As filed on February 22, 1999 File No. 033-70154
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No.--- ---
Post-Effective Amendment No.13 X
--- ---
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 14 ---
--- 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)
Registrant's Telephone Number, including Area Code: (303) 930-6300
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 LLP
1025 Thomas Jefferson St., NW
Suite 405 West
Washington, D.C. 20007
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Approximate Date of Proposed Public Offering: As soon as practicable after this
post-effective amendment becomes effective.
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)
X on May 1, 1999, pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on _________, 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.
Page 1 of 351
Exhibit index is located at page 193
<PAGE>
INVESCO VARIABLE INVESTMENT FUNDS, INC.
----------------------------------
CROSS-REFERENCE SHEET
Form N-1A
Item Caption
Part A Prospectus
1..................................... Cover Page; Back Cover Page
2..................................... Investment Goals and Strategies;
Fund Performance
3..................................... Fees and Expenses; Investment Risks
4..................................... Investment Goals and Strategies;
Investment Risks
5..................................... Not Applicable
6..................................... Fund Management
7..................................... Share Price; How To Buy Shares;
Your Account Services;
...................................... Taxes
8..................................... Distribution Expenses
9..................................... Financial Highlights
Part B Statement of Additional Information
10.................................... Cover Page; Table of Contents
11.................................... The Company
12.................................... Investment Policies and Risks;
Investment Risks and Strategies
13.................................... Management of the Funds
14.................................... Control Persons and Principal
Shareholders
15.................................... Management of the Funds
16.................................... Brokerage Allocation and Other Practices
17.................................... Capital Stock
18.................................... Contained in Prospectuses
19.................................... Tax Consequences of Owning Shares of the
Funds
20.................................... Not Applicable
21.................................... Performance
22.................................... Financial Statements
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.
<PAGE>
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PROSPECTUS May 1, 1999
INVESCO Variable Investment Funds, Inc.
INVESCO Variable Blue Chip Growth Fund
(formerly, INVESCO VIF-Growth Portfolio)
A mutual fund sold exclusively to insurance company separate accounts for
variable annuity and variable life insurance contracts.
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, it has not determined if this Prospectus is
truthful or complete. Anyone who tells you otherwise is committing a federal
crime.
This Prospectus will tell you more about:
[KEY ICON] Investment Objectives & Strategies
[ARROW ICON] Potential Investment Risks
[GRAPH ICON] Past Performance & Potential Advantages
[INVESCO ICON] Working with INVESCO
<PAGE>
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Investment Goals And Strategies [KEY ICON]
For more details current investments and market outlook, please see the
most recent annual or semiannual report.
INVESCO Funds Group, Inc. ("INVESCO") is the about the Fund's investment
adviser for the Fund. Together with our affiliated companies, we at INVESCO
control all aspects of the management of the Fund.
The Fund is used solely as an investment vehicle for variable annuity or
variable life insurance contracts issued by certain life insurance companies.
You cannot purchase shares of the Fund directly. As an owner of a variable
annuity or variable life insurance contract that offers the Fund as an
investment option, however, you may allocate your contract values to a separate
account of the insurance company that invests in shares of the Fund.
Your variable annuity or variable life insurance contract is offered
through its own prospectus, which contains information about that contract,
including how to purchase the contract and how to allocate contract values to
the Fund. INVESCO and the Fund do not control the insurance company that issues
your contract and are not responsible for anything stated in the prospectus for
your contract.
The Fund attempts to make your investment grow over the long term; current
income is an additional goal.
The Fund invests primarily in common stocks of large companies with market
capitalizations of more than $10 billion that have a history of consistent
earnings growth regardless of business cycle. In addition, the Fund tries to
identify companies that have -- or are expected to have -- growing earnings,
revenues and strong cash flows. The Fund also examines a variety of industries
and businesses, and seeks to purchase the securities of companies that we
believe are best situated in their industry categories. We also consider the
dividend payment record of the companies whose securities the Fund buys. The
Fund also may invest in preferred stocks (which generally pay higher dividends
than common stocks) and debt instruments that are convertible into common
stocks, as well as in securities of foreign companies. In recent years, the core
of the Fund's investments has been concentrated in the securities of three or
four dozen large, high quality companies.
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FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance (commonly
known as its "total return") since inception, compared to the S&P 500 Index. The
table below shows actual annual returns for various periods ended December 31,
1998. The bar chart provides some indication of the risks of investing in the
Fund by showing changes in the year to year performance of the Fund. Remember,
past performance does not indicate how the Fund or the S&P 500 will perform in
the future.
<PAGE>
The Fund's returns are net of its expenses, but do not reflect the
additional fees and expenses of your variable annuity or variable life insurance
contract. If those contract fees and expenses were included, the returns would
be less than those shown.
[Charts and graphs will be included in the 485(b) filing to be filed April
1999.]
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Fees And Expenses
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS
INVESCO Variable Blue Chip Growth Fund
Management Fees 0.85%
Distribution and Service (12b-1) Fees None
Other Expenses (for instance,
shareholder servicing)(1) 11.44%
Total Annual Fund Operating Expenses (1) 12.29%
(1) Certain expenses of the Fund are being absorbed voluntarily by INVESCO
pursuant to a commitment to the Fund. After absorption, the Fund's "Other
Expenses" and "Total Annual Fund Operating Expenses" were 0.72% and 1.57%,
respectively. This commitment may be changed at any time following consultation
with the board of directors.
EXAMPLE
This Example assumes a $10,000 allocation to the Fund for the time periods
indicated and does NOT reflect any of the fees or expenses of your variable
annuity or variable insurance contract. The Example also assumes a hypothetical
5% return each year, and assumes that the Fund's operating expenses remain the
same. Although the Fund's actual costs and performance may be higher or lower,
based on these assumptions your costs would be:
<PAGE>
Without Existing Fee Absorption
1 year 3 years 5 years 10 years
$1,260 $3,499 $5,412 $9,057
With Existing Fee Absorption
1 year 3 years 5 years 10 years
$---- $---- $---- $-----
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INVESTMENT RISKS [ARROW ICON]
Before allocating contract values to the Fund, you should determine the
level of risk with which you are comfortable. Take into account factors like
your age, career, income level, and time horizon.
You should determine the level of risk with which you are comfortable
before you invest. The principal risks of investing in any mutual fund,
including the Fund, are:
NOT INSURED. Mutual funds are not insured by the Federal Deposit Insurance
Corporation ("FDIC") or any other agency, unlike bank deposits such as CDs or
savings accounts.
NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.
POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its
performance, nor assure you that the market value of your investment will
increase. You may lose the money you invest, and the Fund will not reimburse you
for any of these losses.
VOLATILITY. The price of Fund shares will increase or decrease with changes
in the value of the Fund's underlying investments.
YEAR 2000. Many computer systems in use today may not be able to recognize
any date after December 31, 1999. If these systems are not fixed by that date,
it is possible that they could generate erroneous information or fail
altogether. INVESCO has committed substantial resources in an effort to make
sure that its own major computer systems will continue to function on and after
January 1, 2000. Of course, INVESCO cannot fix systems that are beyond its
control. If INVESCO's own systems, or the systems of third parties upon which it
relies, do not perform properly after December 31, 1999, the Fund could be
adversely affected.
In addition, the markets for, or values of, securities in which the Fund
invests may possibly be hurt by computer failures affecting portfolio
investments or trading of securities beginning January 1, 2000. For example,
<PAGE>
improperly functioning computer systems could result in securities trade
settlement problems and liquidity issues, production issues for individual
companies and overall economic uncertainties. Individual issuers may incur
increased costs in making their own systems Year 2000 compliant. The combination
of market uncertainty and increased costs means that there is a possibility that
Year 2000 computer issues may adversely affect the Fund's investments.
RISKS ASSOCIATED WITH PARTICULAR INVESTMENTS [ARROW ICON]
You should consider the special factors associated with the policies
discussed below in determining the appropriateness of allocating your contract
values to the Fund. See the Statement of Additional Information for a discussion
of additional risk factors.
POTENTIAL CONFLICTS. Although it is unlikely, there potentially may be
differing interests involving the Fund among owners of variable annuity and
variable life insurance contracts issued by different insurance companies, or
even the same insurance company. INVESCO will monitor events for any potential
conflicts.
MARKET RISK. Equity stock prices vary and may fall, thus reducing the value
of the Fund's investment. Certain stocks selected for the Fund's portfolio may
decline in value more than the overall stock market.
CREDIT RISK. The Fund may invest in debt instruments, such as notes and
bonds. There is a possibility that the issuers of these instruments will be
unable to meet interest payments or repay principal. Changes in the financial
strength of an issuer may reduce the credit rating of its debt instruments and
may affect their value.
FOREIGN SECURITIES. Investments in foreign and emerging markets carry
special risks, including currency, political, regulatory and diplomatic risks.
The Fund may invest up to 25% of its total assets in securities of non-U.S.
issuers.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and a
foreign currency may reduce the value of the Fund's investment in a
security valued in the foreign currency, or based on that currency value.
POLITICAL RISK. Political actions, events or instability may result in
unfavorable changes in the value of a security.
REGULATORY RISK. Government regulations may affect the value of a security.
In foreign countries, securities markets that are less regulated than those
in the United States may permit trading practices that are not allowed in
the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the United States
and a foreign country could affect the value or liquidity of investments.
<PAGE>
EUROPEAN ECONOMIC AND MONETARY UNION. Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain
are presently members of the European Economic and Monetary Union (the
"EMU") which as of 1/1/1999 adopted the euro as a common currency. The
national currencies will be sub-currencies of the euro until July 1, 2002,
at which time the old currencies will disappear entirely. Other European
countries may adopt the euro in the future.
The introduction of the euro presents some uncertainties and possible
risks, which could adversely affect the value of securities held by the
Fund.
EMU countries as a single market may affect future investment
decisions of the Fund. As the euro is implemented, there may be changes in
the relative strength and value of the U.S. dollar and other major
currencies, as well as possible adverse tax consequences. The euro
transition by EMU countries - present and future - may affect the fiscal
and monetary levels of those participating countries. There may be
increased levels of price competition among business firms within EMU
countries and between businesses in EMU and non-EMU countries. The outcome
of these uncertainties could have unpredictable effects on trade and
commerce and result in increased volatility for all financial markets.
INTEREST RATE RISK. Changes in interest rates will affect the resale value
of debt securities held in the Fund's portfolio. In general, as interest rates
rise, the resale value of debt securities decreases; as interest rates decline,
the resale value of debt securities generally increases. Debt securities with
longer maturities usually are more sensitive to interest rate movements.
DURATION RISK. Duration is a measure of a debt security's sensitivity to
interest rate changes. Duration is usually expressed in terms of years, with
longer durations usually more sensitive to interest rate fluctuations.
LIQUIDITY RISK. The Fund's portfolio is liquid if the Fund is able to sell
the securities it owns at a fair price within a reasonable time. Liquidity is
generally related to the market trading volume for a particular security.
Investments in smaller companies or in foreign companies or emerging markets are
subject to a variety of risks, including potential lack of liquidity.
DERIVATIVES RISK. A derivative is a financial instrument whose value is
"derived", in some manner, from the price of another security, index, asset or
rate. Derivatives include options and futures contracts, among a wide range of
other instruments. The principal risk of investments in derivatives is that the
fluctuations in their values may not correlate perfectly with the overall
securities markets. Some derivatives are more sensitive to interest rate changes
and market price fluctuations than others. Also, derivatives are subject to
counterparty risk.
COUNTERPARTY RISK. This is a risk associated primarily with repurchase
agreements and some derivatives transactions. It is the risk that the other
<PAGE>
party in such a transaction will not fulfill its contractual obligation to
complete a transaction with the Fund.
LACK OF TIMELY INFORMATION RISK. Timely information about a security or its
issuer may be unavailable, incomplete or inaccurate. This risk is more common to
securities issued by foreign companies and companies in emerging markets than it
is to the securities of U.S.-based companies.
- --------------------------------------------------------------------------------
Investment Risks
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES
Securities that cannot be sold quickly at Liquidity Risk
fair value.
- --------------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not registered, Liquidity Risk
but which are bought and sold solely by
institutional investors. The Fund
considers many Rule 144A securities to be
"liquid," although the market for such
securities typically is less active than
the public securities markets.
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
A contract to exchange an and amount of Currency, Political,
currency on a date in the future at an Diplomatic and
agreed-upon exchange rate might be used by Regulatory Risks
the Fund to hedge against changes in foreign
currency exchange rates when the Fund
invests in foreign securities. Does not
reduce price fluctuations in foreign
securities, or prevent losses if the
prices of those securities decline.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
A contract under which the seller of Credit and
a security agrees to buy it back at an Counterparty Risks
agreed-upon price and time in the future.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS (ADRs)
These are securities issued by U.S. Market, Information,
banks that represent shares of foreign Political, Regulatory,
corporations held by those banks. Although Diplomatic, Liquidity
traded in U.S. securities markets and valued and Currency Risks
in U.S. dollars, ADRs carry most of the
risks of investing directly in foreign
securities.
- --------------------------------------------------------------------------------
OPTION
The obligation or right to deliver or Credit, Information
receive a security or cash payment depending and Liquidity Risks
on and the price of the underlying security
or the perfor mance of an index or other
benchmark. Includes options on specific
securities and stock indices, and stock index
futures. Used in Fund's portfolio to provide
liquidity and hedge portfolio value.
- --------------------------------------------------------------------------------
FUTURES
A futures contract is an agreement to buy Market and Liquidity
or sell a specific amount of a financial instrument Risks
(such as an index option) at a stated price on a
stated date. The Fund uses futures contracts to
provide liquidity and to hedge portfolio value.
- --------------------------------------------------------------------------------
TEMPORARY DEFENSIVE POSITIONS [ARROW ICON]
When securities markets or economic conditions are unfavorable or
unsettled, we might try to protect the assets of the Fund by investing in
securities that are highly liquid such as high quality money market instruments,
like short-term U.S. government obligations, commercial paper or repurchase
agreements. We have the right to invest up to 100% of the Fund's assets in these
securities, although we are unlikely to do so. Even though the securities
purchased for defensive purposes often are considered the equivalent of cash,
they also have their own risks. Investments that are highly liquid or
comparatively safe tend to offer lower returns. Therefore, the Fund's
performance could be comparatively lower if it concentrates in defensive
holdings.
<PAGE>
================================================================================
FUND MANAGEMENT [GRAPH ICON]
THE INVESTMENT ADVISER
INVESCO is a subsidiary of AMVESCAP PLC, an international investment
management company that manages more than $240 billion in assets worldwide.
AMVESCAP is based in London, with money managers located in Europe, North and
South America, and the Far East.
INVESCO is the investment adviser of the Fund. INVESCO was founded in 1932
and manages over $21.1 billion for 905,238 shareholders of 14 INVESCO mutual
funds. INVESCO performs a wide variety of other services for the Funds,
including administration and transfer agency functions (the processing of
purchases, sales and exchanges of Fund shares). A wholly owned subsidiary of
INVESCO, INVESCO Distributors, Inc. ("IDI"), is the Fund's distributor and is
responsible for the sale of the Fund's shares.
INVESCO and IDI are subsidiaries of AMVESCAP PLC.
The Fund paid 0.85% of its average annual net assets to INVESCO for its
advisory services in the fiscal year ended December 31, 1998.
THE PORTFOLIO MANAGERS [GRAPH ICON]
The Fund is managed by two members of INVESCO's Growth Team, which is led
by Timothy J. Miller. The people primarily responsible for the day-to-day
management of the Fund are:
TIMOTHY J. MILLER is a Chartered Financial Analyst, and is a senior vice
president of INVESCO, where he has had progressively more responsible investment
professional positions since joining the company in 1992. Before joining
INVESCO, Tim was a portfolio manager with Mississippi Valley Advisors. He holds
an M.B.A. from the University of Missouri - St. Louis and a B.S.B.A. from St.
Louis University.
TRENT E. MAY joined INVESCO in 1996 and is a Chartered Financial Analyst.
Before Joining INVESCO, he was with Munder Capital Management and SunBank
Capital Management. He holds a B.S. in Engineering from Florida Institute of
Technology and an M.B.A. from Rollins College.
<PAGE>
================================================================================
SHARE PRICE [GRAPH ICON]
Current market value of Fund assets + Accrued interest and dividends - Fund
debts, including accrued expenses / Number of shares = Fund share price (NAV)
The value of Fund shares is likely to change daily. This value is known as
the Net Asset Value per share, or NAV. INVESCO determines the market value of
each investment in the Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of trading on that exchange (normally,
4:00 p.m. New York time). Therefore, shares of the Fund are not priced on days
when the NYSE is closed, which, generally, is on weekends and national holidays
in the United States.
NAV is calculated by adding together the current market price of all of the
Fund's investments and other assets, including accrued interest and dividends;
subtracting the Fund's debts, including accrued expenses; and dividing that
dollar amount by the total number of the Fund's outstanding shares.
In addition, foreign securities exchanges, which set the prices for foreign
securities held by the Fund, are not always open the same days as the NYSE, and
may be open for business on days the NYSE is not. For example, Thanksgiving Day
is a holiday observed by the NYSE and not by overseas exchanges. In this
situation, the Fund would not calculate NAV on Thanksgiving Day (and INVESCO
would not buy, sell or exchange shares on that day), even though activity on
foreign exchanges could result in changes in the value of investments held by
the Fund on that day.
================================================================================
TAXES
The Fund has elected to be taxed as a "regulated investment company" under
the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended
("the Code"). If the Fund continues to qualify as a "regulated investment
company" and complies with the appropriate provisions of the Code, it will pay
no federal income taxes on the amounts it distributes.
Because the shareholders of the Fund are insurance companies (such as the
one that issues your contract), no discussion of the federal income tax
consequences to shareholders is included here. For information about the federal
tax consequences of purchasing the contracts, see the prospectus for your
contract.
<PAGE>
================================================================================
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS [GRAPH ICON]
Net investment income and net realized capital gains are distributed to
shareholders at least annually.
The Fund intends to distribute substantially all of its net investment
income, if any, in dividends to its shareholders. For dividend purposes, net
investment income consists of all dividends or interest earned by the Fund's
investments, minus the Fund's expenses (including the advisory fee). All of the
Fund's net realized capital gains, if any, are distributed periodically, no less
frequently than annually. All dividends and distributions of the Fund are
reinvested in additional shares of the Fund at net asset value.
================================================================================
VOTING RIGHTS
Since the shares of the Fund are owned by your insurance company and not by
you directly, you will not vote shares of the Fund. Your insurance company will
vote the shares that it holds as required by state and federal law. Your
contract prospectus contains more information on your rights to instruct your
insurance company how to vote Fund shares held in connection with your contract.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by PricewaterhouseCoopers LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the Report of Independent Accountants thereon
appearing in the Company's 1998 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting IDI at the address or telephone number on
the cover of this Prospectus. The Annual Report also contains information about
the Fund's performance.
<TABLE>
<CAPTION>
Year Ended December 31 Period Ended December 31
----------------------- ------------------------
1998 1997(a)
<S> <C> <C>
PER SHARE DATA $10.69 $10.00
Net Asset Value -- Beginning of Period
- -------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS 0.00 0.05
Net Investment Income
Net Gains or (Losses) on Securities 4.14 0.64
(Both Realized and Unrealized)
- -------------------------------------------------------------------------------------------
Total from Investment Operations 4.14 0.69
- -------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS 0.04 0.00
Dividends from Net Investment Income
In Excess of Net Investment Income 0.01 0.00
Distributions from Capital Gains 0.29 0.00
Total Distributions 0.34 0.00
- ------------------------------------------------------------------------------------------
Net Asset Value - End of Period $14.49 $10.69
==========================================================================================
TOTAL RETURN(b) 38.99% 6.90%(c)
RATIOS $371 $266
Net Assets -- End of Period
($000 Omitted)
Ratio of Expenses to Average 1.59% 0.29%(f)
Net Assets(d)(e)
Ratio of Net Investment Income (0.07)% 1.45%(f)
to Average Net Assets(d)
Portfolio Turnover Rate 78% 12%(c)
</TABLE>
(a) From August 25, 1997, commencement of investment operations, through
December 31, 1997.
(b) Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return
figures for the period shown.
<PAGE>
(c) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(d) Varoius expenses of the Fund were voluntarily absorbed by INVESCO for the
year ended Decmeber 31, 1998 and all of the expenses were voluntarily
absorbed by INVESCO for the period ended December 31, 1997. If such
expenses had not been voluntarily absorbed, ratio of expenses to average
net assets would have been 12.04% and 28.76% (annualized), respectively and
ratio of net investment loss to average net assets would have been (10.54%)
and (27.02%) (annualized), respectively.
(e) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expenses offset arrangements.
(f) Annualized
<PAGE>
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Blue Chip Growth Fund
(formerly, INVESCO VIF-Growth Portfolio)
May 1, 1999
You may obtain additional information about the Fund from several sources.
FINANCIAL REPORTS. Although this Prospectus describes the Fund's
anticipated investments and operations, the Fund also prepares annual and
semiannual reports that detail the Fund's actual investments at the report date.
These reports include discussion of the Fund's recent performance, as well as
market and general economic trends affecting the Fund's performance. The annual
report also includes the report of the Fund's independent accountants.
STATEMENT OF ADDITIONAL INFORMATION. The SAI dated May 1, 1999, is a
supplement to this Prospectus, and has detailed information about the Fund and
its investment policies and practices. A current SAI for the Fund is on file
with the Securities and Exchange Commission and is incorporated in this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus, SAI and annual or semiannual reports of
the Fund may be accessed through the INVESCO Web site at www.invesco.com or
through the SEC Web site at www.sec.gov.
To obtain a free copy of the current annual report, semiannual report or
SAI, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver, Colorado
173706; or call 1-800-525-8085. Copies of these materials are also available
(with a copying charge) from the SEC's Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. Information on the Public Reference Section can
be obtained by calling 1-800-SEC-0330. The SEC file number for the Fund is
033-70154.
To reach PAL(R), your 24-hour Personal Account Line, call:
1-800-424-8085
If you're in Denver, please visit one of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street
Denver Tech Center
7800 East Union Avenue
<PAGE>
================================================================================
PROSPECTUS May 1, 1999
INVESCO Variable Investment Funds, Inc.
INVESCO Variable Dynamics Fund
A mutual fund sold exclusively to insurance company separate accounts for
variable annuity and variable life insurance contracts.
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, it has not determined if this Prospectus is
truthful or complete. Anyone who tells you otherwise is committing a federal
crime.
This Prospectus will tell you more about:
[KEY ICON] Investment Objectives & Strategies
[ARROW ICON] Potential Investment Risks
[GRAPH ICON] Past Performance & Potential Advantages
[INVESCO ICON] Working with INVESCO
<PAGE>
================================================================================
INVESTMENT GOALS AND STRATEGIES [KEY ICON]
For more details about the Fund's current investments and market outlook,
please see the most recent annual or semiannual report.
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the
Fund. Together with our affiliated companies, we at INVESCO control all aspects
of the management of the Fund.
The Fund is used solely as an investment vehicle for variable annuity or
variable life insurance contracts issued by certain life insurance companies.
You cannot purchase shares of the Fund directly. As an owner of a variable
annuity or variable life insurance contract that offers the Fund as an
investment option, however, you may allocate your contract values to a separate
account of the insurance company that invests in shares of the Fund.
Your variable annuity or variable life insurance contract is offered
through its own prospectus, which contains information about that contract,
including how to purchase the contract and how to allocate contract values to
the Fund. INVESCO and the Fund do not control the insurance company that issues
your contract and are not responsible for anything stated in the prospectus for
your contract.
The Fund attempts to make your investment grow over the long term. It is
aggressively managed. Because its strategy includes many short-term factors -
including current information about a company, investor interest, price
movements of a company's securities and general market and monetary conditions
- -- securities in its portfolio usually are bought and sold relatively
frequently.
The Fund invests in a variety of securities that we believe present
opportunities for capital enhancement -- primarily common stocks of companies
traded on U.S. securities exchanges, as well as over-the-counter. The Fund also
may invest in preferred stocks (which generally pay higher dividends than common
stocks) and debt instruments that are convertible into common stocks, as well as
in securities of foreign companies.
Because these companies are comparatively small, the prices of their
securities tends to move up and down more rapidly than the securities prices of
larger, more established companies. Therefore, the price of Fund shares tends to
fluctuate more than it would if the Fund invested in the securities of larger
companies.
The Fund uses a bottom up approach, with selections based on individual
security analysis. In general, the Fund's portfolio contains securities of
companies in industries that are growing globally. The Fund usually avoids
stocks of companies in cyclical, mature or slow-growing industries or economic
sectors. The Fund seeks to invest in stocks of leading companies in attractive
markets or industries, or emerging leaders that have developed a new competitive
advantage. Healthy returns and strong cash flow are also significant factors in
the selection of the Fund's stocks. Another important consideration in the
<PAGE>
structure of the Fund's portfolio is diversification of the Fund's holdings by
industry and by economic sector.
================================================================================
FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance (commonly
known as its "total return") since inception, compared to the S&P 500 Index. The
table below shows actual annual returns for various periods ended December 31,
1998. The bar chart provides some indication of the risks of investing in the
Fund by showing changes in the year to year performance of the Fund. Remember,
past performance does not indicate how the Fund or the S&P 500 will perform in
the future.
The Fund's returns are net of its expenses, but do not reflect the
additional fees and expenses of your variable annuity or variable life insurance
contract. If those contract fees and expenses were included, the returns would
be less than those shown.
[Charts and graphs will be included in the 485(b) filing to be filed April
1999.]
<PAGE>
================================================================================
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS
INVESCO Variable Dynamics Fund
Management Fees 0.60%
Distribution and Service (12b-1) Fees None
Other Expenses (for instance, shareholder
servicing)(1) 14.41%
Total Annual Fund Operating Expenses (1) 15.01%
(1) Certain expenses of the Fund are being absorbed voluntarily by INVESCO
pursuant to a commitment to the Fund. After absorption, the Fund's "Other
Expenses" and "Total Annual Fund Operating Expenses" were 0.85% and 1.45%,
respectively. This commitment may be changed at any time following consultation
with the board of directors.
EXAMPLE
This Example assumes a $10,000 allocation to the Fund for the time periods
indicated and does NOT reflect any of the fees or expenses of your variable
annuity or variable insurance contract. The Example also assumes a hypothetical
5% return each year, and assumes that the Fund's operating expenses remain the
same. Although the Fund's actual costs and performance may be higher or lower,
based on these assumptions your costs would be:
WITHOUT EXISTING FEE ABSORPTION
1 year 3 years 5 years 10 years
$1,539 $4,163 $6,252 $9,866
WITH EXISTING FEE ABSORPTION
1 year 3 years 5 years 10 years
$---- $---- $---- $-----
<PAGE>
================================================================================
INVESTMENT RISKS [ARROW ICON]
Before allocating contract values to the Fund, you should determine the
level of risk with which you are comfortable. Take into account factors like
your age, career, income level, and time horizon.
You should determine the level of risk with which you are comfortable
before you invest. The principal risks of investing in any mutual fund,
including the Fund, are:
NOT INSURED. Mutual funds are not insured by the Federal Deposit Insurance
Corporation ("FDIC") or any other agency, unlike bank deposits such as CDs or
savings accounts.
NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.
POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its
performance, nor assure you that the market value of your investment will
increase. You may lose the money you invest, and the Fund will not reimburse you
for any of these losses.
VOLATILITY. The price of Fund shares will increase or decrease with changes
in the value of the Fund's underlying investments.
YEAR 2000. Many computer systems in use today may not be able to recognize
any date after December 31, 1999. If these systems are not fixed by that date,
it is possible that they could generate erroneous information or fail
altogether. INVESCO has committed substantial resources in an effort to make
sure that its own major computer systems will continue to function on and after
January 1, 2000. Of course, INVESCO cannot fix systems that are beyond its
control. If INVESCO's own systems, or the systems of third parties upon which it
relies, do not perform properly after December 31, 1999, the Fund could be
adversely affected.
In addition, the markets for, or values of, securities in which the Fund
invests may possibly be hurt by computer failures affecting portfolio
investments or trading of securities beginning January 1, 2000. For example,
improperly functioning computer systems could result in securities trade
settlement problems and liquidity issues, production issues for individual
companies and overall economic uncertainties. Individual issuers may incur
increased costs in making their own systems Year 2000 compliant. The combination
of market uncertainty and increased costs means that there is a possibility that
Year 2000 computer issues may adversely affect the Fund's investments.
RISKS ASSOCIATED WITH PARTICULAR INVESTMENTS [ARROW ICON]
You should consider the special factors associated with the policies
discussed below in determining the appropriateness of allocating your contract
values to the Fund. See the Statement of Additional Information for a discussion
of additional risk factors.
<PAGE>
POTENTIAL CONFLICTS. Although it is unlikely, there potentially may be
differing interests involving the Fund among owners of variable annuity and
variable life insurance contracts issued by different insurance companies, or
even the same insurance company. INVESCO will monitor events for any potential
conflicts.
MARKET RISK. Equity stock prices vary and may fall, thus reducing the value
of the Fund's investment. Certain stocks selected for the Fund's portfolio may
decline in value more than the overall stock market.
CREDIT RISK. The Fund may invest in debt instruments, such as notes and
bonds. There is a possibility that the issuers of these instruments will be
unable to meet interest payments or repay principal. Changes in the financial
strength of an issuer may reduce the credit rating of its debt instruments and
may affect their value.
FOREIGN SECURITIES. Investments in foreign and emerging markets carry
special risks, including currency, political, regulatory and diplomatic risks.
The Fund may invest up to 25% of its total assets in securities of non-U.S.
issuers.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and a
foreign currency may reduce the value of the Fund's investment in a
security valued in the foreign currency, or based on that currency
value.
POLITICAL RISK. Political actions, events or instability may result in
unfavorable changes in the value of a security.
REGULATORY RISK. Government regulations may affect the value of a security.
In foreign countries, securities markets that are less regulated than
those in the United States may permit trading practices that are not
allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the United States
and a foreign country could affect the value or liquidity of
investments.
EUROPEAN ECONOMIC AND MONETARY UNION. Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and
Spain are presently members of the European Economic and Monetary
Union (the "EMU") which as of 1/1/1999 adopted the euro as a common
currency. The national currencies will be sub-currencies of the euro
until July 1, 2002, at which time the old currencies will disappear
entirely. Other European countries may adopt the euro in the future.
The introduction of the euro presents some uncertainties and possible
risks, which could adversely affect the value of securities held by
the Fund.
EMU countries as a single market may affect future investment
decisions of the Fund. As the euro is implemented, there may be changes
in the relative strength and value of the U.S. dollar and other major
currencies, as well as possible adverse tax consequences. The euro
transition by EMU countries - present and future - may affect the fiscal
and monetary levels of those participating countries. There may be
<PAGE>
increased levels of price competition among business firms within EMU
countries and between businesses in EMU and non-EMU countries. The
outcome of these uncertainties could have unpredictable effects on trade
and commerce and result in increased volatility for all financial markets.
INTEREST RATE RISK. Changes in interest rates will affect the resale value
of debt securities held in the Fund's portfolio. In general, as interest rates
rise, the resale value of debt securities decreases; as interest rates decline,
the resale value of debt securities generally increases. Debt securities with
longer maturities usually are more sensitive to interest rate movements.
DURATION RISK. Duration is a measure of a debt security's sensitivity to
interest rate changes. Duration is usually expressed in terms of years, with
longer durations usually more sensitive to interest rate fluctuations.
LIQUIDITY RISK. The Fund's portfolio is liquid if the Fund is able to sell
the securities it owns at a fair price within a reasonable time. Liquidity is
generally related to the market trading volume for a particular security.
Investments in smaller companies or in foreign companies or emerging markets are
subject to a variety of risks, including potential lack of liquidity.
DERIVATIVES RISK. A derivative is a financial instrument whose value is
"derived", in some manner, from the price of another security, index, asset or
rate. Derivatives include options and futures contracts, among a wide range of
other instruments. The principal risk of investments in derivatives is that the
fluctuations in their values may not correlate perfectly with the overall
securities markets. Some derivatives are more sensitive to interest rate changes
and market price fluctuations than others. Also, derivatives are subject to
counterparty risk.
COUNTERPARTY RISK. This is a risk associated primarily with repurchase
agreements and some derivatives transactions. It is the risk that the other
party in such a transaction will not fulfill its contractual obligation to
complete a transaction with the Fund.
LACK OF TIMELY INFORMATION RISK. Timely information about a security or its
issuer may be unavailable, incomplete or inaccurate. This risk is more common to
securities issued by foreign companies and companies in emerging markets than it
is to the securities of U.S.-based companies.
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RISKS
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES
Securities that cannot be sold quickly Liquidity Risk
at fair value.
- --------------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not registered, Liquidity Risk
but which are bought and sold solely by
institutional investors.The Fund considers
many Rule 144A securities to be "liquid,"
although the market for such securities
typically is less active than the public
securities markets.
- --------------------------------------------------------------------------------
DEBT SECURITIES
Securities issued by private companies Market, Credit,
or governments representing an obligation Interest Rate and
to pay interest and to repay principal Duration Risks
when the security matures.
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
A contract to exchange an amount of Currency, Political,
currency on a date in the future at an Diplomatic and
agreed-upon exchange rate might be used by Regulatory Risks
the Fund to hedge against changes in foreign
currency exchange rates when the Fund invests
in foreign securities. Does not reduce price
fluctuations in foreign securities, or prevent
losses if the prices of those securities decline.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
A contract under which the seller of a security Credit and
agrees to buy it back at an agreed-upon price and Counterparty Risks
time in the future.
- --------------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS (ADRS)
These are securities issued by U.S. banks Market, Information,
that represent shares of foreign corporations Political,
held by those banks. Although traded in U.S. Regulatory, Diplo-
securities markets and valued in U.S. dollars, matic, Liquidity,
ADRs carry most of the risks of investing directly and Currency Risks
in foreign securities.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
OPTION
The obligation or right to deliver or Credit, Information
receive a security or cash payment depending on and Liquidity Risks
the price of the underlying security or the
performance of an index or other benchmark.
Includes options on specific securities and stock
indices, and stock index futures. Used in Fund's
portfolio to provide liquidity and hedge portfolio
value.
- --------------------------------------------------------------------------------
FUTURES
A futures contract is an agreement to buy Market and
or sell a specific amount of a financial Liquidity Risks
instrument (such as an index option) at a
stated price on a stated date. The Fund uses
futures contracts to provide liquidity and to hedge
portfolio value.
- --------------------------------------------------------------------------------
TEMPORARY DEFENSIVE POSITIONS [ARROW ICON]
When securities markets or economic conditions are unfavorable or
unsettled, we might try to protect the assets of the Fund by investing in
securities that are highly liquid such as high quality money market instruments,
like short-term U.S. government obligations, commercial paper or repurchase
agreements. We have the right to invest up to 100% of the Fund's assets in these
securities, although we are unlikely to do so. Even though the securities
purchased for defensive purposes often are considered the equivalent of cash,
they also have their own risks. Investments that are highly liquid or
comparatively safe tend to offer lower returns. Therefore, the Fund's
performance could be comparatively lower if it concentrates in defensive
holdings.
<PAGE>
================================================================================
FUND MANAGEMENT [GRAPH ICON]
THE INVESTMENT ADVISER
INVESCO is a subsidiary of AMVESCAP PLC, an international investment
management company that manages more than $240 billion in assets worldwide.
AMVESCAP is based in London, with money managers located in Europe, North and
South America, and the Far East.
INVESCO is the investment adviser of the Fund. INVESCO was founded in 1932
and manages over $21.1 billion for more than 905,238 shareholders of 14 INVESCO
mutual funds. INVESCO performs a wide variety of other services for the Funds,
including administration and transfer agency functions (the processing of
purchases, sales and exchanges of Fund shares). A wholly owned subsidiary of
INVESCO, INVESCO Distributors, Inc. ("IDI"), is the Fund's distributor and is
responsible for the sale of the Fund's shares.
INVESCO and IDI are subsidiaries of AMVESCAP PLC.
The Fund paid 0.60% of its average annual net assets to INVESCO for its
advisory services in the fiscal year ended December 31, 1998.
THE PORTFOLIO MANAGERS
The Fund is managed by two members of INVESCO's Growth Team, which is led
by Timothy J. Miller. The people primarily responsible for the day-to-day
management of the Fund are:
TIMOTHY J. MILLER is a Chartered Financial Analyst, and is a senior vice
president of INVESCO, where he has had progressively more responsible investment
professional positions since joining the company in 1992. Before joining
INVESCO, Tim was a portfolio manager with Mississippi Valley Advisors. He holds
an M.B.A. from the University of Missouri - St. Louis and a B.S.B.A. from St.
Louis University.
TOM WALD, a Chartered Financial Analyst, joined INVESCO in 1997, and before
that was employed by Munder Capital Management, Duff & Phelps and Prudential
Investment Corp. He holds an M.B.A. from the Wharton School at the University of
Pennsylvania and a B.A. from Tulane University.
<PAGE>
================================================================================
SHARE PRICE [GRAPH ICON]
Current market value of Fund assets + Accrued interest and dividends - Fund
debts, including accrued expenses / Number of shares = Fund share price (NAV)
The value of Fund shares is likely to change daily. This value is known as
the Net Asset Value per share, or NAV. INVESCO determines the market value of
each investment in the Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of trading on that exchange (normally,
4:00 p.m. New York time). Therefore, shares of the Fund are not priced on days
when the NYSE is closed, which, generally, is on weekends and national holidays
in the United States.
NAV is calculated by adding together the current market price of all of the
Fund's investments and other assets, including accrued interest and dividends;
subtracting the Fund's debts, including accrued expenses; and dividing that
dollar amount by the total number of the Fund's outstanding shares.
In addition, foreign securities exchanges, which set the prices for foreign
securities held by the Fund, are not always open the same days as the NYSE, and
may be open for business on days the NYSE is not. For example, Thanksgiving Day
is a holiday observed by the NYSE and not by overseas exchanges. In this
situation, the Fund would not calculate NAV on Thanksgiving Day (and INVESCO
would not buy, sell or exchange shares on that day), even though activity on
foreign exchanges could result in changes in the value of investments held by
the Fund on that day.
================================================================================
TAXES
The Fund has elected to be taxed as a "regulated investment company" under
the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended
("the Code"). If the Fund continues to qualify as a "regulated investment
company" and complies with the appropriate provisions of the Code, it will pay
no federal income taxes on the amounts it distributes.
Because the shareholders of the Fund are insurance companies (such as the
one that issues your contract), no discussion of the federal income tax
consequences to shareholders is included here. For information about the federal
tax consequences of purchasing the contracts, see the prospectus for your
contract.
<PAGE>
================================================================================
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Net investment income and net realized capital gains are distributed to
shareholders at least annually.
The Fund intends to distribute substantially all of its net investment
income, if any, in dividends to its shareholders. For dividend purposes, net
investment income consists of all dividends or interest earned by the Fund's
investments, minus the Fund's expenses (including the advisory fee). All of the
Fund's net realized capital gains, if any, are distributed periodically, no less
frequently than annually. All dividends and distributions of the Fund are
reinvested in additional shares of the Fund at net asset value.
================================================================================
VOTING RIGHTS [GRAPH ICON]
Since the shares of the Fund are owned by your insurance company and not by
you directly, you will not vote shares of the Fund. Your insurance company will
vote the shares that it holds as required by state and federal law. Your
contract prospectus contains more information on your rights to instruct your
insurance company how to vote Fund shares held in connection with your contract.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by PricewaterhouseCoopers LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the Report of Independent Accountants thereon
appearing in the Company's 1998 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting IDI at the address or telephone number on
the cover of this Prospectus. The Annual Report also contains information about
the Fund's performance.
<TABLE>
<CAPTION>
Year Period
Ended Ended
December Decem
31 ber 31
--------------------------
1998 1997(a)
<S> <C> <C>
PER SHARE DATA $ 10.34 $ 10.00
Net Asset Value -- Beginning of Period
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.00 0.02
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 1.98 0.32
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.98 0.34
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.02 0.00
Distributions from Capital Gains 0.15 0.00
TOTAL DISTRIBUTIONS 0.17 0.00
- --------------------------------------------------------------------------------
Net Asset Value - End of Period $ 12.15 $ 10.34
================================================================================
TOTAL RETURN(b) 19.35% 3.40%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 308 $ 257
Ratio of Expenses to Average Net Assets(d)(e) 1.45% 0.52%(f)
Ratio of Net Investment Income to Average Net Assets(d) (0.64%) 0.63%(f)
Portfolio Turnover Rate 55% 28%(c)
(a) From August 25, 1997, commencement of investment operations, through
December 31, 1997.
(b) Total return does not reflect expenses that apply to the related
insurance policies, and inclusion of these charges would reduce the
total return figures for the period shown.
(c) Based on operations for the period shown and, accordingly, are not
representative of a full year.
<PAGE>
(d) Various expenses of the Fund were voluntarily absorbed by INVESCO for
the year ended Decmeber 31, 1998 and all of the expenses were
voluntarily absorbed by INVESCO for the period ended December 31,
1997. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 14.76% and 34.18%
(annualized), respectively and ratio of net investment loss to average
net assets would have been (13.95%) and (33.03%) (annualized),
respectively.
(e) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed
by Investment Adviser, which is before any expenses offset
arrangements.
(f) Annualized
<PAGE>
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Dynamics Fund
May 1, 1999
You may obtain additional information about the Fund from several sources.
FINANCIAL REPORTS. Although this Prospectus describes the Fund's
anticipated investments and operations, the Fund also prepares annual and
semiannual reports that detail the Fund's actual investments at the report date.
These reports include discussion of the Fund's recent performance, as well as
market and general economic trends affecting the Fund's performance. The annual
report also includes the report of the Fund's independent accountants.
STATEMENT OF ADDITIONAL INFORMATION. The SAI dated May 1, 1999, is a
supplement to this Prospectus, and has detailed information about the Fund and
its investment policies and practices. A current SAI for the Fund is on file
with the Securities and Exchange Commission and is incorporated in this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus, SAI and annual or semiannual reports of
the Fund may be accessed through the INVESCO Web site at www.invesco.com or
through the SEC Web site at www.sec.gov.
To obtain a free copy of the current annual report, semiannual report or
SAI, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver, Colorado
173706; or call 1-800-525-8085. Copies of these materials are also available
(with a copying charge) from the SEC's Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. Information on the Public Reference Section can
be obtained by calling 1-800-SEC-0330. The SEC file number for the Fund is
033-70154.
To reach PAL(R), your 24-hour Personal Account Line, call:
1-800-424-8085
If you're in Denver, please visit one of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street
Denver Tech Center
7800 East Union Avenue
<PAGE>
================================================================================
PROSPECTUS May 1, 1999
INVESCO Variable Investment Funds, Inc.
INVESCO Variable Equity Fund
(formerly, INVESCO VIF - Industrial Income Fund)
A mutual fund sold exclusively to insurance company separate accounts for
variable annuity and variable life insurance contracts.
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, it has not determined if this Prospectus is
truthful or complete. Anyone who tells you otherwise is committing a federal
crime.
This Prospectus will tell you more about:
[KEY ICON] Investment Objectives & Strategies
[ARROW ICON] Potential Investment Risks
[GRAPH ICON] Past Performance & Potential Advantages
[INVESCO ICON] Working with INVESCO
<PAGE>
================================================================================
INVESTMENT GOALS AND STRATEGIES [KEY ICON]
For more details about the Fund's current investments and market outlook,
please see the most recent annual or semiannual report. INVESCO Funds Group,
Inc. ("INVESCO") is the investment adviser for the Fund. Together with our
affiliated companies, we at INVESCO control all aspects of the management of the
Fund.
The Fund is used solely as an investment vehicle for variable annuity or
variable life insurance contracts issued by certain life insurance companies.
You cannot purchase shares of the Fund directly. As an owner of a variable
annuity or variable life insurance contract that offers the Fund as an
investment option, however, you may allocate your contract values to a separate
account of the insurance company that invests in shares of the Fund.
Your variable annuity or variable life insurance contract is offered
through its own prospectus, which contains information about that contract,
including how to purchase the contract and how to allocate contract values to
the Fund. INVESCO and the Fund do not control the insurance company that issues
your contract and are not responsible for anything stated in the prospectus for
your contract.
The Fund invests in equity and debt securities. Historically, when stock
markets are up, debt markets are down, and vice versa. By investing in both
types of securities, the Fund attempts to cushion against sharp price movements
in both equity and debt securities. The Fund's primary goal is high current
income, with growth of capital as a secondary objective.
The Fund normally invests at least 65% of its assets in dividend-paying
common and preferred stocks, although in recent years that percentage has been
somewhat higher. Stocks held by the Fund generally are expected to produce a
relatively high level of income and a consistent, stable return. Although it
focuses on the stocks of larger companies with a strong record of paying
dividends, the Fund also may invest in companies that have not paid regular
dividends. The Fund's equity investments are limited to stocks that can be
traded easily in the United States; it may, however, invest in foreign
securities in the form of American Depository Receipts (ADRs).
The rest of the Fund's assets are invested in debt securities, generally
corporate bonds that are rated investment grade or better. The Fund also may
invest up to 15% of its assets in lower-grade debt securities commonly known as
"junk bonds", which generally offer higher interest rates, but are riskier
investments than investment grade securities.
<PAGE>
================================================================================
FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance (commonly
known as its "total return") since inception, compared to the S&P 500 Index. The
table below shows actual annual returns for various periods ended December 31,
1998. The bar chart provides some indication of the risks of investing in the
Fund by showing changes in the year to year performance of the Fund. Remember,
past performance does not indicate how the Fund or the S&P 500 will perform in
the future.
The Fund's returns are net of its expenses, but do not reflect the
additional fees and expenses of your variable annuity or variable life insurance
contract. If those contract fees and expenses were included, the returns would
be less than those shown.
[Charts and graphs will be included in the 485(b) filing to be filed April
1999.]
<PAGE>
================================================================================
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS
INVESCO Variable Industrial Income Fund
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (for instance, shareholder
servicing) 0.42%
Total Annual Fund Operating Expenses 1.17%
EXAMPLE
This Example assumes a $10,000 allocation to the Fund for the time periods
indicated and does NOT reflect any of the fees or expenses of your variable
annuity or variable insurance contract. The Example also assumes a hypothetical
5% return each year, and assumes that the Fund's operating expenses remain the
same. Although the Fund's actual costs and performance may be higher or lower,
based on these assumptions your costs would be:
WITHOUT EXISTING FEE ABSORPTION
1 year 3 years 5 years 10 years
$120 $374 $647 $1,427
WITH EXISTING FEE ABSORPTION
1 year 3 years 5 years 10 years
$---- $---- $---- $-----
<PAGE>
================================================================================
INVESTMENT RISKS [ARROW ICON]
Before allocating contract values to the Fund, you should determine the
level of risk with which you are comfortable. Take into account factors like
your age, career, income level, and time horizon.
You should determine the level of risk with which you are comfortable
before you invest. The principal risks of investing in any mutual fund,
including the Fund, are:
NOT INSURED. Mutual funds are not insured by the Federal Deposit Insurance
Corporation ("FDIC") or any other agency, unlike bank deposits such as CDs or
savings accounts.
NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.
POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its
performance, nor assure you that the market value of your investment will
increase. You may lose the money you invest, and the Fund will not reimburse you
for any of these losses.
VOLATILITY. The price of Fund shares will increase or decrease with changes
in the value of the Fund's underlying investments.
