMENT INCOME 915 1,171
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain (Loss) on
Investment Securities (3,592) 1,208
Change in Net Appreciation of
Investment Securities 11,723 28,827
----------- -----------
NET GAIN ON INVESTMENT SECURITIES 8,131 30,035
----------- -----------
Net Increase in Net Assets
from Operations $9,046 $31,206
=========== ===========
See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets Period Ended September 30, 1997 (Note 1)
UNAUDITED
Health Sciences Technology
Portfolio Portfolio
-----------------------------------
OPERATIONS
Net Investment Income $915 $1,171
Net Realized Gain (Loss) on
Investment Securities (3,592) 1,208
Change in Net Appreciation
of Investment Securities 11,723 28,827
----------- -----------
NET INCREASE IN NET
ASSETS FROM OPERATIONS 9,046 31,206
----------- -----------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 661,866 1,088,589
Amounts Paid for Repurchases
of Shares (315,413) (652,205)
----------- -----------
NET INCREASE IN NET ASSETS FROM
FUND SHARE TRANSACTIONS 346,453 436,384
----------- -----------
Total Increase in Net Assets 355,499 467,590
NET ASSETS
Initial Subscription (Note 1) 1,000 1,000
Beginning of Period 0 0
----------- -----------
End of Period $356,499 $468,590
=========== ===========
Accumulated Undistributed Net
Investment Income Included in
Net Assets At End of Period $915 $1,171
FUND SHARE TRANSACTIONS
Initial Subscription (Note 1) 100 100
Shares Sold 64,773 97,380
----------- -----------
64,873 97,480
Shares Repurchased (31,278) (60,012)
----------- -----------
Net Increase in Fund Shares 33,595 37,468
=========== ===========
See Notes to Financial Statements
<PAGE>
Notes to Financial Statements
UNAUDITED
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Variable
Investment Funds, Inc. (the "Fund") was incorporated in Maryland and presently
consists of nine separate Portfolios: Dynamics Portfolio, Growth Portfolio,
Health Sciences Portfolio, High Yield Portfolio, Industrial Income Portfolio,
Small Company Growth Portfolio, Technology Portfolio, Total Return Portfolio and
Utilities Portfolio. Health Sciences Portfolio and Technology Portfolio, (the
"Portfolios") are presented herein. The investment objective of the Portfolios
is to seek capital appreciation and income on securities principally engaged in
specific business sectors. Health Sciences and Technology Portfolios commenced
investment operations on May 22, 1997 and May 21, 1997, respectively. On August
26, 1997, INVESCO Funds Group, Inc. ("IFG") invested an additional $250,000 in
each Portfolio. The Fund is registered under the Investment Company Act of 1940
(the "Act") as a diversified, open-end management investment company. The Fund's
shares are not offered directly to the public but are sold exclusively to life
insurance companies ("Participating Insurance Companies") as a pooled funding
vehicle for variable annuity and variable life insurance contracts issued by
separate accounts of the Participating Insurance Companies.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
A. SECURITY VALUATION - Equity securities traded on national securities
exchanges or in the over-the-counter market are valued at the last sales price
in the market where such securities are primarily traded. If last sales prices
are not available, securities are valued at the highest closing bid price
obtained from one or more dealers making a market for such securities or by a
pricing service approved by the Fund's board of directors.
If market quotations or pricing service valuations are not readily
available, securities are valued at fair value as determined in good faith by
the Fund's board of directors.
Short-term securities are stated at amortized cost (which approximates
market value) if maturity is 60 days or less at the time of purchase, or market
value if maturity is greater than 60 days.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security
transactions are accounted for on the trade date and dividend income is recorded
on the ex dividend date. Interest income, which may be comprised of stated
coupon rate, market discount, original issue discount and amortized premium, is
recorded on the accrual basis. Cost is determined on the specific identification
basis.
C. FEDERAL AND STATE TAXES - The Fund has complied, and continues to
comply, with the provisions of the Internal Revenue Code applicable to regulated
investment companies and, accordingly, has made or intends to make sufficient
distributions of net investment income and net realized capital gains, if any,
to relieve it from all federal and state income taxes and federal excise taxes.
To the extent future capital gains are offset by capital loss carryovers,
such gains will not be distributed to shareholders.
<PAGE>
Dividends paid by the Fund from net investment income and distributions of
net realized short-term capital gains are, for federal income tax purposes,
taxable as ordinary income to shareholders.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and
distributions to shareholders are recorded by the Fund on the ex
dividend/distribution date. The Fund distributes net realized capital gains, if
any, to its shareholders at least annually, if not offset by capital loss
carryovers. Income distributions and capital gain distributions are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to differing
treatments for nontaxable dividends, net operating losses and expired capital
loss carryforwards.
E. EXPENSES - Each of the Portfolios bears expenses incurred specifically
on its behalf and, in addition, each Portfolio bears a portion of general
expenses, based on the relative net assets of each Portfolio.
NOTE 2 - INVESTMENT ADVISORY AND OTHER AGREEMENTS. IFG serves as the Fund's
investment adviser. As compensation for its services to the Fund, IFG receives
an investment advisory fee which is accrued daily at the applicable rate and
paid monthly. The fee is based on the annual rate of each Portfolio's average
net assets as follows:
AVERAGE NET ASSETS
----------------------------------
$0 to $350 to Over
$350 $700 $700
Portfolio Million Million Million
- -------------------------------------------------------------------------------
Health Sciences Portfolio 0.75% 0.65% 0.55%
Technology Portfolio 0.75% 0.65% 0.55%
In accordance with a Sub-Advisory Agreement between IFG and INVESCO Trust
Company ("ITC"), a wholly owned subsidiary of IFG, investment decisions of the
Portfolios are made by ITC. Fees for such sub-advisory services are paid by IFG.
In accordance with an Administrative Agreement, each Portfolio pays IFG an
annual fee of $10,000, plus an additional amount computed at an annual rate of
0.015% of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG receives a transfer agent fee of $5,000 per Portfolio per year.
The fee is paid monthly at one-twelfth of the annual fee.
IFG has voluntarily agreed, in some instances, to absorb certain fees and
expenses incurred by each Portfolio. NOTE 3 - PURCHASES AND SALES OF INVESTMENT
SECURITIES. For the four months ended September 30, 1997, the aggregate cost of
purchases and proceeds from sales of investment securities (excluding all U.S.
Government securities and short-term securities) were as follows:
Portfolio Purchases Sales
- ------------------------------------------------------------------------------
Health Sciences Portfolio $354,972$ $123,691
Technology Portfolio 445,927 35,451
There were no purchases or sales of U.S. Government securities.
<PAGE>
NOTE 4 - APPRECIATION AND DEPRECIATION. At September 30, 1997, the gross
appreciation of securities in which there was an excess of value over tax cost,
the gross depreciation of securities in which there was an excess of tax cost
over value and the resulting net appreciation by Portfolio were as follows:
Gross Gross Net
Portfolio Appreciation Depreciation Appreciation
- ------------------------------------------------------------------------------
Health Sciences Portfolio $11,205 $1,497 $9,708
Technology Portfolio 41,994 13,536 28,458
NOTE 5 - TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers
and directors are also officers and directors of IFG or ITC.
The Fund has adopted an unfunded deferred compensation plan covering all
independent directors of the Fund who will have served as an independent
director for at least five years at the time of retirement.
Benefits under this plan are based on an annual rate equal to 40% of the
retainer fee at the time of retirement.
Pension expenses for the four months ended September 30, 1997, included in
Directors' Fees and Expenses in the Statement of Operations, and unfunded
accrued pension costs and pension liability included in Prepaid Expenses and
Accrued Expenses, respectively, in the Statement of Assets and Liabilities were
insignificant. NOTE 6 - LINE OF CREDIT. The Fund has available a Redemption Line
of Credit Facility ("LOC"), from a consortium of national banks, to be used for
temporary or emergency purposes to fund redemptions of investor shares. The LOC
permits borrowings to a maximum of 10% of the Net Assets at Value of each
respective Portfolio. Each Portfolio agrees to pay annual fees and interest on
the unpaid principal balance based on prevailing market rates as defined in the
agreement. At September 30, 1997, there were no such borrowings.
<PAGE>
Financial Highlights
(For a Fund Share Outstanding Throughout the Period) Period Ended September 30,
1997 (Note 1)
UNAUDITED
Health Sciences Portfolio
PER SHARE DATA
Net Asset Value - Beginning of Period $10.00
----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03
Net Gains on Securities
(Both Realized and Unrealized) 0.58
----------
Total from Investment Operations 0.61
----------
Net Asset Value - End of Period $10.61
==========
TOTAL RETURN 6.10%*
RATIOS+
Net Assets - End of Period ($000 Omitted) $356
Ratio of Expenses to Average Net Assets 0.00%~
Ratio of Net Investment Income to
Average Net Assets 2.24%~
Portfolio Turnover Rate 460%*
Average Commission Rate Paid^^ $0.0600*
+ All of the expenses of the Portfolio were voluntarily absorbed by IFG for the
period ended September 30, 1997, since investment operations began May 22, 1997.
~ Annualized
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
^^ The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the total
number of related shares purchased or sold.
<PAGE>
Financial Highlights (Continued) (For a Fund Share Outstanding Throughout the
Period) Period Ended September 30, 1997 (Note 1)
UNAUDITED
Technology Portfolio
PER SHARE DATA
Net Asset Value - Beginning of Period $10.00
----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03
Net Gains on Securities
(Both Realized and Unrealized) 2.48
----------
Total from Investment Operations 2.51
----------
Net Asset Value - End of Period $12.51
==========
TOTAL RETURN 25.10%*
RATIOS+
Net Assets - End of Period ($000 Omitted) $469
Ratio of Expenses to Average Net Assets 0.00%~
Ratio of Net Investment Income to
Average Net Assets 1.81%~
Portfolio Turnover Rate 26%*
Average Commission Rate Paid^^ $0.1583*
+ All of the expenses of the Portfolio were voluntarily absorbed by IFG for the
period ended September 30, 1997, since investment operations began May 21, 1997.
~ Annualized
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
^^ The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the total
number of related shares purchased or sold.
The date of this Supplement is November 10, 1997.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
^February ---, 1998
INVESCO VARIABLE INVESTMENT FUNDS, INC.
Address: Mailing Address:
7800 E. Union Avenue Post Office Box 173706
Denver, Colorado 80237 Denver, Colorado 80217-3706
Telephone:
In continental U.S., 1-800-525-8085
- --------------------------------------------------------------------------------
INVESCO Variable Investment Funds, Inc. (the "Company") was incorporated
under the laws of Maryland on August 19, 1993. The Company is an open-end
management investment company which offers shares of ^ ten diversified
investment portfolios (the "Funds"): the INVESCO VIF - ^ Dynamics Fund (the
"Dynamics Fund"), the INVESCO VIF - ^ INVESCO Growth Fund (the "Growth Fund"),
the INVESCO VIF - ^ Health Sciences Fund (the "Health Sciences Fund"), the
INVESCO VIF - High Yield ^ Fund (the "High Yield Fund"), the INVESCO VIF - ^
Industrial Income Fund (the "Industrial Income Fund"), the INVESCO VIF -^ Realty
Fund (the "Realty Fund"), the INVESCO VIF - Small Company Growth Fund (the
"Small Company Growth Fund"), the INVESCO VIF -Technology ^ Fund (the
"Technology Fund"), the INVESCO VIF - ^ Total Return Fund (the "Total Return
Fund") and the INVESCO VIF -^ Utilities Fund (the ^"Utilities Fund"). Additional
Funds may be offered in the future. The Company's shares are not offered
directly to the public, but are sold exclusively to life insurance companies
("Participating Insurance Companies") as a pooled funding vehicle for variable
annuity and variable life insurance contracts issued by separate accounts of
Participating Insurance Companies. The Funds have the following investment
objectives:
Industrial Income Fund:
to seek the best possible current income while following sound investment
practices. Capital growth potential is an additional, but secondary,
consideration in the selection of portfolio securities. The Fund normally
invests at least 65% of its total assets in dividend-paying common stocks.
Up to 10% of the Fund's total assets may be invested in other
income-producing securities, such as corporate bonds. The Fund also has
the flexibility to invest in other types of securities.
<PAGE>
Total Return Fund:
to seek a high total return on investment through capital appreciation and
current income. The Total Return Fund seeks to achieve its investment
objective by investing in a combination of equity securities (consisting
of common stocks and, to a lesser degree, securities convertible into
common stock) and fixed income securities.
Dynamics Fund:
to seek appreciation of capital through aggressive investment
policies. The Dynamics Fund invests primarily in common stocks of
U.S. companies traded on national securities exchanges and over-
the-counter.
High Yield Fund:
to seek a high level of current income by investing substantially all of
its assets in lower rated bonds and other debt securities and in preferred
stock. The Fund pursues its investment objective through investment in a
variety of long-term, intermediate-term, and short-term bonds. Potential
capital appreciation is a factor in the selection of investments, but is
secondary to the Fund's primary objective.
Small Company Growth Fund:
to seek long-term capital growth. The Small Company Growth Fund
invests primarily in equity securities of small-capitalization U.S.
companies traded "over-the-counter."
Health Sciences Fund:
to seek capital appreciation. The Health Sciences Fund normally invests at
least 80% of its total assets in equity securities of companies which
develop, produce, or distribute products or services related to
health-care.
Technology Fund:
to seek capital appreciation. The Technology Fund normally invests at
least 80% of its total assets in equity securities of companies in
technology-related industries such as computers, communications, video,
electronics, oceanography, office and factory automation, and robotics.
Utilities Fund:
to seek capital appreciation and income through investments primarily in
equity securities of companies principally engaged in the public utilities
business.
Growth Fund:
to seek long-term capital growth. The Fund also seeks, as a secondary
objective, to obtain investment income through the purchase of securities
of carefully selected companies representing major fields of business and
industrial activity. In pursuing its objectives, the Fund invests
primarily in common stocks, but may also invest in other kinds of
securities, including convertible and straight issues of debentures and
preferred stock.
Realty Fund:
to seek to provide long-term capital growth. Current income is an
additional consideration in selecting securities for the Fund's investment
portfolio. The Realty Fund normally invests at least 65% of its total
<PAGE>
assets in publicly-traded stocks of companies principally engaged in the
real estate industry. The remaining assets are invested in other
income-producing securities such as corporate bonds.
A prospectus for the Company dated May 1, 1997 ^ and a prospectus for the
Realty Fund dated February 4, 1998 (the "Prospectuses"), which provide the basic
information a variable annuity or variable life insurance contract owner should
know about the Company and the Funds before allocating variable annuity or
variable life insurance contract values to one or more of the Funds, may be
obtained without charge from INVESCO ^ Distributors, Inc., Post Office Box
173706, Denver, Colorado 80217-3706 or by contacting a Participating Insurance
Company. This Statement of Additional Information is not a prospectus, but
contains information in addition to and more detailed than that set forth in the
^ Prospectuses. It is intended to provide additional information regarding the
activities and operations of the Funds and should be read in conjunction with
the appropriate Prospectus and with the prospectus and statement of additional
information for the applicable variable annuity or variable life insurance
contract.
Investment Adviser ^: INVESCO Funds Group, Inc.
Investment Distributor: INVESCO ^ Distributors, Inc.
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT POLICIES......................................................42
INVESTMENT RESTRICTIONS..................................................47
FUND MANAGEMENT..........................................................51
HOW SHARES ARE VALUED....................................................65
PERFORMANCE..............................................................66
PORTFOLIO TURNOVER.......................................................68
PORTFOLIO BROKERAGE......................................................69
REDEMPTIONS..............................................................70
ADDITIONAL INFORMATION...................................................72
APPENDIX A...............................................................78
<PAGE>
INVESTMENT POLICIES
Reference is made to the ^ Prospectuses for a discussion of the investment
objectives and policies of the Funds. In addition, set forth below is further
information relating to the Funds. Portfolio management is provided to each Fund
by its sub-adviser (referred to collectively with INVESCO Funds Group, Inc. as
"Fund Management").
Loans of Portfolio Securities
As described in the ^ Prospectuses, each Fund may lend its portfolio
securities to brokers, dealers, and other financial institutions, provided that
such loans are callable at any time by the Funds and are at all times secured by
collateral consisting of cash, cash equivalents, high-quality short-term
government securities or irrevocable letters of credit, or any combination
thereof, equal to at least the market value, determined daily, of the loaned
securities. The advantage of such loans is that the Funds continue to earn
income on the loaned securities, while at the same time receiving interest from
the borrower of the securities. Loans will be made only to firms deemed by ^
Fund Management (under procedures established by the Company's board of
directors) to be creditworthy, and when the amount of interest to be received
justifies the inherent risks. A loan may be terminated by the borrower on one
business day's notice, or by the Fund at any time. If at any time the borrower
fails to maintain the required amount of collateral, the Fund will require the
deposit of additional collateral not later than the business day following the
day on which a collateral deficiency occurs or the collateral appears
inadequate. If the deficiency is not remedied by the end of that period, the
Fund will use the collateral to replace the securities while holding the
borrower liable for any excess of replacement cost over collateral. Upon
termination of the loan, the borrower is required to return the securities to
the Fund. Any gain or loss during the loan period would inure to the Fund.
While voting rights may pass with the loaned securities, if a material
event (e.g., proposed merger, sale of assets, or liquidation) is to occur
affecting an investment on loan, the loan must be called and the securities
voted. Loans of securities made by the Fund will comply with all other
applicable regulatory requirements, including the rules of the New York Stock
Exchange and the requirements of the Investment Company Act of 1940, as amended
(the "1940 Act"), and rules thereunder.
Futures, Options on Futures and Options on Securities
As discussed in the ^ Prospectuses, the Funds may enter into futures
contracts, and purchase and sell ("write") options to buy or sell futures
contracts and other securities. These instruments are sometimes referred to as
"derivatives." The Funds will comply with and adhere to all limitations in the
manner and extent to which they effect transactions in futures and options on
such futures currently imposed by the rules and policy guidelines of the
Commodity Futures Trading Commission (the "CFTC") as conditions for exemption of
a mutual fund, or investment advisers thereto, from registration as a commodity
pool operator. ^ A Fund will not, as to any positions, whether long, short or a
combination thereof, enter into futures and options thereon for which the
aggregate initial margins and premiums exceed 5% of the fair market value of the
Fund's total assets after taking into account unrealized profits and losses on
options it has entered into. In the case of an option that is "in-the-money" (as
<PAGE>
defined in the Commodities Exchange Act (the "CEA")), the in-the-money
amount may be excluded in computing such 5%. (In general a call option on a
future is "in-the-money" if the value of the future exceeds the exercise
("strike") price of the call; a put option on a future is "in-the-money" if the
value of the future which is the subject of the put is exceeded by the strike
price of the put.) The Funds may use futures and options thereon solely for bona
fide hedging or for other non-speculative purposes within the meaning and intent
of the applicable provisions of the CEA.^
Unlike when a Fund purchases or sells a security, no price is paid or
received by a Fund upon the purchase or sale of a futures contract. Instead, the
Fund will be required to deposit in a segregated asset account with the broker
an amount of cash or qualifying securities (currently U.S. Treasury bills),
currently in a minimum amount of $15,000. This is called "initial margin." Such
initial margin is in the nature of a performance bond or good faith deposit on
the contract. However, since losses on open contracts are required to be
reflected in cash in the form of variation margin payments, the Fund may be
required to make additional payments during the term of the contracts to its
broker. Such payments would be required, for example, where, during the term of
an interest rate futures contract purchased by the Fund, there was a general
increase in interest rates, thereby making the Fund's portfolio securities less
valuable. In all instances involving the purchase of financial futures contracts
by a Fund, an amount of cash together with such other securities as permitted by
applicable regulatory authorities to be utilized for such purpose, at least
equal to the market value of the futures contracts, will be deposited in a
segregated account with the Funds' custodian to collateralize the position. At
any time prior to the expiration of a futures contract, the Fund may elect to
close its position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. For a more complete
discussion of the risks involved in interest rate futures and options on
interest rate futures and other debt securities, refer to Appendix A
("Description of Futures and Options Contracts").
Where futures are purchased to hedge against a possible increase in the
price of a security before a Fund is able in an orderly fashion to invest in the
security, it is possible that the market may decline instead. If the Fund, as a
result, concluded not to make the planned investment at that time because of
concern as to possible further market decline or for other reasons, the Fund
would realize a loss on the futures contract that is not offset by a reduction
in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation
or no correlation at all between movements in the futures and the portion of the
portfolio being hedged, the price of futures may not correlate perfectly with
movements in interest rates or exchange rates due to certain market distortions.
All participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between interest rates
or exchange rates and the value of a future. Moreover, the deposit requirements
in the futures market are less onerous than margin requirements in the
securities market and may therefore cause increased participation by speculators
in the futures market. Such increased participation also may cause temporary
price distortions. Due to the possibility of price distortion in the futures
<PAGE>
market and because of the imperfect correlation between movements in
interest rates or exchange rates and movements in the prices of futures
contracts, the value of futures contracts as a hedging device may be reduced.
In addition, if a Fund has insufficient available cash, it may at times
have to sell securities to meet variation margin requirements. Such sales may
have to be effected at a time when it may be disadvantageous to do so.
Options on Futures Contracts
The Funds may buy and write options on futures contracts for hedging
purposes. The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the price of the futures
contract upon which it is based or the price of the underlying instrument,
ownership of the option may or may not be less risky than ownership of the
futures contract or the underlying instrument. As with the purchase of futures
contracts, when a Fund is not fully invested it may buy a call option on a
futures contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable under, or the index comprising, the futures contract. If the futures
price at the expiration of the option is below the exercise price, a Fund will
retain the full amount of the option premium, which provides a partial hedge
against any decline that may have occurred in the Fund's portfolio holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the security or foreign currency which is
deliverable under, or of the index comprising, the futures contract. If the
futures price at expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any increase in the price of securities which the Fund is
considering buying. If a call or put option the Fund has written is exercised,
the Fund will incur a loss which will be reduced by the amount of the premium it
received. Depending on the degree of correlation between change in the value of
its portfolio securities and changes in the value of the futures positions, the
Fund's losses from existing options on futures may to some extent be reduced or
increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, a Fund may buy a put option on a futures contract to hedge the Fund's
portfolio against the risk of falling prices.
The amount of risk a Fund assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the options bought.
<PAGE>
Forward Foreign Currency Contracts
The Funds may enter into forward currency contracts to purchase or sell
foreign currencies (i.e., non-U.S. currencies) as a hedge against possible
variations in foreign exchange rates. These instruments are sometimes referred
to as "derivatives." A forward foreign currency exchange contract is an
agreement between the contracting parties to exchange an amount of currency at
some future time at an agreed upon rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract. A
forward contract generally has no deposit requirement, and such transactions do
not involve commissions. By entering into a forward contract for the purchase or
sale of the amount of foreign currency invested in a foreign security
transaction, a Fund can hedge against possible variations in the value of the
dollar versus the subject currency either between the date the foreign security
is purchased or sold and the date on which payment is made or received or during
the time the Fund holds the foreign security. Hedging against a decline in the
value of a currency in the foregoing manner does not eliminate fluctuations in
the prices of portfolio securities or prevent losses if the prices of such
securities decline. Furthermore, such hedging transactions preclude the
opportunity for gain if the value of the hedged currency should rise. The Funds
will not speculate in forward currency contracts. Although the Funds have not
adopted any limitations on their ability to use forward contracts as a hedge
against fluctuations in foreign exchange rates, the Funds do not attempt to
hedge all of their non-U.S. portfolio positions and will enter into such
transactions only to the extent, if any, deemed appropriate by Fund Management.
The Funds will not enter into forward contracts for a term of more than one
year. Forward contracts may from time to time be considered illiquid, in which
case they would be subject to the Funds' limitation on investing in illiquid
securities, discussed in the ^ Prospectuses.
Restricted/144A Securities
In recent years, a large institutional market has developed for certain
securities that are not registered under the Securities Act of 1933, as amended
(the "1933 Act"). Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend on an efficient
institutional market in which such unregistered securities can readily be resold
or on an issuer's ability to honor a demand for repayment. Therefore, the fact
that there are contractual or legal restrictions on resale to the general public
or certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment in order to satisfy share redemption orders. An insufficient number
of qualified institutional buyers interested in purchasing Rule 144A-eligible
securities held by a Fund, however, could affect adversely the marketability of
such portfolio securities and the Fund might be unable to dispose of such
securities promptly or at reasonable prices.
When-Issued and Delayed Delivery Securities
The Funds may purchase and sell securities on a when-issued or delayed
delivery basis. When-issued or delayed delivery transactions arise when
securities (normally, debt obligations of issuers eligible for investment by the
<PAGE>
Funds) are purchased or sold by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
price and yield. However, the yield on a comparable security available when
delivery takes place may vary from the yield on the security at the time that
the when-issued or delayed delivery transaction was entered into. When a Fund
engages in when-issued and delayed delivery transactions, it relies on the
seller or buyer, as the case may be, to consummate the sale. Failure to do so
may result in the Fund missing the opportunity of obtaining a price or yield
considered to be advantageous. When-issued and delayed delivery transactions may
generally be expected to settle within one month from the date the transactions
are entered into, but in no event later than 90 days. However, no payment or
delivery is made by the Fund until it receives delivery or payment from the
other party to the transaction.
To the extent that a Fund remains substantially fully invested at the same
time that it has purchased when-issued securities, as it would normally expect
to do, there may be greater fluctuations in its net assets than if the Fund set
aside cash to satisfy its purchase commitments.
When a Fund purchases securities on a when-issued basis, it will maintain
in a segregated account cash or liquid securities having an aggregate value
equal to the amount of such purchase commitments, until payment is made. If
necessary, additional assets will be placed in the account daily so that the
value of the account will equal or exceed the amount of the Fund's purchase
commitments.
U.S. Government Obligations
Each Fund may, from time to time, purchase U.S. government obligations.
These securities consist of treasury bills, treasury notes, and treasury bonds,
which differ only in their interest rates, maturities, and dates of issuance.
Treasury bills have a maturity of one year or less. Treasury notes generally
have a maturity of one to ten years, and treasury bonds generally have
maturities of more than ten years. U.S. government obligations also include
securities issued or guaranteed by agencies or instrumentalities of the U.S.
government.
Some obligations of United States government agencies, which are
established under the authority of an act of Congress, such as Government
National Mortgage Association (GNMA) participation certificates, are supported
by the full faith and credit of the United States Treasury. GNMA certificates
are mortgage-backed securities representing part ownership of a pool of mortgage
loans. These loans -- issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations -- are either insured by the Federal
Housing Administration or guaranteed by the Veterans Administration. A "pool" or
group of such mortgages is assembled and, after being approved by GNMA, is
offered to investors through securities dealers. Once approved by GNMA, the
timely payment of interest and principal on each mortgage is guaranteed by GNMA
and backed by the full faith and credit of the United States government. The
market value of GNMA certificates is not guaranteed. GNMA certificates differ
from bonds in that principal is paid back monthly by the borrower over the term
of the loan rather than returned in a lump sum at maturity. GNMA certificates
are called "pass-through" securities because both interest and principal
payments (including prepayments) are passed through to the holder of the
<PAGE>
certificate. Upon receipt, principal payments will be used by each Fund
to purchase additional securities under its investment objective and
investment policies.
Other United States government obligations, such as securities of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury to repay its obligations. Still others, such as bonds issued by the
Federal National Mortgage Association, a federally chartered private
corporation, are supported only by the credit of the instrumentality.
INVESTMENT RESTRICTIONS
As described in the ^ Prospectuses, the Funds operate under certain
investment restrictions ^. The following restrictions are fundamental and may
not be changed with respect to a particular Fund without the prior approval of
the holders of a majority of the outstanding voting securities of that Fund, as
defined in the 1940 Act. For purposes of the following ^ investment
restrictions, all percentage limitations apply immediately after a purchase or
initial investment. Any subsequent change in a particular percentage resulting
from fluctuations in value does not require elimination of any security from a
Fund.
Each Fund may not:
1. With respect to seventy-five percent (75%) of its total assets,
purchase the securities of any one issuer (except cash items and
"government securities" as defined under the 1940 Act), if the
purchase would cause the Fund to have more than 5% of the value of its
total assets invested in the securities of such issuer or to own more
than 10% of the outstanding voting securities of such issuer;
2. Borrow money, except that the Fund may borrow money for temporary
or emergency purposes (not for leveraging or investment) and may enter
into reverse repurchase agreements in an aggregate amount not
exceeding 33 1/3% of the value of its total assets (including the
amount borrowed) less liabilities (other than borrowings). Any
borrowings that come to exceed 33 1/3% of the value of the Fund's
total assets by reason of a decline in net assets will be reduced
within three business days to the extent necessary to comply with the
33 1/3% limitation. This restriction shall not prohibit deposits of
assets to margin or guarantee positions in futures, options, swaps or
forward contracts, or the segregation of assets in connection with
such contracts.
3. Invest more than 25% of the value of its total assets in any
particular industry (other than government securities), except that:
(i) the Utilities Fund may invest more than 25% of the value of its
total assets in public utilities industries; ^(ii) the Health Sciences
Fund may invest more than 25% of the value of its total assets in one
or more industries relating to health care; and (iii) the Realty Fund
may invest more than 25% of the value of its total assets in the real
estate industry.
<PAGE>
4. Invest directly in real estate or interests in real estate;
however, the Fund may own debt or equity securities issued by
companies engaged in those businesses. This restriction shall not
prohibit the Realty Fund from directly holding real estate if such
real estate is acquired by that Fund as a result of a default on debt
securities held by that Fund.
5. Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this shall
not prevent the Fund from purchasing or selling options, futures,
swaps and forward contracts or from investing in securities or other
instruments backed by physical commodities).
6. Lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties (but this
limitation does not apply to purchases of commercial paper, debt
securities or to repurchase agreements.)
7. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of the Fund.
Each Fund may, notwithstanding any other investment policy or limitation
(whether or not fundamental), invest all of its assets in the securities of a
single open-end management investment company with substantially the same
fundamental investment objectives, policies and limitations as the Fund.
Furthermore, the board of directors has adopted additional investment
restrictions for each Fund. These restrictions are operating policies of each
Fund and may be changed by the board of directors without shareholder approval.
The additional investment restrictions adopted by the board of directors to date
include the following:
(a) The Fund's investments in warrants, valued at the lower of cost or
market, may not exceed 5% of the value of its net assets. Included
within that amount, but not to exceed 2% of the value of the Fund's
net assets, may be warrants that are not listed on the New York or
American Stock Exchanges. Warrants acquired by the Fund in units or
attached to securities shall be deemed to be without value.
(b) The Fund will not (i) enter into any futures contracts or options
on futures contracts if immediately thereafter the aggregate margin
deposits on all outstanding futures contracts positions held by the
Fund and premiums paid on outstanding options on futures contracts,
after taking into account unrealized profits and losses, would exceed
5% of the market value of the total assets of the Fund, or (ii) enter
into any futures contracts if the aggregate net amount of the Fund's
commitments under outstanding futures contracts positions of the Fund
would exceed the market value of the total assets of the Fund.
(c) The Fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short without the payment of
any additional consideration therefor, and provided that transactions
in options, swaps and forward futures contracts are not deemed to
constitute selling securities short.
<PAGE>
(d) The Fund does not currently intend to purchase securities on
margin, except that the Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments and other deposits in connection with transactions in
options, futures, swaps and forward contracts shall not be deemed to
constitute purchasing securities on margin.
(e) The Fund does not currently intend to (i) purchase securities of
closed end investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (ii)
purchase or retain securities issued by other open-end investment
companies. Limitations (i) and (ii) do not apply to money market funds
or to securities received as dividends, through offers of exchange, or
as a result of a reorganization, consolidation, or merger. If the Fund
invests in a money market fund, the Fund's investment adviser will
reduce its advisory fee by the amount of any investment advisory and
administrative services fees paid to the investment manager of the
money market fund.
(f) The Fund may not mortgage or pledge any securities owned or held
by the Fund in amounts that exceed, in the aggregate, 15% of the
Fund's net asset value, provided that this limitation does not apply
to reverse repurchase agreements or in the case of assets deposited to
margin or guarantee positions in futures, options, swaps or forward
contracts or placed in a segregated account in connection with such
contracts.
(g) The Fund does not currently intend to purchase securities of any
issuer (other than U.S. government agencies and instrumentalities or
instruments guaranteed by an entity with a record of more than three
years' continuous operation, including that of predecessors) with a
record of less than three years' continuous operation (including that
of predecessors) if such purchase would cause the Fund's investments
in all such issuers to exceed 5% of the Fund's total assets taken at
market value at the time of such purchase.
(h) The Fund does not currently intend to invest directly in oil, gas,
or other mineral development or exploration programs or leases;
however, the Fund may own debt or equity securities of companies
engaged in those businesses.
(i) The Fund does not currently intend to purchase any security or
enter into a repurchase agreement if, as a result, more than 15% of
its net assets would be invested in repurchase agreements not
entitling the holder to payment of principal and interest within seven
days and in securities that are illiquid by virtue of legal or
contractual restrictions on resale or the absence of a readily
available market. The board of directors, or the Fund's investment
adviser acting pursuant to authority delegated by the board of
directors, may determine that a readily available market exists for
securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933, or any successor to such rule, and therefore
that such securities are not subject to the foregoing limitation.
<PAGE>
(j) The Fund may not invest in companies for the purpose of exercising
control or management, except to the extent that exercise by the Fund
of its rights under agreements related to portfolio securities would
be deemed to constitute such control.
^
In applying the industry concentration investment restriction (no. 3,
above) the Funds use an industry classification system based on ^ a modified S&P
industry code classification schema which uses various sources to classify
securities.
With respect to investment restriction (i) above, the board of directors
has delegated to Fund Management the authority to determine whether a liquid
market exists for securities eligible for resale pursuant to Rule 144A under the
1933 Act, or any successor to such rule and that such securities are not subject
to this restriction. Under guidelines established by the board of directors,
Fund Management will consider the following factors, among others, in making
this determination: (1) the unregistered nature of a Rule 144A security, (2) the
frequency of trades and quotes for the security; (3) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers; (4) dealer undertakings to make a market in the security; and (5)
the nature of the security and the nature of marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers and the
mechanics of transfer).
In order to enable California investors to allocate variable annuity or
variable life insurance contract values to one or more of the Funds, the Company
has committed to comply with the following guidelines: (i) the borrowing limits
for any Fund are (a) 10% of net asset value when borrowing for any general
purpose and (b) 25% of net asset value when borrowing as a temporary measure to
facilitate redemptions (for purposes of this clause, the net asset value of a
Fund is the market value of all investments or assets owned less outstanding
liabilities of the Fund at the time that any new or additional borrowing is
undertaken); and (ii) if a Fund invests in foreign companies, the foreign
country diversification guidelines to be followed by the Fund are as follows:
(a) The Fund will be invested in a minimum of five different foreign
countries at all times. However, this minimum is reduced to four when
foreign country investments comprise less than 80% of the Fund's net
asset value, to three when less than 60% of such value, to two when
less than 40% and to one when less than 20%.
(b) Except as set forth in items (c) and (d) below, the Fund will have
no more than 20% of its net asset value invested in securities of
issuers located in any one country.
(c) The Fund may have an additional 15% of its net asset value
invested in securities of issuers located in any one of the following
countries: Australia, Canada, France, Japan, the United Kingdom, or
Germany.
(d) The Fund's investments in United States issuers are not subject to
the foreign country diversification guidelines.
<PAGE>
State insurance laws and regulations may impose additional limitations on
lending securities and the use of options, futures and other derivative
instruments.
FUND MANAGEMENT
Investment Adviser
INVESCO Funds Group, Inc., a Delaware corporation ^("IFG"), is employed as
the Company's investment adviser. ^ IFG was established in 1932 and also serves
as an investment adviser to INVESCO Capital Appreciation Funds, Inc. (formerly,
INVESCO Dynamics Fund, Inc.), INVESCO Diversified Funds, Inc.^, INVESCO Emerging
Opportunity Funds, Inc., INVESCO Growth Fund, Inc., INVESCO Income Funds, Inc.,
INVESCO Industrial Income Fund, Inc., INVESCO International Funds, Inc., INVESCO
Money Market Funds, Inc., INVESCO Multiple Asset Funds, Inc., INVESCO Specialty
Funds, Inc., INVESCO Strategic Portfolios, Inc., INVESCO Tax-Free Income Funds,
Inc., and INVESCO Value Trust.
Investment Sub-Advisers
Pursuant to agreements with ^ IFG, INVESCO Capital Management, Inc.
("ICM") serves as sub-adviser to the Total Return Fund, INVESCO Realty Advisors,
Inc. ("IRAI") serves as the sub-adviser to the Realty Fund and INVESCO Trust
Company ("INVESCO Trust") serves as the sub-adviser to the other Funds. INVESCO
Trust, a trust company founded in 1969, is a wholly-owned subsidiary of ^ IFG
that, as of December 31, 1996, managed 55 other investment portfolios, including
31 portfolios in the INVESCO group.
ICM ^ and IRAI manage institutional investment portfolios, consisting
primarily of discretionary employee benefit plans for corporations and state and
local governments, and endowment funds. In addition, ICM serves as investment
adviser or sub-adviser to 19 investment portfolios of 4 investment companies
(including the Company) and IRAI serves as investment adviser or sub-adviser to
- ----- investment portfolios of ---- investment companies (including the
Company). ICM is the sole shareholder of INVESCO Services, Inc., a registered
broker dealer.
Distributor
Effective September 30, 1997, INVESCO Distributors, Inc. ("IDI") became
the Funds' distributor. IDI, established in 1997, is a registered broker-dealer
^ that acts as distributor for all retail mutual funds advised by IFG. Prior to
September 30, 1997, IFG served as the Fund's distributor.
^ IFG, INVESCO Trust, ICM, IRAI and IDI are indirect wholly-owned ^
subsidiaries of AMVESCO PLC, a publicly traded holding company that, through its
subsidiaries, engages in the business of investment management on an
international basis. INVESCO PLC changed its name to AMVESCO PLC on March 3,
1997, and to AMVESCAP PLC on May 8, 1997 as part of a merger between a direct
subsidiary of INVESCO PLC and A I M Management Group Inc., ^ that created one of
the largest independent investment management businesses in the world^ with
approximately $177.5 billion in assets under management. INVESCO, INVESCO Trust
<PAGE>
^, ICM ^ and IRAI continued to operate under their existing names. ^ IFG
was established in 1932 and, as of December 31, 1996, managed 14 mutual funds,
consisting of 44 separate portfolios, with combined assets of approximately
$13.8 billion on behalf of over 826,000 shareholders.
^ AMVESCAP PLC's other North American subsidiaries include the
following:
^
--INVESCO Management & Research, Inc. of Boston, Massachusetts, primarily
manages pension and endowment accounts.
--PRIMCO Capital Management, Inc. of Louisville, Kentucky, specializes in
managing stable return investments, principally on behalf of Section 401(k)
retirement plans.
^
--A I M Advisors, Inc. of Houston, Texas provides investment advisory and
administrative services for retail and institutional mutual funds.
--A I M Capital Management, Inc. of Houston, Texas provides investment
advisory services to individuals, corporations, pension plans and other private
investment advisory accounts and also serves as a sub- advisor to certain retail
and institutional mutual funds, one Canadian mutual fund and one portfolio of an
open-end registered investment company that is offered to separate accounts of
variable insurance companies.
--A I M Distributors, Inc. and Fund Management Company of Houston, Texas
are registered broker-dealers that act as the principal underwriters for retail
and institutional mutual funds.
The corporate headquarters of AMVESCO PLC are located at 11 Devonshire
Square, London, EC2M 4YR, England.
As indicated in the ^ Prospectuses, IFG permits investment and other
personnel to purchase and sell securities for their own accounts in accordance
with a compliance policy governing personal investing by directors, officers and
employees of ^ IFG and its North American affiliates. The policy requires
officers, inside directors, investment and other personnel of ^ IFG and its
North American affiliates to pre- clear all transactions in securities not
otherwise exempt under the policy. Requests for trading authority will be denied
when, among other reasons, the proposed personal transaction would be contrary
to the provisions of the policy or would be deemed to adversely affect any
transaction then known to be under consideration for or to have been effected on
behalf of any client account, including the Funds.
In addition to the pre-clearance requirement described above, the policy
subjects officers, inside directors, investment and other personnel of ^ IFG and
its North American affiliates to various trading restrictions and reporting
obligations. All reportable transactions are reviewed for compliance with the
policy. The provisions of this policy are administered by and subject to
exceptions authorized by ^ IFG, INVESCO Trust, IRAI and ICM.
<PAGE>
Advisory Agreement
^ IFG serves as investment adviser pursuant to an investment advisory
agreement (the "Agreement") with the Company which was approved by the board of
directors on November 6, 1996, in each case by a vote cast in person by a
majority of the directors of the Company, including a majority of the directors
who are not "interested persons" of the Company, INVESCO, INVESCO Trust ^, ICM
or IRAI (the "Independent Directors") at a meeting called for such purpose.
Shareholders of the Industrial Income, Total Return, High Yield and Utilities
Funds approved the Agreement on January 31, 1997 for an initial term expiring
February 28, 1999. The initial shareholder of the Dynamics, Small Company
Growth, Health Sciences and Technology Funds approved the Agreement on January
31, 1997 for an initial term expiring February 28, 1999^; the initial
shareholder of the Growth Fund approved the Agreement on May 1, 1997, for an
initial term expiring May 1, 1999; and the initial shareholder of the Realty
Fund approved the Agreement on ---------, 199--, for an initial term expiring
- ----------------. Thereafter, the Agreement may be continued from year to year
as to each Fund as long as each such continuance is specifically approved at
least annually by the board of directors of the Company, or by a vote of the
holders of a majority, as defined in the 1940 Act, of the outstanding shares of
the Fund. Any such continuance also must be approved by vote of a majority of
the Independent Directors, cast in person at a meeting called for the purpose of
voting on such continuance. The Agreement may be terminated at any time without
penalty by either party upon sixty (60) days' written notice and terminates
automatically in the event of an assignment to the extent required by the 1940
Act and the rules thereunder. Shareholder approval of any continuance of the
Agreement, or of the sub-advisory agreements discussed below, shall be effective
with respect to any Fund if a majority of the outstanding voting securities of
the series of shares of that Fund vote to approve the continuance,
notwithstanding that the continuance may not have been approved by a majority of
the outstanding voting securities of (i) any other Fund affected by the
Agreement or (ii) all of the Funds.
The Agreement provides that ^ IFG shall manage the investment portfolios
of the Funds in conformity with the Funds' investment objectives and policies
(either directly or by delegation to a sub-adviser, which may be a party
affiliated with ^ IFG). Further, ^ IFG shall perform all administrative,
internal accounting (including computation of net asset value), clerical,
statistical, secretarial and all other services necessary or incidental to the
administration of the affairs of the Funds excluding, however, those services
that are the subject of separate agreement between the Company and ^ IFG or any
affiliate thereof, including the distribution and sale of Fund shares and
provision of transfer agency, dividend disbursing agency, and registrar
services, and services furnished under an Administrative Services Agreement with
^ IFG discussed below. Services provided under the Agreement include, but are
not limited to: supplying the Company with officers, clerical staff and other
employees, if any, who are necessary in connection with the Funds' operations;
furnishing office space, facilities, equipment, and supplies; providing
personnel and facilities required to respond to inquiries related to shareholder
accounts; conducting periodic compliance reviews of the Funds' operations;
preparation and review of required documents, reports and filings by ^ IFG's
in-house legal and accounting staff (including the ^ Prospectuses, Statement of
Additional Information, proxy statements, shareholder reports, tax returns,
reports to the SEC, and other corporate documents of the Funds), except insofar
as the assistance of independent accountants or attorneys is necessary or
desirable; supplying basic telephone service and other utilities; and preparing
<PAGE>
and maintaining certain of the books and records required to be prepared
and maintained by the Funds under the 1940 Act. Expenses not assumed by ^ IFG
are borne by the Funds.
As full compensation for its advisory services to the Company, ^ IFG
receives a monthly fee. The fee is based upon a percentage of each Fund's
average net assets determined daily. For the Industrial Income and Total Return
Funds, the advisory fees are each computed at the annual rates of 0.75% of the
first $500 million of the Fund's average net assets; 0.65% of the next $500
million of the Fund's average net assets; and 0.55% of the Fund's average net
assets in excess of $1 billion. For the High Yield and Utilities Funds, the
advisory fees are each computed at the annual rates of 0.60% of the first $500
million of the Fund's average net assets, 0.55% of the next $500 million of the
Fund's average net assets and 0.45% of the Fund's average net assets in excess
of $1 billion. For the Small Company Growth, Health Sciences and Technology
Funds, the advisory fees are each computed at the rates of 0.75% on the first
$350 million of the Fund's average net assets; 0.65% on the next $350 million of
the Fund's average net assets; and 0.55% on the Fund's average net assets in
excess of $700 million. For the Dynamics Fund, the advisory fees are computed at
the annual rates of 0.60% on the first $350 million of the Fund's average net
assets; 0.55% on the next $350 million; and 0.50% on the Fund's average net
assets in excess of $700 million. For the Growth Fund, the advisory fees are
computed at the annual rate of 0.85% of the Fund's average net assets. For the
Realty Fund, the advisory fees are [1.10%] of the Fund's average net assets up
to $500 million, [0.90%] on the next $500 million, and [0.75%] of the Fund's net
assets in excess of $1 billion.
Any amendment of the Agreement requires approval of a majority of the
Company's board of directors, including a majority of the Independent Directors,
by votes cast in person at a meeting called for such purpose and (other than
amendments that can become effective without shareholder approval under
applicable law) also requires approval of a majority of the outstanding voting
securities of any Fund affected by such amendment.
Sub-Advisory Agreements
Pursuant to sub-advisory agreements with IFG (the "Sub-Agreements"), ICM
serves as sub-adviser to the Total Return Fund ^, IRAI serves as sub-advisory ^
to the Realty Fund and INVESCO Trust serves as sub-adviser to the other Funds ^.
The Sub-Agreements initially with ICM and INVESCO Trust were approved by the
board of directors on November 6, 1996, and the Sub-Agreement with IRAI was
initially approved by the board of directors on -----------------, in each case
by a vote cast in person by a majority of the Independent Directors at a meeting
called for such purpose. Shareholders of the Industrial Income, Total Return,
High Yield and Utilities Funds approved the applicable INVESCO Trust Agreement
on January 31, 1997. The initial shareholder of the Dynamics, Small Company,
Growth, Health Sciences and Technology Funds approved the INVESCO Trust
Agreement, on December 9, 1996, for an initial term expiring December 9, 1999,
and the initial shareholder of the Growth Fund approved the INVESCO Trust
Agreement on May 1, 1997, for an initial term expiring May 1, 1999. The initial
shareholder of the Realty Fund approved the Sub-Agreement with IRAI on
- ------------ for an initial term expiring -----------. Thereafter, each
Sub-Agreement may be continued from year to year as to a particular Fund as long
as each such continuance is specifically approved at least annually by the board
<PAGE>
of directors of the Company, or by a vote of the holders of a majority, as
defined in the 1940 Act, of the outstanding shares of that Fund. Each such
continuance also must be approved by a majority of the Independent Directors,
cast in person at a meeting called for the purpose of voting on such
continuance. Each Sub-Agreement may be terminated at any time without penalty by
either party or the Company upon sixty (60) days' written notice, and terminates
automatically in the event of an assignment to the extent required by the 1940
Act and the rules thereunder.
The Sub-Agreements provide that, subject to the supervision of INVESCO,
ICM shall manage the investment portfolio of the Total Return Fund, IRAI shall
manage the investment portfolio of the Realty Fund and INVESCO Trust shall
manage the investment portfolio of the other Funds, in conformity with the
respective Funds' investment objectives and policies. In each case, these
management services would include: (a) managing the investment and reinvestment
of all the assets, now or hereafter acquired, of the Fund, and executing all
purchases and sales of portfolio securities; (b) maintaining a continuous
investment program for the Fund, consistent with (i) the Fund's investment
objective and policies as set forth in the Company's Articles of Incorporation,
Bylaws, and Registration Statement, as from time to time amended, under the 1940
Act, and in any prospectus and/or statement of additional information of the
Company, as from time to time amended and in use under the 1933 Act, and (ii)
the Company's status as a regulated investment company under the Internal
Revenue Code of 1986, as amended; (c) determining what securities are to be
purchased or sold for the Fund, unless otherwise directed by the directors of
the Company or ^ IFG, and executing transactions accordingly; (d) providing the
Fund the benefit of all of the investment analysis and research, the reviews of
current economic conditions and trends, and the consideration of long-range
investment policy now or hereafter generally available to investment advisory
customers of the Fund's sub-adviser; (e) determining what portion of the Fund
should be invested in the various types of securities authorized for purchase by
that Fund; and (f) making recommendations as to the manner in which voting
rights, rights to consent to Company action and any other rights pertaining to
the portfolio securities of the Fund shall be exercised.
Any amendment of a Sub-Agreement, in order to be applicable to a Fund,
requires approval of a majority of the Company's board of directors, including a
majority of the Independent Directors, by votes cast in person at a meeting
called for such purpose and (other than amendments that can become effective
without shareholder approval under applicable law) also requires approval of a
majority of the outstanding voting securities of that Fund.
The INVESCO Trust Sub-Agreement provides that as compensation for its
services, INVESCO Trust shall receive from ^ IFG, at the end of each month, a
fee based upon the average daily value of the net assets of each Fund managed.
The sub-advisory fee for the Industrial Income Fund is computed at the annual
rates of 0.375% on the first $500 million of the Fund's average net assets;
0.325% on the next $500 million of the Fund's average net assets; and 0.275% on
the Fund's average net assets in excess of $1 billion. The sub-advisory fees for
the High Yield and Utilities Funds are each computed at the annual rates of
0.30% on the first $500 million of the Fund's average net assets; 0.275% on the
next $500 million of the Fund's average net assets and 0.225% on the Fund's
average net assets in excess of $1 billion. The sub-advisory fees for the
Dynamics, Small Company Growth, Health Sciences and Technology Funds are each
<PAGE>
computed at the annual rates of 0.25% for the first $200 million of the
Fund's average net assets and 0.20% on the Fund's average net assets in excess
of $200 million. The sub-advisory fee for the Growth Fund is computed at the
annual rate of 0.25% of the Fund's average net assets.
The ICM Sub-Agreement provides that as compensation for its services, ICM
shall receive from ^ IFG, at the end of each month, a fee based upon the average
daily value of the Total Return Fund's net assets at the following annual rates:
0.375% on the Fund's average net assets up to $500 million; 0.325% on the Fund's
average net assets in excess of $500 million but not more than $1 billion; and
0.275% on the Fund's average net assets in excess of $1 billion.
The IRAI Sub-Agreement provides that as compensation for its servicing
IRAI shall receive from IFG, at the end of each month, a fee based upon the
average daily value of the Realty Fund's net assets at the following annual
rates: 0.30% on the first $500 million of the Fund's average net assets, 0.25%
on the next $500 million of the Fund's average net assets and 0.2167% on the
Fund's average net assets in excess of $1 billion.
Each sub-advisory fee is paid by ^ IFG, NOT the Funds.
Administrative Services Agreement
^ IFG, either directly or through affiliated companies, provides certain
administrative, sub-accounting, and record keeping services to the Company
pursuant to an Administrative Services Agreement dated February 28, 1997 (the
"Administrative Agreement"). The Administrative Agreement was approved on
November 6, 1996, by all of the directors of the Company, including all of the
Independent Directors, by votes cast at a meeting called for such purpose. The
Administrative ^ Agreement was for an initial term expiring February 28, ^ 1998
and has been extended by action of the board of directors of the Company until
May 15, 1998. The Administrative Agreement may be continued from year to year
thereafter as long as each such continuance is specifically approved by the
board of directors of the Company, including a majority of the directors, cast
in person at a meeting called for the purpose of voting on such continuance. The
Administrative Agreement may be terminated at any time without penalty by ^ IFG
on sixty (60) days' written notice, or by the Company upon thirty (30) days'
written notice, and terminates automatically in the event of an assignment
unless the Company's board of directors approves such assignment.
The Administrative Agreement provides that ^ IFG shall provide the
following services to the Funds: (a) such accounting and record keeping services
and functions as are reasonably necessary for the operation of the Funds; and
(b) such accounting, record keeping, and administrative services and functions,
which may be provided by affiliates of ^ IFG, as are reasonably necessary for
the operation of Fund shareholder accounts. As full compensation for services
provided under the Administrative Agreement, each Fund pays a monthly fee to ^
IFG consisting of a base fee of $10,000 per year, plus an additional incremental
fee computed daily and paid monthly at an annual rate of 0.015% per year of the
average net assets of the Fund.
<PAGE>
For the fiscal years ended December 31, 1996 and 1995 and the fiscal
period ended December 31, 1994, prior to the voluntary absorption of certain
Fund expenses by ^ IFG, the Funds paid ^ IFG advisory fees and administrative
services fees in the following amounts:
<TABLE>
<CAPTION>
Year Ended Year Ended Period Ended
December 31, 1996 December 31, 1995 December 31, 1994
----------------------- ----------------------- -----------------------
Adminis- Adminis- Adminis-
trative trative trative
Advisory Services Advisory Services Advisory Services
Fees Fees Fees Fees Fees Fees
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Industrial Income Fund $105,932 $12,119 $27,073 $10,541 $848 $10,017
Total Return Fund $77,890 $11,558 $24,649 $10,493 $1,753 $10,035
High Yield Fund $50,693 $11,267 $16,298 $10,407 $735 $10,018
Utilities Fund $5,716 $10,143 $467 $10,011 $0(1) $0(1)
Dynamics ^ Fund(3) $0 $0 $0 $0 $0 $0
Health Sciences Fund(2) $0 $0 $0 $0 $0 $0
Small Company Growth ^ Fund(3) $0 $0 $0 $0 $0 $0
Technology Fund(2) $0 $0 $0 $0 $0 $0
Growth ^ Fund(3) $0 $0 $0 $0 $0 $0
Realty Fund (4) $0 $0 $0 $0 $0 $0
<PAGE>
(1) The Utilities Fund did not commence operations until January 1, 1995.
(2) The ^ Health Sciences^ and Technology Funds did not commence operations
until May 1997.
(3) The Dynamics, Small Company Growth and Growth Funds did not commence
operations until August 27, 1997.
(4) The Realty Fund had not commenced operations as of the date of this
Statement of Additional Information.
</TABLE>
<PAGE>
Transfer Agency Agreement
^ IFG also performs transfer agent, dividend disbursing agent, and
registrar services for the Company pursuant to a Transfer Agency Agreement which
was approved by the board of directors of the Company, including a majority of
the Independent Directors, on November 6, 1996, for an initial term expiring
February 28, 1998 and has been extended by action of the board of directors
until May 15, 1998. The Transfer Agency Agreement may be continued thereafter
from year to year as to each Fund as long as such continuance is specifically
approved at least annually by the board of directors of the Company, or by a
vote of the holders of a majority of the outstanding shares of the Fund. Any
such continuance also must be approved by a majority of the Independent
Directors by votes cast in person at a meeting called for the purpose of voting
on such continuance. The Transfer Agency Agreement may be terminated at any time
without penalty by either party upon sixty (60) days' written notice and
terminates automatically in the event of assignment.
The Transfer Agency Agreement provides that the Company shall pay to
INVESCO an annual fee of $5,000 per Fund. This fee is paid monthly at 1/12 of
the annual fee.
Officers and Directors of the Company
The overall direction and supervision of the Company is the responsibility
of the board of directors, which has the primary duty of seeing that the
Company's general investment policies and programs are carried out and that the
Funds are properly adminis tered. The officers of the Company, all of whom are
officers and employees of, and are paid by, ^ IFG, are responsible for the
day-to-day administration of the Company and each of the Funds. ^ IFG (along
with ICM in the case of the Total Return Fund ^, IRAI in the case of the Realty
Fund and INVESCO Trust in the case of the other Funds) has the primary
responsibility for making investment decisions on behalf of the Funds. These
investment decisions are reviewed by the investment committee of ^ IFG.
All of the officers and directors of the Company hold comparable positions
with INVESCO Capital Appreciation Funds, Inc. (formerly, INVESCO Dynamics Fund),
INVESCO Diversified Funds, Inc.^, INVESCO Emerging Opportunity Funds, Inc.,
INVESCO Growth Fund, Inc., INVESCO Income Funds, Inc., INVESCO Industrial Income
Fund, Inc., INVESCO International Funds, Inc., INVESCO Money Market Funds, Inc.,
INVESCO Multiple Asset Funds, Inc., INVESCO Specialty Funds, Inc., INVESCO
Strategic Portfolios, Inc., and INVESCO Tax-Free Income Funds, Inc. All of the
directors of the Company also serve as trustees of INVESCO Value Trust. In
addition, all of the directors of the Company ^, with the exception of Mr.
Hesser, also are trustees of INVESCO Treasurer's Series Trust. All of the
officers of the Fund also hold comparable positions with INVESCO Value Trust.
Set forth below is information with respect to each of the Company's officers
and directors. Unless otherwise indicated, the address of the directors and
officers is Post Office Box 173706, Denver, Colorado 80217-3706. Their
affiliations represent their principal occupations during the past five years.
<PAGE>
CHARLES W. BRADY,*+ Chairman of the Board. Chief Executive Officer and
Director of ^ AMVESCAP PLC, London, England, and of various subsidiaries
thereof^; Chairman of the Board of INVESCO ^ Treasurer's Series Trust ^.
Address: 1315 Peachtree Street, NE, Atlanta, Georgia. Born: May 11, 1935.
FRED A. DEERING,+# Vice Chairman of the Board. Vice Chairman of ^ INVESCO
Treasurer's Series Trust. Trustee of ^ INVESCO Global Health Sciences Fund.
Formerly, Chairman of the Executive Committee and Chairman of the Board of
Security Life of Denver Insurance Company, Denver, Colorado; Director of ING ^
America Life Insurance Company ^, Urbaine Life Insurance Company and Midwestern
United Life Insurance Company. Address: Security Life Center, 1290 Broadway,
Denver, Colorado. Born: January 12, 1928.
DAN J. HESSER,+* President, CEO and Director. Chairman of the Board,
President, and Chief Executive Officer of INVESCO Funds Group, Inc. and INVESCO
Distributors, Inc.; President and Director of INVESCO Trust Company. President
and Chief Operating Officer of INVESCO Global Health Sciences Fund. Born:
December 27, 1939.
VICTOR L. ANDREWS,** Director. Professor Emeritus, Chairman Emeritus and
Chairman of the CFO Roundtable of the Department of Finance ^ at Georgia State
University, Atlanta, Georgia; President, Andrews Financial Associates, Inc.
(consulting firm); since October 1984, Director of the Center for the Study of
Regulated Industry ^ of Georgia State University; formerly, member of the
faculties of the Harvard Business School and the Sloan School of Management of
MIT. Dr. Andrews is also a ^ director of ^ the Southeastern Thrift and Bank
Fund, Inc. and The Sheffield Funds, Inc. Address: 4625 Jettridge Drive, Atlanta,
Georgia. Born: June 23, 1930.
BOB R. BAKER,+** Director. President and Chief Executive Officer of AMC
Cancer Research Center, Denver, Colorado, since January 1989; until mid-December
1988, Vice Chairman of the Board of First Columbia Financial Corporation (a
financial institution), Englewood, Colorado. Formerly, Chairman of the Board and
Chief Executive Officer of First Columbia Financial Corporation. Address: 1775
Sherman Street, #1000, Denver, Colorado. Born: August 7, 1936.
LAWRENCE H. BUDNER,# Director. Trust Consultant; prior to June 30, 1987,
Senior Vice President and Senior Trust Officer of InterFirst Bank, Dallas,
Texas. Address: 7608 Glen Albens Circle, Dallas, Texas. Born: July 25, 1930.
DANIEL D. CHABRIS,+# Director. Financial Consultant; Assistant Treasurer of
Colt Industries Inc., New York, New York, from 1966 to 1988. ^ Address: 19
Kingsbridge Way, Madison, Connecticut. Born: August 1, 1923.
WENDY L. GRAMM, Ph.D.,** Director. Self-employed (since 1993); Professor of
Economics and Public Administration, University of Texas at Arlington. Formerly,
Chairman, Commodity Futures Trading Commission from 1988 to 1993, administrator
for Information and Regulatory Affairs at the Office of Management and Budget
from 1985 to 1988, Executive Director of the Presidential Task Force on
Regulatory Relief and Director of the Federal Trade Commission's Bureau of
Economics. Dr. Gramm is also a director of the Chicago Mercantile Exchange,
Enron Corporation, IBP, Inc., State Farm Insurance Company, State Farm Life
Insurance Company, Independant Women's Forum, International Republic Institute,
<PAGE>
and the Republican Women's Federal Forum. Dr. Gramm is also a member of the
Board of Visitors, College of Business Administration, University of Iowa, and a
member of the Board of Visitors, Center for Study of Public Choice, George Mason
University. Address: 4201 Yuma Street, N.W., Washington, D.C. Born: January 10,
1945.
HUBERT L. HARRIS, JR.,* Director. Chairman (since 1996) and President
(January 1990 to May 1996) of INVESCO Services, Inc.; ^ Chief Executive Officer
of INVESCO ^ Individual Services Group. Member of the Executive Committee of the
Alumni Board of Trustees of Georgia Institute of Technology. Address: 1315
Peachtree Street, NE, Atlanta, Georgia. Born: July 15, 1943.
^ KENNETH T. KING,# Director. Formerly, Chairman of the Board of The
Capitol Life Insurance Company, Providence Washington Insurance Company, and
Director of numerous subsidiaries thereof in the U.S. Formerly, Chairman of the
Board of The Providence Capitol Companies in the United Kingdom and Guernsey.
Chairman of the Board of the Symbion Corporation (a high technology company)
until 1987. Address: 4080 North Circulo Manzanillo, Tucson, Arizona. Born:
November 16, 1925.
JOHN W. ^ MCINTYRE,# Director. Retired. Formerly, Vice Chairman of the
Board of Directors of The Citizens and Southern Corporation and Chairman of the
Board and Chief Executive Officer of The Citizens and Southern Georgia Corp. and
Citizens and Southern National Bank. Director of Golden Poultry Co., Inc.
Trustee of ^ INVESCO Global Health Sciences Fund and Gables Residential Trust.
Address: 7 Piedmont Center, Suite 100, Atlanta, ^ GA. Born: September 14, 1930.
LARRY SOLL, Ph.D.,** Director. Retired. Formerly, Chairman of the Board
(1987 to 1994), Chief Executive Officer (1982 to 1989 and 1993 to 1994) and
President (1982 to 1989) of Synergen Corp. Director of Synergen since its
incorporation in 1982. Director of ISI Pharmaceuticals, Inc. Trustee of INVESCO
Global Health Sciences Fund. Address: 345 Poorman Road, Boulder, Colorado. Born:
April 26, 1942.
GLEN A. PAYNE, Secretary. Senior Vice President (since 1995), General
Counsel and Secretary of INVESCO Funds Group, Inc. and INVESCO Trust Company
(since 1989) and INVESCO Distributors, Inc. (since 1997); Vice President (May ^
1989 to April 1995), Secretary and General Counsel of INVESCO Funds Group, Inc.
^; formerly, employee of a U.S. regulatory agency, Washington, D.C.^ (June 1973
through May 1989). Born: September 25, 1947.
RONALD L. GROOMS, Treasurer. Senior Vice President and Treasurer of INVESCO
Funds Group, Inc. and INVESCO Trust Company ^(since 1988). Senior Vice President
and Treasurer of INVESCO Distributors, Inc. (since 1997). Born: October 1, 1946.
WILLIAM J. GALVIN, JR., Assistant Secretary. Senior Vice President of
INVESCO Funds Group, Inc. (since 1995) and of INVESCO Distributors, Inc. (since
1997) and Trust Officer of INVESCO Trust Company since July 1995 and formerly
(August 1992 to July 1995) Vice President of INVESCO Funds Group, Inc. and trust
<PAGE>
officer of INVESCO Trust Company. Formerly, Vice President of 440 Financial
Group from June 1990 to August 1992 ^ and Assistant Vice President of Putnam
Companies from November 1986 to June 1990. Born: August 21, 1956.
ALAN I. WATSON, Assistant Secretary. Vice President of INVESCO Funds Group,
Inc. (since 1984) and Trust Officer of INVESCO Trust Company. Born: September
14, 1941.
JUDY P. WIESE, Assistant Treasurer. Vice President of INVESCO Funds Group,
Inc. (since 1984) and of INVESCO Distributors, Inc. (since 1997) and Trust
Officer of INVESCO Trust Company. Born: February 3, 1948.
#Member of the audit committee of the Company's board of directors.
+Member of the executive committee of the Company's board of directors. On
occasion, the executive committee acts upon the current and ordinary business of
the Company between meetings of the board of directors. Except for certain
powers which, under applicable law, may only be exercised by the full board of
directors, the executive committee may exercise all powers and authority of the
board of directors in the management of the business of the Company. All
decisions are subsequently submitted for ratification by the board of Directors.
*These directors are "interested persons" of the Company as defined in the
Investment Company Act of 1940.
**Member of the management liaison committee of the Company's board of
directors.
As of ^ November 17, 1997, officers and directors of the Company, as a
group, beneficially owned 0% of each Fund's outstanding shares.
Director Compensation
The following table sets forth, for the fiscal period ended December 31,
1996: the compensation paid by the Company to its eight independent directors
for services rendered in their capacities as directors of the Company; the
benefits accrued as Company expenses with respect to the Defined Benefit
Deferred Compensation Plan discussed below; and the estimated annual benefits to
be received by these directors upon retirement as a result of their service to
the Company. In addition, the table sets forth the total compensation paid by
all of the mutual funds distributed by INVESCO ^ Distributors, Inc. (including
the Company), INVESCO Advisor Funds, Inc., INVESCO Treasurer's Series Trust and
The Global Health Sciences Fund (collectively, the "INVESCO Complex") to these
directors for services rendered in their capacities as directors or trustees
during the year ended December 31, 1996. As of December 31, 1996, there were 49
funds in the INVESCO Complex. Dr. Soll became an independent director of the
Company effective May 15, 1997 and is not included in the following chart. Dr.
Gramm became an independent director of the Company effective July 29, 1997 and
is not included in the following chart. Mr. Frazier resigned as a director of
the Company effective February 28, 1997.
<PAGE>
Total
Compensa-
Benefits Estimated tion From
Aggregate Accrued As Annual INVESCO
Compensa- Part of Benefits Complex
Name of Person, tion From Company Upon Paid To
Position Company(1) Expenses(2) Retirement(3) Directors(1)
- -------------- ------------ ---------- ------------- -----------
Fred A.Deering, $ 4,096 $ 83 $ 81 $ 98,850
Vice Chairman of
the Board
Victor L. Andrews 4,089 78 93 84,350
Bob R. Baker 4,091 70 125 84,850
Lawrence H. Budner 4,080 78 93 80,350
Daniel D. Chabris 4,091 89 66 84,850
A. D. Frazier, Jr.(4) 4,057 0 0 81,500
Kenneth T. King 4,051 86 73 71,350
John W. McIntyre 4,078 0 0 90,350
------ --- --- -------
Total $32,633 $484 $531 $676,450
% of Net Assets 0.0621%(5) 0.0009%(5) 0.0044%(6)
(1)The vice chairman of the board, the chairmen of the audit, management
liaison and compensation committees, and the members of the executive and
valuation committees each receive compensation for serving in such capacities in
addition to the compensation paid to all independent directors.
(2)Represents benefits accrued with respect to the Defined Benefit Deferred
Compensation Plan discussed below, and not compensation deferred at the election
of the directors.
(3)These figures represent the Company's share of the estimated annual
benefits payable by the INVESCO Complex (excluding the Global Health Sciences
Fund which does not participate in any retirement plan) upon the ^ directors
retirement, calculated using the current method of allocating director
compensation among the funds in the INVESCO Complex. These estimated benefits
assume retirement at age 72 and that the basic retainer payable to the directors
will be adjusted periodically for inflation, for increases in the number of
funds in the INVESCO Complex, and for other reasons during the period in which
retirement benefits are accrued on behalf of the respective directors. This
results in lower estimated benefits for directors who are closer to retirement
and higher estimated benefits for directors who are further from retirement.
With the exception of Messrs. Frazier and McIntyre, each of these directors has
served as a director/trustee of one or more of the funds in the INVESCO Complex
for the minimum five-year period required to be eligible to participate in the
Defined Benefit Deferred Compensation Plan.
^ (4)Effective February 28, 1997, Mr. Frazier resigned as a ^ director of
the Company. Effective November 1, 1996 Mr. Frazier was employed by ^ INVESCO
<PAGE>
PLC (the predecessor to AMVESCAP PLC), a company affiliated with ^ IFG.and
did not receive any director's fees or other compensation from the Company or
other funds in the INVESCO Complex for his services as a director.
(5)Totals as a percentage of the Company's net assets as of December 31,
1996.
(6)Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1996.
Messrs. Brady and Hesser, as "interested persons" of the Company and the
other funds in the INVESCO Complex, receive compensation as officers or
employees of ^ IFG or its affiliated companies, and do not receive any
director's fees or other compensation from the Company or the other funds in the
INVESCO Complex for their service as directors.
The boards of directors/trustees of the mutual funds managed by ^ IFG and
INVESCO Treasurer's Series Trust have adopted a Defined Benefit Deferred
Compensation Plan for the non-interested directors and trustees of the funds.
Under this plan, each director or trustee who is not an interested person of the
funds (as defined in the 1940 Act) and who has served for at least five years (a
"qualified director") is entitled to receive, upon retiring from the boards at
the mandatory retirement age of 72 (or the retirement age of 73 to 74, if the
retirement date is extended by the boards for one or two years but less than
three years), continuation of payments for one year (the "first year retirement
benefit") of the annual basic retainer payable by the funds to the qualified
director at the time of his retirement (the "basic retainer"). Commencing with
any such director's second year of retirement, and commencing with the first
year of retirement of a director whose retirement has been extended by the board
for three years, a qualified director shall receive quarterly payments at an
annual rate equal to 40% of the basic retainer. These payments will continue for
the remainder of the qualified director's life or ten years, whichever is longer
(the "reduced retainer payments"). If a qualified director dies or becomes
disabled after age 72 and before age 74 while still a director of the funds, the
first year retirement benefit and the reduced retainer payments will be made to
him or to his beneficiary or estate. If a qualified director becomes disabled or
dies either prior to age 72 or during his 74th year while still a director of
the funds, the director will not be entitled to receive the first year
retirement benefit; however, the reduced retainer payments will be made to his
beneficiary or estate. The plan is administered by a committee of three
directors who are also participants in the plan and one director who is not a
plan participant. The cost of the plan will be allocated among the ^ IFG and
Treasurers Series Trust funds in a manner determined to be fair and equitable by
the committee. The Company is not making any payments to directors under the
plan as of the date of this Statement of Additional Information. The Company has
no stock options or other pension or retirement plans for management or other
personnel and pays no salary or compensation to any of its officers.
The Company has an audit committee which is comprised of ^ five of the
directors who are not interested persons of the Company. The committee meets
periodically with the Company's independent accountants and officers to
<PAGE>
review accounting principles used by the Company, the adequacy of internal
controls, the responsibilities and fees of the independent accountants, and
other matters.
The Company also has a management liaison committee which meets quarterly
with various management personnel of ^ IFG in order (a) to facilitate better
understanding of management and operations of the Company, and (b) to review
legal and operational matters which have been assigned to the committee by the
board of direc tors, in furtherance of the board of directors' overall duty of
supervision.
HOW SHARES ARE VALUED
As described in the section of the ^ Prospectuses entitled "Purchases and
Redemptions," the net asset value of shares of each Fund of the Company is
computed once each day that the New York Stock Exchange is open, as of the close
of regular trading on that Exchange (usually 4:00 p.m., New York time) and
applies to purchase and redemption orders received prior to that time. Net asset
value per share is also computed on any other day on which there is a sufficient
degree of trading in the securities held by a Fund that the current net asset
value per share might be materially affected by changes in the value of the
securities held, but only if on that day the Company receives a request to
purchase or redeem shares of that Fund. Net asset value per share is not
calculated on days the New York Stock Exchange is closed, such as federal
holidays including New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
The net asset value per share of each Fund is calculated by dividing the
value of all securities held by the Fund and its other assets (including
dividends and interest accrued but not collect ed), less the Fund's liabilities
(including accrued expenses), by the number of outstanding shares of that Fund.
Securities traded on national securities exchanges, the NASDAQ National Market
System, the NASDAQ Small Cap Market and foreign markets are valued at their last
sale prices on the exchanges or markets where such securities are primarily
traded. Securities traded in the over-the-counter market for which last sale
prices are not available, and listed securities for which no sales are reported
on a particular date, are valued at their highest closing bid prices (or, for
debt securities, yield equivalents thereof) obtained from one or more dealers
making markets for such securities. If market quotations are not readily
available, securities will be valued at fair values as determined in good faith
by the Company's board of directors or pursuant to procedures adopted by the
board of directors. The above procedures may include the use of valuations
furnished by a pricing service which employs a matrix to determine valuations
for normal institutional-size trading units of debt securities. Prior to
utilizing a pricing service, the board of directors of the Company reviews the
methods used by such service to assure itself that securities will be valued at
their fair values. The Company's board of directors also periodically monitors
the methods used by such pricing services. Debt securi ties with remaining
maturities of 60 days or less at the time of purchase are normally valued at
amortized cost.
<PAGE>
The values of securities held by the Funds, and other assets used in
computing net asset value, generally are determined as of the time regular
trading in such securities or assets is completed each day. Because regular
trading in most foreign securities markets is completed simultaneously with, or
prior to, the close of regular trading on the New York Stock Exchange, closing
prices for foreign securities usually are available for purposes of computing
the Funds' net asset values. However, in the event that the closing price of a
foreign security is not available in time to calculate a Fund's net asset value
on a particular day, the Company's board of directors has authorized the use of
the market price for the security obtained from an approved pricing service at
an established time during the day which may be prior to the close of regular
trading in the security. The value of all assets and liabilities initially
expressed in foreign currencies will be converted into U.S. dollars at the spot
rate of such currencies against U.S. dollars provided by an approved pricing
service.
PERFORMANCE
As discussed in the section of the ^ Prospectuses entitled "Performance
Information," average annual total return and/or yield data for each of the
Funds may from time to time be included in advertisements, sales literature or
shareholder reports. All presentations of Fund total return and yield data will
conform to applicable requirements of the Securities and Exchange Commission and
the National Association of Securities Dealers, Inc.
Total Return Calculations
Average annual total return performance for the indicated periods ended
December 31, 1996, for each Fund that had commenced operations by that date were
as follows:
Portfolio 1 Year Life of Fund
- --------- ------ ------------
Industrial Income Portfolio 22.28% 21.46%
Total Return Portfolio 12.18% 13.96%
High Yield Portfolio 16.59% 13.59%
Utilities Portfolio 12.76% 10.90%
(1) The dates on which the Industrial Income Fund, Total Return Fund, High Yield
Fund and Utilities Fund commenced operations were August 10, 1994, June 2, 1994,
May 27, 1994 and January 1, 1995, respectively.
Average annual total return performance for each of the periods indicated
was computed by finding the average annual compounded rates of return that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P(1 + T) exponent n = ERV where:
P = initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
<PAGE>
The average annual total return performance figures shown above were
determined by solving the above formula for "T" for each time period and Fund
indicated.
Yield Calculations
The yields of the Industrial Income Fund, Total Return Fund, High Yield
Fund and Utilities Fund for the month ended December 31, 1996 were 2.38%, 3.20%,
9.70% and 2.87%, respectively. In calculating yield quotations for a Fund,
interest earned is deter mined by computing the yield to maturity (or yield to
call, if applicable) of each obligation held by the Fund, based upon the market
value of each obligation (including actual accrued interest) at the close of
business on the last business day of the month or, with respect to an obligation
purchased during the month, the purchase price plus accrued interest. The
resultant yield to maturity is divided by 360 and multiplied by the market value
of the obligation (including actual accrued interest), and the result is
multiplied by the number of days in the subsequent month that the obligation is
in the Fund (assuming that each month has 30 days). Dividends received on the
stocks held by the Funds are recognized, for purposes of yield calculations, on
a daily accrual basis.
Comparison of Fund Performance
In conjunction with performance reports, comparative data between a Fund's
performance for a given period and other types of investment vehicles may be
provided to prospective investors and shareholders. A Fund's performance is
based upon amounts available for investment under variable annuity or variable
life insurance contracts of Participating Insurance Companies rather than upon
premiums paid for variable annuity or variable life insurance contracts. Thus,
the Fund's total return data does not reflect the impact of sales loads (whether
front-end or deferred) or contract charges deducted from premiums or from the
assets of the Partici pating Insurance Companies' separate accounts that invest
in the Fund. Such sales loads and contract charges may be substantial and may
vary widely among Participating Insurance Companies. Accord ingly, the total
return data for the Funds is most useful for comparison with comparable data for
other investment options under the same variable annuity or variable life
insurance contract.
Comparisons of the Funds' total returns to those of other investment
vehicles are useful in evaluating the historical portfolio management
performance of the Funds' investment adviser and sub-advisers. However, such
comparisons should not be mistaken for comparisons of the returns on a purchase
of a variable annuity or variable life insurance contract of a Participating
Insurance Company and a purchase of another investment vehicle. Owners or
prospective owners of variable annuity contracts of Participating Insurance
Companies should review performance data for the Funds in conjunction with
comparable total return data for the associated variable annuity separate
account to be provided with the Fund data. Owners or prospective owners of
variable life insurance contracts of Participating Insurance Companies should
review the performance data for the Funds in conjunction with data (such as the
data contained in personalized, hypothetical illustrations of variable life
<PAGE>
insurance contracts) that permits an evaluation of the magnitude of
variable life insurance charges and expenses and the life insurance benefits not
reflected in the Funds' total return data.
From time to time, evaluations of performance made by independent sources
may also be used in advertisements, sales literature or shareholder reports,
including reprints of, or selections from, editorials or articles about the
Funds. Sources for Fund performance information and articles about the Funds
include, but are not limited to the following:
American Association of Individual Investors' Journal
Banxquote
Barron's
Business Week
CDA Investment Technologies
CNBC
CNN
Consumer Digest
Financial Times
Financial World
Forbes
Fortune
Ibbotson Associates, Inc.
Institutional Investor
Investment Company Data, Inc.