YEAR 2000. Many computer systems in use today may not be able to recognize
any date after December 31, 1999. If these systems are not fixed by that date,
it is possible that they could generate erroneous information or fail
altogether. INVESCO has committed substantial resources in an effort to make
sure that its own major computer systems will continue to function on and after
January 1, 2000. Of course, INVESCO cannot fix systems that are beyond its
control. If INVESCO's own systems, or the systems of third parties upon which it
relies, do not perform properly after December 31, 1999, the Fund could be
adversely affected.
In addition, the markets for, or values of, securities in which the Fund
invests may possibly be hurt by computer failures affecting portfolio
investments or trading of securities beginning January 1, 2000. For example,
improperly functioning computer systems could result in securities trade
settlement problems and liquidity issues, production issues for individual
companies and overall economic uncertainties. Individual issuers may incur
increased costs in making their own systems Year 2000 compliant. The combination
of market uncertainty and increased costs means that there is a possibility that
Year 2000 computer issues may adversely affect the Fund's investments.
RISKS ASSOCIATED WITH PARTICULAR INVESTMENTS [ARROW ICON]
You should consider the special factors associated with the policies
discussed below in determining the appropriateness of allocating your contract
values to the Fund. See the Statement of Additional Information for a discussion
of additional risk factors.
<PAGE>
POTENTIAL CONFLICTS. Although it is unlikely, there potentially may be
differing interests involving the Fund among owners of variable annuity and
variable life insurance contracts issued by different insurance companies, or
even the same insurance company. INVESCO will monitor events for any potential
conflicts.
MARKET RISK. Equity stock prices vary and may fall, thus reducing the value
of the Fund's investment. Certain stocks selected for the Fund's portfolio may
decline in value more than the overall stock market.
CREDIT RISK. The Fund may invest in debt instruments, such as notes and
bonds. There is a possibility that the issuers of these instruments will be
unable to meet interest payments or repay principal. Changes in the financial
strength of an issuer may reduce the credit rating of its debt instruments and
may affect their value.
FOREIGN SECURITIES. Investments in foreign and emerging markets
carry special risks, including currency, political, regulatory and
diplomatic risks. The Fund may invest up to 25% of its total assets
in securities of non-U.S. issuers.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and a
foreign currency may reduce the value of the Fund's investment in a
security valued in the foreign currency, or based on that currency
value.
POLITICAL RISK. Political actions, events or instability may result in
unfavorable changes in the value of a security.
REGULATORY RISK. Government regulations may affect the value of a security.
In foreign countries, securities markets that are less regulated than
those in the United States may permit trading practices that are not
allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the United States
and a foreign country could affect the value or liquidity of
investments.
EUROPEAN ECONOMIC AND MONETARY UNION. Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and
Spain are presently members of the European Economic and Monetary
Union (the "EMU") which as of 1/1/1999 adopted the euro as a common
currency. The national currencies will be sub-currencies of the euro
until July 1, 2002, at which time the old currencies will disappear
entirely. Other European countries may adopt the euro in the future.
The introduction of the euro presents some uncertainties and possible
risks, which could adversely affect the value of securities held by
the Fund.
EMU countries as a single market may affect future investment
decisions of the Fund. As the euro is implemented, there may be changes
in the relative strength and value of the U.S. dollar and other major
currencies, as well as possible adverse tax consequences. The euro
transition by EMU countries - present and future - may affect the
<PAGE>
fiscal and monetary levels of those participating countries. There
may be increased levels of price competition among business firms
within EMU countries and between businesses in EMU and non-EMU
countries. The outcome of these uncertainties could have unpredictable
effects on trade and commerce and result in increased volatility for all
financial markets.
INTEREST RATE RISK. Changes in interest rates will affect the resale value
of debt securities held in the Fund's portfolio. In general, as interest rates
rise, the resale value of debt securities decreases; as interest rates decline,
the resale value of debt securities generally increases. Debt securities with
longer maturities usually are more sensitive to interest rate movements.
DURATION RISK. Duration is a measure of a debt security's sensitivity to
interest rate changes. Duration is usually expressed in terms of years, with
longer durations usually more sensitive to interest rate fluctuations.
LIQUIDITY RISK. The Fund's portfolio is liquid if the Fund is able to sell
the securities it owns at a fair price within a reasonable time. Liquidity is
generally related to the market trading volume for a particular security.
Investments in smaller companies or in foreign companies or emerging markets are
subject to a variety of risks, including potential lack of liquidity.
DERIVATIVES RISK. A derivative is a financial instrument whose value is
"derived", in some manner, from the price of another security, index, asset or
rate. Derivatives include options and futures contracts, among a wide range of
other instruments. The principal risk of investments in derivatives is that the
fluctuations in their values may not correlate perfectly with the overall
securities markets. Some derivatives are more sensitive to interest rate changes
and market price fluctuations than others. Also, derivatives are subject to
counterparty risk.
COUNTERPARTY RISK. This is a risk associated primarily with repurchase
agreements and some derivatives transactions. It is the risk that the other
party in such a transaction will not fulfill its contractual obligation to
complete a transaction with the Fund.
LACK OF TIMELY INFORMATION RISK. Timely information about a security or its
issuer may be unavailable, incomplete or inaccurate. This risk is more common to
securities issued by foreign companies and companies in emerging markets than it
is to the securities of U.S.-based companies.
- --------------------------------------------------------------------------------
Investment Risks
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES
Securities that cannot be sold quickly Liquidity Risk
at fair value.
- --------------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not registered, but Liquidity Risk
which are bought and sold solely by institu-
tional investors. The Fund considers many Rule
144A securities to be "liquid," although the
market for such securities typically is less
active than the public securities markets.
- --------------------------------------------------------------------------------
JUNK BONDS
Debt Securities that are rated BB or Market, Credit,
lower by Standard & Poors or Ba or lower Interest Rate and
by Moody's. Tend to pay higher interest rates Duration Risks
than higher-rated debt securities, but carry a
higher credit risk.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
DEBT SECURITIES
Securities issued by private companies or Market, Credit,
governments representing an obligation to Interest Rate and
pay interest and to repay principal when the Duration Risks
security matures.
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
A contract to exchange an amount of Currency, Political,
currency on a date in the future at an agreed- Diplomatic and
upon exchange rate might be used by the Fund Regulatory Risks
to hedge against changes in foreign currency
exchange rates when the Fund invests in foreign
securities. Does not reduce price fluctuations
in foreign securities, or prevent losses if the
prices of those securities decline.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
A contract under which the seller of a Credit and
security agrees to buy it back at an Counterparty Risks
agreed-upon price and time in the future.
- --------------------------------------------------------------------------------
DELAYED DELIVERY OR WHEN-ISSUED SECURITIES
Ordinarily, the fund purchases securities Market and
and pays for them in cash at the normal trade Interest Rate Risks
settlement time. When the fund purchases a delayed
delivery or when-issued security, it promises to
pay in the future -- for example, when the
security is actually available for delivery to
the fund. The fund's obligation to pay and the
interest rate it receives, in the case of debt
securities, usually are fixed when the fund
promises to pay. Between the date the fund
promises to pay and the date the securities
are actually received, the fund receives no
interest on its investment, and bears the
risk that the market value of the when-issued
security may decline.
- --------------------------------------------------------------------------------
OPTION
The obligation or right to deliver or Credit, Information
receive a security or cash payment depending on and Liquidity Risks
the price of the underlying security or the
performance of an index or other benchmark.
Includes options on specific securities and
stock indices, and stock index futures. Used
in Fund's portfolio to provide liquidity and
hedge portfoliovalue.
- --------------------------------------------------------------------------------
FUTURES
A futures contract is an agreement to buy Market and
or sell a specific amount of a financial Liquidity Risks
instrument (such as an index option) at a
stated price on a stated date. The Fund uses
futures contracts to provide liquidity and to
hedge portfolio value.
- --------------------------------------------------------------------------------
<PAGE>
TEMPORARY DEFENSIVE POSITIONS
When securities markets or economic conditions are unfavorable or
unsettled, we might try to protect the assets of the Fund by investing in
securities that are highly liquid such as high quality money market instruments,
like short-term U.S. government obligations, commercial paper or repurchase
agreements. We have the right to invest up to 100% of the Fund's assets in these
securities, although we are unlikely to do so. Even though the securities
purchased for defensive purposes often are considered the equivalent of cash,
they also have their own risks. Investments that are highly liquid or
comparatively safe tend to offer lower returns. Therefore, the Fund's
performance could be comparatively lower if it concentrates in defensive
holdings.
================================================================================
FUND MANAGEMENT [GRAPH ICON]
THE INVESTMENT ADVISER
INVESCO is a subsidiary of AMVESCAP PLC, an international investment
management company that manages more than $240 billion in assets worldwide.
AMVESCAP is based in London, with money managers located in Europe, North and
South America, and the Far East.
INVESCO is the investment adviser of the Fund. INVESCO was founded in 1932
and manages over $21.1 billion for more than 905,238 shareholders of 14 INVESCO
mutual funds. INVESCO performs a wide variety of other services for the Funds,
including administration and transfer agency functions (the processing of
purchases, sales and exchanges of Fund shares). A wholly owned subsidiary of
INVESCO, INVESCO Distributors, Inc. ("IDI"), is the Fund's distributor and is
responsible for the sale of the Fund's shares.
INVESCO and IDI are subsidiaries of AMVESCAP PLC.
The Fund paid 0.75% of its average annual net assets to INVESCO for its
advisory services in the fiscal year ended December 31, 1998.
THE PORTFOLIO MANAGERS
The people primarily responsible for the day-to-day management of the Fund
are:
Charles P. Mayer is Director of Investments and a senior vice president of
INVESCO. He began his investment career in 1969 and has been with INVESCO since
1993. Before joining INVESCO, Charlie was a portfolio manager with Westinghouse
Pension. He holds an M.B.A. from St. John's University and a B.A. from St.
Peter's College.
<PAGE>
Donovan J. (Jerry) Paul heads INVESCO's Fixed Income Team. A senior vice
president of INVESCO, Jerry manages several other fixed income INVESCO Mutual
Funds. He is a Chartered Financial Analyst and a Certified Public Accountant.
Before joining INVESCO in 1994, he was with Stein, Roe & Farnham, Inc. and
Quixote Investment Management. Jerry received his M.B.A. from the University of
Northern Iowa and his B.B.A. from the University of Iowa.
================================================================================
SHARE PRICE
Current market value of Fund assets + Accrued interest and dividends - Fund
debts, including accrued expenses / Number of shares = Fund share price (NAV)
The value of Fund shares is likely to change daily. This value is known as
the Net Asset Value per share, or NAV. INVESCO determines the market value of
each investment in the Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of trading on that exchange (normally,
4:00 p.m. New York time). Therefore, shares of the Fund are not priced on days
when the NYSE is closed, which, generally, is on weekends and national holidays
in the United States.
NAV is calculated by adding together the current market price of all of the
Fund's investments and other assets, including accrued interest and dividends;
subtracting the Fund's debts, including accrued expenses; and dividing that
dollar amount by the total number of the Fund's outstanding shares.
In addition, foreign securities exchanges, which set the prices for foreign
securities held by the Fund, are not always open the same days as the NYSE, and
may be open for business on days the NYSE is not. For example, Thanksgiving Day
is a holiday observed by the NYSE and not by overseas exchanges. In this
situation, the Fund would not calculate NAV on Thanksgiving Day (and INVESCO
would not buy, sell or exchange shares on that day), even though activity on
foreign exchanges could result in changes in the value of investments held by
the Fund on that day.
================================================================================
TAXES
The Fund has elected to be taxed as a "regulated investment company" under
the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended
("the Code"). If the Fund continues to qualify as a "regulated investment
company" and complies with the appropriate provisions of the Code, it will pay
no federal income taxes on the amounts it distributes.
<PAGE>
Because the shareholders of the Fund are insurance companies (such as the
one that issues your contract), no discussion of the federal income tax
consequences to shareholders is included here. For information about the federal
tax consequences of purchasing the contracts, see the prospectus for your
contract.
================================================================================
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Net investment income and net realized capital gains are distributed to
shareholders at least annually.
The Fund intends to distribute substantially all of its net investment
income, if any, in dividends to its shareholders. For dividend purposes, net
investment income consists of all dividends or interest earned by the Fund's
investments, minus the Fund's expenses (including the advisory fee). All of the
Fund's net realized capital gains, if any, are distributed periodically, no less
frequently than annually. All dividends and distributions of the Fund are
reinvested in additional shares of the Fund at net asset value.
================================================================================
VOTING RIGHTS [GRAPH ICON]
Since the shares of the Fund are owned by your insurance company and not by
you directly, you will not vote shares of the Fund. Your insurance company will
vote the shares that it holds as required by state and federal law. Your
contract prospectus contains more information on your rights to instruct your
insurance company how to vote Fund shares held in connection with your contract.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by PricewaterhouseCoopers LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the Report of Independent Accountants thereon
appearing in the Company's 1998 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting IDI at the address or telephone number on
the cover of this Prospectus. The Annual Report also contains information about
the Fund's performance.
</TABLE>
<TABLE>
<CAPTION>
Period Ended
December
Year Ended December 31 31
--------------------------------------------------------------------------------------
1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 17.04 $ 14.33 $ 12.58 $ 10.09 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.33 0.30 0.28 0.19 0.03
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 2.23 3.71 2.52 2.76 0.09
- -----------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.56 4.01 2.80 2.95 0.12
- -----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.32 0.29 0.28 0.20 0.03
Distributions from Capital Gains 0.67 1.01 0.77 0.26 0.00
Total Distributions 0.99 1.30 1.05 0.46 0.03
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 18.61 $ 17.04 $ 14.33 $ 12.58 $ 10.09
=======================================================================================================================
TOTAL RETURN(b) 15.30% 28.17% 22.28% 29.25% 1.23%(c)
RATIOS
Net Assets -- End of Period
($000 Omitted) $ 60,346 $ 40,093 $ 22,342 $ 8,362 $ 525
Ratio of Expenses to Average Net
Assets(d) 0.93%(e) 0.91%(e) 0.95%(e) 1.03%(e) 0.79%(f)
Ratio of Net Investment Income
to Average Net Assets(d) 1.98% 2.18% 2.87% 3.50% 1.69%(f)
Portfolio Turnover Rate
73% 87% 93% 97% 0%(c)
</TABLE>
(a) From August 10, 1994, commencement of investment operations, through
December 31, 1994.
(b) Total return does not reflect expenses that apply to the related
insurance policies, and inclusion of these charges would reduce the
total return figures for the period shown.
<PAGE>
(c) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(d) Various expenses of the Fund were voluntarily absorbed by INVESCO for
the years ended Decmeber 31, 1998, 1997, 1996 and 1995 and the period
ended December 31, 1994. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been
0.93%, 0.97%, 1.19%, 2.31% and 32.55% (annualized), respectively and
ratio of net investment income (loss) to average net assets would have
been 1.98%, 2.12%, 2.63%, 2.22% and (30.07%) (annualized),
respectively.
(e) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed
by Investment Adviser, which is before any expenses offset
arrangements.
(f) Annualized
<PAGE>
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Equity Fund
May 1, 1999
You may obtain additional information about the Fund from several sources.
FINANCIAL REPORTS. Although this Prospectus describes the Fund's
anticipated investments and operations, the Fund also prepares annual and
semiannual reports that detail the Fund's actual investments at the report date.
These reports include discussion of the Fund's recent performance, as well as
market and general economic trends affecting the Fund's performance. The annual
report also includes the report of the Fund's independent accountants.
STATEMENT OF ADDITIONAL INFORMATION. The SAI dated May 1, 1999, is a
supplement to this Prospectus, and has detailed information about the Fund and
its investment policies and practices. A current SAI for the Fund is on file
with the Securities and Exchange Commission and is incorporated in this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus, SAI and annual or semiannual reports of the
Fund may be accessed through the INVESCO Web site at www.invesco.com or through
the SEC Web site at www.sec.gov.
To obtain a free copy of the current annual report, semiannual report or SAI,
write to INVESCO Distributors, Inc., P.O. Box 173706, Denver, Colorado 173706;
or call 1-800-525-8085. Copies of these materials are also available (with a
copying charge) from the SEC's Public Reference Section at 450 Fifth Street,
N.W., Washington, D.C. Information on the Public Reference Section can be
obtained by calling 1-800-SEC-0330. The SEC file number for the Fund is
033-70154.
To reach PAL(R), your 24-hour Personal Account Line, call:
1-800-424-8085
If you're in Denver, please visit one of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street
Denver Tech Center
7800 East Union Avenue
<PAGE>
================================================================================
PROSPECTUS May 1, 1999
INVESCO Variable Investment Funds, Inc.
INVESCO Variable Health Sciences Fund
A mutual fund sold exclusively to insurance company separate accounts for
variable annuity and variable life insurance contracts.
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, it has not determined if this Prospectus is
truthful or complete. Anyone who tells you otherwise is committing a federal
crime.
This Prospectus will tell you more about:
[KEY ICON] Investment Objectives & Strategies
[ARROW ICON] Potential Investment Risks
[GRAPH ICON] Past Performance & Potential Advantages
[INVESCO ICON] Working with INVESCO
<PAGE>
================================================================================
Investment Goals And Strategies [KEY ICON]
For more details about the Fund's current investments and market outlook,
please see the most recent annual or semiannual report.
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the
Fund. Together with our affiliated companies, we at INVESCO control all aspects
of the management of the Fund.
The Fund is used solely as an investment vehicle for variable annuity or
variable life insurance contracts issued by certain life insurance companies.
You cannot purchase shares of the Fund directly. As an owner of a variable
annuity or variable life insurance contract that offers the Fund as an
investment option, however, you may allocate your contract values to a separate
account of the insurance company that invests in shares of the Fund.
Your variable annuity or variable life insurance contract is offered
through its own prospectus, which contains information about that contract,
including how to purchase the contract and how to allocate contract values to
the Fund. INVESCO and the Fund do not control the insurance company that issues
your contract and are not responsible for anything stated in the prospectus for
your contract.
The Fund is aggressively managed. Although the Fund can invest in debt
securities, it primarily invests in equity securities that INVESCO believes will
rise in price faster than other investments, as well as options and other
investments whose value is based upon the values of equity securities.
The Fund invests primarily in the equity securities of companies that
develop, produce or distribute products or services related to health care.
These industries include, but are not limited to, medical equipment or supplies,
pharmaceuticals, health care facilities, and applied research and development of
new products or services.
The Fund normally invests at least 80% of its assets in companies doing
business in the health sciences economic sector. The remainder of the Fund's
assets are not required to be invested in the sector. To determine whether a
potential investment is truly doing business in a particular sector, a company
must meet at least one of the following tests:
o At least 50% of its gross income or its net sales must come from
activities in the sector;
o At least 50% of its assets must be devoted to producing revenues from
the sector; or
o Based on other available information, we determine that its primary
business is within the sector.
INVESCO uses a bottom-up investment approach to create the Fund's
investment portfolio, focusing on company fundamentals and growth prospects when
selecting securities. In general, the Fund emphasizes strongly managed companies
that
<PAGE>
INVESCO believes will generate above-average growth rates for the next three to
five years. We prefer markets and industries where leadership is in a few hands,
and we tend to avoid slower-growing markets or industries.
The Fund's investments are diversified across the health sciences sector.
However, because those investments are limited to a comparatively narrow segment
of the economy, the Fund's investments are not as diversified as most mutual
funds, and far less diversified than the broad securities markets. This means
that the Fund tends to be more volatile than other mutual funds, and the values
of its portfolio investments tend to go up and down more rapidly. As a result,
the value of a Fund share may rise or fall rapidly.
We target strongly managed, innovative companies with new products. INVESCO
attempts to blend well-established health care firms with faster-growing, more
dynamic entities. Well-established health care companies typically provide
liquidity and earnings visibility for the portfolio and represent core holdings
in the Fund. The remainder of the portfolio consists of faster-growing, more
dynamic health care companies, which have new products or are increasing their
market share of existing products. Many faster-growing health care companies
have limited operating histories and their potential profitability may be
dependent on regulatory approval of their products, which increases the
volatility of these companies' security prices.
Many of these activities are funded or subsidized by governments;
withdrawal or curtailment of this support could lower the profitability and
market prices of such companies. Changes in government regulation could also
have an adverse impact. Continuing technological advances may mean rapid
obsolescence of products and services.
================================================================================
Fund Performance
The bar chart below shows the Fund's actual yearly performance (commonly
known as its "total return") since inception, compared to the S&P 500 Index. The
table below shows actual annual returns for various periods ended December 31,
1998. The bar chart provides some indication of the risks of investing in the
Fund by showing changes in the year to year performance of the Fund. Remember,
past performance does not indicate how the Fund or the S&P 500 will perform in
the future.
<PAGE>
The Fund's returns are net of its expenses, but do not reflect the
additional fees and expenses of your variable annuity or variable life insurance
contract. If those contract fees and expenses were included, the returns would
be less than those shown.
[Charts and graphs will be included in the 485(b) filing to be filed April
1999.]
================================================================================
Fees And Expenses
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS
INVESCO Variable Health Sciences Fund
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (for instance, shareholder
servicing)(1) 3.57%
Total Annual Fund Operating Expenses (1) 4.32%
(1) Certain expenses of the Fund are being absorbed voluntarily by INVESCO
pursuant to a commitment to the Fund. After absorption, the Fund's "Other
Expenses" and "Total Annual Fund Operating Expenses" were 0.52% and 1.27%,
respectively. This commitment may be changed at any time following consultation
with the board of directors.
EXAMPLE
This Example assumes a $10,000 allocation to the Fund for the time periods
indicated and does NOT reflect any of the fees or expenses of your variable
annuity or variable insurance contract. The Example also assumes a hypothetical
5% return each year, and assumes that the Fund's operating expenses remain the
same. Although the Fund's actual costs and performance may be higher or lower,
based on these assumptions your costs would be:
<PAGE>
Without Existing Fee Absorption
1 year 3 years 5 years 10 years
$443 $1,336 $2,239 $4,544
With Existing Fee Absorption
1 year 3 years 5 years 10 years
$---- $---- $---- $-----
================================================================================
Investment Risks [ARROW ICON]
Before allocating contract values to the Fund, you should determine the
level of risk with which you are comfortable. Take into account factors like
your age, career, income level, and time horizon.
You should determine the level of risk with which you are comfortable
before you invest. The principal risks of investing in any mutual fund,
including the Fund, are:
NOT INSURED. Mutual funds are not insured by the Federal Deposit Insurance
Corporation ("FDIC") or any other agency, unlike bank deposits such as CDs or
savings accounts.
NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.
POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its
performance, nor assure you that the market value of your investment will
increase. You may lose the money you invest, and the Fund will not reimburse you
for any of these losses.
VOLATILITY. The price of Fund shares will increase or decrease with changes
in the value of the Fund's underlying investments.
YEAR 2000. Many computer systems in use today may not be able to recognize
any date after December 31, 1999. If these systems are not fixed by that date,
it is possible that they could generate erroneous information or fail
altogether. INVESCO has committed substantial resources in an effort to make
sure that its own major computer systems will continue to function on and after
January 1, 2000. Of course, INVESCO cannot fix systems that are beyond its
control. If INVESCO's own systems, or the systems of third parties upon which it
relies, do not perform properly after December 31, 1999, the Fund could be
adversely affected.
In addition, the markets for, or values of, securities in which the
Fund invests may possibly be hurt by computer failures affecting portfolio
<PAGE>
investments or trading of securities beginning January 1, 2000. For example,
improperly functioning computer systems could result in securities trade
settlement problems and liquidity issues, production issues for individual
companies and overall economic uncertainties. Individual issuers may incur
increased costs in making their own systems Year 2000 compliant. The combination
of market uncertainty and increased costs means that there is a possibility that
Year 2000 computer issues may adversely affect the Fund's investments.
Risks Associated With Particular Investments [ARROW ICON]
You should consider the special factors associated with the policies
discussed below in determining the appropriateness of allocating your contract
values to the Fund. See the Statement of Additional Information for a discussion
of additional risk factors.
POTENTIAL CONFLICTS. Although it is unlikely, there potentially may be
differing interests involving the Fund among owners of variable annuity and
variable life insurance contracts issued by different insurance companies, or
even the same insurance company. INVESCO will monitor events for any potential
conflicts.
MARKET RISK. Equity stock prices vary and may fall, thus reducing the value
of the Fund's investment. Certain stocks selected for the Fund's portfolio may
decline in value more than the overall stock market.
CREDIT RISK. The Fund may invest in debt instruments, such as notes and
bonds. There is a possibility that the issuers of these instruments will be
unable to meet interest payments or repay principal. Changes in the financial
strength of an issuer may reduce the credit rating of its debt instruments and
may affect their value.
FOREIGN SECURITIES. Investments in foreign and emerging markets carry
special risks, including currency, political, regulatory and diplomatic risks.
The Fund may invest up to 25% of its total assets in securities of non-U.S.
issuers.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and a
foreign currency may reduce the value of the Fund's investment in a
security valued in the foreign currency, or based on that currency value.
POLITICAL RISK. Political actions, events or instability may result in
unfavorable changes in the value of a security.
REGULATORY RISK. Government regulations may affect the value of a security.
In foreign countries, securities markets that are less regulated than those
in the United States may permit trading practices that are not allowed in
the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the United States
and a foreign country could affect the value or liquidity of investments.
<PAGE>
EUROPEAN ECONOMIC AND MONETARY UNION. Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and
Spain are presently members of the European Economic and Monetary Union
(the "EMU") which as of 1/1/1999 adopted the euro as a common currency.
The national currencies will be sub-currencies of the euro until July 1,
2002, at which time the old currencies will disappear entirely. Other
European countries may adopt the euro in the future.
The introduction of the euro presents some uncertainties and possible
risks, which could adversely affect the value of securities held by the
Fund.
EMU countries as a single market may affect future investment decisions of
the Fund. As the euro is implemented, there may be changes in the
relative strength and value of the U.S. dollar and other major currencies,
as well as possible adverse tax consequences. The euro transition by
EMU countries - present and future - may affect the fiscal and
monetary levels of those participating countries. There may be
increased levels of price competition among business firms within EMU
countries and between businesses in EMU and non-EMU countries. The
outcome of these uncertainties could have unpredictable effects on trade
and commerce and result in increased volatility for all financial
markets.
INTEREST RATE RISK. Changes in interest rates will affect the resale value
of debt securities held in the Fund's portfolio. In general, as interest rates
rise, the resale value of debt securities decreases; as interest rates decline,
the resale value of debt securities generally increases. Debt securities with
longer maturities usually are more sensitive to interest rate movements.
DURATION RISK. Duration is a measure of a debt security's sensitivity to
interest rate changes. Duration is usually expressed in terms of years, with
longer durations usually more sensitive to interest rate fluctuations.
LIQUIDITY RISK. The Fund's portfolio is liquid if the Fund is able to sell
the securities it owns at a fair price within a reasonable time. Liquidity is
generally related to the market trading volume for a particular security.
Investments in smaller companies or in foreign companies or emerging markets are
subject to a variety of risks, including potential lack of liquidity.
DERIVATIVES RISK. A derivative is a financial instrument whose value is
"derived", in some manner, from the price of another security, index, asset or
rate. Derivatives include options and futures contracts, among a wide range of
other instruments. The principal risk of investments in derivatives is that the
fluctuations in their values may not correlate perfectly with the overall
securities markets. Some derivatives are more sensitive to interest rate changes
and market price fluctuations than others. Also, derivatives are subject to
counterparty risk.
COUNTERPARTY RISK. This is a risk associated primarily with repurchase
agreements and some derivatives transactions. It is the risk that the other
party in such a transaction will not fulfill its contractual obligation to
complete a transaction with the Fund.
<PAGE>
LACK OF TIMELY INFORMATION RISK. Timely information about a security or its
issuer may be unavailable, incomplete or inaccurate. This risk is more common to
securities issued by foreign companies and companies in emerging markets than it
is to the securities of U.S.-based companies.
- -------------------------------------------------------------------------------
INVESTMENT RISKS
- -------------------------------------------------------------------------------
ILLIQUID SECURITIES
Securities that cannot be Liquidity Risk
sold quickly at fair value.
- -------------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not registered, but Liquidity Risk
which are bought and sold solely by institu-
tional investors. The Fund considers many
Rule 144A securities to be "liquid," although
the market for such securities typically is less
active than the public securities markets.
- -------------------------------------------------------------------------------
DEBT SECURITIES Market, Credit,
Securities issued by private companies Interest Rate and
or governments representing an obligation to Duration Risk
pay interest and to repay principal when the
security matures.
- -------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
A contract to exchange an Currency,
amount of currency on a date in the Political,
future at an agreed-upon Diplomatic and
exchange rate might be used by the Regulatory
Fund to hedge against changes in foreign
currency exchange rates when the Fund invests
in foreign securities. Does not
reduce price fluctuations in foreign securities,
or prevent losses if the prices of those
securities decline.
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT
A contract under which Credit and
the seller of a security agrees Counterparty
to buy it back at an agreed-upon Risk
price and time in the future.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS (ADRS)
These are securities issued by U.S. banks Market, Informa-
that represent shares of foreign corporations tion, Political,
held by those banks. Although traded in Regulatory, Diplo-
U.S. securities markets and valued in U.S. matic, Liquidity
dollars, ADRs carry most of the risks of and Currency Risks
investing directly in foreign securities.
- -------------------------------------------------------------------------------
OPTION
The obligation or right to deliver or receive Credit, Information
a security or cash payment depending on the and Liquidity Risks
price of the underlying security or the perfor-
mance of an index or other benchmark.
Includes options on specific securities and stock
indices, and stock index futures. Used in Fund's
portfolio to provide liquidity and hedge portfolio
value.
- -------------------------------------------------------------------------------
FUTURES
A futures contract is an agreement to buy or Market and Liquidity
sell a specific amount of a financial instrument Risks
(such as an index option) at a stated price on a
stated date. The Fund uses futures contracts to
provide liquidity and to hedge portfolio value.
- -------------------------------------------------------------------------------
TEMPORARY DEFENSIVE POSITIONS [ARROW ICON]
When securities markets or economic conditions are unfavorable or
unsettled, we might try to protect the assets of the Fund by investing in
securities that are highly liquid such as high quality money market instruments,
like short-term U.S. government obligations, commercial paper or repurchase
agreements. We have the right to invest up to 100% of the Fund's assets in these
securities, although we are unlikely to do so. Even though the securities
purchased for defensive purposes often are considered the equivalent of cash,
they also have their own risks. Investments that are highly liquid or
comparatively safe tend to offer lower returns. Therefore, the Fund's
performance could be comparatively lower if it concentrates in defensive
holdings.
<PAGE>
================================================================================
FUND MANAGEMENT [GRAPH ICON]
THE INVESTMENT ADVISER
INVESCO is a subsidiary of AMVESCAP PLC, an international investment
management company that manages more than $240 billion in assets worldwide.
AMVESCAP is based in London, with money managers located in Europe, North and
South America, and the Far East.
INVESCO is the investment adviser of the Fund. INVESCO was founded in 1932
and manages over $21.1 billion for more than 905,238 shareholders of 14 INVESCO
mutual funds. INVESCO performs a wide variety of other services for the Funds,
including administration and transfer agency functions (the processing of
purchases, sales and exchanges of Fund shares). A wholly owned subsidiary of
INVESCO, INVESCO Distributors, Inc. ("IDI"), is the Fund's distributor and is
responsible for the sale of the Fund's shares.
INVESCO and IDI are subsidiaries of AMVESCAP PLC.
The Fund paid 0.75% of its average annual net assets to INVESCO for its
advisory services in the fiscal year ended December 31, 1998.
THE PORTFOLIO MANAGER
The Fund is managed by John Schroer, a Chartered Financial Analyst, who is
the head of INVESCO's Health Team. Mr. Schroer has been the portfolio manager of
the Fund since October 1997 (co- portfolio manager since 1994) and has primary
responsibility for the day-to-day management of the Fund's portfolio holdings.
Mr. Schroer also manages INVESCO Sector Funds - Health Sciences Fund and INVESCO
Global Health Sciences Fund and is a senior vice president of INVESCO and a vice
president of INVESCO Global Health Sciences Fund. Mr. Schroer has been with
INVESCO since 1992. Mr. Schroer was an assistant vice president with Trust
Company of the West from 1990 to 1992. Mr. Schroer received an M.B.A. and B.S.
from the University of Wisconsin-Madison.
<PAGE>
================================================================================
SHARE PRICE [GRAPH ICON]
Current market value of Fund assets + Accrued interest and dividends - Fund
debts, including accrued expenses / Number of shares = Fund share price (NAV)
The value of Fund shares is likely to change daily. This value is known as
the Net Asset Value per share, or NAV. INVESCO determines the market value of
each investment in the Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of trading on that exchange (normally,
4:00 p.m. New York time). Therefore, shares of the Fund are not priced on days
when the NYSE is closed, which, generally, is on weekends and national holidays
in the United States.
NAV is calculated by adding together the current market price of all of the
Fund's investments and other assets, including accrued interest and dividends;
subtracting the Fund's debts, including accrued expenses; and dividing that
dollar amount by the total number of the Fund's outstanding shares.
In addition, foreign securities exchanges, which set the prices for foreign
securities held by the Fund, are not always open the same days as the NYSE, and
may be open for business on days the NYSE is not. For example, Thanksgiving Day
is a holiday observed by the NYSE and not by overseas exchanges. In this
situation, the Fund would not calculate NAV on Thanksgiving Day (and INVESCO
would not buy, sell or exchange shares on that day), even though activity on
foreign exchanges could result in changes in the value of investments held by
the Fund on that day.
================================================================================
TAXES
The Fund has elected to be taxed as a "regulated investment company" under
the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended
("the Code"). If the Fund continues to qualify as a "regulated investment
company" and complies with the appropriate provisions of the Code, it will pay
no federal income taxes on the amounts it distributes.
Because the shareholders of the Fund are insurance companies (such as the
one that issues your contract), no discussion of the federal income tax
consequences to shareholders is included here. For information about the federal
tax consequences of purchasing the contracts, see the prospectus for your
contract.
<PAGE>
================================================================================
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS [GRAPH ICON]
Net investment income and net realized capital gains are distributed to
shareholders at least annually.
The Fund intends to distribute substantially all of its net investment
income, if any, in dividends to its shareholders. For dividend purposes, net
investment income consists of all dividends or interest earned by the Fund's
investments, minus the Fund's expenses (including the advisory fee). All of the
Fund's net realized capital gains, if any, are distributed periodically, no less
frequently than annually. All dividends and distributions of the Fund are
reinvested in additional shares of the Fund at net asset value.
================================================================================
VOTING RIGHTS
Since the shares of the Fund are owned by your insurance company and not by
you directly, you will not vote shares of the Fund. Your insurance company will
vote the shares that it holds as required by state and federal law. Your
contract prospectus contains more information on your rights to instruct your
insurance company how to vote Fund shares held in connection with your contract.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by PricewaterhouseCoopers LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the Report of Independent Accountants thereon
appearing in the Company's 1998 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting IDI at the address or telephone number on
the cover of this Prospectus. The Annual Report also contains information about
the Fund's performance.
Year Ended Period Ended
December 31 December 31
----------- -----------
1998(a) 1997(b)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 11.04 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05 0.10
Net Gains on Securities (Both Realized
and Unrealized) 4.66 0.94
- --------------------------------------------------------------------------------
Total from Investment Operations 4.71 1.04
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.03 0.00
Distributions from Capital Gains 0.34 0.00
In Excess of Net Realized Gains 0.09 0.00
- --------------------------------------------------------------------------------
Total Distributions 0.46 0.00
- --------------------------------------------------------------------------------
Net Asset Value -- End of Period $ 15.29 11.04
================================================================================
TOTAL RETURN(c) 42.85% 10.40%(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 2,378 $ 423
Ratio of Expenses to Average Net
Assets(e)(f) 1.27% 0.60%(g)
Ratio of Net Investment Income (Loss) to
Average Net Assets(e) 0.35% 2.34%(g)
Portfolio Turnover Rate 107% 112%(d)
(a) The per share information was computed based on average shares.
(b) From May 22, 1997, commencement of investment operations, through December
31, 1997.
(c) Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return
figures for the period shown.
(d) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(e) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
year ended December 31, 1998 and all of the expenses were voluntarily
absorbed by INVESCO for the period ended December 31, 1997. If such
expenses had not been voluntarily absorbed, ratio of expenses to average
net assets would have been 4.20% and 21.45% (annualized), respectively
and ratio of net investment loss to average net assets would have been
(2.58%) and (18.51%) (annualized), respectively.
(f) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expenses offset arrangements.
(g) Annualized
<PAGE>
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Health Sciences Fund
May 1, 1999
You may obtain additional information about the Fund from several sources.
FINANCIAL REPORTS. Although this Prospectus describes the Fund's
anticipated investments and operations, the Fund also prepares annual and
semiannual reports that detail the Fund's actual investments at the report date.
These reports include discussion of the Fund's recent performance, as well as
market and general economic trends affecting the Fund's performance. The annual
report also includes the report of the Fund's independent accountants.
STATEMENT OF ADDITIONAL INFORMATION. The SAI dated May 1, 1999, is a
supplement to this Prospectus, and has detailed information about the Fund and
its investment policies and practices. A current SAI for the Fund is on file
with the Securities and Exchange Commission and is incorporated in this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus, SAI and annual or semiannual reports of
the Fund may be accessed through the INVESCO Web site at www.invesco.com or
through the SEC Web site at www.sec.gov.
To obtain a free copy of the current annual report, semiannual report or
SAI, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver, Colorado
173706; or call 1-800-525-8085. Copies of these materials are also available
(with a copying charge) from the SEC's Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. Information on the Public Reference Section can
be obtained by calling 1-800-SEC-0330. The SEC file number for the Fund is
033-70154.
To reach PAL(R), your 24-hour Personal Account Line, call:
1-800-424-8085
If you're in Denver, please visit one of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street
Denver Tech Center
7800 East Union Avenue
<PAGE>
================================================================================
PROSPECTUS May 1, 1999
INVESCO Variable Investment Funds, Inc.
INVESCO Variable High Yield Fund
A mutual fund sold exclusively to insurance company separate accounts for
variable annuity and variable life insurance contracts.
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, it has not determined if this Prospectus is
truthful or complete. Anyone who tells you otherwise is committing a federal
crime.
This Prospectus will tell you more about:
[KEY ICON] Investment Objectives & Strategies
[ARROW ICON] Potential Investment Risks
[GRAPH ICON] Past Performance & Potential Advantages
[INVESCO ICON] Working with INVESCO
<PAGE>
================================================================================
INVESTMENT GOALS AND STRATEGIES [KEY ICON]
For more details about the Fund's current investments and market outlook,
please see the most recent annual or semiannual report.
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the
Fund. Together with our affiliated companies, we at INVESCO control all aspects
of the management of the Fund.
The Fund is used solely as an investment vehicle for variable annuity or
variable life insurance contracts issued by certain life insurance companies.
You cannot purchase shares of the Fund directly. As an owner of a variable
annuity or variable life insurance contract that offers the Fund as an
investment option, however, you may allocate your contract values to a separate
account of the insurance company that invests in shares of the Fund.
Your variable annuity or variable life insurance contract is offered
through its own prospectus, which contains information about that contract,
including how to purchase the contract and how to allocate contract values to
the Fund. INVESCO and the Fund do not control the insurance company that issues
your contract and are not responsible for anything stated in the prospectus for
your contract.
The Fund attempts to provide a high level of current income.
It invests substantially all of its assets in lower-rated debt securities,
commonly called "junk bonds," and preferred stock, including securities issued
by foreign companies. Although these securities carry with them higher risks,
they generally provide higher yields - and therefore higher income - than
higher-rated debt securities.
================================================================================
FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance (commonly
known as its "total return") since inception, compared to the S&P 500 Index. The
table below shows actual annual returns for various periods ended December 31,
1998. The bar chart provides some indication of the risks of investing in the
Fund by showing changes in the year to year performance of the Fund. Remember,
past performance does not indicate how the Fund or the S&P 500 will perform in
the future.
The Fund's returns are net of its expenses, but do not reflect the
additional fees and expenses of your variable annuity or variable life insurance
contract. If those contract fees and expenses were included, the returns would
be less than those shown.
[Charts and graphs will be included in the 485(b) filing to be filed April
1999.]
<PAGE>
================================================================================
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS
INVESCO Variable High Yield Fund
Management Fees 0.60%
Distribution and Service (12b-1)Fees None
Other Expenses (for instance,shareholder
servicing) 0.47%
Total Annual Fund Operating Expenses 1.07%
EXAMPLE
This Example assumes a $10,000 allocation to the Fund for the time periods
indicated and does NOT reflect any of the fees or expenses of your variable
annuity or variable insurance contract. The Example also assumes a hypothetical
5% return each year, and assumes that the Fund's operating expenses remain the
same. Although the Fund's actual costs and performance may be higher or lower,
based on these assumptions your costs would be:
WITHOUT EXISTING FEE ABSORPTION
1 year 3 years 5 years 10 years
$110 $342 $593 $1,311
WITH EXISTING FEE ABSORPTION
1 year 3 years 5 years 10 years
$---- $---- $---- $-----
<PAGE>
================================================================================
INVESTMENT RISKS [ARROW ICON]
Before allocating contract values to the Fund, you should determine the
level of risk with which you are comfortable. Take into account factors like
your age, career, income level, and time horizon.
You should determine the level of risk with which you are comfortable
before you invest. The principal risks of investing in any mutual fund,
including the Fund, are:
NOT INSURED. Mutual funds are not insured by the Federal Deposit Insurance
Corporation ("FDIC") or any other agency, unlike bank deposits such as CDs or
savings accounts.
NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.
POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its
performance, nor assure you that the market value of your investment will
increase. You may lose the money you invest, and the Fund will not reimburse you
for any of these losses.
VOLATILITY. The price of Fund shares will increase or decrease with changes
in the value of the Fund's underlying investments.
YEAR 2000. Many computer systems in use today may not be able to recognize
any date after December 31, 1999. If these systems are not fixed by that date,
it is possible that they could generate erroneous information or fail
altogether. INVESCO has committed substantial resources in an effort to make
sure that its own major computer systems will continue to function on and after
January 1, 2000. Of course, INVESCO cannot fix systems that are beyond its
control. If INVESCO's own systems, or the systems of third parties upon which it
relies, do not perform properly after December 31, 1999, the Fund could be
adversely affected.
In addition, the markets for, or values of, securities in which the Fund
invests may possibly be hurt by computer failures affecting portfolio
investments or trading of securities beginning January 1, 2000. For example,
improperly functioning computer systems could result in securities trade
settlement problems and liquidity issues, production issues for individual
companies and overall economic uncertainties. Individual issuers may incur
increased costs in making their own systems Year 2000 compliant. The combination
of market uncertainty and increased costs means that there is a possibility that
Year 2000 computer issues may adversely affect the Fund's investments.
RISKS ASSOCIATED WITH PARTICULAR INVESTMENTS [ARROW ICON]
You should consider the special factors associated with the policies
discussed below in determining the appropriateness of allocating your contract
values to the Fund. See the Statement of Additional Information for a discussion
of additional risk factors.
<PAGE>
POTENTIAL CONFLICTS. Although it is unlikely, there potentially may be
differing interests involving the Fund among owners of variable annuity and
variable life insurance contracts issued by different insurance companies, or
even the same insurance company. INVESCO will monitor events for any potential
conflicts.
JUNK BOND RISK. The Fund invests significantly in lower-grade debt
securities, commonly known as "junk bonds." Junk bonds generally pay higher
interest rates than comparable higher-grade securities, and thus can produce
higher income for the Fund. However, these higher interest rates are paid to
compensate the Fund for the additional risk that it takes when it invests in
junk bonds. Specifically, junk bonds are perceived by independent rating
agencies as having a greater risk that their issuers will not be able to pay the
interest and principal as they become due over the life of the bond. In addition
to the loss of interest payments, the market value of a defaulted bond would
likely drop, and the Fund would be forced to sell it at a loss.
MARKET RISK. Equity stock prices vary and may fall, thus reducing the value
of the Fund's investment. Certain stocks selected for the Fund's portfolio may
decline in value more than the overall stock market.
CREDIT RISK. The Fund may invest in debt instruments, such as notes and
bonds. There is a possibility that the issuers of these instruments will be
unable to meet interest payments or repay principal. Changes in the financial
strength of an issuer may reduce the credit rating of its debt instruments and
may affect their value.
FOREIGN SECURITIES. Investments in foreign and emerging markets carry
special risks, including currency, political, regulatory and diplomatic risks.
The Fund may invest up to 25% of its total assets in securities of non-U.S.
issuers.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and
a foreign currency may reduce the value of the Fund's investment in a
security valued in the foreign currency, or based on that currency value.
POLITICAL RISK. Political actions, events or instability may result in
unfavorable changes in the value of a security.
REGULATORY RISK. Government regulations may affect the value of a
security. In foreign countries, securities markets that are less regulated
than those in the United States may permit trading practices that are not
allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the United
States and a foreign country could affect the value or liquidity of
investments.
EUROPEAN ECONOMIC AND MONETARY UNION. Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and
Spain are presently members of the European Economic and Monetary Union
<PAGE>
(the "EMU") which as of 1/1/1999 adopted the euro as a common currency. The
national currencies will be sub-currencies of the euro until July 1, 2002,
at which time the old currencies will disappear entirely. Other European
countries may adopt the euro in the future.
The introduction of the euro presents some uncertainties and possible
risks, which could adversely affect the value of securities held by the
Fund.
EMU countries as a single market may affect future investment decisions of
the Fund. As the euro is implemented, there may be changes in the relative
strength and value of the U.S. dollar and other major currencies, as well
as possible adverse tax consequences. The euro transition by EMU countries
- present and future - may affect the fiscal and monetary levels of those
participating countries. There may be increased levels of price competition
among business firms within EMU countries and between businesses in EMU and
non-EMU countries. The outcome of these uncertainties could have unpre-
dictable effects on trade and commerce and result in increased volatility
for all financial markets.
INTEREST RATE RISK. Changes in interest rates will affect the resale value
of debt securities held in the Fund's portfolio. In general, as interest rates
rise, the resale value of debt securities decreases; as interest rates decline,
the resale value of debt securities generally increases. Debt securities with
longer maturities usually are more sensitive to interest rate movements.
DURATION RISK. Duration is a measure of a debt security's sensitivity to
interest rate changes. Duration is usually expressed in terms of years, with
longer durations usually more sensitive to interest rate fluctuations.
LIQUIDITY RISK. The Fund's portfolio is liquid if the Fund is able to sell
the securities it owns at a fair price within a reasonable time. Liquidity is
generally related to the market trading volume for a particular security.
Investments in smaller companies or in foreign companies or emerging markets are
subject to a variety of risks, including potential lack of liquidity.
DERIVATIVES RISK. A derivative is a financial instrument whose value is
"derived", in some manner, from the price of another security, index, asset or
rate. Derivatives include options and futures contracts, among a wide range of
other instruments. The principal risk of investments in derivatives is that the
fluctuations in their values may not correlate perfectly with the overall
securities markets. Some derivatives are more sensitive to interest rate changes
and market price fluctuations than others. Also, derivatives are subject to
counterparty risk.
COUNTERPARTY RISK. This is a risk associated primarily with repurchase
agreements and some derivatives transactions. It is the risk that the other
party in such a transaction will not fulfill its contractual obligation to
complete a transaction with the Fund.
<PAGE>
LACK OF TIMELY INFORMATION RISK. Timely information about a security or its
issuer may be unavailable, incomplete or inaccurate. This risk is more common to
securities issued by foreign companies and companies in emerging markets than it
is to the securities of U.S.-based companies.
DEBT SECURITIES RISK. Debt securities include bonds, notes and other
securities that give the holder the right to receive fixed amounts of principal,
interest, or both on a date in the future or on demand. Debt securities also are
often referred to as fixed income securities, even if the rate of interest
varies over the life of the security.
Debt securities are generally subject to credit risk and market risk.
Credit risk is the risk that the issuer of the security may be unable to meet
interest or principal payments or both as they come due. Market risk is the risk
that the market value of the security may decline for a variety of reasons,
including changes in interest rates. An increase in interest rates tends to
reduce the market values of debt securities in which the Fund invests. A decline
in interest rates tends to increase the market values of debt securities in
which the Fund invests.
Moody's and Standard & Poor's ("S&P") ratings provide a useful but not
certain guide to the credit risk of many debt securities. The lower the rating
of a debt security, the greater the credit risk the rating service assigns to
the security. To compensate investors for accepting that greater risk,
lower-rated securities tend to offer higher interest rates. Lower-rated debt
securities in which the Fund invests the bulk of its assets are often referred
to as "junk bonds." A debt security is considered lower grade if it is rated Ba
or less by Moody's or BB or less by S&P.
Lower rated and non-rated debt securities of comparable quality are subject
to wider fluctuations in yields and market values than higher rated debt
securities and may be considered speculative. Although the Fund may invest in
debt securities assigned lower grade ratings by S&P or Moody's, the Fund's
investments have generally been limited to debt securities rated B or higher by
either S&P or Moody's. Debt securities rated lower than B by either S&P or
Moody's are usually considered to be highly speculative.
In addition to poor individual company performance in the marketplace or in
its internal management, a significant economic downturn or increase in interest
rates may cause issuers of debt securities to experience increased financial
problems which could hurt their ability to pay principal and interest
obligations, to meet projected business goals, and to obtain additional
financing. These conditions more severely impact issuers of lower-rated debt
securities. The market for lower rated straight debt securities may not be as
liquid as the market for higher rated straight debt securities. Therefore,
INVESCO attempts to limit purchases of lower rated securities to securities
having an established secondary market.
<PAGE>
Debt securities rated Caa by Moody's may be in default or may present risks
of non-payment of principal or interest. Lower rated securities by Standard &
Poor's (categories BB, B, CCC) include those which are predominantly speculative
because of the issuer's perceived capacity to pay interest and repay principal
in accordance with their terms; BB indicates the lowest degree of speculation
and CCC a high degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are usually outweighed by large
uncertainties or major risk exposures to adverse conditions.
- --------------------------------------------------------------------------
INVESTMENT RISKS
- --------------------------------------------------------------------------
ILLIQUID SECURITIES
Securities that cannot be Liquidity Risk
sold quickly at fair value.
- --------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not Liquidity Risk
registered, but which are bought
and sold solely by institutional investors.
The Fund considers many Rule 144A securities
to be "liquid," although the market
for such securities typically is less
active than the public securities markets.
- --------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
A contract to exchange an Currency,
amount of currency on a date in the Political,
future at an agreed-upon Diplomatic and
exchange rate might be used by the Regulatory Risks
Fund to hedge against changes in
foreign currency exchange rates when
the Fund invests in foreign securities.
Does not reduce price fluctuations in
foreign securities, or prevent losses
if the prices of those securities decline.
- --------------------------------------------------------------------------
REPURCHASE AGREEMENT
A contract under which Credit and
the seller of a security agrees Counterparty
to buy it back at an Risks
agreed-upon price and time in
the future.
- --------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------
OPTION
The obligation or right to Credit,
deliver or receive a security Information
or cash payment depending on and Liquidity
the price of the underlying Risks
security or the perfor mance of
an index or other benchmark.
Includes options on specific
securities and stock indices,
and stock index futures. Used
in Fund's portfolio to provide
liquidity and hedge portfolio
value.
- --------------------------------------------------------------------------
FUTURES
A futures contract is an Market and
agreement to buy or sell a Liquidity
specific amount of a financial Risks
instrument (such as an index
option) at a stated price on a
stated date. The Fund uses
futures contracts to provide
liquidity and to hedge
portfolio value.
- -------------------------------------------------------------------------
DELAYED DELIVERY OR WHEN-ISSUED
SECURITIES
Ordinarily, the Fund Market and
purchases securities and pays Interest Rate
for them in cash at the normal trade and Duration
settlement time. When the Fund purchases a Risks
delayed delivery or when-issued security,
it promises to pay in the future, for
example, when the security is actually
available for delivery to the Fund. The
Fund's obligation to pay and the interest
rate it receives, in the case of debt
securities, usually are fixed when the Fund
promises to pay. Between the date
the Fund promises to pay and the date the
securities are actually received, the
Fund receives no interest on its investment,
and bears the risk that the market
value of the when-issued security may decline.
- --------------------------------------------------------------------------
ZERO COUPON AND PAY-IN-KIND BONDS
Zero coupon bonds do not Market, Credit,
make cash interest payments Interest Rate and
during their life. Instead, Duration Risks
they are sold at a discount to
face value and gradually
appreciate in price as they
approach maturity. Pay-in-kind
bonds pay interest in cash or
additional securities, at the
issuer's option, for a
specified period.
- --------------------------------------------------------------------------
<PAGE>
TEMPORARY DEFENSIVE POSITIONS [ARROW ICON]
When securities markets or economic conditions are unfavorable or
unsettled, we might try to protect the assets of the Fund by investing in
securities that are highly liquid such as high quality money market instruments,
like short-term U.S. government obligations, commercial paper or repurchase
agreements. We have the right to invest up to 100% of the Fund's assets in these
securities, although we are unlikely to do so. Even though the securities
purchased for defensive purposes often are considered the equivalent of cash,
they also have their own risks. Investments that are highly liquid or
comparatively safe tend to offer lower returns. Therefore, the Fund's
performance could be comparatively lower if it concentrates in defensive
holdings.
PORTFOLIO TURNOVER
We actively manage and trade the Fund's portfolio. Therefore, the Fund may
have a higher portfolio turnover rate compared to many other mutual funds. The
Fund had a portfolio turnover rate for the fiscal year ended December 31, 1998
of 245%.
A portfolio turnover rate of 200%, for example, is equivalent to a Fund
buying and selling all of the securities in its portfolio two times in the
course of a year. A comparatively high turnover rate may result in higher
brokerage commissions.
================================================================================
FUND MANAGEMENT [GRAPH ICON]
THE INVESTMENT ADVISER
INVESCO is a subsidiary of AMVESCAP PLC, an international investment
management company that manages more than $240 billion in assets worldwide.
AMVESCAP is based in London, with money managers located in Europe, North and
South America, and the Far East.
INVESCO is the investment adviser of the Fund. INVESCO was founded in 1932
and manages over $21.1 billion for more than 905,238 shareholders of 14 INVESCO
mutual funds. INVESCO performs a wide variety of other services for the Funds,
including administration and transfer agency functions (the processing of
purchases, sales and exchanges of Fund shares). A wholly owned subsidiary of
INVESCO, INVESCO Distributors, Inc. ("IDI"), is the Fund's distributor and is
responsible for the sale of the Fund's shares.
INVESCO and IDI are subsidiaries of AMVESCAP PLC.
The Fund paid 0.60% of its average annual net assets to INVESCO for its
advisory services in the fiscal year ended December 31, 1998.
<PAGE>
THE PORTFOLIO MANAGER [GRAPH ICON]
The Fund is managed by Donovan J. (Jerry) Paul, head of INVESCO's Fixed
Income Team. A senior vice president of INVESCO, Jerry manages several other
fixed income INVESCO Mutual Funds. He is a Chartered Financial Analyst and a
Certified Public Accountant. Before joining INVESCO in 1994, he was with Stein,
Roe & Farnham, Inc. and Quixote Investment Management. Jerry received his M.B.A.
from the University of Northern Iowa and his B.B.A. from the University of Iowa.
================================================================================
SHARE PRICE
Current market value of Fund assets + Accrued interest and dividends - Fund
debts, including accrued expenses / Number of shares = Fund share price (NAV)
The value of Fund shares is likely to change daily. This value is known as
the Net Asset Value per share, or NAV. INVESCO determines the market value of
each investment in the Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of trading on that exchange (normally,
4:00 p.m. New York time). Therefore, shares of the Fund are not priced on days
when the NYSE is closed, which, generally, is on weekends and national holidays
in the United States.
NAV is calculated by adding together the current market price of all of the
Fund's investments and other assets, including accrued interest and dividends;
subtracting the Fund's debts, including accrued expenses; and dividing that
dollar amount by the total number of the Fund's outstanding shares.
In addition, foreign securities exchanges, which set the prices for foreign
securities held by the Fund, are not always open the same days as the NYSE, and
may be open for business on days the NYSE is not. For example, Thanksgiving Day
is a holiday observed by the NYSE and not by overseas exchanges. In this
situation, the Fund would not calculate NAV on Thanksgiving Day (and INVESCO
would not buy, sell or exchange shares on that day), even though activity on
foreign exchanges could result in changes in the value of investments held by
the Fund on that day.
================================================================================
TAXES
The Fund has elected to be taxed as a "regulated investment company" under
the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended
("the Code"). If the Fund continues to qualify as a "regulated investment
company" and complies with the appropriate provisions of the Code, it will pay
no federal income taxes on the amounts it distributes.
<PAGE>
Because the shareholders of the Fund are insurance companies (such as the
one that issues your contract), no discussion of the federal income tax
consequences to shareholders is included here. For information about the federal
tax consequences of purchasing the contracts, see the prospectus for your
contract.
================================================================================
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS [GRAPH ICON]
Net investment income and net realized capital gains are distributed to
shareholders at least annually.
The Fund intends to distribute substantially all of its net investment
income, if any, in dividends to its shareholders. For dividend purposes, net
investment income consists of all dividends or interest earned by the Fund's
investments, minus the Fund's expenses (including the advisory fee). All of the
Fund's net realized capital gains, if any, are distributed periodically, no less
frequently than annually. All dividends and distributions of the Fund are
reinvested in additional shares of the Fund at net asset value.
================================================================================
VOTING RIGHTS
Since the shares of the Fund are owned by your insurance company and not by
you directly, you will not vote shares of the Fund. Your insurance company will
vote the shares that it holds as required by state and federal law. Your
contract prospectus contains more information on your rights to instruct your
insurance company how to vote Fund shares held in connection with your contract.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by PricewaterhouseCoopers LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the Report of Independent Accountants thereon
appearing in the Company's 1998 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting IDI at the address or telephone number on
the cover of this Prospectus. The Annual Report also contains information about
the Fund's performance.
<TABLE>
<CAPTION>
Period Ended
Year Ended December 31 December 31
------------------------------------------- --------------
1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -- Beginning of Period $12.46 $11.78 $11.04 $10.01 $10.00
- -----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income $ 0.97 0.78 0.72 0.55 0.05
Net Gains on Securities
(Both Realized and Unrealized) $(0.80) 1.26 1.11 1.43 0.01
- -----------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS $ 0.17 2.04 1.83 1.98 0.06
- -----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income $ 0.98 0.78 0.71 0.55 0.05
Distributions from Capital Gains $ 0.23 0.58 0.38 0.40 0.00
In Excess of Capital Gains $ 0.11 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS $ 1.32 1.36 1.09 0.95 0.05
- -----------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $11.31 $12.46 $11.78 $11.04 $10.01
====== ====== ====== ====== ======
TOTAL RETURN(b) 1.42% 17.33% 16.59% 19.76% 0.60%(c)
RATIOS
Net Assets -- End of Period $42,026 $30,881 $14,033 $5,233 $ 624
($000 Omitted)
Ratio of Expenses to Average Net Assets(d) 0.85%(e) 0.83%(e) 0.87%(e) 0.97%(e) 0.74%(f)
Ratio of Net Investment Income (Loss) 8.99% 8.67% 9.19% 8.79% 2.72%(f)
to Average Net Assets(d)
Portfolio Turnover Rate 245% 344% 380% 310% 23%(c)
</TABLE>
(a) From May 27, 1994, commencement of investment operations, through December
31, 1994.
(b) Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return
figures for the period shown.
(c) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(d) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
years ended Decmeber 31, 1997, 1996 and 1995 and the period ended December
31, 1994. If such expenses had not been voluntarily absorbed, ratio of
expenses to average net assets would have been 0.94%, 1.32%, 2.71% and
30.38%, respectively and ratio of net investment income (loss) to average
net assets would have been 8.56%, 8.74%, 7.05% and (26.92%), respectively.
(e) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
(f) Annualized
<PAGE>
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable High Yield Fund
May 1, 1999
You may obtain additional information about the Fund from several sources.
FINANCIAL REPORTS. Although this Prospectus describes the Fund's
anticipated investments and operations, the Fund also prepares annual and
semiannual reports that detail the Fund's actual investments at the report date.
These reports include discussion of the Fund's recent performance, as well as
market and general economic trends affecting the Fund's performance. The annual
report also includes the report of the Fund's independent accountants.
STATEMENT OF ADDITIONAL INFORMATION. The SAI dated May 1, 1999, is a
supplement to this Prospectus, and has detailed information about the Fund and
its investment policies and practices. A current SAI for the Fund is on file
with the Securities and Exchange Commission and is incorporated in this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus, SAI and annual or semiannual reports of
the Fund may be accessed through the INVESCO Web site at www.invesco.com or
through the SEC Web site at www.sec.gov.
To obtain a free copy of the current annual report, semiannual report or
SAI, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver, Colorado
173706; or call 1-800-525-8085. Copies of these materials are also available
(with a copying charge) from the SEC's Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. Information on the Public Reference Section can
be obtained by calling 1-800-SEC-0330. The SEC file number for the Fund is
033-70154.
To reach PAL(R), your 24-hour Personal Account Line, call:
1-800-424-8085
If you're in Denver, please visit one of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street
Denver Tech Center
7800 East Union Avenue
<PAGE>
================================================================================
PROSPECTUS MAY 1, 1999
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VARIABLE REALTY FUND
A mutual fund sold exclusively to insurance company separate accounts for
variable annuity and variable life insurance contracts.
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, it has not determined if this Prospectus is
truthful or complete. Anyone who tells you otherwise is committing a federal
crime.
This Prospectus will tell you more about:
[KEY ICON} Investment Objectives & Strategies
[ARROW ICON] Potential Investment Risks
[GRAPH ICON] Past Performance & Potential Advantages
[INVESCO ICON] Working with INVESCO
<PAGE>
================================================================================
INVESTMENT GOALS AND STRATEGIES [KEY ICON]
For more details about the Fund's current investments and market outlook,
please see the most recent annual or semiannual report.
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the
Fund. Together with our affiliated companies, we at INVESCO control all aspects
of the management of the Fund.
The Fund is used solely as an investment vehicle for variable annuity or
variable life insurance contracts issued by certain life insurance companies.
You cannot purchase shares of the Fund directly. As an owner of a variable
annuity or variable life insurance contract that offers the Fund as an
investment option, however, you may allocate your contract values to a separate
account of the insurance company that invests in shares of the Fund.
Your variable annuity or variable life insurance contract is offered
through its own prospectus, which contains information about that contract,
including how to purchase the contract and how to allocate contract values to
the Fund. INVESCO and the Fund do not control the insurance company that issues
your contract and are not responsible for anything stated in the prospectus for
your contract.
The Fund seeks to provide long-term capital growth. Above-average current
income is an additional consideration.
The Fund normally invests at least 80% of its assets in companies doing
business in the real estate industry. The remainder of the Fund's assets are
invested in other income-producing securities.
INVESCO uses a bottom-up investment approach to create the Fund's
investment portfolio, focusing on company fundamentals and growth prospects when
selecting securities. In general, the Fund emphasizes strongly managed companies
that INVESCO believes will generate above-average growth rates for the next
three to five years.
================================================================================
FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance (commonly
known as its "total return") since inception, compared to the S&P 500 Index. The
table below shows actual annual returns for various periods ended December 31,
1998. The bar chart provides some indication of the risks of investing in the
Fund by showing changes in the year to year performance of the Fund. Remember,
past performance does not indicate how the Fund or the S&P 500 will perform in
the future.
<PAGE>
The Fund's returns are net of its expenses, but do not reflect the
additional --- fees and expenses of your variable annuity or variable life
insurance contract. If those contract fees and expenses were included, the
returns would be less than those shown.
[Charts and graphs will be included in the 485(b) filing to be filed April
1999.]
================================================================================
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS
INVESCO Variable Realty Fund
Management Fees 0.90%
Distribution and Service (12b-1) Fees NONE
Other Expenses (for instance, shareholder
servicing)(1) 7.88%
Total Annual Fund Operating Expenses (1) 8.78%
(1) Certain expenses of the Fund are being absorbed voluntarily by INVESCO
pursuant to a commitment to the Fund. After absorption, the Fund's "Other
Expenses" and "Total Annual Fund Operating Expenses" were 1.00% and 1.90%,
respectively. This commitment may be changed at any time following consultation
with the board of directors.
EXAMPLE
This Example assumes a $10,000 allocation to the Fund for the time periods
indicated and does NOT reflect any of the fees or expenses of your variable ---
annuity or variable insurance contract. The Example also assumes a hypothetical
5% return each year, and assumes that the Fund's operating expenses remain the
same. Although the Fund's actual costs and performance may be higher or lower,
based on these assumptions your costs would be:
Without Existing Fee Absorption
1 year 3 years 5 years 10 years
$900* $2,593* $4,154* $7,541*
<PAGE>
With Existing Fee Absorption
1 year 3 years 5 years 10 years
$____* $____* $____* $_____*
*Annualized
================================================================================
INVESTMENT RISKS [ARROW ICON]
Before allocating contract values to the Fund, you should determine the
level of risk with which you are comfortable. Take into account factors like
your age, career, income level, and time horizon.
You should determine the level of risk with which you are comfortable
before you invest. The principal risks of investing in any mutual fund,
including the Fund, are:
NOT INSURED. Mutual funds are not insured by the Federal Deposit Insurance
Corporation ("FDIC") or any other agency, unlike bank deposits such as CDs or
savings accounts.
NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.
POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its
performance, nor assure you that the market value of your investment will
increase. You may lose the money you invest, and the Fund will not reimburse you
for any of these losses.
VOLATILITY. The price of Fund shares will increase or decrease with changes
in the value of the Fund's underlying investments.
YEAR 2000. Many computer systems in use today may not be able to recognize
any date after December 31, 1999. If these systems are not fixed by that date,
it is possible that they could generate erroneous information or fail
altogether. INVESCO has committed substantial resources in an effort to make
sure that its own major computer systems will continue to function on and after
January 1, 2000. Of course, INVESCO cannot fix systems that are beyond its
control. If INVESCO's own systems, or the systems of third parties upon which it
relies, do not perform properly after December 31, 1999, the Fund could be
adversely affected.
In addition, the markets for, or values of, securities in which the Fund
invests may possibly be hurt by computer failures affecting portfolio
investments or trading of securities beginning January 1, 2000. For example,
improperly functioning computer systems could result in securities trade
settlement problems and liquidity issues, production issues for individual
companies and overall economic uncertainties. Individual issuers may incur
<PAGE>
increased costs in making their own systems Year 2000 compliant. The
combination of market uncertainty and increased costs means that there is a
possibility that Year 2000 computer issues may adversely affect the Fund's
investments.
RISKS ASSOCIATED WITH PARTICULAR INVESTMENTS
You should consider the special factors associated with the policies
discussed below in determining the appropriateness of allocating your contract
values to the Fund. See the Statement of Additional Information for a discussion
of additional risk factors.
POTENTIAL CONFLICTS. Although it is unlikely, there potentially may be
differing interests involving the Fund among owners of variable annuity and
variable life insurance contracts issued by different insurance companies, or
even the same insurance company. INVESCO will monitor events for any potential
conflicts.
MARKET RISK. Equity stock prices vary and may fall, thus reducing the value
of the Fund's investment. Certain stocks selected for the Fund's portfolio may
decline in value more than the overall stock market.
CREDIT RISK. The Fund may invest in debt instruments, such as notes and
bonds. There is a possibility that the issuers of these instruments will be
unable to meet interest payments or repay principal. Changes in the financial
strength of an issuer may reduce the credit rating of its debt instruments and
may affect their value.
FOREIGN SECURITIES. Investments in foreign and emerging markets carry
special risks, including currency, political, regulatory and diplomatic risks.
The Fund may invest up to 25% of its total assets in securities of non-U.S.
issuers.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and a
foreign currency may reduce the value of the Fund's investment in a
security valued in the foreign currency, or based on that currency value.
POLITICAL RISK. Political actions, events or instability may result in
unfavorable changes in the value of a security.
REGULATORY RISK. Government regulations may affect the value of a security.
In foreign countries, securities markets that are less regulated than those
in the United States may permit trading practices that are not allowed in
the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the United States
and a foreign country could affect the value or liquidity of investments.
EUROPEAN ECONOMIC AND MONETARY UNION. Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain
are presently members of the European Economic and Monetary Union (the
"EMU") which as of 1/1/1999 adopted the euro as a common currency. The
national currencies will be sub-currencies of the euro until July 1, 2002,
at which time the old currencies will disappear entirely. Other European
countries may adopt the euro in the futuRe.
<PAGE>
The introduction of the euro presents some uncertainties and possible
risks, which could adversely affect the value of securities held by the
Fund.
EMU countries as a single market may affect future investment decisions of
the Fund. As the euro is implemented, there may be changes in the relative
strength and value of the U.S. dollar and other major currencies, as well
as possible adverse tax consequences. The euro transition by EMU
countries - present and future - may affect the fiscal and monetary
levels of those participating countries. There may be increased levels
of price competition among business firms within EMU countries and
between businesses in EMU and non-EMU countries. The outcome of these
uncertainties could have unpredictable effects on trade and commerce and
result in increased volatility for all financial markets.
INTEREST RATE RISK. Changes in interest rates will affect the resale value
of debt securities held in the Fund's portfolio. In general, as interest rates
rise, the resale value of debt securities decreases; as interest rates decline,
the resale value of debt securities generally increases. Debt securities with
longer maturities usually are more sensitive to interest rate movements.
DURATION RISK. Duration is a measure of a debt security's sensitivity to
interest rate changes. Duration is usually expressed in terms of years, with
longer durations usually more sensitive to interest rate fluctuations.
LIQUIDITY RISK. The Fund's portfolio is liquid if the Fund is able to sell
the securities it owns at a fair price within a reasonable time. Liquidity is
generally related to the market trading volume for a particular security.
Investments in smaller companies or in foreign companies or emerging markets are
subject to a variety of risks, including potential lack of liquidity.
DERIVATIVES RISK. A derivative is a financial instrument whose value is
"derived", in some manner, from the price of another security, index, asset or
rate. Derivatives include options and futures contracts, among a wide range of
other instruments. The principal risk of investments in derivatives is that the
fluctuations in their values may not correlate perfectly with the overall
securities markets. Some derivatives are more sensitive to interest rate changes
and market price fluctuations than others. Also, derivatives are subject to
counterparty risk.
COUNTERPARTY RISK. This is a risk associated primarily with repurchase
agreements and some derivatives transactions. It is the risk that the other
party in such a transaction will not fulfill its contractual obligation to
complete a transaction with the Fund.
LACK OF TIMELY INFORMATION RISK. Timely information about a security or its
issuer may be unavailable, incomplete or inaccurate. This risk is more com-
<PAGE>
mon to securities issued by foreign companies and companies in emerging markets
than it is to the securities of U.S.-based companies.
- --------------------------------------------------------------------------------
INVESTMENT RISKS
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS
Trusts that invest in real estate or inter- Interest Rate
ests in real estate. Shares of REITs are pub- and Market Risks
licly traded and are subject to the same risks
as any other security, as well as risks specific
to the real estate industry, including decline
in value of real estate, general and local
economic conditions and interest rate fluctua-
tions.
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES
Securities issued or guaranteed by the Interest Rate Risk
U.S. government or federal agencies, repre-
senting interests in pools of mortgages purchased
from lending institutions. Interest and
principal is "passed through" to holders of the
security. When interest rates drop and homeowners
refinance mortgages at lower rates, the value of
mortgage-backed securities tends to drop.
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES
Securities that cannot be sold quickly at Liquidity Risk
fair value.
- --------------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not registered, but Liquidity Risk
which are bought and sold solely by institu-
tional investors. The Fund considers many
Rule 144A securities to be "liquid," although
the market for such securities typically is less
active than the public securities markets.
- --------------------------------------------------------------------------------
JUNK BONDS
Debt securities that are rated BB or Market, Credit,
lower by Standard & Poors or Ba or lower by Interest Rate and
Moody's. Tend to pay higher interest rates Duration Risks
than higher-rated debt securities, but carry
a higher credit risk.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
DEBT SECURITIES
Securities issued by private companies or Market, Credit,
governments representing an obligation to pay Interest Rate and
interest and to repay principal when the security Duration Risks
matures.
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
A contract to exchange an amount of Currency, Political,
currency on a date in the future at an Diplomatic and
agreed-upon exchange rate might be used by Regulatory Risks
the Fund to hedge against changes in foreign
currency exchange rates when the Fund invests
in foreign securities. Does not reduce price
fluctuations in foreign securities, or prevent
losses if the prices of those securities decline.
- --------------------------------------------------------------------------------
DELAYED DELIVERY OR WHEN-ISSUED
SECURITIES
Ordinarily, the Fund purchases securities Market and
and pays for them in cash at the normal trade Interest Rate Risks
settlement time. When the Fund purchases a delayed
delivery or when-issued security, it promises to
pay in the future -- for example, when the security
is actually available for delivery to the Fund. The
Fund's obligation to pay and the interest rate it
receives, in the case of debt securities, usually
are fixed when the Fund promises to pay. Between the
date the Fund promises to pay and the date the
securities are actually received, the Fund receives
no interest on its investment, and bears the risk
that the market value of the when-issued security
may decline.
- --------------------------------------------------------------------------------
OPTION
The obligation or right to deliver or receive a Credit, Information
security or cash payment depending on the price and Liquidity Risks
of Credit, Information the underlying security
or the performance of an and Liquidity Risks index or
other benchmark. Includes options on specific
securities and stock indices, and stock index futures.
Used in Fund's portfolio to provide liquidity and
hedge portfolio value.
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------
FUTURES
A futures contract is an agreement to buy Market and
or sell a specific amount of a financial instru- Liquidity Risks
ment (such as an index option) at a stated price
on a stated date. The Fund uses futures con-
tracts to provide liquidity and to hedge portfo-
lio value.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
A contract under which the seller of a Credit and
security agrees to buy it back at an agreed- Counterparty Risks
upon price and time in the future.
- --------------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS (ADRS)
These are securities issued by U.S. banks Market, Information,
that represent shares of foreign corporations Political, Regula-
held by those banks. Although traded in tory, Diplomatic,
U.S. securities markets and valued in U.S. Liquidity and
dollars, ADRs carry most of the risks of Currency Risks
investing directly in foreign securities.
- --------------------------------------------------------------------------------
TEMPORARY DEFENSIVE POSITIONS
When securities markets or economic conditions are unfavorable or
unsettled, we might try to protecgt the assets of the Fund by investing in
securities that are highly liquid such as high quality money market instruments,
like short-term U.S. government obligations, commercial paper or repurchase
agreements. We have the right to inveset up to 100% of the Fund's assets in
these securities, although we are unlikely to do so. Even though the securities
purchased for defensive purposes often are considered the equivalent of cash,
they also have their own risks. Investments that are highly liquid or
comparatively safe tend to offer lower returns. Therefore, the Fund's
performance could be comparatively lower if it concentrates in defensive
holdings.
PORTFOLIO TURNOVER
We actively manager and trade the Fund's portfolio. Therefore, the Fund
may have a higher powerfolio trnover rate compared to many other mutual funds.
The Fund had a portfolio turnover rate for the fiscal year ended December 31,
1998 of 200%.
A portfolio turnover rate of 200%, for example, is equivalent to a Fund
buying and selling all of the securities in its portfolio two times in the
course of a year. A comparatively high turnover rate may result in higher
brokerage commissions.
<PAGE>
================================================================================
FUND MANAGEMENT
INVESCO is a subsidiary of AMVESCAP PLC, an international investment
management company that manages more than $240 billion in assets worldwide.
AMVESCAP is based in London, with money managers located in Europe, North and
South America, and the Far East.
THE INVESTMENT ADVISER
INVESCO is the investment adviser of the Fund. INVESCO was founded in 1932
and manages over $21.1 billion for more than 905,238 shareholders of 14 INVESCO
mutual funds. INVESCO performs a wide variety of other servi ces for the Funds,
including administration and transfer agency functions (the processing of
purchases, sales and exchanges of Fund shares). INVESCO Realty Advisors, Inc.
("IRAI") is the sub-adviser to the Fund. A wholly owned subsidiary of INVESCO,
INVESCO Distributors, Inc. ("IDI"), is the Fund's distributor and is responsible
for the sale of the Fund's shares.
INVESCO, IRAI and IDI are subsidiaries of AMVESCAP PLC.
The Fund paid 0.90% of its average annual net assets to INVESCO for its
advisory services in the fiscal year ended December 31, 1998.
THE PORTFOLIO MANAGERS
The Fund is managed on a day to day basis by IRAI.
================================================================================
SHARE PRICE
Current market value of Fund assets + Accrued interest and dividends - Fund
debts, including accrued expenses / Number of shares = Fund share price (NAV)
The value of Fund shares is likely to change daily. This value is known as
the Net Asset Value per share, or NAV. INVESCO determines the market value of
each investment in the Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of trading on that exchange (normally,
4:00 p.m. New York time). Therefore, shares of the Fund are not priced on days
when the NYSE is closed, which, generally, is on weekends and national holidays
in the United States.
NAV is calculated by adding together the current market price of all of the
Fund's investments and other assets, including accrued interest and dividends;
subtracting the Fund's debts, including accrued expenses; and dividing that
dollar amount by the total number of the Fund's outstanding shares.
In addition, foreign securities exchanges, which set the prices for foreign
securities held by the Fund, are not always open the same days as the NYSE, and
may be open for business on days the NYSE is not. For example, Thanksgiving Day
is a holiday observed by the NYSE and not by overseas exchanges. In this
situation, the Fund would not calculate NAV on Thanksgiving Day (and INVESCO
would not buy, sell or exchange shares on that day), even though activity on
foreign exchanges could result in changes in the value of investments held by
the Fund on that day.
<PAGE>
================================================================================
TAXES [GRAPH ICON]
The Fund has elected to be taxed as a "regulated investment company" under
the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended
("the Code"). If the Fund continues to qualify as a "regulated investment
company" and complies with the appropriate provisions of the Code, it will pay
no federal income taxes on the amounts it distributes.
Because the shareholders of the Fund are insurance companies (such as the
one that issues your contract), no discussion of the federal income tax
consequences to shareholders is included here. For information about the federal
tax consequences of purchasing the contracts, see the prospectus for your
contract.
================================================================================
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS [GRAPH ICON]
Net investment income and net realized capital gains are distributed to
shareholders at least annually.
The Fund intends to distribute substantially all of its net investment
income, if any, in dividends to its shareholders. For dividend purposes, net
investment income consists of all dividends or interest earned by the Fund's
investments, minus the Fund's expenses (including the advisory fee). All of the
Fund's net realized capital gains, if any, are distributed periodically, no less
frequently than annually. All dividends and distributions of the Fund are
reinvested in additional shares of the Fund at net asset value.
================================================================================
VOTING RIGHTS
Since the shares of the Fund are owned by your insurance company and not by
you directly, you will not vote shares of the Fund. Your insurance company will
vote the shares that it holds as required by state and federal law. Your
contract prospectus contains more information on your rights to instruct your
insurance company how to vote Fund shares held in connection with your contract.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by PricewaterhouseCoopers LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the Report of Independent Accountants thereon
appearing in the Company's 1998 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting IDI at the address or telephone number on
the cover of this Prospectus. The Annual Report also contains information about
the Fund's performance.
Period
Ended
December
31
------------
1998(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 10.00
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.29
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (1.88)
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (1.59)
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.19
Net Asset Value - End of Period $ 8.22
================================================================================
TOTAL RETURN(b) (15.88%)(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $501
Ratio of Expenses to Average Net Assets(d)(e) 1.90%(f)
Ratio of Net Investment Income to Average Net Assets(d) 4.94%(f)
Portfolio Turnover 200%(c)(g)
(a) From April 1, 1998, commencement of investment operations, through December
31, 1998.
(b) Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return figures
for the period shown.
(c) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(d) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
period ended Decmeber 31, 1998. If such expenses had not been voluntarily
absorbed, ratio of expenses to average net assets would have been 8.54%
(annualized) and ratio of net investment loss to average net assets would have
been (1.70%) (annualized).
(e) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
(f) Annualized
(g) Portfolio tunrover was greater than exepected during this period due to
active trading undertaken in response to market conditions at a time when the
Fund's assets were still relatively small and before the Fund was fully
invested.
<PAGE>
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VARIABLE REALTY FUND
MAY 1, 1999
You may obtain additional information about the Fund from several sources.
FINANCIAL REPORTS. Although this Prospectus describes the Fund's
anticipated investments and operations, the Fund also prepares annual and
semiannual reports that detail the Fund's actual investments at the report date.
These reports include discussion of the Fund's recent performance, as well as
market and general economic trends affecting the Fund's performance. The annual
report also includes the report of the Fund's independent accountants.
STATEMENT OF ADDITIONAL INFORMATION. The SAI dated May 1, 1999, is a
supplement to this Prospectus, and has detailed information about the Fund and
its investment policies and practices. A current SAI for the Fund is on file
with the Securities and Exchange Commission and is incorporated in this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus, SAI and annual or semiannual reports of
the Fund may be accessed through the INVESCO Web site at www.invesco.com or
through the SEC Web site at www.sec.gov.
To obtain a free copy of the current annual report, semiannual report or
SAI, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver, Colorado
173706; or call 1-800-525-8085. Copies of these materials are also available
(with a copying charge) from the SEC's Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. Information on the Public Reference Section can
be obtained by calling 1-800-SEC-0330. The SEC file number for the Fund is
033-70154.
To reach PAL(R), your 24-hour Personal Account Line, call:
1-800-424-8085
If you're in Denver, please visit one of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street
Denver Tech Center
7800 East Union Avenue
<PAGE>
================================================================================
PROSPECTUS May 1, 1999
INVESCO Variable Investment Funds, Inc.
INVESCO Variable Small Company Growth Fund
A mutual fund sold exclusively to insurance company separate accounts for
variable annuity and variable life insurance contracts.
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, it has not determined if this Prospectus is
truthful or complete. Anyone who tells you otherwise is committing a federal
crime.
This Prospectus will tell you more about:
[KEY ICON] Investment Objectives & Strategies
[ARROW ICON] Potential Investment Risks
[GRAPH ICON] Past Performance & Potential Advantages
[INVESCO ICON] Working with INVESCO
<PAGE>
================================================================================
INVESTMENT GOALS AND STRATEGIES [KEY ICON]
For more details about the Fund's current investments and market outlook,
please see the most recent annual or semiannual report.
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the
Fund. Together with our affiliated companies, we at INVESCO control all aspects
of the management of the Fund.
The Fund is used solely as an investment vehicle for variable annuity or
variable life insurance contracts issued by certain life insurance companies.
You cannot purchase shares of the Fund directly. As an owner of a variable
annuity or variable life insurance contract that offers the Fund as an
investment option, however, you may allocate your contract values to a separate
account of the insurance company that invests in shares of the Fund.
Your variable annuity or variable life insurance contract is offered
through its own prospectus, which contains information about that contract,
including how to purchase the contract and how to allocate contract values to
the Fund. INVESCO and the Fund do not control the insurance company that issues
your contract and are not responsible for anything stated in the prospectus for
your contract.
The Fund attempts to make your investment grow over the long term.
The Fund normally invests at least 80% of its assets in equity securities
of companies with market capitalizations of $1 billion or less. INVESCO uses a
bottom-up investment approach to the Fund's investment portfolio, focusing on
companies that are in the developing stages of their life cycles. Using this
approach, we try to identify companies that we believe are undervalued in the
marketplace, have earnings which may be expected to grow faster than the U.S.
economy in general, and/or offer the potential for accelerated earnings growth
due to rapid growth of sales, new products, management changes, or structural
changes in the economy. The prices of securities issued by these small companies
tend to rise and fall more rapidly than those of more established companies.
The remainder of the Fund's assets can be invested in a wide range of
securities that may or may not be issued by small companies. In addition to
equity securities, the Fund can invest in foreign securities and debt
securities, including so-called "junk bonds."
================================================================================
FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance (commonly
known as its "total return") since inception, compared to the S&P 500 Index. The
table below shows actual annual returns for various periods ended December 31,
1998. The bar chart provides some indication of the risks of investing in the
Fund by showing changes in the year to year performance of the Fund. Remember,
past performance does not indicate how the Fund or the S&P 500 will perform in
the future.
<PAGE>
The Fund's returns are net of its expenses, but do not reflect the
additional fees and expenses of your variable annuity or variable life insurance
contract. If those contract fees and expenses were included, the returns would
be less than those shown.
[Charts and graphs will be included in the 485(b) filing to be filed April
1999.]
================================================================================
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
INVESCO Variable Small Company Growth Fund
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (for instance,
shareholder servicing) (1) 11.92%
Total Annual Fund Operating Expenses (1) 12.67%
(1) Certain expenses of the Fund are being absorbed voluntarily by INVESCO
pursuant to a commitment to the Fund. After absorption, the Fund's "Other
Expenses" and "Total Annual Fund Operating Expenses" were 1.12% and 1.87%,
respectively. This commitment may be changed at any time following consultation
with the board of directors.
EXAMPLE
This Example assumes a $10,000 allocation to the Fund for the time periods
indicated and does NOT reflect any of the fees or expenses of your variable
annuity or variable insurance contract. The Example also assumes a hypothetical
5% return each year, and assumes that the Fund's operating expenses remain the
same. Although the Fund's actual costs and performance may be higher or lower,
based on these assumptions your costs would be:
WITHOUT EXISTING FEE ABSORPTION
1 year 3 years 5 years 10 years
$1,299 $3,593 $5,536 $9,187
<PAGE>
WITH EXISTING FEE ABSORPTION
1 year 3 years 5 years 10 years
$---- $---- $---- $-----
================================================================================
INVESTMENT RISKS
Before investing in the Fund, you should determine the level of risk with
which you are comfortable. Take into account factors like your age, career,
income level, and time horizon.
You should determine the level of risk with which you are comfortable
before you invest. The principal risks of investing in any mutual fund,
including the Fund, are:
NOT INSURED. Mutual funds are not insured by the Federal Deposit Insurance
Corporation ("FDIC") or any other agency, unlike bank deposits such as CDs or
savings accounts.
NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.
POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its
performance, nor assure you that the market value of your investment will
increase. You may lose the money you invest, and the Fund will not reimburse you
for any of these losses.
VOLATILITY. The price of Fund shares will increase or decrease with changes
in the value of the Fund's underlying investments.
YEAR 2000. Many computer systems in use today may not be able to recognize
any date after December 31, 1999. If these systems are not fixed by that date,
it is possible that they could generate erroneous information or fail
altogether. INVESCO has committed substantial resources in an effort to make
sure that its own major computer systems will continue to function on and after
January 1, 2000. Of course, INVESCO cannot fix systems that are beyond its
control. If INVESCO's own systems, or the systems of third parties upon which it
relies, do not perform properly after December 31, 1999, the Fund could be
adversely affected.
In addition, the markets for, or values of, securities in which the Fund
invests may possibly be hurt by computer failures affecting portfolio
investments or trading of securities beginning January 1, 2000.
<PAGE>
For example, improperly functioning computer systems could result in securities
trade settlement problems and liquidity issues, production issues for individual
companies and overall economic uncertainties. Individual issuers may incur
increased costs in making their own systems Year 2000 compliant. The combination
of market uncertainty and increased costs means that there is a possibility that
Year 2000 computer issues may adversely affect the Fund's investments.
RISKS ASSOCIATED WITH PARTICULAR INVESTMENTS [ARROW ICON]
You should consider the special factors associated with the policies
discussed below in determining the appropriateness of allocating your contract
values to the Fund. See the Statement of Additional Information for a discussion
of additional risk factors.
POTENTIAL CONFLICTS. Although it is unlikely, there potentially may be
differing interests involving the Fund among owners of variable annuity and
variable life insurance contracts issued by different insurance companies, or
even the same insurance company. INVESCO will monitor events for any potential
conflicts.
MARKET RISK. Equity stock prices vary and may fall, thus reducing the value
of the Fund's investment. Certain stocks selected for the Fund's portfolio may
decline in value more than the overall stock market.
CREDIT RISK. The Fund may invest in debt instruments, such as notes and
bonds. There is a possibility that the issuers of these instruments will be
unable to meet interest payments or repay principal. Changes in the financial
strength of an issuer may reduce the credit rating of its debt instruments and
may affect their value.
FOREIGN SECURITIES. Investments in foreign and emerging markets carry
special risks, including currency, political, regulatory and diplomatic risks.
The Fund may invest up to 25% of its total assets in securities of non-U.S.
issuers.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and a
foreign currency may reduce the value of the Fund's investment in a
security valued in the foreign currency, or based on that currency value.
POLITICAL RISK. Political actions, events or instability may result in
unfavorable changes in the value of a security.
REGULATORY RISK. Government regulations may affect the value of a security.
In foreign countries, securities markets that are less regulated than those
in the United States may permit trading practices that are not allowed in
the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the United States
and a foreign country could affect the value or liquidity of investments.
<PAGE>
EUROPEAN ECONOMIC AND MONETARY UNION. Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain
are presently members of the European Economic and Monetary Union (the
"EMU") which as of 1/1/1999 adopted the euro as a common currency. The
national currencies will be sub-currencies of the euro until July 1, 2002,
at which time the old currencies will disappear entirely. Other European
countries may adopt the euro in the future.
The introduction of the euro presents some uncertainties and possible
risks, which could adversely affect the value of securities held by the
Fund.
EMU countries as a single market may affect future investment decisions of
the Fund. As the euro is implemented, there may be changes in the relative
strength and value of the U.S. dollar and other major currencies, as well
as possible adverse tax consequences. The euro transition by EMU countries
- present and future - may affect the fiscal and monetary levels of those
participating countries. There may be increased levels of price competition
among business firms within EMU countries and between businesses in EMU and
non-EMU countries. The outcome of these uncertainties could have
unpredictable effects on trade and commerce and result in increased
volatility for all financial markets.
INTEREST RATE RISK. Changes in interest rates will affect the resale value
of debt securities held in the Fund's portfolio. In general, as interest rates
rise, the resale value of debt securities decreases; as interest rates decline,
the resale value of debt securities generally increases. Debt securities with
longer maturities usually are more sensitive to interest rate movements.
DURATION RISK. Duration is a measure of a debt security's sensitivity to
interest rate changes. Duration is usually expressed in terms of years, with
longer durations usually more sensitive to interest rate fluctuations.
LIQUIDITY RISK. The Fund's portfolio is liquid if the Fund is able to sell
the securities it owns at a fair price within a reasonable time. Liquidity is
generally related to the market trading volume for a particular security.
Investments in smaller companies or in foreign companies or emerging markets are
subject to a variety of risks, including potential lack of liquidity.
<PAGE>
DERIVATIVES RISK. A derivative is a financial instrument whose value is
"derived", in some manner, from the price of another security, index, asset or
rate. Derivatives include options and futures contracts, among a wide range of
other instruments. The principal risk of investments in derivatives is that the
fluctuations in their values may not correlate perfectly with the overall
securities markets. Some derivatives are more sensitive to interest rate changes
and market price fluctuations than others. Also, derivatives are subject to
counterparty risk.
COUNTERPARTY RISK. This is a risk associated primarily with repurchase
agreements and some derivatives transactions. It is the risk that the other
party in such a transaction will not fulfill its contractual obligation to
complete a transaction with the Fund.
<PAGE>
LACK OF TIMELY INFORMATION RISK. Timely information about a security or its
issuer may be unavailable, incomplete or inaccurate. This risk is more common to
securities issued by foreign companies and companies in emerging markets than it
is to the securities of U.S.-based companies.
- --------------------------------------------------------------------------
INVESTMENT RISKS
- --------------------------------------------------------------------------
ILLIQUID SECURITIES
Securities that cannot be Liquidity Risk
sold quickly at fair value.
- --------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not Liquidity Risk
registered, but which are bought and
sold solely by institu tional investors.
The Fund considers many Rule 144A securities
to be "liquid," although the market
for such securities typically is less active
than the public securities markets.
- --------------------------------------------------------------------------
DEBT SECURITIES
Securities issued by private companies Market,Credit,
or governments representing an obligation Interest Rate and
to pay interest and to repay principal Duration Risks
when the security matures.
- --------------------------------------------------------------------------
JUNK BONDS
Debt securities that are Market, Credit,
rated BB or lower by Standard & Interest Rate and
Poor's or Ba or lower by Moody's. Duration Risks
Tend to pay higher interest
rates than higher-rated debt
securities, but carry a higher
credit risk.
- --------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
A contract to exchange an amount of Currency, Political,
currency on a date in the future Diplomatic and
at an agreed-upon exchange rate Regulatory Risks
might be used by the Fund to hedge
against changes in foreign
currency exchange rates when the
Fund invests in foreign securities.
Does not reduce price fluctuations
in foreign securities, or prevent
losses if the prices of those securities
decline.
- --------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------
REPURCHASE AGREEMENT
A contract under which Credit and
the seller of a security agrees Counterparty
to buy it back at an agreed-upon Risks
price and time in the future.
- --------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS (ADRS)
These are securities issued Market,
by U.S. banks that represent Information,
shares of foreign corporations Political,
held by those banks. Although Regulatory,
traded in U.S. securities markets Diplomatic,
and valued in U.S. dollars, ADRs Liquidity and
carry most of the risks of investing Currency
directly in foreign securities. Risks
- --------------------------------------------------------------------------
OPTION
The obligation or right to Credit,
deliver or receive a security Information
or cash payment depending on and Liquidity
the price of the underlying Risks
security or the perfor mance of
an index or other benchmark.
Includes options on specific
securities and stock indices,
and stock index futures. Used
in Fund's portfolio to provide
liquidity and hedge portfolio
value.
- --------------------------------------------------------------------------
FUTURES
A futures contract is an Market and
agreement to buy or sell a Liquidity
specific amount of a financial Risks
instrument (such as an index
option) at a stated price on a
stated date. The Fund uses
futures contracts to provide
liquidity and to hedge
portfolio value.
- --------------------------------------------------------------------------
TEMPORARY DEFENSIVE POSITIONS [ARROW ICON]
When securities markets or economic conditions are unfavorable or unsettled,
we might try to protect the assets of the Fund by investing in securities that
are highly liquid such as high quality money market instruments, like short-term
U.S. government obligations, commercial paper or repurchase agreements. We have
the right to invest up to 100% of the Fund's assets in these securities,
although we are unlikely to do so. Even though the securities purchased for
defensive purposes often are considered the equivalent of cash, they also have
their own risks. Investments that are highly liquid or comparatively safe tend
to offer lower returns. Therefore, the Fund's performance could be comparatively
lower if it concentrates in defensive holdings.
<PAGE>
================================================================================
FUND MANAGEMENT
THE INVESTMENT ADVISER
INVESCO is a subsidiary of AMVESCAP PLC, an international investment
management company that manages more than $240 billion in assets worldwide.
AMVESCAP is based in London, with money managers located in Europe, North and
South America, and the Far East.
INVESCO is the investment adviser of the Fund. INVESCO was founded in 1932
and manages over $21.1 billion for more than 905,238 shareholders of 14 INVESCO
mutual funds. INVESCO performs a wide variety of other services for the Funds,
including administration and transfer agency functions (the processing of
purchases, sales and exchanges of Fund shares). A wholly owned subsidiary of
INVESCO, INVESCO Distributors, Inc. ("IDI"), is the Fund's distributor and is
responsible for the sale of the Fund's shares.