Investor's Business Daily
Kiplinger's Personal Finance
Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis
Money
Morningstar
Mutual Fund Forecaster
The New York Times
No-Load Analyst
The No-Load Fund Investor
No-Load Fund*X
Personal Investor
Smart Money
United Mutual Fund Selector
USA Today
U.S. News and World Report
Wall Street Journal
Wiesenberger Investment Companies Services
Working Woman
Worth
PORTFOLIO TURNOVER
There are no fixed limitations regarding portfolio turnover for any of the
Funds. Brokerage costs to the Funds are commensu rate with the rate of portfolio
activity. Portfolio turnover rates for the fiscal years ended December 31, 1996
and 1995 and the fiscal period ended December 31, 1994 were as follows:
Fund 1996 1995 1994
---- ---- ---- ----
Industrial Income Fund 93% 97% 0%
Total Return Fund 12% 5% 0%
High Yield Fund 380% 310% 23%
Utilities Fund 48% 24% 0%
<PAGE>
In computing these portfolio turnover rates, all investments with
maturities or expiration dates at the time of acquisition of one year or less
were excluded. Subject to this exclusion, the turnover rate is calculated by
dividing (a) the lesser of purchases or sales of portfolio securities for the
fiscal year by (b) the monthly average of the value of portfolio securities
owned by the Fund during the fiscal year. The primary reason for the increase in
the High Yield Fund's portfolio turnover rate in 1996 was primarily due to a
doubling in size of the Fund and an effort to take advantage of attractive
opportunities in the bond market. The primary reason for the increase in all of
the Funds' portfolio turnover rates in 1995 was the fact that 1995 was the
Funds' first full year of operations.
PORTFOLIO BROKERAGE
Fund Management places orders for the purchase and sale of securities with
brokers and dealers based upon its evaluation of the broker-dealers' financial
responsibility subject to the broker-dealers' ability to effect transactions at
the best available prices. Fund Management evaluates the overall reason ableness
of brokerage commissions paid by reviewing the quality of executions obtained on
each Fund's portfolio transactions, viewed in terms of the size of transactions,
prevailing market conditions in the security purchased or sold, and general
economic and market conditions. In seeking to ensure that the commissions
charged the Funds are consistent with prevailing and reasonable commissions,
Fund Management also endeavors to monitor brokerage industry practices with
regard to the commissions charged by brokers and dealers on transactions
effected for other comparable institutional investors. While Fund Management
seeks reasonably competitive rates, the Funds do not necessarily pay the lowest
commissions or spread available.
Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, Fund Management may select brokers that provide research
services to effect such transactions. Research services consist of statistical
and analytical reports relating to issuers, industries, securities and economic
factors and trends, which may be of assistance or value to Fund Management in
making informed investment decisions. Research services prepared and furnished
by brokers through which the Funds effect securities transactions may be used by
Fund Management in servicing all of their respective accounts and not all such
services may be used by Fund Management in connection with the Funds.
In recognition of the value of the above-described brokerage and research
services provided by certain brokers, Fund Management, consistent with the
standard of seeking to obtain the best execution on portfolio transactions, may
place orders with such brokers for the execution of Fund transactions on which
the commissions are in excess of those which other brokers might have charged
for effecting the same transactions.
Fund transactions may be effected through qualified broker-dealers who
recommend the variable annuity or variable life insurance contracts of
Participating Insurance Companies to their clients, or who act as agent in the
purchase of such contracts for their clients. When a number of brokers and
<PAGE>
dealers can provide comparable best price and execution on a particular
transaction, Fund Management may consider the sale of such contracts by a broker
or dealer in selecting among qualified broker-dealers.
The aggregate dollar amounts of brokerage commissions paid by the Company
for the fiscal years ended December 31, 1996 and 1995 and the fiscal period
ended December 31, 1994 were $283,949, $94,602 and $2,388, respectively. This
increase was primarily due to the increased size of the Funds. On a Fund basis,
the aggregate amount of brokerage commissions paid in 1996 breaks down as
follows: Industrial Income Fund, $151,867; Total Return Fund, $7,686; High Yield
Fund, $114,443; and Utilities Fund, $9,953. for the year ended December 31,
1996, brokers providing research services received $16,378, $0, $0, and $3,274
in commissions on portfolio transactions effected for the Industrial Income
Fund, Total Return Fund, High Yield Fund and Utilities Fund, respectively, on
aggregate portfolio transactions of $11,104,765, $0, $0, and $1,811,519,
respectively. The Company paid $7 in compensation to brokers for the sale of
Participating Life Insurance Company's variable annuity and variable life
insurance contracts utilizing the Funds during the fiscal year ended December
31, 1996.
At December 31, 1996, the Funds then in operation held securities of their
regular brokers or dealers, or their parents, as follows:
Value of Securities
Fund Broker or Dealer at 12/31/96
- ---- ---------------- -------------------
Industrial Income Fund None
Total Return Fund Morgan Stanley Group,
Incorporated 108,537.50
State Street Boston
Corporation 135,450.00
High Yield Fund None
Utilities Fund None
^ None of IFG, INVESCO Trust ^, ICM or IRAI receives any brokerage
commissions on portfolio transactions effected on behalf of any of the Funds,
and there is no affiliation between INVESCO, INVESCO Trust, ICM, IRAI, or any
person affiliated with ^ IFG, INVESCO Trust, ICM, IRAI, or the Company and any
broker or dealer that executes transactions for the Funds.
REDEMPTIONS
It is possible that in the future conditions may exist which would, in the
opinion of ^ IFG, make it undesirable for one or more of the Funds to pay for
redeemed shares in cash. In such cases, ^ IFG may authorize payment to be made
in portfolio securities or other property of the Fund. However, the Company is
obligated under the Investment Company Act of 1940 to redeem for cash all shares
of a Fund presented for redemption by any one shareholder having a value up to
$250,000 (or 1% of the applicable Fund's net assets if that is less) in any
90-day period. Securities delivered in payment of redemptions are selected
<PAGE>
entirely by Fund Management based on what is in the best interests of the
Company and its shareholders, and are valued at the value assigned to them in
computing the Fund's net asset value per share. Shareholders receiving such
securities are likely to incur brokerage costs on their subsequent sales of the
securities.
<PAGE>
ADDITIONAL INFORMATION
Common Stock
The Company was incorporated under the laws of the state of Maryland on
August 19, 1993. The authorized capital stock of the Company consists of ^
1,000,000,000 shares of common stock, par value of $0.01 per share. The shares
of common stock are currently divided into ^ ten classes (or series), INVESCO
VIF - ^ Dynamics Portfolio common stock, INVESCO VIF - ^ Growth Portfolio common
stock, INVESCO VIF - Health Sciences Portfolio common stock, INVESCO VIF - High
Yield Portfolio common stock, INVESCO VIF -^ Industrial Income Portfolio common
stock, INVESCO VIF - ^ Realty Portfolio common stock, INVESCO VIF - Small
Company Growth Portfolio common stock, INVESCO VIF - ^ Total Return Portfolio
common stock, INVESCO VIF - Technology Portfolio common stock and INVESCO VIF -
^ Utilities Portfolio common stock. As of ^ October 31, ^ 1997, 2,021,012 shares
of the Industrial Income Fund, ^ 1,284,823 shares of the Total Return Fund, ^
1,780,127 shares of the High Yield Fund, ^ 292,288 shares of the Utilities Fund,
^ 33,579 shares of the Technology Fund, ^ 25,100 shares of the Small Company
Growth Fund, ^ 43,667 shares of the Health Sciences Fund, ^ 25,100 shares of the
Dynamics Fund ^, 25,100 shares of the Growth Fund and -0- shares of the Realty
Fund were outstanding. Each class consists of 100 million shares. The Company
reserves the right to issue additional classes of shares without the consent of
share holders. All shares issued and outstanding are, and all shares offered
hereby, when issued, will be, fully paid and nonassessable.
Shares of each class represent the interests of the sharehold ers of that
class in a particular portfolio of investments of the Company. Each class of the
Company's shares is preferred over all other classes with respect to the assets
specifically allocated to that class, and all income, earnings, profits and
proceeds from those assets, subject only to the rights of creditors, are
allocated to shares of that class. The assets of each class are segregated on
the books of account and are charged with the liabilities of that class and with
a share of the Company's general liabilities. The board of directors determines
those assets and liabilities deemed to be general assets or liabilities of the
Company and those items are allocated among classes in a manner deemed by the
board to be fair and equitable. Generally, such allocation will be made based
upon the relative total net assets of each class. In the unlikely event that a
liability allocable to one class exceeds the assets belonging to the class, all
or a portion of such liability may have to be borne by the holders of shares of
the Company's other classes.
All dividends on shares of a particular class shall be paid only out of
the income belonging to that class, pro rata to the holders of that class. In
the event of the liquidation or dissolution of the Company or of a particular
class, the sharehold ers of each class that is being liquidated shall be
entitled to receive, as a class, when and as declared by the board of direc
tors, the excess of the assets belonging to that class over the liabilities
belonging to that class. The holders of shares of any class shall not be
<PAGE>
entitled to any distribution upon liquidation of any other class. The assets so
distributable to the shareholders of any particular class shall be distributed
among those sharehold ers in proportion to the number of shares of that class
held by them and recorded on the books of the Company.
All Fund shares, regardless of class, have equal voting rights. Voting
with respect to certain matters, such as ratifica tion of independent
accountants or election of directors, will be by all classes of the Company.
When not all classes are affected by a matter to be voted upon, such as approval
of an investment advisory contract or changes in a Fund's investment policies,
only shareholders of the class affected by the matter will be entitled to vote.
Company shares have noncumulative voting rights, which means that the holders of
a majority of the shares voting for the election of directors of the Company can
elect 100% of the directors if they choose to do so. In such event, the holders
of the remaining shares voting for the election of directors will not be able to
elect any person or persons to the board of directors. After they have been
elected by shareholders, the directors will continue to serve until their
successors are elected and have qualified or they are removed from office, in
either case by a shareholder vote, or until death, resignation, or retirement.
Directors may appoint their own successors, provided that always at least a
majority of the directors have been elected by the Company's shareholders. It is
the intention of the Company not to hold annual meetings of shareholders. The
directors may call annual or special meetings of shareholders for action by
sharehold er vote as may be required by the 1940 Act or the Company's Articles
of Incorporation, or at their discretion.
Principal Shareholders
As of ^ November 1, 1997, the following persons held more than 5% of the
Funds' outstanding equity securities.
<PAGE>
Amount and Nature
Name and Address of Ownership Percent of Class
- ---------------- ----------------- ----------------
Industrial Income Fund
^ Great West Life & Annuity 851,386.0150 42.127%
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
Security Life 405,312.8410 20.055
Separate Account A1 Record
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
Security Life ^ 290,444.7710 14.371%
Separate Account L1 Record
Attn: Debra Bechtel
Unit Valuations 272
8515 E. Orchard Road
Englewood, CO 80111
^
Separate Account VA-5 of ^ 267,254.5860 13.224%
Transamerica Occidental Record
Life Insurance Company
Variable Annuity Dept B-100
1150 S. Olive
Los Angeles, CA 90015
^ Total Return Fund
^ Great West Life & Annuity 656,666.3350 51.109%
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
<PAGE>
Security Life ^ 303,352.5260 23.610%
Separate Account A1 Record
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
Security Life 162,461.0920 12.645%
Separate Account L1 Record
Attn: Debra Bachtel
Unit Valuations 2T2
8515 E. Orchard Rd.
Englewood, CO 80111
^ Separate Account VA-5 of 122,126.1830 9.505%
Transamerica Occidental
Life Insurance Company
Variable Annuity Dept. D-100
1150 S. Olive
Los Angeles, CA 90015
High Yield Fund
Great-West Life & Annuity 820,305.5670 46.081%
Unit Valuations 2T2 Record
8515 E. Orchard Road
Englewood, CO 80111
Security Life 382,991.4240 21.515%
Separate Account A1 Record
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
Security Life 339,120.4550 19.050%
Separate Account L1 Record
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
Separate Account VA-5 of ^ 176,145.3950 9.895%
Transamerica Occidental Record
Life Insurance Company
Variable Annuity Dept B-100
1150 S. Olive
Los Angeles, CA 90015
<PAGE>
Utilities Fund
Security Life ^ 222,889.7100 76.257%
Separate Account A1 Record
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
Security Life 65,076.4970 22.264% ^
Separate Account L1 Record
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
Independent Accountants
Price Waterhouse LLP, 950 Seventeenth Street, Denver, Colorado, has been
selected as the independent accountants of the Company. The independent
accountants are responsible for auditing the financial statements of the
Company.
Custodian
State Street Bank and Trust Company, P.O. Box 351, Boston, Massachusetts,
has been designated as custodian of the cash and investment securities of the
Funds. The custodian bank is also responsible for, among other things, receipt
and delivery of the Funds' investment securities in accordance with procedures
and conditions specified in the custody agreement.
Transfer Agent
INVESCO, 7800 E. Union Avenue, Denver, Colorado 80237, acts as registrar,
dividend disbursing agent, and transfer agent for the Company pursuant to the
Transfer Agency Agreement described above under the caption, ^"Fund Management."
Such services include the issuance, cancellation and transfer of shares of the
Company and the maintenance of records regarding the ownership of such shares.
Reports to Shareholders
The Company's fiscal year ends on December 31 of each year. The Company
distributes reports at least semiannually to its shareholders. Financial
statements regarding the Company, audited by the independent accountants, are
sent to shareholders annually.
<PAGE>
Legal Counsel
The firm of Kirkpatrick & Lockhart LLP, Washington, D.C., is legal counsel
for the Company. The firm of Moye, Giles, O'Keefe, Vermeire & Gorrell, Denver,
Colorado, acts as special counsel to the Company.
Financial Statements
The Company's audited financial statements and the notes thereto for the
fiscal year ended December 31, 1996, and the report of Price Waterhouse LLP with
respect to such financial statements, are incorporated herein by reference from
the Company's Annual Report to Shareholders for the fiscal year ended December
31, 1996.
Prospectus
The Company will furnish, without charge, a copy of the appropriate
Prospectus upon request. Such requests should be made to the Company at the
mailing address or telephone number set forth on the first page of this
Statement of Additional Information.
Registration Statement
This Statement of Additional Information and the ^ Prospectuses do not
contain all of the information set forth in the Registration Statement the
Company has filed with the Securities and Exchange Commission. The complete
Registration Statement may be obtained from the Securities and Exchange
Commission upon payment of the fee prescribed by the rules and regulations of
the Commission.
<PAGE>
APPENDIX A
DESCRIPTION OF FUTURES AND OPTIONS CONTRACTS
Options on Securities
An option on a security provides the purchaser, or "holder," with the
right, but not the obligation, to purchase, in the case of a "call" option, or
sell, in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date. The holder
pays a non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs, although the entire amount may be lost.
The risk of the seller, or "writer," however, is potentially unlimited, unless
the option is "covered," which is generally accomplished through the writer's
ownership of the underlying security, in the case of a call option, or the
writer's segregation of an amount of cash or securities equal to the exercise
price, in the case of a put option. If the writer's obligation is not so
covered, it is subject to the risk of the full change in value of the underlying
security from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price, in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities are traded on national securities exchanges, such as
the Chicago Board of Options Exchange and the New York Stock Exchange, which are
regulated by the Securities and Exchange Commission. The Options Clearing
Corporation ("OCC") guarantees the performance of each party to an
exchange-traded option, by in effect taking the opposite side of each such
option. A holder or writer may engage in transactions in exchange-traded options
on securities and options on indices of securities only through a registered
broker/dealer which is a member of the exchange on which the option is traded.
An option position in an exchange-traded option may be closed out only on
an exchange which provides a secondary market for an option of the same series.
Although the Funds generally will purchase or write only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option at
any particular time. In such event it might not be possible to effect closing
transactions in a particular option with the result that a Fund would have to
exercise the option in order to realize any profit. This would result in the
Fund incurring brokerage commissions upon the disposition of underlying
securities acquired through the exercise of a call option or upon the purchase
<PAGE>
of underlying securities upon the exercise of a put option. If the Fund, as
a covered call option writer, is unable to effect a closing purchase transaction
in a secondary market, unless the Fund is required to deliver the securities
pursuant to the assignment of an exercise notice, it will not be able to sell
the underlying security until the option expires.
Reasons for the potential absence of a liquid secondary market on an
exchange include the following: (i) there may be insuffi cient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transac tions or both; (iii) trading halts, suspensions
or other restric tions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or a clearing corporation may not at all times be adequate to
handle current trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or particular class or series of options) in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange which had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at a particular time, render certain of the facilities of any of the
clearing corporations inadequate and thereby result in the institution by an
exchange of special procedures which may interfere with the timely execution of
customers' orders. However, the OCC, based on forecasts provided by the U.S.
exchanges, believes that its facilities are adequate to handle the volume of
reasonably anticipated options transactions, and such exchanges have advised
such clearing corporation that they believe their facilities will also be
adequate to handle reasonably anticipated volume.
In addition, options on securities may be traded over-the-counter ("OTC")
through financial institutions dealing in such options as well as the underlying
instruments. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with the
Company on behalf of a Fund. With OTC options, such variables as expiration
date, exercise price and premium will be agreed upon between the Fund and the
transacting dealer, without the intermedi ation of a third party such as the
OCC. If the transacting dealer fails to make or take delivery of the securities
underlying an option it has written, in accordance with the terms of that option
as written, the Fund would lose the premium paid for the option as well as any
anticipated benefit of the transaction. The Fund will engage in OTC option
transactions only with primary U.S. government securities dealers recognized by
the Federal Reserve Bank of New York.
Futures Contracts
A futures contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future, for a fixed price. By its terms, a futures contract provides
<PAGE>
for a specified settlement date on which, in the case of the majority of
interest rate and foreign currency futures contracts, the fixed income
securities or currency underlying the contract are delivered by the seller and
paid for by the purchaser, or on which, in the case of stock index futures
contracts and certain interest rate and foreign currency futures contracts, the
difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and seller in cash.
Futures Contracts differ from options in that they are bilateral agree ments,
with both the purchaser and the seller equally obligated to complete the
transaction. In addition, futures contracts call for settlement only on the
expiration date, and cannot be "exercised" at any other time during their term.
The purchase or sale of a futures contract also differs from the purchase
or sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalents, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin." Subsequent payments to and from the broker,
referred to as "variation margin," are made on a daily basis as the value of the
index or instrument underlying the futures contract fluctuates, making positions
in the futures contract more or less valuable, a process known as "marking to
market."
A futures contract may be purchased or sold only on an exchange, known as
a "contract market," designated by the Commodity Futures Trading Commission for
the trading of such contract, and only through a registered futures commission
merchant which is a member of such contract market. A commission must be paid on
each completed purchase and sale transaction. The contract market clearing house
guarantees the performance of each party to a futures contract, by in effect
taking the opposite side of such contract. At any time prior to the expiration
of a futures contract, a trader may elect to close out its position by taking an
opposite position on the contract market on which the position was entered into,
subject to the availability of a secondary market, which will operate to
terminate the initial position. At that time, a final determination of variation
margin is made and any loss experienced by the trader is required to be paid to
the contract market clearing house while any profit due to the trader must be
delivered to it.
Interest rate futures contracts currently are traded on a variety of fixed
income securities, including long-term U.S. Treasury bonds, Treasury notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities, U.S. Treasury bills, bank certificates of deposit and commercial
paper. In addition, interest rate futures contracts include contracts on indices
of municipal securities. Foreign currency futures contracts currently are traded
on the British pound, Canadian dollar, Japanese yen, Swiss franc, West German
mark and on Eurodollar deposits.
Options on Futures Contracts
An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case of
<PAGE>
a call option, or a "short" position in the underlying futures contract, in
the case of a put option, at a fixed exercise price to a stated expiration date.
Upon exercise of the option by the holder, the contract market clearing house
establishes a corresponding short position for the writer of the option, in the
case of a call option, or a corresponding long position, in the case of a put
option. In the event that an option is exercised, the parties will be subject to
all the risks associated with the trading of futures contracts, such as payment
of variation margin deposits. In addition, the writer of an option on a futures
contract, unlike the holder, is subject to initial and variation margin
requirements on the option position.
A position in an option on a futures contract may be terminat ed by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
An option, whether based on a futures contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearing house assigns exercise notices
on a random basis to those of its members which have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers which have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
time of such exercise.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Page in
Prospectus
----------
(1) Financial statements and schedules
included in Prospectus (Part A):
^ None
Page in
Statement
of Addi-
tional In-
formation
-----------
(2) Financial statements and schedules
included in Statement of
Additional Information (Part B):
The following audited financial
statements for INVESCO VIF -
High Yield, INVESCO VIF -
Industrial Income, INVESCO VIF -
Total Return and INVESCO VIF -
Utilities Funds and the notes
thereto for the fiscal year ended
December 31, 1996 and the
report of Price Waterhouse LLP with
respect to such financial
statements are incorporated
in the Statement of Additional
Information by reference from the
Company's Annual Report to
Shareholders for the fiscal
year ended December 31, 1996:
Statement of Investment Securities
as of December 31, 1996;
Statement of Assets and Liabilities
as of December 31, 1996;
Statement of Operations for the
fiscal year ended December 31,
1996; Statement of Changes in Net
Assets for each of the two
years in the period ended
December 31, 1996; Financial
Highlights for the period ended
<PAGE>
December 31, 1994 and each of
the two years in the period ended
December 31, 1996.
(a) (i) With respect to INVESCO
VIF - Health Sciences Fund, an
unaudited Statement of
Investment Securities and
unaudited Statement of Assets
and Liabilities, both dated as
of September 30, 1997, an
unaudited Statement of
Operations and unaudited
Statement of Changes in Net
Assets, both for the period
May 22, 1997 (inception)
through September 30, 1997,
and unaudited Financial
Highlights for the above period.
(ii) With respect to INVESCO
VIF - Technology Fund, an
unaudited Statement of Investment
Securities and unaudited Statement
of Assets and Liabilities, both
dated as of September 30, 1997,
an unaudited Statement
of Operations and unaudited
Statement of Changes in Net
Assets, both for the period
May 21, 1997 (inception)
through September 30, 1997,
and unaudited Financial
Highlights for the above period.
(3) Financial statements and schedules
included in Part C:
None: Schedules have been omitted as all
information has been presented in the finan
cial statements.
(b) Exhibits:
(1) (a) Articles of Incorporation.(2)
(b) Articles of Amendment to
Articles of Incorporation dated
October 21, 1993.(2)
(c) Articles Supplementary to
Articles of Incorporation dated
October 22, 1993.(2)
<PAGE>
(d) Articles Supplementary to
Articles of Incorporation dated
February 11, 1997.(2)
(e) Articles Supplementary to
Articles of Incorporation dated
November 17, 1997.
(2) Bylaws.(3)^
(3) Not applicable.
(4) Not required to be filed on
EDGAR.
(5) (a) Investment Advisory
Agreement, dated February 28, 1997,
between Registrant and INVESCO
Funds Group, Inc.(2)
(i) Form of Amendment to
Investment Advisory Agreement,
dated ---------, 19--, between
Registrant and INVESCO
Funds Group, Inc.
(b) Sub-Advisory Agreement,
dated February 28, 1997, between
INVESCO Funds Group, Inc. and
INVESCO Trust Company.(2)
(c) Sub-Advisory Agreement,
dated February 28, 1997, between
INVESCO Funds Group, Inc. and
INVESCO Capital Management,
Inc.(2)
(d) Sub-Advisory Agreement
between INVESCO Funds Group,
Inc. and INVESCO Trust Company
dated December 9, 1997.(2)
(e) Form of Sub-Advisory
Agreement between INVESCO Funds
Group, Inc. and INVESCO Realty
Advisors, Inc. dated ---------,
19---.
(6) (a) Distribution Agreement,
dated February 28, 1997, between
Registrant and INVESCO Funds
Group, Inc.(2)
<PAGE>
(b) Distribution Agreement,
dated September 30, 1997,
between Registrant and INVESCO
Distributors, ^ Inc.(3)
(7) Defined Benefit Deferred
Compensation Plan for Non-
Interested Directors and
Trustees.(2)
(8) Custodian Contract, dated
October 20, 1993, between
Registrant and State Street Bank
and Trust ^ Company.(3)
(a) Amendment to Custody
Agreement dated October 25,
^ 1995.(3)
(b) Data Access Services
Addendum dated May 19, ^
1997.(3)
(c) Form of Additional Fund
Letter dated --------, 19--.
(9) (a) Transfer Agency Agreement,
dated February 28, 1997,
between Registrant and
INVESCO Funds Group, Inc.(2)
(b) Administrative Service
Agreement, dated February 28,
1997, between Registrant and
INVESCO Funds Group, Inc.(2)
(c) Participation Agreement,
dated March 22, 1994, among
Registrant, INVESCO Funds Group,
Inc., Transamerica Occidental
Life Insurance Company and
Charles Schwab & Co., ^ Inc.
<PAGE>
(d) Participation Agreement,
dated August 26, 1994, among
Registrant, INVESCO Funds Group,
Inc. and Security Life of Denver
Insurance ^ Company.(3)
(e) Participation Agreement,
dated September 19, 1994, among
Registrant, INVESCO Funds Group,
Inc. and First ING Life
Insurance Company of New ^ York.
(f) Participation Agreement,
dated December 1, 1994, among
Registrant, INVESCO Funds Group,
Inc., First Transamerica Life
Insurance Company and Charles
Schwab & Co., ^ Inc.
(g) Participation Agreement,
dated September 14, 1995, among
Registrant, INVESCO Funds Group,
Inc. and Southland Life
Insurance Company.(1)
(h) Participation Agreement,
dated October 31, 1995, among
Registrant, INVESCO Funds Group,
Inc. and American Partners Life
Insurance Company.(1)
(i) Participation Agreement,
dated April 15, 1996, among
Registrant, INVESCO Funds Group,
Inc. and Allmerica Financial
<PAGE>
Life Insurance and Annuity
Company.(2)
(j) Participation
Agreement, dated December
4, 1996, among Registrant,
INVESCO Funds Group, Inc.
and American Centurion Life
Assurance ^ Company.(3)
(k) Participation
Agreement, dated April 15,
1997, among Registrant,
INVESCO Funds Group, Inc.
and Prudential Insurance
Company of ^ America.(3)
(10) Opinion and consent of
counsel as to the legality of the
securities being registered,
indicating whether they will,
when sold, be legally
issued, fully paid and non-^
assessable.(3)
(11) Consent of Independent Accountants.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Not applicable.
(16) (a) Schedule for computation of
performance data for Industrial
Income Fund.(1)
(b) Schedule for computation of
performance data for Total Return
Fund(1)
(c) Schedule for computation of
performance data for High Yield
Fund.(1)
(d) Schedule for computation of
yield data.(1)
<PAGE>
(17) (a) Financial Data Schedule for
the year ended December 31, 1996
for INVESCO VIF-Industrial Income
Portfolio.
(b) Financial Data Schedule for
the year ended December 31, 1996
for INVESCO VIF-Total Return
Portfolio.
(c) Financial Data Schedule for
the year ended December 31, 1996
for INVESCO VIF-High Yield
Portfolio.
(d) Financial Data Schedule
for the year ended December 31,
1995 for INVESCO VIF-Utilities
Portfolio.
(e) Financial Data Schedule
for period from May 22, 1997
(inception) through
September 30, 1997 for
INVESCO VIF-Health Sciences
Portfolio.
(f) Financial Data Schedule
for period from May 21, 1997
(inception) through
September 30, 1997 for
INVESCO VIF-Technology Portfolio.
(18) Not Applicable.
- ------------------
(1)Previously filed on EDGAR with Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on April 11, 1996, and herein incorporated
by reference.
(2)Previously filed on EDGAR with Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on February 14, 1997, and herein
incorporated by reference.
(3)Previously filed with Post-Effective Amendment No. ^ 7 to the
Registrant's Registration Statement on ^ November 12, 1997, and herein
incorporated by reference.
Item 25. Persons Controlled by or Under Common Control with
Registrant
No person is presently controlled by or under common control with
the Company.
<PAGE>
Item 26. Number of Holders of Securities
Number of Record
Holders as of
Title of Class October 31, 1997
-------------- ----------------
INVESCO VIF - Industrial Income Portfolio 15
INVESCO VIF - Total Return Portfolio 10
INVESCO VIF - High Yield Portfolio 8
INVESCO VIF - Utilities Portfolio 5
INVESCO VIF - Health Sciences Portfolio 2
INVESCO VIF - Technology Portfolio 3
INVESCO VIF - Dynamics Portfolio 1
INVESCO VIF - Small Company Growth Portfolio 1
INVESCO VIF - Growth Portfolio 1
Item 27. Indemnification
Indemnification provisions for officers, directors and employees of
Registrant are set forth in Article VII, Section 2 of the Articles of
Incorporation, and are hereby incorporated by reference. See Item 24(b)(1) and
(2) above. Under these Articles, officers and directors will be indemnified to
the fullest extent permitted by law, subject only to such limitations as may be
required by the Investment Company Act of 1940, as amended, and the rules
thereunder. Under the Investment Company Act of 1940, the directors and officers
of the Company cannot be protected against liability to the Company or its
shareholders to which they would be subject because of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties of their office. The
Company also maintains liability insurance policies covering its directors and
officers.
Item 28. Business and Other Connections of Investment Adviser
See "Management" in the Prospectus and Statement of Additional Information
for information regarding the business of the investment adviser and
sub-advisers. For information as to the business, profession, vocation or
employment of a substantial nature of each of the officers and directors of
INVESCO Funds Group, Inc., INVESCO Trust Company and INVESCO Capital Management,
Inc., reference is made to the Schedule Ds to the Form ADVs filed under the
Investment Advisers Act of 1940 by these companies, which schedules are herein
incorporated by reference.
Item 29. Principal Underwriters
(a) INVESCO Capital Appreciation Funds, Inc.
INVESCO Diversified Funds, Inc.
INVESCO Emerging Opportunity Funds, Inc.
INVESCO Growth Fund, Inc.
INVESCO Income Funds, Inc.
<PAGE>
INVESCO Industrial Income Fund, Inc.
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Multiple Asset Funds, Inc.
INVESCO Specialty Funds, Inc.
INVESCO Strategic Portfolios, Inc.
INVESCO Tax-Free Income Funds, Inc.
INVESCO Value Trust
(b)
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ ------------- -------------
William J. Galvin, Jr. Senior Vice Assistant
7800 E. Union Avenue President Secretary
Denver, CO 80237
Ronald L. Grooms Senior Vice Treasurer,
7800 E. Union Avenue President & Chief Fin'l
Denver, CO 80237 Treasurer Officer, and
Chief Acctg.
Off.
Dan J. Hesser Chairman of President,
7800 E. Union Avenue the Board, CEO & Dir.
Denver, CO 80237 President ,
Chief Executive
Officer, &
Director
Gregory E. Hyde Vice President
7800 E. Union Avenue
Denver, CO 80237
Charles P. Mayer Director
7800 E. Union Avenue
Denver, CO 80237
Glen A. Payne Senior Vice Secretary
7800 E. Union Avenue President,
Denver, CO 80237 Secretary &
General Counsel
Judy P. Wiese Vice President Asst. Treas.
7800 E. Union Avenue
Denver, CO 80237
<PAGE>
(c) Not applicable.
Item 30. Location of Accounts and Records
Dan J. Hesser
7800 E. Union Avenue
Denver, CO 80237
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) The Registrant hereby undertakes that its board of directors will
call such meetings of shareholders of the Funds, for action by
shareholder vote, including acting on the question of removal of
a director or directors, as may be requested in writing by the
holders of at least 10% of the outstanding shares of a Fund or as
may be required by applicable law or the Company's Articles of
Incorporation, and to assist shareholders in commu nicating with
other shareholders as required by the Investment Company Act of
1940.
(b) The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual
report to share holders, upon request and without charge.
(c) The Registrant hereby undertakes to file a post-effective
amendment containing reasonably current financial statements for
INVESCO VIF-Realty Fund within four to six months from the
effective date of Post-Effective Amendment No. 8.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant ^ has duly caused this
post-effective amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Denver, County of Denver, and State of
Colorado, on the ^ 24th day of November, 1997.
Attest: INVESCO Variable Investment
Funds, Inc.
/s/ Glen A. Payne /s/ Dan J. Hesser
- ------------------------- ------------------------------------
Glen A. Payne, Secretary Dan J. Hesser, President
Pursuant to the requirements of the Securities Act of 1933, this
post-effective amendment to Registrant's Registration Statement has been signed
by the following persons in the capacities indicated on this ^ 24th day of
November, 1997.
/s/ Dan J. Hesser /s/ Lawrence H. Budner
- -------------------------- ------------------------------------
Dan J. Hesser, President & Lawrence H. Budner, Director
Director, (Chief Executive Officer)
/s/ Ronald L. Grooms /s/ Daniel D. Chabris
- -------------------------- ------------------------------------
Ronald L. Grooms, Treasurer Daniel D. Chabris, Director
(Chief Financial and Accounting
Officer)
/s/ Victor L. Andrews /s/ Fred A. Deering
- -------------------------- ------------------------------------
Victor L. Andrews, Director Fred A. Deering, Director
/s/ Bob R. Baker /s/ Larry Soll
- -------------------------- ------------------------------------
Bob R. Baker, Director Larry Soll, Director
/s/ Hubert L. Harris, Jr. /s/ Kenneth T. King, Director
- -------------------------- ------------------------------------
Hubert L. Harris, Jr., Director Kenneth T. King, Director
/s/ Charles W. Brady /s/ John W. McIntyre
- -------------------------- ------------------------------------
Charles W. Brady, Director John W. McIntyre, Director
/s/ Wendy L. Gramm
- --------------------------
Wendy L. Gramm, Director
By* -------------------------------- By*/s/ Glen A. Payne
--------------------------------
Edward F. O'Keefe Glen A. Payne
Attorney in Fact Attorney in Fact
<PAGE>
* Original Powers of Attorney authorizing Edward F. O'Keefe and Glen A. Payne,
and each of them, to execute this post-effective amendment to the Registration
Statement of the Registrant on behalf of the above-named directors and officers
(with the exception of Larry Soll and Wendy L. Gramm) of the Registrant have
been filed with the Securities and Exchange Commission on October 8, 1993,
December 22, 1993, March 22, 1994, January 30, 1995 and February 28, 1995 and
October 7, 1996.
<PAGE>
Exhibit Index
Page in
Exhibit Number Registration Statement
- -------------- ----------------------
^ 1(e) 95
5(a)(i) 97
5(e) 98
8(c) 105
9(c) 106
9(e) 159
9(f) 191
11 254
17(a) 255
17(b) 256
17(c) 257
17(d) 258
17(e) 259
17(f) 260
99.POA GRAMM 261
99.POA SOLL 262
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Investment Funds, Inc., a corporation organized and
existing under the General Corporation Law of the State of Maryland, registered
as an open-end investment company under the Investment Company Act of 1940, and
having its registered office in Baltimore, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: By unanimous approval the board of directors of the Corporation has
created an additional class of shares of common stock of the Corporation
designated as the INVESCO VIF-Realty Portfolio and has authorized an additional
100,000,000 shares to be allocated to that Portfolio.
The aggregate number of shares of stock of all series which the Corporation
shall have the authority to issue after creation of the new series of Common
stock, is one billion (1,000,000,000) shares of one cent ($.01) par value Common
Stock.
SECOND: Shares of each class have been duly classified by the board of
directors pursuant to authority and power contained in the Articles of
Incorporation of the Corporation.
THIRD: A description of the common stock so classified, including the
powers, preferences, participating, voting or other special rights and
qualifications, restrictions and limitations thereof, is as outlined in the
Articles of Incorporation of the Corporation.
FOURTH: The Corporation is registered as an open-end management investment
company under the Investment Company Act of 1940.
FIFTH: The undersigned, the president of the Corporation, who is executing
on behalf of the Corporation the foregoing Articles Supplementary, of which this
paragraph is a part, hereby acknowledges, in the name of and on behalf of the
Corporation, that the foregoing Articles Supplementary are the corporate act of
the Corporation and further verifies under oath that, to the best of his
knowledge, information and belief, the matters and facts set forth herein are
true in all material respects, under the penalties of perjury.
<PAGE>
IN WITNESS WHEREOF, INVESCO Variable Investment Funds, Inc. has caused
these Articles Supplementary to be signed in its name and on its behalf by its
president and witnessed by its secretary on the 17th day of November, 1997.
These Articles Supplementary shall be effective upon acceptance by the
Maryland State Department of Assessments and Taxation.
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By: /s/ Dan J. Hesser
---------------------------------------
Dan J. Hesser, President
ATTEST:
By: /s/ Glen A. Payne
----------------------------------
Glen A. Payne, Secretary
I, Ruth Christensen, a notary public in and for the City and County of
Denver, and State of Colorado, do hereby certify that Dan J. Hesser, personally
known to me to be the person whose name is subscribed to the foregoing Articles
Supplementary, appeared before me this date in person and acknowledged that he
signed, sealed and delivered said instrument as his full and voluntary act and
deed for the uses and purposes therein set forth.
Given my hand and official seal this 17th day of November, 1997.
/s/ Ruth Christensen
----------------------------------
Notary Public
My Commission Expires: March 16, 1998
Amendment to Investment Advisory Agreement
This is an Amendment to the Investment Advisory Agreement made and entered
into between INVESCO Variable Investment Funds, Inc., a Maryland corporation
(the "Company") and INVESCO Funds Group, Inc., a Delaware corporation ("IFG"),
as of the _____ day of __________, 199__ (the "Agreement").
WHEREAS, the Company desires to have IFG perform investment advisory,
statistical, research, and certain administrative and clerical services with
respect to management of the assets of the Company allocable to the INVESCO
VIF-Realty Fund, and IFG is willing and able to perform such services on the
terms and conditions set forth in the Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in the Agreement, it is agreed that the terms and conditions of the
Agreement shall be applicable to the Company's assets allocable to the INVESCO
VIF-Realty Fund, to the same extent as if the INVESCO VIF-Realty Fund was to be
added to the definition of "Funds" as utilized in the Agreement, and that
INVESCO VIF-Realty Fund shall pay IFG a fee for services provided to them by IFG
under the Agreement as follows: .90% on the first $500 million of the Fund's
average net assets, 0.75% on the next $500 million of the Fund's average net
assets and 0.65% on the Fund's average net assets over $1 billion.
IN WITNESS WHEREOF, the parties have executed this Agreement on this ____
day of __________, 19___.
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By: ------------------------------------
Dan J. Hesser,
ATTEST: President
- ----------------------------
Glen A. Payne, Secretary
INVESCO FUNDS GROUP, INC.
By: ------------------------------------
Ronald L. Grooms,
ATTEST: Senior Vice President
- ----------------------------
Glen A. Payne, Secretary
SUB-ADVISORY AGREEMENT
AGREEMENT made this -----day of ---------, 19---, by and between INVESCO
Funds Group, Inc. ("INVESCO"), a Delaware corporation, and INVESCO Realty
Advisors, Inc., a Delaware corporation ("the Sub-Adviser").
WITNESSETH:
WHEREAS, INVESCO VARIABLE INVESTMENT FUNDS, INC. (the "Company") is engaged
in business as a diversified, open-end management investment company registered
under the Investment Company Act of 1940, as amended (hereinafter referred to as
the "Investment Company Act") and has one class of shares (the "Shares"), which
is divided into series, each representing an interest in a separate portfolio of
investments, one such series being designated the INVESCO VIF-Realty Fund (the
"Fund"); and
WHEREAS, INVESCO and the Sub-Adviser are engaged in rendering investment
advisory services and are registered as investment advisers under the Investment
Advisers Act of 1940; and
WHEREAS, INVESCO has entered into an Investment Advisory Agreement with the
Company (the "INVESCO Investment Advisory Agreement"), pursuant to which INVESCO
is required to provide investment advisory services to the Company, and, upon
receipt of written approval of the Company, is authorized to retain companies
which are affiliated with INVESCO to provide such services; and
WHEREAS, the Sub-Adviser is willing to provide investment advisory services
to the Company on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, INVESCO and the Sub-Adviser hereby agree as follows:
ARTICLE I
DUTIES OF THE SUB-ADVISER
INVESCO hereby employs the Sub-Adviser to act as investment adviser to the
Company and to furnish the investment advisory services described below, subject
to the broad supervision of INVESCO and Board of Directors of the Company, for
the period and on the terms and conditions set forth in this Agreement. The
Sub-Adviser hereby accepts such assignment and agrees during such period, at its
own expense, to render such services and to assume the obligations herein set
forth for the compensation provided for herein. The Sub-Adviser shall for all
purposes herein be deemed to be an independent contractor and, unless otherwise
<PAGE>
expressly provided or authorized herein, shall have no authority to act for
or represent the Company in any way or otherwise be deemed an agent of the
Company.
The Sub-Adviser hereby agrees to manage the investment operations of the
Fund, subject to the supervision of the Company's directors (the "Directors")
and INVESCO. Specifically, the Sub-Adviser agrees to perform the following
services:
(a) to manage the investment and reinvestment of all the assets, now or
hereafter acquired, of the Fund, and to execute all purchases and sales of
portfolio securities;
(b) to maintain a continuous investment program for the Fund, consistent
with (i) the Fund's investment policies as set forth in the Company's
Registration Statement, as from time to time amended, under the Investment
Company Act of 1940, as amended (the "1940 Act"), and in any prospectus
and/or statement of additional information of the Fund, as from time to
time amended and in use under the Securities Act of 1933, as amended, and
(ii) the Company's status as a regulated investment company under the
Internal Revenue Code of 1986, as amended;
(c) to determine what securities are to be purchased or sold for the
Fund, unless otherwise directed by the Directors of the Company or INVESCO,
and to execute transactions accordingly;
(d) to provide to the Fund the benefit of all of the investment analysis
and research, the reviews of current economic conditions and trends, and
the consideration of long range investment policy now or hereafter
generally available to investment advisory customers of the Sub-Adviser;
(e) to determine what portion of the Fund should be invested in the
various types of securities authorized for purchase by the Fund; and
(f) to make recommendations as to the manner in which voting rights,
rights to consent to Fund action and any other rights pertaining to
each Fund's portfolio securities shall be exercised.
With respect to execution of transactions for the Fund, the Sub-Adviser is
authorized to employ such brokers or dealers as may, in the Sub-Adviser's best
judgment, implement the policy of the Fund to obtain prompt and reliable
execution at the most favorable price obtainable. In assigning an execution or
negotiating the commission to be paid therefor, the Sub-Adviser is authorized to
consider the full range and quality of a broker's services which benefit the
Fund, including but not limited to research and analytical capabilities,
reliability of performance, and financial soundness and responsibility. Research
services prepared and furnished by brokers through which the Sub-Adviser effects
securities transactions on behalf of the Fund may be used by the Sub-Adviser in
servicing all of its accounts, and not all such services may be used by the
Sub-Adviser in connection with the Fund. The Sub-Adviser may follow a policy of
<PAGE>
considering sales of shares of the Fund as a factor in the selection of
broker/dealers to execute portfolio transactions, subject to the requirements of
best execution discussed above. In the selection of a broker or dealer for
execution of any negotiated transaction, the Sub-Adviser shall have no duty or
obligation to seek advance competitive bidding for the most favorable negotiated
commission rate for such transaction, or to select any broker solely on the
basis of its purported or "posted" commission rate for such transaction,
provided, however, that the Sub-Adviser shall consider such "posted" commission
rates, if any, together with any other information available at the time as to
the level of commissions known to be charged on comparable transactions by other
qualified brokerage firms, as well as all other relevant factors and
circumstances, including the size of any contemporaneous market in such
securities, the importance to the Fund of speed, efficiency, and confidentiality
of execution, the execution capabilities required by the circumstances of the
particular transactions, and the apparent knowledge or familiarity with sources
from or to whom such securities may be purchased or sold. Where the commission
rate reflects services, reliability and other relevant factors in addition to
the cost of execution, the Sub-Adviser shall have the burden of demonstrating
that such expenditures were bona fide and for the benefit of the Fund.
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
The Sub-Adviser assumes and shall pay for maintaining the staff and personnel
necessary to perform its obligations under this Agreement, and shall, at its own
expense, provide the office space, equipment and facilities necessary to perform
its obligations under this Agreement. Except to the extent expressly assumed by
the Sub- Adviser herein and except to the extent required by law to be paid by
the Sub-Adviser, INVESCO and/or the Company shall pay all costs and expenses in
connection with the operations of the Fund.
ARTICLE III
COMPENSATION OF THE SUB-ADVISER
For the services rendered, facilities furnished, and expenses assumed by the
Sub-Adviser, INVESCO shall pay to the Sub-Adviser an annual fee, computed daily
and paid as of the last day of each month, using for each daily calculation the
most recently determined net asset value of the Fund, as determined by a
valuation made in accordance with the Fund's procedures for calculating their
net asset value as described in the Fund's Prospectus and/or Statement of
Additional Information. The advisory fee to the Sub-Adviser shall be computed at
the annual rate of 0.30% of the first $500 million of the Fund's average net
assets, 0.25% of the Fund's average net assets in excess of $500 million but not
more than $1 billion, and 0.2167% of the Fund's average net assets in excess of
<PAGE>
$1 billion. During any period when the determination of the Fund's net
asset value is suspended by the Directors of the Company, the net asset value of
a share of the Fund as of the last business day prior to such suspension shall,
for the purpose of this Article III, be deemed to be the net asset value at the
close of each succeeding business day until it is again determined. However, no
such fee shall be paid to the Sub-Adviser with respect to any assets of the Fund
which may be invested in any other investment company for which the Sub- Adviser
serves as investment adviser or sub-adviser. The fee provided for hereunder
shall be prorated in any month in which this Agreement is not in effect for the
entire month. The Sub-Adviser shall be entitled to receive fees hereunder only
for such periods as the INVESCO Investment Advisory Agreement remains in effect.
ARTICLE IV
LIMITATION OF LIABILITY OF SUB-ADVISER
The Sub-Adviser shall not be liable for any error of judgment, mistake of
law or for any loss arising out of any investment or for any act or omission in
the performance of sub-advisory services rendered with respect to the Company or
the Fund, except for willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties hereunder. As used in this Article IV, "Sub-Adviser" shall include
any affiliates of the Sub-Adviser performing services contemplated hereby and
directors, officers and employees of the Sub-Adviser and such affiliates.
ARTICLE V
ACTIVITIES OF THE SUB-ADVISER
The services of the Sub-Adviser to the Fund are not to be deemed to be
exclusive, the Sub-Adviser and any person controlled by or under common control
with the Sub- Adviser (for purposes of this Article V referred to as
"affiliates") being free to render services to others. It is understood that
directors, officers, employees and shareholders of the Company are or may become
interested in the Sub-Adviser and its affiliates, as directors, officers,
employees and shareholders or otherwise and that directors, officers, employees
and shareholders of the Sub-Adviser, INVESCO and their affiliates are or may
become interested in the Company as directors, officers and employees.
ARTICLE VI
AVOIDANCE OF INCONSISTENT POSITIONS AND
COMPLIANCE WITH APPLICABLE LAWS
In connection with purchases or sales of securities for the investment
portfolios of the Fund, neither the Sub-Adviser nor any of its directors,
officers or employees will act as a principal or agent for any party other than
<PAGE>
the Fund or receive any commissions. The Sub-Adviser will comply with all
applicable laws in acting hereunder including, without limitation, the 1940 Act;
the Investment Advisers Act of 1940, as amended; and all rules and regulations
duly promulgated under the foregoing.
ARTICLE VII
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective as of the date it is approved by a
majority of the outstanding voting securities of the Fund, and shall remain in
force for an initial term of two years from the date of execution, and from year
to year thereafter until its termination in accordance with this Article VII,
but only so long as such continuance is specifically approved at least annually
by (i) the Directors of the Company, or by the vote of a majority of the
outstanding voting securities of the Fund, and (ii) a majority of those
Directors who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval. In the event of the disapproval of this Agreement, or of the
continuation hereof, by the shareholders of the Fund (or by the Directors of the
Company as to the Fund), the parties intend that such disapproval shall be
effective only as to the Fund, and that such disapproval shall not affect the
validity of effectiveness of the approval of this Agreement, or of the
continuation hereof, by the shareholders of any other Fund (or by the Directors,
including a majority of the disinterested Directors) as to such other Fund; in
such case, this Agreement shall be deemed to have been validly approved or
continued, as the case may be, as to such other Fund.
This Agreement may be terminated at any time, without the payment of any
penalty, by INVESCO; the Fund by vote of a majority of the Directors of the
Company; by vote of a majority of the outstanding voting securities of the Fund;
or, with respect to a particular Fund, by a majority of the outstanding voting
securities of that Fund, as the case may be; or by the Sub-Adviser. A
termination by INVESCO or the Sub-Adviser shall require sixty days' written
notice to the other party and to the Company, and a termination by the Company
shall require such notice to each of the parties. This Agreement shall
automatically terminate in the event of its assignment to the extent required by
the Investment Company Act of 1940 and the Rules thereunder.
The Sub-Adviser agrees to furnish to the Directors of the Company such
information on an annual basis as may reasonably be necessary to evaluate the
terms of this Agreement.
Termination of this Agreement shall not affect the right of the Sub-Adviser to
receive payments on any unpaid balance of the compensation described in Article
III hereof earned prior to such termination.
<PAGE>
ARTICLE VIII
AMENDMENTS OF THIS AGREEMENT
No provision of this Agreement may be orally changed or discharged, but may
only be modified by an instrument in writing signed by the Sub-Adviser and
INVESCO. In addition, no amendment to this Agreement shall be effective unless
approved by (1) the vote of a majority of the Directors of the Company,
including a majority of the Directors who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting called for the
purpose of voting on such amendment and (2) the vote of a majority of the
outstanding voting securities of the Fund (other than an amendment which can be
effective without shareholder approval under applicable law). In the event of
the disapproval of an amendment of this Agreement by the shareholders of a
particular Fund (or by the Directors of the Company as to a particular Fund),
the parties intend that such disapproval shall be effective only as to such
Fund, and that such disapproval shall not affect the validity or effectiveness
of the approval of the amendment by the shareholders of any other Fund (or by
the Directors, including a majority of the disinterested Directors) as to such
other Fund; in such case, this Agreement shall be deemed to have been validly
amended as to such other Fund.
ARTICLE IX
DEFINITIONS OF CERTAIN TERMS
In interpreting the provisions of this Agreement, the terms "vote of a
majority of the outstanding voting securities," "assignments," "affiliated
person" and "interested person," when used in this Agreement, shall have the
respective meanings specified in the Investment Company Act and the Rules and
Regulations thereunder, subject, however, to such exemptions as may be granted
by the Securities and Exchange Commission under said Act.
ARTICLE X
GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State
of Colorado and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of Colorado, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
<PAGE>
ARTICLE XI
MISCELLANEOUS
Notice. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for the receipt of such notice.
Severability. Each provision of this Agreement is intended to be severable.
If any provision of this Agreement shall be held illegal or made invalid by a
court decision, statute, rule or otherwise, such illegality or invalidity shall
not affect the validity or enforceability of the remainder of this Agreement.
Headings. The headings in this Agreement are inserted for convenience and
identification only and are in no way intended to describe, interpret, define or
limit the size, extent or intent of this Agreement or any provision hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
INVESCO FUNDS GROUP, INC.
By: -------------------------------
Dan J. Hesser
President
ATTEST:
- --------------------------
Glen A. Payne
Secretary
INVESCO REALTY ADVISORS, INC.
By: -------------------------------
David A. Ridley
President
ATTEST:
- ---------------------------
Shellie Simms
Secretary
November 13, 1997
Mr. Christopher J. Meyers
Assistant Vice President
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
RE: INVESCO Variable Investment Funds, Inc.
Dear Chris:
This is to advise you that INVESCO Variable Investment Funds, Inc. (the
"Company") has established a new series of shares to be known as INVESCO VIF -
Realty Fund. In accordance with the Additional Funds provision in Paragraph 17
of the Custodian Contract dated October 20, 1993 between the Company and State
Street Bank and Trust Company, the Company hereby requests that you act as
Custodian for the new series under the terms of the Contract.
Please indicate your acceptance of the foregoing by executing two copies of this
Letter Agreement, returning one to the Company and retaining one copy for your
records.
Sincerely,
Glen A. Payne
Secretary
Agreed to this ------ day of November 1997.
STATE STREET BANK AND TRUST COMPANY
By: ------------------------------
Vice President
PARTICIPATION AGREEMENT
AMONG
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO FUNDS GROUP, INC.
TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY
AND
CHARLES SCHWAB & CO., INC.
THIS AGREEMENT, made and entered into as of this 22nd day of March, 1994
by and among TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY (hereinafter
"Transamerica"), a California life insurance company, on its own behalf and on
behalf of its Separate Account VA-5 (the "Account"); INVESCO VARIABLE INVESTMENT
FUNDS INC., a corporation organized under the laws of Maryland (hereinafter the
"Fund"); INVESCO FUNDS GROUP, INC. (hereinafter the "Adviser"), a Delaware
corporation; and CHARLES SCHWAB & CO., INC., a California corporation
(hereinafter "Schwab").
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and/or variable annuity
contracts (collectively, the "Variable Insurance Products") to be offered by
insurance companies which have entered into participation agreements similar to
this Agreement (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (hereinafter the "SEC"), dated December 29, 1993 (File No. 812-8590),
granting Participating Insurance Companies and variable annuity and variable
life insurance separate accounts exemptions from the provisions of sections
9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e3(T)(b)(15) thereunder,
to the extent necessary to permit shares of the Fund to be sold to and held by
variable annuity and variable life insurance separate accounts of life insurance
companies that may or may not be affiliated with one another (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws and as a broker-dealer under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, Transamerica has registered or will register certain variable
annuity contracts supported wholly or partially by the Account (the "Contracts")
under the 1933 Act and said Contracts are listed in Schedule A hereto, as it may
be amended from time to time by mutual written agreement; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of
Transamerica on November 10, 1993, to set aside and invest assets attributable
to the Contracts; and
WHEREAS, Transamerica has registered or will register the Account as a
unit investment trust under the 1940 Act; and
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Transamerica intends to purchase shares in the Portfolios listed in
schedule B hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios"), on behalf of the Account to fund the
aforesaid Contracts, and the Adviser is authorized to sell such shares to unit
investment trusts such as the Account at net asset value; and
WHEREAS, Schwab will perform certain services in connection
with the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, Transamerica,
Schwab, the Fund and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Adviser agrees to sell to Transamerica those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Portfolios. For purposes of this
Section 1.1, Transamerica shall be the designee of the Fund for receipt of such
orders and receipt by such designee shall constitute receipt by the Fund,
provided that the Fund receives notice of any such order by 10:00 a.m. Eastern
time on the next following Business Day. "Business Day" shall mean any day on
which the New York Stock Exchange is open for trading and on which the Fund
calculates its net asset value pursuant to the rules of the SEC.
1.2 The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by Transamerica and the
Account on those days on which the Fund calculates its Designated Portfolios'
net asset value pursuant to rules of the SEC, and the Fund shall calculate such
net asset value on each day which the New York Stock exchange is open for
trading. Notwithstanding the foregoing, the Board of Directors of the Fund
(hereinafter the "Board") may refuse to sell shares of an Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3 The Fund and the Adviser will not sell shares of the Designated
Portfolios to any other insurance company or separate account unless an
agreement containing provisions substantially the same as Sections 2.1, 3.6, 3.7
3.8, and Article VII of this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem for cash, on Transamerica's request, any
full or fractional shares of the Fund held by Transamerica, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. Requests for redemption
<PAGE>
identified by Transamerica, or its agent, as being in connection with
surrenders, annuitizations, or death benefits under Contracts may be executed
within seven (7) calendar days after receipt by the Fund or its designee of the
requests for redemption. If permitted by an order of the SEC under Section 22(e)
of the 1940 Act, the Fund shall be permitted to delay sending redemption
proceeds to Transamerica beyond the foregoing deadlines, provided, however, that
the Account receives similar relief to defer paying proceeds to Contract Owners,
and further, that the Account is treated no less favorably than the other
shareholders of the Designated Portfolios. This Section 1.4 may be amended, in
writing, by the parties consistent with the requirements of the 1940 Act and
interpretations thereof. For purposes of this Section 1.4, Transamerica shall be
the designee of the Fund for receipt of requests for redemption and receipt by
such designee shall constitute receipt by the Fund, provided that the Fund
receives notice of any such request of redemption by 10:00 a.m. Eastern time on
the next following Business Day.
1.5 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fun's shares may be sold to other insurance
companies (subject to Section 1.3 and Article VI hereof) and the cash value of
the Contracts may be invested in other investment companies.
1.6 Transamerica shall pay for Fund shares by 11:00 a.m. Eastern time on
the next Business Day after an order to purchase Fund shares is made in
accordance with the provisions of Section 1.1 hereof. Payment shall be in
federal funds transmitted by wire and/or by a credit for any shares redeemed the
same day as the purchase.
1.7 The Fund shall pay and transmit the proceeds of redemptions of Fund
shares by 11:00 a.m. Eastern time on the next Business Day after a redemption
order is received in accordance with Section 1.4 hereof. Payment shall be in
federal funds transmitted by wire and/or a credit for any shares purchased the
same day as the redemption.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to Transamerica or the Account. Shares
ordered from the Fund will be recorded in an appropriate title for the Account
or the appropriate subaccount of the Account.
1.9 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to Transamerica of any income, dividends or capital
gain distributions payable on the Designated Portfolios' shares. Transamerica
hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Portfolio shares in additional shares of
<PAGE>
that portfolio. Transamerica reserves the right to revoke this election and
to receive all such income dividends and capital gain distributions in cash. The
Fund shall notify Transamerica by the end of the next Business Day of the number
of shares so issued as payment of such dividends and distributions.
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to Transamerica on a daily basis as soon as reasonably
practical after the net asset value per share is calculate and shall use its
best efforts to make such net asset value per share available by 6:00 p.m.
Eastern time. If the Fund provides incorrect share net asset vale information
Transamerica shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct net asset value per shares (and, if
and to the extent necessary, Transamerica shall make adjustments to the number
of units credited and/or unit values for the Contracts for the periods
affected). Any error in the calculation or reporting of net asset value per
share, dividend or capital gains information greater than or equal to $.01 per
share shall be reported immediately upon discovery to Transamerica. Any error of
a lesser amount shall be corrected in the next Business Day's net asset value
per share.
In the event adjustments are required to correct any error in
the computation of a Designated Portfolio's net asset value per
share, or dividend or capital gain distribution, the Adviser or the Fund shall
notify Schwab as soon as possible after discovering the need for such
adjustments. Notification can be made orally, but must be confirmed in writing.
If an adjustment is necessary to correct an error which has caused
Contractholders to receive less than the amount to which they are entitled, the
Fund shall make all necessary adjustments to the number of shares owned by the
Account and distribute to the Account the amount of the underpayment.
Transamerica will adjust the number of shares of the applicable sub-account of
each Contractholder and credit the appropriate amount of such payment to each
Contractholder. In no event shall Schwab or Transamerica be liable to
Contractholders for any such adjustments or underpayment amounts. If
Contractholders have received amounts in the excess of the amounts to which they
otherwise would have been entitled prior to an adjustment for an error,
Transamerica and Schwab , when requested by the Adviser or the Fund, will make a
good faith attempt to collect such excess amounts from the Contractholders. In
no event shall Schwab or Transamerica be liable to the Fund or the Adviser for
any such adjustments or overpayment amounts.
<PAGE>
ARTICLE II. Representations and Warranties
2.1 Transamerica represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. Transamerica further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under
Section 10506 of the California Insurance Law and has registered the Account as
a unit investment trust in accordance with the provisions of the 1940 Act to
serve as a segregated investment account for the Contracts.
2.2 The Fund represents and warrants that Designated Portfolio shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with all applicable federal
securities laws including without limitation the 1933 Act, the 1934 Act, and the
1940 Act and that the Fund is and shall remain registered under the 1940 Act.
The Fund shall amend the Registration Statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares.
2.3 The Fund reserves the right to adopt a plan pursuant to Rule 12b-1
under the 1940 Act (a "12b-1 Plan") and to impose an asset-based or other charge
to finance distribution expenses as permitted by applicable law and regulation.
As of the date of this Agreement, the Fund has no 12b-1 Plan and does not,
directly or indirectly, impose any asset-based or other charge to finance
distribution expenses. To the extent that the Fund decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a
Board, a majority of whom are not interested persons of the Fund, formulate and
approve any 12b-1 Plan to finance distribution expenses.
2.4 The Fund represents and warrants that the investment policies, fees
and expenses of the Designated Portfolios are and shall at all times remain in
compliance with the insurance and other applicable laws for the State of
California and any other applicable state to the extent required to perform this
Agreement. The Fund further represents and warrants that Designated Portfolio
shares will be sold in compliance with the insurance laws of the State of
California and all applicable state securities laws or exemptions therefrom.
Without limiting the generality of the foregoing, the Fund represents and
warrants that it is and shall at all times remain in compliance with the
policies and restrictions of the Fund enumerated in Schedule C hereto, except as
<PAGE>
to those items disclosed to Transamerica. Transamerica shall disclose such
items to the Department of Insurance of the State of California, and shall
promptly notify the Fund of any objections to any such items by the Department.
2.5 The Fund represents and warrants that it is lawfully organized and
validly existing under the laws of the State of Maryland and that it does and
will comply in all material respects with the 1940 Act.
2.6 The Adviser represents and warrants that it is and shall remain duly
registered under all applicable federal and state securities laws and that it
shall perform its obligations for the Fund in compliance in all material
respects with the laws of the State of Colorado and any applicable state and
federal securities laws.
2.7 The Fund and the Adviser represent and warrant that all of their
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Fund are, and shall continue to
be at all times, covered by a blanket fidelity bond or similar coverage for the
benefit of the Fund in an amount not less than the minimal coverage required by
Section 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.8 Schwab represents and warrants that it has completed, obtained and
performed, in all material respects, all registrations, filings, approvals, and
authorizations, consents and examinations required by any government or
governmental authority as may be necessary to perform this Agreement. Schwab
does and will comply with all applicable laws, rules and regulations in the
performance of its obligations under this Agreement.
2.9 The Fund will provide Transamerica with as much advance notice as is
reasonably practicable of any material change affecting the Designated
Portfolios (including, but not limited to, any material change in its
registration statement or prospectus affecting the Designated Portfolios and any
proxy solicitation affecting the Designated Portfolios) and consult with
Transamerica in order to implement any such change in an orderly manner,
recognizing the expenses of changes and attempting to minimize such expenses by
implementing them in conjunction with regular annual updates of the prospectuses
for the Contracts. The Fund agrees to share equitably in expenses incurred by
Transamerica as a result of actions taken by the Fund, as set forth in the
allocation of expenses contained in Schedule F.
<PAGE>
2.10 Transamerica represents, assuming that the Fund complies with Article
VI of this Agreement, that the Contracts are currently treated as annuity
contracts under applicable provisions of the Internal Revenue Code of 1986, as
amended ("the Code"), and that it will make every effort to maintain such
treatment and that it will notify the Adviser immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so treated
or that they might not be so treated in the future.
2.11 Transamerica represents and warrants that it will not purchase Fund
Shares with assets derived from tax-qualified retirement plans except
indirectly, through Contracts purchased in connection with such plans.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1 At least annually, the Adviser, shall provide Transamerica and Schwab
with as many copies of the Fund's current prospectuses for the Designated
Portfolios as Transamerica and Schwab may reasonably request for marketing
purposes. If requested by Transamerica in lieu thereof, the Adviser or Fund
shall provide such documentation (including a final copy for the new
prospectuses for the Designated Portfolios) and other assistance as is
reasonably necessary in order for Transamerica once each year (or more
frequently if the prospectuses for the Designated Portfolios are amended) to
have the prospectus for the Contracts and the Fund's prospectus for the
Designated Portfolios printed together in one document. The Fund and Adviser
agree that the prospectuses for the Designated Portfolios will describe only the
Designated Portfolios and will not name or describe any other portfolios or
series that may be in the Fund unless, in the reasonable judgment of the Fund's
legal counsel, such disclosure is required by law.
3.2 If applicable state or Federal laws or regulations require that the
Statement of Additional Information ("SAI") for the Fund be distributed to all
Contract Purchasers, then the Fund shall provide Transamerica with the Fund's
SAI or documentation thereof for the Designated Portfolios in such quantities
and/or with expenses to be borne in accordance with Schedule F.
3.3 The Fund shall provide Transamerica and Schwab with as many copies of
the SAI for the Designated Portfolios as each of them may reasonably request.
The Adviser (or the Fund) shall also provide such SAI to any owner of a contract
or prospective owner who requests such SAI (although it is anticipated that such
requests will be made to Schwab).
3.4 The Fund shall provide Transamerica with copies of its prospectus,
SAI, proxy material, reports stockholders and other communications to
stockholders for the Designated Portfolios in such quantity as Transamerica
shall reasonably require for distributing to Contract owners.
<PAGE>
3.5 It is understood and agreed that, except with respect to information
regarding Transamerica or Schwab provided in writing by that party, neither
Transamerica nor Schwab are responsible for the content of the prospectus or SAI
for the Designated Portfolios. It is also understood and agreed that, except
with respect to information regarding the Fund, Adviser or the Designated
Portfolios provided in writing by the Fund or Adviser, neither the Fund nor
Adviser are responsible for the content of the prospectus or SAI for the
Contracts.
3.6 If and to the extent required by law Transamerica shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Designated Portfolio shares in accordance
with instructions received from Contract owners;
and
(iii) vote Designated Portfolio shares for which no instructions
have been received in the same proportion as Designated
Portfolio shares for which instructions have been received
from Contract owners, so long as and to the extent that the
SEC continues to interpret the 1940 Act to require
pass-through voting privileges for variable contract owners.
Transamerica reserves the right to vote Fund shares held in
any segregated asset account in its own right, to the extent
permitted by law.
3.7 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts holding shares of a Designated Portfolio
calculates voting privileges in the manner required by the Shared Funding
Exemptive Order. Transamerica shall fulfill its obligations under, and abide by
the terms and conditions of, the Shared Funding Exemptive Order, including
calculating voting privileges as described on Schedule G. The Fund agrees to
promptly notify Transamerica of any changes of interpretations or amendments of
the Shared Funding Exemptive Order.
3.8 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends, comply with
Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that ACT) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the Commission may
promulgate with respect thereto.
<PAGE>
ARTICLE IV. Sales Material and Information
4.1 Transamerica and Schwab shall furnish, or shall cause to be furnished,
to the Fund or its designee, a copy of each piece of sales literature or other
promotional material that Transamerica or Schwab, respectively, develops or
proposes to use and in which the Fund (or a Portfolio thereof), its investment
adviser or one of its sub-advisers or the underwriter for the fund shares is
named in connection with the Contracts, at least 10 (ten) Business Days prior to
its use. No such material shall be used if the Fund or its designee objects to
such use within 5 (five) Business Days after receipt of such material.
4.2 Transamerica and Schwab shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained n the registration statement or prospectus for the
Fund shares, a such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Adviser, except with the permission of the Fund or the
Adviser.
4.3 The Fund or Adviser shall furnish, or shall cause to be furnished, to
Transamerica and Schwab, a copy of each piece of sales literature or other
promotional material in which Transamerica and/or its separate account(s), or
Schwab is named at least 10 (ten) Business Days prior to its use. No such
material shall be used if Transamerica or Schwab objects to such use within 5
(five) Business Days after receipt of such material.
4.4 The Fund and the Adviser shall not give any information or make any
representations on behalf of Transamerica or concerning Transamerica, the
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports for the Account, or in sales literature or other
promotional material approved by Transamerica or its designee, except with the
permission of Transamerica.
4.5 The Fund and Adviser shall not give any information or make any
representations on behalf of or concerning Schwab, or use Schwab's name except
with the permission of Schwab.
4.6 The Fund will provide to Transamerica and Schwab at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Designated Portfolios,
contemporaneously with the filing of such documents(s) with the SEC, NASD or
other regulatory authorities.
<PAGE>
4.7 Transamerica or Schwab will provide to the Fund at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Contracts or the Account, contemporaneously with the filing of such document(s)
with the SEC, NASD, or other regulatory authority.
4.8 For purposes of this Article IV, the phrase "sales literature and other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any writer communication distributed or made generally available to
customers or the public, including brochures, circulars, research report, market
letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
Statements of Additional Information, shareholder reports, and proxy materials.
4.9 At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and/or representatives
of the appropriate regulatory agencies, all records, data and access to
operating procedures that may be reasonably requested in connection with
compliance and regulatory requirements related to this Agreement or any party's
obligations under this Agreement.
ARTICLE V. Fees and Expenses
5.1 The Fund and the Adviser shall pay no fee or other compensation to
Transamerica under this Agreement, and Transamerica shall pay no fee or other
compensation to the Fund or Adviser under this Agreement, although the parties
hereto will bear certain expenses in accordance with Schedule F, Articles III,
V, and other provisions of this Agreement. In the event that Transamerica or
Schwab agrees with any other mutual fund or investment adviser to any provision
for bearing expenses that is more favorable to such fund or investment adviser
than the provisions applicable to the Fund and the Adviser in this Agreement or
the Schedules hereto, this Agreement shall be automatically amended to give the
Fund and the Advisor the benefits of such more favorable provisions.
<PAGE>
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, as further provided in Schedule F. The Fund shall see
to it that all shares of the Designated Portfolios are registered and authorized
for issuance in accordance with applicable federal law and, if and to the extent
required, in accordance with applicable state laws prior to their sale.
5.3 The parties shall bear the expenses of routine annual distribution of
the Fund's prospectus and distributing the Fund's proxy materials and reports to
owners of Contracts offered by Transamerica, as provided in Schedule F.
5.4 The Fund and Adviser acknowledge that a principal feature of the
Contracts is the Contract owner's ability to choose from a number of
unaffiliated mutual funds (and portfolios or series thereof), including the
Designated Portfolios ("Unaffiliated Funds"), and to transfer the Contract's
cash value between funds and portfolios. The Fund and Advisor agree to cooperate
with Transamerica and Schwab in facilitating the operation of the Account and
the Contracts as intended, including but not limited to cooperation in
facilitating transfers between Unaffiliated Funds.
5.5 Schwab agrees to provide certain administrative services, specified in
Schedule D hereto, in connection with the arrangements contemplated by this
Agreement. The parties acknowledge and agree that the services referred to in
this Section 5.5 are recordkeeping, shareholder communication, and other
transaction facilitation and processing, and related administrative services
only and are not the services of an underwriter or a principal underwriter of
the Fund and that Schwab is not an underwriter for the shares of the Designated
Portfolios, within the meaning of the 1933 Act or the 1940 Act.
5.6 As compensation for the services specified in Schedule D hereto, the
Advisor agrees to pay Schwab a monthly Administrative Service Fee based on the
percentage per annum on Schedule D hereto applied to the average daily value of
the shares of the Designated Portfolios held in the Account with respect to
Contracts sold by Schwab. This monthly Administrative Service Fee is due and
payable before the 15th (fifteenth) day following the last day of the month to
which it relates.
ARTICLE VI. Diversification and Qualification
6.1 The Fund and Adviser represent and warrant that the Fund will at all
times sell its shares and invest it assets in such a manner as to ensure that
the Contracts will be treated as annuity contracts under the Code, and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Fund and Adviser represent and warrant that the Fund and each Designated
Portfolio thereof will at all times comply with Section 817(h) of the Code and
Treasury Regulation ss.1.817-5, as amended from time to time, and any Treasury
interpretations thereof, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts and any amendments or
other modifications or successor provisions to such Section or Regulations. The
Fund and the Advisor agree that shares of the Designated Portfolios will be sold
only to Participating Insurance Companies and their separate accounts.
6.2 No shares of any series or portfolio of the Fund will be sold to the
general public.
6.3 The Fund and Adviser represent and warrant that the Fund and each
Designated Portfolio is currently qualified as a Regulated Investment Company
under Subchapter M of the Code, and that it will remain such qualification
(under Subchapter M or any successor or similar provisions) as long as this
Agreement is in effect.
<PAGE>
6.4 The Fund or Adviser will notify Transamerica immediately upon having a
reasonable basis for believing that the Fund or any portfolio has ceased to
comply with the aforesaid Section 817(h) diversification or Subchapter M
qualification requirements or is likely not to so comply in the future.
6.5 The Fund and Adviser acknowledge that full compliance with the
requirements referred to in Sections 6.1, 6.2, and 6.3 hereof is absolutely
essential because any failure to meet those requirements could result in the
Contracts not being treated as annuity contracts for federal income tax
purposes, which could have adverse tax consequences for Contract owners and
could also adversely affect Transamerica's corporate tax liability. The Fund and
Advisor also acknowledge that it is solely within their power and control to
meet those requirements. Accordingly, without in any way limiting the effect of
Sections 8.3 and 8.4 hereof and without in any way limiting or restricting any
other remedies available to Transamerica, the Adviser will pay all costs
associated with reasonable and appropriate corrections or responses to any
failure of the Fund or any Designated Portfolio to comply with Sections 6.1,
6.2, or 6.3 hereof. The parties shall use their best efforts to mitigate any
such costs, but acknowledge that the costs associated with a failure to comply
with sections 6.1, 6.2 or 6.3 could include, but may not be limited to, the
costs involved in creating, organizing, and registering a new investment company
as a funding medium for the Contracts and/or the costs of obtaining whatever
regulatory authorizations are required to substitute shares of another
investment company for those of the failed Portfolio (including but not limited
to an order pursuant to Section 26(b) of the 1940 Act); such costs are to
include , but are not limited to, reasonable fees and expenses of legal counsel
to Transamerica and any federal income taxes or tax penalties (or "toll charges"
or exactments or amounts paid in settlement) incurred by Transamerica with
respect to itself or owners of its Contracts in connection with any such
failure.
6.6 The Fund shall provide Transamerica or its designee with reports
demonstrating compliance with the aforesaid Section 817(h) diversification and
Subchapter M qualification requirements, at the time provided for and
substantially in the form attached hereto as Schedule E provided, however, that
providing such reports does not relieve the Fund or Adviser of their
responsibility for such compliance or of their liability for any non-compliance.
ARTICLE VII. Potential Conflicts and Compliance with Shared
Funding Exemptive Order
7.1 The Board will monitor the Fund for existence of any irreconcilable
material conflict between the interests of the contract owners of all separate
accounts investing in the Fund. An irreconcilable material conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance, tax
or securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by a Participating Insurance Company to disregard the voting
<PAGE>
instructions of contract owners. The Board shall promptly inform Transamerica if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2 Transamerica will report any potential or existing conflicts of which
it is aware to the Board. Transamerica will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by
Transamerica to inform the Board whenever contract owner voting instructions are
to be disregarded. Such responsibilities shall be carried out by Transamerica
with a view only to the interests of its Contract Owners.
7.3 If it is determined by a majority of the Board, or a majority of its
directors who are not interested persons of the Fund, the Adviser or any
sub-adviser to any of the Portfolios (the "Independent Directors"), that an
irreconcilable material conflict exists, Transamerica and other Participating
Insurance Companies shall, at their expense and to the extent reasonably
practicable (as determined by a majority of the Independent Directors), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to and including: (1), withdrawing the assets allocable to some or
all of the separate accounts from the Fund or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e., annuity
contract owners, life insurance contract owners, or variable contract owners of
one or more participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected contract owners the option of making
such a change; and (2), establishing a new registered management investment
company or managed separate account.
7.4 If an irreconcilable material conflict arises because of a decision by
Transamerica to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, Transamerica
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement; provided, however that such withdrawal
and termination shall be limited to the extent required by the foregoing
irreconcilable material conflict as determined by a majority of the Independent
Directors. Any such withdrawal and termination must take place within six (6)
months after the Fund gives written notice that this provision is being
implemented, and until the end of that six month period the Adviser and the Fund
shall continue to accept and implement orders by Transamerica for the purchase
(and redemption) of shares of the Fund.
7.5 If an irreconcilable material conflict arises because a particular
state insurance regulator's decision applicable to Transamerica conflicts with
the majority of other state regulators, then Transamerica will withdraw the
Account's investment in the Fund and terminate this Agreement within six months
after the Board informs Transamerica in writing that it has determined that such
<PAGE>
decision has created an irreconcilable material conflict; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing irreconcilable material conflict as determined by a
majority of the disinterested members of the Board. Until the end of the
foregoing six month period, the Adviser and the Fund shall continue to accept
and implement orders by Transamerica for the purchase (and redemption) of shares
of the Fund.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the Independent Directors shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Fund be required to establish a new funding medium for the Contracts.
Transamerica shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially and adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then Transamerica will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs
Transamerica in writing of the foregoing determination; provided, however, that
such withdrawal and termination shall be limited to the extent required by any
such irreconcilable material conflict as determined by a majority of the
Independent Directors.
7.7 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mix or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.6, 3.7, 3.8, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By Transamerica
8.1(a). Transamerica agrees to indemnify and hold harmless the
Fund, its officers, each member of its Board, and the Adviser
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in settlement with the written consent of Transamerica)
or litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
<PAGE>
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus or SAI for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this Agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished in writing to
Transamerica or Schwab by or on behalf of the Adviser or Fund for use
in the registration statement or prospectus for the Contracts or in
the Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the Fund not
supplied by Transamerica or persons under its control) or wrongful
conduct of Transamerica or persons under its control with respect to
the sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement, prospectus, or
sales literature of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was
made in reliance upon information furnished in writing to the Fund by
or on behalf of Transamerica; or
(iv) arise as a result of any failure by Transamerica to provide the
services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Transamerica in this Agreement
or arise out of a result from any other material breach of this
Agreement by Transamerica,
as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8.1(b). Transamerica shall not be liable under this indemnification
provision with respect to any losses, claims, expenses, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c). Transamerica shall not be liable under this
indemnification provision with respect to any claim made against an
<PAGE>
Indemnified Party unless such Indemnified Party shall have notified
Transamerica in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall have
been served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent). Notwithstanding
the foregoing, the failure of any Indemnified Party to give notice as provided
herein shall not relieve Transamerica of its obligations hereunder except to the
extent that Transamerica has been prejudiced by such failure to give notice. In
addition, any failure to notify Transamerica of any such claim shall not relieve
Transamerica from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, Transamerica shall be entitled to participate, as its own
expense, in the defense of such action. Transamerica also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from Transamerica to such party of Transamerica's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and Transamerica will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify Transamerica of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the operation
of the Fund.
8.2. Indemnification By Schwab
8.2(a). Schwab agrees to indemnify and hold harmless the Fund, its
officers, each member of its Board, and the Adviser (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of Schwab) or litigation (including legal
and other expenses),to which the Indemnified Parties may become subject under
any statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of Schwab's dissemination of information regarding the
Fund that is both (A) materially incorrect and (B) that was not either
contained in the Fund's registration statement or sales literature or
provided in writing to Schwab, or approved in writing, by or on behalf
of the Fund or the Adviser; or
(ii) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in sales literature
for the Contracts or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this Agreement to indemnify shall not apply
to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished in writing to Transamerica or Schwab by or on
<PAGE>
behalf of the Adviser or Fund for use in the registration statement or
prospectus for the Contracts or in the Contracts or sales literature
(or any amendment or supplement ) or otherwise for use in connection
with the sale of the Contracts; or
(iii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the Fund not
supplied by Schwab or persons under its control) or wrongful conduct
of Schwab or persons under its control, with respect to the sale or
distribution of the Contracts; or
(iv) arise as a result of any failure by Schwab to provide the
services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Schwab in this Agreement or
arise out of or result from any other material breach of this
Agreement by Schwab,
as limited by and in accordance with the provisions of Sections
8.2(b) and 8.2(c) hereof.