INVESCO and IDI are subsidiaries of AMVESCAP PLC.
The Fund paid 0.75% of its average annual net assets to INVESCO for its
advisory services in the fiscal year ended December 31, 1998.
THE PORTFOLIO MANAGERS [GRAPH ICON]
The Fund is managed by three members of INVESCO's Growth Team, which is led
by Timothy J. Miller. The people primarily responsible for the day-to-day
management of the Fund are:
STACIE COWELL joined INVESCO in 1997. She is a Chartered Financial Analyst.
Before joining us, Stacie was a senior equity analyst with Founders Asset
Management and with Chase Manhattan Bank. She received her B.A. in Economics
from Colgate University.
TIMOTHY J. MILLER is a Chartered Financial Analyst, and is a senior vice
president of INVESCO, where he has had progressively more responsible investment
professional positions since joining the company in 1992. Before joining
INVESCO, Tim was a portfolio manager with Mississippi Valley Advisors. He holds
an M.B.A. from the University of Missouri - St. Louis and a B.S.B.A. from St.
Louis University.
TRENT E. MAY joined INVESCO in 1996 and is a Chartered Financial Analyst.
Before Joining INVESCO, he was with Munder Capital Management and SunBank
Capital Management. He holds a B.S. in Engineering from Florida Institute of
Technology and an M.B.A. from Rollins College.
<PAGE>
================================================================================
SHARE PRICE
Current market value of Fund assets + Accrued interest and dividends - Fund
debts, including accrued expenses / Number of shares = Fund share price (NAV)
The value of Fund shares is likely to change daily. This value is known as
the Net Asset Value per share, or NAV. INVESCO determines the market value of
each investment in the Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of trading on that exchange (normally,
4:00 p.m. New York time). Therefore, shares of the Fund are not priced on days
when the NYSE is closed, which, generally, is on weekends and national holidays
in the United States.
NAV is calculated by adding together the current market price of all of the
Fund's investments and other assets, including accrued interest and dividends;
subtracting the Fund's debts, including accrued expenses; and dividing that
dollar amount by the total number of the Fund's outstanding shares.
In addition, foreign securities exchanges, which set the prices for foreign
securities held by the Fund, are not always open the same days as the NYSE, and
may be open for business on days the NYSE is not. For example, Thanksgiving Day
is a holiday observed by the NYSE and not by overseas exchanges. In this
situation, the Fund would not calculate NAV on Thanksgiving Day (and INVESCO
would not buy, sell or exchange shares on that day), even though activity on
foreign exchanges could result in changes in the value of investments held by
the Fund on that day.
================================================================================
TAXES [GRAPH ICON]
The Fund has elected to be taxed as a "regulated investment company" under
the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended
("the Code"). If the Fund continues to qualify as a "regulated investment
company" and complies with the appropriate provisions of the Code, it will pay
no federal income taxes on the amounts it distributes.
Because the shareholders of the Fund are insurance companies (such as the
one that issues your contract), no discussion of the federal income tax
consequences to shareholders is included here. For information about the federal
tax consequences of purchasing the contracts, see the prospectus for your
contract.
<PAGE>
================================================================================
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS [GRAPH ICON]
Net investment income and net realized capital gains are distributed to
shareholders at least annually.
The Fund intends to distribute substantially all of its net investment
income, if any, in dividends to its shareholders. For dividend purposes, net
investment income consists of all dividends or interest earned by the Fund's
investments, minus the Fund's expenses (including the advisory fee). All of the
Fund's net realized capital gains, if any, are distributed periodically, no less
frequently than annually. All dividends and distributions of the Fund are
reinvested in additional shares of the Fund at net asset value.
================================================================================
VOTING RIGHTS
Since the shares of the Fund are owned by your insurance company and not by
you directly, you will not vote shares of the Fund. Your insurance company will
vote the shares that it holds as required by state and federal law. Your
contract prospectus contains more information on your rights to instruct your
insurance company how to vote Fund shares held in connection with your contract.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by PricewaterhouseCoopers LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the Report of Independent Accountants thereon
appearing in the Company's 1998 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting IDI at the address or telephone number on
the cover of this Prospectus. The Annual Report also contains information about
the Fund's performance.
Year Period
Ended Ended
December December
31 31
---------------------------
1998 1997(a)
PER SHARE DATA $ 9.91 $ 10.00
Net Asset Value -- Beginning of Period
- -------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS (0.01) 0.02
Net Investment Income
Net Gains or (Losses) on Securities 1.62 (0.11)
(Both Realized and Unrealized)
- ------------------------------------------------------------------------
Total from Investment Operations 1.61 (0.09)
- ------------------------------------------------------------------------
LESS DISTRIBUTIONS
In Excess of Net Investment Income 0.01 0.00
Net Asset Value - End of Period $ 11.51 $ 9.91
========================================================================
TOTAL RETURN(b)
16.38% (0.90)%(c)
RATIOS $ 1,036 $ 247
Net Assets -- End of Period ($000 Omitted)
Ratio of Expenses to Average Net Assets(d)(e) 1.87% 0.61%(f)
Ratio of Net Investment Income to
Average Net Assets(d) (0.90%) 0.52%(f)
Portfolio Turnover Rate 92% 25%(c)
(a) From August 25, 1997, commencement of investment operations, through
December 31, 1997.
(b) Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return
figures for the period shown.
(c) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(d) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
year ended Decmeber 31, 1998 and all of the expenses were voluntarily
absorbed by INVESCO for the period ended December 31, 1997. If such
expenses had not been voluntarily absorbed, ratio of expenses to average
net assets would have been 12.46% and 35.99% (annualized), respectively and
ratio of net investment loss to average net assets would have been (11.49%)
and (34.86%) (annualized), respectively.
(e) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
(f) Annualized
<PAGE>
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Small Company Growth Fund
May 1, 1999
You may obtain additional information about the Fund from several sources.
FINANCIAL REPORTS. Although this Prospectus describes the Fund's
anticipated investments and operations, the Fund also prepares annual and
semiannual reports that detail the Fund's actual investments at the report date.
These reports include discussion of the Fund's recent performance, as well as
market and general economic trends affecting the Fund's performance. The annual
report also includes the report of the Fund's independent accountants.
STATEMENT OF ADDITIONAL INFORMATION. The SAI dated May 1, 1999, is a
supplement to this Prospectus, and has detailed information about the Fund and
its investment policies and practices. A current SAI for the Fund is on file
with the Securities and Exchange Commission and is incorporated in this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus, SAI and annual or semiannual reports of
the Fund may be accessed through the INVESCO Web site at www.invesco.com or
through the SEC Web site at www.sec.gov.
To obtain a free copy of the current annual report, semiannual report or
SAI, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver, Colorado
173706; or call 1-800-525-8085. Copies of these materials are also available
(with a copying charge) from the SEC's Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. Information on the Public Reference Section can
be obtained by calling 1-800-SEC-0330. The SEC file number for the Fund is
033-70154.
To reach PAL(R), your 24-hour Personal Account Line, call:
1-800-424-8085
If you're in Denver, please visit one of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street
Denver Tech Center
7800 East Union Avenue
<PAGE>
================================================================================
PROSPECTUS May 1, 1999
INVESCO Variable Investment Funds, Inc.
INVESCO Variable Technology Fund
A mutual fund sold exclusively to insurance company separate accounts for
variable annuity and variable life insurance contracts.
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, it has not determined if this Prospectus is
truthful or complete. Anyone who tells you otherwise is committing a federal
crime.
This Prospectus will tell you more about:
[KEY ICON] Investment Objectives & Strategies
[ARROW ICON] Potential Investment Risks
[GRAPH ICON] Past Performance & Potential Advantages
[INVESCO ICON] Working with INVESCO
<PAGE>
================================================================================
INVESTMENT GOALS AND STRATEGIES [KEY ICON]
For more details about the Fund's current investments and market outlook,
please see the most recent annual or semiannual report.
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the
Fund. Together with our affiliated companies, we at INVESCO control all aspects
of the management of the Fund.
The Fund is used solely as an investment vehicle for variable annuity or
variable life insurance contracts issued by certain life insurance companies.
You cannot purchase shares of the Fund directly. As an owner of a variable
annuity or variable life insurance contract that offers the Fund as an
investment option, however, you may allocate your contract values to a separate
account of the insurance company that invests in shares of the Fund.
Your variable annuity or variable life insurance contract is offered
through its own prospectus, which contains information about that contract,
including how to purchase the contract and how to allocate contract values to
the Fund. INVESCO and the Fund do not control the insurance company that issues
your contract and are not responsible for anything stated in the prospectus for
your contract.
The Fund seeks capital appreciation and invests primarily in the equity
securities of companies engaged in technology-related industries. These include,
but are not limited to, communications, computers, video, electronics,
oceanography, office and factory automation, and robotics. Many of these
products and services are subject to rapid obsolescence, which may lower the
market value of the securities of the companies in this sector.
A core portion of the Fund's portfolio is invested in market-leading
technology companies that we believe will maintain or improve their market share
regardless of overall economic conditions. These companies are usually large,
established firms which are leaders in their field and have a strategic
advantage over many of their competitors. The remainder of the Fund's portfolio
consists of faster-growing, more volatile technology companies that INVESCO
believes to be emerging leaders in their fields. The market prices of these
companies tend to rise and fall more rapidly than those of larger, more
established companies.
================================================================================
FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance (commonly
known as its "total return") since inception, compared to the S&P 500 Index. The
table below shows actual annual returns for various periods ended December 31,
1998. The bar chart provides some indication of the risks of investing in the
Fund by showing changes in the year to year performance of the Fund. Remember,
past performance does not indicate how the Fund or the S&P 500 will perform in
the future.
<PAGE>
The Fund's returns are net of its expenses, but do not reflect the
additional fees and expenses of your variable annuity or variable life insurance
contract. If those contract fees and expenses were included, the returns would
be less than those shown.
[Charts and graphs will be included in the 485(b) filing to be filed April
1999.]
================================================================================
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS
INVESCO Variable Technology Fund
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (for instance, shareholder
servicing)(1) 5.85%
Total Annual Fund Operating Expenses (1) 6.60%
(1) Certain expenses of the Fund are being absorbed voluntarily by INVESCO
pursuant to a commitment to the Fund. After absorption, the Fund's "Other
Expenses" and "Total Annual Fund Operating Expenses" were 0.65% and 1.40%,
respectively. This commitment may be changed at any time following consultation
with the board of directors.
EXAMPLE
This Example assumes a $10,000 allocation to the Fund for the time periods
indicated and does not reflect any of the fees or expenses of your variable
annuity or variable insurance contract. The Example also assumes a hypothetical
5% return each year, and assumes that the Fund's operating expenses remain the
same. Although the Fund's actual costs and performance may be higher or lower,
based on these assumptions your costs would be:
<PAGE>
WITHOUT EXISTING FEE ABSORPTION
1 year 3 years 5 years 10 years
$677 $1,994 $3,265 $6,252
WITH EXISTING FEE ABSORPTION
1 year 3 years 5 years 10 years
$---- $---- $---- $-----
================================================================================
INVESTMENT RISKS [ARROW ICON]
Before allocating contract values to the Fund, you should determine the
level of risk with which you are comfortable. Take into account factors like
your age, career, income level, and time horizon.
You should determine the level of risk with which you are comfortable
before you invest. The principal risks of investing in any mutual fund,
including the Fund, are:
NOT INSURED. Mutual funds are not insured by the Federal Deposit Insurance
Corporation ("FDIC") or any other agency, unlike bank deposits such as CDs or
savings accounts.
NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.
POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its
performance, nor assure you that the market value of your investment will
increase. You may lose the money you invest, and the Fund will not reimburse you
for any of these losses.
VOLATILITY. The price of Fund shares will increase or decrease with changes
in the value of the Fund's underlying investments.
YEAR 2000. Many computer systems in use today may not be able to recognize
any date after December 31, 1999. If these systems are not fixed by that date,
it is possible that they could generate erroneous information or fail
altogether. INVESCO has committed substantial resources in an effort to make
sure that its own major computer systems will continue to function on and after
January 1, 2000. Of course, INVESCO cannot fix systems that are beyond its
control. If INVESCO's own systems, or the systems of third parties upon which it
relies, do not perform properly after December 31, 1999, the Fund could be
adversely affected.
In addition, the markets for, or values of, securities in which the Fund
invests may possibly be hurt by computer failures affecting portfolio
investments or trading of securities beginning January 1, 2000. For example,
<PAGE>
improperly functioning computer systems could result in securities trade
settlement problems and liquidity issues, production issues for individual
companies and overall economic uncertainties. Individual issuers may incur
increased costs in making their own systems Year 2000 compliant. The combination
of market uncertainty and increased costs means that there is a possibility that
Year 2000 computer issues may adversely affect the Fund's investments.
RISKS ASSOCIATED WITH PARTICULAR INVESTMENTS
You should consider the special factors associated with the policies
discussed below in determining the appropriateness of allocating your contract
values to the Fund. See the Statement of Additional Information for a discussion
of additional risk factors.
POTENTIAL CONFLICTS. Although it is unlikely, there potentially may be
differing interests involving the Fund among owners of variable annuity and
variable life insurance contracts issued by different insurance companies, or
even the same insurance company. INVESCO will monitor events for any potential
conflicts.
MARKET RISK. Equity stock prices vary and may fall, thus reducing the value
of the Fund's investment. Certain stocks selected for the Fund's portfolio may
decline in value more than the overall stock market.
CREDIT RISK. The Fund may invest in debt instruments, such as notes and
bonds. There is a possibility that the issuers of these instruments will be
unable to meet interest payments or repay principal. Changes in the financial
strength of an issuer may reduce the credit rating of its debt instruments and
may affect their value.
FOREIGN SECURITIES. Investments in foreign and emerging markets carry
special risks, including currency, political, regulatory and diplomatic risks.
The Fund may invest up to 25% of its total assets in securities of non-U.S.
issuers.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and
a foreign currency may reduce the value of the Fund's investment in a
security valued in the foreign currency, or based on that currency value.
POLITICAL RISK. Political actions, events or instability may result in
unfavorable changes in the value of a security.
REGULATORY RISK. Government regulations may affect the value of a
security. In foreign countries, securities markets that are less regulated
than those in the United States may permit trading practices that are not
allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the United
States and a foreign country could affect the value or liquidity of
investments.
<PAGE>
EUROPEAN ECONOMIC AND MONETARY UNION. Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and
Spain are presently members of the European Economic and Monetary Union
(the "EMU") which as of 1/1/1999 adopted the euro as a common currency. The
national currencies will be sub-currencies of the euro until July 1, 2002,
at which time the old currencies will disappear entirely. Other European
countries may adopt the euro in the future.
The introduction of the euro presents some uncertainties and possible
risks, which could adversely affect the value of securities held by the
Fund.
EMU countries as a single market may affect future investment decisions of
the Fund. As the euro is implemented, there may be changes in the relative
strength and value of the U.S. dollar and other major currencies, as well
as possible adverse tax consequences. The euro transition by EMU
countries - present and future - may affect the fiscal and monetary levels
of those participating countries. There may be increased levels of price
competition among business firms within EMU countries and between
businesses in EMU and non-EMU countries. The outcome of these uncertainties
could have unpredictable effects on trade and commerce and result in
increased volatility for all financial markets.
INTEREST RATE RISK. Changes in interest rates will affect the resale value
of debt securities held in the Fund's portfolio. In general, as interest rates
rise, the resale value of debt securities decreases; as interest rates decline,
the resale value of debt securities generally increases. Debt securities with
longer maturities usually are more sensitive to interest rate movements.
DURATION RISK. Duration is a measure of a debt security's sensitivity to
interest rate changes. Duration is usually expressed in terms of years, with
longer durations usually more sensitive to interest rate fluctuations.
LIQUIDITY RISK. The Fund's portfolio is liquid if the Fund is able to sell
the securities it owns at a fair price within a reasonable time. Liquidity is
generally related to the market trading volume for a particular security.
Investments in smaller companies or in foreign companies or emerging markets are
subject to a variety of risks, including potential lack of liquidity.
DERIVATIVES RISK. A derivative is a financial instrument whose value is
"derived", in some manner, from the price of another security, index, asset or
rate. Derivatives include options and futures contracts, among a wide range of
other instruments. The principal risk of investments in derivatives is that the
fluctuations in their values may not correlate perfectly with the overall
securities markets. Some derivatives are more sensitive to interest rate changes
and market price fluctuations than others. Also, derivatives are subject to
counterparty risk.
COUNTERPARTY RISK. This is a risk associated primarily with repurchase
agreements and some derivatives transactions. It is the risk that the other
<PAGE>
party in such a transaction will not fulfill its contractual obligation to
complete a transaction with the Fund.
LACK OF TIMELY INFORMATION RISK. Timely information about a security or its
issuer may be unavailable, incomplete or inaccurate. This risk is more common to
securities issued by foreign companies and companies in emerging markets than it
is to the securities of U.S.-based companies.
- --------------------------------------------------------------------------------
INVESTMENT RISKS
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES
Securities that cannot be sold quickly Liquidity Risk
at fair value.
- --------------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not registered, but Liquidity Risk
which are bought and sold solely by institu-
tional investors. The Fund considers many
Rule 144A securities to be "liquid," although
the market for such securities typically is
less active than the public securities markets.
- --------------------------------------------------------------------------------
DEBT SECURITIES
Securities issued by private companies or Market, Credit,
governments representing an obligation to pay Interest Rate and
interest and to repay principal when the security Duration Risks
matures.
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
A contract to exchange an amount of currency Currency, Political,
on a date in the future at an agreed-upon Diplomatic and
exchange rate might be used by the Fund to Regulatory Risks
hedge against changes in foreign currency
exchange rates when the Fund invests in foreign
securities. Does not reduce price fluctuations
in foreign securities, or prevent losses if
the prices of those securities decline.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
A contract under which the seller of a Credit and
security agrees to buy it back at an agreed- Counterparty Risks
upon price and time in the future.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS (ADRS)
These are securities issued by U.S. banks Market, Information,
that represent shares of foreign corporations Political,
held by those banks. Although traded in U.S. Regulatory, Diplo-
securities markets and valued in U.S. dollars, matic, Liquidity
ADRs carry most of the risks of investing and Currency Risks
directly in foreign securities.
- --------------------------------------------------------------------------------
OPTION
The obligation or right to deliver or Credit, Information,
receive a security or cash payment depending and Liquidity Risks
on the price of the underlying security or
the performance of an index or other benchmark.
Includes options on specific securities and
stock indices, and stock index futures. Used
in Fund's portfolio to provide liquidity and
hedge portfolio value.
- --------------------------------------------------------------------------------
FUTURES
A futures contract is an agreement to buy Market and Liquidity
or sell a specific amount of a financial Risks
instrument (such as an index option) at a
stated price on a stated date. The Fund uses
futures contracts to provide liquidity and to
hedge portfolio value.
- --------------------------------------------------------------------------------
TEMPORARY DEFENSIVE POSITIONS [ARROW ICON]
When securities markets or economic conditions are unfavorable or
unsettled, we might try to protect the assets of the Fund by investing in
securities that are highly liquid such as high quality money market instruments,
like short-term U.S. government obligations, commercial paper or repurchase
agreements. We have the right to invest up to 100% of the Fund's assets in these
securities, although we are unlikely to do so. Even though the securities
purchased for defensive purposes often are considered the equivalent of cash,
they also have their own risks. Investments that are highly liquid or
comparatively safe tend to offer lower returns. Therefore, the Fund's
performance could be comparatively lower if it concentrates in defensive
holdings.
PORTFOLIO TURNOVER
We actively manage and trade the Fund's portfolio. Therefore, the Fund may
have a higher portfolio turnover rate compared to many other mutual funds. The
Fund had a portfolio turnover rate for the fiscal year ended December 31, 1998
of 239%.
A portfolio turnover rate of 200%, for example, is equivalent to a Fund
buying and selling all of the securities in its portfolio two times in the
course of a year. A comparatively high turnover rate may result in higher
brokerage commissions.
<PAGE>
================================================================================
FUND MANAGEMENT [GRAPH ICON]
THE INVESTMENT ADVISER
INVESCO is a subsidiary of AMVESCAP PLC, an international investment
management company that manages more than $240 billion in assets worldwide.
AMVESCAP is based in London, with money managers located in Europe, North and
South America, and the Far East.
INVESCO is the investment adviser of the Fund. INVESCO was founded in 1932
and manages over $21.1 billion for more than 905,238 shareholders of 14 INVESCO
mutual funds. INVESCO performs a wide variety of other services for the Funds,
including administration and transfer agency functions (the processing of
purchases, sales and exchanges of Fund shares). A wholly owned subsidiary of
INVESCO, INVESCO Distributors, Inc. ("IDI"), is the Fund's distributor and is
responsible for the sale of the Fund's shares.
INVESCO and IDI are subsidiaries of AMVESCAP PLC.
The Fund paid 0.75% of its average annual net assets to INVESCO for its
advisory services in the fiscal year ended December 31, 1998.
THE PORTFOLIO MANAGERS
The Fund is managed by members of INVESCO's Sector Team, which is co-led by
William R. Keithler and John R. Schroer. The following individual is responsible
for the day-to-day management of the Fund:
WILLIAM R. KEITHLER, a Chartered Financial Analyst, has been the portfolio
manager of the Technology Fund since January 1, 1999. He is also a vice
president of INVESCO. Bill was previously a portfolio manager with Berger
Associates, Inc. (1993 to 1998) and a portfolio manager with INVESCO (1986 to
1993). He received an M.S. from the University of Wisconsin - Madison and a B.A.
from Webster College.
<PAGE>
================================================================================
SHARE PRICE
Current market value of Fund assets + Accrued interest and dividends - Fund
debts, including accrued expenses / Number of shares = Fund share price (NAV)
The value of Fund shares is likely to change daily. This value is known as
the Net Asset Value per share, or NAV. INVESCO determines the market value of
each investment in the Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of trading on that exchange (normally,
4:00 p.m. New York time). Therefore, shares of the Fund are not priced on days
when the NYSE is closed, which, generally, is on weekends and national holidays
in the United States.
NAV is calculated by adding together the current market price of all of the
Fund's investments and other assets, including accrued interest and dividends;
subtracting the Fund's debts, including accrued expenses; and dividing that
dollar amount by the total number of the Fund's outstanding shares.
In addition, foreign securities exchanges, which set the prices for foreign
securities held by the Fund, are not always open the same days as the NYSE, and
may be open for business on days the NYSE is not. For example, Thanksgiving Day
is a holiday observed by the NYSE and not by overseas exchanges. In this
situation, the Fund would not calculate NAV on Thanksgiving Day (and INVESCO
would not buy, sell or exchange shares for you on that day), even though
activity on foreign exchanges could result in changes in the value of
investments held by the Fund on that day.
================================================================================
TAXES [GRAPH ICON]
The Fund has elected to be taxed as a "regulated investment company" under
the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended
("the Code"). If the Fund continues to qualify as a "regulated investment
company" and complies with the appropriate provisions of the Code, it will pay
no federal income taxes on the amounts it distributes.
Because the shareholders of the Fund are insurance companies (such as the
one that issues your contract), no discussion of the federal income tax
consequences to shareholders is included here. For information about the federal
tax consequences of purchasing the contracts, see the prospectus for your
contract.
<PAGE>
================================================================================
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS [GRAPH ICON]
Net investment income and net realized capital gains are distributed to
shareholders at least annually.
The Fund intends to distribute substantially all of its net investment
income, if any, in dividends to its shareholders. For dividend purposes, net
investment income consists of all dividends or interest earned by the Fund's
investments, minus the Fund's expenses (including the advisory fee). All of the
Fund's net realized capital gains, if any, are distributed periodically, no less
frequently than annually. All dividends and distributions of the Fund are
reinvested in additional shares of the Fund at net asset value.
================================================================================
VOTING RIGHTS
Since the shares of the Fund are owned by your insurance company and not by
you directly, you will not vote shares of the Fund. Your insurance company will
vote the shares that it holds as required by state and federal law. Your
contract prospectus contains more information on your rights to instruct your
insurance company how to vote Fund shares held in connection with your contract.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by PricewaterhouseCoopers LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the Report of Independent Accountants thereon
appearing in the Company's 1998 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting IDI at the address or telephone number on
the cover of this Prospectus. The Annual Report also contains information about
the Fund's performance.
Year Ended Period Ended
December December
31 31
----------------------------------
1998 1997(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 11.49 $ 10.00
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.03) 0.05
Net Gains or (Losses) on Securities 2.96 1.44
(Both Realized and Unrealized)
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 2.93 1.49
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.01 0.00
In Excess of Net Investment Income 0.01 0.00
Distributions from Capital Gains 0.06 0.00
TOTAL DISTRIBUTIONS 0.08 0.00
- --------------------------------------------------------------------------------
Net Asset Value - End of Period $ 14.34 $ 11.49
================================================================================
TOTAL RETURN(b) 25.69% 14.80%(c)
RATIOS
Net Assets -- End of Period($000 Omitted) $ 1,577 $ 414
Ratio of Expenses to Average Net Assets(d)(e) 1.40% 0.48%(f)
Ratio of Net Investment Income (Loss) to Average Net
Assets(d) (0.14%) 0.95%(f)
Portfolio Turnover Rate 239% 102%(c)
(a) From May 21, 1997, commencement of investment operations, through December
31, 1997.
(b) Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return
figures for the period shown.
(c) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(d) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
year ended Decmeber 31, 1998 and all of the expenses were voluntarily
absorbed by INVESCO for the period ended December 31, 1997. If such
expenses had not been voluntarily absorbed, ratio of expenses to average
net assets would have been 6.47% and 19.25% (annualized), respectively and
ratio of net investment loss to average net assets would have been (5.21%)
and (17.82%) (annualized), respectively.
(e) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
(f) Annualized
<PAGE>
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Technology Fund
May 1, 1999
You may obtain additional information about the Fund from several sources.
FINANCIAL REPORTS. Although this Prospectus describes the Fund's
anticipated investments and operations, the Fund also prepares annual and
semiannual reports that detail the Fund's actual investments at the report date.
These reports include discussion of the Fund's recent performance, as well as
market and general economic trends affecting the Fund's performance. The annual
report also includes the report of the Fund's independent accountants.
STATEMENT OF ADDITIONAL INFORMATION. The SAI dated May 1, 1999, is a
supplement to this Prospectus, and has detailed information about the Fund and
its investment policies and practices. A current SAI for the Fund is on file
with the Securities and Exchange Commission and is incorporated in this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus, SAI and annual or semiannual reports of
the Fund may be accessed through the INVESCO Web site at www.invesco.com or
through the SEC Web site at www.sec.gov.
To obtain a free copy of the current annual report, semiannual report or
SAI, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver, Colorado
173706; or call 1-800-525-8085. Copies of these materials are also available
(with a copying charge) from the SEC's Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. Information on the Public Reference Section can
be obtained by calling 1-800-SEC-0330. The SEC file number for the Fund is
033-70154.
To reach PAL(R), your 24-hour Personal Account Line, call:
1-800-424-8085
If you're in Denver, please visit one of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street
Denver Tech Center
7800 East Union Avenue
<PAGE>
================================================================================
PROSPECTUS May 1, 1999
INVESCO Variable Investment Funds, Inc.
INVESCO Variable Total Return Fund
A mutual fund sold exclusively to insurance company separate accounts for
variable annuity and variable life insurance contracts.
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, it has not determined if this Prospectus is
truthful or complete. Anyone who tells you otherwise is committing a federal
crime.
This Prospectus will tell you more about:
[KEY ICON] Investment Objectives & Strategies
[ARROW ICON] Potential Investment Risks
[GRAPH ICON] Past Performance & Potential Advantages
[INVESCO ICON] Working with INVESCO
<PAGE>
================================================================================
INVESTMENT GOALS AND STRATEGIES [KEY ICON]
For more details about the Fund's current investments and market outlook,
please see the most recent annual or semiannual report.
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the
Fund. Together with our affiliated companies, we at INVESCO control all aspects
of the management of the Fund.
The Fund is used solely as an investment vehicle for variable annuity or
variable life insurance contracts issued by certain life insurance companies.
You cannot purchase shares of the Fund directly. As an owner of a variable
annuity or variable life insurance contract that offers the Fund as an
investment option, however, you may allocate your contract values to a separate
account of the insurance company that invests in shares of the Fund.
Your variable annuity or variable life insurance contract is offered
through its own prospectus, which contains information about that contract,
including how to purchase the contract and how to allocate contract values to
the Fund. INVESCO and the Fund do not control the insurance company that issues
your contract and are not responsible for anything stated in the prospectus for
your contract.
The Fund attempts to provide you with high total return through both growth
and current income from those investments. It normally invests at least 30% of
its assets in common stocks of companies with a strong history of paying regular
dividends and 30% of its assets in debt securities. Debt securities include
obligations of the U.S. governments and government agencies. The remaining 40%
of the Fund is allocated among these and other investments at INVESCO's
discretion, based upon current business, economic and market conditions.
INVESCO considers a combination of historic financial results, current
prices for stocks and the current yield to maturity available in the debt
securities markets. The return that INVESCO believes is available from each
category of investments is weighed against the returns expected from other
categories to determine the actual allocations. This analysis is continual, and
is updated with current market information.
The Fund is managed in the value style. That means that INVESCO attempts to
identify securities - particularly stocks - that are undervalued by the market.
In other words, we try to find securities of companies that are performing well,
but whose performance is not reflected in the prices of their securities. The
value process tries to provide reasonably consistent returns over a variety of
market cycles.
<PAGE>
================================================================================
FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance (commonly
known as its "total return") since inception, compared to the S&P 500 Index. The
table below shows actual annual returns for various periods ended December 31,
1998. The bar chart provides some indication of the risks of investing in the
Fund by showing changes in the year to year performance of the Fund. Remember,
past performance does not indicate how the Fund or the S&P 500 will perform in
the future.
The Fund's returns are net of its expenses, but do not reflect the
additional fees and expenses of your variable annuity or variable life insurance
contract. If those contract fees and expenses were included, the returns would
be less than those shown.
[Charts and graphs will be included in the 485(b) filing to be filed April
1999.]
================================================================================
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
INVESCO Variable Total Return Fund
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (for instance, shareholder
servicing) 0.49%
Total Annual Fund Operating Expenses 1.24%
EXAMPLE
This Example assumes a $10,000 allocation to the Fund for the time periods
indicated and does NOT reflect any of the fees or expenses of your variable
annuity or variable insurance contract. The Example also assumes a hypothetical
5% return each year, and assumes that the Fund's operating expenses remain the
same. Although the Fund's actual costs and performance may be higher or lower,
based on these assumptions your costs would be:
<PAGE>
WITHOUT EXISTING FEE ABSORPTION
1 year 3 years 5 years 10 years
$127 $396 $685 $1,507
WITH EXISTING FEE ABSORPTION
1 year 3 years 5 years 10 years
$---- $---- $---- $-----
================================================================================
INVESTMENT RISKS [ARROW ICON]
Before allocating contract values to the Fund, you should determine the
level of risk with which you are comfortable. Take into account factors like
your age, career, income level, and time horizon.
You should determine the level of risk with which you are comfortable
before you invest. The principal risks of investing in any mutual fund,
including the Fund, are:
NOT INSURED. Mutual funds are not insured by the Federal Deposit Insurance
Corporation ("FDIC") or any other agency, unlike bank deposits such as CDs or
savings accounts.
NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.
POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its
performance, nor assure you that the market value of your investment will
increase. You may lose the money you invest, and the Fund will not reimburse you
for any of these losses.
VOLATILITY. The price of Fund shares will increase or decrease
with changes in the value of the Fund's underlying investments.
YEAR 2000. Many computer systems in use today may not be able to recognize
any date after December 31, 1999. If these systems are not fixed by that date,
it is possible that they could generate erroneous information or fail
altogether. INVESCO has committed substantial resources in an effort to make
sure that its own major computer systems will continue to function on and after
January 1, 2000. Of course, INVESCO cannot fix systems that are beyond its
control. If INVESCO's own systems, or the systems of third parties upon which it
relies, do not perform properly after December 31, 1999, the Fund could be
adversely affected.
In addition, the markets for, or values of, securities in which the Fund
invests may possibly be hurt by computer failures affecting portfolio
<PAGE>
investments or trading of securities beginning January 1, 2000. For example,
improperly functioning computer systems could result in securities trade
settlement problems and liquidity issues, production issues for individual
companies and overall economic uncertainties. Individual issuers may incur
increased costs in making their own systems Year 2000 compliant. The combination
of market uncertainty and increased costs means that there is a possibility that
Year 2000 computer issues may adversely affect the Fund's investments.
RISKS ASSOCIATED WITH PARTICULAR INVESTMENTS [ARROW ICON]
You should consider the special factors associated with the policies
discussed below in determining the appropriateness of allocating your contract
values to the Fund. See the Statement of Additional Information for a discussion
of additional risk factors.
POTENTIAL CONFLICTS. Although it is unlikely, there potentially may be
differing interests involving the Fund among owners of variable annuity and
variable life insurance contracts issued by different insurance companies, or
even the same insurance company. NVESCO will monitor events for any potential
conflicts.
MARKET RISK. Equity stock prices vary and may fall, thus reducing the value
of your Fund's investment. Certain stocks selected for the Fund's portfolio may
decline in value more than the overall stock market.
CREDIT RISK. The Fund may invest in debt instruments, such as notes and
bonds. There is a possibility that the issuers of these instruments will be
unable to meet interest payments or repay principal. Changes in the financial
strength of an issuer may reduce the credit rating of its debt instruments and
may affect their value.
FOREIGN SECURITIES. Investments in foreign and emerging markets carry
special risks, including currency, political, regulatory and diplomatic risks.
The Fund may invest up to 25% of its total assets in securities of non-U.S.
issuers.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and a
foreign currency may reduce the value of the Fund's investment in a
security valued in the foreign currency, or based on that currency
value.
POLITICAL RISK. Political actions, events or instability may result in
unfavorable changes in the value of a security.
REGULATORY RISK. Government regulations may affect the value of a
security. In foreign countries, securities markets that are less regulated
than those in the United States may permit trading practices that are not
allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the United States
and a foreign country could affect the value or liquidity of investments.
EUROPEAN ECONOMIC AND MONETARY UNION. Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain
<PAGE>
are presently members of the European Economic and Monetary Union (the
"EMU") which as of 1/1/1999 adopted the euro as a common currency. The
national currencies will be sub-currencies of the euro until July 1,
2002, at which time the old currencies will disappear entirely. Other
European countries may adopt the euro in the future.
The introduction of the euro presents some uncertainties and possible
risks, which could adversely affect the value of securities held by the
Fund.
EMU countries as a single market may affect future investment decisions of
the Fund. As the euro is implemented, there may be changes in the relative
strength and value of the U.S. dollar and other major currencies, as well
as possible adverse tax consequences. The euro transition by EMU countries
- present and future - may affect the fiscal and monetary levels of those
participating countries. There may be increased levels of price competition
among business firms within EMU countries and between businesses in EMU and
non-EMU countries. The outcome of these uncertainties could have unpredict-
able effects on trade and commerce and result in increased volatility for
all financial markets.
INTEREST RATE RISK. Changes in interest rates will affect the resale value
of debt securities held in the Fund's portfolio. In general, as interest rates
rise, the resale value of debt securities decreases; as interest rates decline,
the resale value of debt securities generally increases. Debt securities with
longer maturities usually are more sensitive to interest rate movements.
DURATION RISK. Duration is a measure of a debt security's sensitivity to
interest rate changes. Duration is usually expressed in terms of years, with
longer durations usually more sensitive to interest rate fluctuations.
LIQUIDITY RISK. The Fund's portfolio is liquid if the Fund is able to sell
the securities it owns at a fair price within a reasonable time. Liquidity is
generally related to the market trading volume for a particular security.
Investments in smaller companies or in foreign companies or emerging markets are
subject to a variety of risks, including potential lack of liquidity.
DERIVATIVES RISK. A derivative is a financial instrument whose value is
"derived", in some manner, from the price of another security, index, asset or
rate. Derivatives include options and futures contracts, among a wide range of
other instruments. The principal risk of investments in derivatives is that the
fluctuations in their values may not correlate perfectly with the overall
securities markets. Some derivatives are more sensitive to interest rate changes
and market price fluctuations than others. Also, derivatives are subject to
counterparty risk.
COUNTERPARTY RISK. This is a risk associated primarily with repurchase
agreements and some derivatives transactions. It is the risk that the other
party in such a transaction will not fulfill its contractual obligation to
complete a transaction with the Fund.
<PAGE>
LACK OF TIMELY INFORMATION RISK. Timely information about a security or its
issuer may be unavailable, incomplete or inaccurate. This risk is more common to
securities issued by foreign companies and companies in emerging markets than it
is to the securities of U.S.-based companies.
- --------------------------------------------------------------------------
Investment Risks
- --------------------------------------------------------------------------
ILLIQUID SECURITIES
Securities that cannot be Liquidity Risk
sold quickly at fair value.
- --------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not Liquidity Risk
registered, but which are bought
and sold solely by institutional investors.
The Fund considers many Rule 144A securities
to be "liquid," although the market
for such securities typically is less
active than the public securities markets.
- --------------------------------------------------------------------------
DEBT SECURITIES
Securities issued by private companies Market, Credit,
or governments representing an obligation to Interest Rate and
pay interest and to repay principal when the Duration Risks
security matures.
- --------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
A contract to exchange an Currency,
amount of currency on a date in Political,
the future at an agreed-upon Diplomatic
exchange rate might be used by the and Regulatory
Fund to hedge against changes in foreign Risks
currency exchange rates when the Fund
invests in foreign securities. Does not
reduce price fluctuations in foreign
securities, or prevent losses if the
prices of those securities decline.
- --------------------------------------------------------------------------
REPURCHASE AGREEMENT
A contract under which Credit and
the seller of a security agrees Counterparty
to buy it back at an Risks
agreed-upon price and time in
the future.
- --------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS (ADRS)
These are securities issued Market,
by U.S. banks that represent Political,
shares of foreign corporations Regulatory,
held by those banks. Although Diplomatic,
traded in U.S. securities Liquidity and
markets and valued in U.S. Currency
dollars, ADRs carry most of the Risks
risks of investing directly in
foreign securities.
- --------------------------------------------------------------------------
OPTION
The obligation or right to Credit,
deliver or receive a security Information
or cash payment depending on and
the price of the underlying Liquidity
security or the perfor mance of Risks
an index or other benchmark.
Includes options on specific
securities and stock indices,
and stock index futures. Used
in Fund's portfolio to provide
liquidity and hedge portfolio
value.
- --------------------------------------------------------------------------
FUTURES
A futures contract is an Market and
agreement to buy or sell a Liquidity
specific amount of a financial Risks
instrument (such as an index
option) at a stated price on a
stated date. The Fund uses
futures contracts to provide
liquidity and to hedge
portfolio value.
- --------------------------------------------------------------------------
TEMPORARY DEFENSIVE POSITIONS [ARROW ICON]
When securities markets or economic conditions are unfavorable or
unsettled, we might try to protect the assets of the Fund by investing in
securities that are highly liquid such as high quality money market instruments,
like short-term U.S. government obligations, commercial paper or repurchase
agreements. We have the right to invest up to 100% of the Fund's assets in these
securities, although we are unlikely to do so. Even though the securities
purchased for defensive purposes often are considered the equivalent of cash,
they also have their own risks. Investments that are highly liquid or
comparatively safe tend to offer lower returns. Therefore, the Fund's
performance could be comparatively lower if it concentrates in defensive
holdings.
<PAGE>
================================================================================
FUND MANAGEMENT [GRAPH ICON]
THE INVESTMENT ADVISER
INVESCO is a subsidiary of AMVESCAP PLC, an international investment
management company that manages more than $240 billion in assets worldwide.
AMVESCAP is based in London, with money managers located in Europe, North and
South America, and the Far East.
INVESCO is the investment adviser of the Fund. INVESCO was founded in 1932
and manages over $21.1 billion for more than 905,238 shareholders of 14 INVESCO
mutual funds. INVESCO performs a wide variety of other services for the Funds,
including administration and transfer agency functions (the processing of
purchases, sales and exchanges of Fund shares). INVESCO Capital Management, Inc.
("ICM") is the sub-adviser to the Fund. A wholly owned subsidiary of INVESCO,
INVESCO Distributors, Inc. ("IDI"), is the Fund's distributor and is responsible
for the sale of the Fund's shares.
INVESCO, ICM and IDI are subsidiaries of AMVESCAP PLC.
The Fund paid 0.75% of its average annual net assets to INVESCO for its
advisory services in the fiscal year ended December 31, 1998.
THE PORTFOLIO MANAGERS
The Fund is managed on a day to day basis by ICM and, specifically, by two
individuals:
EDWARD C. MITCHELL, a Chartered Financial Analyst, has managed the Fund
since 1993. He joined INVESCO in 1979, and manages other INVESCO portfolios for
investors. Ed also is President of INVESCO Capital Management. He received his
B.A. from the University of Virginia and his M.B.A. from the University of
Colorado.
DAVID S. GRIFFIN, a Chartered Financial Analyst, has co-managed the Fund
since 1993. He has been a portfolio manager for INVESCO since 1991, and before
that was a mutual fund sales representative with INVESCO. Dave received his B.A.
from Ohio Wesleyan University and his MBA from the College of William and Mary.
<PAGE>
================================================================================
SHARE PRICE
Current market value of Fund assets + Accrued interest and dividends - Fund
debts, including accrued expenses / Number of shares = Fund share price (NAV)
The value of Fund shares is likely to change daily. This value is known as
the Net Asset Value per share, or NAV. INVESCO determines the market value of
each investment in the Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of trading on that exchange (normally,
4:00 p.m. New York time). Therefore, shares of the Fund are not priced on days
when the NYSE is closed, which, generally, is on weekends and national holidays
in the United States.
NAV is calculated by adding together the current market price of all of the
Fund's investments and other assets, including accrued interest and dividends;
subtracting the Fund's debts, including accrued expenses; and dividing that
dollar amount by the total number of the Fund's outstanding shares.
In addition, foreign securities exchanges, which set the prices for foreign
securities held by the Fund, are not always open the same days as the NYSE, and
may be open for business on days the NYSE is not. For example, Thanksgiving Day
is a holiday observed by the NYSE and not by overseas exchanges. In this
situation, the Fund would not calculate NAV on Thanksgiving Day (and INVESCO
would not buy, sell or exchange shares on that day), even though activity on
foreign exchanges could result in changes in the value of investments held by
the Fund on that day.
================================================================================
TAXES
The Fund has elected to be taxed as a "regulated investment company" under
the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended
("the Code"). If the Fund continues to qualify as a "regulated investment
company" and complies with the appropriate provisions of the Code, it will pay
no federal income taxes on the amounts it distributes.
Because the shareholders of the Fund are insurance companies (such as the
one that issues your contract), no discussion of the federal income tax
consequences to shareholders is included here. For information about the federal
tax consequences of purchasing the contracts, see the prospectus for your
contract.
<PAGE>
================================================================================
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS [GRAPH ICON]
Net investment income and net realized capital gains are distributed to
shareholders at least annually.
The Fund intends to distribute substantially all of its net investment
income, if any, in dividends to its shareholders. For dividend purposes, net
investment income consists of all dividends or interest earned by the Fund's
investments, minus the Fund's expenses (including the advisory fee). All of the
Fund's net realized capital gains, if any, are distributed periodically, no less
frequently than annually. All dividends and distributions of the Fund are
reinvested in additional shares of the Fund at net asset value.
================================================================================
VOTING RIGHTS
Since the shares of the Fund are owned by your insurance company and not by
you directly, you will not vote shares of the Fund. Your insurance company will
vote the shares that it holds as required by state and federal law. Your
contract prospectus contains more information on your rights to instruct your
insurance company how to vote Fund shares held in connection with your contract.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by PricewaterhouseCoopers LLP,
independent accountants. This information should be read in conjunction with the
audited financial statements and the Report of Independent Accountants thereon
appearing in the Company's 1998 Annual Report to Shareholders, which is
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting IDI at the address or telephone number on
the cover of this Prospectus. The Annual Report also contains information about
the Fund's performance.
<TABLE>
<CAPTION>
Period Ended
December
Year Ended December 31 31
---------------------------------------------------------------------
1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C>
PER SHARE DATA $ 15.81 $ 13.21 $ 12.14 $ 10.09 $ 10.00
Net Asset Value -- Beginning of Period
- ------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS 0.37 0.36 0.36 0.25 0.09
Net Investment Income
Net Gains on Securities
(Both Realized and Unrealized) 1.13 2.66 1.12 2.05 0.09
- ------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.50 3.02 1.48 2.30 0.18
- ------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.36 0.34 0.36 0.24 0.09
In Excess of Net Investment Income 0.00 0.00 0.05 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------
Distributions from Capital Gains 0.37 0.08 0.00 0.01 0.00
Total Distributions 0.73 0.42 0.41 0.25 0.09
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $ 16.58 $ 15.81 $ 13.21 $ 12.14 $ 10.09
==================================================================================================================
TOTAL RETURN(b) 9.56% 22.91% 12.18% 22.79% 1.75%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 35,630 $ 23,268 $ 13,513 $ 6,553 $ 1,055
Ratio of Expenses to Average Net Assets(d) 1.01%(e) 0.92%(e) 0.94%(e) 1.01%(e) 0.86%(f)
Ratio of Net Investment Income to Average
Net Assets(d) 2.50% 3.07% 3.44% 3.91% 3.86%(f)
Portfolio Turnover Rate 17% 27% 12% 5% 0%(c)
</TABLE>
(a) From June 2, 1994, commencement of investment operations, through December
31, 1994.
(b) Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return
figures for the period shown.
(c) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(d) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
years ended December 31, 1998, 1997, 1996 and 1995 and the period ended
December 31, 1994. If such expenses had not been voluntarily abosrbed,
ratio of expenses to average net assets would have been 1.01%, 1.10%,
1.30%, 2.51% and 16.44% (annualized), respectively, and ratio of net
investment income to average net assets would have been 2.50%, 2.89%,
3.08%, 2.41% and (11.72%) (annualized), respectively.
(e) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
(f) Annualized
<PAGE>
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Total Return Fund
May 1, 1999
You may obtain additional information about the Fund from several sources.
FINANCIAL REPORTS. Although this Prospectus describes the Fund's
anticipated investments and operations, the Fund also prepares annual and
semiannual reports that detail the Fund's actual investments at the report date.
These reports include discussion of the Fund's recent performance, as well as
market and general economic trends affecting the Fund's performance. The annual
report also includes the report of the Fund's independent accountants.
STATEMENT OF ADDITIONAL INFORMATION. The SAI dated May 1, 1999, is a
supplement to this Prospectus, and has detailed information about the Fund and
its investment policies and practices. A current SAI for the Fund is on file
with the Securities and Exchange Commission and is incorporated in this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus, SAI and annual or semiannual reports of
the Fund may be accessed through the INVESCO Web site at www.invesco.com or
through the SEC Web site at www.sec.gov.
To obtain a free copy of the current annual report, semiannual report or
SAI, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver, Colorado
173706; or call 1-800-525-8085. Copies of these materials are also available
(with a copying charge) from the SEC's Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. Information on the Public Reference Section can
be obtained by calling 1-800-SEC-0330. The SEC file number for the Fund is
033-70154.
To reach PAL(R), your 24-hour Personal Account Line, call:
1-800-424-8085
If you're in Denver, please visit one of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street
Denver Tech Center
7800 East Union Avenue
<PAGE>
================================================================================
PROSPECTUS MAY 1, 1999
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VARIABLE UTILITIES FUND
A mutual fund sold exclusively to insurance company separate accounts for
variable annuity and variable life insurance contracts.