8.2(b). Schwab shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.2(c) Schwab shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified Schwab in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent). Notwithstanding the
foregoing, the failure of any Indemnified Party to give notice as provided
herein shall not relieve Schwab of its obligations hereunder except to
the extent that Schwab has been prejudiced by such failure to give notice.
In addition, any failure to notify Schwab of any such claim not
relieve Schwab from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision. Notwithstanding the foraging, the failure of any
Indemnified Party to give notice as provided herein shall not relieve Schwab, of
its obligations hereunder except to the extent that Schwab has been prejudiced
by such failure to give notice. In case any such action is brought against the
Indemnified Parties, Schwab shall be entitled to participate, at its own
expense, in the defense of such action. Schwab also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in the action.
After notice from Schwab to such party of Schwab's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
<PAGE>
additional counsel retained by it, and Schwab will not be liable to such
party under this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.2(d). The Indemnified Parties will promptly notify Schwab of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.3 Indemnification By the Adviser
8.3(a). The Adviser agrees to indemnify and hold harmless
Transamerica and Schwab and each of their directors and officers and each
person, if any, who controls Transamerica or Schwab within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes
of this Section 8.3) against any and all losses, claims, expenses, damages,
liabilities (including amounts paid in settlement with the written consent of
the Adviser)or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or SAI or sales literature of the fund (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this Agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished in
writing to the Adviser or Fund by or on behalf of Transamerica or
Schwab for use in the registration statement or prospectus for the
Fund or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature for the
contracts not supplied by the Adviser or persons under its control) or
wrongful conduct of the Fund or Adviser or persons under their
control, with respect to the sale or distribution of the Contracts or
Fund shares; or
<PAGE>
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus or
sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished in writing to Transamerica or Schwab by or on behalf of
the Adviser or Fund; or
(iv) arise as a result of any failure by the Fund or Adviser to
provide the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good faith
or otherwise, to comply with the diversification and other
qualification requirements specified in Article VI of this Agreement);
or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund or Adviser in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Adviser,
as limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof.
8.3(b). The Adviser shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation to which an Indemnified Party would otherwise
be subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or negligence in the performance or such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and duties under
this Agreement or to Transamerica or to Schwab or the Account, whichever is
applicable.
8.3(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Adviser of its obligations hereunder except to the extent that the
Adviser has been prejudiced by such failure to give notice. In addition, any
failure to notify the Adviser of any such claim shall not relieve the Adviser
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
<PAGE>
In case any such action is brought against the Indemnified Parties, the
Adviser will be entitled to participate, at its own expense, in the defense
thereof. The Adviser shall also be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Adviser to such party of the Adviser's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Adviser will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.3(d). Transamerica and Schwab agree promptly to notify the Adviser
of the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the contracts
or the operation of the Account.
8.4 Indemnification By the Fund
8.4(a). The Fund agrees to indemnify and hold harmless Transamerica
and Schwab and each of their directors and officers and each person, if any, who
controls Transamerica or Schwab within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.4)
against any and all losses, claims, expenses, damages, liabilities (including
amounts paid in settlement with the written consent of the Fund) or litigation
(including legal and other expenses) to which the Indemnified Parties may be
required to pay or may become subject under any statute or regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expense (or actions in respect thereof) or settlements, result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement
(including a failure to comply with diversification and other
qualification requirement specified in Article VI of this
Agreement); or
(ii) arise out of result from any material breach of any representation
and/or warranty made by the Fund in this Agreement or arise out of
or result from any other material breach of this Agreement by the
Fund,
as limited by and in accordance with the provisions of Sections
8.4(b) and 8.4(c) hereof.
8.4(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
<PAGE>
Party's reckless disregard of obligations and duties under this Agreement
or to Transamerica, Schwab, the Fund, the Adviser or the Account, whichever is
applicable.
8.4(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Fund of its obligations hereunder except to the extent that the Fund
has been prejudiced by such failure to give notice. In addition, any failure to
notify the Fund of any such claim shall not relieve the Fund from any liability
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Fund will not be liable
to such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.4(d). Transamerica and Schwab each agree promptly to notify the
Fund of the commencement of any litigation or proceeding against itself or any
of its respective officers or directors in connection with the Agreement, the
issuance or sale of the contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of California,
except the California Conflict of Laws provisions thereof.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
<PAGE>
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party with or without cause, with
respect to some or all Portfolios, upon one (1) year advance
written notice delivered to the other parties; provided,
however, that such notice shall not be given earlier than
one year following the date of this Agreement; or
(b) at the option of Transamerica by written notice to the
other parties with respect to any Portfolio based upon
Transamerica's determination that shares of such Portfolio
are not reasonably available to meet the requirements of the
Contracts; or
(c) at the option of Transamerica by written notice to the
other parties with respect to an portfolio in the event any
of the Portfolio's shares are not registered, issued or sold
in accordance with applicable state and/or federal law or
such law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by
Transamerica; or
(d) at the option of the Fund in the event that formal
administrative proceedings are instituted against
Transamerica or Schwab by the NASD, the SEC, the Insurance
Commissioner or like official of any state or any other
regulatory body regarding Transamerica's or Schwab's duties
under this Agreement or related to the sale of the
Contracts, the operation of any Account, or the purchase of
the Fund shares, provided, however, that the Fund determines
in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse
effect upon the ability of Transamerica or Schwab to perform
its obligations under this Agreement; or
(e) at the option of Transamerica in the event that formal
administrative proceedings are instituted against the Fund
or Adviser by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body, provided,
however, that Transamerica determines in its sole judgment
exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the
ability of the Fund or Adviser to perform its obligations
under this Agreement; or
<PAGE>
(f) at the option of Transamerica by written notice to the
Fund and the Adviser with respect to any Portfolio if
Transamerica reasonably believes that the Portfolio will
fail to meet the Section 817(h) diversification requirements
or Subchapter M qualifications specified in Article VI
hereof; or
(g) at the option of either the Fund or the Adviser, if (i)
the Fund or Adviser, respectively, shall determine, in their
sole judgment reasonably exercised in good faith, that
either Transamerica or Schwab has suffered a material
adverse change in their business or financial condition or
is the subject of material adverse publicity and the
material adverse change or publicity will have a material
adverse impact on Transamerica's or Schwab's ability to
perform its obligations under this Agreement (ii) the Fund
or Adviser notifies Transamerica or Schwab, as appropriate,
of that determination and its intent to terminate this
Agreement, and (iii) after considering the actions taken by
Transamerica or Schwab and any other changes in
circumstances since the giving of such notice, the
determination of the Fund or Adviser shall continue to apply
on the sixtieth (60) day following the giving of that
notice, which sixtieth day shall be the effective date of
termination; or
(h) at the option of either Transamerica or Schwab, if (i)
Transamerica or Schwab, respectively, shall determine, in
its sole judgment reasonably exercised in good faith, that
either the Fund or the Adviser has suffered a material
adverse change in its business or financial condition or is
the subject of material adverse publicity and that material
adverse change or publicity will have a material adverse
impact on the Fund's or Adviser's ability to perform its
obligations under this Agreement, (ii) Transamerica or
Schwab notifies the Fund or Adviser, as appropriate, of that
determination and its intent to terminate this Agreement,
and (iii) after considering the actions taken by the Fund or
Adviser and any other changes in circumstances since the
giving of such a notice, the determination of Transamerica
or Schwab shall continue to apply on the sixtieth (60th) day
following the giving of that notice, which sixtieth day
shall be the effective date of termination; or
<PAGE>
(i) at the option of Transamerica in the event that formal
administrative proceedings are instituted against Schwab by
the NASD, the Securities and Exchange Commission, or any
state securities or insurance department or any other
regulatory body regarding Schwab's duties under this
Agreement or related to the sale of the Fund's shares or the
Contracts, the operation of any Account, or the purchase of
the Fund shares, provided, however, that Transamerica
determines in its sole judgment exercised in good faith,
that any such administrative proceedings will have a
material adverse effect upon the ability of Schwab to
perform its obligations related to the Contracts.
10.2 Notice Requirement. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties of its intent to terminate, which notice
shall set forth the basis for the termination. Furthermore,
(a) in the event that any terminating is based upon the provisions of
Article VII, or the provisions of Section 10.1(a), 10.1(g) or 10.1(h) of
this Agreement, the prior written notice shall be given in advance of the
effective date of termination as required by those provisions;
(b) in the event that any terminating is based upon the provisions of
Section 10.1(d), 10.1(e) or 10.1 i) of this Agreement, the prior written
notice shall be given at least sixty (60) days before the effective date of
termination; and
(c) in the event that any termination is based upon the provisions of
Section 10.1(b), 10.1(c) or 10.1 f), the prior written notice shall be
given in advance of the effective date of termination, which date shall be
determined by the party sending the notice.
10.3 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Adviser shall, at the option of Transamerica,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.3 shall not apply to
any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
<PAGE>
10.4 Surviving Provisions. Notwithstanding any termination of this
Agreement, each party's obligations under Article VIII to indemnify other
parties shall survive and not be affected by any termination of this Agreement.
In addition, with respect to Existing Contracts, all provisions of this
Agreement shall also survive and not be affected by any termination of this
Agreement.
10.5 Survival of Agreement. A termination by Schwab shall terminate this
Agreement only as to that party, and this Agreement shall remain in effect as to
the other parties; provided, however, that in the event of a terminating by
Schwab, the other parties shall have the option to terminate this Agreement upon
60 (sixty) days notice, rather than the one (1) year specified in Section 10.1
(a).
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may form time to time specify in writing
to the other party.
If to the Fund:
INVESCO Variable Investment Funds, Inc.
7800 East Union Avenue, Suite 800
Denver, CO 80237
Attention: General Counsel
If to Transamerica:
Transamerica Occidental Life Insurance Company
1150 South Olive
Los Angeles, CA 90015
Attention: President, Living Benefits Division
If to the Adviser:
INVESCO Funds Group, Inc.
7800 East Union Avenue, Suite 800
Denver, CO 80237
Attention: General Counsel
If to Schwab:
Charles Schwab & CO., Inc.
101 Montgomery Street
San Francisco, CA 94104
Attention: General Counsel
<PAGE>
ARTICLE XII. Miscellaneous
12.1 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
address and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain.
12.2 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.5 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the NASD and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby. Notwithstanding the generality of the
foregoing, each party hereto further agrees to furnish the California Insurance
Commissioner with any information or reports in connection with services
provided under this Agreement which such Commissioner may request in order to
ascertain whether the variable annuity operations of Transamerica are being
conducted in a manner consistent with the California Variable Annuity
Regulations and any other applicable law or regulations.
12.6 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity which the parties hereto are entitled to under state and
federal laws.
12.7 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
<PAGE>
12.8 IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as to the date
specified below.
Transamerica:
TRANSAMERICA OCCIDENTAL LIFE INSURANCE
COMPANY
By its authorized officer,
By: /s/ James W. Dederer
------------------------
Title:----------------------
Date: 3/22/94
----------------
Fund:
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
By:/s/Ronald L. Grooms
--------------------------
Title:Treasurer
------------------
Date: 3/22/94
------------------
Adviser:
INVESCO FUNDS GROUP, INC.
By its authorized officer,
By:/s/ Ronald L. Grooms
--------------------------
Title: Senior Vice President and Treasurer
-----------------------------------
Date: 3/22/94
--------------------
Schwab:
CHARLES SCHWAB & CO., INC.
By its authorized officer,
By: /s/Gene Strandberg
--------------------
Title:Vice President
---------------------
Date: 3/22/94
-------------------
<PAGE>
Schwab Investment Advantage, A Variable Annuity
SCHEDULE A
Contracts Form Numbers
--------- ------------
Transamerica Occidental Life Insurance Company
Group Annuity Contract Form No. GNP-215-193
Dollar Cost Averaging Endorsement Form No. GPM-020-193
Automatic Payout Option Endorsement Form No. GPM-021-193
Systematic Withdrawal Option Endorsement Form No. GPM-022-193
Acceptance of Group Annuity Contract Form No. GNA-212-193
Variable Annuity Application Form No. GNA-213-193
Certificate of Participation Form No. GNC-37-193
IRA Endorsement Form No. GCE-020-193
Benefit Distribution Endorsement Form No. GCE-021-193
Dollar Cost Averaging Endorsement Form No. GCE-022-193
Automatic Payout Option Endorsement Form No. GCE-923-193
Systematic Withdrawal Option Endorsement Form No. GCE-024-193
First Transamerica Life Insurance Company
Group Annuity Contract Form No. FTGP-501-193
Dollar Cost Averaging Endorsement Form No. FTGE-003-193
Automatic Payout Option Endorsement Form No. FTGE-004-193
Systematic Withdrawal Option Endorsement Form No. FTGE-005-193
Acceptance of Group Annuity Contract Form No. FTGA-003-193
Variable Annuity Application Form No. FTGA-004-193
Certificate of Participation Form No. FTCG-101-193
IRA Endorsement Form No. FTCE-005-193
Benefit Distribution Endorsement Form No. FTCE-006-193
Dollar Cost Averaging endorsement Form No. FTCE-007-193
Automatic Payout Option Endorsement Form No. FTCE-008-193
Systematic Withdrawal Option Endorsement Form No. FTCE-009-193
Annuity Rate Table Endorsement Form No. FTCE-010-193
<PAGE>
SCHEDULE B
Designated Portfolios
INVESCO VIF-Industrial Income Portfolio
INVESCO VIF-Total Return Portfolio
INVESCO VIF-High Yield Portfolio
<PAGE>
SCHEDULE C
Certain Investment Policies and Restrictions
Imposed by the
California Department of Insurance
Pursuant to Section 2.4 hereof, the Fund represents and warrants that it
is and shall at all times remain in compliance with the following investment
policies and restrictions. THESE ARE IN ADDITION TO other related obligations of
the Fund, including the general obligation to comply with all applicable laws
and regulations, including but not limited to California insurance laws and
regulations the Investment Company Act of 1940, and other applicable insurance
and securities laws.
[Note: The following are derived from a questionnaire used by the
California Department of Insurance as part of an insurance company's application
for qualification to transact a variable annuity business. The parenthetical
references below are to question numbers in that questionnaire.]
The Fund represents and warrants that:
1. All repurchase agreements will be transacted only with entities meeting
specific credit and solvency standards administered and verified by the Adviser
(46(a)).
2. All repurchase transactions will be executed pursuant to a comprehensive
master repurchase agreement setting forth the terms and conditions of the
transaction, and having the incidents of a valid promissory note in favor of the
Fund (46(b)).
3. A valid, binding security interest in favor of the Fund or portfolio thereof
will be created and perfected in all collateral securing such repurchase
agreements (46(c)).
4. All such repurchase agreements will be secured at all times by collateral
consisting of liquid assets having a market value of not less than 102% of the
cash or assets transferred to the other party (46(d)).
<PAGE>
5. All securities lending activities will be entered into only with entities
meeting specific credit and solvency standards administered and verified by the
Adviser (47).
6. All investments in instruments or certificates of any sort issued by the
U.S. Office of a bank or other savings institution domiciled in a foreign
nation, or a foreign branch of a U.S. savings institution, will be instruments
or certificates payable in the United States and in U.S. dollars (48).
7. All investments of the Fund which possess a readily- available market value
will be valued either at their market value on the date of valuation, or at
amortized cost if it approximates market value within the limits and constraints
imposed by the U.S. Securities and Exchange Commission (49).
8. All investments of the Fund which lack a readily-available market will be
valued according to specific, objective methods or procedures set forth in
writing (50).
9. The investment manager of each portfolio or series of the Fund possesses
substantial expertise and experience as an investment manager or advisor of a
portfolio consisting of asset and investments of the same type as he or she will
manage in regard to the portfolio or series. (If experience is less than three
years, please provide resume of investment manager; note that in this case, the
company must provide notarized certifications that it has fully investigated and
is satisfied with the qualifications, background, and expertise of the
investment manager). (52).
10. At no time during the past ten years have the managers of any portfolio or
series resigned to avoid dismissal or been dismissed or requested to resign from
any position involving investment duties, on account of violation of any law,
rule or ethical standard relating to insurance, annuities, or securities (53).
11. The investment advisory agreements concerning the Fund's operations provide
in substance that notwithstanding any other provisions of the agreement, it is
understood and agreed that the Fund shall retain the ultimate responsibility for
and control of all investments made pursuant to the agreement, and reserve the
right to direct, approve or disapprove any action taken on its behalf by the
investment advisor (54).
12. Every custodian holding securities or other assets of the Fund is an
institution permitted to serve in such capacity by the Investment Company Act of
1940 and/or reviewed and approved for such purpose by the U.S. Securities and
Exchange Commission (55).
13. The Fund refuses to employ in any material connection with the handling
of assets of the Fund, any persons who:
(a) In the last 10 years has been convicted of any felony or misdemeanor
arising out of conduct involving embezzlement, fraudulent conversion, or
misappropriation of funds or securities, or involving violations of Title 18,
United States Code ss.ss.1341, 1342, or 1343 (58(a)).
<PAGE>
(b) Within the last 10 years has been found by any-state regulatory
authority to have violated, or has acknowledged violation of, any provision of
any state insurance law involving fraud, deceit or knowing misrepresentation
(59(b)).
(c) Within the last 10 years has been found by any federal or state
regulatory authorities to have violated, or have acknowledged violation of, any
provisions of federal or state securities laws involving fraud, deceit or
knowing misrepresentation (58(c)).
14. The Fund will make inquiries and attempt to determine that no persons,
firms, or employees of firms which supply consulting, investment,
administrative, custodial or other services affecting the administration of the
Company's variable annuity business (including such services for the Fund), have
been subject to the sanctions described in the preceding representation (59).
15. The Fund will seek to prevent its officers and Board members, and officers,
directors and portfolio managers of the investment advisor, from receiving,
directly or indirectly, any commission, or any other compensation with respect
to the purchase or sale of assets of the Fund (61).
16. No officer, director, trustee, or member of any governing board or body of
the Fund will receive directly or indirectly any commissions or any other
compensation contingent upon the writing, issuance, sale procurement of
application for, renewal, of any variable annuity contract (62).
17. All service agreements affecting the administration of the Fund allow the
Fund to terminate such contracts without payment of any penalty, forfeiture,
compulsory buyout amount, or performance of any other obligation which could
deter termination (65).
18. All service agreements affecting the administration of the Fund afford the
Fund a right to cancel the contract and discharge the servicing entity or person
in the event such entity or person fails to perform in a satisfactory manner
(66).
19. All service agreements affecting the administration of the Fund provide that
the Fund shall own and control all the pertinent records pertaining to its
operations (67).
20. All service agreements affecting the administration of the Fund provide that
the Fund shall have the right to inspect, audit and copy all records pertaining
to performance of services under the agreement (68).
<PAGE>
SCHEDULE D
Administrative Services
To be performed by Charles Schwab & Co., Inc.
A. Schwab will provide the properly registered and licensed personnel and
systems needed for all customer servicing and support - for both fund and
annuity information and questions including:
delivery of prospectuses - both fund and annuity;
entry of initial and subsequent orders;
transfer of cash to insurance company and/or funds;
explanations of fund objectives and characteristics;
entry of transfers between funds;
fund balance and allocation inquiries;
mail fund prospectuses;
B. Schwab will calculate on a daily basis for each fund the number of shares and
the asset balance on which the fee is to be paid pursuant to this agreement.
Also provided will be a monthly summary of the reports, expressed in both shares
and dollar amounts.
C. Schwab will communicate all purchase, withdrawal, and exchange orders it
receives form its customers to Transamerica who will retransmit them to each
fund.
D. For the services, Schwab shall receive a fee of 0.20% per annum applied to
the average daily value of the shares of the fund held by Schwab's customers,
payable by the Adviser directly to Schwab, such payments being due and payable
within 15 (fifteen) days after the last day of the month to which such payments
relates.
<PAGE>
SCHEDULE E
Reports per Section 6.6
With regard to the reports relating to the quarterly testing of compliance
with the asset diversification requirements of Section 817(h) and Subchapter M
under the Internal Revenue Code (the "Code") and the regulations thereunder, the
Fund shall provide within twenty (20) Business Days of the close of the calendar
quarter a report in the attached Forms E.1 and E.2 regarding the status under
such sections of the Code of the Designated Portfolios, and if necessary,
identification of any remedial action to be taken to remedy non-compliance.
With regard to the reports relating to the year-end testing of compliance
with the gross income requirements of Subchapter M of the Code, referred to
hereinafter as "RIC status", the Fund will provide the reports on the following
basis: the year-end report in the attached Form E.3 will be provided 45 days
after the end of the calendar year, but prior thereto, the Fund will provide the
additional interim and supplemental reports, described below.
The additional reports are as follows:
1. A report in the usual reporting format and content, as of November 30, of the
fiscal year ending the following December 31. The report will be provided under
cover of a letter from the Advisor stating that the Fund is in full compliance
with the requirements of Section 817(h) and Subchapter M of the Code. Assuming
such satisfactory report, the Fund will not provide any additional interim
reports. The report will be delivered by facsimile by the twentieth day of
December.
2. In the alternative, if a problem, as defined below, is identified in the
November report or its accompanying transmittal letter, additional interim
reports, on a weekly basis, starting on the 15th of December and through the
30th of December, also will be supplied ("additional interim reports"). The
additional interim reports will not follow the format of the regular reports,
but will specifically address the problem identified in the November 30 report.
If any interim report, thereafter, memorializes the cure of the problem,
subsequent additional reports will not be required.
<PAGE>
With regard to delivery of the additional reports, they will be transmitted by
facsimile on the next Business Day, subject to the following schedule of special
dates: if the 15th of December is a Saturday, the required report date will be
accelerated to the 14th of December, if the 15th of December is a Sunday the
report will be transmitted on the 16th of December.
3. A problem with regard to RIC status is defined as any violation of the
following standards, as referenced to the applicable sections of the Code:
(a) Less than ninety-five percent of gross income is derived from sources
of income specified in Section 851(b)(2);
(b) Twenty-five percent or greater gross income is derived from the sale or
disposition of assets specified in Section 851(b)(3);
(c) Fifty-five percent or less of the value of total assets consists of
assets specified in Section 851(b)(4)(A); and
(d) Twenty percent or more of the value of total assets is invested in the
securities of one issuer, as that requirement is set forth in Section
851(b)(4)(B).
<PAGE>
E.1
817(h) Test
Fund Name------------------ Date of Report------------------
First Second Third Fourth
Asset Diversification Test Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
Total Assets
==================================================
Cash
--------------------------------------------------
Cash Items (incl.
Receivables)
--------------------------------------------------
Government Securities
--------------------------------------------------
Securities of Other RIC's
--------------------------------------------------
Subtotal
--------------------------------------------------
--------------------------------------------------
Percentage < or = to 55%
--------------------------------------------------
<PAGE>
Fund Name------------------ Date of Report------------------
First Second Third Fourth
Asset Diversification Test Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
Total Assets ======= ======= ====== =======
List fund's four largest
investment in descending
order of value
Name/Account
1. ======= ======= ====== =======
2. ======= ======= ====== =======
3. ======= ======= ====== =======
4. ======= ======= ====== =======
Percentages:
1/Total Net Assets ------- ------- ------ -------
1+2/Total Net Assets ------- ------- ------ -------
1+2+3/Total Net Assets ------- ------- ------ -------
1+2+3+4/Total Net Assets ------- ------- ------ -------
Test:
Is % at A< or = 55% ------- ------- ------ -------
Is % at B< or = 70% ------- ------- ------ -------
Is % at C< or = 80% ------- ------- ------ -------
Is % at D< or = 90% ------- ------- ------ -------
<PAGE>
E.2
RIC Test
Fund Name------------------ Date of Report------------------
QUARTERLY ASSET DIVERSIFICATION TEST
1. Computations: 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
a. Total net assets:
cash, receivable,
securities and total
other assets $------ $------ $------- $------
5% of TNA ======= ======== ========= ========
b. Qualifying assets,
sum of:
(1) Cash, receivables, $------ $------ $------- $------
govt. securities
and securities of
other regulated
Investment Companies
(2) Other securities
not including: (a)
securities of any one
issuer having a value
in excess of 5% of
line 1a; or (b)
securities representing
more than 10% of
the outstanding voting
securities of any one
issuer (See attached
for detail.) $------ $------ $------- $------
(3) Total qualifying
assets: sum of (1) +
(2) $------ $------ $------- $------
(4) Total nonqualifying $------ $------ $------- $------
<PAGE>
(5) Total net assets:
(should equal a.)
sum of (3) + (4) $------ $------ $------- $------
<PAGE>
Fund Name------------------ Date of Report------------------
2. Requirements (Answer Yes/No)
a. Are total qualifying
assets equal to or
greater than 50% of
total assets? $------ $------ $------- $------
b. Is not more than 25%
of total assets
invested in the
securities (other
than U.S. government
securities or the
securities of other
RICs) of any one
issuer? $------ $------ $------- $------
c. Are total non-
qualifying assets
over 25%? $------ $------ $------- $------
d. If yes, are securities
qualifying at date of
purchase? (See
attached for detail.) $------ $------ $------- $------
<PAGE>
Fund Name------------------ Date of Report------------------
A. Securities of an one issuer having a value in excess of 5% of
line 1a:
QTR SECURITY MARKET VALUE % OF MKT VAL > 5% OF TNA
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<PAGE>
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B. Securities representing more than 10% of the outstanding
voting securities of any one issuer.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
-------- -------- -------- --------
<PAGE>
Fund Name------------------ Date of Report------------------
QUARTERLY ASSET DIVERSIFICATION TEST
Nonqualifying assets: client appraisals
a. Securities of issuer w/value > 5% of total asset
<TABLE>
<CAPTION>
PRIOR MKT VALUE
PRIOR DAY'S AT TIME
ACQUISITION PURCHASES NAV OF LAST
QUARTER SECURITY DATE VALUE COST VALUE PURCHASE
<S> <C> <C> <C> <C> <C> <C>
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</TABLE>
<PAGE>
E.3
Fund Name------------------ Date of Report------------------
TAX COMPUTATION OF INVESTMENT
COMPANY FISCAL YEAR INCOME GROSS
INCOME TESTS (ANNUAL)
UTI
---------------------------------------------
BOOK TAX ADJ TAX BASIS
---------------------------------------------
1.Interest and dividend income
---------------------------------------------
2.Gross gains on stock or
securities held three months or
More (exclude each sale at a
loss).
---------------------------------------------
3. Gross gains on options,
futures or forward contracts
held for three months or more
related to stock or securities
(exclude each transaction
generating a loss).
---------------------------------------------
4. Gains from foreign
currencies which are directly
related to the Fund's principal
business of investing in stock
or securities (or options and
futures with respect to stock
or securities).
---------------------------------------------
5. Other income (describe)
related to Fund's business of
investing in stock or
securities.
---------------------------------------------
6. Other income (describe) NOT
related to Fund's business of
investing in stock or
securities.
<PAGE>
---------------------------------------------
7. Gains from foreign
currencies NOT directly related
to the Fund's principal
business of investing in stock
or securities (or options and
futures with respect to stock
and securities) held Three
Months or MORE.
---------------------------------------------
8. Gains from foreign
currencies NOT directly related
to the fund's principal
business of investing in stock
or securities (or options and
futures with respect to stock
and securities) held Less than
Three Months.
---------------------------------------------
9. Gross gains form stock or
securities held Less than Three
Months (exclude each sale at a
loss).
---------------------------------------------
10. Gross gains on options,
futures and forward contracts
held for Less than Three Months
related to stock or securities
(exclude each transaction
generating a loss).
---------------------------------------------
11. Gross Income (Sum of 1-10)
---------------------------------------------
12. Requirements (1=YES 0=NO)
---------------------------------------------
a. Is other income (lines
6+7+8) not related to
Fund's business less
than or equal to 10 percent
of gross income (line 10)?
---------------------------------------------
b. Are gross gains on securities
held less than three months
(line 8+9+10) less than 30
percent of gross Income
(line 11)?
---------------------------------------------
<PAGE>
SCHEDULE F
EXPENSES
1. The Fund and Transamerica will pay the costs of printing and/or
distributing copies of the documents based upon an allocation of costs
that reflects the Fund's share of the total costs determined according to
the number of pages of the parties' and other fund's respective portions
of the documents.
2. The Adviser and Transamerica will pay the costs of printing and/or
distributing copies of the documents based upon an allocation of costs
that reflects the Adviser's share of the total costs determined according
to the number of pages of the parties' and other funds' respective
portions of the documents.
================================================================================
RESPONSIBLE
ITEM FUNCTION PARTY
================================================================================
PROSPECTUS
- --------------------------------------------------------------------------------
Annual Update Printing 1
Distribution 1
- --------------------------------------------------------------------------------
New Sales:
Marketing (supply and distribution 2
of prospectuses to persons who
have not yet invested in a
Designated Portfolio)
Delivery of prospectuses to
satisfy legal prospectus delivery
requirements (e.g., copies sent 1
with confirmations of sales)
- --------------------------------------------------------------------------------
Existing Supply quantities described in 1
Owners: Section 3.4
Distribution 1
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Interim Updates
- --------------------------------------------------------------------------------
New Sales: Marketing (supply and distribution 2
of prospectuses to persons who
have not yet invested in a
Designated Portfolio)
Deliver of propsectuses to satisfy 1
legal prospectus delivery
requriements (e.g., copies sent
with confirmations of sales)
If required by Participating PIC
Insurance Company (PIC)
If required by Schwab Schwab
- --------------------------------------------------------------------------------
Existing Owners: If required by Fund or Adviser: Fund
If required by PIC: PIC
IF required by Schwab Schwab
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF Same as Prospectus Same
ADDITIONAL
INFORMATION
- --------------------------------------------------------------------------------
PROXY MATERIALS Printing Fund
OF THE FUND
Distribution
Fund
(a) If required by law:
(B) If required by participating PIC insurance company:
(c) If required by Schwab Schwab
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
ANNUAL REPORTS & Printing Fund
OTHER
COMMUNICATIONS
WITH SHAREHOLDERS Distribution 1
OF THE FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OPERATIONS OF All operations and related Fund
FUND expenses, including the cost of
registration and qualification
of the Fund's shares, preparation
and filing of the Fund's prospectus
and registration statement,
proxy materials and reports, the
preparation of all statements
and notices required by any
federal or state law and all
taxes on the issuance of the
Fund's shares, and all costs of
management of the business
affairs of the Fund.
- --------------------------------------------------------------------------------
* Schwab will advise the Adviser and the Fund of the allocation of the foregoing
expenses among the parties as soon as possible after such allocations are
determined.
<PAGE>
SCHEDULE G
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities of the
handling of proxies relating to the fund by the Adviser, the Fund and
Transamerica. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Transamerica" shall also include
the department or third party assigned by Transamerica to perform the steps
delineated below.
1. The number of proxy proposals is given to Transamerica by the Adviser
as early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Adviser will inform Transamerica of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, Transamerica will perform a "tape run,"
or other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Contract Owners") as of the Record Date. Allowance should be made for
account adjustments made after this date that could affect the status of
the Contract Owners' accounts of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. Transamerica will use its best efforts to call in
the number of Contract Owners to the Adviser, as soon as possible, but no
later than one week after the Record Date.
3. The Fund's Annual Report must be sent to each Contract Owner by
Transamerica either before or together with the Contract Owner's receipt
of a proxy statement. The Adviser will provide at least one copy of the
last Annual Report to Transamerica.
4. The text and format for the Voting Instruction cards ("Cards" or
"Card") is provided to Transamerica by the Fund. Transamerica shall
produce and personalize the voting Instruction cards. The Legal Department
of the Adviser ("Adviser Legal") must approve the Card before it is
printed.
<PAGE>
Allow approximately 2-4 business days for printing information on the
cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification
of votes (already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due
to possible uncertainties relating to the proposals.)
5. During this time, Adviser Legal will develop and produce the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Insurance Fund for insertion into envelopes
(envelopes and return envelopes are provided and paid for by
Transamerica). Contents of envelope sent to Contract Owners by
Transamerica will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. Return envelope (postage pre-paid) addressed to
Transamerica or its tabulation agent
d. "Urge buckslip" - optional, but recommended. (This is a
small single sheet of paper that requests Contract Owners
to vote as quickly as possible and that their vote is
important. One copy will be supplied by the Fund.)
e. Cover letter - optional, supplied by Transamerica and
reviewed and approved in advance by Adviser Legal.
6. The above contents should be received by Transamerica approximately 3-5
business days before mail date. Individual in charge at Transamerica
reviews and approves the contents of the mailing package to ensure
correctness and completeness.
Copy of this approval sent to Adviser Legal.
7. Package mailed by Transamerica.
* The Fund must allow at least a 15-day solicitation time
to Transamerica as the shareowner. (A 5-week period is
recommended.) Solicitation time is calculated as calendar
<PAGE>
days from (but not including) the meeting, counting
backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal
procedure.
9. If cards are mutilated, or for any reason are illegible or are
not signed properly, they are sent back to the Contract Owner
with an explanatory letter, a new Card and return envelope.
The mutilated or illegible Card is disregarded and considered
to be not received for purposes of vote tabulation. Such
mutilated or illegible Cards are "hand verified," i.e.,
examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
10. There are various control procedures used to ensure proper
tabulation of votes and accuracy of the tabulation. The most
prevalent is to sort the Cards as they first arrive into
categories depending upon their vote; an estimate of how the
vote is progressing may then be calculated. If the initial
estimates and the actual vote do not coincide, then an
internal audit of that vote should occur. This may entail a
recount.
11. The actual tabulation of votes is done in units which are then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Adviser Legal
must review and approve tabulation format.
12. Final tabulation in shares is verbally given by Transamerica to Adviser
Legal on the morning of the meeting not later than 10:00 a.m. Denver time.
Adviser Legal may request an earlier deadline if required to calculate the
vote in time for the meeting.
13. A certificate of Mailing and Authorization to Vote Shares will
be required from Transamerica as well as an original copy of
<PAGE>
the final vote. Adviser Legal will provide a standard form for
each Certification.
14. Transamerica will be required to box and archive the Cards received from
the Contract Owners. In the event that any vote is challenged or is
otherwise necessary for legal, regulatory, or accounting purposes, Adviser
Legal will be permitted reasonable access to such Cards.
15. All approvals and "signing-off" may be done orally, but must
always be followed up in writing.
PARTICIPATION AGREEMENT
Among
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO FUNDS GROUP, INC.
and
FIRST ING LIFE INSURANCE COMPANY OF NEW YORK
THIS AGREEMENT, made and entered into this 19th day of September, 1994 by
and among FIRST ING LIFE INSURANCE COMPANY OF NEW YORK, (hereinafter the
"Insurance Company"), a New York corporation, on its own behalf and on behalf of
each segregated asset account of the Insurance Company set forth on Schedule A
hereto as may be amended from time to time (each such account hereinafter
referred to as the "Account"), INVESCO VARIABLE INVESTMENT FUNDS, INC., a
Maryland corporation (the "Company") and INVESCO FUNDS GROUP, INC. ("INVESCO"),
a Delaware corporation.
WHEREAS, the Company engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable annuity and life insurance contracts
to be offered by insurance companies which have entered into participation
agreements substantially identical to this Agreement ("Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Company is divided into several
series of shares, each designated a "Fund" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Company has obtained an order from the Securities and
Exchange Commission (the "Commission"), dated December 29, 1993 (File No.
812-8590), granting Participating Insurance Companies and their separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (the "1940 Act") and
Rules 6e-2(b)(15) and 6e- 3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Company to be sold to and held by variable annuity and
variable life insurance separate accounts of life insurance companies that may
or may not be affiliated with one another (the "Mixed and Shared Funding
Exemptive Order"); and
<PAGE>
WHEREAS, the Company is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, INVESCO is duly registered as an investment adviser under the
Investment Advisers Act of 1940 and any applicable state securities law and as a
broker dealer under the Securities Exchange Act of 1934, as amended, (the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD"); and
WHEREAS, the Insurance Company has registered under the 1933 Act, or will
register under the 1933 Act, certain variable annuity and variable life
insurance contracts identified by the form number(s) listed on Schedule B to
this Agreement, as amended from time to time hereafter by mutual written
agreement of all the parties hereto (the "Contracts"); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the board of directors of the
Insurance Company on the date shown for that Account on Schedule A hereto, to
set aside and invest assets attributable to the Contracts; and
WHEREAS, the Insurance Company has registered or will register each
Account as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurance Company intends to purchase shares in the Funds on
behalf of the Accounts to fund the Contracts and INVESCO is authorized to sell
such shares to unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Insurance
Company, the Company and INVESCO agree as follows:
ARTICLE I. Sale of Company Shares
1.1. INVESCO agrees to sell to the Insurance Company those shares of the
Company which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Company or its designee of
the order for the shares of the Company. For purposes of this Section 1.1, the
Insurance Company shall be the designee of the Company for receipt of such
orders from the Accounts and receipt by such designee shall constitute receipt
by the Company; provided, that the Company receives notice of such order by 8:00
a.m., Mountain Time, on the next following Business Day. "Business Day" shall
<PAGE>
mean any day on which the New York Stock Exchange is open for trading and
on which the Company calculates its net asset value pursuant to the rules of the
Commission.
1.2. The Company agrees to make its shares available for purchase at the
applicable net asset value per share by the Insurance Company and its Accounts
on those days on which the Company calculates its Funds' net asset values
pursuant to rules of the Commission and the Company shall use reasonable efforts
to calculate its Funds' net asset values on each day on which the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the board of
directors of the Company (hereinafter the "Board") may refuse to sell shares of
any Fund to any person, or suspend or terminate the offering of shares of any
Fund if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of their fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of that Fund.
1.3. The Company and INVESCO agree that shares of the Company will be sold
only to Participating Insurance Companies and their separate accounts. No shares
of any Fund will be sold to the general public.
1.4. The Company and INVESCO will not sell Company shares to any insurance
company or separate account unless an agreement containing provisions
substantially the same as Sections 2.1, 3.4, 3.5 and Article VII of this
Agreement is in effect to govern such sales.
1.5. The Company agrees to redeem, on the Insurance Company's request, any
full or fractional shares of the Company held by the Insurance Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Company or its designee of the request for redemption. For
purposes of this Section 1.5, the Insurance Company shall be the designee of the
Company for receipt of requests for redemption from each Account and receipt by
that designee shall constitute receipt by the Company; provided that the Company
receives notice of the request for redemption by 8:00 a.m., Mountain Time, on
the next following Business Day.
1.6. The Insurance Company agrees to purchase and redeem the shares of
each Fund offered by the then-current prospectus of the Company in accordance
with the provisions of that prospectus. The Insurance Company agrees that all
net amounts available under the Contracts shall be invested in the Company, in
such other Funds advised by INVESCO as may be mutually agreed to in writing by
the parties hereto, or in the Insurance Company's general account, provided that
such amounts may also be invested in an investment company other than the
Company if (a) the other investment company, or series thereof, has investment
<PAGE>
objectives or policies that are substantially different from the investment
objectives and policies of all the Funds of the Company; or (b) the Insurance
Company gives the Company and INVESCO 45 days written notice of its intention to
make the other investment company available as a funding vehicle for the
Contracts; or (c) the other investment company was available as a funding
vehicle for the Contracts prior to the date of this Agreement and the Insurance
Company so informs the Company and INVESCO prior to their signing this
Agreement; or (d) the Company or INVESCO consents to the use of the other
investment company.
1.7. The Insurance Company shall pay for Company shares by 9:00 a.m.,
Mountain Time, on the next Business Day after an order to purchase Company
shares is made in accordance with the provisions of Section 1.1 hereof. Payment
shall be in federal funds transmitted by wire. For the purpose of Sections 2.10
and 2.11, upon receipt by the Company of the federal funds so wired, such funds
shall cease to be the responsibility of the Insurance Company and shall become
the responsibility of the Company. Payment of net redemption proceeds (aggregate
redemptions of a Fund's shares by an Account minus aggregate purchases of that
Fund's shares by that Account) of less than $1 million for a given Business Day
will be made by wiring federal funds to the Insurance Company on the next
Business Day after receipt of the redemption request. Payment of net redemption
proceeds of $1 million or more will be by wiring federal funds within seven days
after receipt of the redemption request. Notwithstanding the foregoing, in the
event that one or more Funds has insufficient cash on hand to pay net
redemptions on the next Business Day, and if such Fund has determined to settle
redemption transactions for all of its shareholders on a delayed basis (more
than one Business Day, but in no event more than seven calendar days, after the
date on which the redemption order is received, unless otherwise permitted by an
order of the Commission under Section 22(e) of the 1940 Act), the Company shall
be permitted to delay sending redemption proceeds to the Insurance Company by
the same number of days that the Company is delaying sending redemption proceeds
to the other shareholders of the Fund. Redemptions of up to the lesser of
$250,000 or 1% of the net asset value of the Fund whose shares are to be
redeemed in any 90-day period will be made in cash. Redemptions in excess of
that amount in any 90-day period may, in the sole discretion of the Company, be
in-kind redemptions, with the securities to be delivered in payment of
redemptions selected by the Company and valued at the value assigned to them in
computing the Fund's net asset value per share.
1.8. Issuance and transfer of the Company's shares will be by book entry
only. Stock certificates will not be issued to the Insurance Company or any
Account. Shares ordered from the Company will be recorded in an appropriate
title for each Account or the appropriate subaccount of each Account.
<PAGE>
1.9. The Company shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurance Company of any income,
dividends or capital gain distributions payable on the Funds' shares. The
Insurance Company hereby elects to receive all income dividends and capital gain
distributions payable on a Fund's shares in additional shares of that Fund. The
Insurance Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. The Company shall
notify the Insurance Company of the number of shares issued as payment of
dividends and distributions.
1.10. The Company shall make the net asset value per share for each Fund
available to the Insurance Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make those per-share net asset values available by 6:00 p.m.,
Mountain Time.
ARTICLE II. Representations and Warranties
2.1. The Insurance Company represents and warrants that the Contracts are,
or will be, registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws and that the sale of the Contracts shall comply in all material
respects with applicable state insurance suitability requirements. The Insurance
Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established the Account prior to any issuance or sale thereof as a
segregated asset account under Colorado Revised Statutes Section 10-7-402 and
has registered, or prior to any issuance or sale of the Contracts will register,
the Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts.
2.2. The Company represents and warrants that Company shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sale in compliance with the laws of the State of Maryland and all
applicable federal securities laws and that the Company is and shall remain
registered under the 1940 Act. The Company shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The
Company shall register and qualify the shares for sale in accordance with the
laws of the various states only if and to the extent deemed advisable by the
Company or INVESCO.
<PAGE>
2.3. The Company represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain that
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Insurance Company immediately upon having a reasonable
basis for believing that it has ceased to so qualify or that it might not so
qualify in the future.
2.4. The Insurance Company represents and warrants that the Contracts are
currently treated as annuity or life insurance contracts, under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Company and INVESCO immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.5. The Company currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Company undertakes
to have a board of directors, a majority of whom are not interested persons of
the Company, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Company makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. INVESCO represents and warrants that it is a member in good standing
of the NASD and is registered as a broker-dealer with the Commission. INVESCO
further represents that it will sell and distribute the Company shares in
accordance with the laws of the State of Maryland and all applicable state and
federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Company represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.9. INVESCO represents and warrants that it is and shall remain duly
registered in all material respects under all applicable federal and state
securities laws and that it shall perform its obligations for the Company in
compliance in all material respects with the laws of the State of Colorado and
any applicable state and federal securities laws.
<PAGE>
2.10. The Company and INVESCO represent and warrant that all of their
officers, employees, investment advisers, investment sub-advisers, and other
individuals or entities described in Rule 17g-1 under the 1940 Act are, and
shall continue to be at all times, covered by a blanket fidelity bond or similar
coverage for the benefit of the Company in an amount not less than the minimum
coverage required currently by Rule 17g-1 under the 1940 Act or related
provisions as may be promulgated from time to time. That fidelity bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.11. The Insurance Company represents and warrants that all of its
officers, employees, investment advisers, and other individuals or entities
described in Rule 17g-1 under the 1940 Act are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Company, in an amount not less than the minimum coverage required currently
for entities subject to the requirements of Rule 17g-1 under the 1940 Act or
related provisions or may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.12. The Insurance Company represents and warrants that it will not
purchase Company shares with Account assets derived from tax-qualified
retirement plans except indirectly, through Contracts purchased in connection
with such plans.
2.13. The Insurance Company represents and warrants that the allocation of
expenses between the Insurance Company and the Company and/or INVESCO in this
Agreement is substantially similar to the allocation provisions in the majority
of the Insurance Company's current participation agreements with other funds.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Company will bear the printing costs (or duplicating costs with
respect to the statement of additional information) and mailing costs associated
with the delivery of the following Company (or individual Fund) documents, and
any supplements thereto, to existing Contract owners of the Insurance Company
whose Contract values are invested in the Company:
(i) prospectuses and statements of additional information;
(ii) annual and semi-annual reports; and
(iii) proxy materials.
<PAGE>
3.2. The Insurance Company will submit any bills for printing, duplicating
and/or mailing costs, relating to the Company documents described above, to
Company for reimbursement by the Company. The Insurance Company shall monitor
such costs and shall use its best efforts to control these costs. The Insurance
Company will provide the Company (or INVESCO) on a semi-annual basis, or more
frequently as reasonably requested by the Company (or INVESCO), with a current
tabulation of the number of existing Contract owners of the Insurance Company
whose Contract values are invested in the Company. This tabulation will be sent
to the Company (or INVESCO) in the form of a letter signed by a duly authorized
officer of the Insurance Company attesting to the accuracy of the information
contained in the letter. If requested by the Insurance Company, the Company
shall provide such documentation (including a final copy of the Company's
prospectus as set in type or in camera-ready copy) and other assistance as is
reasonably necessary in order for the Insurance Company to print together in one
document the current prospectus for the Company, the current prospectus for the
Contracts issued by the Insurance Company and/or the prospectuses of other
investment companies available for purchase by the Accounts. In the event that
such prospectuses are printed together in one document, the costs of printing
and mailing copies of the document shall be allocated based on the Company's
share of the total costs determined according to the number of pages of the
parties' and other investment companies' respective portions of the document.
3.3. The Company will provide, at its expense, the Insurance Company with
the following Company (or individual Fund) documents, and any supplements
thereto, with respect to prospective Contract owners of the Insurance Company,
and Insurance Company shall bear the expense of printing and mailing such
documents:
(i) camera ready copy of the current prospectus for printing by
the Insurance Company;
(ii) a copy of the statement of additional information suitable for
duplication; and
(iii) camera ready copy of the annual and semi-annual reports for
printing by the Insurance Company.
3.4. If and to the extent required by law, the Insurance Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Company shares in accordance with instructions
received from Contract owners; and
<PAGE>
(iii) vote Company shares for which no instructions have been
received in the same proportion as Company shares of such Fund
for which instructions have been received:
so long as and to the extent that the Commission continues to interpret the 1940
Act to require pass-through voting privileges for variable contract owners. The
Insurance Company reserves the right to vote Company shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that each of
their separate accounts participating in the Company calculates voting
privileges in a manner consistent with the standards set forth on Schedule C
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies. The Insurance
Company shall fulfill its obligations under, and abide by the terms and
conditions of, the Mixed and Shared Funding Exemptive Order.
3.5. The Company will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Company will either provide for
annual meetings (except insofar as the Commission may interpret Section 16 of
the 1940 Act not to require such meetings) or, as the Company currently intends,
comply with Section 16(c) of the 1940 Act (although the Company is not one of
the trusts described in Section 16(c) of that Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Company will act in
accordance with the Commission's interpretation of the requirements of Section
16(a) with respect to periodic elections of directors and with whatever rules
the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Insurance Company shall furnish, or shall cause to be furnished,
to the Company or its designee, each piece of sales literature or other
promotional material in which the Company, a sub-adviser of one of the Funds, or
INVESCO is named, at least fifteen calendar days prior to its use. No such
material shall be used if the Company or its designee objects to such use within
ten calendar days after receipt of such material.
4.2. The Insurance Company shall not give any information or make any
representations or statements on behalf of the Company or concerning the Company
in connection with the sale of the Contracts other than the information or
representations contained in the registration statement, prospectus or statement
of additional information for the Company's shares, as such registration
statement, prospectus and statement of additional information may be amended or
<PAGE>
supplemented from time to time, or in reports or proxy statements for the
Company, or in sales literature or other promotional material approved by the
Company or its designee or by INVESCO, except with the permission of the Company
or INVESCO.
4.3. The Company, INVESCO, or its designee shall furnish, or shall cause
to be furnished, to the Insurance Company or its designee, each piece of sales
literature or other promotional material in which the Insurance Company and/or
its separate account(s), is named at least fifteen calendar days prior to its
use. No such material shall be used if the Insurance Company or its designee
objects to such use within ten calendar days after receipt of that material.
4.4. The Company and INVESCO shall not give any information or make any
representations on behalf of the Insurance Company or concerning the Insurance
Company, the Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or statement
of additional information for the Contracts, as that registration statement,
prospectus and statement of additional information may be amended or
supplemented from time to time, or in published reports for the Account which
are in the public domain or approved by the Insurance Company for distribution
to Contract owners, or in sales literature or other promotional material
approved by the Insurance Company or its designee, except with the permission of
the Insurance Company.
4.5. The Company will provide to the Insurance Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, proxy statement, piece of sales literature or
other promotional material, application for exemption, request for no-action
letter, and any amendment to any of the above, that relate to the Company or its
shares, contemporaneously with the filing of the document with the Commission,
the NASD, or other regulatory authorities.
4.6. The Insurance Company will provide to the Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, solicitation for voting instructions, piece of
sales literature and other promotional material, application for exemption,
request for no action letter, and any amendment to any of the above, that
relates to the Contracts or the Account, contemporaneously with the filing of
the document with the Commission, the NASD, or other regulatory authorities.
4.7. For purposes of this Agreement, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements,
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
<PAGE>
public media, sales literature (i.e., any written communication distributed
or made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
4.8. At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and/or representative
of the appropriate regulatory agencies, all records, data and access to
operating procedures that may be reasonably requested. Company agrees that
Insurance Company shall have the right to inspect, audit and copy all records
pertaining to the performance of services under this Agreement pursuant to the
requirements of the California Insurance Department. However, Company and
INVESCO shall own and control all of their respective records pertaining to
their performance of the services under this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Company and INVESCO shall pay no fee or other compensation to the
Insurance Company under this agreement, except that if the Company or any Fund
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then INVESCO may make payments to the Insurance Company if and in
amounts agreed to by INVESCO in writing, subject to review by the board of
directors of the Company. No such payments shall be made directly by the
Company.
5.2. All expenses incident to performance by the Company under this
Agreement shall be paid by the Company. The Company shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Company or
INVESCO, in accordance with applicable state laws prior to their sale. The
Company shall bear the expenses for the cost of registration and qualification
of the Company's shares, preparation and filing of the Company's prospectus and
registration statement, proxy materials and reports, setting the prospectus in
type, setting in type and printing the proxy materials and reports to
shareholders (including the costs of printing a prospectus that constitutes an
annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Company's
shares.
<PAGE>
5.3. The Insurance Company shall bear the expenses of printing and
distributing to Contract owners the Contract prospectuses and, except as
provided in Section 3.1, of distributing to Contract owners the Company's
prospectus, proxy materials and reports.
ARTICLE VI. Diversification
6.1. The Company will, at the end of each calendar quarter, comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5 relating to the
diversification requirements for variable annuity, endowment, modified endowment
or life insurance contracts and any amendments or other modifications to that
Section or Regulation.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Company for the existence of any material
irreconcilable conflict between the interests of the variable contract owners of
all separate accounts investing in the Company. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretive letter, or any similar action
by insurance, tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Fund are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by a Participating Insurance Company to
disregard the voting instructions of variable contract owners. The Board shall
promptly inform the Insurance Company if it determines that an irreconcilable
material conflict exists and the implications thereof. The Board shall have sole
authority to determine whether an irreconcilable material conflict exists and
such determination shall be binding upon the Insurance Company.
7.2 The Insurance Company will report promptly any potential or existing
conflicts of which it is aware to the Board. The Insurance Company will assist
the Board in carrying out its responsibilities under the Mixed and Shared
Funding Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Insurance Company to inform the Board whenever
Contract owner voting instructions are to be disregarded. Such responsibilities
shall be carried out by Insurance Company with a view only to the interests of
the Contract owners.
<PAGE>
7.3. If it is determined by a majority of the Board, or a majority of its
directors who are not interested persons of the Company, INVESCO, or any sub-
adviser to any of the Funds (the "Independent Directors"), that a material
irreconcilable conflict exists, the Insurance Company and/or other Participating
Insurance Companies shall, at their expense and to the extent reasonably
practicable (as determined by a majority of the Independent Directors), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to and including: (1), withdrawing the assets allocable to some or
all of the separate accounts from the Company or any Fund and reinvesting those
assets in a different investment medium, including (but not limited to) another
Fund of the Company, or submitting the question whether such segregation should
be implemented to a vote of all affected variable contract owners and, as
appropriate, segregating the assets of any appropriate group (e.g., annuity
contract owners, life insurance contract owners, or variable contract owners of
one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected variable contract owners the option of
making such a change; and (2), establishing a new registered management
investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Insurance Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Insurance Company may be required, at the Company's election, to withdraw the
affected Account's investment in the Company and terminate this Agreement with
respect to that Account; provided, however that such withdrawal and termination
shall be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the Independent Directors. Any such
withdrawal and termination must take place within six (6) months after the
Company gives written notice that this provision is being implemented, and until
the end of that six month period INVESCO and the Company shall continue to
accept and implement orders by the Insurance Company for the purchase (and
redemption) of shares of the Company.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Insurance Company
conflicts with the majority of other state regulators, then the Insurance
Company will withdraw the affected Account's investment in the Company and
terminate this Agreement with respect to that Account within six months after
the Board informs the Insurance Company in writing that it has determined that
the state insurance regulator's decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the Independent Directors. Until the end of the
<PAGE>
foregoing six month period, INVESCO and the Company shall continue to
accept and implement orders by the Insurance Company for the purchase (and
redemption) of shares of the Company.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the Independent Directors shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company be required to establish a new funding medium for the
Contracts. The Insurance Company shall not be required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict. In the event that the Board determines
that any proposed action does not adequately remedy any irreconcilable material
conflict, then the Insurance Company will withdraw the Account's investment in
the Company and terminate this Agreement within six (6) months after the Board
informs the Insurance Company in writing of the foregoing determination,
provided, however, that the withdrawal and termination shall be limited to the
extent required by the material irreconcilable conflict, as determined by a
majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then (a) the Company and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent those rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to those Sections are contained in
the Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Insurance Company
8.1(a). The Insurance Company agrees to indemnify and hold harmless the
Company and each director of the Board and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Insurance Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
<PAGE>
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished in
writing to the Insurance Company by or on behalf of the Company for
use in the registration statement or prospectus for the Contracts or
in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or shares of the Company;
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the
Company not supplied by the Insurance Company, or persons under its
control) or wrongful conduct of the Insurance Company or persons
under its control, with respect to the sale or distribution of the
Contracts or Company Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, or sales literature of the Company or any amendment
thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished in writing to the Company by or on behalf of the Insurance
Company: or
<PAGE>
(iv) arise as a result of any failure by the Insurance Company to
provide the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Insurance Company in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Insurance Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party that
may arise from that Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of that Indemnified Party's duties or by reason of
that Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Company, whichever is applicable.
8.1(c). The Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless that Indemnified Party shall have notified the Insurance Company in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon that
Indemnified Party (or after the Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Insurance Company of its obligations hereunder except to the extent
that the Insurance Company has been prejudiced by such failure to give notice.
In addition, any failure by the Indemnified Party to notify the Insurance
Company of any such claim shall not relieve the Insurance Company from any
liability which it may have to the Indemnified Party against whom the action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Insurance Company
shall be entitled to participate, at its own expense, in the defense of the
action. The Insurance Company also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action; provided,
however, that if the Indemnified Party shall have reasonably concluded that
there may be defenses available to it which are different from or additional to
those available to the Insurance Company, the Insurance Company shall not have
the right to assume said defense, but shall pay the costs and expenses thereof
(except that in no event shall the Insurance Company be liable for the fees and
<PAGE>
expenses of more than one counsel for Indemnified Parties in connection with any
one action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After notice from
the Insurance Company to the Indemnified Party of the Insurance Company's
election to assume the defense thereof, and in the absence of such a reasonable
conclusion that there may be different or additional defenses available to the
Indemnified Party, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Insurance Company will not be liable
to that party under this Agreement for any legal or other expenses subsequently
incurred by the party independently in connection with the defense thereof other
than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Insurance Company
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Company's shares or the Contracts or the
operation of the Company.
8.2. Indemnification by INVESCO
8.2(a). INVESCO agrees to indemnify and hold harmless the Insurance
Company and each of its directors and officers and each person, if any, who
controls the Insurance Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of INVESCO) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Company's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Company (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this agreement
to indemnify shall not apply as to any Indemnified Party if the
statement or omission or alleged statement or omission was made in
reliance upon and in conformity with information furnished in
writing to INVESCO or the Company by or on behalf of the Insurance
<PAGE>
Company for use in the registration statement or prospectus
for the Company or in sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Company shares: or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by INVESCO or persons under its control) or
wrongful conduct of the Company, INVESCO or persons under their
control, with respect to the sale or distribution of the Contracts
or shares of the Company; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon
information furnished in writing to the Insurance Company by or on
behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or
otherwise, to comply with the diversification requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by INVESCO in this Agreement or
arise out of or result from any other material breach of this
Agreement by INVESCO; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b) INVESCO shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party that may arise from the Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
<PAGE>
of the Indemnified Party's duties or by reason of the Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Insurance Company or the Account, whichever is applicable.
8.2(c) INVESCO shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified INVESCO in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Indemnified Party (or after
the Indemnified Party shall have received notice of such service on any
designated agent). Notwithstanding the foregoing, the failure of any Indemnified
Party to give notice as provided herein shall not relieve INVESCO of its
obligations hereunder except to the extent that INVESCO has been prejudiced by
such failure to give notice. In addition, any failure by the Indemnified Party
to notify INVESCO of any such claim shall not relieve INVESCO from any liability
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, INVESCO will be entitled to
participate, at its own expense, in the defense thereof. INVESCO also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action; provided, however, that if the Indemnified Party shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to INVESCO, INVESCO shall not
have the right to assume said defense, but shall pay the costs and expenses
thereof (except that in no event shall INVESCO be liable for the fees and
expenses of more than one counsel for Indemnified Parties in connection with any
one action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After notice from
INVESCO to the Indemnified Party of INVESCO's election to assume the defense
thereof, and in the absence of such a reasonable conclusion that there may be
different or additional defenses available to the Indemnified Party, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and INVESCO will not be liable to that party under this
Agreement for any legal or other expenses subsequently incurred by that party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d) The Insurance Company agrees to notify INVESCO promptly of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
<PAGE>
8.3 Indemnification By the Company
8.3(a). The Company agrees to indemnify and hold harmless the Insurance
Company, and each of its directors and officers and each person, if any, who
controls the Insurance Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as those losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
result from the gross negligence, bad faith or willful misconduct of the Board
or any member thereof, are related to the operations of the Company and:
(i) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement
(including a failure to comply with the diversification requirements
specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company;
as limited by, and in accordance with the provisions of, Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party that may arise from the
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of the Indemnified Party's duties or by reason of the Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Insurance Company, the Company, INVESCO or the Account, whichever is
applicable.
8.3(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Indemnified Party (or after
<PAGE>
the Indemnified Party shall have received notice of such service on any
designated agent). Notwithstanding the foregoing, the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Company of its
obligations hereunder except to the extent that the Company has been prejudiced
by such failure to give notice. In addition, any failure by the Indemnified
Party to notify the Company of any such claim shall not relieve the Company from
any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, the Company
will be entitled to participate, at its own expense, in the defense thereof. The
Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action; provided, however, that if the
Indemnified Party shall have reasonably concluded that there may be defenses
available to it which are different from or additional to those available to the
Company, the Company shall not have the right to assume said defense, but shall
pay the costs and expenses thereof (except that in no event shall the Company be
liable for the fees and expenses of more than one counsel for Indemnified
Parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances). After notice from the Company to the Indemnified Party of the
Company's election to assume the defense thereof, and in the absence of such a
reasonable conclusion that there may be different or additional defenses
available to the Indemnified Party, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the Company will not
be liable to that party under this Agreement for any legal or other expenses
subsequently incurred by that party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Insurance Company and INVESCO agree promptly to notify the
Company of the commencement of any litigation or proceedings against it or any
of its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Company.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and provisions hereof interpreted
under and in accordance with the laws of the State of Colorado.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 acts, and the rules and regulations and rulings thereunder, including
any exemptions from those statutes, rules and regulations the Commission may
<PAGE>
grant (including, but not limited to, the Mixed and Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon one year advance written notice
to the other parties; provided, however such notice shall not be
given earlier than one year following the date of this Agreement; or
(b) at the option of the Insurance Company to the extent that shares
of Funds are not reasonably available to meet the requirements of
the Contracts as determined by the Insurance Company, provided
however, that such a termination shall apply only to the Fund(s) not
reasonably available. Prompt written notice of the election to
terminate for such cause shall be furnished by the Insurance
Company; or
(c) at the option of the Company in the event that formal
administrative proceedings are instituted against the Insurance
Company by the NASD, the Commission, an insurance commissioner or
any other regulatory body regarding the Insurance Company's duties
under this Agreement or related to the sale of the Contracts, the
operation of any Account, or the purchase of the Company's shares,
provided, however, that the Company determines in its sole judgment
exercised in good faith, that any such administrative proceedings
will have a material adverse effect upon the ability of the
Insurance Company to perform its obligations under this Agreement;
or
(d) at the option of the Insurance Company in the event that formal
administrative proceedings are instituted against the Company or
INVESCO by the NASD, the Commission, or any state securities or
insurance department or any other regulatory body, provided,
however, that the Insurance Company determines in its sole judgement
exercised in good faith, that any such administrative proceedings
will have a material adverse effect upon the ability of the Company
or INVESCO to perform its obligations under this Agreement; or
(e) with respect to any Account, upon requisite vote of the Contract
owners having an interest in that Account (or any subaccount) to
substitute the shares of another investment company
<PAGE>
for the corresponding Fund shares in accordance with the terms of
the Contracts for which those Fund shares had been selected to serve
as the underlying investment media. The Insurance Company will give
at least 30 days' prior written notice to the Company of the date of
any proposed vote to replace the Company's shares; or
(f) at the option of the Insurance Company, in the event any of the
Company's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or exemptions therefrom, or
such law precludes the use of those shares as the underlying
investment media of the Contracts issued or to be issued by the
Insurance Company; or
(g) at the option of the Insurance Company, if the Company ceases to
qualify as a regulated investment company under Subchapter M of the
Code or under any successor or similar provision, or if the
Insurance Company reasonably believes that the Company may fail to
so qualify; or
(h) at the option of the Insurance Company, if the Company fails to
meet the diversification requirements specified in Article VI
hereof; or
(i) at the option of either the Company or INVESCO, if (1) the
Company or INVESCO, respectively, shall determine, in their sole
judgment reasonably exercised in good faith, that the Insurance
Company has suffered a material adverse change in its business or
financial condition or is the subject of material adverse publicity
and that material adverse change or material adverse publicity will
have a material adverse impact upon the business and operations of
either the Company or INVESCO, (2) the Company or INVESCO shall
notify the Insurance Company in writing of that determination and
its intent to terminate this Agreement, and (3) after considering
the actions taken by the Insurance Company and any other changes in
circumstances since the giving of such a notice, the determination
of the Company or INVESCO shall continue to apply on the sixtieth
(60th) day following the giving of that notice, which sixtieth day
shall be the effective date of termination; or
(j) at the option of the Insurance Company, if (1) the Insurance
Company shall determine, in its sole judgment reasonably exercised
in good faith, that either the Company or INVESCO has suffered a
material adverse change in its business or financial condition or is
<PAGE>
the subject of material adverse publicity and that material adverse
change or material adverse publicity will have a material adverse
impact upon the business and operations of the Insurance Company,
(2) the Insurance Company shall notify the Company and INVESCO in
writing of the determination and its intent to terminate the
Agreement, and (3) after considering the actions taken by the
Company and/or INVESCO and any other changes in circumstances since
the giving of such a notice, the determination shall continue to
apply on the sixtieth (60th) day following the giving of the notice,
which sixtieth day shall be the effective date of termination; or
(k) at the option of either the Company or INVESCO, if the Insurance
Company gives the Company and INVESCO the written notice specified
in Section 1.6(b) hereof and at the time that notice was given there
was no notice of termination outstanding under any other provision
of this Agreement; provided, however any termination under this
Section 10.1(k) shall be effective forty five (45) days after the
notice specified in Section 1.6(b) was given.
10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
10.3 Notice Requirement. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to
terminate, which notice shall set forth the basis for the termination.
Furthermore,
(a) in the event that any termination is based upon the provisions
of Article VII, or the provisions of Section 10.1(a), 10.1(i),
10.1(j), or 10.1(k) of this Agreement, the prior written notice
shall be given in advance of the effective date of termination as
required by those provisions; and
(b) in the event that any termination is based upon the provisions
of Section 10.1(c) or 10.1(d) of this Agreement, the prior written
notice shall be given at least ninety (90) days before the effective
date of termination.
10.4. Effect of Termination. Notwithstanding any termination of this
Agreement, the Company and INVESCO shall at the option of the Insurance Company,
continue to make available additional shares of the Company pursuant to the
terms and conditions of this Agreement, for all Contracts in effect on the
<PAGE>
effective date of termination of this Agreement ("Existing Contracts").
Specifically, without limitation, the owners of the Existing Contracts shall
be permitted to reallocate investments in the Company, redeem investments in
the Company and/or invest in the Company upon the making of additional purchase
payments under the Existing Contracts. The parties agree that this Section
10.4 shall not apply to any terminations under Article VII and the effect of
Article VII terminations shall be governed by Article VII of this Agreement.
10.5. The Insurance Company shall not redeem Company shares attributable
to the Contracts (as opposed to Company shares attributable to the Insurance
Company's assets held in the Account) except (i) as necessary to implement
Contract-owner-initiated transactions, or (ii) as required by state and/or
federal laws or regulations or judicial or other legal precedent of general
application (a "Legally Required Redemption"). Upon request, the Insurance
Company will promptly furnish to the Company and INVESCO the opinion of counsel
for the Insurance Company (which counsel shall be reasonably satisfactory to the
Company and INVESCO) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption.
ARTICLE XI. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of that other party set forth
below or at such other address as the other party may from time to time specify
in writing.
If to the Company:
P.O. Box 173706
Denver, Colorado 80217-3706
Attention: General Counsel
If to the Insurance Company:
1290 Broadway
Denver, Colorado 80203-5699
Attention: Bonnie Dailey
If to INVESCO:
P.O. Box 173706
Denver, Colorado 80217-3706
Attention: General Counsel
ARTICLE XII. Miscellaneous
<PAGE>
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party unless and until that information may come into the public
domain.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and shall permit those
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.6. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.7. No party may assign this Agreement without the prior written
consent of the others.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
Insurance Company:
FIRST ING LIFE INSURANCE COMPANY OF NEW YORK
By its authorized officer,
By: /s/Steve Largent
------------------------------
Title:President & CEO
Date: 9/19/94
Company:
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
By: /s/ Ronald L. Grooms
-----------------------------------
Title: Treasurer
Date: September 19, 1994
INVESCO:
INVESCO FUNDS GROUP, INC.
By its authorized officer,
By: /s/ Ronald L. Grooms
-----------------------------------
Title: Senior Vice President
Date: September 19, 1994
<PAGE>
Schedule A
Accounts
Date Established
----------------
Separate Account A1 June 23, 1994
Separate Account L1 June 23, 1994
<PAGE>
Schedule B
Contracts
1. The Exchequer Variable Annuity (Flexible Premium Deferred
Combination Fixed and Variable
Annuity Contract)
2. First Line (Flexible Premium Variable Life
Insurance Policy)
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Company by INVESCO, the Company and the
Insurance Company. The defined terms herein shall have the meanings assigned in
the Participation Agreement except that the term "Insurance Company" shall also
include the department or third party assigned by the Insurance Company to
perform the steps delineated below.
1. The number of proxy proposals is given to the Insurance Company by INVESCO
as early as possible before the date set by the Company for the
shareholder meeting to facilitate the establishment of tabulation
procedures. At this time INVESCO will inform the Insurance Company of the
Record, Mailing and Meeting dates. This will be done verbally
approximately two months before meeting.
2. Promptly after the Record Date, the Insurance Company will perform a "tape
run", or other activity, which will generate the names, addresses and
number of units which are attributed to each contractowner/policyholder
(the "Customer") as of the Record Date. Allowance should be made for
account adjustments made after this date that could affect the status of
the Customers' accounts of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Insurance Company will use its best
efforts to call in the number of Customers to INVESCO, as soon
as possible, but no later than one week after the Record Date.
3. The Company's Annual Report must be sent to each Customer by the Insurance
Company either before or together with the Customers' receipt of a proxy
statement. INVESCO will provide at least one copy of the last Annual
Report to the Insurance Company.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Insurance Company by the Company. The Insurance
Company, at its expense, shall produce and personalize the Voting
Instruction cards. The Legal Department of INVESCO ("INVESCO Legal") must
approve the Card before it is printed. Allow approximately 2-4 business
days for printing information on the Cards. Information commonly found on
the Cards includes:
a. name (legal name as found on account registration)
<PAGE>
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed
by the Company).
(This and related steps may occur later in the chronological process due
to possible uncertainties relating to the proposals.)
5. During this time, INVESCO Legal will develop, produce, and the Company
will pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Insurance
Company for insertion into envelopes (envelopes and return envelopes are
provided and paid for by the Insurance Company). Contents of envelope sent
to customers by Insurance Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. Return envelope (postage pre-paid by Insurance Company)
addressed to the Insurance Company or its tabulation agent
d. "Urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to vote
as quickly as possible and that their vote is important. One
copy will be supplied by the Company.)
e. Cover letter - optional, supplied by Insurance Company and
reviewed and approved in advance by INVESCO Legal.
6. The above contents should be received by the Insurance Company
approximately 3-5 business days before mail date. Individual in charge at
Insurance Company reviews and approves the contents of the mailing package
to ensure correctness and completeness. Copy of this approval sent to
INVESCO Legal.
7. Package mailed by the Insurance Company.
* The Company must allow at least a 15-day solicitation
time to the Insurance Company as the shareowner. (A 5-week period is
recommended.) Solicitation time is calculated as calendar days from
(but not including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
<PAGE>
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal
procedure.
9. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to the Customer with an explanatory letter, a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Such mutilated or illegible Cards are "hand verified," i.e.,
examined as to why they did not complete the system. Any questions on
those Cards are usually remedied individually.
10. There are various control procedures used to ensure proper tabulation of
votes and accuracy of the tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
11. The actual tabulation of votes is done in units which are then converted
to shares. (It is very important that the Company receives the tabulations
stated in terms of a percentage and the number of shares.) INVESCO Legal
must review and approve tabulation format.
12. Final tabulation in shares is verbally given by the Insurance Company to
INVESCO Legal on the morning of the meeting not later than 10:00 a.m.
Denver time. INVESCO Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
13. A Certificate of Mailing and Authorization to Vote Shares will be required
from the Insurance Company as well as an original copy of the final vote.
INVESCO Legal will provided a standard form for each Certification.
14. The Insurance Company will be required to box and archive the Cards
received from the Customers. In the event that any vote is challenged or
if otherwise necessary for legal, regulatory, or accounting purposes,
INVESCO Legal will be permitted reasonable access to such Cards.
15. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
PARTICIPATION AGREEMENT
AMONG
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO FUNDS GROUP, INC.
FIRST TRANSAMERICA LIFE INSURANCE COMPANY
AND
CHARLES SCHWAB & CO., INC.
THIS AGREEMENT, made and entered into as of this 1st day of December, 1994
by and among FIRST TRANSAMERICA LIFE INSURANCE COMPANY (hereinafter "First
Transamerica"), a New York life insurance company, on its own behalf and on
behalf of its Separate Account VA-5 NLNY (the "Account"): INVESCO VARIABLE
INVESTMENT FUNDS INC., a corporation organized under the laws of Maryland
(hereinafter the "Fund"); INVESCO FUNDS GROUP, INC. (hereinafter the "Adviser"),
a Delaware corporation; and CHARLES SCHWAB & CO., INC., a California corporation
(hereinafter "Schwab").
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and/or variable annuity
contracts (collectively, the "Variable Insurance Products") to be offered by
insurance companies which have entered into participation agreements similar to
this Agreement (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (hereinafter the "SEC"), dated December 29, 1993 (File No. 812-8590),
granting Participating Insurance Companies and variable annuity and variable
life insurance separate accounts exemptions from the provisions of sections
9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e(T)(b)(15) thereunder,
to the extent necessary to permit shares of the Fund to be sold to and held by
variable annuity and variable life insurance separate accounts of life insurance
companies that may or may not be affiliated with one another (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws and as a broker-dealer under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, First Transamerica has registered or will register certain
variable annuity contracts supported wholly or partially by the Account (the
"Contracts") under the 1933 Act and said Contracts are listed in Schedule A
hereto, as it may be amended from time to time by mutual written agreement; and
<PAGE>
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of First
Transamerica on November 10, 1993, to set aside and invest assets attributable
to the Contracts; and
WHEREAS, First Transamerica has registered or will register the Account as
a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, First Transamerica intends to purchase shares in the Portfolios
listed in Schedule B hereto, as it may be amended from time to time by mutual
written agreement (the "Designated Portfolios"), on behalf of the Account to
fund the aforesaid Contracts, and the Adviser is authorized to sell such shares
to unit investment trusts such as the Account at net asset value; and
WHEREAS, Schwab will perform certain services in connection with the
Contracts;
NOW, THEREFORE, in consideration of their mutual promises, First
Transamerica, Schwab, the Fund and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Adviser agrees to sell to First Transamerica those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Portfolios. For purposes of this
Section 1.1, First Transamerica shall be the designee of the Fund for receipt of
such orders and receipt by such designee shall constitute receipt by the Fund,
provided that the Fund receives notice of any such order by 10:00 a.m. Eastern
time on the next following Business Day. "Business Day" shall mean any day on
which the New York Stock Exchange is open for trading and on which the Fund
calculates its net asset value pursuant to the rules of the SEC.
1.2 The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by First Transamerica
and the Account on those days on which the Fund calculates its Designated
Portfolios' net asset value pursuant to rules of the SEC, and the Fund shall
calculate such net asset value on each day which the New York Stock exchange is
open for trading. Notwithstanding the foregoing, the Board of Directors of the
Fund (hereinafter the "Board") may refuse to sell shares of an Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3 The Fund and the Adviser will not sell shares of the Designated
Portfolios to any other insurance company or separate account unless an
agreement containing provisions substantially the same as Sections 2.1, 3.6, 3.7
3.8, and Article VII of this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem for cash, on First Transamerica's request,
any full or fractional shares of the Fund held by First Transamerica, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption. Requests for
<PAGE>
redemption identified by First Transamerica, or its agent, as being in
connection with surrenders, annuitizations, or death benefits under Contracts
may be executed within seven (7) calendar days after receipt by the Fund or its
designee of the requests for redemption. If permitted by an order of the SEC
under Section 22(e) of the 1940 Act, the Fund shall be permitted to delay
sending redemption proceeds to First Transamerica beyond the foregoing
deadlines, provided, however, that the Account receives similar relief to defer
paying proceeds to Contract Owners, and further, that the Account is treated no
less favorably than the other shareholders of the Designated Portfolios. This
Section 1.4 may be amended, in writing, by the parties consistent with the
requirements of the 1940 Act and interpretations thereof. For purposes of this
Section 1.4, First Transamerica shall be the designee of the Fund for receipt of
requests for redemption and receipt by such designee shall constitute receipt by
the Fund, provided that the Fund receives notice of any such request for
redemption by 10:00 a.m. Eastern time on the next following Business Day.
1.5 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies.
1.6 First Transamerica shall pay for Fund shares by 11:00 a.m. Eastern
time on the next Business Day after an order to purchase Fund shares is made in
accordance with the provisions of Section 1.1 hereof. Payment shall be in
federal funds transmitted by wire and/or by a credit for any shares redeemed the
same day as the purchase.
1.7 The Fund shall pay and transmit the proceeds of redemptions of Fund
shares by 11:00 a.m. Eastern time on the next Business Day after a redemption
order is received in accordance with Section 1.4 hereof. Payment shall be in
federal funds transmitted by wire and/or a credit for any shares purchased the
same day as the redemption.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to First Transamerica or the Account.
Shares ordered from the Fund will be recorded in an appropriate title for the
Account or the appropriate subaccount of the Account.
1.9 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to First Transamerica of any income, dividends or
capital gain distributions payable on the Designated Portfolios' shares. First
Transamerica hereby elects to receive all such income dividends and capital gain
<PAGE>
distributions as are payable on the Portfolio shares in additional shares
of that portfolio. First Transamerica reserves the right to revoke this election
and to receive all such income dividends and capital gain distributions in cash.
The Fund shall notify First Transamerica by the end of the next Business Day of
the number of shares so issued as payment of such dividends and distributions.
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to First Transamerica on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 6:00 p.m.
Eastern time. If the Fund provides incorrect share net asset value information,
First Transamerica shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct net asset value per share (and, if
and to the extend necessary, First Transamerica shall make adjustments to the
number of units credited and/or unit values for the Contracts for the periods
affected). Any error in the calculation or reporting of net asset value per
share, dividend or capital gains information greater than or equal to $.01 per
share shall be reported immediately upon discovery to First Transamerica. Any
error of a lesser amount shall be corrected in the next Business Day's net asset
value per share.