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, it has not determined if this Prospectus is
truthful or complete. Anyone who tells you otherwise is committing a federal
crime.
This Prospectus will tell you more about:
[KEY ICON] Investment Objectives & Strategies
[ARROW ICON] Potential Investment Risks
[GRAPH ICON] Past Performance & Potential Advantages
[INVESCO ICON] Working with INVESCO
<PAGE>
- ------------------------------------------------------------------------------
INVESTMENT GOALS AND STRATEGIES [KEY ICON]
For more details about the Fund's current investments and market outlook,
please see the most recent annual or semiannual report.
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the
Fund. Together with our affiliated companies, we at INVESCO control all aspects
of the management of the Fund.
The Fund is used solely as an investment vehicle for variable annuity or
variable life insurance contracts issued by certain life insurance companies.
You cannot purchase shares of the Fund directly. As an owner of a variable
annuity or variable life insurance contract that offers the Fund as an
investment option, however, you may allocate your contract values to a separate
account of the insurance company that invests in shares of the Fund.
Your variable annuity or variable life insurance contract is offered
through its own prospectus, which contains information about that contract,
including how to purchase the contract and how to allocate contract values to
the Fund. INVESCO and the Fund do not control the insurance company that issues
your contract and are not responsible for anything stated in the prospectus for
your contract.
The Fund seeks capital appreciation and income.
The Fund is aggressively managed. Although the Fund can invest in debt
securities, it primarily invests in equity securities that INVESCO believes will
rise in price faster than other investments, as well as options and other
investments whose value is based upon the values of equity securities.
The Fund normally invests at least 80% of its assets in companies doing
business in the utilities economic sector. The remainder of the Fund's assets
are not required to be invested in the sector. To determine whether a potential
investment is truly doing business in a particular sector, a company must meet
at least one of the following tests:
o At least 50% of its gross income or its net sales must come from
activities in the sector;
o At least 50% of its assets must be devoted to producing revenues from
the sector; or
o Based on other available information, we determine that its primary
business is within the sector.
INVESCO uses a bottom-up investment approach to create the Fund's
investment portfolio, focusing on company fundamentals and growth prospects when
selecting securities. In general, the Fund emphasizes strongly managed companies
that INVESCO believes will generate above-average growth rates for the next
three to five years. We prefer markets and industries where leadership is in a
few hands, and we tend to avoid slower-growing markets or industries.
<PAGE>
The Fund's investments are diversified across the utilities sector.
However, because those investments are limited to a comparatively narrow segment
of the economy, the Fund's investments are not as diversified as most mutual
funds, and far less diversified than the broad securities markets. This means
that the Fund tends to be more volatile than other mutual funds, and the values
of its portfolio investments tend to go up and down more rapidly. As a result,
the value of your investment in the Fund may rise or fall rapidly.
The Fund invests primarily in the equity securities of companies that
produce, generate, transmit or distribute natural gas or electricity, as well as
in companies that provide telecommunications services, including local, long
distance and wireless, and excluding broadcasting.
Governmental regulation, difficulties in obtaining adequate financing and
investment return, environmental issues, prices of fuel for electric generation,
availability of natural gas and risks associated with nuclear power facilities
may adversely affect the market value of the Fund's holdings.
INVESCO seeks to keep the portfolio divided among the electric utilities,
natural gas and telecommunications industries. Weightings within the various
industry segments are continually monitored to prevent extreme tilts in the
Fund's portfolio, and INVESCO adjusts the portfolio weightings depending on the
prevailing economic conditions.
- -------------------------------------------------------------------------------
FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance (commonly
known as its "total return") since inception, compared to the S&P 500 Index. The
table below shows actual annual returns for various periods ended December 31,
1998. The bar chart provides some indication of the risks of investing in the
Fund by showing changes in the year to year performance of the Fund. Remember,
past performance does not indicate how the Fund or the S&P 500 will perform in
the future.
The Fund's returns are net of its expenses, but do not reflect the
additional --- fees and expenses of your variable annuity or variable life
insurance contract. If those contract fees and expenses were included, the
returns would be less than those shown.
[Charts and graphs will be included in the 485(b) filing to be filed April
1999.]
<PAGE>
================================================================================
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
INVESCO Variable Utilities Fund
Management Fees 0.60%
Distribution and Service (12b-1) Fees None
Other Expenses (for instance, shareholder
servicing)(1) 1.24%
Total Annual Fund Operating Expenses (1) 1.84%
(1) Certain expenses of the Fund are being absorbed voluntarily by INVESCO
pursuant to a commitment to the Fund. After absorption, the Fund's "Other
Expenses" and "Total Annual Fund Operating Expenses" were 0.48% and 1.08%,
respectively. This commitment may be changed at any time following consultation
with the board of directors.
EXAMPLE
This Example assumes a $10,000 allocation to the Fund for the time periods
indicated and does not reflect any of the fees or expenses of your variable ---
annuity or variable insurance contract. The Example also assumes a hypothetical
5% return each year, and assumes that the Fund's operating expenses remain the
same. Although the Fund's actual costs and performance may be higher or lower,
based on these assumptions your costs would be:
Without Existing Fee Absorption:
1 year 3 years 5 years 10 years
$189 $584 $1,004 $2,173
WITH EXISTING FEE ABSORPTION
1 year 3 years 5 years 10 years
$____ $____ $____ $_____
<PAGE>
- -------------------------------------------------------------------------------
INVESTMENT RISKS [ARROW ICON]
Before allocating contract values to the Fund, you should determine the
level of risk with which you are comfortable. Take into account factors like
your age, career, income level, and time horizon. You should determine the level
of risk with which you are comfortable before you invest. The principal risks of
investing in any mutual fund, including the Fund, are:
NOT INSURED. Mutual funds are not insured by the Federal Deposit Insurance
Corporation ("FDIC") or any other agency, unlike bank deposits such as CDs or
savings accounts.
NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.
POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its
performance, nor assure you that the market value of your investment will
increase. You may lose the money you invest, and the Fund will not reimburse you
for any of these losses.
VOLATILITY. The price of Fund shares will increase or decrease with changes
in the value of the Fund's underlying investments.
YEAR 2000. Many computer systems in use today may not be able to recognize
any date after December 31, 1999. If these systems are not fixed by that date,
it is possible that they could generate erroneous information or fail
altogether. INVESCO has committed substantial resources in an effort to make
sure that its own major computer systems will continue to function on and after
January 1, 2000. Of course, INVESCO cannot fix systems that are beyond its
control. If INVESCO's own systems, or the systems of third parties upon which it
relies, do not perform properly after December 31, 1999, the Fund could be
adversely affected.
In addition, the markets for, or values of, securities in which the Fund
invests may possibly be hurt by computer failures affecting portfolio
investments or trading of securities beginning January 1, 2000. For example,
improperly functioning computer systems could result in securities trade
settlement problems and liquidity issues, production issues for individual
companies and overall economic uncertainties. Individual issuers may incur
increased costs in making their own systems Year 2000 compliant. The combination
of market uncertainty and increased costs means that there is a possibility that
Year 2000 computer issues may adversely affect the Fund's investments.
RISKS ASSOCIATED WITH PARTICULAR INVESTMENTS
You should consider the special factors associated with the policies
discussed below in determining the appropriateness of allocating your contract
values to the Fund. See the Statement of Additional Information for a discussion
of additional risk factors.
POTENTIAL CONFLICTS. Although it is unlikely, there potentially may be
differing interests involving the Fund among owners of variable annuity and
<PAGE>
variable life insurance contracts issued by different insurance companies,
or even the same insurance company. INVESCO will monitor events for any
potential conflicts.
MARKET RISK. Equity stock prices vary and may fall, thus reducing the value
of the Fund's investment. Certain stocks selected for the Fund's portfolio may
decline in value more than the overall stock market.
CREDIT RISK. The Fund may invest in debt instruments, such as notes and
bonds. There is a possibility that the issuers of these instruments will be
unable to meet interest payments or repay principal. Changes in the financial
strength of an issuer may reduce the credit rating of its debt instruments and
may affect their value.
FOREIGN SECURITIES. Investments in foreign and emerging markets carry
special risks, including currency, political, regulatory and diplomatic risks.
The Fund may invest up to 25% of its total assets in securities of non-U.S.
issuers.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and a
foreign currency may reduce the value of the Fund's investment in a
security valued in the foreign currency, or based on that currency value.
POLITICAL RISK. Political actions, events or instability may result in
unfavorable changes in the value of a security.
REGULATORY RISK. Government regulations may affect the value of a security.
In foreign countries, securities markets that are less regulated than
those in the United States may permit trading practices that are not
allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the United States
and a foreign country could affect the value or liquidity of investments.
EUROPEAN ECONOMIC AND MONETARY UNION. Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain
are presently members of the European Economic and Monetary Union (the
"EMU") which as of 1/1/1999 adopted the euro as a common currency. The
national currencies will be sub-currencies of the euro until July 1,
2002, at which time the old currencies will disappear entirely. Other
European countries may adopt the euro in the futuRe.
The introduction of the euro presents some uncertainties and possible
risks, which could adversely affect the value of securities held by the
Fund.
EMU countries as a single market may affect future investment decisions of
the Fund. As the euro is implemented, there may be changes in the relative
strength and value of the U.S. dollar and other major currencies, as well
as possible adverse tax consequences. The euro transition by EMU
countries - present and future - may affect the fiscal and monetary
levels of those participating countries. There may be increased levels of
<PAGE>
price competition among business firms within EMU countries and between
businesses in EMU and non-EMU countries. The outcome of these uncertainties
could have unpredictable effects on trade and commerce and result in
increased volatility for all financial markets.
INTEREST RATE RISK. Changes in interest rates will affect the resale value
of debt securities held in the Fund's portfolio. In general, as interest rates
rise, the resale value of debt securities decreases; as interest rates decline,
the resale value of debt securities generally increases. Debt securities with
longer maturities usually are more sensitive to interest rate movements.
DURATION RISK. Duration is a measure of a debt security's sensitivity to
interest rate changes. Duration is usually expressed in terms of years, with
longer durations usually more sensitive to interest rate fluctuations.
LIQUIDITY RISK. The Fund's portfolio is liquid if the Fund is able to sell
the securities it owns at a fair price within a reasonable time. Liquidity is
generally related to the market trading volume for a particular security.
Investments in smaller companies or in foreign companies or emerging markets are
subject to a variety of risks, including potential lack of liquidity.
DERIVATIVES RISK. A derivative is a financial instrument whose value is
"derived", in some manner, from the price of another security, index, asset or
rate. Derivatives include options and futures contracts, among a wide range of
other instruments. The principal risk of investments in derivatives is that the
fluctuations in their values may not correlate perfectly with the overall
securities markets. Some derivatives are more sensitive to interest rate changes
and market price fluctuations than others. Also, derivatives are subject to
counterparty risk.
COUNTERPARTY RISK. This is a risk associated primarily with repurchase
agreements and some derivatives transactions. It is the risk that the other
party in such a transaction will not fulfill its contractual obligation to
complete a transaction with the Fund.
LACK OF TIMELY INFORMATION RISK. Timely information about a security or its
issuer may be unavailable, incomplete or inaccurate. This risk is more common to
securities issued by foreign companies and companies in emerging markets than it
is to the securities of U.S.-based companies.
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RISKS
- -------------------------------------------------------------------------------
ILLIQUID SECURITIES
Securities that cannot be Liquidity Risk
sold quickly at fair value.
- --------------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not registered, but Liquidity Risk
which are bought and sold solely by insti-
tutional investors. The Fund considers many
Rule 144A securities to be "liquid," although
the market for such securities typically is less
active than the public securities markets.
- --------------------------------------------------------------------------------
DEBT SECURITIES
Securities issued by private companies Market, Credit,
or governments representing an obligation to Interest Rate and
pay interest and to repay principal when the Duration Risk
security matures.
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
A contract to exchange an amount of Currency, Political,
currency on a date in the future at an Diplomatic and
agreed-upon exchange rate might be used by Regulatory Risks
the Fund to hedge against changes in foreign
currency exchange rates when the Fund
invests in foreign securities. Does not
reduce price fluctuations in foreign securities,
or prevent losses if the prices of those
securities decline.
- --------------------------------------------------------------------------------
OPTION
The obligation or right to deliver or receive Credit, Information
a security or cash payment depending on the and Liquidity Risks
price of the underlying security or the perfor-
mance of an index or other benchmark.
Includes options on specific securities and stock
indices, and stock index futures. Used in
Fund's portfolio to provide liquidity and hedge
portfolio value.
- --------------------------------------------------------------------------------
FUTURES
A futures contract is an agreement to buy or Market and Liquidity
sell a specific amount of a financial instrument Risks
(such as an index option) at a stated price on a
stated date. The Fund uses futures contracts to
provide liquidity and to hedge portfolio value.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
A contract under which the seller of a Credit and Coun-
security agrees to buy it back at an agreed-upon terparty Risk
price and time in the future.
- --------------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS (ADRS)
These are securities issued by U.S. banks that Market, Informa-
represent shares of foreign corporations held by tion, Political,
those banks. Although traded in U.S. securities Regulatory, Diplo-
markets and valued in U.S. dollars, ADRs carry most matic, Liquidity
of the risks of investing directly in foreign and Currency
securities. Risks
- --------------------------------------------------------------------------------
TEMPORARY DEFENSIVE POSITIONS [ARROW ICON]
When securities markets or economic conditions are unfavorable or unset-
tled, we might try to protect the assets of the Fund by investing in securities
that are highly liquid such as high quality money market instruments, like
short-term U.S. government obligations, commercial paper or repurchase
agreements. We have the right to invest up to 100% of the Fund's assets in
these securities, although we are unlikely to do so. Even though the
securities purchased for defensive purposes often are considered the equivalent
of cash, they also have their own risks. Investments that are highly liquid or
comparatively safe tend to offer lower returns. Therefore, the Fund's
performance could be comparatively lower if it concentrates in defensive
holdings.
===============================================================================
FUND MANAGEMENT
THE INVESTMENT ADVISER
INVESCO is a subsidiary of AMVESCAP PLC, an international investment
management company that manages more than $240 million in assets worldwide.
AMVESCAP is based in London, with money managers located in Europe, North and
South America, and the Far East.
INVESCO is the investment adviser of the Fund. INVESCO was founded in
1932 and manages over $21.2 billion for more than 905,238 shareholders of 14
INVESCO mutual funds. INVESCO performs a wide variety of other services for
the Funds, including administration and transfer agency functions (the
processing of purchases, sales and exchanges of Fund shares). A wholly owned
subsidiary of INVESCO, INVESCO Distributors, Inc. ("IDI"), is the Fund's
distributor and is responsible for the sale of the Fund's shares.
INVESCO and IDI are subsidiaries of AMVESCAP PLC.
The Fund paid 0.60% of its average annual net assets to INVESCO for its
advisory services in the fiscal year ended December 31, 1998.
<PAGE>
THE PORTFOLIO MANAGERS
The Fund is managed by a member of INVESCO's Sector Team, which is led by
William R. Keithler and John R. Schroer. The following individual is responsible
for the day-to-day management of the Fund:
BRIAN B. HAYWARD, a Chartered Financial Analyst, has been the manager of
the Fund since July 1997. He also manages INVESCO Sector Funds - Utilities Fund
and INVESCO Worldwide Communications Fund. Brian began his investment career in
1985, and before joining INVESCO was the senior equity analyst with Mississippi
Valley Advisors in St. Louis, Missouri. He received an M.A. in Economics and a
B.A. in Mathematics from the University of Missouri.
================================================================================
SHARE PRICE
Current market value of Fund assets + Accrued interest and dividends - Fund
debts, including accrued expenses / Number of shares = Fund share price (NAV)
The value of Fund shares is likely to change daily. This value is known as
the Net Asset Value per share, or NAV. INVESCO determines the market value of
each investment in the Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of trading on that exchange (normally,
4:00 p.m. New York time). Therefore, shares of the Fund are not priced on days
when the NYSE is closed, which, generally, is on weekends and national holidays
in the United States.
NAV is calculated by adding together the current market price of all of the
Fund's investments and other assets, including accrued interest and dividends;
subtracting the Fund's debts, including accrued expenses; and dividing that
dollar amount by the total number of the Fund's outstanding shares.
In addition, foreign securities exchanges, which set the prices for foreign
securities held by the Fund, are not always open the same days as the NYSE, and
may be open for business on days the NYSE is not. For example, Thanksgiving Day
is a holiday observed by the NYSE and not by overseas exchanges. In this
situation, the Fund would not calculate NAV on Thanksgiving Day (and INVESCO
would not buy, sell or exchange shares for you on that day), even though
activity on foreign exchanges could result in changes in the value of
investments held by the Fund on that day.
===============================================================================
TAXES [GRAPH ICON]
The Fund has elected to be taxed as a "regulated investment company" under
the provisions of Subchapter M of the Internal Revenue Code of 1986, as amended
("the Code"). If the Fund continues to qualify as a "regulated investment
company" and complies with the appropriate provisions of the Code, it will pay
no federal income taxes on the amounts it distributes.
<PAGE>
Because the shareholders of the Fund are insurance companies (such as the
one that issues your contract), no discussion of the federal income tax
consequences to shareholders is included here. For information about the federal
tax consequences of purchasing the contracts, see the prospectus for your
contract.
================================================================================
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS [GRAPH ICON]
Net investment income and net realized capital gains are distributed to
shareholders at least annually.
The Fund intends to distribute substantially all of its net investment
income, if any, in dividends to its shareholders. For dividend purposes, net
investment income consists of all dividends or interest earned by the Fund's
investments, minus the Fund's expenses (including the advisory fee). All of the
Fund's net realized capital gains, if any, are distributed periodically, no less
frequently than annually. All dividends and distributions of the Fund are
reinvested in additional shares of the Fund at net asset value.
================================================================================
VOTING RIGHTS
Since the shares of the Fund are owned by your insurance company and not by
you directly, you will not vote shares of the Fund. Your insurance company will
vote the shares that it holds as required by state and federal law. Your
contract prospectus contains more information on your rights to instruct your
insurance company how to vote Fund shares held in connection with your contract.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period) The following
information has been audited by PricewaterhouseCoopers LLP, independent
accountants. This information should be read in conjunction with the audited
financial statements and the Report of Independent Accountants thereon appearing
in the Company's 1998 Annual Report to Shareholders, which is incorporated by
reference into the Statement of Additional Information. Both are available
without charge by contacting IDI at the address or telephone number on the cover
of this Prospectus. The Annual Report also contains information about the Fund's
performance.
<TABLE>
<CAPTION>
Period Ended
December
Year Ended December 31 31
---------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $14.40 $11.95 $10.84 $10.00 $10.00
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.25 0.31 0.13 0.07 0.00
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 3.41 2.48 1.26 0.84 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 3.66 2.79 1.39 0.91 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.24 0.29 0.13 0.07 0.00
In Excess of Net Investment Income 0.00 0.00 0.01 0.00 0.00
Distributions from Capital Gains 0.03 0.05 0.14 0.00 0.00
in Excess of Net Realized Gains 0.01 0.00 0.00 0.00 0.00
TOTAL DISTRIBUTIONS 0.28 0.34 0.28 0.07 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value - End of Period $17.78 $14.40 $11.95 $10.84 $10.00
====================================================================================================================================
TOTAL RETURN(b) 25.48% 23.41% 12.76% 9.08% 0.00%
RATIOS
Net Assets -- End of Period ($000 Omitted) $6,993 $4,588 $2,660 $ 290 $ 25
Ratio of Expenses to Average Net Assets(c) 1.08%(d) 0.99(d) 1.16%(d) 1.80%(d) 0.00%
Ratio of Net Investment Income to Average Net Assets(c) 1.73% 2.92% 2.92% 2.47% 0.00%
Portfolio Turnover Rate 35% 33% 48% 24% 0%
</TABLE>
(a) All of the expenses for the Fund were voluntarily absorbed by INVESCO
for the period ended December 31, 1994, since investment operations did not
commence during 1994.
(b) Total return does not reflect expenses that apply to the related
insurance policies, and inclusion of these charges would reduce the total return
figures for the period shown.
(c) Various expenses of the Fund were voluntarily absorbed by INVESCO for
the years ended December 31, 1998, 1997, 1996 and 1995. If such expenses had not
been voluntarily abosrbed, ratio of expenses to average net assets would have
been 1.60%, 2.07%, 5.36%, and 57.13%, respectively, and ratio of net
investment income (loss) to average net assets would have been 1.21%, 1.84%,
(1.28%) and (52.86%), respectively.
(d) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
<PAGE>
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VARIABLE UTILITIES FUND
MAY 1, 1999
You may obtain additional information about the Fund from several sources.
FINANCIAL REPORTS. Although this Prospectus describes the Fund's
anticipated investments and operations, the Fund also prepares annual and
semiannual reports that detail the Fund's actual investments at the report date.
These reports include discussion of the Fund's recent performance, as well as
market and general economic trends affecting the Fund's performance. The annual
report also includes the report of the Fund's independent accountants.
STATEMENT OF ADDITIONAL INFORMATION. The SAI dated May 1, 1999, is a
supplement to this Prospectus, and has detailed information about the Fund and
its investment policies and practices. A current SAI for the Fund is on file
with the Securities and Exchange Commission and is incorporated in this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus, SAI and annual or semiannual reports of
the Fund may be accessed through the INVESCO Web site at www.invesco.com or
through the SEC Web site at www.sec.gov.
To obtain a free copy of the current annual report, semiannual report or
SAI, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver, Colorado
173706; or call 1-800-525-8085. Copies of these materials are also available
(with a copying charge) from the SEC's Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. Information on the Public Reference Section can
be obtained by calling 1-800-SEC-0330. The SEC file number for the Fund is
033-70154.
To reach PAL(R), your 24-hour Personal Account Line, call:
1-800-424-8085
If you're in Denver, please visit one of our convenient Investor Centers:
Cherry Creek
155-B Fillmore Street
Denver Tech Center
7800 East Union Avenue
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Blue Chip Growth Fund
(formerly, INVESCO VIF - Growth Portfolio)
INVESCO Variable Dynamics Fund
INVESCO Variable Equity Income Fund
(formerly, INVESCO VIF - Industrial Income Fund)
INVESCO Variable Health Sciences Fund
INVESCO Variable High Yield Fund
INVESCO Variable Realty Fund
INVESCO Variable Small Company Growth Fund
INVESCO Variable Technology Fund
INVESCO Variable Total Return Fund
INVESCO Variable Utilities Fund
Address: Mailing Address:
7800 E. Union Ave., Denver, CO 80237 P.O. Box 173706, Denver, CO 80217-3706
Telephone:
In continental U.S., 1-800-525-8085
May 1, 1999
- ------------------------------------------------------------------------------
Prospectuses for the Blue Chip Growth, Dynamics, Equity Income, Health
Sciences, High Yield, Realty, Small Company Growth, Technology, Total Return and
Utilities Funds dated May 1, 1999 provide the basic information you should know
before investing in a Fund. This Statement of Additional Information ("SAI") is
incorporated by reference into the Funds' Prospectuses; in other words, this SAI
is legally part of the Funds' Prospectuses. Although this SAI is not a
prospectus, it contains information in addition to 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 Prospectuses.
You may obtain, without charge, copies of the current Prospectuses of the Funds,
SAI and current annual and semi-annual reports by writing to INVESCO
Distributors, Inc., P.O. Box 173706, Denver, CO 80217-3706 , or by calling
1-800-525-8085. Copies of these materials also are available through the INVESCO
web site at http://www.invesco.com.
<PAGE>
Table of Contents
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Investments, Policies and Risks . . . . . . . . . . . . . . . . . . . . . .142
Management of the Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 152
Other Service Providers . . . . . . . . . . . . . . . . . . . . . . . . . . .172
Brokerage Allocation and Other Practices. . . . . . . . . . . . . . . . . . .173
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .175
Tax Consequences of Owning Shares of the Fund . . . . . . . . . . . . . . . .175
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
<PAGE>
HISTORY OF THE COMPANY
The Company was incorporated under the laws of Maryland as INVESCO Variable
Investment Funds, Inc. on August 19, 1993.
THE COMPANY
The Company is an open-end, diversified, no-load management investment
company currently consisting of ten (10) portfolios of investments: the INVESCO
Variable Blue Chip Growth, INVESCO Variable Dynamics, INVESCO Variable Equity
Income, INVESCO Variable Health Sciences, INVESCO Variable High Yield, INVESCO
Variable Realty, INVESCO Variable Small Company Growth, INVESCO Variable
Technology, INVESCO Variable Total Return and INVESCO Variable Utilities Funds
(the "Funds"). 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.
"Open-end" means that each Fund issues an indefinite number of shares which it
continuously offers to redeem at net asset value per share ("NAV"). A
"management" investment company actively buys and sells securities for each
portfolio at the direction of a professional manager. Open-end management
investment companies (or one or more series of such companies, such as the
Funds) are commonly referred to as mutual funds.
INVESTMENTS, POLICIES AND RISKS
The principal investments and policies of the Funds are discussed in the
Prospectuses of the Funds. The Funds also may invest in the following securities
and engage in the following practices.
ADRS -- American Depository Receipts, or ADRs, are securities issued by American
banks. ADRs are receipts for the shares of foreign corporations that are held by
the bank issuing the receipt. An ADR entitles its holder to all dividends and
capital gains on the underlying foreign securities, less any fees paid to the
bank. Purchasing ADRs gives a Fund the ability to purchase the functional
equivalent of foreign securities without going to the foreign securities markets
to do so. ADRs are bought and sold in U.S. dollars, not foreign currencies. An
ADR that is "sponsored" means that the foreign corporation whose shares are
represented by the ADR is actively involved in the issuance of the ADR, and
generally provides material information about the corporation to the U.S.
market. An "unsponsored" ADR program means that the foreign corporation whose
shares are held by the bank is not obligated to disclose material information in
the United States, and, therefore, the market value of the ADR may not reflect
important facts known only to the foreign company.
Since they mirror their underlying foreign securities, ADRs generally have the
same risks as investing directly in the underlying foreign securities.
DEBT SECURITIES -- Debt securities include bonds, notes and other securities
that give the holder the right to receive fixed amounts of principal, interest,
or both on a date in the future or on demand. Debt securities also are often
referred to as fixed income securities, even if the rate of interest varies over
the life of the security.
Debt securities are generally subject to credit risk and market risk. Credit
risk is the risk that the issuer of the security may be unable to meet interest
or principal payments or both as they come due. Market risk is the risk that the
market value of the security may decline for a variety of reasons, including
changes in interest rates. An increase in interest rates tends to reduce the
market values of debt securities in which a Fund has invested. A decline in
interest rates tends to increase the market values of debt securities in which a
Fund has invested.
<PAGE>
Ratings by Moody's Investor Services, Inc. ("Moody's") and Standard & Poor's, a
division of The McGraw-Hill Companies, Inc. ("S&P") provide a useful guide to
the credit risk of many debt securities. The lower the rating of a debt
security, the greater the credit risk the rating service assigns to the
security. To compensate investors for accepting that greater risk, lower-rated
debt securities tend to offer higher interest rates. Lower-rated debt securities
are often referred to as "junk bonds." Increasing the amount of Fund assets
invested in unrated or lower grade straight debt securities may increase the
yield produced by a Fund's debt securities but will also increase the credit
risk of those securities. A debt security is considered lower grade if it is
rated Ba or less by Moody's or BB or less by S&P.
Lower-rated and non-rated debt securities of comparable quality are subject to
wider fluctuations in yields and market values than higher-rated debt securities
and may be considered speculative. Although a Fund may invest in debt securities
assigned lower grade ratings by S&P or Moody's, the Funds' investments have
generally been limited to debt securities rated B or higher by either S&P or
Moody's. Debt securities rated lower than B by either S&P or Moody's are usually
considered to be highly speculative. The Funds' investment adviser will limit
Fund investments to debt securities which the adviser believes are not highly
speculative and which are rated at least CCC by S&P or Caa by Moody's.
A significant economic downturn or increase in interest rates may cause issuers
of debt securities to experience increased financial problems which could
adversely affect their ability to pay principal and interest obligations, to
meet projected business goals, and to obtain additional financing. These
conditions more severely impact issuers of lower-rated debt securities. The
market for lower-rated straight debt securities may not be as liquid as the
market for higher-rated straight debt securities. Therefore, a Fund's investment
adviser attempts to limit purchases of lower-rated securities to securities
having an established secondary market.
Debt securities rated Caa by Moody's may be in default or may present risks of
non-payment of principal or interest. Lower rated securities by S&P (categories
BB, B, CCC) include those which are predominantly speculative because of the
issuer's perceived capacity to pay interest and repay principal in accordance
with their terms; BB indicates the lowest degree of speculation and CCC a high
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are usually outweighed by large uncertainties
or major risk exposures to adverse conditions.
The Funds expect that most emerging country debt securities in which they invest
will not be rated by U.S. rating services. Although bonds in the lowest
investment grade debt category (those rated BBB by S&P, Baa by Moody's or the
equivalent) are regarded as having adequate capability to pay principal and
interest, they have speculative characteristics. Adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case for higher rated bonds. Lower
rated bonds by Moody's (categories Ba, B, or Caa) are of poorer quality and also
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, or CCC) include those that 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 of speculation. While
such bonds likely will have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. Bonds having equivalent ratings from other ratings services will
have characteristics similar to those of the corresponding S&P and Moody's
ratings. For a specific description of S&P and Moody's corporate bond rating
categories, please refer to Appendix B.
<PAGE>
EQUITY SECURITIES -- The Funds may invest in common, preferred and convertible
preferred stocks, and securities whose values are tied to the price of stocks,
such as rights, warrants and convertible debt securities. Common stocks and
preferred stocks represent equity ownership in a corporation. Owners of stock,
such as the Funds, share in a corporation's earnings through dividends which may
be declared by the corporation, although the receipt of dividends is not the
principal benefit that the Funds seek when they invest in stocks and similar
instruments.
Instead, the Funds seek to invest in stocks that will increase in market value
and may be sold for more than a Fund paid to buy them. Market value is based
upon constantly changing investor perceptions of what the company is worth
compared to other companies. Although dividends are a factor in the changing
market value of stocks, many companies do not pay dividends, or pay
comparatively small dividends. The principal risk of investing in equity
securities is that their market values fluctuate constantly, often due to
factors entirely outside the control of the Funds or the company issuing the
stock. At any given time, the market value of an equity security may be
significantly higher or lower than the amount paid by a Fund to acquire it.
Owners of preferred stocks are entitled to dividends payable from the
corporation's earnings, which in some cases may be "cumulative" if prior
dividends on the preferred stock have not been paid. Dividends payable on
preferred stock have priority over distributions to holders of common stock, and
preferred stocks generally have a priority on the distribution of assets in the
event of the corporation's liquidation. Preferred stocks may be "participating,"
which means that they may be entitled to dividends in excess of the stated
dividend in certain cases. The holders of a company's debt securities generally
are entitled to be paid by the company before it pays anything to its
stockholders.
Rights and warrants are securities which entitle the holder to purchase the
securities of a company (usually, its common stock) at a specified price during
a specified time period. The value of a right or warrant is affected by many of
the same factors that determine the prices of common stocks. Rights and warrants
may be purchased directly or acquired in connection with a corporate
reorganization or exchange offer.
The Funds also may purchase convertible securities including convertible debt
obligations and convertible preferred stock. A convertible security entitles the
holder to exchange it for a fixed number of shares of common stock (or other
equity security), usually at a fixed price within a specified period of time.
Until conversion, the owner of convertible securities usually receives the
interest paid on a convertible bond or the dividend preference of a preferred
stock.
A convertible security has an "investment value", which is a theoretical value
determined by the yield it provides in comparison with similar securities
without the conversion feature. Investment value changes are based upon
prevailing interest rates and other factors. It also has a "conversion value,"
which is the market value the convertible security would have if it were
exchanged for the underlying equity security. Convertible securities may be
purchased at varying price levels above or below their investment values or
conversion values.
Conversion value is a simple mathematical calculation that fluctuates directly
with the price of the underlying security. However, if the conversion value is
substantially below investment value, the market value of the convertible
security is governed principally by its investment value. If the conversion
value is near or above investment value, the market value of the convertible
security generally will rise above investment value. In such cases, the market
value of the convertible security may be higher than its conversion value, due
to the combination of the convertible security's right to interest (or dividend
preference) and the possibility of capital appreciation from the conversion
feature. However, there is no assurance that any premium above investment value
or conversion value will be recovered because prices change and, as a result,
the ability to achieve capital appreciation through conversion may be
eliminated.
<PAGE>
FOREIGN SECURITIES -- Investments in the securities of foreign companies, or
companies that have their principal business activities outside the United
States, involve certain risks not associated with investment in U.S. companies.
Non-U.S. companies generally are not subject to the same uniform accounting,
auditing and financial reporting standards that apply to U.S. companies. There-
fore, financial information about foreign companies may be incomplete,or may not
be comparable to the information available on U.S. companies. There may also be
less publicly available information about a foreign company.
Although the volume of trading in foreign securities markets is growing,
securities of many non-U.S. companies may be less liquid and have greater swings
in price than securities of comparable U.S. companies. The costs of buying and
selling securities on foreign securities exchanges is generally significantly
higher than similar costs in the United States. There is generally less
government supervision and regulation of exchanges, brokers and issuers in
foreign countries than there is in the United States. Investment in non-U.S.
securities may also be subject to other risks different from those affecting
U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, confiscatory taxation, and
imposition of withholding taxes on dividends or interest payments. If it becomes
necessary, it may be more difficult for a Fund to obtain or to enforce a
judgment against a foreign issuer than against a domestic issuer.
Securities traded on foreign markets are usually bought and sold in local
currencies, not in U.S. dollars. Therefore, the market value of foreign
securities acquired by a Fund can be affected -- favorably or unfavorably -- by
changes in currency rates and exchange control regulations. Costs are incurred
in converting money from one currency to another. Foreign currency exchange
rates are determined by supply and demand on the foreign exchange markets.
Foreign exchange markets are affected by the international balance of payments
and other economic and financial conditions, government intervention,
speculation and other factors, all of which are outside the control of each
Fund. Generally, the Funds' foreign currency exchange transactions will be
conducted on a cash or "spot" basis at the spot rate for purchasing or selling
currency in the foreign currency exchange markets.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The Funds may enter into
contracts to purchase or sell foreign currencies in the future as a hedge
against possible changes in foreign exchange rates. 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 cash or "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. A Fund can hedge against possible variations in the
value of the dollar versus another currency by entering into a forward contract
for the purchase or sale of all or part of the amount of foreign currency
invested in a foreign security. A hedge can be used between the date the foreign
security transaction is executed and the date on which payment is made or
received, or a hedge may be used during the time a Fund holds the foreign
security. Hedging against a change in the value of a currency does not eliminate
fluctuations in the prices of securities or prevent losses if the prices of the
securities decline. Furthermore, such hedging transactions preclude the
opportunity for gain if the value of the hedged currency should rise. There can
be no assurance that a Fund will be in a better or a worse position than if it
had not entered into any forward contracts. In addition, a Fund may find it
impossible at times to hedge certain currencies.
<PAGE>
The Funds will not speculate in forward foreign currency exchange contracts.
Although the Funds have no limit on their ability to use forward foreign
currency exchange 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. The Funds will enter into forward foreign currency exchange contracts
only to the extent, if any, deemed appropriate by the adviser and sub-adviser.
Forward contracts may, from time to time, be considered illiquid, in which case
they would be subject to the Funds' limitations on investing in illiquid
securities. The Funds will not enter into forward contracts for a term of more
than one year.
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 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 an amount of cash or qualifying securities
(currently U.S. Treasury bills). 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 futures position less valuable. In all
instances involving the purchase of financial futures contracts by a Fund, an
amount of cash and other liquid assets at least equal to the contract price 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.
<PAGE>
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
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.
ILLIQUID SECURITIES -- Securities which do not trade on stock exchanges or in
the over the counter market, or have restrictions on when and how they may be
sold, are generally considered to be "illiquid." An illiquid security is one
that a Fund may have difficulty -- or may even be legally precluded from --
selling at any particular time. The Funds may invest in illiquid securities,
including restricted securities and other investments which are not readily
marketable. A Fund will not purchase any such security if the purchase would
cause the Fund to invest more than 15% of its total assets, measured at the time
of purchase, in illiquid securities. Repurchase agreements maturing in more than
seven days are considered illiquid for purposes of this restriction.
The principal risk of investing in illiquid securities is that a Fund may be
unable to dispose of them 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 registering the securities with
the SEC, and otherwise obtaining listing on a securities exchange or in the over
the counter market.
A Fund also may invest in securities that can be resold to institutional
investors pursuant to Rule 144A under the Securities Act of 1933, as amended
(the "1933 Act"). In recent years, a large institutional market has developed
for many Rule 144A Securities. Institutional investors generally cannot sell
these securities to the general public but instead will often depend on an
efficient institutional market in which Rule 144A Securities can readily be
resold to other institutional investors, 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 does not
necessarily mean that a Rule 144A Security is illiquid. Institutional markets
for Rule 144A Securities may provide both reliable market values for Rule 144A
Securities and enable a Fund to sell a Rule 144A investment when appropriate.
For this reason, the Company's board of directors has concluded that if a
sufficient institutional trading market exists for a given Rule 144A security,
it may be considered "liquid," and not subject to a Fund's limitations on
investment in restricted securities. The Company's board of directors has given
INVESCO the day-to-day authority to determine the liquidity of Rule 144A
Securities, according to guidelines approved by the board. The principal risk of
investing in Rule 144A Securities is that there may be an insufficient number of
qualified institutional buyers interested in purchasing a Rule 144A Security
held by a Fund, and the Fund might be unable to dispose of such security
promptly or at reasonable prices.
<PAGE>
REPURCHASE AGREEMENTS -- A Fund may enter into repurchase agreements, or REPOs,
on debt securities that the Fund is allowed to hold in its portfolio. This is a
way to invest money for short periods. A REPO is an agreement under which the
Fund acquires a debt security and then resells it to the seller at an agreed
upon price and date (normally, the next business day). The repurchase price
represents an interest rate effective for the short period the debt security is
held by the Fund, and is unrelated to the interest rate on the underlying debt
security. A repurchase agreement is often considered as a loan collateralized by
securities. The collateral securities acquired by the Fund (including accrued
interest earned thereon) must have a total value in excess of the value of the
repurchase agreement. The collateral securities are held by the Fund's custodian
bank until the repurchase agreement is completed.
The Funds may enter into repurchase agreements with commercial banks, registered
broker-dealers or registered government securities dealers, that are
creditworthy under standards established by the Company's board of directors.
The Company's board of directors has established standards that the investment
adviser and sub-adviser must use to review the creditworthiness of any bank,
broker or dealer that is party to a REPO. REPOs maturing in more than seven days
are considered illiquid securities. A Fund will not enter into repurchase
agreements maturing in more than seven days if as a result more than 20% of the
Fund's total assets would be invested in these repurchase agreements and other
illiquid securities.
As noted above, the Funds use REPOs as a means of investing cash for short
periods of time. Although REPOs are considered to be highly liquid and
comparatively low-risk, the use of REPOs does involve some risks. For example,
if the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Fund may incur a loss on the sale of the collateral security. If the other party
to the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by the Fund not within the control
of the Fund and therefore the realization by the Fund on such collateral may
automatically be stayed. Finally, it is possible that the Fund may not be able
to substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement.
SECURITIES LENDING -- Although they do not do so at this time, and have no
present intention of doing so, the Funds may lend their portfolio securities to
qualified brokers, dealers, banks, or other financial institutions. The
advantage of lending portfolio securities is that a Fund continues to have the
benefits (and risks) of ownership of the loaned securities, while at the same
time receiving interest from the borrower of the securities. The primary risk in
lending portfolio securities is that a borrower may fail to return a portfolio
security.
U.S. GOVERNMENT SECURITIES -- Each Fund may, from time to time, purchase debt
securities issued by the U.S. government. These securities include treasury
bills, treasury notes, and treasury bonds. 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 debt securities 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
<PAGE>
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 U.S. government. The market value of GNMA Certificates is not
guaranteed. GNMA Certificates are different from bonds because principal is paid
back monthly by the borrower over the term of the loan rather than returned in a
lump sum at maturity, as is the case with a bond. GNMA Certificates are called
"pass-through" securities because both interest and principal payments
(including prepayments) are passed through to the holder of the GNMA
Certificate.
Other United States government debt securities, such as securities of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury. Others, such as bonds issued by Fannie Mae, a federally chartered
private corporation, are supported only by the credit of the corporation. 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 in the event the agency or instrumentality does not meet its
commitments. A Fund will invest in securities of such instrumentalities only
when its investment adviser and sub-advisers are satisfied that the credit risk
with respect to any such instrumentality is comparatively minimal.
WHEN-ISSUED/DELAYED DELIVERY -- Ordinarily, the Funds buy and sell securities on
an ordinary settlement basis. That means that the buy or sell order is sent, and
a Fund actually takes delivery or gives up physical possession of the security
on the "settlement date," which is three business days later. However, the Funds
also may purchase and sell securities on a when-issued or delayed delivery
basis.
When-issued or delayed delivery transactions occur when securities are purchased
or sold by a Fund and payment and delivery take place at an agreed-upon time in
the future. The Funds may engage in this practice in an effort to secure an
advantageous price and yield. However, the yield on a comparable security
available when delivery actually takes place may vary from the yield on the
security at the time 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 to consummate the sale at the future date. If the
seller or buyer fails to act as promised, that failure may result in the Fund
missing the opportunity of obtaining a price or yield considered to be
advantageous. No payment or delivery is made by a Fund until it receives
delivery or payment from the other party to the transaction. However,
fluctuation in the value of the security from the time of commitment until
delivery could adversely affect a Fund.
INVESTMENTS RISKS AND STRATEGIES
The Funds operate under certain investment restrictions. For purposes of the
following 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.
The following restrictions are fundamental and may not be changed with respect
to the Funds without prior approval of a majority of the outstanding voting
securities of the Funds, as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"). The Funds, unless otherwise indicated, may not:
(1) with respect to seventy-five percent (75%) of each Fund's 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 a 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;
<PAGE>
(2) borrow money or issue senior securities (as defined in the 1940
Act), except that each 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 a Fund's
total assets by reason of a decline in total 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; (iii) the Technology Fund may invest more than 25% of the value of
its total assets in the technology industry; and (iv) the Realty Fund may invest
more than 25% of the value of its total assets in the real estate industry;
(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 10% 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.
(a) Each Fund's investment 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) Each 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 contract 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.
<PAGE>
(c) Each 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) Each 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) Each 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 a Fund invests in a money market fund, such Fund's investment
adviser will reduce its advisory fee by the amount of any investment advisory
and administrative services fee 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
assets, 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 busi-
nesses.
(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.
(j) The Fund may not invest in companies for the purpose of exercis-
ing 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 restrictions
applicable to the Funds, the Company uses an industry classification system for
international securities based on information obtained from Bloomberg L.P.,
Moody's International and a modified S&P industry code classification schema
which uses various sources to classify securities.
<PAGE>
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.
State insurance laws and regulations may impose additional limitations
on lending securities and the use of options, futures and other derivative
instruments.
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISER
INVESCO Funds Group, Inc., a Delaware corporation ("INVESCO"), is the
Company's investment adviser. INVESCO was founded in 1932 and serves as an
investment adviser to:
INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.)
INVESCO Combination Stock & Bond Funds, Inc. (formerly, INVESCO
Flexible Funds, Inc.)
INVESCO Diversified Funds, Inc.
INVESCO Emerging Opportunity Funds, Inc.
INVESCO Equity Income Fund, Inc.
INVESCO Growth Funds, Inc. (formerly, INVESCO Growth Fund, Inc.)
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic
Portfolios, Inc.)
<PAGE>
INVESCO Specialty Funds, Inc.
INVESCO Stock Funds, Inc. (formerly, INVESCO Equity Funds, Inc.)
INVESCO Tax-Free Income Funds, Inc.
INVESCO Value Trust
INVESCO Variable Investment Funds, Inc.
As of December 31, 1998, INVESCO managed 14 mutual funds having combined assets
of $21.1 billion, consisting of 51 separate portfolios, on behalf of more than
905,238 shareholders.
INVESCO is an indirect wholly owned subsidiary of AMVESCAP PLC, a publicly
traded holding company. Through its subsidiaries, AMVESCAP PLC engages in the
business of investment management on an international basis. AMVESCAP PLC is one
of the largest independent investment management businesses in the world, with
approximately $ 275 billion in assets under management on December 31, 1998.
AMVESCAP PLC's North American subsidiaries include:
INVESCO Retirement and Benefit Services, Inc. ("IRBS"), Atlanta,
Georgia, develops and provides domestic and international defined
contribution retirement plan services to plan sponsors, institutional
retirement plan sponsors, institutional plan providers and foreign
governments.
INVESCO Retirement Plan Services ("IRPS"), Atlanta, Georgia, a division
of IRBS, provides record keeping and investment selection services to
defined contribution plan sponsors of plans with between $2 million and
$200 million in assets. Additionally, IRPS provides investment consulting
services to institutions seeking to provide retirement plan products and
services.
Institutional Trust Company, doing business as INVESCO Trust Company
("ITC"), Denver, Colorado, a division of IRBS, provides retirement account
custodian and/or trust services for individual retirement accounts
("IRAs") and other retirement plan accounts. This includes services such
as record keeping, tax reporting and compliance. ITC acts as trustee or
custodian to these plans. ITC accepts contributions and provides, through
INVESCO, complete transfer agency functions: correspondence,
sub-accounting, telephone communications and processing of distributions.
INVESCO Capital Management, Inc., Atlanta, Georgia, manages
institutional investment portfolios, consisting primarily of discretionary
employee benefit plans for corporations and state and local governments,
and endowment funds. INVESCO Capital Management, Inc. is the sole
shareholder of INVESCO Services, Inc., a registered broker-dealer whose
primary business is the distribution of shares of one registered
investment company.
INVESCO Management & Research, Inc., Boston, Massachusetts, primarily
manages pension and endowment accounts.
PRIMCO Capital Management, Inc., Louisville, Kentucky, specializes in
managing stable return investments, principally on behalf of Section
401(k) retirement plans.
INVESCO Realty Advisors, Inc., Dallas, Texas, is responsible for
providing advisory services in the U.S. real estate markets for AMVESCAP
PLC's clients worldwide. Clients include corporate pension plans and
public pension funds as well as endowment and foundation accounts.
<PAGE>
INVESCO (NY), Inc., New York, is an investment adviser for separately
managed accounts, such as corporate and municipal pension plans,
Taft-Hartley Plans, insurance companies, charitable institutions and
private individuals. INVESCO NY also offers the opportunity for its
clients to invest both directly and indirectly through partnerships in
primarily private investments or privately negotiated transactions.
INVESCO NY further serves as investment adviser to several closed-end
investment companies, and as sub-adviser with respect to certain
commingled employee benefit trusts. INVESCO NY specializes in the
fundamental research investment approach, with the help of quantitative
tools.
A I M Advisors, Inc., Houston, Texas, provides investment advisory and
administrative services for retail and institutional mutual funds.
A I M Capital Management, Inc., Houston, Texas provides investment
advisory services to individuals, corporations, pension plans and other
private investment advisory accounts and also serves as a sub-adviser 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, Houston, Texas
are registered broker-dealers that act as the principal underwriters for
retail and institutional mutual funds.
The corporate headquarters of AMVESCAP PLC are located at 11 Devonshire Square,
London, EC2M4YR, England.