In the event adjustments are required to correct any error in the
computation of a Designated Portfolio's net asset value per share, or dividend
or capital gain distribution, the Adviser or the Fund shall notify Schwab as
soon as possible after discovering the need for such adjustments. Notification
can be made orally, but must be confirmed in writing. If an adjustment is
necessary to correct an error which has caused Contractholders to receive less
than the amount to which they are entitled, the Fund shall make all necessary
adjustments to the number of shares owned by the Account and distribute to the
Account the amount of the underpayment. First Transamerica will adjust the
number of shares of the applicable sub-account of each Contractholder and credit
the appropriate amount of such payment to each Contractholder. In no event shall
Schwab or First Transamerica be liable to Contractholders for any such
adjustments or underpayment amounts. If Contractholders have received amounts in
the excess of the amounts to which they otherwise would have been entitled prior
to an adjustment for an error, First Transamerica and Schwab , when requested by
the Adviser or the Fund, will make a good faith attempt to collect such excess
amounts from the Contractholders. In no event shall Schwab or First Transamerica
be liable to the Fund or the Adviser for any such adjustments or overpayment
amounts.
ARTICLE II. Representations and Warranties
2.1 First Transamerica represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. First Transamerica
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established the Account prior to any issuance or sale thereof as a segregated
asset account under New York Insurance Law and has registered the Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts.
<PAGE>
2.2 The Fund represents and warrants that Designated Portfolio shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with all applicable federal
securities laws including without limitation the 1933 Act, the 1934 Act, and the
1940 Act and that the Fund is and shall remain registered under the 1940 Act.
The Fund shall amend the Registration Statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares.
2.3 The Fund reserves the right to adopt a plan pursuant to Rule 12b-1
under the 1940 Act (a "12b-1 Plan") and to impose an asset-based or other charge
to finance distribution expenses as permitted by applicable law and regulation.
As of the date of this Agreement, the Fund has no 12b-1 Plan and does not,
directly or indirectly, impose any asset-based or other charge to finance
distribution expenses. To the extent that the Fund decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a
Board, a majority of whom are not interested persons of the Fund, formulate and
approve any 12b-1 Plan to finance distribution expenses.
2.4 The Fund represents and warrants that the investment policies, fees and
expenses of the Designated Portfolios are and shall at all times remain in
compliance with the insurance and other applicable laws of the State of New York
and any other applicable state to the extent required to perform this Agreement.
The Fund further represents and warrants that Designated Portfolio shares will
be sold in compliance with the insurance laws of the State of New York and all
applicable state securities laws or exemptions therefrom. Without limiting the
generality of the foregoing, the Fund represents and warrants that it is and
shall at all times remain in compliance with the investment objectives, policies
and restrictions of the Fund enumerated in Schedule C hereto, except as to those
items disclosed with prior notice to First Transamerica. First Transamerica
shall disclose such items to the Department of Insurance of the State of New
York, and shall promptly notify the Fund of any objections to any such items by
the Department.
2.5 The Fund represents and warrants that it is lawfully organized and
validly existing under the laws of the State of Maryland and that it does and
will comply in all material respects with the 1940 Act.
2.6 The Adviser represents and warrant that it is and shall remain duly
registered under all applicable federal and state securities laws and that it
shall perform its obligations for the Fund in compliance in all material
respects with the laws of the State of Colorado and any applicable state and
federal securities laws.
2.7 The Fund and the Adviser represent and warrant that all of their
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Fund are, and shall continue to
be at all times, covered by a blanket fidelity bond or similar coverage for the
benefit of the Fund in an amount not less than the minimal coverage required by
Section 17g-(1) of the 1940 Act or related provisions as may be promulgated from
<PAGE>
time to time. The aforesaid bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.8 Schwab represents and warrants that it has completed, obtained and
performed, in all material respects, all registrations, filings, approvals, and
authorizations, consents and examinations required by any government or
governmental authority as may be necessary to perform this Agreement. Schwab
does and will comply with all applicable laws, rules and regulations in the
performance of its obligations under this Agreement.
2.9 The Fund will provide First Transamerica with as much advance notice
as is reasonably practicable of any material change affecting the Designated
Portfolios (including, but not limited to, any material change in its
registration statement or prospectus affecting the Designated Portfolios and any
proxy solicitation affecting the Designated Portfolios) and consult with First
Transamerica in order to implement any such change in an orderly manner,
recognizing the expenses of change and attempting to minimize such expenses by
implementing them in conjunction with regular annual updates of the prospectuses
for the Contracts. The Fund agrees to share equitably in expenses incurred by
First Transamerica as a result of actions taken by the Fund, as set forth in the
allocation of expenses contained in Schedule F.
2.10 First Transamerica represents, assuming that the Fund complies with
Article VI of this Agreement, that the Contracts are currently treated as
annuity contracts under applicable provisions of the Internal Revenue Code of
1986, as amended ("the Code"), and that it will make every effort to maintain
such treatment and that it will notify the Adviser immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so treated
or that they might not be so treated in the future.
2.11 First Transamerica represents and warrants that it will
not purchase Fund Shares with assets derived from tax-qualified
retirement plans except indirectly, through Contracts purchased in
connection with such plans.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1 At least annually, the Adviser, shall provide First Transamerica and
Schwab with as many copies of the Fund's current prospectuses for the Designated
Portfolios as First Transamerica and Schwab may reasonably request for marketing
purposes. If requested by First Transamerica in lieu thereof, the Adviser or
Fund shall provide such documentation (including a final copy of the new
prospectuses for the Designated Portfolios) and other assistance as is
reasonably necessary in order for First Transamerica once each year (or more
frequently if the prospectuses for the Designated Portfolio are amended) to have
<PAGE>
the prospectus for the Contracts and the Fund's prospectus for the
Designated Portfolios printed together in one document. The Fund and Adviser
agree that the prospectuses for the Designated Portfolios will describe only the
Designated Portfolios and will not name or describe any other portfolios or
series that may be in the Fund unless, in the reasonable judgment of the Fund's
legal counsel, such disclosure is required by law.
3.2 If applicable state or Federal laws or regulations require that the
Statement of Additional Information ("SAI") for the Fund be distributed to all
Contract Purchasers, then the Fund shall provide First Transamerica with the
Fund's SAI or documentation thereof for the Designated Portfolios in such
quantities and/or with expenses to be borne in accordance with Schedule F.
3.3 The Fund shall provide First Transamerica and Schwab with as many
copies of the SAI for the Designated Portfolios as each of them may reasonably
request. The Adviser (or the Fund) shall also provide such SAI to any owner of a
contract or prospective owner who requests such SAI (although it is anticipated
that such requests will be made to Schwab).
3.4 The Fund shall provide First Transamerica with copies of its
prospectus, SAI, proxy material, reports to stockholders and other
communications to stockholders for the Designated Portfolios in such quantity as
First Transamerica shall reasonably require for distributing to Contract owners.
3.5 It is understood and agreed that, except with respect to information
regarding First Transamerica or Schwab provided in writing by that party,
neither First Transamerica nor Schwab are responsible for the content of the
prospectus or SAI for the Designated Portfolios. It is also understood and
agreed that, except with respect to information regarding the Fund, Adviser or
the Designated Portfolios provided in writing by the Fund or Adviser, neither
the Fund nor Adviser are responsible for the content of the prospectus or SAI
for the Contracts.
3.6 If and to the extent required by law First Transamerica
shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Designated Portfolio shares in accordance
with instructions received from Contract owners;
and
(iii) vote Designated Portfolio shares for which no instructions
have been received in the same proportion as Designated
Portfolio shares for which instructions have been received
from Contract owners, so long as and to the extent that the
<PAGE>
SEC continues to interpret the 1940 Act to require pass-
through voting privileges for variable contract owners.
First Transamerica reserves the right to vote Fund shares
held in any segregated asset account in its own right,
to the extent permitted by law.
3.7 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts holding shares of a Designated Portfolio
calculates voting privileges in the manner required by the Shared Funding
Exemptive Order. First Transamerica shall fulfill its obligations under, and
abide by the terms and conditions of, the Shared Funding Exemptive Order,
including calculating voting privileges as described on Schedule G. The Fund
agrees to promptly notify First Transamerica of any changes of interpretations
or amendments of the Shared Funding Exemptive Order.
3.8 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends, comply with
Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the Commission may
promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1 First Transamerica and Schwab shall furnish, or shall cause to be
furnished, to the Fund or its designee, a copy of each piece of sales literature
or other promotional material that First Transamerica or Schwab, respectively,
develops or proposes to use and in which the Fund (or a Portfolio thereof), its
investment adviser or one of its sub-advisers or the underwriter for the Fund
shares is named in connection with the Contracts, at least 10 (ten) Business
Days prior to its use. No such material shall be used if the Fund or its
designee objects to such use within 5 (five) Business Days after receipt of such
material.
4.2 First Transamerica and Schwab shall not give any information or make
any representations or statements on behalf of the Fund or concerning the Fund
in connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
<PAGE>
or in sales literature or other promotional material approved by the Fund
or its designee or by the Adviser, except with the permission of the Fund or the
Adviser.
4.3 The Fund or Adviser shall furnish, or shall cause to be furnished, to
First Transamerica and Schwab, a copy of each piece of sales literature or other
promotional material in which First Transamerica and/or its separate account(s),
or Schwab is named at least 10 (ten) Business Days prior to its use. No such
material shall be used if First Transamerica or Schwab objects to such use
within 5 (five) Business Days after receipt of such material.
4.4 The Fund and the Adviser shall not give any information or make any
representations on behalf of First Transamerica or concerning First
Transamerica, the Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports for the Account, or in sales
literature or other promotional materia approved by First Transamerica or its
designee, except with the permission of First Transamerica.
4.5 The Fund and Adviser shall not give any information or make any
representations on behalf of or concerning Schwab, or use Schwab's name except
with the permission of Schwab.
4.6 The Fund will provide to First Transamerica and Schwab at least one
complete copy of all registration statements, prospectuses, Statements of
Additional Information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests of no-action
letters, and all amendments to any of the above, that relate to the Designated
Portfolios, contemporaneously with the filing of such documents(s) with the SEC
NASD or other regulatory authorities.
4.7 First Transamerica or Schwab will provide to the Fund at least one
complete copy of all registration statements, prospectuses, Statements of
Additional Information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Contracts or the Account, contemporaneously with the filing of
such document(s) with the SEC, NASD, or other regulatory authority.
4.8 For purposes of this Article IV, the phrase "sales literature and
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
<PAGE>
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any writer communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
4.9 At the request of any party to this Agreement, each other
party will make available to the other party's independent
auditors and/or representatives of the appropriate regulatory
agencies, all records, data and access to operating procedures
that may be reasonably requested in connection with compliance and
regulatory requirements related to this Agreement or any party's
obligations under this Agreement.
ARTICLE V. Fees and Expenses
5.1 The Fund and the Adviser shall pay no fee or other compensation to
First Transamerica under this Agreement, and First Transamerica shall pay no fee
or other compensation to the Fund or Adviser under this Agreement, although the
parties hereto will bear certain expenses in accordance with Schedule F,
Articles III, V, and other provisions of this Agreement. In the event that First
Transamerica or Schwab agrees with any other mutual fund or investment adviser
to any provision for bearing expenses that is more favorable to such fund or
investment adviser than the provisions applicable to the Fund and the Adviser in
this Agreement or the Schedules hereto, this Agreement shall be automatically
amended to give the Fund and the Advisor the benefits of such more favorable
provisions.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, as further provided in Schedule F. The Fund shall see
to it that all shares of the Designated Portfolios are registered and authorized
for issuance in accordance with applicable federal law and, if and to the extent
required, in accordance with applicable state laws prior to their sale.
5.3 The parties shall bear the expenses of routine annual distribution of
the Fund's prospectus and distributing the Fund's proxy materials and reports to
owners of Contracts offered by First Transamerica, as provided in Schedule F.
5.4 The Fund and Adviser acknowledge that a principal feature of the
Contracts is the Contract owner's ability to choose from a number of
unaffiliated mutual funds (and portfolios or series thereof), including the
<PAGE>
Designated Portfolios ("Unaffiliated Funds"), and to transfer the Contract's
cash value between funds and portfolios. The Fund and Advisor agree
to cooperate with First Transamerica and Schwab in facilitating the operation of
the Account and the Contracts as intended, including but not limited to
cooperation in facilitating transfers between Unaffiliated Funds.
5.5 Schwab agrees to provide certain administrative services, specified in
Schedule D hereto, in connection with the arrangements contemplated by this
Agreement. The parties acknowledge and agree that the services referred to in
this Section 5.5 are recordkeeping, shareholder communication, and other
transaction facilitation and processing, and related administrative services
only and are not the services of an underwriter or a principal underwriter of
the Fund and that Schwab is not an underwriter for the shares of the Designated
Portfolios, within the meaning of the 1933 Act or the 1940 Act.
5.6 As compensation for the services specified in Schedule D hereto, the
Advisor agrees to pay Schwab a monthly Administrative Service Fee based on the
percentage per annum on Schedule D hereto applied to the average daily value of
the shares of the Designated Portfolios held in the Account with respect to
Contracts sold by Schwab. This monthly Administrative Service Fee is due and
payable before the 15th (fifteenth) day following the last day of the month to
which it relates.
ARTICLE VI. Diversification and Qualification
6.1 The Fund and Adviser represent and warrant that the Fund will at all
times sell its shares and invest its assets in such a manner as to ensure that
the Contracts will be treated as annuity contracts under the Code, and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Fund and Adviser represent and warrant that the Fund and each Designated
Portfolio thereof will at all times comply with Section 817(h) of the Code and
Treasury Regulation ss.1.817-5, as amended from time to time, and any Treasury
interpretations thereof, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts and any amendments or
other modifications or successor provisions to such Section or Regulations. The
Fund and the Advisor agree that shares of the Designated Portfolios will be sold
only to Participating Insurance Companies and their separate accounts.
6.2 No shares of any series or portfolio of the Fund will be sold to the
general public.
6.3 The Fund and Adviser represent and warrant that the Fund and each
Designated Portfolio is currently qualified as a Regulated Investment Company
under Subchapter M of the Code, and that it will remain such qualification
(under Subchapter M or any successor or similar provisions) as long as this
Agreement is in effect.
<PAGE>
6.4 The Fund or Adviser will notify First Transamerica immediately upon
having a reasonable basis for believing that the Fund or any Portfolio has
ceased to comply with the aforesaid Section 817(h) diversification or Subchapter
M qualification requirements or is likely not to so comply in the future.
6.5 The Fund and Adviser acknowledge that full compliance with the
requirements referred to in Sections 6.1, 6.2, and 6.3 hereof is absolutely
essential because any failure to meet those requirements could result in the
Contracts not being treated as annuity contracts for federal income tax
purposes, which could have adverse tax consequences for Contract owners and
could also adversely affect First Transamerica's corporate tax liability. The
Fund and Adviser also acknowledge that it is solely within their power and
control to meet those requirements. Accordingly, without in any way limiting the
effect of Sections 8.3 and 8.4 hereof and without in any way limiting or
restricting any other remedies available to First Transamerica, the Adviser will
pay all costs associated with reasonable and appropriate corrections or
responses to any failure of the Fund or any Designated Portfolio to comply with
Sections 6.1, 6.2, or 6.3 hereof. The parties shall use their best efforts to
mitigate any such costs, but acknowledge that the costs associated with a
failure to comply with sections 6.1, 6.2 or 6.3 could include, but may not be
limited to, the costs involved in creating, organizing, and registering a new
investment company as a funding medium for the Contracts and/or the costs of
obtaining whatever regulatory authorizations are required to substitute shares
of another investment company for those of the failed Portfolio (including but
not limited to an order pursuant to Section 26(b) of the 1940 Act); such costs
are to include , but are not limited to, reasonable fees and expenses of legal
counsel to First Transamerica and any federal income taxes or tax penalties (or
"toll charges" or exactments or amounts paid in settlement) incurred by First
Transamerica with respect to itself or owners of its Contracts in connection
with any such failure.
6.6 The Fund shall provide First Transamerica or its designee with reports
demonstrating compliance with the aforesaid Section 817(h) diversification and
Subchapter M qualification requirements, at the times provided for and
substantially in the form attached hereto as Schedule E provided, however, that
providing such reports does not relieve the Fund or Adviser of their
responsibility for such compliance or of their liability for any non-compliance.
<PAGE>
ARTICLE VII. Potential Conflicts and Compliance with Shared
Funding Exemptive Order
7.1 The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by a Participating Insurance Company to
disregard the voting instructions of contract owners. The Board shall promptly
inform First Transamerica if it determines that an irreconcilable material
conflict exists and the implications thereof.
7.2 First Transamerica will report any potential or existing
conflicts of which it is aware to the Board. First Transamerica
will assist the Board in carrying out its responsibilities under
the Shared Funding Exemptive Order, by providing the Board with all information
reasonably necessary for the Board to consider any issues raised. This includes,
but is not limited to, an obligation by First Transamerica to inform the Board
whenever contract owner voting instructions are to be disregarded. Such
responsibilities shall be carried out by First Transamerica with a view only to
the interests of its Contract Owners.
7.3 If it is determined by a majority of the Board, or a majority of its
directors who are not interested persons of the Fund, the Adviser or any
sub-adviser to any of the Portfolios (the "Independent Directors"), that a
material irreconcilable conflict exists, First Transamerica and other
Participating Insurance Companies shall, at their expense and to the extent
reasonably practicable (as determined by a majority of the Independent
Directors), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1), withdrawing the
assets allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or submitting the
question whether such segregation should be implemented to a vote of all
affected contract owners and, as appropriate, segregating the assets of any
<PAGE>
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by
First Transamerica to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, First
Transamerica may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this Agreement; provided, however that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
Independent Directors. Any such withdrawal and termination must take place
within six (6) months after the Fund gives written notice that this provision is
being implemented, and until the end of that six month period the Adviser and
the Fund shall continue to accept and implement orders by First Transamerica for
the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to First Transamerica conflicts with
the majority of other state regulators, then First Transamerica will withdraw
the Account's investment in the Fund and terminate this Agreement within six
months after the Board informs First Transamerica in writing that it has
determined that such decision has created an irreconcilable material conflict;
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Until the end of the
foregoing six month period, the Adviser and the Fund shall continue to accept
and implement orders by First Transamerica for the purchase (and redemption) of
shares of the Fund.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the Independent Directors shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Fund be required to establish a new funding medium for the Contracts. First
Transamerica shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then
<PAGE>
First Transamerica will withdraw the Account's investment in the Fund and
terminate this Agreement within six (6) months after the Board informs First
Transamerica in writing of the foregoing determination; provided, however, that
such withdrawal and termination shall be limited to the extent required by any
such material irreconcilable conflict as determined by a majority of the
Independent Directors.
7.7 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended and Rule 6e-3, as adopted, to the extent such rules are applicable:
and (b) Sections 3.6, 3.7, 3.8, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By First Transamerica
8.1(a). First Transamerica agrees to indemnify and hold harmless the
Fund, its officers, each member of its Board, and the Adviser (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of First Transamerica) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration
statement or prospectus or SAI for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this Agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished in writing to First
Transamerica or Schwab by or on behalf of the Adviser or Fund for use
in the registration statement or prospectus for the Contracts or in
the Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund
shares; or
<PAGE>
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature of the Fund not supplied by
First Transamerica or persons under its control) or wrongful conduct
of First Transamerica or persons under its control, with respect to
the sale or distribution of the Contracts or Fund Shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or
sales literature of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was
made in reliance upon information furnished in writing to the Fund by
or on behalf of First Transamerica; or
(iv) arise as a result of any failure by First Transamerica to provide the
services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any representation
and/or warranty made by First Transamerica in this Agreement or arise
out of a result from any other material breach of this Agreement by
First Transamerica,
as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8.1(b). First Transamerica shall not be liable under this
indemnification provision with respect to any losses, claims, expenses, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
negligence in the performance of such Indemnified Party's duties or by reason
<PAGE>
of such Indemnified Party's reckless disregard of obligations or duties under
this Agreement or to the Fund, whichever is applicable.
8.1(c). First Transamerica shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified First Transamerica in writing within
a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve First Transamerica of its obligations hereunder except to the extent
that First Transamerica has been prejudiced by such failure to give notice. In
addition, any failure to notify First Transamerica of any such claim shall not
relieve First Transamerica from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this indemnification provision. In case any such action is brought against
the Indemnified Parties, First Transamerica shall be entitled to participate, at
its own expense, in the defense of such action. First Transamerica also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from First Transamerica to such party of First
Transamerica's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
First Transamerica will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.1(d). The Indemnified Parties will promptly notify First
Transamerica of the commencement of any litigation or proceedings against them
in connection with the issuance or sale of the Fund Shares or the Contracts or
the operation of the Fund.
8.2. Indemnification by Schwab
8.2(a). Schwab agrees to indemnify and hold harmless the Fund, its
officers, each member of its Board, and the Adviser (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of Schwab) or litigation (including legal
and other expenses),to which the Indemnified Parties may become subject under
any statute or regulation, at common law or otherwise, insofar as such losses,
<PAGE>
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of Schwab's dissemination of information regarding the Fund
that is both (A) materially incorrect and (B) that was not either
contained in the Fund's registration statement or sales literature or
provided in writing to Schwab, or approved in writing, by or on behalf
of the Fund or the Adviser; or
(ii) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in sales literature for the
Contracts or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, PROVIDED that this Agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished in writing to First Transamerica
or Schwab by or on behalf of the Adviser or Fund for use in the
registration statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts; or
(iii)arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature of the Fund not supplied by
Schwab or persons under its control) or wrongful conduct of Schwab or
persons under its control, with respect to the sale or distribution of
the Contracts; or
(iv) arise as a result of any failure by Schwab to provide the services and
furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by Schwab in this Agreement or arise out of or
result from any other material breach of this Agreement by Schwab;
<PAGE>
as limited by and in accordance with the provisions of Sections
8.2(b) and 8.2(c) hereof.
8.2(b). Schwab shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.2(c) Schwab shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified Schwab in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve Schwab of its obligations hereunder except to the extent that Schwab has
been prejudiced by such failure to give notice. In addition, any failure to
notify Schwab of any such claim shall not relieve Schwab from any liability
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. Notwithstanding the
foregoing, the failure of any Indemnified Party to give notice as provided
herein shall not relieve First Transamerica, of its obligations hereunder except
to the extent that First Transamerica has been prejudiced by such failure to
give notice. In case any such action is brought against the Indemnified Parties,
Schwab shall be entitled to participate, at its own expense, in the defense of
such action. Schwab also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from Schwab
to such party of Schwab's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and Schwab will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d). The Indemnified Parties will promptly notify
Schwab of the commencement of any litigation or proceedings against
them in connection with the issuance or sale of the Fund Shares or the Contracts
or the operation of the Fund.
<PAGE>
8.3 Indemnification by the Adviser
8.3(a). The Adviser agrees to indemnify and hold harmless First
Transamerica and Schwab and each of their directors and officers and each
person, if any, who controls First Transamerica or Schwab within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes
of this Section 8.3) against any and all losses, claims, expenses, damages,
liabilities (including amounts paid in settlement with the written consent of
the Adviser) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus or SAI or sales literature of the Fund (or any amendment
or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, PROVIDED that this Agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished in writing to the
Adviser or Fund by or on behalf of First Transamerica or Schwab for
use in the registration statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the Registration
Statement, prospectus or sales literature for the Contracts not
supplied by the Adviser or persons under its control) or wrongful
conduct of the Fund or Adviser or persons under their control, with
respect to the sale or distribution of the Contracts or Fund shares;
or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus or
sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
in writing to First Transamerica or Schwab by or on behalf of the
Adviser or Fund; or
(iv) arise as a result of any failure by the Fund or Adviser to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or
otherwise, to comply with the diversification and other qualification
requirements specified in Article VI of this Agreement); or
<PAGE>
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Fund or Adviser in this Agreement or arise
out of or result from any other material breach of this Agreement by
the Adviser;
as limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof.
8.3(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
First Transamerica or to Schwab or the Account, whichever is applicable.
8.3(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Adviser of its obligations hereunder except to the extent that the
Adviser has been prejudiced by such failure to give notice. In addition, any
failure to notify the Adviser of any such claim shall not relieve the Adviser
from any liability which it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified Parties,
the Adviser will be entitled to participate, at its own expense, in the defense
thereof. The Adviser also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Adviser to such party of the Adviser's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Adviser will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.3(d). First Transamerica and Schwab agree promptly to notify the
Adviser of the commencement of any litigation or proceedings against it or any
of its officers or directors in connection with the issuance or sale of the
contracts or the operation of the Account.
8.4 Indemnification By the Fund
8.4(a). The Fund agrees to indemnify and hold harmless First
Transamerica and Schwab and each of their directors and officers and each
person, if any, who controls First Transamerica or Schwab within the meaning of
<PAGE>
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.4) against any and all losses, claims, expenses,
damages, liabilities (including amounts paid in settlement with the written
consent of the Fund) or litigation (including legal and other expenses) to which
the Indemnified Parties may be required to pay or may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements, result from the gross negligence, bad faith or willful misconduct
of the Board or any member thereof, are related to the operations of the Fund
and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement (including
a failure to comply with the diversification and other qualification
requirements specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any representation
and/or warranty made by the Fund in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections
8.4(b) and 8.4(c) hereof.
8.4(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
First Transamerica, Schwab, the Fund, the Adviser or the Account, whichever is
applicable.
8.4(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Fund of its obligations hereunder except to the extent that the Fund
has been prejudiced by such failure to give notice. In addition, any failure to
notify the Fund of any such claim shall not relieve the Fund from any liability
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Fund will not be liable
to such party under this Agreement for any legal or other expenses subsequently
<PAGE>
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.4(d). First Transamerica and Schwab each agree promptly to notify
the Fund of the commencement of any litigation or proceeding against itself or
any of its respective officers or directors in connection with the Agreement,
the issuance or sale of the Contracts, the operation of the Account, or the sale
or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2 This Agreement shall be subject to the provisions
of the 1933, 1934 and 1940 Acts, and the rules and regulations and
rulings thereunder, including such exemptions from those statutes,
rules and regulations as the Securities and Exchange Commission may
grant (including, but not limited to, the Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party with or without cause, with
respect to some or all Portfolios, upon one (1) year advance
written notice delivered to the other parties; provided,
however, that such notice shall not be given earlier than
one year following the date of this Agreement; or (b) at the
option of First Transamerica by written notice to the other
parties with respect to any Portfolio based upon First
<PAGE>
Transamerica's determination that shares of such Portfolio
are not reasonably available to meet the requirements of the
Contracts; or (c) at the option of First Transamerica by
written notice to the other parties with respect to any
Portfolio in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with applicable
state and/or federal law or such law precludes the use of
such shares as the underlying investment media of the
Contracts issued or to be issued by First Transamerica; or
(d) at the option of the Fund in the event that formal
administrative proceedings are instituted against First
Transamerica or Schwab by the NASD, the SEC, the Insurance
Commissioner or like official of any state or any other
regulatory body regarding First Transamerica's or Schwab's
duties under this Agreement or related to the sale of the
Contracts, the operation of any Account, or the purchase of
the Fund shares, provided, however, that the Fund determines
in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse
effect upon the ability of First Transamerica or Schwab to
perform its obligations under this Agreement; or (e) at the
option of First Transamerica in the event that formal
administrative proceedings are instituted against the Fund
or Adviser by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body, provided,
however, that First Transamerica determines in its sole
judgment exercised in good faith, that any such
administrative proceedings will have a material adverse
effect upon the ability of the Fund or Adviser to perform
its obligations under this Agreement; or (f) at the option
of First Transamerica by written notice to the Fund and the
Adviser with respect to any Portfolio if First Transamerica
reasonably believes that the Portfolio will fail to meet the
Section 817(h) diversification requirements or Subchapter M
qualifications specified in Article VI hereof; or
(g) at the option of either the Fund or the Adviser, if (i)
the Fund or Adviser, respectively, shall determine, in their
sole judgment reasonably exercised in good faith, that
either First Transamerica or Schwab has suffered a material
adverse change in their business or financial condition or
is the subject of material adverse publicity and the
material adverse change or publicity will have a material
adverse impact on First Transamerica's or Schwab's ability
to perform its obligations under this Agreement, (ii) the
Fund or Adviser notifies First Transamerica or Schwab, as
appropriate, of that determination and its intent to
terminate this Agreement, and (iii) after considering the
actions taken by First Transamerica or Schwab and any other
<PAGE>
changes in circumstances since the giving of such notice,
the determination of the Fund or Adviser shall continue to
apply on the sixtieth (60th) day following the giving of
that notice, which sixtieth day shall be the effective date
of termination; or
(h) at the option of either First Transamerica or Schwab, if
(i) First Transamerica or Schwab, respectively, shall
determine, in its sole judgment reasonably exercised in good
faith, that either the Fund or the Adviser has suffered a
material adverse change in its business or financial
condition or is the subject of material adverse publicity
and that material adverse change or publicity will have a
material adverse impact on the Fund's or Adviser's ability
to perform its obligations under this Agreement, (ii) First
Transamerica or Schwab notifies the Fund or Adviser, as
appropriate, of that determination and its intent to
terminate this Agreement, and (iii) after considering the
actions taken by the Fund or Adviser and any other changes
in circumstances since the giving of such a notice, the
determination of First Transamerica or Schwab shall continue
to apply on the sixtieth (60th) day following the giving of
that notice, which sixtieth day shall be the effective date
of termination; or
(i) at the option of First Transamerica in the event that
formal administrative proceedings are instituted against
Schwab by the NASD, the Securities and Exchange Commission,
or any state securities or insurance department or any other
regulatory body regarding Schwab's duties under this
Agreement or related to the sale of the Fund's shares or the
Contracts, the operation of any Account, or the purchase of
the Fund shares, provided, however, that First Transamerica
determines in its sole judgment exercised in good faith,
that any such administrative proceedings will have a
material adverse effect upon the ability of Schwab to
perform its obligations related to the Contracts.
10.2 Notice Requirement No termination of this Agreement shall
be effective unless and until the party terminating this Agreement
gives prior written notice to all other parties of its intent to
terminate, which notice shall set forth the basis for the
termination. Furthermore,
(a) in the event that any termination is based upon the provisions
of Article VII, or the provisions of Section 10.1 (a), 10.1 (g) or
10.1 (h) of this Agreement, the
<PAGE>
prior written notice shall be given in advance of the effective date
of termination as required by those provisions; (b) in the event
that any termination is based upon the provisions of Section 10.1
(d), 10.1 (e) or 10.1 (i) of this Agreement, the prior written
notice shall be given at least sixty (60) days before the effective
date of termination; and (c) in the event that any termination is
based upon the provisions of Section 10.1 (b), 10.1 (c) or 10.1 (f),
the prior written notice shall be given in advance of the effective
date of termination, which date shall be determined by the party
sending the notice.
10.3 Effect of Termination Notwithstanding any termination of this
Agreement, the Fund and the Adviser shall, at the option of First Transamerica,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.3 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.4 Surviving Provisions. Notwithstanding any termination of this
Agreement, each party's obligations under Article VIII to indemnify other
parties shall survive and not be affected by any termination of this Agreement.
In addition, with respect to Existing Contracts, all provisions of this
Agreement shall also survive and not be affected by any termination of this
Agreement.
10.5 Survival of Agreement. A termination by Schwab shall terminate this
Agreement only as to that party, and this Agreement shall remain in effect as to
the other parties; provided, however, that in the event of a terminating by
Schwab, the other parties shall have the option to terminate this Agreement upon
60 (sixty) days notice, rather than the one (1) year specified in Section 10.1
(a).
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
<PAGE>
If to the Fund:
INVESCO Variable Investment Funds, Inc.
7800 East Union Avenue, Suite 800
Denver, CO 80237
Attention: General Counsel
If to First Transamerica:
First Transamerica Life Insurance Company
575 Fifth Avenue
New York, NY 10017-2422
Attention: President
If to the Adviser:
INVESCO Funds Group, Inc.
7800 East Union Avenue, Suite 800
Denver, CO 80237
Attention: General Counsel
If to Schwab:
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
Attention: General Counsel
ARTICLE XII. Miscellaneous
12.1 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain.
<PAGE>
12.2 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.5 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the NASD and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby. Notwithstanding the generality of the
foregoing, each party hereto further agrees to furnish the New York Insurance
Commissioner with any information or reports in connection with services
provided under this Agreement which such Commissioner may request in order to
ascertain whether the variable annuity operations of First Transamerica are
being conducted in a manner consistent with the New York Variable Annuity
Regulations and any other applicable law or regulations.
12.6 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.7 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
12.8 IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as to the date
specified below.
First Transamerica:
FIRST TRANSAMERICA OCCIDENTAL LIFE INSURANCE
COMPANY
By its authorized officer
By:/s/------------------------
Title:------------------------
Date:-------------
<PAGE>
Fund:
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
By:/s/ Ronald L. Grooms
----------------------------
Title:Treasurer
----------------------------
Date:November 15, 1994
-------------------
Adviser:
INVESCO FUNDS GROUP, INC.
By its authorized officer,
By:/s/ Ronald L. Grooms
------------------------------
Title:Senior Vice President & Treasurer
--------------------------------
Date:November 15, 1994
-----------------
Schwab:
CHARLES SCHWAB & CO., INC.
By its authorized officer,
By:/s/-------------------------
Title:VP Variable Annuities
-------------------------
Date:12/1/94
------------------
<PAGE>
Schwab Investment Advantage, A Variable Annuity
SCHEDULE A
Contracts Form Numbers
--------- ------------
First Transamerica Life Insurance Company
Group Annuity Contract Form No. FTGP-501-193
Dollar Cost Averaging Endorsement Form No. FTGE-003-193
Automatic Payout Option Endorsement Form No. FTGE-004-193
Systematic Withdrawal Option Endorsement Form No. FTGE-005-193
Acceptance of Group Annuity Contract Form No. FTGA-003-193
Modification of Allocation of Net Purchase Payments Provision
Form No. FTGE-007-194
Variable Annuity Application Form No. FTGA-004-194 (6/94)
Certificate of Participation Form No. FTCG-101-193
IRA Endorsement Form No. FTCE-005-193
Benefit Distribution Endorsement Form No. FTCE-006-193
Dollar Cost Averaging Endorsement Form No. FTCE-007-193
Automatic Payout Option Endorsement Form No. FTCE-008-193
Systematic Withdrawal Option Endorsement Form No. FTCE-009-193
Annuity Rate Table Endorsement Form No. FTCE-010-193
Unisex Annuity Rate Tables Endorsement Form No. FTCE-010-193
Modification of Allocation of Net Purchase Payments Provision
Form No. FTCE-011-194
<PAGE>
SCHEDULE B
Designated Portfolios
INVESCO VIF-Industrial Income Portfolio
INVESCO VIF-Total Return Portfolio
INVESCO VIF-High Yield Portfolio
<PAGE>
SCHEDULE C
INVESCO Industrial Income Fund, INVESCO Total Return Fund, and
INVESCO High Yield Fund
INVESCO Variable Investment Funds, Inc. (the "Company"), a Maryland
corporation, is an open-end management investment company which offers shares of
common stock of four diversified investment portfolios (the "Funds"), the
INVESCO VIF - Industrial Income Portfolio (the "Industrial Income Fund"), the
INVESCO VIF - Total Return Portfolio (the "Total Return Fund"), the INVESCO VIF
- - High Yield Portfolio (the "High Yield Fund"), and the INVESCO VIF - Utilities
Portfolio (the "Utilities Fund"). The Utilities Fund is not part of this Charles
Schwab Variable Annuity. The Company's shares are not offered directly to the
public, but are sold exclusively to life insurance companies ("Participating
Insurance Companies") as a pooled funding vehicle for variable annuity and
variable life insurance contracts issued by separate accounts of Participating
Insurance Companies.
Pursuant to an agreement with the Company, INVESCO Funds Group, Inc.
("INVESCO"), 7800 E. Union Avenue, Denver, Colorado, serves as the Funds'
investment adviser. INVESCO is primarily responsible for providing the Fund with
various administrative services and supervising one Funds' daily business
affairs. These services are subject to review by the Company's board of
directors. INVESCO holds all of the outstanding shares of each Fund, and thus
should be regarded as a control person of each Fund. INVESCO is an indirect
wholly-owned subsidiary of INVESCO PLC, a financial holding company which,
through its subsidiaries, engages in the business of investment management on an
international basis. INVESCO was established in 1932 and, as of June 30, 1993,
managed ten mutual funds, consisting of 25 separate portfolios, with combined
assets of approximately $8.4 billion on behalf of over 821,000 shareholders.
Pursuant to agreements with INVESCO, INVESCO Trust Company ("INVESCO
Trust") serves as the sub-adviser of the Industrial Income and High Yield and
INVESCO Capital Management, Inc. ("ICM") serves as the sub-adviser of the Total
Return Fund. Although the Company is not a party to either sub-advisory
agreement, each agreement has been approved for each Fund affected by that
agreement by the Company's board of directors. In addition, each agreement has
been approved as to each affected Fund by the initial shareholder of that Fund.
<PAGE>
The address of INVESCO Trust is 7800 E. Union Avenue, Denver, Colorado and
the address of ICM is 1315 Peachtree Street, N.E., Atlanta, Georgia. Subject to
the supervision of INVESCO and review by the Company's board of directors,
INVESCO Trust is primarily responsible for selecting and managing the
investments of the Industrial Income and High Yield. ICM is primarily
responsible for selecting and managing the Investments of the Total Return Fund.
INVESCO Trust, a trust company founded in 1969, is a wholly-owned
subsidiary of INVESCO that managed 21 investment portfolios as of June 30, 1993,
including 19 portfolios in the INVESCO group, a closed-end investment company,
and a Canadian open-end investment fund trust. These 21 portfolios had aggregate
assets of approximately $7.7 billion as of June 30, 1993. In addition, INVESCO
Trust provides Investment management services to private clients including
employee benefit plans that may be invested in a collective trust sponsored by
INVESCO Trust, having total assets of approximately $244 million as of June 30,
1993.
ICM is an indirect, wholly owned subsidiary of INVESCO PLC that, as of
June 30, 1993, managed approximately $25.3 billion of tax-exempt accounts (such
as pension and profit-sharing funds for corporations and state and local
governments) and acted as investment adviser or sub-adviser to 18 investment
portfolios of 5 other investment companies with combined assets of approximately
$732 million.
Dividends paid by each Fund will be based solely on the income earned by
that Fund. The Company's policy with respect to each Fund is to distribute
substantially all of this income, less expenses, to shareholders of that Fund.
Dividend distributions for each Fund are customarily declared and paid
quarterly, at the end of March, June, September and December. Dividends are
automatically reinvested in additional shares of the Fund making the dividend
distribution at its net asset value, unless an election is made on behalf of a
separate account to receive distributions in cash.
Investment Objectives and Policies
The investment objective of each Fund, as described below, is fundamental
and may be changed only by vote of a majority of the outstanding shares of that
Fund. There is no assurance that any Fund will achieve its investment objective.
<PAGE>
Any investment policy of a Fund may be changed by the Company's board of
directors without shareholder approval unless the policy is one required by the
Fund's fundamental investment restrictions set forth in the Statement of
Additional Information.
Industrial Income Fund
The investment objective of the Industrial Income Fund is to seek the best
possible current income while following sound investment practices. Capital
growth potential is an additional, but secondary, consideration in the selection
of portfolio securities. The Fund seeks to achieve its objective by investing in
securities which will provide a relatively high yield and stable return and
which, over a period of years, also may provide capital appreciation.
The Industrial Income Fund normally invests between 60% and 75% of its
assets in dividend-paying common stocks. The Fund also may invest in convertible
bonds, preferred stocks and straight debt securities ("debt securities"). In
periods of uncertain market and economic conditions, as determined by the fund's
investment advisers, the Fund may depart from its basic investment objective and
assume a defensive position with a large portion of its assets temporarily
invested in high quality corporate bonds, or notes and government issues, or
held in cash.