THE INVESTMENT ADVISORY AGREEMENT
INVESCO serves as investment adviser to the Funds under an investment advisory
agreement (the "Agreement") with the Company which was last approved by the
board of directors for a term expiring May 15, 1999. The board vote was cast in
person, at a meeting called for this purpose, by a majority of the directors of
the Company, including a majority of the directors who are not "interested
persons" of the Company or INVESCO ("Independent Directors").
The Agreement may be continued from year to year if 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 continuance also must be approved by
a majority of the Company's 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.
The Agreement requires that INVESCO manage the investment portfolio of each Fund
in a way that conforms with the Fund's investment policies. INVESCO may directly
manage a Fund itself, or may hire a sub-adviser, which may be an affiliate of
INVESCO, to do so. Specifically, INVESCO is responsible for:
o managing the investment and reinvestment of all the assets of the Funds,
and executing all purchases and sales of portfolio securities;
o maintaining a continuous investment program for the Funds, consistent
with (i) each Fund's investment policies as set forth in the Company's
Bylaws and Registration Statement, as from time to time amended, under
the 1940 Act, and in any prospectus and/or statement of additional infor-
mation of the Funds, 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;
<PAGE>
o determining what securities are to be purchased or sold for the Funds,
unless otherwise directed by the directors of the Company, and executing
transactions accordingly;
o providing the Funds the benefit of all of the investment analysis and
research, the reviews of current economic conditions and trends, and the
consideration of a long-range investment policy now or hereafter
generally available to the investment advisory customers of the Adviser
or any Sub-Adviser;
o determining what portion of each Fund's assets should be invested in the
various types of securities authorized for purchase by the Fund; and
o making recommendations as to the manner in which voting rights, rights to
consent to Fund action and any other rights pertaining to a Fund's
portfolio securities shall be exercised.
INVESCO also performs all of the following services for the Funds:
o administrative
o internal accounting (including computation of net asset value)
o clerical and statistical
o secretarial
o all other services necessary or incidental to the administration of the
affairs of the Funds
o supplying the Company with officers, clerical staff and other employees
o furnishing office space, facilities, equipment, and supplies; providing
personnel and facilities required to respond to inquiries related to
shareholder accounts
o conducting periodic compliance reviews of the Funds' operations;
preparation and review of required documents, reports and filings by
INVESCO's in-house legal and accounting staff or in conjunction with
independent attorneys and accountants (including the prospectus,
statement of additional information, proxy statements, shareholder
reports, tax returns, reports to the SEC, and other corporate documents
of the Funds)
o supplying basic telephone service and other utilities
o preparing 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 INVESCO are borne by the Funds. As full compensation for
its advisory services to the Company, INVESCO receives a monthly fee from each
Fund. The fee is calculated at the annual rate of:
Equity Income and Total Return Funds
o 0.75% on the first $500 million of each Fund's average net assets;
o 0.65% on the next $500 million of each Fund's average net assets; and
o 0.55% on each Fund's average net assets in excess of $1 billion.
High Yield and Utilities Funds
o 0.60% on the first $500 million of each Fund's average net assets;
o 0.55% on the next $500 million of each Fund's average net assets; and
o 0.45% on each Fund's average net assets in excess of $1 billion.
<PAGE>
Small Company Growth, Health Sciences and Technology Funds
o 0.75% on the first $350 million of the Fund's average net assets;
o 0.65% on the next $350 million of the Fund's average net assets; and
o 0.55% on the Fund's average net assets in excess of $700 million.
Dynamics Fund
o 0.60% on the first $350 million of each Fund's average net assets;
o 0.55% on the next $350 million of each Fund's average net assets; and
o 0.50% on each Fund's average net assets in excess of $700 million.
Blue Chip Growth Fund
o 0.85% of the Fund's average net assets.
Realty Fund
o 0.90% on the first $500 million of the Fund's average net assets;
o 0.75% on the next $500 million of the Fund's average net assets; and
o 0.65% on the Fund's average net assets in excess of $1 billion.
During the fiscal years ended December 31, 1998, 1997 and 1996, the Funds paid
INVESCO advisory fees in the dollar amounts shown below. If applicable, the
advisory fees were offset by credits in the amounts shown below, so that
INVESCO's fees are not in excess of the expense limitations shown below, which
have been agreed to by the Company and INVESCO.
Advisory Total Expense Total Expense
Fee Dollars Reimbursements Limitations
Blue Chip Growth Fund
1998 $ 2,589 $32,023 1.50%
1997 781 $26,170 1.25%
1996 N/A N/A N/A
Dynamics Fund
1998 $ 1,652 $36,773 1.15%
1997 554 31,429 0.90%
1996 N/A N/A N/A
Equity Income Fund
1998 $377,741 $ 245 1.15%
1997 223,880 16,285 0.90%
1996 105,932 34,295 0.90%
Health Sciences Fund
1998 $ 9,945 $39,165 1.25%
1997 1,191 33,488 1.00%
1996 N/A N/A N/A
High Yield Fund
1998 $224,864 $ 0 1.05%
1997 117,624 20,919 0.80%
1996 50,693 38,708 0.80%
<PAGE>
Realty Fund
1998 $ 2,558 $18,881 1.35%
1997 N/A N/A N/A
1996 N/A N/A N/A
Small Company Growth Fund
1998 $ 2,726 $39,139 1.25%
1997 684 32,621 1.00%
1996 N/A N/A N/A
Technology Fund
1998 $ 5,670 $38,752 1.25%
1997 1,318 33,352 1.00%
1996 N/A N/A N/A
Total Return Fund
1998 $219,888 $ 196 1.15%
1997 126,159 30,247 0.90%
1996 77,890 37,492 0.90%
Utilities Fund
1998 $ 32,195 $28,048 1.15%
1997 19,549 35,201 0.90%
1996 5,716 39,955 0.90%
THE SUB-ADVISORY AGREEMENT
With respect to the Realty Fund, INVESCO Realty Advisors, Inc. ("IRAI") serves
as sub-adviser to the Realty Fund pursuant to a sub-advisory agreement dated
February 28, 1997 (the "Sub-Agreement") with INVESCO which was approved on
November 6, 1996, 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 or IRAI, at a meeting called for such purpose. The
Sub-Agreement was approved on January 31, 1997, by the shareholders of the
Realty Fund for an initial term expiring February 28, 1999. On May 13, 1998,
this period was extended by the Company's board of directors through May 15,
1999.
With respect to the Total Return Fund, INVESCO Capital Management ("ICM") serves
as sub-adviser to the Total Return Fund pursuant to a sub-advisory agreement
dated February 28, 1997 (the "Total Return Sub-Agreement") with INVESCO that was
approved on November 6, 1996 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 or ICM, at a meeting called for
such purpose. The Total Return Sub-Agreement was approved on January 31, 1998 by
the shareholders of the Total Return Fund for an initial term expiring on
February 28, 1999. On May 13, 1998, this period was extended by the Company's
board of directors through May 15, 1999.
Thereafter, the Realty Sub-Agreement and Total Return Sub-Agreement (the
"Sub-Agreements") may be continued from year to year as to each Fund as long as
each such continuance is specifically approved 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, as defined in the 1940 Act. Each such continuance also must be
approved by a majority of the directors who are not parties to the
Sub-Agreements or interested persons (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
continuance. The Sub-Agreements may be terminated at any time without penalty by
either party or the Company upon sixty (60) days' written notice. Each
terminates automatically in the event of an assignment to the extent required by
the 1940 Act and the rules thereunder.
<PAGE>
The Sub-Agreements provide that IRAI and ICM, as applicable, subject to the
supervision of INVESCO, shall manage the investment portfolios of the Realty and
Total Return Funds in conformity with each Fund's investment policies. These
management services include: (a) managing the investment and reinvestment of all
the assets, now or hereafter acquired, of each Fund, and executing all purchases
and sales of portfolio securities; (b) maintaining a continuous investment
program for the Funds, consistent with (i) each Fund's investment 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, as amended, 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 each Fund, unless otherwise directed by the directors of the Company or
INVESCO, and executing transactions accordingly; (d) providing the Funds 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
IRAI or ICM; (e) determining what portion of each applicable Fund's assets
should be invested in the various types of securities authorized for purchase by
such 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 each applicable Fund shall be exercised.
The Sub-Agreements provide that, as compensation for their services, IRAI and
ICM shall receive from INVESCO, at the end of each month, a fee based upon the
average daily value of the applicable Fund's net assets. With respect to the
Realty Fund, the fee is calculated at the following annual rates: prior to
January 1, 1998, 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 and effective
January 1, 1998, 0.36% on the first $500 million; 0.30% on the next $500 million
and 0.26% on the Fund's net assets in excess of $1 billion. With respect to the
Total Return Fund, the fee is computed at the following annual rates: prior to
January 1, 1998, 0.25% on the first $500 million of the Fund's average net
assets; 0.2167% on the next $500 million of the Fund's average net assets; and
0.1833% on the Fund's average net assets in excess of $1 billion; and effective
January 1, 1998, 0.30% on the first $500 million; 0.26% on the next $500 million
and 0.22% on the Fund's average net assets in excess of $1 billion. The
sub-advisory fees are paid by INVESCO, NOT the Funds.
ADMINISTRATIVE SERVICES AGREEMENT
INVESCO, either directly or through affiliated companies, provides certain
administrative, sub-accounting, and record keeping services to the Funds
pursuant to an Administrative Services Agreement dated February 28, 1997. The
Administrative Services Agreement was approved on November 6, 1996, at a meeting
called for that purpose, by a vote cast in person by all of the directors of the
Company, including all of the directors who are not "interested persons" of the
Company or INVESCO.
The Administrative Services Agreement was for an initial term expiring February
28, 1998 and has been extended by action of the board of directors through May
15, 1999. The Administrative Services Agreement may be continued from year to
year as long as each such continuance is specifically approved by the board of
directors of the Company, including a majority of the Company's Independent
Directors. The Administrative Services Agreement may be terminated at any time
without penalty by INVESCO on sixty (60) days' written notice, or by the Funds
upon thirty (30) days' written notice, and ends automatically in the event of an
assignment unless the Company's board of directors, including a majority of the
Company's Independent Directors, approves such assignment.
<PAGE>
The Administrative Services Agreement requires INVESCO to provide the following
services to the Funds:
o such sub-accounting and record keeping services and functions as are
reasonably necessary for the operation of the Funds; and
o such sub-accounting, record keeping, and administrative services and
functions, which may be provided by affiliates of INVESCO, as are
reasonably necessary for the operation of Fund shareholder accounts
maintained by certain retirement plans and employee benefit plans for the
benefit of participants in such plans.
The Administrative Services Agreement provides that each Fund pay INVESCO a
monthly fee consisting of a base fee of up to $10,000 per year, plus an
additional incremental fee computed daily and paid monthly at an annual rate of
0.265% per year of the average net assets of the Fund.
TRANSFER AGENCY AGREEMENT
INVESCO also performs transfer agent, dividend disbursing agent, and registrar
services for the Funds pursuant to a Transfer Agency Agreement dated February
28, 1997, which was approved by the board of directors of the Company on
November 6, 1996 for an initial term expiring February 28, 1998 and has been
extended by action of the board of directors through May 15, 1999. The Transfer
Agency Agreement may be continued from year to year as long as such continuance
is specifically approved at least annually by the board of directors of the
Company, including a majority of the Company's Independent Directors, or by a
vote of the holders of a majority of the outstanding shares of the Funds. 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 Funds pay INVESCO an annual fee
of $5,000 per shareholder account, or, where applicable, per participant in an
omnibus account. This fee is paid monthly at 1/12 of the annual fee and is based
upon the actual number of shareholder accounts and omnibus account participants
in a Fund at any time during each month.
FEES PAID TO INVESCO
For the fiscal years ended December 31, 1998, 1997 and 1996, the Funds paid the
following fees to INVESCO (prior to the voluntary absorption of certain Fund
expenses by INVESCO):
Blue Chip Growth Fund
Type of Fee 1998 1997 1996
- ----------- ---- ---- ----
Advisory $ 2,589 $ 781 N/A
Administrative Services 10,047 6,680 N/A
Transfer Agency 5,000 3,333 N/A
Dynamics Fund
Type of Fee 1998 1997 1996
- ----------- ---- ---- ----
Advisory $ 1,652 $ 554 N/A
Administrative Services 10,042 10,014 N/A
Transfer Agency 5,000 5,000 N/A
Equity Income Fund
<PAGE>
Type of Fee 1998 1997 1996
- ----------- ---- ---- ----
Advisory $377,741 $223,880 $105,932
Administrative Services 25,519 14,478 12,119
Transfer Agency 5,000 5,000 5,000
Health Sciences Fund
Type of Fee 1998 1997 1996
- ----------- ---- ---- ----
Advisory $ 9,945 $ 1,191 N/A
Administrative Services 11,874 10,024 N/A
Transfer Agency 5,000 5,000 N/A
High Yield Fund
Type of Fee 1998 1997 1996
- ----------- ---- ---- ----
Advisory $224,864 $117,624 $ 50,693
Administrative Services 26,312 12,941 11,267
Transfer Agency 5,000 5,000 5,000
Realty Fund
Type of Fee 1998 1997 1996
- ----------- ---- ---- ----
Advisory $ 2,558 N/A N/A
Administrative Services 7,669 N/A N/A
Transfer Agency 3,750 N/A N/A
Small Company Growth Fund
Type of Fee 1998 1997 1996
- ----------- ---- ---- ----
Advisory $ 2,726 $ 684 N/A
Administrative Services 10,192 10,014 N/A
Transfer Agency 5,000 5,000 N/A
Technology Fund
Type of Fee 1998 1997 1996
- ----------- ---- ---- ----
Advisory $ 5,670 $ 1,318 N/A
Administrative Services 11,005 10,026 N/A
Transfer Agency 5,000 5,000 N/A
Total Return Fund
Type of Fee 1998 1997 1996
- ----------- ---- ---- ----
Advisory $219,888 $126,159 $ 77,890
Administrative Services 19,501 12,534 11,558
Transfer Agency 5,000 5,000 5,000
Utilities Fund
Type of Fee 1998 1997 1996
- ----------- ---- ---- ----
Advisory $ 32,195 $ 19,549 $ 5,716
Administrative Services 11,535 10,489 10,143
Transfer Agency 5,000 5,000 5,000
<PAGE>
DIRECTORS AND OFFICERS OF THE COMPANY
The overall direction and supervision of the Company come from the board of
directors. The board of directors is responsible for making sure that the Funds'
general investment policies and programs are carried out and that the Funds are
properly administered.
The board of directors has an audit committee comprised of four of the directors
who are not affiliated with INVESCO (the "Independent Directors"). The committee
meets quarterly with the Company's independent accountants and officers to
review accounting principles used by the Company, the adequacy of internal
controls, the responsibilities and fees of the independent accountants, and
other matters.
<PAGE>
The Company has a management liaison committee which meets quarterly with
various management personnel of INVESCO in order to facilitate better
understanding of management and operations of the Company, and to review legal
and operational matters which have been assigned to the committee by the board
of directors, in furtherance of the board of directors' overall duty of
supervision.
The Company has a soft dollar brokerage committee. The committee meets
periodically to review soft dollar brokerage transactions by the Funds, and to
review policies and procedures of the Funds' adviser with respect to soft dollar
brokerage transactions. It reports on these matters to the Company's board of
directors.
The Company has a derivatives committee. The committee meets periodically to
review derivatives investments made by the Funds. It monitors derivatives usage
by the Funds and the procedures utilized by the Funds' adviser to ensure that
the use of such instruments follows the policies on such instruments adopted by
the Company's board of directors. It reports on these matters to the Company's
board of directors.
The officers of the Company, all of whom are officers and employees of INVESCO,
are responsible for the day-to-day administration of the Company and the Funds.
The officers of the Company receive no direct compensation from the Company for
their services as officers. The investment adviser for the Funds has the primary
responsibility for making investment decisions on behalf of the Funds. These
investment decisions are reviewed by the investment committee of INVESCO.
All of the officers and directors of the Company hold comparable positions with
the following funds, which, with the Company, are collectively referred to as
the INVESCO funds:
INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.)
INVESCO Combination Stock & Bond Funds, Inc. (formerly, INVESCO
Flexible Funds, Inc.)
INVESCO Diversified Funds, Inc.
INVESCO Emerging Opportunity Funds, Inc.
INVESCO Equity Income Fund, Inc.
INVESCO Growth Funds, Inc. (formerly, INVESCO Growth Fund, Inc.)
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic
Portfolios, Inc.)
INVESCO Specialty Funds, Inc.
INVESCO Stock Funds, Inc. (formerly, INVESCO Equity Funds, Inc.)
INVESCO Tax-Free Income Funds, Inc.
INVESCO Treasurer's Series Trust
INVESCO Value Trust
INVESCO Variable Investment Funds, Inc.
<PAGE>
The table below provides information about each of the Company's directors and
officers. Unless otherwise indicated, the address of the directors and officers
is P.O. Box 173706, Denver, CO 80217-3706 . Their affiliations represent their
principal occupations.
<TABLE>
<CAPTION>
Name, Address, and Age Position(s) Held With Fund Principal Occupation(s) During
Past Five Years
<S> <C> <C> <C>
Charles W. Brady *+
1315 Peachtree St., N.E. Director and Chairman of the Chairman of the Board of INVESCO
Atlanta, Georgia Board Global Health Sciences Fund; Chief
Age: 62 Executive Officer and Director of
AMVESCAP PLC, London, England and
various subsidiaries of AMVESCAP
PLC
Fred A. Deering +# Director and Vice Chairman of Trustee of INVESCO Glo bal Health
Security Life Center the Board Sciences Fund; formerly Chairman
1290 Broadway of the Executive Committee and
Denver,Colorado Chairman of the Board of Security
Age: 71 Life of Denver Insurance Company;
Director of ING America Life
Insurance Company
Mark H. Williamson *+ President, Chief Executive President, Chief Executive
7800 E. UnionAvenue Officer and Director Officer and Director of INVESCO
Denver, Colorado Distributors, Inc.;
Age: 47 President, Chief Executive
Officer and Director of
INVESCO Funds Group, Inc.;
President and Chief Operating
Officer of INVESCO Global
Health Sciences Fund; formerly,
Chairman and Chief Executive
Officer of NationsBanc Advisors,
Inc.; formerly, Chairman of
NationsBanc Investments, Inc.
Victor L. Andrews, Ph.D. **! Director Professor Emeritus, Chairman
34 Seawatch Drive Emeritus and Chairman of the CFO
Savannah, Georgia Roundtable of the Department of
Age: 68 Finance of Georgia State
University; President, Andrews
Finan cial Associates, Inc. (con-
sulting firm); formerly, member of
the faculties of the Harvard
Business School and the Sloan
School of Management of MIT;
Director of The Southeastern
Thrift and Bank Fund, Inc. and The
Sheffield Funds, Inc.
Bob R. Baker +** Director President and Chief Executive
AMC Cancer Research Center Officer of AMC Cancer Research
1600 Pierce Street Center, Denver, Colorado, since
Lakewood,Colorado January 1989; until December 1988,
Age: 62 Vice Chairman of the Board of
First Columbia Financial
Corporation, Englewood, Colorado;
formerly, Chair man of the Board
and Chief Executive Officer of
First Columbia Financial Corporation
<PAGE>
Lawrence H. Budner #@ Director Trust Consultant; prior to June
7608 Glen Albens Circle 1987, Senior Vice President and
Dallas, Texas Senior Trust Officer of InterFirst
Age: 68 Bank, Dallas, Texas
Wendy L. Gramm**! Director Self-employed (since 1993);
4201 Yuma Street,N.W. Professor of Economics and Public
Washington, DC Administration, University of
Age: 54 Texas at Arlington; formerly,
Chairman, Commodity Futures
Trading Commission; Administrator
for Information and Regulatory Affairs
at the Office of Management and Budget;
Executive Director of the Presidential
Task Force on Regulatory Relief;
Director of the Federal Trade Commission's
Bureau of Economics; also, Director of
Chicago Mercantile Exchange, Enron
Corporation, IBP, Inc., State Farm
Insurance Company, Independent Women's
Forum, International Republic Institute,
and the Republican Women's Forum; also,
Member of Board of Visitors, College
of Business Administration, University
of Iowa, and Member of Board of Visitors,
Center for Study of Public Choice, George
Mason University
Kenneth T. King +#@ Director Retired; formerly, Chairman of
4080 North Circulo Manzanillo the Board of The Capitol Life
Tucson, Arizona Insurance Company, Providence
Age: 73 Washington Insurance Company
and Director of numerous U.S.
subsidiaries thereof; formerly,
Chairman of the Board of The
Providence Capitol Companies
in the United Kingdom and
Guernsey; Chairman of the Board
of the Symbion Corporation until
1987
John W. McIntyre +#@ Director Retired; formerly, Vice Chairman
7 Piedmont Center of the Board of Directors of the
Suite 100 Citizens and Southern Corporation
Atlanta, Georgia and Chairman of the Board and
Age: 68 Chief Executive Officer of the
Citizens and Southern Georgia
Corp. and Citizens and Southern
National Bank; Trustee of INVESCO
Glo bal Health Sciences Fund and
Gables Residential Trust
<PAGE>
Larry Soll, Ph.D.!** Director Retired; formerly, Chairman of
345 Poorman Road the Board (1987 to 1994), Chief
Boulder, Colorado Executive Officer (1982 to 1989
Age: 54 and 1993 to 1994) and President
(1982 to 1989) of Synergen Corp.,
Director of Synergen since
incorporation in 1982; Director
of Isis Pharmaceuticals, Inc.;
Trustee of INVESCO Global Health
Sciences Fund
Glen A. Payne Secretary Senior Vice President, General
7800 E. Union Avenue Counsel and Sec retary of INVESCO
Denver, Colorado Funds Group, Inc., Senior Vice
Age: 50 President, Secretary and General
Counsel of INVESCO Distributors,
Inc., Secretary, INVESCO Global
Health Sciences Fund. Formerly,
General Counsel of INVESCO Trust
Company (1989-1998). Formerly,
employee of a U.S. regula tory
agency, Washington, D.C. (June
1973 through May 1989)
Ronald L. Grooms Treasurer Senior Vice President and
7800 E. Union Avenue Treasurer of INVESCO Funds Group,
Denver, Colorado Inc.; Senior Vice President
Age: 51 and Treasurer of INVESCO Distributors,
Inc.; Treasurer, Principal Financial
and Accounting Officer, INVESCO
Global Health Sciences Fund; and
Senior Vice President and Treasurer
of INVESCO Trust Company (1988-1998)
William J. Galvin, Jr. Assistant Secretary Senior Vice President of
7800 E. Union Avenue INVESCO Funds Group, Inc.;
Denver, Colorado Senior Vice President of
Age 41 INVESCO Distributors, Inc
formerly, Trust Officer of
INVESCO Trust Company
(1995-1998); formerly,
Vice President INVESCO
Funds Group, Inc.;
Financial Group; Assistant Vice President
of Putnam Companies
Alan I. Watson Assistant Secretary Vice President of INVESCO Funds
7800 E. Union Avenue Group, Inc.; formerly, Trust
Denver, Colorado Officer of INVESCO Trust Company
Age: 56
Judy P. Wiese Assistant Treasurer Vice President of INVESCO Funds
7800 E. Union Avenue Group, Inc.; formerly, Trust
Denver, Colorado Officer of INVESCO Trust Company
Age: 50
</TABLE>
<PAGE>
# Member of the audit committee of the Company.
+ Member of the executive committee of the Company. On occasion, the ex-
ecutive 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 power
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 1940 Act.
** Member of the management liaison committee of the Company.
@ Member of the soft dollar brokerage committee of the Company.
! Member of the derivatives committee of the Company.
The following table shows the compensation paid by the Company to its
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, all for the fiscal year ended December 31, 1998.
In addition, the table sets forth the total compensation paid by all of the
mutual funds distributed by INVESCO Funds Group, Inc. (including the Company),
INVESCO Treasurer's Series Trust, and INVESCO Global Health Sciences Fund
(collectively, the "INVESCO Funds") to these directors for services rendered in
their capacities as directors or trustees during the year ended December 31,
1998. As of December 31, 1998, there were 16 funds in the INVESCO Funds.
<TABLE>
<CAPTION>
Name of Person and Aggregate Compensation Benefits Accrued As Estimated Annual Total Compensation
Position From Company(1) Part of Company Benefits Upon From INVESCO Funds
Expenses(2) Retirement(3) Paid To Directors(6)
<S> <C> <C> <C> <C> <C>
Fred A. Deering, Vice $ 8,748 $ 386 $ 261 $ 103,700
Chairman of the Board
Victor L. Andrews 8,714 369 287 80,350
Bob R. Baker 8,738 330 385 84,000
Lawrence H. Budner 8,708 369 287 79,350
Daniel D. Chabris(4) 6,437 377 236 70,000
Wendy Gramm 8,705 0 0 79,000
Kenneth T. King 8,697 394 236 77,050
John W. McIntyre 8,709 0 0 98,500
Larry Soll 8,699 0 0 96,000
Total 76,155 2,225 1,692 767,950
% of Net Assets 0.0505%(5) 0.0015%(5) 0.0035%(6)
</TABLE>
<PAGE>
(1) The vice chairman of the board, the chairmen of the audit, management
liaison, soft dollar brokerage, derivatives, and compensation committees, and
the Independent Director members of the Funds' 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 amounts represent the Company's share of the estimated annual benefits
payable by the INVESCO Funds (excluding INVESCO Global Health Sciences Fund,
which does not participate in this retirement plan) upon the directors'
retirement, calculated using the current method of allocating director
compensation among the INVESCO Funds. 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
Funds, 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
Mr. McIntyre and Drs. Soll and Gramm, each of these directors has served as a
director/trustee of one or more of the funds in the INVESCO Funds for the
minimum five-year period required to be eligible to participate in the Defined
Benefit Deferred Compensation Plan.
(4) Mr. Chabris retired as a director of the Company on September 30, 1998.
(5) Totals as a percentage of the Company's net assets as of December 31, 1998.
(6) Total as a percentage of the net assets of the INVESCO Funds as of
December 31, 1998.
Messrs. Brady and Williamson, as "interested persons" of the Company, and the
other Funds and investment companies in the INVESCO Funds, receive compensation
as officers or employees of INVESCO 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 Funds for their service as directors.
The Boards of the funds managed by INVESCO, INVESCO Treasurer's Series Trust and
INVESCO Value Trust have adopted a Defined Benefit Deferred Compensation Plan
(the "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 termination of service as a
director (normally at the retirement age of 72 or the retirement age of 73 or
74, if the retirement date is extended by the boards for one or two years, but
less than three years), continuation of payment for one year (the "First Year
Retirement Benefit") of the annual basic retainer and annualized board meeting
fees payable by the funds to the qualified director at the time of his or her
retirement (the "Basic Benefit"). 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
50% of the Basic Benefit. These payments will continue for the remainder of the
qualified director's life or ten years, whichever is longer (the "Reduced
Benefit 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 retirement payments will be made to him/ her or to
his/her beneficiary or estate. If a qualified director becomes disabled or dies
either prior to age 72 or during his/her 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 Benefit 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 INVESCO Funds in a manner
determined to be fair and equitable by the committee. The Company began making
<PAGE>
payments under the plan to Mr. Chabris as of October 1, 1998. 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 Independent Directors have contributed to a deferred compensation plan,
pursuant to which they have deferred receipt of a portion of the compensation
which they would otherwise have been paid as directors of selected INVESCO
Funds. The deferred amounts are being invested in the shares of certain INVESCO
Funds. Each independent director is, therefore, an indirect owner of shares of
certain INVESCO Funds.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDER
As of January 31, 1999, the following persons owned more than 5% of the
outstanding shares of the Funds indicated below. This level of share ownership
is considered to be a "principal shareholder" relationship with a Fund under the
1940 Act. Shares that are owned "of record" are held in the name of the person
indicated. Shares that are owned "beneficially" are held in another name, but
the owner has the full economic benefit of ownership of those shares:
Blue Chip Growth Fund
- --------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
===============================================================================
INVESCO Funds Group, Inc. Record 99.76%
Attn. Sheila Wendland
P.O. Box 173706
Denver, CO 80217
- --------------------------------------------------------------------------------
Dynamics Fund
- --------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
INVESCO Funds Group, Inc. Record 99.70%
Attn. Sheila Wendland
P.O. Box 173706
Denver, CO 80217
- --------------------------------------------------------------------------------
Equity Income Fund
- --------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
Great-West Life & Annuity Record 39.56%
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
- --------------------------------------------------------------------------------
Security Life Record 18.73%
Separate Account L1
Attn. Debra Bechtel
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
- --------------------------------------------------------------------------------
Security Life Record 15.10%
Separate Account A1
Attn. Debra Bechtel
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
- --------------------------------------------------------------------------------
<PAGE>
Separate Account VA5 of Record 7.64%
Transamerica Occidental
Life Insurance Company
Attn. Variable Annuity Dept.
P.O. Box 33849
Charlotte, NC 28233-3849
- --------------------------------------------------------------------------------
Health Sciences Fund
- --------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
Fortis Benefits Insurance Record 76.16%
Co.
Attn. Brian Perkins
P.O. Box 64284
St. Paul, MN 55164-0284
- --------------------------------------------------------------------------------
INVESCO Funds Group, Inc. Record 17.01%
Attn. Sheila Wendland
P.O. Box 173706
Denver, CO 80217
- --------------------------------------------------------------------------------
First Fortis Life Insurance Record 6.79%
Co. NY
Separate Account A
PO Box 64284
St. Paul, MN 55164-0284
- --------------------------------------------------------------------------------
<PAGE>
High Yield Fund
- --------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
Great-West Life & Annuity Record 52.98%
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
- --------------------------------------------------------------------------------
Security Life Record 19.20%
Separate Account L1
Attn. Debra Bechtel
Unit Valuations 2T2
8515 e. Orchard Road
Englewood, Co 80111
- --------------------------------------------------------------------------------
Security Life Record 13.90%
Separate Account A1
Attn. Debra Bechtel
Unit Valuations 2T2
8515 e. Orchard Road
Englewood, Co 80111
- --------------------------------------------------------------------------------
Realty Fund
- --------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
Safeco Mutual Funds Record 57.76%
Attn. Steve Ballagh
P.O. Box 34890
Seattle, WA 98124-1890
- --------------------------------------------------------------------------------
<PAGE>
INVESCO Funds Group, Inc. Record 42.07%
Attn. Sheila Wendland
P.O. Box 173706
Denver, CO 80217-3706
- --------------------------------------------------------------------------------
Small Company Growth Fund
- --------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
Security Life Record 75.52%
Separate Account L1
Attn. Debra Bechtel
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111-5002
- -------------------------------------------------------------------------------
INVESCO Funds Group, Inc. Record 24.40%
Attn. Sheila Wendland
P.O. Box 173706
Denver, CO 80217
- --------------------------------------------------------------------------------
Technology Fund
- --------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
Fortis Benefits Insurance Record 80.78%
Co.
Attn. Brian Perkins
P.O. Box 64284
St. Paul, MN 55164-0284
- --------------------------------------------------------------------------------
INVESCO Funds Group, Inc. Record 16.08%
Attn. Sheila Wendland
P.O. Box 173706
Denver, CO 80217
- --------------------------------------------------------------------------------
Total Return Fund
- --------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
Great-West Life & Annuity Record 48.39%
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
- --------------------------------------------------------------------------------
Security Life Record 23.21%
Separate Account L1
Attn. Debra Bechtel
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111-5002
- --------------------------------------------------------------------------------
Security Life Record 15.87%
Separate Account A1
Attn. Debra Bechtel
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
- --------------------------------------------------------------------------------
<PAGE>
Annuity Investors Life Record 5.06%
Insurance Company
250 East Fifth Street
Cincinnati, OH 45202-4119
- --------------------------------------------------------------------------------
Utilities Fund
- --------------------------------------------------------------------------------
Name and Address Basis of Ownership Percentage Owned
(Record/Beneficial)
================================================================================
Security Life Record 59.48%
Separate Account A1
Attn. Debra Bechtel
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
- --------------------------------------------------------------------------------
Security Life Record 30.47%
Separate Account L1
Attn. Debra Bechtel
Unit Valuations 2T2
8515 E. Orchard Road
Englewood, CO 80111
- --------------------------------------------------------------------------------
Southland Life Insurance Record 5.94%
Co.
Southland Separate
Account A1
02/25/94
Attn. Dir Mkt Support
Services
5780 Powers Ferry Road
Atlanta, GA 30327-4349
- --------------------------------------------------------------------------------
As of February 22, 1999, officers and directors of the Company, as a group,
beneficially owned less than 1% of any Fund's outstanding shares.
DISTRIBUTOR
INVESCO Distributors, Inc. ("IDI"), a wholly-owned subsidiary of INVESCO, is
the distributor of the Funds. IDI receives no compensation and bears all
expenses, including the cost of printing and distributing prospectuses, incident
to marketing of the Funds' shares.
OTHER SERVICE PROVIDERS
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 950 Seventeenth Street, Denver, Colorado, are the
independent accountants of the Company. The independent accountants are
responsible for auditing the financial statements of the Funds.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 351, Boston, Massachusetts, is the
custodian of the cash and investment securities of the Company. The custodian is
also responsible for, among other things, receipt and delivery of each Fund's
investment securities in accordance with procedures and conditions specified in
the custody agreement with the Company. The custodian is authorized to establish
separate accounts in foreign countries and to cause foreign securities owned by
the Funds to be held outside the United States in branches of U.S. banks and, to
the extent permitted by applicable regulations, in certain foreign banks and
securities depositories.
<PAGE>
TRANSFER AGENT
INVESCO Funds Group, Inc., 7800 E. Union Avenue, Denver, Colorado is the
Company's transfer agent, registrar, and dividend disbursing agent. Services
provided by INVESCO include the issuance, cancellation and transfer of shares of
the Funds, and the maintenance of records regarding the ownership of such
shares.
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.
BROKERAGE ALLOCATION AND OTHER PRACTICES
As the investment adviser to the Funds, INVESCO places orders for the purchase
and sale of securities with broker-dealers based upon an evaluation of the
financial responsibility of the brokers and dealers and the ability of the
broker-dealers to effect transactions at the best available prices.
While INVESCO seeks reasonably competitive commission rates, the Funds do not
necessarily pay the lowest commission or spread available. INVESCO is permitted
to, and does, consider qualitative factors in addition to price in the selection
of brokers. Among other things, INVESCO considers the quality of executions
obtained on a 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. INVESCO has found that a broker's
consistent ability to execute transactions is at least as important as the price
the broker charges for those services.
In seeking to ensure that the commissions charged a Fund are consistent with
prevailing and reasonable commissions, INVESCO monitors brokerage industry
practices and commissions charged by broker-dealers on transactions effected for
other institutional investors like the Funds.
Consistent with the standard of seeking to obtain the best qualitative execution
on portfolio transactions, INVESCO may select brokers that provide research
services to INVESCO and the Company, as well as other INVESCO mutual funds and
other accounts managed by INVESCO. Research services include statistical and
analytical reports relating to issuers, industries, securities and economic
factors and trends, which may be of assistance or value to INVESCO in making
informed investment decisions. Research services prepared and furnished by
brokers through which a Fund effects securities transactions may be used by
INVESCO in servicing all of its accounts and not all such services may be used
by INVESCO in connection with a particular Fund. Conversely, a Fund receives
benefits of research acquired through the brokerage transactions of other
clients of INVESCO.
In order to obtain reliable trade execution and research services, INVESCO may
utilize brokers that charge higher commissions than other brokers would charge
for the same transaction. This practice is known as "paying up." However, even
when paying up, INVESCO is obligated to obtain best qualitative execution of a
Fund's transactions.
Portfolio transactions also may be effected through brokers and dealers that
recommend the Funds to their clients, or that act as agent in the purchase of a
Fund's shares for their clients. When a number of brokers and dealers can
provide comparable best price and execution on a particular transaction, INVESCO
may consider the sale of a Fund's shares by a broker or dealer in selecting
among qualified broker-dealers.
<PAGE>
The aggregate dollar amount of brokerage commissions paid by each Fund for the
fiscal years ended December 31, 1998, 1997 and 1996 were:
1998 1997 1996
---- ---- ----
Blue Chip Growth Fund $ 1,746 $ 267 N/A
Dynamics Fund 574 335 N/A
Equity Income Fund 278,819 239,249 151,867
Health Sciences Fund 5,650 563 N/A
High Yield Fund 178,000 143,282 $114,443
Realty Fund 179 N/A N/A
Small Company Growth Fund 4,907 712 N/A
Technology Fund 14,920 5,012 N/A
Total Return Fund 484 6,797 7,686
Utilities Fund 9,136 13,372 9,953
For the fiscal year ended December 31, 1998, brokers providing research services
received $83,245 in commissions on portfolio transactions effected for the
Funds. The aggregate dollar amount of such portfolio transactions was
$51,987,166. Commissions totaling $78 were allocated to certain brokers in
recognition of their sales of shares of the Funds on portfolio transactions of
the Funds effected during the fiscal year ended December 31, 1998.
At December 31, 1998, each Fund held debt and/or equity securities of its
regular brokers or dealers, or their parents, as follows:
Fund Broker or Dealer Value of Securities
at December 31, 1998
================================================================================
Blue Chip Growth State Street Capital Markets $ 3,000
- --------------------------------------------------------------------------------
Dynamics State Street Capital Markets $ 3,000
- --------------------------------------------------------------------------------
Equity Income State Street Capital markets $3,159,000
Chase Securities $ 653,000
- --------------------------------------------------------------------------------
Health Sciences State Street Capital Markets $ 337,000
- --------------------------------------------------------------------------------
High Yield State Street Capital Markets $1,883,000
- --------------------------------------------------------------------------------
Realty N/A N/A
- --------------------------------------------------------------------------------
Small Company Growth State Street Capital Markets $ 216,000
- --------------------------------------------------------------------------------
Technology State Street Capital Markets $ 206,000
- --------------------------------------------------------------------------------
Total Return State Street Capital Markets $3,474,000
Morgan Stanley & Co., Inc. $ 223,000
NationsBanc/Montgomery Securities $ 105,000
- --------------------------------------------------------------------------------
Utilities State Street Capital Markets $ 857,000
- --------------------------------------------------------------------------------
<PAGE>
Neither INVESCO nor any affiliate of INVESCO receives any brokerage commissions
on portfolio transactions effected on behalf of the Funds, and there is no
affiliation between INVESCO or any person affiliated with INVESCO or the Funds
and any broker or dealer that executes transactions for the Funds.
CAPITAL STOCK
The Company is authorized to issue up to 1,000,000,000 shares of common stock
with a par value of $0.01 per share. As of January 31, 1999, the following
shares of each Fund were outstanding:
Blue Chip Growth Fund 25,600
Dynamics Fund 25,363
Equity Income Fund 3,247,390
Health Sciences Fund 147,374
High Yield Fund 3,798,071
Realty Fund 60,804
Small Company Growth Fund 102,079
Technology Fund 132,523
Total Return Fund 2,181,636
Utilities Fund 404,658
All shares of each Fund are of one class with equal rights as to voting,
dividends and liquidation. All shares issued and outstanding are, and all shares
offered hereby, when issued, will be, fully paid and nonassessable. The board of
directors has the authority to designate additional classes of common stock
without seeking the approval of shareholders and may classify and reclassify any
authorized but unissued shares.
Shares have no preemptive rights and are freely transferable on the books of
each Fund.
All shares of the Company have equal voting rights based on one vote for each
share owned. The Company is not generally required, and does not expect, to hold
regular annual meetings of shareholders. However, 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 board of directors will call special meetings of
shareholders.
Directors may be removed by action of the holders of a majority of the
outstanding shares of the Company. The Funds will assist shareholders in
communicating with other shareholders as required by the Investment Company Act
of 1940.
Fund shares have noncumulative voting rights, which means that the holders of a
majority of the shares of the Company voting for the election of directors of
the Company can elect 100% of the directors if they choose to do so. If that
occurs, 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.
Directors may be removed by action of the holders of a majority of the
outstanding shares of the Company.
TAX CONSEQUENCES OF OWNING SHARES OF THE FUND
Each Fund intends to continue to conduct its business and satisfy the applicable
diversification of assets, distribution and source of income requirements to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. Each Fund qualified as a regulated investment
company in the fiscal year ended December 31, 1998, and intends to continue to
qualify during its current fiscal year. It is the policy of each Fund to
distribute all investment company taxable income and net capital gains. As a
result of this policy and the Funds' qualification as regulated investment
companies, it is anticipated that none of the Funds will pay federal income or
excise taxes and that all of the Funds will be accorded conduit or "pass
<PAGE>
through" treatment for federal income tax purposes. Therefore, any taxes that a
Fund would ordinarily owe are paid by its shareholders on a pro-rata basis. If a
Fund does not qualify as a regulated investment company, it will be subject to
corporate tax on its net investment income and net capital gains at the
corporate tax rates. If a Fund does not distribute all of its net investment
income or net capital gains, it will be subject to tax on the amount that is not
distributed.
If it invests in foreign securities, a Fund may be subject to the withholding of
foreign taxes on dividends or interest it receives on foreign securities.
Foreign taxes withheld will be treated as an expense of the Fund unless the Fund
meets the qualifications and makes the election to enable it to pass these taxes
through to shareholders for use by them as a foreign tax credit or deduction.
Tax conventions between certain countries and the United States may reduce or
eliminate such taxes.
A Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the
following tests: (1) at least 75% of its gross income is passive or (2) an
average value of at least 50% of its assets produce, or are held for the
production of, passive income. Each Fund intends to "mark to market" its stock
in any PFIC. In this context, "marking to market" means including in ordinary
income for each taxable year the excess, if any, of the fair market value of the
PFIC stock over the Fund's adjusted basis in the PFIC stock as of the end of the
year. In certain circumstances, a Fund will also be allowed to deduct from
ordinary income the excess, if any, of its adjusted basis in PFIC stock over the
fair market value of the PFIC stock as of the end of the year. The deduction
will only be allowed to the extent of any PFIC mark-to-market gains recognized
as ordinary income in prior years (for tax years beginning after December 31,
1997). A Fund's adjusted tax basis in each PFIC stock for which it makes this
election will be adjusted to reflect the amount of income included or deduction
taken under the election.
Gains or losses (1) from the disposition of foreign currencies, (2) from the
disposition of debt securities denominated in foreign currencies that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time a
Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss.
Each Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and its net capital gains for the one-year period
ending on October 31 of that year, plus certain other amounts.
You should consult your contract prospectus and your own tax adviser regarding
specific questions about federal, state and local tax issues relating to your
contract.
PERFORMANCE
THE FUNDS' TOTAL RETURNS DO NOT REFLECT FEES AND EXPENSES APPLICABLE TO YOUR
VARIABLE ANNUITY OR VARIABLE LIFE INSURANCE CONTRACT. IF THOSE FEES AND EXPENSES
WERE REFLECTED, THE RETURNS WOULD BE LOWER. Consult your contract prospectus for
the amounts of those contract fees and charges. To keep shareholders and
potential investors informed, INVESCO will occasionally advertise the Funds'
total return for one-, five-, and ten-year periods (or since inception). Total
return figures show the rate of return on a $10,000 investment in a Fund,
assuming reinvestment of all dividends and capital gain distributions for the
periods cited.
<PAGE>
Cumulative total return shows the actual rate of return on an investment for the
period cited; average annual total return represents the average annual
percentage change in the value of an investment. Both cumulative and average
annual total returns tend to "smooth out" fluctuations in a Fund's investment
results, because they do not show the interim variations in performance over the
periods cited. More information about the Funds' recent and historical
performance is contained in the Company's Annual Report to Shareholders. You can
get a free copy by calling or writing to INVESCO using the phone number or
address on the back cover of the Funds' prospectus.
When we quote mutual fund rankings published by Lipper, Inc., we may compare a
Fund to others in its appropriate Lipper category, as well as the broad-based
Lipper general fund groupings. These rankings allow you to compare a Fund to its
peers. Other independent financial media also produce performance- or
service-related comparisons, which you may see in our promotional materials.
Performance figures are based on historical earnings and are not intended to
suggest future performance.
Average annual total return performance for the one-, five-, and ten-year
periods ended was:
Name of Fund 1 Year 5 Year Since Inception*
Blue Chip Growth Fund 38.99% N/A 33.98%*
Dynamics Fund 19.35% N/A 16.81%*
Equity Income Fund 15.30% N/A 21.63%*
Health Sciences Fund 42.85% N/A 32.62%*
High Yield Fund 1.42% N/A 11.82%*
Realty Fund (15.88%) N/A (20.51%)*
Small Company Growth Fund 16.38% N/A 11.11%*
Technology Fund 25.69% N/A 25.46%*
Total Return Fund 9.56% N/A 14.87%*
Utilities Fund 25.48% N/A 17.50%*
*Inception dates were as follows:
Blue Chip Growth August 25, 1997
Dynamics August 25, 1997
Equity Income August 10, 1994
Health Sciences May 22, 1997
High Yield May 27, 1994
Realty April 1, 1998
Small Company Growth August 25, 1997
Technology May 21, 1997
Total Return June 2, 1994
Utilities January 3, 1995
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 = a hypothetical initial payment of $10,000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
The average annual total return performance figures shown above were determined
by solving the above formula for "T" for each time period indicated.
In conjunction with performance reports, comparative data between a Fund's
performance for a given period and other types of investment vehicles, including
certificates of deposit, may be provided to prospective investors and
shareholders.
<PAGE>
In conjunction with performance reports and/or analyses of shareholder services
for a Fund, comparative data between that Fund's performance for a given period
and recognized indices of investment results for the same period, and/or
assessments of the quality of shareholder service, may be provided to
shareholders. Such indices include indices provided by Dow Jones & Company,
Standard & Poor's, Lipper, Inc., Lehman Brothers, National Association of
Securities Dealers Automated Quotations, 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 Deutcher Aktienindex, all of
which are unmanaged market indicators. In addition, rankings, ratings, and
comparisons of investment performance and/or assessments of the quality of
shareholder service made by independent sources may be used in advertisements,
sales literature or shareholder reports, including reprints of, or selections
from, editorials or articles about the Fund. These sources utilize information
compiled (i) internally; (ii) by Lipper Analytical Services, Inc.; or (iii) by
other recognized analytical services. The Lipper Analytical Services, Inc.
mutual fund rankings and comparisons which may be used by the Fund in
performance reports will be drawn from the following mutual fund groupings, in
addition to the broad-based Lipper general fund groupings:
Blue Chip Growth Fund Growth Funds
Dynamics Fund Capital Appreciation Funds
Equity Income Fund Equity Income Funds
Health Sciences Fund Health Biotechnology Funds
High Yield Fund High Current Yield Funds
Realty Fund Real Estate Funds
Small Company Growth Fund Small Company Growth Funds
Technology Fund Science and Technology Funds
Total Return Fund Flexible Portfolio Funds
Utilities Fund Utility 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
No-Load Analyst
No-Load Fund X
Personal Investor
Smart Money
The New York Times
The No-Load Fund Investor
U.S. News and World Report
United Mutual Fund Selector
USA Today
The Wall Street Journal
Wiesenberger Investment Companies Services
Working Woman
Worth
<PAGE>
FINANCIAL STATEMENTS
The financial statements for the Company for the fiscal year ended December 31,
1998 are incorporated herein by reference from the Company's Annual Report to
Shareholders dated December 31, 1998.
<PAGE>
APPENDIX A
DESCRIPTION OF FUTURES, OPTIONS AND FORWARD 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 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 Fund will generally 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 the 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
of underlying securities upon the exercise of a put option. If the Fund as
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.
<PAGE>
Reasons for the potential absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions 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 Options Clearing Corporation, 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 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 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
intermediation 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 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 agreements, 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 equivalent, 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."
<PAGE>
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 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 terminated 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 23. Exhibits
(a) (i) Articles of Incorporation filed August 19, 1993.(2)
(ii) Articles of Amendment of the Articles of
Incorporation filed October 21, 1993.(2)
(iii) Articles Supplementary to Articles of Incorporation
filed October 22, 1993.(2)
(iv) Articles Supplementary to Articles of Incorporation
filed February 11, 1997.(2)
(v) Articles Supplementary to Articles of Incorporation
dated January 5, 1998.(5)
(b) Bylaws as of July 21, 1993.(3)
(c) Not applicable.
(d) (i) Investment Advisory Agreement dated February 28,
1997.(2)
(ii) Amendment to Investment Advisory Agreement dated
February 6, 1998.(5)
(iii) Sub-Advisory Agreement dated February 28, 1998.(2)
(iv) Sub-Advisory Agreement dated February 28, 1998.(2)
(e) (i) General Distribution Agreement dated February 28,
1997.(2)
(ii) General Distribution Agreement dated September
30, 1997.(3)
(f) (i) Defined Benefit Deferred Compensation Plan for
Non-Interested Directors and Trustees.(2)
(ii) Amended Defined Benefit Deferred Compensation Plan
for Non-Interested Directors and Trustees.
(g) (i) Custody Agreement between Registrant and State
Street Bank and Trust Company dated October 20, 1993.(3)
(ii) Amendment to Custody Agreement dated October 25,
1995.(2)
(iii) Data Access Services Addendum.(3)
(iv) Additional Fund Letter dated November 13, 1997.(5)
(h) (i) Transfer Agency Agreement dated February 28, 1997.(2)
(ii) Administrative Services Agreement between the Fund
and INVESCO Funds Group, Inc. dated February 28, 1997.(2)
(a) Amendment to Administrative Services Agreement
dated July 1, 1998.
(iv) Participation Agreement, dated March 22, 1994,
among Registrant, INVESCO Funds Group, Inc., Transamerica
Occidental Life Insurance Company and Charles Schwab & Co.,
Inc.(4)
(v) Participation Agreement, dated August 26, 1994,
among Registrant, INVESCO Funds Group, Inc. and Security
Life of Denver Insurance Company.(3)
(a) Amendment to Participation Agreement
<PAGE>
(vi) Participation Agreement, dated September 19,
1994 among Registrant, INVESCO Funds Group, Inc. and
First ING Life Insurance Company of New York.(4)
(vii) Participation Agreement, dated December 1, 1994,
among Registrant, INVESCO Funds Group, Inc., First Trans-
america Life Insurance Company and Charles Schwab & Co.,
Inc.(4)
(viii) Participation Agreement, dated September 14, 1995,
among Registrant, INVESCO Funds Group, Inc. and Southland
Life Insurance Company.(1)
(ix) Participation Agreement, dated October 31, 1995,
among Registrant, INVESCO Funds Group, Inc. and American
Partners Life Insurance Company.(1)
(x) Participation Agreement, dated April 15, 1996,
among Registrant, INVESCO Funds Group, Inc. and Allmerica
Financial Life Insurance and Annuity Company.(2)
(xi) Participation Agreement, dated December 4, 1996,
among Registrant, INVESCO Funds Group, Inc. and American
Centurion Life Assurance Company.(3)
(xii) Participation Agreement, dated April 15, 1997, among
Registrant, INVESCO Funds Group, Inc. and Prudential
Insurance Company of America.(3)
(xiii) Participation Agreement, dated May 30, 1997, among
Registrant, INVESCO Funds Group, Inc. and Annuity Investors
Life Insurance Co.
(xiv) Participation Agreement, dated August 17, 1998,
among Registrant, INVESCO Funds Group, Inc. and Metropolitan
Life Insurance Company.
(xv) Participation Agreement, dated October 1, 1998,
among Registrant, INVESCO Funds Group, Inc. and Business
Mens' Assurance Company of America.
(xvi) Service Agreement dated September 28, 1998, among
Registrant, INVESCO Funds Group, Inc. and Security life of
Denver Insurance Company.
(xvii) Participation Agreement dated July 8, 1997, among
Registrant, INVESCO Funds Group, Inc., First Great-West
Life & Annuity Insurance Company and Charles Schwab & Co.
Inc.
(xviii)Participation Agreement dated February 8, 1999,
among Registrant, INVESCO Funds Group, Inc., INVESCO
Distributors, Inc. and Nationwide Life Insurance Company
and/or Nationwide Life and Annuity Insurance Company.
(xix) Participation Agreement dated June 19, 1996,
among Registrant, INVESCO Funds Group and Great American
Reserve Insurance Company.
(i) 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
<PAGE>
(j) Consent of Independent Accountants.
(k) Not applicable.
(l) Not applicable.
(m) Not Applicable.
(n) (i) Financial Data Schedule for the year ended
Decembert 31, 1998 for the Blue Chip Growth Fund.
(ii) Financial Data Schedule for the year ended
December 31, 1998 for the Dynamics Fund.
(iii) Financial Data Schedule for the year ended
December 31, 1998 for the Health Sciences Fund.
(iv) Financial Data Schedule for the year ended
December 31, 1998 for the High Yield Fund.
(v) Financial Data Schedule for the year ended
December 31, 1998 for the Industrial Income Fund.
(vi) Financial Data Schedule for the period ended
December 31, 1998 for the Realty Fund.
(vii) Financial Data Schedule for the year ended
December 31, 1998 for the Small Company Growth Fund.
(viii)Financial Data Schedule for the year ended
December 31, 1998 for the Technology Fund.
(ix) Financial Data Schedule for the year ended
December 31, 1998 for the Total Return Fund.
(x) Financial Data Schedule for the year ended
December 31, 1998 for the Utilities Fund.
(o) Not Applicable
1Previously filed on EDGAR with Post-Effective Amendment No. 4 to the
Registration Statement on April 11, 1996, and incorporated by reference herein.
2Previously filed on EDGAR with Post-Effective Amendment No. 6 to the
Registration Statement on February 14, 1997, and incorporated by reference
herein.
3Previously filed on EDGAR with Post-Effective Amendment No. 7 to the
Registration Statement on November 12, 1997, and incorporated by reference
herein.
4Previously filed on EDGAR with Post-Effective Amendment No. 8 to the
Registration Statement on November 24, 1997, and incorporated by reference
herein.
5Previously filed on EDGAR with Post-Effective Amendment No. 10 to the
Registration Statement on February 2, 1998, and incorporated by reference
herein.
Item 24. Persons Controlled by or Under Common Control with the
Fund
No person is presently controlled by or under common control with the Fund.
<PAGE>
Item 25. Indemnification
Indemnification provisions for officers, directors and employees of Registrant
are set forth in Article X of the Amended Bylaws and Article Seventh (3) of the
Articles of Restatement of the Articles of Incorporation, and are hereby
incorporated by reference. See Item 24(b)(1) and (2) above. Under these
Articles, directors and officers will be indemnified to the fullest extent
permitted to directors by the Maryland General Corporation 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,
Fund directors and officers cannot be protected against liability to the Fund 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 Fund also maintains liability insurance policies covering its directors and
officers.
Item 26. Business and Other Connections of Investment Adviser
See "The Fund and Its Management" in the Fund's Prospectus and in the Statement
of Additional Information for information regarding the business of the
investment adviser, INVESCO.
Following are the names and principal occupations of each director and officer
of the investment adviser, INVESCO. Certain of these persons hold positions with
IDI, a subsidiary of INVESCO, and, during the past two fiscal years, have held
positions with Institutional Trust Company d.b.a. INVESCO Trust Company, an
affiliate of INVESCO.
- --------------------------------------------------------------------------------
Position
Name With Principal Occupation and
Adviser Company Affiliation
- --------------------------------------------------------------------------------
Mark H. Williamson Chairman, President & Chief Executive
Director and Officer
Officer INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
William J. Galvin, Jr. Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Ronald L. Grooms Officer Senior Vice President & Treasurer
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Richard W. Healey Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Charles P. Mayer Officer & Senior Vice President
Director INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Timothy J. Miller Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Donovan J. (Jerry) Paul Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Glen A. Payne Officer Senior Vice President, Secretary
& General Counsel
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
John R. Schroer, II Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Marie E. Aro Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Ingeborg S. Cosby Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Stacie Cowell Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Dawn Daggy-Mangerson Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Elroy E. Frye, Jr. Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Linda J. Gieger Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Mark D. Greenberg Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Brian B. Hayward Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Richard R. Hinderlie Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Thomas M. Hurley Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Patricia F. Johnston Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Peter M. Lovell Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
James F. Lummanick Officer Vice President & Assistant
General Counsel
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Thomas A. Mantone, Jr. Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Trent E. May Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Frederick R. (Fritz) Meyer Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Stephen A. Moran Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Jeffrey G. Morris Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Laura M. Parsons Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Jon B. Pauley Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Pamela J. Piro Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Gary L. Rulh Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
John S. Segner Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Terri B. Smith Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Tane T. Tyler Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Thomas R. Wald Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Alan I. Watson Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Judy P. Wiese Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Ronald C. Lively Officer Senior Regional Vice President
INVESCO Funds Group, Inc.
17406 Brown Road
Odessa, FL 33556
- --------------------------------------------------------------------------------
Scott E. Stapley Officer Senior Regional Vice President
INVESCO Funds Group, Inc.
1615 Arch Bay Drive
Newport Beach, CA 92660
- --------------------------------------------------------------------------------
David B. McElroy Officer Regional Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Ryland K. Pruett, Jr. Officer Regional Vice President
INVESCO Funds Group, Inc.
2337 Mirow Place
Charlotte, NC 28270
- --------------------------------------------------------------------------------
Thomas H. Scanlan Officer Regional Vice President
INVESCO Funds Group, Inc.
12028 Edgepark Court
Potomac, MD 20854
- --------------------------------------------------------------------------------
Reagan A. Shopp Officer Regional Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Michael D. Legoski Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Donald R. Paddack Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Kent T. Schmeckpeper Officer Assistant Vice President
Account Relationship Manager
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Jeraldine E. Kraus Officer Assistant Secretary
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Item 27. Principal Underwriters
INVESCO Bond Funds, Inc.
INVESCO Combination Stock & Bond Funds, Inc.
INVESCO Diversified Funds, Inc.
INVESCO Equity Income Fund, Inc.
INVESCO Emerging Opportunity Funds, Inc.
INVESCO Growth Funds, Inc.
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc.
INVESCO Specialty Funds, Inc.
INVESCO Stock Funds, Inc.
INVESCO Tax-Free Income Funds, Inc.
INVESCO Value Trust
INVESCO Variable Investment Funds, Inc.
b)
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter the Fund
William J. Galvin, Jr. Sr. Vice Assistant
7800 E. Union Avenue President & Secretary
Denver, CO 80237 Assistant
Secretary
Ronald L. Grooms Sr. Vice Treasurer,
7800 E. Union Avenue President Chief Fin'l
Denver, CO 80237 & Treasurer Officer, and
Chief Acctg.
Off.
Richard W. Healey Sr. Vice
7800 E. Union Avenue President
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 & Assistant
Denver, CO 80237 Treasurer
<PAGE>
Mark H. Williamson Chairman of the Board, President,
7800 E. Union Avenue President, Chief Executive CEO & Director
Denver, CO 80237 Officer &
Director
(c) Not applicable.
Item 28. Location of Accounts and Records
Mark H. Williamson
7800 E. Union Avenue
Denver, CO 80237
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Fund 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 22nd day of
February, 1999.
ATTEST: INVESCO Variable Investment Funds, Inc.
/s/ Glen A. Payne
- ----------------------------
Glen A. Payne, Secretary /s/ Mark H. Williamson
----------------------------------
Mark H. Williamson, President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
on the date indicated.
/s/ Mark H. Williamson /s/ Lawrence H. Budner
- ------------------------------- -----------------------------
Mark H. Williamson, President & Lawrence H. Budner, Director
Director (Chief Executive Officer)
/s/ Ronald L. Grooms /s/ John W. Mcintyre
- ------------------------------- -----------------------------
Ronald L. Grooms, Treasurer John W. McIntyre, 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/ Charles W. Brady /s/ Kenneth T. King
- ------------------------------- -----------------------------
Charles W. Brady, Director Kenneth T. King, 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
* 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
of the Registrant have been filed with the Securities and Exchange Commission on
July 20, 1989, January 9, 1990, May 22, 1992, September 1, 1993, December 1,
1993, December 21, 1995, December 30, 1996, December 24, 1997 and May 4, 1998.
<PAGE>
Exhibit Index
Page in
Exhibit Number Registration Statement
f(ii) 194
h(ii)(a) 201
h(v)(a) 202
h(xiii) 204
h(xiv) 226
h(xv) 253
h(xvi) 278
h(xvii) 282
h(xviii) 310
h(xix) 318
j 341
n(i) 342
n(ii) 343
n(iii) 344
n(iv) 345
n(v) 346
n(vi) 347
n(vii) 348
n(viii) 349
n(ix) 350
n(x) 351
DEFINED BENEFIT DEFERRED COMPENSATION PLAN
FOR NON-INTERESTED DIRECTORS AND TRUSTEES
As Amended Effective July 1, 1998
The registered, open-end management investment companies referred to on
Schedule A as the Schedule may hereafter be revised by the addition and deletion
of investment companies (the "Funds") have adopted this Defined Benefit Deferred
Compensation Plan ("Plan") for the benefit of those directors and trustees of
the Funds who are not interested directors or trustees thereof as defined in
Section 2(a)(19) of the Investment Company Act of 1940, as amended ("Independent
Directors").
1. Eligibility
Each Independent Director who has served as such ("Eligible Service") on
the boards of any of the Funds and their predecessor and successor entities, if
any, for an aggregate of at least five years at the time of his/her Service
Termination Date (as defined in paragraph 2) will be entitled to receive
benefits under the Plan. An Independent Director's period of Eligible Service
commences on the date of election to the board of directors or trustees of any
one or more of the Funds ("Board"). Hereafter, references in this Plan to
Independent Directors shall be deemed to include only those Directors who have
met the Eligible Service requirement for Plan participation.
2. Service Termination and Service Termination Date
a. Service Termination. Service Termination means termination of service
(other than by disability or death) of an Independent Director which results
from the Director's having reached his/her Service Termination Date.
b. Service Termination Date. An Independent Director's Service Termination
Date is that date upon which he or she no longer serves as a director. Normally
an Independent Director's Service Termination Date will be the last day of the
calendar quarter in which such Director's seventy-second birthday occurs. A
majority of the Board of a Fund may annually extend a Director's normal Service
Termination Date for a maximum period of three years, through the date not later
than the last day of the calendar quarter in which such Director's seventy-fifth
birthday occurs.
As used in this Plan unless otherwise stipulated, Service Termination Date
shall mean the date upon which the Director no longer serves as a director.
<PAGE>
3. Defined Payments and Benefit
a. Payments. If an Independent Director's Service Termination Date occurs
on a date not later than the last day of the calendar quarter in which such
Director's seventy-fourth birthday occurs, the Independent Director will receive
four quarterly payments during the first twelve months subsequent to his/her
Service Termination Date (the "First Year Retirement Payments"), with each
payment to be equal to 25 percent of the sum of the annual basic retainer and
annualized quarterly Board meeting fees payable by each Fund to the Independent
Director on his/her Service Termination Date (excluding any fees relating to
attending or chairing committee meetings or other fees payable to an Independent
Director).
b. Benefit. Commencing with the first anniversary of the Service
Termination Date of any Independent Director who has received the First Year
Retirement Payments, and commencing as of the Service Termination Date of an
Independent Director whose Service Termination Date is subsequent to the date of
the last day of the calendar quarter in which such Director's seventy-fourth
birthday occurred, the Independent Director will receive, for the remainder of
his/her life, a benefit (the "Benefit"), payable quarterly, with each quarterly
payment to be equal to 12.50 percent of the sum of the annual basic retainer and
annualized quarterly Board meeting fees payable by each Fund to the Independent
Director on his/her Service Termination Date (excluding any fees relating
attending or chairing committee meetings or other fees payable to an Independent
Director).
Example: As of July 1, 1998, the annual Beenfit would be $34,000 (annual
basic retainer of $56,000 plus annualized quarterly Board meeting fees of
$12,000 times 12.50 percent of the total each quarter: $56,000 + $12,000 =
$68,000 x .125 = $8,500 x 4 = $34,000). As of July 1, 1998, the vice chairman of
the Funds receives an aggregate annual retainer of $62,000. The vice chairman's
annual Benefit wold be $37,000. The annual Benefit may increase or decrease in
the future in accordance with changes in the Independent Directors' annual basic
retainer and/or Board meeting fees.
c. Death Provisions. If an Independent Director's service as a Director is
terminated because of his/her death subsequent to the last day of the calendar
quarter in which such Director's seventy-second birthday occurred and prior to
the last day of the calendar quarter in which such Director's seventy-fourth
birthday occurs, the designated beneficiary of the Independent Director shall
receive the First Year Retirement Payments and shall, commencing with the
quarter following the quarter in which the last First Year Retirement Payment is
made, receive the Benefit for a period of ten years, with quarterly payments to
be made to the designated beneficiary.
If an Independent Director's service as a Director is terminated because of
his/her death prior to the last day of the calendar quarter in which such
<PAGE>
Director's seventy-second birthday occurs or subsequent to the last day of
the calendar quarter in which such Director's seventy-fourth birthday occurred,
the designated beneficiary of the Independent Director shall receive the Benefit
for a period of ten years, with quarterly payments to be made to the designated
beneficiary commencing in the first quarter following the Director's death.
d. Disability Provisions. If an Independent Director's service as a
Director is terminated because of his/her disability subsequent to the last day
of the calendar quarter in which such Director's seventy-second birthday
occurred and prior to the last day of the calendar quarter in which such
Director's seventy-fourth birthday occurs, the Independent Director shall
receive the First Year Retirement Payments and shall, commencing with the
quarter following the quarter in which the last First Year Retirement Payment is
made, receive the Benefit for the remainder of his/her life, with quarterly
payments to be made to the disabled Independent Director. If the disabled
Independent Director should die before the First Year Retirement Payments are
completed and before forty quarterly Benefit payments are made, such payments
will continue to be made to the Independent Director's designated beneficiary
until the aggregate of the First Year Retirement Payments and forty quarterly
Benefit payments have been made to the disabled Independent Director and the
Director's designated beneficiary.
If an Independent Director's service as a Director is terminated because of
his/her disability prior to the last day of the calendar quarter in which such
Director's seventy-second birthday occurs or subsequent to the last day of the
calendar quarter in which such Director's seventy-fourth birthday occurred, the
Independent Director shall receive the Benefit for the remainder of his/her
life, with quarterly payments to be made to the disabled Independent Director
commencing in the first quarter following the Director's termination for
disability. If the disabled Independent Director should die before forty
quarterly payments are made, payments will continue to be made to the
Independent Director's designated beneficiary until the aggregate of forty
quarterly payments has been made to the disabled Independent Director and the
Director's designated beneficiary.
e. Death of Independent Director and Beneficiary. If, subsequent to the
death of the Independent Director, his/her designated beneficiary should die
before the First Year Retirement Payments and/or a total of forty quarterly
Benefit payments are made, the remaining value of the Independent Director's
<PAGE>
First Year Retirement Payments and/or Benefit (which Benefit shall in no
event exceed the value of forty quarterly payments minus the number of payments
made) shall be determined as of the date of the death of the Independent
Director's designated beneficiary and shall be paid to the estate of the
designated beneficiary in one lump sum or in periodic payments, with the
determinations with respect to the value of the First Year Retirement Payments
and/or Benefit and the method and frequency of payment to be made by the
Committee (as defined in paragraph 8.a.) in its sole discretion.
4. Designated Beneficiary
The beneficiary referred to in paragraph 3 may be designated or changed by
the Independent Director without the consent of any prior beneficiary on a form
provided by the Committee (as defined in paragraph 8.a.) and delivered to the
Committee (or its designee as described on the form) before the Independent
Director's death. If no such beneficiary shall have been designated, or if no
designated beneficiary shall survive the Independent Director, the value or
remaining value of the Independent Director's First Year Retirement Payments
and/or Benefit (which Benefit shall in no event exceed the value of forty
quarterly payments minus the number of payments made) shall be determined as of
the date of the death of the Independent Director by the Committee and shall be
paid as promptly as possible in one lump sum to the Independent Director's
estate.
5. Disability
An Independent Director shall be deemed to have become disabled for the
purposes of paragraph 3 if the Committee shall find on the basis of medical
evidence satisfactory to it that the Independent Director is disabled, mentally
or physically, as a result of an accident or illness, so as to be prevented from
performing each of the duties which are incumbent upon an Independent Director
in fulfilling his/her responsibilities as such.
6. Time of Payment
The First Year Retirement Payments and/or the Benefit for each year will
be paid in quarterly installments that are as nearly equal as possible.
7. Payment of First Year Retirement Payments and/or Benefit:
Allocation of Costs
Each Fund is responsible for the payment of the amount of the First Year
Retirement Payments and/or Benefit applicable to the Fund, as well as its
proportionate share of all expenses of administration of the Plan, including
<PAGE>
without limitation all accounting and legal fees and expenses and fees and
expenses of any Actuary. The obligations of each Fund to pay such First Year
Retirement Payments and/or Benefit and expenses will not be secured or funded in
any manner, and such obligations will not have any preference over the lawful
claims of each Fund's creditors and shareholders. To the extent that the First
Year Retirement Payments and/or Benefit is paid by more than one Fund, such
costs and expenses will be allocated among such Funds in a manner that is
determined by the Committee to be fair and equitable under the circumstances. To
the extent that one or more of such Funds consist of one or more separate
portfolios, such costs and expenses allocated to any such Fund will thereafter
be allocated among such portfolios by the Board of the Fund in a manner that is
determined by such Board to be fair and equitable under the circumstances.
8. Administration
a. The Committee. Any question involving entitlement to payments under or
the administration of the Plan will be referred to a four-person committee (the
"Committee") composed of three Independent Directors designated by all of the
Independent Directors of the Funds and one director of the Funds who is not an
Independent Director, designated by the non-Independent Directors. Except as
otherwise provided herein, the Committee will make all interpretations and
determinations necessary or desirable for the Plan's administration, and such
interpretations and determinations will be final and conclusive. Committee
members will be elected annually.
b. Powers of the Committee. The Committee will represent and act on behalf
of the Funds in respect of the Plan and, subject to the other provisions of the
Plan, the Committee may adopt, amend or repeal bylaws or other regulations
relating to the administration of the Plan, the conduct of the Committee's
affairs, its rights or powers, or the rights or powers of its members. The
Committee will report to the Independent Directors and to the Boards of the
Funds from time to time on its activities in respect of the Plan. The Committee
or persons designated by it will cause such records to be kept as may be
necessary for the administration of the Plan.
9. Miscellaneous Provisions
a. Rights Not Assignable. Other than as is specifically provided in
paragraph 3, the right to receive any payment under the Plan is not transferable
or assignable, and nothing in the Plan
<PAGE>
shall create any benefit, cause of action, right of sale, transfer, assignment,
pledge, encumbrance, or other such right in any heirs or the estate of any
Independent Director.
b. Amendment, etc. The Committee, with the concurrence of the Board of any
Fund, may as to the specific Fund at any time amend or terminate the Plan or
waive any provision of the Plan; provided, however, that subject to the
limitations imposed by paragraph 7, no amendment, termination or waiver will
impair the rights of an Independent Director to receive the payments which would
have been made to such Independent Director had there been no such amendment,
termination, or waiver.
c. No Right to Reelection. Nothing in the Plan will create any obligation
on the part of the Board of any Fund to nominate any Independent Director for
reelection.
d. Consulting. Subsequent to his/her Service Termination Date, an
Independent Director may render such services for any Fund, for such
compensation, as may be agreed upon from time to time by such Independent
Director and the Board of the Fund which desires to procure such services.
e. Effectiveness. The Plan will be effective for all Independent Directors
who have Service Termination Dates occurring on and after October 20, 1993.
Periods of Eligible Service shall include periods commencing prior and
subsequent to such date. Upon its adoption by the Board of a Fund, the Plan will
become effective as to that Fund on the date when the Committee determines that
any regulatory approval or advice that may be necessary or appropriate in
connection with the Plan have been obtained.
Adopted October 20, 1993.
Amended October 19, 1994.
Amended May 1, 1996, effective July 1, 1996.
Amended May 14, 1998, effective July 14, 1998.
<PAGE>
SCHEDULE A
TO
DEFINED BENEFIT DEFERRED COMPENSATION PLAN
FOR NON-INTERESTED DIRECTORS AND TRUSTEES
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 Value Trust
INVESCO Variable Investment Funds, Inc.
The INVESCO Advisor Funds, Inc.
INVESCO Treasurer's Series Trust
Amendment to Administrative Services Agreement
This is an Amendment to the Administrative Services Agreement made and
entered into by and between INVESCO Variable Investment Funds, Inc., a Maryland
corporation (the "Fund") and INVESCO Funds Group, Inc., a Delaware corporation
("INVESCO"), as of the 28th day of February, 1997.
WHEREAS, the Fund desires to retain INVESCO to render certain
administrative, sub-accounting, and recordkeeping services (the "Services"); and
WHEREAS, INVESCO desires to be retained to perform such services;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in the Agreement, it is agreed that effective July 6, 1998, an
additional fee will be paid to INVESCO under the Agreement computed at the
annual rate of 0.25% of each Portfolio's of the gross new assets (new sales of
shares, exchanges, into the Portfolio and reinvestment of dividends and capital
gains distributions) as so determined.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
Agreement on this 6th day of July, 1998.
INVESCO Funds Group, Inc.
/s/ William J. Galvin
By: _________________________
William J. Galvin
Senior Vice President
ATTEST:
/s/ Glen A. Payne
- --------------------------
Glen A. Payne, Secretary
INVESCO Variable Investment Funds, Inc.
/s/ Ronald L. Grooms
By: _____________________________
Ronald L. Grooms
Treasurer, Chief Financial and
Accounting Officer
ATTEST:
/s/ Glen A. Payne
- --------------------------
Glen A. Payne, Secretary
SECOND AMENDMENT TO PARTICIPATION AGREEMENT
THIS AGREEMENT is made by and among Security Life of Denver Insurance
Company, a life insurance company organized under the laws of the State of
Colorado ("Insurance Company"), INVESCO Variable Investment Funds, Inc., a
Maryland corporation (the "Company"), and INVESCO Funds Group, Inc., a Delaware
corporation ("INVESCO") (collectively, the "Parties).
WHEREAS, the Parties executed a participation agreement dated August 26,
1994 (the "Participation Agreement"), governing how shares of the Company's
portfolios are to be made available to certain variable life insurance and/or
variable annuity contracts (the "Contracts") offered by the Insurance Company
through certain separate accounts (the "Separate Accounts");
WHEREAS, the various Contracts for which shares are purchased are listed in
Schedule B of the Participation Agreement;
WHEREAS, the Parties have agreed that it is in their interests to add two
additional Contracts funded by the Separate Accounts,*
NOW THEREFORE, in consideration of their mutual promises, the Insurance
Company, the Company and INVESCO agree as follows:
1. The Participation Agreement is hereby amended by substituting for the
original Schedule B an amended Schedule B in the form attached hereto which adds
the Strategic Advantage 11 Variable Universal Life policy and FirstLine II
Variable Universal Life Policy to the list of Contracts funded by the Separate
Accounts.
Executed this 1st day of June, 1998.
ATTEST: INVESCO Variable Investment Funds, Inc.
BY:/s/ Ronald L. Grooms
-------------------------------------
Ronald L. Grooms
ATTEST: Security Life of Denver Insurance Company
BY:/s/ Carol D. Hard
-------------------------------------
Carol D. Hard
ATTEST: INVESCO Funds Group, Inc.
BY:/s/ Ronald L. Grooms
-------------------------------------
Ronald L. Grooms
<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)
3. Strategic Advantage Variable (Flexible Premium Variable Universal Life
Insurance Policy) Universal Life
4. FirstLine 11 Variable Universal (Flexible Premium Variable Universal Life
Life Insurance Policy)
5. Strategic Advantage 11 Variable
Universal Life (Flexible Premium Variable Universal Life
Insurance Policy)
PARTICIPATION AGREEMENT
Among
INVESCO VARIABLE INVESTMENT FUNDS, INC
INVESCO FUNDS GROUP, INC.
and
ANNUITY INVESTORS LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this 30th day of May, 1997 by and among
ANNUITY INVESTORS LIFE INSURANCE COMPANY, (hereinafter the "Insurance Company"),
an Ohio 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- (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
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 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:
<PAGE>
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 9:00
a.m., Mountain 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 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 9:00 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.
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 aggregate redemption proceeds
(aggregate redemptions of a Fund's shares by an Account) ordinarily will be made
by wiring federal funds to the Insurance Company on the next Business Day after
receipt of the redemption request, but in any event 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 aggregate
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
<PAGE>
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,
provided that (i) such in-kind redemptions are permitted under applicable
provisions of the 1940 Act and (ii) the Company at such time utilizes in-kind
redemptions under this Section 1.7 with respect to other Participating Insurance
Companies with redemptions in excess of $250,000 within any 90-day period.
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.
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 via facsimile by
5:00 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 Section 3907.15 of the Ohio Revised
Code 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 andshall 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.
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
<PAGE>
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 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 Ohio 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.
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 dealing with the money and/or securities of the Company 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 Section 17g-(1) of 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 dealing with
the money and/or securities of the Company 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 of 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. The Insurance Company further
represents and warrants that the employees of Insurance Company, or such other
persons designated by Insurance Company, listed on Schedule C have been
authorized by all necessary action of Insurance Company to give directions,
instructions and certifications to the Company and INVESCO on behalf of
Insurance Company. The Company and INVESCO are authorized to act and rely upon
any directions, instructions and certifications received from such persons
unless and until they have been notified in writing by the Insurance Company of
<PAGE>
a change in such persons, and the Company and INVESCO shall incur no -liability
in doing so.
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.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. INVESCO shall provide the Insurance Company (at the Insurance Company's
expense) with as many copies of the Company's current prospectus as the
Insurance Company may reasonably request. If requested by the Insurance Company
in lieu thereof, the Company shall provide such documentation (including a final
copy of the new prospectus as set in type at the Company's expense) and other
assistance as is reasonably necessary in order for the Insurance Company once
each year (or more frequently if the prospectus for the Company is amended) to
have the prospectus for the Contracts and the Company's prospectus printed
together in one document (at the Insurance Company's expense).
3.2. The Company's prospectus shall state that the Statement of Additional
Information for the Company (the "SAI") is available from INVESCO (or in the
Company's discretion, the Prospectus shall state that the SAI is available from
the Company), and INVESCO (or the Company), at its expense, shall print and
provide the SAI free of charge to the Insurance Company and to any owner of a
Contract or prospective owner who requests the SAI.
3.3. The Company, at its expense, shall provide the Insurance Company with
copies of its proxy material, reports to stockholders and other communications
to stockholders in such quantity as the Insurance Company shall reasonably
require for distributing to Contract owners.
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
(iii) vote Company shares for which no instructions have been received in the
same proportion as Company shares of such portfolio 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 D
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 Commissions 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
<PAGE>
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 or prospectus for the
Company's shares, as such registration statement and prospectus may be amended
or 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
object 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 or prospectus for the
Contracts, as that registration statement and prospectus 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
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
<PAGE>
of the Ohio Department of Insurance. 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.
5.3. The Insurance Company shall bear the expenses of printing and distributing
to Contract owners the Contract prospectuses and 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
<PAGE>
shall be carried out by Insurance Company with a view only to the interests of
the 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 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 and obtaining approval thereof by
the Commission.
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 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
<PAGE>
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 reasonable legal and other expenses), to which the Indemnified
Parties may 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
(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.
<PAGE>
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 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 reasonable costs and
expenses thereof (except that in no event shall the Insurance 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 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 reasonable
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
<PAGE>
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 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 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 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 reasonable 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
<PAGE>
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.
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
reasonable 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, willful misconduct, or
reckless disregard of duty 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 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
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
<PAGE>
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 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, and 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, and the Insurance 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 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 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
<PAGE>
(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 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.
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) , or 10. 1 (j) 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 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
<PAGE>
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:
250 East Fifth Street
Cincinnati, Ohio 45202
Attention: General Counsel
If to INVESCO:
P.O. Box 173706
Denver, Colorado 80217-3706
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 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,
<PAGE>
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:
ANNUITY INVESTORS LIFE
INSURANCE COMPANY
By its authorized officer,
By: /s/ Mark F. Meuthing
---------------------------
Title: Senior Vice President
Date: June 2, 1997
Company:
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its a authorized officer,
By: /s/ Ronald L. Grooms
----------------------------
Title: Treasurer and Chief Financial and Accounting
Officer
Date: May 30, 1997
INVESCO:
INVESCO FUNDS GROUP, INC.
By its authorized officer,
By: /s/ Ronald L. Grooms
-----------------------------
Title: Senior Vice President and Treasurer
Date: May 30, 1997
<PAGE>
Schedule A
Accounts
Name of Account Date of Resolution of Insurance Company's
Board which Established the Account
Annuity Investors Variable
Account B December 19, 1996
INVESCO Variable Investment Funds, Inc.
Industrial Income Fund
Total Return Fund
High Yield Fund
<PAGE>
Schedule B
Contracts
1. Contract Form
A801-BD (NQ Rev. 3/97)-3 Individual Non-Qualified
A801-BD (Q Rev. 3/97)-3 Individual Qualified
G801-BD (97)-3 Group Master
C801-BD (97)-3 Group Certificate
<PAGE>
Schedule C
Persons Authorized to Give Instructions to the Company and INVESCO
(1) NAME: /s/Robert E. Allen ADDRESS AND PHONE NUMBER
-----------------------
Robert E. Allen
250 E. 5th St., Cincinnati, OH 45202
PHONE: (513) 333-5330
Signature
(2) NAME: /s/Lynn Laswell
------------------------
250 E. 5th St., Cincinnati, OH 45202
Phone: (513) 333-6281
Signature
(3) NAME: /s/Arthur Chin
------------------------
250 E. 5th St., Cincinnati, OH 45202
PHONE: (513) 333-5315
Signature
(4) NAME: /s/Todd Gayhart
-------------------------
250 E. 5th St., Cincinnati, OH 45202
PHONE: (513) 333-6005
Signature
(5) NAME: /s/Brian Sponaugle
-------------------------
250 E. 5th St., Cincinnati, OH 45202
PHONE: (513) 357-3396
Signature
<PAGE>
Schedule D
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 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)
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.)
4. 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.
5. 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
<PAGE>
to ensure correctness and completeness. Copy of this approval sent to
INVESCO Legal.
6. 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.
7. 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.
B. 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.
9. 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.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
INVESCO DISTRIBUTORS, INC.
and
METROPOLITAN LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this 17 day of, August, 1998 by and
among METROPOLITAN LIFE INSURANCE COMPANY, (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"), INVESCO DISTRIBUTORS, INC., a Delaware corporation
("Distributors"), 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 or will enter into
and maintain 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 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; and
WHEREAS, Distributors is duly registered 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 interests in the separate
account under the 1933 Act, or will register such interests under the 1933 Act,
as identified in Schedule B attached hereto, which may be amended from time to
time; 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 Distributors 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, Distributors, and INVESCO agree as follows:
<PAGE>
ARTICLE I. Sale of Company Shares
1.1 Distributors 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 that correspond to Contract transactions that are not
within the Insurance Company's discretion 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 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. When
practicable, the Company will provide Insurance Company with thirty (30) days
written notice of its intention to refuse to sell Company shares pursuant to
this Agreement.
1.3. The Company and Distributors 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 Distributors will not sell Company shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Sections 2.1, 2.4, 3.4, 3.5, 4.2, 4.6 and 8.1 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 that correspond
to Contract transactions that are not within the Insurance Company's discretion
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. (a) 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 transmission by Insurance 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.
<PAGE>
(b) Payment of aggregate redemption proceeds (aggregate redemptions of
a Fund's shares by an 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 aggregate
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 aggregate 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.
(c) 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.
(d) The Company anticipates making delayed-settlement redemptions or
in-kind redemptions, pursuant to Paragraphs 1.6(b) and 1.6(c), only in
circumstances where extraordinary market conditions, or the size of the
redemption relative to the size of a given Fund, will work to the detriment of
remaining shareholders if made immediately, in cash. INVESCO and Company agree
to consult with Insurance Company, in good faith, to determine a plan for the
orderly disposition of assets to meet redemption requests from contract owners
prior to invoking the provisions of Paragraphs 1.6(b) and 1.6(c), None of the
foregoing provisions shall diminish the Company's rights under the Investment
Company Act of 1940.
1.7. 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.
1.8. 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.
1.9. The Company shall make the net asset value per share for each Fund
available to the Insurance Company on a daily basis, in accordance with mutually
agreed upon guidelines for electronic transmission, 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.
1.10. INVESCO represents and warrants that any sale or redemption by a
participating Insurance Company of the Company's shares that does not correspond
to Contract transactions that are outside that Participating Insurance Company's
discretion, will receive the next net asset value computed after actual receipt
by the Company of the order for such sale or redemption of and that the
Participating Insurance Company shall not be deemed to be the Company's designee
with respect to such discretionary orders.
<PAGE>
ARTICLE II. Representations and Warranties
2.1. The Insurance Company represents and warrants that interests in the
Separate Account funding 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
Section 4240 of the New York Insurance Code 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 all applicable State and 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 all applicable state and federal laws.
2.3. The Company represents and warrants 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 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 / life insurance / endowment / modified endowment]
contracts, under applicable provisions of the Code and that it will make
commercially reasonable efforts to maintain such treatment and that it will
notify the Company and INVESCO 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 provided however that in such
event, the Company will provide 60 days prior written notice thereof to the
Insurance Company. 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,
except to the extent that any such aspect is subject to insurance laws and
regulations.
2.7. INVESCO Distributors, Inc. 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 Distributors, Inc. further represents and warrants that it
will sell and distribute the Company shares in accordance with all applicable
state and federal securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
<PAGE>
2.8. The Company 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.
2.9. INVESCO 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 Company in compliance in all material
respects with the laws of the State of Colorado and all applicable state and
federal laws; and that all Participating Insurance Companies have entered into
or will enter into and continue to be subject to participation agreements
containing provisions substantially identical to Sections 2.1, 2.4, 3.4, 3.5,
4.2, 4.6 and 8.1 and Article VII of this Agreement.
2.10. The Company, Distributors, and INVESCO represent and warrant that all
of their officers, employees, investment advisers, investment sub-advisers, and
other individuals or entities dealing with the money and/or securities of the
Company 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 Section 17g-(1) of 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 and other individuals that are so required by Rule 17g-1 of the 1940
Act are and shall continue to be at all times covered by a blanket fidelity bond
or similar coverage in an amount not less than the minimum coverage required
currently for entities subject to the requirements of Rule 17g-1 of the 1940 Act
or related provisions or may be promulgated from time to time. The Insurance
Company further represents and warrants that the employees of Insurance Company,
or such other persons designated by Insurance Company, listed on Schedule C have
been authorized by all necessary action of Insurance Company to give directions,
instructions and certifications to the Company and INVESCO on behalf of
Insurance Company. The Company and INVESCO are authorized to act and rely upon
any directions, instructions and certifications received from such persons
unless and until they have been notified in writing by the Insurance Company of
a change in such persons, and the Company and INVESCO shall incur no liability
in doing so.
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 Company represents that it 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
2.14. INVESCO represents and warrants that the investment advisory or
management fees paid to INVESCO by the Company are legitimate and not excessive
and are derived from an advisory contract which does not result in a breach of
fiduciary duty.
<PAGE>
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1 At least 5 business days prior to the legally required distribution
dates, INVESCO shall provide Insurance Company with the following documents on
diskette (post-script format), and such other formats as Insurance Company shall
reasonably request. Insurance Company will be responsible for distributing the
documents to its contract owner.
a. Alternate forms of prospectus for each funding option or any combination
of funding options that Insurance Company is offering and that is
reasonably requested by Insurance Company.
b. Periodic financial reports for the Company.
The Company and INVESCO agree that they will cooperate with the Insurance
Company to make the Prospectuses of the Funds available to Insurance Company in
a format which will facilitate making the Prospectuses available to contract
holders and prospects on the internet. (E.g. in HTML or PDF file formats). The
Insurance Company will be familiar with all federal, state, and SRO rules and
regulations concerning: the electronic offer and sale of securities; and the
electronic distribution of advertising and sales literature, and will conform
its material and procedures to these rules and regulations, in the event that
these means are used by the Insurance Company with respect to any offer or sale
of the Company's shares.
3.2. The Company's prospectus shall state that the Statement of Additional
Information for the Company (the "SAI") is available from INVESCO (or in the
Company's discretion, the Prospectus shall state that the SAI is available from
the Company), and INVESCO (or the company), at its expense shall print the SAI
free of charge to the Insurance Company and to any owner of a Contract or
prospective owner who requests the SAI.
3.3. The Company, at its expense, shall provide the Insurance Company with
copies of its proxy material, voting instruction material as required under
Section 3.4, reports to stockholders and other communications to stockholders in
such quantity as the Insurance Company shall reasonably require for distributing
to Contract owners.
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 in each Account; and
(iii) vote Company shares in each Account, for which no
instructions have been received in the same proportion as
Company shares of such Fund in that Account 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 D
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 as described in this
paragraph.
<PAGE>
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 represents and warrants that it is familiar with
all NASD requirements for the filing and review of investment company
advertising and sales literature. Insurance Company assumes all responsibility
for filing with the NASD of advertising and sales literature created by
Insurance Company pursuant to this Agreement. Insurance Company intends to
create, and provide to contract holders, monthly performance reports of
participating Funds. Insurance Company will initially provide a sample format of
these monthly performance reports to INVESCO for INVESCO's approval. Thereafter,
Insurance Company will be required to provide INVESCO with samples of the
monthly performance reports, for approval by INVESCO, only if the content or
format of the monthly performance reports changes substantially. Generally,
INVESCO and Insurance Company agree to good faith mutual cooperation in the
resolution of novel or controversial issues concerning advertising and sales
literature that may arise pursuant to this Agreement.
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 or prospectus for the
Company's shares, as such registration statement and prospectus may be amended
or 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
reasonably object to such use within ten calendar days after receipt of that
material.
4.4. The Company, distributors, 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 or prospectus for the
Contracts, as that registration statement and prospectus 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.
<PAGE>
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 use of the Company in 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
public media, sales literature (i.e., any 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 relevant 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 relevant
records pertaining to the performance of services under this Agreement pursuant
to the requirements of any state insurance regulator(s). However, Company and
INVESCO shall own and control all of their respective records pertaining to
their performance of the services under this Agreement.
4.9. If the Fund provides incorrect share net asset value information, the
Insurance Company shall receive adjustment to the number of shares purchased or
redeemed to reflect the correct net asset value per share (and, if and to the
extent necessary, the Insurance Company shall make adjustments to the number of
units credited, and/or unit values for the Contracts for the periods affected).
In the event adjustments are required to correct any error in the computation of
the Company's net asset value per share, or dividend or capital gain
distribution, INVESCO or the Fund shall promptly notify the Insurance Company
after discovering the need for such adjustments. If an adjustment is necessary
to correct an error which has caused Contract owners to be credited with more or
less than the amount to which they are entitled, INVESCO shall make all
necessary adjustments to the number of shares owned by the Account and
distribute to the Account the amount of the underpayment. The Insurance Company
will adjust the number of units of each Contract owner and credit the
appropriate amount of such payment to each Contract owner. In no event shall the
Insurance Company be liable to Contract owners for any such adjustments or
underpayments amounts, provided that the underpayments was not caused by the
Insurance Company. In no event shall the Insurance Company be liable to the Fund
or the Adviser for any such adjustments or overpayment amounts, provided that
the overpayment was not caused by the Insurance Company. In the event that any
known overpayments are made to Contract owners, as a result of any such error,
Insurance Company will take commercially reasonable steps, within the
constraints of state and federal law, to recover overpaid amounts on behalf of
the Fund, and promptly notify INVESCO of the existence of the overpayment and
the steps taken to attempt to recover overpayment amounts. All of the Insurance
Company's reasonable expenses incident to any adjustments required hereunder
(including any uncollected, overpaid amounts) shall be borne by INVESCO,
provided that the need for the adjustment was not caused by the Insurance
Company.
<PAGE>
4.10. The Company shall send to the Insurance Company, (i) confirmations of
activity in the Separate Account within five (5) business days after each date
on which a purchase or redemptions of shares of the Company is effected for the
Account, and (ii) statements detailing activity in the Account no less
frequently than quarterly.
4.11. The Company and INVESCO shall provide the Insurance Company with any
information it reasonably requests from time to time, in connection with the
Insurance Company's performance of this Agreement, and reporting to management
and customers. This information will be provided by the Company or INVESCO
within five (5) days after receiving such requests from the Insurance Company.
ARTICLE V. Fees and Expenses
5.1. In order to appropriately adjust the respective interest of INVESCO
and the Insurance Company (taking into consideration, among other things, the
services to be provided and the expenses and risks to be borne by each, as well
as the revenues and other benefits expected to accrue to each, directly or
indirectly as a result of this Agreement), INVESCO shall pay a fee to the
Insurance Company for services provided by Insurance Company under this
agreement, at the rate designated in Schedule E attached hereto. No such
payments shall be made by the Company. It is understood that the Insurance
Company may make prospectus disclosure of the amount of this compensation. The
parties to this Agreement recognize and agree that INVESCO's payments to the
Insurance Company are in consideration of administrative services provided by
Insurance Company to the Company only, and do not constitute payment in any
manner for administrative services provided by the Insurance Company to the
Accounts or to the Contracts, for investment advisory services or for costs of
distributions of Contracts or of shares of the Company, and that these payments
are not otherwise related to investment advisory or distributions services or
expenses.
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 any
applicable federal law and, 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.
5.3. The Insurance Company shall bear the expenses of printing and
distributing to Contract owners the Contract prospectuses and of distributing to
Contract owners the Company's prospectus, proxy materials and reports.
ARTICLE VI. Diversification
6.1. The Company represents, warrants and covenants that each Account may
"look through" to the investments of each Fund in which it holds shares in
accordance with the "look through" rules found in Treasury Regulation 1.817-5
and that each Fund will at all times, 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. The Company
shall provide the Insurance Company with a certificate of compliance with such
diversification requirement for each fund within 20 days of the close of each
calendar quarter in substantially the form attached hereto as Schedule F.
<PAGE>
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
immediately inform the Insurance Company in writing 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.
7.3. If it is reasonably 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 commercially reasonable steps to remedy or eliminate the
irreconcilable material conflict, which may include (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 and
obtaining approval thereof by the Commission.
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 reasonable 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 reasonably 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
in accordance with the terms of this Agreement for the purchase (and redemption)
of shares of the Company.
<PAGE>
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's reasonable determination and notice thereof to the Insurance Company
in writing 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 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 reasonably 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. In the event that the Board reasonably 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 reasonably 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), which consent
shall not be withheld for any settlement that would be commercially reasonable
for the indemnified Parties in the absence of this Section 8.1) or litigation
(including reasonable legal and other expenses), to which the Indemnified
Parties may 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, holding , 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
<PAGE>
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, and in conformity
with, information furnished in writing to the Company by the Insurance
Company; or
(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
<PAGE>
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
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, officers and, contract owners, 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 reasonable
amounts paid in settlement with the written consent of INVESCO, which consent
shall not be withheld for any settlement that would be commercially reasonable
for the Indemnified Parties in the absence of this Section 8.2) 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, holding, 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
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
<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 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 INVESCO or the Company;
(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 without in any way limiting or restricting any other
remedies available to the Insurance Company, INVESCO will pay all
costs associated with, or arising out of any failure, or any
anticipated or reasonably foreseeable failure to comply with Section
6.1 hereof, and all costs associated with correcting or responding to
any such failure, on behalf of Insurance Company or its contract
owners; 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
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. Unless the Indemnified
Party releases INVESCO from any further obligation under this Section 8.2,
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
<PAGE>
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. Notwithstanding any other provision of this Paragraph 8.2(c)
the Insurance Company shall be entitled to refuse any request by INVESCO to
assume the defense of any action brought against Insurance Company by the
Internal Revenue Service ("IRS") or any other tax authority, provided that
following such refusal, INVESCO shall be released from any further obligation
for costs of defense under this section 8.2. If they are so allowed by rules of
procedure, however, INVESCO and Company will be entitled to participate in the
defense of any action brought against Insurance Company by the IRS or any other
tax authority, with any and all costs associated with INVESCO's or the Company's
defense to be the responsibility of INVESCO or the Company.