The Industrial Income Fund may invest no more than 15% of its total assets
in debt securities that are rated below BBB by Standard & Poor's Corporation
("Standard & Poor's"), or Baa by Moody's Investors Service, Inc. ("Moody"s"),
and in no event will the Fund ever invest in a debt security rated below CCC by
Standard & Poor's or Caa by Moody's. Generally, bonds rated in one of the top
four rating categories are considered "investment grade." However, those in the
fourth highest category (Standard & Poor's BBB or Moody's Baa) may have
speculative characteristics and a weaker ability to pay interest or repay
principal under adverse economic conditions or changing circumstances.
Total Return Fund
The investment objective of the Total Return Fund is to seek a high total
return on investment through capital appreciation and current income. The Fund
seeks to accomplish its objective by investing in a combination of equity
securities and fixed income securities. Although there is no limitation on the
maturity of the Total Return Fund's investments in fixed income securities,
<PAGE>
the dollar-weighted average maturity of such investments normally will be from
three to ten years.
The equity securities to be acquired by the Total Return Fund consist of
common stocks and, to a lesser extent, securities convertible into common
stocks. Such securities generally will be issued by companies which are listed
on a national securities exchange (such as the New York Stock Exchange) and
which usually pay regular dividends. However, the Fund also may invest in
securities traded on regional stock exchanges or in the over-the-counter market.
The Company has not established any minimum investment standards (such as an
issuer's asset level, earnings history, type of industry, dividend payment
history, etc.) with respect to the Fund's investments in common stocks. Because
smaller companies may be subject to more significant losses, as well as have the
potential for more substantial growth, than larger, more established companies,
the Fund's investments may consist in part of securities that may be deemed to
be speculative.
The income securities to be acquired by the Total Return Fund will include
obligations of the United States government and government agencies. These
United States government obligations consist of direct obligations of the U.S.
government, such as U.S. Treasury Bills, Notes and Bonds, obligations guaranteed
by the U.S. government, such as Government National Mortgage Association
obligations, and obligations of U.S. government authorities, agencies and
instrumentalities, which are supported only by the assets of the Issuer, such as
the Federal National Mortgage Association, Federal Home Loan Bank, Federal
Financing Bank and Federal Farm Credit Bank. In the case of securities not
backed by the full faith and credit of the United States, the Fund must look
principally to the agency Issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitments.
The Fund will invest in securities of such instrumentalities only when the
fund's investment advisers is satisfied that the credit risk with respect to any
such instrumentality is minimal.
The Total Return Fund also may invest in corporate debt obligations which
are rated in one of the four highest ratings of corporate obligations by Moody's
(Aaa, Aa, A and Baa) or by Standard & Poor's (AAA, AA, A and BBB), or, if not
<PAGE>
rated, which in the fund's investment advisers' opinion have investment
characteristics similar to those described in such ratings. The investment
characteristics of the securities rated Baa by Moody's or BBB by Standard &
Poor's are discussed above in the description of the investment policies of the
Industrial Income Fund.
Typically, at least 30% of the Total Return Fund's investment portfolio
will be comprised of equities and at least 30% fixed and variable income
securities. The remaining 40% of the portfolio will vary in asst allocation
according to the fund's investment adviser's assessment of business, economic,
and market conditions. The analytical process associated with making allocation
decisions is based upon a combination of demonstrated historic financial
results, current prices for stocks, and the current yield to maturity available
in the market for bonds. The return available from one category relative to the
other determines the actual asset deployment. The fund's investment advisers's
asset allocation process is based on current information rather than forecasted
change. The Fund seeks reasonably consistent returns over a variety of market
cycles.
The Total Return Fund also may enter into interest rate futures contracts
and forward delivery contracts, may purchase options on interest rate futures
contracts or debt securities, and may write covered call options and
cash-secured puts.
<PAGE>
High Yield Fund
The investment objective of the High Yield Fund is to seek a high level of
current income by investing substantially all of its assets in lower rated bonds
and other debt securities and in preferred stock. Accordingly, the Fund invests
primarily in bonds and other debt securities, including state and local
municipal obligations and convertible and non-convertible issues, and in
preferred stocks rated in medium and lower categories by Moody's or S&P (Ba or
lower by Moody's, BB or lower by S&P). The Fund does not invest in securities
rated lower than Caa by Moody's or CCC by S&P; these ratings are applied to
issues which are predominantly speculative and may be in default or as to which
there may be present elements of danger with respect to principal or interest.
The Fund does not invest in issues which are in default. The Fund may invest in
unrated securities where the Fund's investment adviser believes that the
financial condition of the issuer or the protection afforded by the terms of the
securities limits risk to a level similar to that of securities eligible for
purchase by the Fund rated in medium and lower categories by Moody's or S&P
(between Ba and Caa ratings by Moody's, and between BB and CCC ratings by S&P).
The High Yield Fund also may hold cash or invest all or a portion of its
assets in securities issued or guaranteed by the U.S. government or its agencies
(which may or may not be backed by the full faith and credit of the United
States) and bank certificates of deposit, if the fund's investment advisers
determines it to be appropriate for purposes of preserving liquidity or capital
in light of prevailing market or economic conditions. The Fund also may invest
in corporate short-term notes rated at the time of purchase at least A-I by S&P
or Prime- I by Moody's, and municipal short-term notes rated at the time of
purchase at least A-1 by S&P or MIG-1 by Moody's the highest rating category for
such notes, indicating a very strong capacity to make timely payments of
principal and interest).
Potential capital appreciation is a factor in the selection of investments,
but is secondary to the High Yield Fund's primary objective. The securities in
which the Fund invests offer a wide range of maturities (from less than one year
to thirty years) and yields. These securities include short-term bonds or notes
(maturing in less than three years), intermediate-term bonds or notes (maturing
in three to ten years), and long-term bonds (maturing in more than ten years).
The fund's investment advisers will seek to adjust the portfolio of securities
held by the Fund to maximize current income consistent with the preservation of
principal.
<PAGE>
There are no limitations on the average maturity of the securities in the
High Yield Fund. Securities will be selected on the basis of the fund's
investment advisers's assessment of interest rate trends an the liquidity of
various instruments under prevailing market conditions. As a matter of policy,
which may be changed without a vote of shareholders, under normal circumstances,
at least 65% of the value of the total assets of the Fund will be invested in
debt securities having maturities at the time of issuance of at least three
years. As a temporary defensive measure, the Fund may hold cash or invest more
than 35% of its assets in debt securities having maturities of less than three
years at the time of issuance if the fund's investment advisers determines it to
be appropriate for purposes of enhancing liquidity or preserving capital in
light of prevailing market or economic conditions. The Investment return to
shareholders of the Fund is based solely upon the income earned and gains
realized on the securities held by the Fund.
Securities in which the High Yield Fund invests may at times be purchased
or sold on a delayed delivery or a when issued basis (i.e., securities may be
purchased or sold by the Fund with settlement taking place in the future, often
a month or more later). The High Yield Fund may invest up to 10% of its net
assets in when issued securities. The payment obligation and the interest rate
that will be received on the securities are fixed at the time the Fund enters
into a purchase commitment. Between the date of purchase and the settlement
date, the value of the securities is subject to market fluctuations, and no
interest is payable to the Fund prior to the settlement date. When the Fund
purchases securities on a when issued basis, its custodian bank will place cash
or liquid debt securities in a separate account of the Fund in an amount equal
to the amount of the purchase obligation.
Investment Restrictions
The Funds operate under certain investment restrictions which are
fundamental and may not be changed with respect to a particular Fund without the
prior approval of the holders of a majority, as defined in the Investment
Company Act of 1940, of the outstanding voting securities of that Fund. For
<PAGE>
purposes of the following limitations, all percentage limitations apply
immediately after a purchase or initial investment. Any subsequent change in a
particular percentage resulting from fluctuations in value does not require
elimination of any security from a Fund.
Each Fund may not:
1. With respect to seventy-five percent (75%) of its total assets,
purchase the securities of any one issuer (except cash items and
government securities" as defined under the Investment Company Act of
1940, as amended (the "1940 Act")), if the purchase would cause the
Fund to have more than 5% of the value of its total assets invested in
the securities of such issuer or to own more than 10% of the
outstanding voting securities of such issuer;
2. Borrow money, except for temporary or emergency purposes (not for
leveraging or investment) in an amount not exceeding 33 1/3% of the
value of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to
exceed 33 1/3% of the value of the Fund's total assets by reason of a
decline in net assets will be reduced within three business days to
the extent necessary to comply with the 33 1/3% limitation. This
restriction shall not prohibit reverse repurchase agreements or
deposits of assets to margin or guarantee positions in futures,
options, swaps or forward contracts, or the segregation of assets in
connection with such contracts.
3. Invest more than 25% of the value of its total assets in any
particular industry (other than government securities).
4. Invest directly in real estate or interest in real estate; however,
the Fund may own debt or equity securities issued by companies engaged
in those businesses.
5. Purchase or sell physical commodities other than foreign currencies
unless acquired as a result of ownership of securities (but this shall
not prevent the Fund from purchasing or selling options, futures,
swaps and forward contracts or from investing in securities or other
instruments backed by physical commodities).
<PAGE>
6. Lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties (but this
limitation does not apply to purchases of commercial paper, debt
securities or to repurchase agreements.)
7. Act as an underwriter of securities issued by others, except to the
extent that it may be deemed an underwriter in connection with the
disposition of portfolio securities of the Fund.
8. Each Fund may, notwithstanding any other investment policy or
limitation (whether or not fundamental), invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental Investment objectives, policies and
limitations as the Fund.
Furthermore, the board of directors has adopted additional investment
restrictions for each Fund. These restrictions are operating policies of each
Fund and may be changed by the board of directors without shareholder approval.
The additional investment restrictions adopted by the board of directors to date
include the following:
(a) The Fund's investments in warrants, valued at the lower of cost or
market, may not exceed 5% of the value of its net assets. Included
within that amount, but not to exceed 2% of the value of the Fund's
net assets, may be warrants that are not listed on the New York or
American Stock Exchanges. Warrants acquired by the Fund in units or
attached to securities shall be deemed to be without value.
(b) The Fund will not (i) enter into any futures contracts or options
on futures contracts if immediately thereafter the aggregate margin
deposits on all outstanding futures contracts positions held by the
Fund and premiums paid on outstanding options on futures contracts,
after taking into account unrealized profits and losses, would exceed
<PAGE>
5% of the market value of the total assets of the Fund, or (ii) enter
into any futures contracts if the aggregate net amount of the Fund's
commitments under outstanding futures contracts positions of the Fund
would exceed the market value of the total assets of the Fund.
(c) The Fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short without the payment of
any additional consideration therefor, and provided that transactions
in options, swaps and forward futures contracts are not deemed to
constitute selling securities short.
(d) The Fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments and other deposits in connection with transactions in
options, futures, swaps and forward contracts shall not be deemed to
constitute purchasing securities on margin.
(e) The Fund does not currently intend to (i) purchase securities of
closed end investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (ii)
purchase or retain securities issued by other open-end investment
companies. Limitations (i) and (ii) do not apply to money market funds
or to securities received as dividends, through offers of exchange, or
as a result of a reorganization, consolidation, or merger. If the Fund
invests in a money market fund, the Fund's investment adviser will
reduce its advisory fee by the amount of any investment advisory and
administrative services fees paid to the investment manager of the
money market fund.
(f) The Fund may not mortgage or pledge any securities owned or held
by the Fund in amounts that exceed, in the aggregate, 15% of the
Fund's net asset value, provided that this limitation does not apply
to reverse repurchase agreements or in the case of assets deposited to
margin or guarantee positions in futures, options, swaps or forward
contracts or placed in a segregated account in connection with such
contracts.
<PAGE>
(g) The Fund does not currently intend to purchase securities of any
issuer (other than U.S. government agencies and instrumentalities or
instruments guaranteed by an entity with a record of more than three
years' continuous operation, including that of predecessors) with a
record of less than three years' continuous operation (including that
of predecessors) if such purchase would cause the Fund's investments
in all such issuers to exceed 5% of the Fund's total assets taken at
market value at the time of such purchase.
(h) The Fund does not currently intend to invest directly in oil, gas, or
other mineral development or exploration programs or leases; however,
the Fund may own debt or equity securities of companies engaged in
those businesses.
(i) The Fund does not currently intend to purchase any security or enter
into a repurchase agreement if, as a result, more than 15% of its net
assets would be invested in repurchase agreements not entitling the
holder to payment of principal and interest within seven days.
<PAGE>
SCHEDULE D
Administrative Services
To be performed by Charles Schwab & Co., Inc.
A. Schwab will provide the properly registered and licensed personnel and
systems needed for all customer servicing and support - for both fund and
annuity information and questions including:
delivery of prospectuses - both fund and annuity;
entry of initial and subsequent orders;
transfer of cash to insurance company and/or funds;
explanations of fund objectives and characteristics;
entry of transfers between funds;
fund balance and allocation inquiries;
mail fund prospectuses;
B. Schwab will calculate on a daily basis for each fund the number of shares and
the asset balance on which the fee is to be paid pursuant to this agreement.
Also provided will be a monthly summary of the reports, expressed in both shares
and dollar amounts.
C. Schwab will communicate all purchase, withdrawal, and exchange orders it
receives form its customers to First Transamerica who will retransmit them to
each fund.
D. For the services, Schwab shall receive a fee of 9.20% per annum applied to
the average daily value of the shares of the fund held by Schwab's customers,
payable by the Adviser directly to Schwab, such payments being due and payable
and payable within 15 (fifteen) days after the last day of the month to which
such payments relates.
<PAGE>
SCHEDULE E
Reports per Section 6.6
With regard to the reports relating to the quarterly testing of compliance
with the asset diversification requirements of Section 817(h) and Subchapter M
under the Internal Revenue Code (the "Code") and the regulations thereunder, the
Fund shall provide within twenty (20) Business Days of the close of the calendar
quarter a report in the attached Forms E.1 and E.2 regarding the status under
such sections of the Code of the Designated Portfolios, and if necessary,
identification of any remedial action to be taken to remedy non-compliance.
With regard to the reports relating to the year-end testing of compliance
with the gross income requirements of Subchapter M of the Code, referred to
hereinafter as "RIC status", the Fund will provide the reports on the following
basis: the year-end report in the attached Form E.3 will be provided 45 days
after the end of the calendar year, but prior thereto, the Fund will provide the
additional interim and supplemental reports, described below.
The additional reports are as follows:
1. A report in the usual reporting format and content, as of November 30, of the
fiscal year ending the following December 31. The report will be provided under
cover of a letter from the Adviser stating that the Fund is in full compliance
with the requirements of Section 817(h) and Subchapter M of the Code. Assuming
such satisfactory report, the Fund will not provide any additional interim
reports. The report will be delivered by facsimile by the twentieth day of
December.
2. In the alternative, if a problem, as defined below, is identified in the
November report or its accompanying transmittal letter, additional interim
reports, on a weekly basis, starting on the 15th of December and through the
30th of December, also will be supplied ("additional interim reports"). The
additional interim reports will not follow the format of the regular reports,
but will specifically address the problem identified in the November 30 report.
If any interim report, thereafter, memorializes the cure of the problem,
subsequent additional reports will not be required.
<PAGE>
With regard to delivery of the additional reports, they will be transmitted by
facsimile on the next Business Day, subject to the following schedule of special
dates: if the 15th of December is a Saturday, the required report date will be
accelerated to the 14th of December, if the 15th of December is a Sunday the
report will be transmitted on the 16th of December.
3. A problem with regard to RIC status is defined as any violation of the
following standards, as referenced to the applicable sections of the Code:
(a) Less than ninety-five percent of gross income is derived from sources
of income specified in Section 851(b)(2);
(b) Twenty-five percent or greater gross income is derived from the sale or
disposition of assets specified in Section 851(b)(3);
(c) Fifty-five percent or less of the value of total assets consists of
assets specified in Section 851(b)(4)(A); and
(d) Twenty percent or more of the value of total assets is invested in the
securities of one issuer, as that requirement is set forth in Section
851(b)(4)(B).
<PAGE>
E.1
817(h) Test
Fund Name------------------------ Date of Report--------------------
First Second Third Fourth
Asset Diversification Test Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
Total Assets
===============================================
Cash
-----------------------------------------------
Cash Items (Incl.
receivables)
-----------------------------------------------
Government Securities
-----------------------------------------------
Securities of Other RIC's
-----------------------------------------------
Subtotal
-----------------------------------------------
-----------------------------------------------
Percentage < or = to 55%
-----------------------------------------------
<PAGE>
Fund Name------------------------ Date of Report--------------------
First Second Third Fourth
Asset Diversification Test Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
Total Assets ======= ======= ======= =======
List fund's four largest
investment in descending
order of value
Name/Account
1. ======= ======= ======= =======
2. ======= ======= ======= =======
3. ======= ======= ======= =======
4. ======= ======= ======= =======
Percentages:
1/Total Net Assets ------- ------- ------- -------
1+2/Total Net Assets ------- ------- ------- -------
1+2+3/Total Net Assets ------- ------- ------- -------
1+2+3+4/Total Net Assets ------- ------- ------- -------
Test:
Is % at A< or = 55% ------- ------- ------- -------
Is % at B< or = 70% ------- ------- ------- -------
Is % at C< or = 80% ------- ------- ------- -------
Is % at D< or = 90% ------- ------- ------- -------
<PAGE>
E.2
RIC Test
Fund Name------------------------ Date of Report--------------------
QUARTERLY ASSET DIVERSIFICATION TEST
1. Computations: 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
a. Total net assets:
cash, receivable,
securities and total
other assets $------ $------ $------ $------
5% of TNA ======== ======= ======= =======
b. Qualifying assets,
sum of:
1. Cash, receivables,
govt. securities
and securities of
other regulated
Investment Companies $------ $------ $------ $------
2. Other securities
not including: (a)
securities of any one
issuer having a value
in excess of 5% of
line 1a; or (b)
securities representing
more than 10% of
the outstanding voting
securities of any one
issuer (See attached
for detail.) $------ $------ $------ $------
3. Total qualifying
assets: sum of (1) +
(2) $------ $------ $------ $------
<PAGE>
4. Total nonqualifying $------ $------ $------ $------
5. Total net assets
should equal a.)
sum of (3) + (4) $====== $====== $====== $======
<PAGE>
Fund Name------------------------ Date of Report--------------------
2.Requirements (Answer Yes/No)
a. Are total qualifying
assets equal to or
greater than 50% of
total assets ------- ------- ------- -------
b. Is not more than 25%
of total assets
invested in the
securities (other
than U.S. government
securities or the
securities of other
RICs) of any one
issuer? ------- ------- ------- -------
c. Are total non-
qualifying asset
over 25% ------- ------- ------- -------
d. If yes, are securities
qualifying at date of
purchase? (See
attached for detail.) ------- ------- ------- -------
<PAGE>
Fund Name------------------------ Date of Report--------------------
A. Securities of any one issuer having a value in excess of 5% of
line 1a:
QTR SECURITY MARKET VALUE % OF MKT VAL > 5% OF TNA
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<PAGE>
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B. Securities representing more than 10% of the outstanding
voting securities of any one issuer.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
-------- -------- -------- --------
<PAGE>
Fund Name------------------------ Date of Report--------------------
QUARTERLY ASSET DIVERSIFICATION TEST
Nonqualifying assets: client appraisals
a. Securities of issuer w/value > 5% of total asset
<TABLE>
<CAPTION>
PRIOR MKT VALUE
PRIOR DAY'S AT TIME
ACQUISITION PURCHASES NAV OF LAST
QUARTER SECURITY DATE VALUE COST VALUE PURCHASE
- ------- -------- ---------- --------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
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= + / =
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<PAGE>
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</TABLE>
<PAGE>
Fund Name------------------------ Date of Report--------------------
TAX COMPUTATION OF INVESTMENT
COMPANY FISCAL YEAR INCOME GROSS
INCOME TESTS (ANNUAL)
UTI
---------------------------------------------
BOOK TAX ADJ TAX BASIS
---------------------------------------------
1. Interest and dividend income
---------------------------------------------
2. Gross gains on stock or
securities held Three months or
More (exclude each sale at a
loss)
---------------------------------------------
3. Gross gains on options,
futures or forward contracts
held for Three months or More
related to stock or securities
(exclude each transaction
generating a loss).
---------------------------------------------
4. Gains from foreign currencies
which are directly related to the
Fund's principal business of
investing in stock or securities
(or options and futures
with respect to stock or
securities).
---------------------------------------------
5. Other income (describe)
related to Fund's business of
investing in stock or
securities.
---------------------------------------------
6. Other income (describe) NOT
related to Fund's business of
investing in stock or
securities.
---------------------------------------------
7. Gains from foreign currencies
NOT directly related to the Fund's
principal business of investing
in stock or securities (or options
and futures with respect to stock
and securities) held Three Months
or MORE.
---------------------------------------------
<PAGE>
8. Gains from foreign currencies
NOT directly related to the fund's
principal business of investing
in stock or securities (or
options and futures with
respect to stock and securities)
held Less than Three Months.
---------------------------------------------
9. Gross gains from stock or
securities held Less than Three
Months (exclude each sale at a
loss).
---------------------------------------------
10.Gross gains on options,
futures and forward contracts
held for Less than Three Months
related to stock or securities
(exclude each transaction
generating a loss).
---------------------------------------------
11.Gross Income (Sum of 1-10)
---------------------------------------------
12.Requirements (1=YES 0=NO)
---------------------------------------------
a. Is other income (lines
6+7+8) not related to Fund's
business less than or equal to
10 percent of gross income
(line 10)?
---------------------------------------------
b. Are gross gains on
securities held less than three
months (line 8+9+10) less than
30 percent of gross Income
(line 11)?
---------------------------------------------
<PAGE>
SCHEDULE F
EXPENSES
1. The Fund and First Transamerica will pay the costs of printing and/or
distributing copies of the documents based upon an allocation of costs
that reflects the Fund's share of the total costs determined according to
the number of pages of the parties' and other funds' respective portions
of the documents.
2. The Adviser and First Transamerica will pay the costs of printing and/or
distributing copies of the documents based upon an allocation of costs
that reflects the Adviser's share of the total costs determined according
to the number of pages of the parties' and other funds' respective
portions of the documents.
================================================================================
RESPONSIBLE
ITEM FUNCTION PARTY
================================================================================
PROSPECTUS
- --------------------------------------------------------------------------------
Annual Update Printing 1
Distribution 1
- --------------------------------------------------------------------------------
New Sales:
Marketing (supply and distribution 2
of prospectuses to persons who
have not yet invested in a
Designated Portfolio)
Delivery of prospectuses to
satisfy legal prospectus delivery
requirements (e.g., copies sent 1
with confirmations of sales)
- --------------------------------------------------------------------------------
Existing Owners: Supply quantities described in 1
Section 3.4
Distribution 1
<PAGE>
- --------------------------------------------------------------------------------
Interim Updates
- --------------------------------------------------------------------------------
New Sales: Marketing (supply and distribution 2
of prospectuses to persons who
have not yet invested in a
Designated Portfolio)
Deliver of propsectuses to satisfy 1
legal prospectus delivery
requirements (e.g., copies sent
with conformations of sales
If required by Participating PIC
Insurance Company (PIC)
If required by Schwab Schwab
- --------------------------------------------------------------------------------
Existing Owners: If required by Fund or Adviser: Fund
If required by PIC: PIC
IF required by Schwab Schwab
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF Same as Prospectus Same
ADDITIONAL
INFORMATION
- --------------------------------------------------------------------------------
PROXY MATERIALS Printing Fund
OF THE FUND
Distribution
Fund
(a) If required by law:
(B) If required by participating
insurance company: PIC
(c) If required by Schwab Schwab
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL REPORTS & Printing Fund
OTHER
COMMUNICATIONS
WITH SHAREHOLDERS Distribution 1
OF THE FUND
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
OPERATIONS OF All operations and related Fund
FUND expenses, including the cost of
registration and qualification
of the Fund's shares, preparation
and filing of the Fund's prospectus
and registration statement, proxy
materials and reports, the
preparation of all statements and
notices required by any federal or
state law and all taxes on the issuance
of the Fund's shares, and all costs of
management of the business affairs of the Fund.
- --------------------------------------------------------------------------------
* Schwab will advise the Adviser and the Fund of the allocation of the foregoing
expenses among the parties as soon as possible after such allocations are
determined.
<PAGE>
SCHEDULE G
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities of the
handling of proxies relating to the Fund by the Adviser, the Fund and First
Transamerica. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "First Transamerica" shall also
include the department or third party assigned by First Transamerica to perform
the steps delineated below.
1. The number of proxy proposals is given to First Transamerica by the
Adviser as early as possible before the date set by the Fund for the
shareholder meeting to facilitate the establishment of tabulation
procedures. At this time the Adviser will inform First Transamerica of the
Record, Mailing and Meeting dates. This will be done verbally
approximately two months before meeting.
2. Promptly after the Record Date, First Transamerica will perform a "tape
run," or other activity, which will generate the names, addresses and
number of units which are attributed to each contractowner/policyholder
(the "Contract Owners") as of the Record Date. Allowance should be made
for account adjustments made after this date that could affect the status
of the Contract Owners' accounts of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. First Transamerica will use its best efforts to call
in the number of Contract Owners to the Adviser, as soon as possible, but
no later than one week after the Record Date.
3. The Fund's Annual Report must be sent to each Contract Owner by First
Transamerica either before or together with the Contract Owner's receipt
of a proxy statement. The Adviser will provide at least one copy of the
last Annual Report to First Transamerica.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to First Transamerica by the Fund. First Transamerica
shall produce and personalize the Voting Instruction cards. The Legal
Department of the Adviser ("Adviser Legal") must approve the Card before
it is printed.
<PAGE>
Allow approximately 2-4 business days for printing information on the
Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification
of votes (already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due
to possible uncertainties relating to the proposals.)
5. During this time, Adviser Legal will develop and produce the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Insurance Fund for insertion into envelopes
(envelopes and return envelopes are provided and paid for by First
Transamerica). Contents of envelope sent to Contract Owners by First
Transamerica will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. Return envelope (postage pre-paid) addressed to First
Transamerica or its tabulation agent
d. "Urge buckslip" - optional, but recommended. (This is a
small single sheet of paper that requests Contract Owners
to vote as quickly as possible and that their vote is
important. One copy will be supplied by the Fund.)
e. Cover letter - optional, supplied by First Transamerica and
reviewed and approved in advance by Adviser Legal.
6. The above contents should be received by First Transamerica approximately
3-5 business days before mail date. Individual in charge at First
Transamerica reviews and approves the contents of the mailing package to
ensure correctness and completeness. Copy of this approval sent to Adviser
Legal.
7. Package mailed by First Transamerica.
* The Fund must allow at least a 15-day solicitation time
to First Transamerica as the shareowner. (A 5-week period
is recommended.) Solicitation time is calculated as
<PAGE>
calendar days from (but not including) the meeting,
counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal
procedure.
9. If cards are mutilated, or for any reason are illegible or are
not signed properly, they are sent back to the Contract Owner
with an explanatory letter, a new Card and return envelope.
The mutilated or illegible Card is disregarded and considered
to be NOT RECEIVED for purposes of vote tabulation. Such
mutilated or illegible Cards are "hand verified," i.e.,
examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
10. There are various control procedures used to ensure proper
tabulation of votes and accuracy of the tabulation. The most
prevalent is to sort the Cards as they first arrive into
categories depending upon their vote; an estimate of how the
vote is progressing may then be calculated. If the initial
estimates and the actual vote do not coincide, then an
internal audit of that vote should occur. This may entail a
recount.
11. The actual tabulation of votes is done in units which are then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Adviser Legal
must review and approve tabulation format.
12. Final tabulation in shares is verbally given by First Transamerica to
Adviser Legal on the morning of the meeting not later than 10:00 am.
Denver time. Adviser Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
13. A Certificate of Mailing and Authorization to Vote Shares will
be required from First Transamerica as well as an original
<PAGE>
copy of the final vote. Adviser Legal will provide a standard
form for each Certification.
14. First Transamerica will be required to box and archive the Cards received
from the Contract Owners. In the event that any vote is challenged or is
otherwise necessary for legal, regulatory, or accounting purposes, Adviser
Legal will be permitted reasonable access to such Cards.
15. All approvals and "signing-off" may be done orally, but must
always be followed up in writing.
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 8 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated January 24, 1997, relating to the financial
statements and financial highlights appearing in the December 31, 1996 Annual
report to Shareholders of the INVESCO Variable Investment Funds, Inc., which is
also incorporated by reference into the Registration Statement. We also consent
to the references to us under the heading "Financial Highlights" in the
Prospectus and under the headings "Independent Accountants" and "Financial
Statements" in the Statement of Additional Information.
/s/ Price Waterhouse LLP
- -------------------------
Price Waterhouse LLP
Denver, Colorado
November 20, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000912744
<NAME> INVESCO VARIABLE INVESTMENT FUNDS, INC.
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<NUMBER> 2
<NAME> INVESCO VIF-INDUSTRIAL INCOME PORTFOLIO
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<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68012
<TOTAL-LIABILITIES> 68012
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20308654
<SHARES-COMMON-STOCK> 1559051
<SHARES-COMMON-PRIOR> 664722
<ACCUMULATED-NII-CURRENT> 330
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2033283
<NET-ASSETS> 22342267
<DIVIDEND-INCOME> 244513
<INTEREST-INCOME> 290332
<OTHER-INCOME> (2198)
<EXPENSES-NET> 127119
<NET-INVESTMENT-INCOME> 405528
<REALIZED-GAINS-CURRENT> 1122522
<APPREC-INCREASE-CURRENT> 1369048
<NET-CHANGE-FROM-OPS> 2491570
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 405842
<DISTRIBUTIONS-OF-GAINS> 1121678
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1070184
<NUMBER-OF-SHARES-REDEEMED> 282515
<SHARES-REINVESTED> 106660
<NET-CHANGE-IN-ASSETS> 13979969
<ACCUMULATED-NII-PRIOR> (200)
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 105932
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 168414
<AVERAGE-NET-ASSETS> 14284013
<PER-SHARE-NAV-BEGIN> 12.58
<PER-SHARE-NII> 0.28
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<PER-SHARE-NAV-END> 14.33
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000912744
<NAME> INVESCO VARIABLE INVESTMENT FUNDS, INC.\
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<NUMBER> 3
<NAME> INVESCO VIF-TOTAL RETURN PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 11846843
<INVESTMENTS-AT-VALUE> 13264204
<RECEIVABLES> 253957
<ASSETS-OTHER> 686
<OTHER-ITEMS-ASSETS> 8601
<TOTAL-ASSETS> 13527448
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14345
<TOTAL-LIABILITIES> 14345
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12143988
<SHARES-COMMON-STOCK> 1023019
<SHARES-COMMON-PRIOR> 539662
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<OVERDISTRIBUTION-NII> (1502)
<ACCUMULATED-NET-GAINS> (46744)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1417361
<NET-ASSETS> 13513103
<DIVIDEND-INCOME> 180891
<INTEREST-INCOME> 274106
<OTHER-INCOME> (4149)
<EXPENSES-NET> 93468
<NET-INVESTMENT-INCOME> 357380
<REALIZED-GAINS-CURRENT> (3764)
<APPREC-INCREASE-CURRENT> 888821
<NET-CHANGE-FROM-OPS> 885057
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<DISTRIBUTIONS-OF-INCOME> 405530
<DISTRIBUTIONS-OF-GAINS> 781
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 616196
<NUMBER-OF-SHARES-REDEEMED> 163597
<SHARES-REINVESTED> 30758
<NET-CHANGE-IN-ASSETS> 6960106
<ACCUMULATED-NII-PRIOR> 4449
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 77890
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 135505
<AVERAGE-NET-ASSETS> 10390536
<PER-SHARE-NAV-BEGIN> 12.14
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> 1.12
<PER-SHARE-DIVIDEND> 0.41
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.21
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000912744
<NAME> INVESCO VARIABLE INVESTMENT FUNDS, INC.
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<NUMBER> 1
<NAME> INVESCO VIF-HIGH YIELD PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 13076434
<INVESTMENTS-AT-VALUE> 13392907
<RECEIVABLES> 625232
<ASSETS-OTHER> 7938
<OTHER-ITEMS-ASSETS> 36872
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<ACCUMULATED-NET-GAINS> 4588
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<ACCUM-APPREC-OR-DEPREC> 316473
<NET-ASSETS> 14038351
<DIVIDEND-INCOME> 399
<INTEREST-INCOME> 843895
<OTHER-INCOME> 0
<EXPENSES-NET> 67590
<NET-INVESTMENT-INCOME> 776704
<REALIZED-GAINS-CURRENT> 412110
<APPREC-INCREASE-CURRENT> 260801
<NET-CHANGE-FROM-OPS> 672911
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<DISTRIBUTIONS-OF-INCOME> 768178
<DISTRIBUTIONS-OF-GAINS> 407604
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1101791
<NUMBER-OF-SHARES-REDEEMED> 484030
<SHARES-REINVESTED> 99812
<NET-CHANGE-IN-ASSETS> 8805304
<ACCUMULATED-NII-PRIOR> (143)
<ACCUMULATED-GAINS-PRIOR> 82
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 50693
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 111888
<AVERAGE-NET-ASSETS> 8600315
<PER-SHARE-NAV-BEGIN> 11.04
<PER-SHARE-NII> 0.72
<PER-SHARE-GAIN-APPREC> 1.11
<PER-SHARE-DIVIDEND> 0.71
<PER-SHARE-DISTRIBUTIONS> 0.38
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.78
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000912744
<NAME> INVESCO VARIABLE INVESTMENT FUNDS, INC.
<SERIES>
<NUMBER> 4
<NAME> INVESCO VIF-UTLITIES PORTFOLIO
<S> <C>
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<PAYABLE-FOR-SECURITIES> 263926
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<OTHER-ITEMS-LIABILITIES> 14727
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<PAID-IN-CAPITAL-COMMON> 2560194
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<SHARES-COMMON-PRIOR> 26744
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<OVERDISTRIBUTION-NII> (1508)
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 2660248
<DIVIDEND-INCOME> 31028
<INTEREST-INCOME> 5433
<OTHER-INCOME> (119)
<EXPENSES-NET> 8574
<NET-INVESTMENT-INCOME> 27768
<REALIZED-GAINS-CURRENT> 30198
<APPREC-INCREASE-CURRENT> 87087
<NET-CHANGE-FROM-OPS> 117285
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 29393
<DISTRIBUTIONS-OF-GAINS> 30023
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 201321
<NUMBER-OF-SHARES-REDEEMED> 10467
<SHARES-REINVESTED> 4972
<NET-CHANGE-IN-ASSETS> 2370456
<ACCUMULATED-NII-PRIOR> 117
<ACCUMULATED-GAINS-PRIOR> (175)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5716
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 51040
<AVERAGE-NET-ASSETS> 993262
<PER-SHARE-NAV-BEGIN> 10.84
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 1.26
<PER-SHARE-DIVIDEND> 0.14
<PER-SHARE-DISTRIBUTIONS> 0.14
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> VIF-HEALTH SCIENCES FUND
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-22-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 342654
<INVESTMENTS-AT-VALUE> 354377
<RECEIVABLES> 83
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<OTHER-ITEMS-ASSETS> 3455
<TOTAL-ASSETS> 357915
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1416
<TOTAL-LIABILITIES> 1416
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 347453
<SHARES-COMMON-STOCK> 33595
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 915
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3592)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11723
<NET-ASSETS> 356499
<DIVIDEND-INCOME> 113
<INTEREST-INCOME> 802
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 915
<REALIZED-GAINS-CURRENT> (3592)
<APPREC-INCREASE-CURRENT> 11723
<NET-CHANGE-FROM-OPS> 8131
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 64873
<NUMBER-OF-SHARES-REDEEMED> 31278
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 356499
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 166128
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.58
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.61
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> VIF-TECHNOLOGY FUND
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-21-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 446688
<INVESTMENTS-AT-VALUE> 475515
<RECEIVABLES> 105
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 34607
<TOTAL-ASSETS> 510227
<PAYABLE-FOR-SECURITIES> 16623
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25014
<TOTAL-LIABILITIES> 41637
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 437384
<SHARES-COMMON-STOCK> 37468
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1171
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1208
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28827
<NET-ASSETS> 468590
<DIVIDEND-INCOME> 64
<INTEREST-INCOME> 1107
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 1171
<REALIZED-GAINS-CURRENT> 1208
<APPREC-INCREASE-CURRENT> 28827
<NET-CHANGE-FROM-OPS> 30035
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 97480
<NUMBER-OF-SHARES-REDEEMED> 60012
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 468590
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 192376
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 2.48
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.51
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
POWER OF ATTORNEY
The person executing this Power of Attorney hereby appoints Edward F.
O'Keefe and Glen A. Payne, or either of them, as his attorney-in-fact to execute
and to file such Registration Statements under federal and state securities laws
and such Post-Effective Amendments to such Registration Statements of the
hereinafter described entities as such attorney-in-fact, or either of them, may
deem appropriate:
INVESCO Capital Appreciation Funds, Inc.
NVESCO Diversified Funds, Inc.
INVESCO Emerging Opportunity Funds, Inc.
INVESCO Growth Fund, Inc.
INVESCO Income Funds, Inc.
INVESCO Industrial Income Fund, Inc.
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Multiple Asset Funds, Inc.
INVESCO Specialty Funds, Inc.
INVESCO Strategic Portfolios, Inc.
INVESCO Tax-Free Income Funds, Inc.
INVESCO Value Trust
INVESCO Variable Investment Funds, Inc.
This Power of Attorney, which shall not be affected by the disability of
the undersigned, is executed and effective as of the 25th day of August, 1997.
/s/ Wendy L. Gramm
------------------------------------------
Wendy L. Gramm
STATE OF District of )
Columbia )
COUNTY OF )
SUBSCRIBED, SWORN TO AND ACKNOWLEDGED before me by Wendy L.
Gramm, as a director or trustee of each of the above-described entities, this
25th day of August, 1997.
Margaret Foster
------------------------------------------
Notary Public
My Commission Expires: Feb. 14, 2000
POWER OF ATTORNEY
The person executing this Power of Attorney hereby appoints Edward F.
O'Keefe and Glen A. Payne, or either of them, as his attorney-in-fact to execute
and to file such Registration Statements under federal and state securities laws
and such Post-Effective Amendments to such Registration Statements of the
hereinafter described entities as such attorney-in-fact, or either of them, may
deem appropriate:
INVESCO Diversified Funds, Inc.
INVESCO Dynamics Fund, Inc.
INVESCO Emerging Opportunity Funds, Inc.
INVESCO Growth Fund, Inc.
INVESCO Income Funds, Inc.
INVESCO Industrial Income Fund, Inc.
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Multiple Asset Funds, Inc.
INVESCO Specialty Funds, Inc.
INVESCO Strategic Portfolios, Inc.
INVESCO Tax-Free Income Funds, Inc.
INVESCO Treasurer's Series Trust
INVESCO Value Trust
INVESCO Variable Investment Funds, Inc.
This Power of Attorney, which shall not be affected by the disability of
the undersigned, is executed and effective as of the 4th day of June, 1997.
/s/ Larry Soll
------------------------------------------
Larry Soll
STATE OF WASHINGTON )
)
COUNTY OF SAN JUAN )
SUBSCRIBED, SWORN TO AND ACKNOWLEDGED before me by Larry Soll, as a
director or trustee of each of the above-described entities, this 4th day of
June, 1997.
Mary Paulette Weaver
------------------------------------------
Notary Public
My Commission Expires: 1-27-99