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.
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, which consent shall not
be withheld for any settlement that would be commercially reasonable for the
Indemnified Parties in the absence of this Section 8.3) or litigation (including
reasonable 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, willful misconduct, or
reckless disregard of duty of the Board , the directors, officers, employees, or
agents that 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.
<PAGE>
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
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.
Unless the Indemnified Party releases Company from any further obligation under
this Section 8.3, 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.
8.4 INVESCO Distributors, Inc., shall be jointly and severally liable for
all of INVESCO's obligations under this Article VIII.
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 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
any exemptions from those statutes, rules and regulations the Commission may
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.
<PAGE>
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon six (6) months 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 comparable regulatory body regarding the Insurance
Company's duties under this Agreement, the operation of any
Account, or the purchase of the Company's shares, provided,
however, that the Company determines in its 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. Prompt written
notice of election to terminate for such cause shall be furnished
by the Company to the Insurance Company; 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 comparable
regulatory body, provided, however, that the Insurance Company
determines in its judgment 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. Prompt written notice of
election to terminate for such cause shall be furnished by
Insurance Company to Company.; 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 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
<PAGE>
(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
judgment reasonably exercised in good faith, that the Insurance
Company has suffered a material adverse change in its business or
financial condition that 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 judgment reasonably
exercised in good faith, that either the Company or INVESCO has
suffered a material adverse change in its business or financial
condition that 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.
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 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.
10.3. 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
effective date of termination of this Agreement ("Existing Contracts").
Specifically, without limitation, the owners of the Existing Contracts shall be
permitted to maintain their investments in the Company, 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 and that all relevant provisions of this Agreement shall remain in
effect for those purposes (including any payments due to Insurance Company
pursuant to Section 5.1). The parties agree that this Section 10.3 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.
<PAGE>
10.4. 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, (ii) as permitted by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(a "Legally Permitted Redemption"), or (iii) as otherwise specified in the
insurance contract. 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 Permitted
Redemption.
10.5. In the event of any termination of this Agreement pursuant to this
Article X or Article VII, the following provisions shall survive: Sections 4.9,
5.1 and 12.1 and Article VIII.
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
Metropolitan Life Insurance
485-B Route 1 South, Suite 420
Iselin, NJ 08830
Attention: Mr. G. Denis Dwyer-Vice-President
With a copy to:
Metropolitan Life Insurance
1 Madison Avenue - Law Department
New York NY 10010
Attention: Ms. Robin Wagner
If to INVESCO:
P.O. Box 173706
Denver, Colorado 80217-3706
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 or as required by applicable law, 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.
<PAGE>
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 relevant 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.
THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK
<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:
METROPOLITAN LIFE INSURANCE COMPANY
By its authorized officer,
By: John J. Ryan /s/ John J. Ryan Title: Vice-President
--------------------
Date: 8-13-98
Company:
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
By: Ronald L. Grooms /s/ Ronald L. Grooms Title: Treasurer
---------------------
Date: 8/18/98
INVESCO:
INVESCO FUNDS GROUP, INC.
By its authorized officer,
By: Glen A. Payne /s/ Glen A. Payne Title: Sr. Vice-President
--------------------
Date:August 17, 1998
INVESCO DISTRIBUTORS, INC.
By its authorized officer,
By: Glen A. Payne /s/ Glen A. Payne Title: Sr. Vice-President
----------------------
Date: August 17, 1998
<PAGE>
Schedule A
Accounts
Name of Account Date of Resolution of Insurance Company's Board
which Established the Account
Separate Account UL December 13, 1988
<PAGE>
Schedule B
Contracts
1. Contract Form 7FV-93 Flexible Premium Variable Life Insurance Policy
(a.k.a. MetFlexSM)
<PAGE>
Schedule C
Persons Authorized to Give Instructions to the Company and INVESCO
As of August 17, 1998
NAME ADDRESS AND PHONE NUMBER
(1) G. Denis Dwyer, Vice-President 485-B Route One South, Iselin, NJ 08830
Print or Type Name
/s/ G. Denis Dwyer Phone: 732-602-6404
---------------------------------
Signature
(2) Michael Rogalski, Vice-President
& Actuary 485-B Route One South, Iselin, NJ 08830
Print or Type Name
/s/ Michael Rogalski Phone: 732-602-6420
----------------------------------
Signature
(3) Irene Baranello, Director 485-B Route One South, Iselin, NJ 08830
Print or Type Name
/s/ Irene Baranello Phone: 732-602-6406
----------------------------------
Signature
It is understood that the above names are subject to change. Changes to this
schedule will be done in writing.
<PAGE>
Schedule D
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 contract
owner/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 provide
all required contract holder information to INVESCO, as soon as possible, but no
later than one week after the Record Date.
3. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Insurance Company by the Company. The Company or
INVESCO , 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)
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.)
4. 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
<PAGE>
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.
5. 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.
6. 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. ---
7. 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.
8. 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.
9. 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.
10. 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.
11. 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.
12. 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 provide a standard form for each
Certification.
13. 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.
14. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
<PAGE>
15. INVESCO will bear all costs associated with producing voting
instruction materials, whether such materials are produced by INVESCO or by
Insurance Company. Insurance Company will bear all costs associated with
distributing voting materials to contract holders, tabulating votes, and
archiving voting Cards, as described herein, whether such activities are
performed by Insurance Company or INVESCO.
PARTICIPATION AGREEMENT
Among
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO FUNDS GROUP, INC.
INVESCO DISTRIBUTORS, INC.
and
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
THIS AGREEMENT, made and entered into this 1st day of October, 1998 by and
among Business Men's Assurance Company of America, (hereinafter the "Insurance
Company"), a Missouri 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"), INVESCO DISTRIBUTORS, INC. ("Distributors"), a
Delaware corporation, 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(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 Iife insurance companies that may or may not
be affiliated with one another (the "Mixed and Shared Funding Exemptive Order");
and
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/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
<PAGE>
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 Contacts 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
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, all in
accordance with Section 817(h)(4) of the Internal Revenue Code of 1986, as
amended (the "Code"), and Treasury Regulation Section 1.817-5. 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 foIlowing Business Day. Payment shall be in federal funds transmitted
<PAGE>
by wire, or as otherwise provided by separate agreement, on the same Business
Day the Company receives notice of the redemption order from the Insurance
Company, to the extent practicable, but in any event within five (5) calendar
days after the date the order is placed in order to enable the Insurance Company
to pay redemption proceeds within the time specified in Section 22(e) of the
1940 Act or such shorter period of time as may be required by law.
1.6. 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 aggregate redemption proceeds
(aggregate redemptions of a Fund's shares by an 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 aggregate 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 aggregate 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. The Company anticipates making delayed-settlement redemptions, pursuant to
this Paragraph 1.6, only in circumstances where extraordinary market conditions,
or the size of the redemption relative to the size of a given Fund, will work to
the detriment of remaining shareholders if made immediately. INVESCO and Company
agree to consult with Insurance Company, in good faith, to determine a plan for
the orderly disposition of assets to meet redemption requests from contract
owners prior to invoking the provision of Paragraph 1.6 relating to delayed
settlement. None of the foregoing provisions shall diminish the Company's rights
under the Investment Company Act of 1940.
1.7. 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.
1.8. 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.
1.9. 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 4:30 p.m.,
Mountain Time. If the Company provides materially incorrect share net asset
value information, the Company shall make an adjustment to the number of shares
purchased or redeemed for the Accounts to reflect the correct net asset value
per share. Any material error in the calculation or reporting of net asset value
per share, dividend or capital gains information shall be reported promptly upon
discovery to the Insurance Company.
<PAGE>
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, unless exempt therefrom; 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 Missouri Insurance
Law and has registered, or prior to any issuance or sale of the Contracts will,
to the extent required by law or regulation, 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 and state 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.
2.3. The Company represents and warrants 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. Subject to Section 2.3 and Article VI hereof 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 Contacts 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 and promptly notify the Insurance Company thereof.
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. Distributors represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the Commission.
Distributors further represents that it will sell and distribute the Company
shares in accordance with 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 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.
<PAGE>
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.
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 dealing with the money and/or securities of the Company
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 Section 17g-(1) of 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
dealing with the money and/or securities of the Company 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 of 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. The Insurance Company further represents
and warrants that the employees of Insurance Company, or such other persons
designated by Insurance Company, listed on Schedule C have been authorized by
all necessary action of Insurance Company to give directions, instructions and
certifications to the Company and INVESCO on behalf of Insurance Company. The
Company and INVESCO are authorized to act and rely upon any directions,
instructions and certifications received from such persons unless and until they
have been notified in writing by the Insurance Company of a change in such
persons, and the Company and INVESCO shall incur no liability in doing so.
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.
ARTICLE Ill. Prospectuses and Proxy Statements; Voting
3.1. INVESCO shall provide the Insurance Company (at the Insurance
Company's expense) with as many copies of the Company's current prospectus as
the Insurance Company may reasonably request. If requested by the Insurance
Company in lieu thereof, the Company shall provide such documentation (including
a final copy of the new prospectus as set in type, or on diskette, at the
Company's expense) and other assistance as is reasonably necessary in order for
the Insurance Company once each year (or more frequently if the prospectus for
the Company is amended) to have the prospectuses for the Contracts, other funds
invested in by the Account and the Company's prospectus for the Funds offered in
the Contracts printed together in one document. The expenses of such printing to
be apportioned between (a) the Insurance Company and (b) the Company or its
designee in proportion to the number of pages of the Contract and the Company
prospectuses, taking account of other relevant factors affecting the expense of
printing such as covers, columns, graphs and charts; the Company or its designee
to bear the cost of printing the Company's prospectus portion of such document
for distribution to owners of existing contracts funded by the Company's shares
and the Insurance Company to bear the expenses of printing the portion of such
document relating to the Accounts; provided however, that the Insurance Company
shall bear all printing expenses of such combined documents where used for
distribution to prospective purchasers or to owners of existing contracts not
funded by Company shares.
<PAGE>
3.2. The Company's prospectus shall state that the Statement of Additional
Information for the Company (the "SAI") is available from INVESCO (or in the
Company's discretion, the Prospectus shall state that the SAI is available from
the Company), and INVESCO (or the Company), at its expense, shall print and
provide the SAI free of charge to the Insurance Company and to any owner of a
Contract or prospective owner who requests the SAI.
3.3. The Company, at its expense, shall provide the Insurance Company with
copies of its proxy material, reports to stockholders and other communications
to stockholders in such quantity as the Insurance Company shall reasonably
require for distributing to Contract owners.
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
(iii) vote Company shares for which no instructions have been received
in the same proportion as Company shares of such portfolio
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 D
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 or prospectus for the
Company's shares, as such registration statement and prospectus may be amended
or 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.
<PAGE>
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
object 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 or prospectus for the
Contracts, as that registration statement and prospectus 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, which relates to the Company,
INVESCO, or Distributors, 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
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. INVESCO shall pay a fee to the Insurance Company for services provided
by Insurance Company under this agreement at the rate designated in Schedule E
attached hereto. No such payments shall be made directly by the Company. This
fee shall be paid to the Insurance Company for as long as the Account(s) own
shares of the Company.
<PAGE>
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,
SAI, registration statement and amendments and supplements thereto, 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.
5.3. The Insurance Company shall bear the expenses of printing and
distributing to Contract owners the Contract prospectuses and of distributing to
Contract owners the Company's prospectus, 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. The Company will notify the Insurance Company immediately
upon having a reasonable basis for believing that a Fund has ceased to so comply
or that a Fund might not so comply in the future. In the event of a breach of
this Section 6.1, the Company will take all reasonable steps to adequately
diversify so as to achieve compliance within the grace period afforded by
Section 1.817-5 of the regulations under the Code.
ARTICLE VIl. 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 and obtaining approval thereof by
the Commission.
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
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.
<PAGE>
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 add 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
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
<PAGE>
iii. arise out of any untrue statement or alleged untrue state-
ment 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 materialfact 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
iv. arise as a result of any failure by the Insurance Company to
provide the services and furnish the materials under the
term 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 ended 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 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.
<PAGE>
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 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 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 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
<PAGE>
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company,
Distributors, or INVESCO in this Agreement or arise out of
or result from any other material breach of this Agreement
by the Company, Distributors, or INVESCO, including a
failure to comply with Section 2.3 and Article VI of this
Agreement;
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
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 it 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.
8.3 Indemnification By the Company
<PAGE>
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 or regulation, 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, willful misconduct
or reckless disregard of duty of the Board or any member thereof, are related to
the operations of the Company and:
(ii) 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.
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
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.
<PAGE>
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
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 six (6) months advance
written notice to the other parties; 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, Distributors, 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 judgment 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
<PAGE>
(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 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, Distributors, or INVESCO 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 the Insurance
<PAGE>
Company, (2) the Insurance Company shall notify the
Company, Distributors, and INVESCO in writing of the
determination and its intent to terminate the
Agreement, and (3) after considering the actions taken
by the Company, Distributors, 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) Upon notice of material breach of the Agreement by a
party.
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
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, (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(a "Legally Required Redemption"), or, (iii) pursuant to a substitute funding
order issued by the United States Securities and Exchange Commission ("SEC"), in
which case Insurance Company will provide Company with notice of its intent to
file an application for a substitute funding order contemporaneously with the
filing of such application with the SEC. 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.
<PAGE>
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:
Business Men's Assurance Company of America
700 Karnes Boulevard
Kansas City, Missouri 64108
Attn: Michael Deardorff, Vice President
If to INVESCO:
P.O. Box 173706
Denver, Colorado 80217-3706
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 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 each other
and 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.
12.8 Article VIII and Sections 12.1 and 12.5 shall survive termination of
this Agreement.
<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:
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
By its authorized officer
By: /s/
------------------------------------
Title: Vice President & General Counsel
Date: 10/15/98
Company: BMA
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
By. /s/ Ronald L. Grooms
------------------------------------
Title: Ronald L. Grooms-Treasurer
Date: October 15, 1998
<PAGE>
INVESCO:
INVESCO FUNDS GROUP, INC.
By its authorized officer,
By: /s/ Ronald L. Grooms
------------------------------------
Ronald L. Grooms
Title: Senior Vice President
Date: October 15, 1998
DISTRIBUTORS:
INVESCO DISTRIBUTORS, INC.
By its authorized officer,
By: /s/ Ronald L. Grooms
------------------------------------
Ronald L. Grooms
Title: Senior Vice President
Date: October 15, 1998
<PAGE>
Schedule A
Accounts
Name of Account Date of Resolution of Insurance Company's
Board which Established the Account
BMA Variable Life Account A September 9, 1996
BMA Variable Annuity Account A September 9, 1996
<PAGE>
Schedule B
Contracts
1. Variable Annuity Contract VA-20
2. Variable Life Contract VL-50
<PAGE>
Schedule C
Persons Authorized to Give Instructions to the Company and INVESCO
NAME ADDRESS AND PHONE NUMBER
(1) Susan Sweeney 700 Kames Blvd., Kansas City, MO 64108
/s/ Susan Sweeney Phone: 816-751-5332
--------------------
(2) Stephen Jennings 700 Kames Blvd., Kansas City, MO 64108
/s/ Stephen Jennings
-------------------- Phone: 816-751-5379
(3) Mike Lynch 700 Kames Blvd., Kansas City, MO 64108
/s/ Mike Lynch
-------------------- Phone: 816-751-5367
<PAGE>
Schedule D
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 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)
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.)
4. 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.)
<PAGE>
e. Cover letter - optional, supplied by Insurance Company and
reviewed and approved in advance by INVESCO Legal.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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. ------
11. 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 am.
Denver time. INVESCO Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
12. 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 provide a standard form for each
Certification.
13. 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.
14. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
SERVICE AGREEMENT
This Agreement is made as of the 8th day of September, 1998, by and between
INVESCO Funds Group, Inc. ("INVESCO"), the distributor for the INVESCO Variable
Investment Funds, Inc. ( the "Company"), and Security Life of Denver Insurance
Company ("Security Life"), a Colorado corporation, collectively, the "Parties."
WITNESSETH:
WHERAS Security Life has entered into an agreement, dated August 26, 1994,
and amended February 22, 1995, with the Company and INVESCO (the "Participation
Agreement") pursuant to which INVESCO will make shares of each of its Portfolios
available to certain variable life insurance and/or variable annuity contracts
offered by Security Life through certain separate accounts (the "Separate
Accounts") at net asset value and with no sales charges, subject to the terms of
the Participation Agreement; and
WHEREAS the Participation Agreement provides that the Company will bear the
costs of preparing, filing with the Securities and Exchange Commission, printing
or duplicating and mailing the Company's (or the Portfolios') prospectus,
statement of additional information and any amendments or supplements thereto,
periodic reports to shareholders, Fund proxy material and other shareholder
communications (collectively, the "Fund Materials") required by law to be sent
to owners of Contracts ("Contract Owners") who have allocated any Contract value
to a Portfolio; and
WHEREAS the Participation Agreement provides that the Company, at its
expense, will provide Security Life with camera ready copies or copies suitable
for duplication of all Fund Materials with respect to prospective Variable
Contract Owners of Security Life; and
WHEREAS the Participation Agreement makes no provision for which party
shall incur various administrative expenses in connection with the servicing of
Contract Owners who have allocated Contract value to a portfolio, including, but
not limited to, responding to various Contract Owner inquiries regarding a
Portfolio; and
WHEREAS the Parties hereto wish to allocate the expenses in a manner that
is fair and equitable, and consistent with the best interests of Contract
Owners; and
WHEREAS the Parties hereto wish to establish a means for allocating the
expenses that does not entail the expense and inconvenience of separately
identifying and accounting for each item of Fund expense;
NOW THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
<PAGE>
I.Services Provided:
Security Life agrees to provide services to the Company and INVESCO
including the following:
a) responding to inquiries from Security Life Contract Owners
using one or more of the Portfolios as an investment vehicle regarding
the services performed by Security Life as they relate to INVESCO, The
Company or its Portfolios;
b) providing information to the INVESCO or the Company and to
Contract Owners with respect to shares attributable to Contract Owner
accounts;
c) facilitate the printing and mailing of shareholder
communications from INVESCO or the Company as may be required pursuant
to Article III of the Participation Agreement;
d) communication directly with Contract Owners concerning INVESCO
or the Company's operations;
e) providing such similar services as the INVESCO or the Company
may reasonably request to the extent permitted or required under
applicable statutes, rules and regulations.
II. Expense Allocations:
Subject to Section III hereof, Security Life or its affiliates shall
initially bear the costs of the following:
a) printing and distributing all Fund Materials to be distributed
to prospective Contract owners except as may otherwise be provided in
the Participation Agreement;
b) printing and distributing all sales literature or promotional
material developed by Security Life or its affiliates and relating to
the Contracts;
c) servicing Contract Owners who have allocated Contract value to
a Portfolio, which servicing shall include, but is not limited to, the
items listed in Paragraph I of this Agreement.
III.Payment of Expenses,:
In recognition of the substantial savings in administrative expenses to
INVESCO and th Company by virtue of having a sole shareholder, Security Life,
and having that shareholder be responsible for the servicing of the Contract
Owners, INVESCO or its affiliates will pay an administrative service fee to
Security Life, as described below:
a) INVESCO shall pay to Security Life a quarterly fee
(hereinafter, the "Quarterly Fee") equal to a percentage of the
average daily net assets of the Portfolio attributable to Contracts
offered by Security Life, at the annual rate of .20% on the aggregate
net assets of the INVESCO VIF-Industrial Income and the INVESCO
VIP-Total Return and the INVESCO VIF-Small Company Growth Portfolios,
and at the annual rate of. 15% on the aggregate net assets of the
INVESCO VIF-I-Egh Yield and INVESCO VIF-Utilities Portfolio, in
connection with the expenses incurred by Life Company under Section 11
hereof The payment of the Quarterly Fee shall commence as of the
stated effective date of this Agreement but shall be payable only on
each Portfolio which has reached $30 million in total net assets.
<PAGE>
b) From time to time, the Parties hereto shall review the
Quarterly Fee to determine whether it reasonably approximates the
incurred and anticipated costs, over time, of Security Life in
connection with its duties hereunder. The Parties agree to negotiate
in good faith any change to the Quarterly Fee proposed by a Party in
good faith.
This Agreement shall not modify any of the provisions of Article III of
the Participation Agreement, but shall supplement those provisions.
c) This Agreement shall supercede paragraph 2.5 of the
Participation Agreement.
IV. Term of Agreement
This Agreement shall continue in effect for so long as Security Life or its
successor(s) in interest, or any affiliate thereof, continues to hold shares of
the Company or its portfolios, and continues to perform in a similar capacity
for the Company and INVESCO.
V. Indemnification:
a) Security Life agrees to indemnify and hold harmless the
Company, INVESCO and their officers and directors, from any and all
loss, liability and expense resulting from the gross negligence or
willful wrongful act of Security Life under this Agreement, except to
the extent such loss, liability or expense is the result of the
willful misfeasance, bad faith or gross negligence of the Company or
INVESCO in the performance of its duties, or by reason of the reckless
disregard of their obligations and duties under this Agreement.
b) The Company and INVESCO agree to indemnify and hold harmless
Security Life and its officers and directors from any and all loss,
liability and expense resulting from the gross negligence or willful
wrongful act of the Company or INVESCO under this Agreement, except to
the extent such loss, liability or expense is the result of the
willful misfeasance, bad faith or gross negligence of Security Life in
the performance of its duties, or by reason of the reckless disregard
of its obligations and duties under this Agreement.
VI. Notices:
Notices and communications required or permitted hereby will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
Attn: General Counsel
FAX: 303 930-6541
Security Life of Denver Insurance Company
1290 Broadway
Denver, CO 80203-1566
Attn: Russell C. Burk, Esq.
FAX: 303-860-2134
VII. Applicable Law:
Except insofar as the Investment Company Act of 1940 or other federal laws and
regulations may be controlling, this Agreement will be construed and the
provisions hereof interpreted under and in accordance with Colorado law, without
regard for that state's principles of conflict of laws.
<PAGE>
VIII.Execution in Counterparts:
This Agreement may be executed simultaneously in two or more counterparts, each
of which taken together will constitute one and the same instrument.
IX. Severability:
If any provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby.
X. Rights Cumulative:
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, that the Parties are entitled to under federal and state laws.
XI. Headings
The headings used in this Agreement are for purposes of reference only and shall
not limit or define the meaning of the provisions of this Agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in
their names and on their behalf by and through their duly authorized officers
signing below.
INVESCO Funds Group, Inc.
By:/s/ Ronald L. Grooms
----------------------------------------
Name: Ronald L. Grooms
Title: Sr. Vice President & Treasurer
Security Life of Denver Insurance Company
By:/s/ Carol D. Hard
----------------------------------------
Name: Carol D. Hard
Title:- Senior Vice President
PARTICIPATION AGREEMENT
Among
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO FUNDS GROUP, INC.
and
CHARLES SCHWAB & CO., INC.
THIS AGREEMENT, made and entered into as of this 8th day of July 1997 by and
among FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY (hereinafter
"FirstGWL&A"), a New York life insurance company, on its own behalf and on
behalf of its Separate Account Variable Annuity-1 Series Account (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, including FirstGWL&A, 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-3(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 "Mixed and 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 Portfolio(s) 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
WHEREAS, FirstGWL&A 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 attached hereto and
incorporated herein by reference, 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 FirstGWL&A on
January 15, 1997, to set aside and invest assets attributable to the Contracts;
and
WHEREAS, FirstGWL&A has registered or will register the Account as a unit
investment trust under the 1940 Act and has registered or will register the
securities deemed to be issued by the Account under the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
FirstGWL&A intends to purchase shares in the Portfolio(s) listed in Schedule B
attached hereto and incorporated herein by reference, as it may be amended from
time to time by mutual written agreement (the "Designated Portfolio(s)"), on
behalf of the Account to fund the Contracts, and the Fund is authorized to sell
such shares to unit investment trusts such as the Account at net asset value;
and
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Account also intends to purchase shares in other open-end investment
companies or series thereof not affiliated with the Fund (the "Unaffiliated
Funds") on behalf of the Account to fund the Contracts; and
WHEREAS, Schwab will perform certain services for the Fund in
connection with the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, FirstGWL&A, Schwab,
the Fund and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1. 1. The Fund agrees to sell to FirstGWL&A those shares of the Designated
Portfolio(s) which the Account orders, executing such orders on each Business
Day 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, FirstGWL&A 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 Portfolio(s) available for
purchase at the applicable net asset value per share by FirstGWL&A and the
Account on those days on which the Fund calculates its Designated Portfolio(s)'
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 any 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 will not sell shares of the Designated Portfolio(s) to any other
Participating Insurance Company or separate account unless an agreement
containing provisions substantially the same as Sections 2.1, 3.5, 3.6, 3.7, and
Article VII of this Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on FirstGWL&A's request, any full or
fractional shares of the Fund held by FirstGWL&A, executing such requests on
each Business Day at the net asset value next computed after receipt by the Fund
or its designee of the request for redemption. Requests for redemption
identified by FirstGWL&A, or its agent, as being in connection with surrenders,
annuitizations, or death benefits under the Contracts, upon prior written
notice, may be executed within seven (7) calendar days after receipt by the Fund
or its designee of the requests for redemption. 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,FirstGWL&A 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 Participating
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. FirstGWL&A shall pay for Fund shares by 3: 00 p.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.
<PAGE>
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 FirstGWL&A or the Account. Shares
ordered from the Fund will be recorded in an appropriate title for the Account
or the appropriate sub-account of the Account.
1.9. The Fund shall furnish same day notice (by wire or telephone, followed by
written confirmation) to FirstGWL&A of any income, dividends or capital gain
distributions payable on the Designated Portfolio(s)' shares. FirstGWL&A hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio.
FirstGWL&A reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
FirstGWL&A by the end of the next following Business Day of the number of shares
so issued as payment of such dividends and distributions.
<PAGE>
1.10. The Fund shall make the net asset value per share for each Designated
Portfolio available to FirstGWL&A on each Business Day 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. In the event of an error in the computation of a Designated
Portfolio's net asset value per share ("NAV") or any dividend or capital gain
distribution (each, a "pricing error"), the Adviser or the Fund shall
immediately notify FirstGWL&A as soon as possible after discovery of the error.
Such notification may be verbal, but shall be confirmed promptly in writing in
accordance with Article XI of this Agreement. A pricing error shall be corrected
as follows: (a) if the pricing error results in a difference between the
erroneous NAV and the correct NAV of less than $0.01 per share, then no
corrective action need be taken; (b) if the pricing error results in a
difference between the erroneous NAV and the correct NAV equal to or greater
than $0.01 per share, but less than 1/2 of 1 % of the Designated Portfolio's NAV
at the time of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss, after taking into consideration any positive effect of
such error; however, no adjustments to Contractowner accounts need be made; and
(c) if the pricing error results in a difference between the erroneous NAV and
the correct NAV equal to or greater than 1/2 of 1 % of the Designated
Portfolio's NAV at the time of the error, then the Adviser shall reimburse the
Designated Portfolio for any loss (without taking into consideration any
positive effect of such error) and shall reimburse FirstGWL&A for the costs of
adjustments made to correct Contractowner accounts in accordance with the
provisions of Schedule E. If an adjustment is necessary to correct a material
error which has caused Contractowners to receive less than the amount to which
they are entitled, the number of shares of the applicable sub-account of such
Contractowners will be adjusted and the amount of any underpayments shall be
credited by the Adviser to FirstGWL&A for crediting of such amounts to the
applicable Contractowners accounts. Upon notification by the Adviser of any
overpayment due to a material error, FirstGWL&A or Schwab, as the case may be,
shall promptly remit to Adviser any overpayment that has not been paid to
Contractowners; however, Adviser acknowledges that Schwab and FirstGWL&A do not
intend to seek additional payments from any Contractowner who, because of a
pricing error, may have underpaid for units of interest credited to his/her
account. In no event shall Schwab or FirstGWL&A be liable to Contractowners for
any such adjustments or underpayment amounts. A pricing error within categories
(b) or (c) above shall be deemed to be "materially incorrect" or constitute a of
material error" for purposes of this Agreement.
The standards set forth in this Section 1. 10 are based on the Parties'
understanding of the views expressed by the staff of the Securities and Exchange
Commission ("SEC") as of the date of this Agreement. In the event the views of
<PAGE>
the SEC staff are later modified or superseded by SEC or judicial
interpretation, the parties shall amend the foregoing provisions of this
Agreement to comport with the appropriate applicable standards, on terms
mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
2.1. FirstGWL&A represents and warrants that the securities deemed to be issued
by the Account under 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. FirstGWL&A 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 of
units thereof as a segregated asset account under Section 4240 of the 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.
2.2. The Fund represents and warrants that Designated Portfolio(s) 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 and to impose an asset-based or other charge to finance
distribution expenses as permitted by applicable law and regulation. To the
extent that the Fund decides to finance distribution expenses pursuant to Rule
12b-1, the Fund undertakes to have its Board, a majority of whom are not
interested persons of the Fund, formulate and approve any plan pursuant to Rule
12b-1 under the 1940 Act to finance distribution expenses.
2.4. The Fund represents and warrants that it will make every effort to ensure
that the investment policies, fees and expenses of the Designated Portfolio(s)
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 it will make every effort to ensure that Designated Portfolio(s)
shares will be sold in compliance with all state and federal securities laws and
all state insurance laws specifically designated by FirstGWL&A, in writing. The
Fund shall register and qualify the shares for sale in accordance with the laws
of the various states if and to the extent required by applicable law.
FirstGWL&A and the Fund will endeavor to mutually cooperate with respect to the
implementation of any modifications necessitated by any change in state
insurance laws, regulations or interpretations of the foregoing that affect the
Designated Portfolio(s) (a "Law Change"), and to keep each other informed of any
Law Change that becomes known to either party. In the event of a Law Change, the
Fund agrees that, except in those circumstances where the Fund has advised
FirstGWL&A that its Board of Directors has determined that implementation of a
particular Law Change is not in the best interest of all of the Fund's
shareholders with an explanation regarding why such action is lawful, any action
required by a Law Change will be taken.
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 New York and any applicable state and
federal securities laws.
2.7. The Fund and the Adviser represent and warrant that all of their respective
<PAGE>
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
Rule 17g-1 under 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, in all material respects, with all applicable laws, rules
and regulations in the performance of its obligations under this Agreement.
2.9. The Fund will provide FirstGWL&A with as much advance notice as is
reasonably practicable of any material change affecting the Designated
Portfolio(s) (including, but not limited to, any material change in the
registration statement or prospectus affecting the Designated Portfolio(s)) and
any proxy solicitation affecting the Designated Portfolio(s) and consult with
FirstGWL&A 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 prospectus
for the Contracts. The Fund agrees to share equitably in expenses incurred by
FirstGWL&A as a result of actions taken by the Fund, consistent with the
allocation of expenses contained in Schedule E attached hereto and incorporated
herein by reference.
2.10. FirstGWL&A represents and warrants, for purposes other than
diversification under Section 817 of the Internal Revenue Code of 1986 as
amended ("the Code"), that the Contracts are currently treated as annuity
contracts under applicable provisions of the Code, and that it will make every
effort to maintain such treatment and that it will notify Schwab, the Fund and
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. In addition, FirstGWL&A represents and warrants that the Account is
a "segregated asset account" and that interests in the Account are offered
exclusively through the purchase of or transfer into a "variable contract"
within the meaning of such terms under Section 817 of the Code and the
regulations thereunder. FirstGWL&A will use every effort to continue to meet
such definitional requirements, and it will notify Schwab, the Fund, and the
Adviser immediately upon having a reasonable basis for believing that such
requirements have ceased to be met or that they might not be met in the future.
ARTICLE III. Prospectuses and Proxy Statements: Voting
3.1. At least annually, the Adviser shall provide FirstGWL&A and Schwab with as
many copies of the Fund's current prospectus for the Designated Portfolio(s) as
FirstGWL&A and Schwab may reasonably request for marketing purposes (including
distribution to Contractowners with respect to new sales of a Contract). If
requested by FirstGWL&A in lieu thereof, the Adviser or Fund shall provide such
documentation (including a camera-ready copy and computer diskette of the
current prospectus for the Designated Portfolio(s)) and other assistance as is
reasonably necessary in order for FirstGWL&A once each year (or more frequently
if the prospectuses for the Designated Portfolio(s) are amended) to have the
prospectus for the Contracts and the Fund's prospectus for the Designated
Portfolio(s) printed together in one document. The Fund and Adviser agree that
the prospectuses (and semi-annual and annual reports) for the Designated
Portfolio(s) will describe only the Designated Portfolio(s) 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 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
Contractowners, then the Fund and/or the Adviser shall provide FirstGWL&A with
copies of the Fund's SAI or documentation thereof for the Designated
Portfolio(s) in such quantities, with expenses to be borne in accordance with
Schedule E hereof, as FirstGWL&A may reasonably require to permit timely
distribution thereof to Contractowners. The SAIs may name or describe portfolios
<PAGE>
or series other than the Designated Portfolio(s) that may be in the Fund. The
Adviser and/or the Fund shall also provide SAIs to any Contractowner or
prospective owner who requests such SAI from the Fund (although it is
anticipated that such requests will be made to FirstGWL&A or Schwab).
3.3. The Fund and/or the Adviser shall provide FirstGWL&A and Schwab with copies
of the Fund's proxy material, reports to stockholders and other communications
to stockholders for the Designated Portfolio(s) in such quantity, with expenses
to be borne in accordance with Schedule E hereof, as FirstGWL&A may reasonably
require to permit timely distribution thereof to Contractowners.
3.4. It is understood and agreed that, except with respect to information
regarding FirstGWL&A or Schwab provided in writing by that party, neither
FirstGWL&A nor Schwab are responsible for the content of the prospectus or SAI
for the Designated Portfolio(s). It is also understood and agreed that, except
with respect to information regarding the Fund, the Adviser or the Designated
Portfolio(s) provided in writing by the Fund or the Adviser, neither the Fund
nor Adviser are responsible for the content of the prospectus or SAI for the
Contracts.
3.5. If and to the extent required by law FirstGWL&A shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares in accordance with instructions
received from Contractowners: and
(iii) vote Designated Portfolio shares for which no instructions have been
received in the same proportion as Designated Portfolio(s) shares for which
instructions have been received from Contractowners, 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. FirstGWL&A reserves the right to
vote Fund shares held in any segregated asset account in its own right, to the
extent permitted by law.
3.6. FirstGWL&A shall be responsible for assuring that each of its separate
accounts holding shares of a Designated Portfolio calculates voting privileges
as directed by the Fund and agreed to by FirstGWL&A and the Fund. The Fund
agrees to promptly notify FirstGWL&A of any changes of interpretations or
amendments of the Mixed and Shared Funding Exemptive Order.
3.7. 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 or trustees and with whatever rules the Commission may
promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. FirstGWL&A 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 FirstGWL&A or Schwab, respectively, develops or
proposes to use and in which the Fund (or a Portfolio thereof), its Adviser or
one of its sub-advisers is named in connection with the Contracts, at least ten
(10) Business Days prior to its use. No such material shall be used if the Fund
objects to such use within five (5) Business Days after receipt of such
material.
4.2. FirstGWL&A and Schwab shall not give any information or make any
representations or statements on behalf of 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, or in sales literature or other
<PAGE>
promotional material approved by the Fund or by the Adviser, except with the
permission of the Fund or the Adviser.
4.3. The Fund shall furnish, or shall cause to be furnished, to FirstGWL&A and
Schwab, a copy of each piece of sales literature or other promotional material
in which FirstGWL&A and/or its separate account(s), or Schwab is named at least
ten (10) Business Days prior to its use. No such material shall be used if
FirstGWL&A or Schwab objects to such use within five (5) 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 FirstGWL&A or concerning FirstGWL&A, 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 FirstGWL&A or its designee, except with the permission of
FirstGWL&A.
4.5. FirstGWL&A, the Fund and the 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 FirstGWL&A and Schwab at least one complete copy
of all registration statements, prospectuses, SAIs, 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 Portfolio(s), contemporaneously with the filing of such
document(s) with the SEC or NASD or other regulatory authorities.
4.7. FirstGWL&A or Schwab will provide to the Fund at least one complete copy of
all registration statements, prospectuses, SAIs, 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 Articles IV and VIII, 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; e.g.,
on-line networks such as the Internet or other electronic 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, SAIs, shareholder reports, and proxy materials and any other
material constituting sales literature or advertising under the NASD rules, 1933
Act or the 1940 Act.
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 representative 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 shall pay no fee or other compensation to FirstGWL&A under this
Agreement, and FirstGWL&A 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 E, Articles III, V, and other provisions of
this Agreement.
<PAGE>
5.2. All expenses incident to performance by the Fund and the Adviser under this
Agreement shall be paid by the appropriate party, as further provided in
Schedule E. The Fund shall see to it that all shares of the Designated
Portfolio(s) 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 (mailing
costs) of the Fund's prospectus and distribution (mailing costs) of the Fund's
proxy materials and reports to owners of Contracts offered by FirstGWL&A, in
accordance with Schedule E. 15
5.4. The Fund and the Adviser acknowledge that a principal feature of the
Contracts is the Contractowner's ability to choose from a number of unaffiliated
mutual funds (and portfolios or series thereof), including the Designated
Portfolio(s) and the Unaffiliated Funds, and to transfer the Contract's cash
value between funds and portfolios. The Fund and the Adviser agree to cooperate
with FirstGWL&A and Schwab in facilitating the operation of the Account and the
Contracts as described in the prospectus for the Contracts, including but not
limited to cooperation in facilitating transfers within a Contract(s).
5.5. Schwab agrees to provide certain administrative services, specified in
Schedule C attached hereto and incorporated herein by reference, 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 Portfolio(s), within the meaning of
the 1933 Act or the 1940 Act.
5.6. As compensation for the services specified in Schedule C hereto, the
Adviser agrees to pay Schwab a monthly Administrative Service Fee based on the
percentage per annum on Schedule C hereto applied to the average daily value of
the shares of the Designated Portfolio(s) 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 the 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 Adviser agree that shares of the Designated Portfolio(s) will be
sold only to Participating Insurance Companies and their separate accounts.
6.2. No shares of any Designated Portfolio of the Fund will be sold to the
general public.
6.3. The Fund and the 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 each Designated Portfolio will maintain
such qualification (under Subchapter M or any successor or similar provisions)
as long as this Agreement is in effect.
6.4. The Fund or the Adviser will notify FirstGWL&A immediately upon having a
reasonable basis for believing that the Fund or any Designated Portfolio has
ceased to comply with the aforesaid Section 817(h) diversification or Subchapter
M qualification requirements or might not so comply in the future.
6.5. Without in any way limiting the effect of Sections 8.3 and 8.4 hereof and
<PAGE>
without in any way limiting or restricting any other remedies available to
FirstGWL&A or Schwab, the Adviser will pay all costs associated with or arising
out of any failure, or any anticipated or reasonably foreseeable failure, of the
Fund or any Designated Portfolio to comply with Sections 6.1, 6.2, or 6.3
hereof, including all costs associated with reasonable and appropriate
corrections or responses to any such failure; such costs may include, but are
not 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, fees and expenses of legal counsel and
other advisors to FirstGWL&A and any federal income taxes or tax penalties and
interest thereon (or "toll charges" or exactments or amounts paid in settlement)
incurred by FirstGWL&A with respect to itself or owners of its Contracts in
connection with any such failure.
6.6. The Fund at the Fund's expense shall provide FirstGWL&A or its designee
with reports certifying 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 D and
incorporated herein by reference; provided, however, that providing such reports
does not relieve the Fund of its responsibility for such compliance or of its
liability for any non-compliance.
6.7. FirstGWL&A agrees that if the Internal Revenue Service ("IRS") asserts in
writing in connection with any governmental audit or review of FirstGWL&A or, to
FirstGWL&A's knowledge, or any Contractowner that any Designated Portfolio has
failed to comply with the diversification requirements of Section 817(h) of the
Code or FirstGWL&A otherwise becomes aware of any facts that could give rise to
any claim against the Fund or the Adviser as a result of such a failure or
alleged failure:
(a) FirstGWL&A shall promptly notify the Fund and the Adviser of such assertion
or potential claim;
(b) FirstGWL&A shall consult with the Fund and the Adviser as to how to minimize
any liability that may arise as a result of such failure or alleged failure;
(c) FirstGWL&A shall use its best efforts to minimize any liability of the Fund
and the Adviser resulting from such failure, including, without limitation,
demonstrating, pursuant to Treasury Regulations, Section 1.817-5(a)(2), to the
commissioner of the IRS that such failure was inadvertent,
(d) any written materials to be submitted by FirstGWL&A to the IRS, any
Contractowner or any other claimant in connection with any of the foregoing
proceedings or contests (including, without limitation, any such materials to be
submitted to the IRS pursuant to Treasury Regulations, Section 1.817-5(a)(2))
shall be provided by FirstGWL&A to the Fund and the Adviser (together with any
supporting information or analysis) within at least two (2) business days prior
to submission;
(e) FirstGWL&A shall provide the Fund and the Adviser with such cooperation as
the Fund and the Adviser shall reasonably request (including, without
limitation, by permitting the Fund and the Adviser to review the relevant books
and records of FirstGWL&A) in order to facilitate review by the Fund and the
Adviser of any written submissions provided to it or its assessment of the
validity or amount of any claim against it arising from such failure or alleged
failure;
(f) FirstGWL&A shall not with respect to any claim of the IRS or any
Contractowner that would give rise to a claim against the Fund and the Adviser
(i) compromise or settle any claim, (ii) accept any adjustment on audit, or
(iii) forego any allowable administrative or judicial appeals, without the
express written consent of the Fund and the Adviser, which shall not be
unreasonably withheld; provided that, FirstGWL&A shall not be required to appeal
any adverse judicial decision unless the Fund and the Adviser shall have
provided an opinion of independent counsel to the effect that a reasonable basis
exists for taking such appeal; and further provided that the Fund and the
<PAGE>
Adviser shall bear the costs and expenses, including reasonable attorney's fees,
incurred by FirstGWL&A in pursuing such judicial appeals.
ARTICLE VII. Potential Conflicts and Compliance With Mixed and
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 by
contract owners of different Participating Insurance Companies; or (f) a
decision by a Participating Insurance Company to disregard the voting
instructions of contract owners. The Board shall promptly inform FirstGWL&A if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. FirstGWL&A will report any potential or existing conflicts of which it is
aware to the Board. FirstGWL&A 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 FirstGWL&A to inform the Board whenever contract owner voting instructions
are to be disregarded. Such responsibilities shall be carried out by FirstGWL&A
with a view only to the interests of its Contractowners.
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 Designated Portfolios (the "Independent Directors"),
that a material irreconcilable conflict exists, FirstGWL&A 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
Designated 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 a material irreconcilable conflict arises because of a decision by
FirstGWL&A to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, FirstGWL&A 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 FirstGWL&A 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 FirstGWL&A conflicts with the
majority of other state regulators, then FirstGWL&A will withdraw the Account's
investment in the Fund and terminate this Agreement within six months after the
Board informs FirstGWL&A in writing that it has determined that such decision
<PAGE>
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 Fund shall continue to accept and implement orders by FirstGWL&A 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. FirstGWL&A 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
Contractowners 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 FirstGWL&A will withdraw the
Account's investment in the Fund and terminate this Agreement within six (6)
months after the Board informs FirstGWL&A 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 1940 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 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 3.5, 3.6, 3.7, 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 FirstGWL&A
8. 1 (a). FirstGWL&A agrees to indemnify and hold harmless the Fund and the
Adviser and each of their officers and directors or trustees and each person, if
any, who controls the Fund or the Adviser 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, expenses, damages, liabilities
(including amounts paid in settlement with the written consent of FirstGWL&A) or
litigation (including reasonable 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, expenses, 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 covering 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 FirstGWL&A 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 FirstGWL&A or persons
under its control) or wrongful conduct of FirstGWL&A or persons under its
control, with respect to the sale or distribution of the Contracts or Fund
<PAGE>
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 FirstGWL&A; or
(iv) arise as a result of any failure by FirstGWL&A 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 FirstGWL&A in this Agreement or arise out of or result from any
other material breach of this Agreement by FirstGWL&A, including without
limitation Section 2.10 and Section 6.7 hereof,
as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8. 1 (b). FirstGWL&A 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
any of the Indemnified Parties.
8. 1 (c). FirstGWL&A 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 FirstGWL&A 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), but failure to notify FirstGWL&A of any such claim shall not
relieve FirstGWL&A 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, except to the extent that FirstGWL&A has been
prejudiced by such failure to give notice. In case any such action is brought
against the Indemnified Parties, FirstGWL&A shall be entitled to participate, at
its own expense, in the defense of such action. FirstGWL&A also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from FirstGWL&A to such party of FirstGWL&A's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and FirstGWL&A 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 FirstGWL&A 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 and the Adviser
and each of their officers and directors or trustees and each person, if any,
who controls the Fund or Adviser 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, expenses, damages and liabilities (including
amounts paid in settlement with the written consent of Schwab) or litigation
(including reasonable 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 Schwab's dissemination of information regarding the Fund that
is both (A) materially incorrect and (B) that was neither contained in the
Fund's registration statement or sales literature nor other promotional material
of the Fund prepared by the Fund 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 or other
promotional material prepared by Schwab 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 FirstGWL&A or Schwab by or on behalf of the Adviser or the Fund or
to Schwab by FirstGWL&A 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 any of the
Indemnified Parties.
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), but 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,
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 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 FirstGWL&A and Schwab
and each of their directors and officers and each person, if any, who controls
FirstGWL&A 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 reasonable 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 or other promotional material of the Fund
prepared by the Fund or the Adviser (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
the Fund by or on behalf of FirstGWL&A 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
the 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, SAI or sales literature or other promotional
material for the Contracts not supplied by the Adviser or persons under its
control) or wrongful conduct of the Fund or the 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, SAI, 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 FirstGWL&A or Schwab by or on behalf of the
Adviser or the Fund; or
(iv) arise as a result of any failure by the Fund or the 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 the Adviser in this Agreement or arise out of or
result from any other material breach of this Agreement by the Adviser or the
Fund; or
(vi) arise out of or result from the materially incorrect or untimely
calculation or reporting of the daily net asset value per share or dividend or
capital gain distribution rate; as limited by and in accordance with the
provisions of Sections 8.3(b) and 8.3(c) hereof. This indemnification is in
addition to and apart from the responsibilities and obligations of the Adviser
specified in Article VI hereof.
8.3(b). The Adviser 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
any of the Indemnified Parties.
<PAGE>
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), but 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, except to the extent that the Adviser has been
prejudiced by such failure to give notice. 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). FirstGWL&A 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 FirstGWL&A and Schwab and
each of their directors and officers and each person, if any, who controls
FirstGWL&A 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 reasonable legal and other expenses) to which the Indemnified Parties
may be required to pay or become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, expenses, damages,
liabilities or expenses (or actions in respect thereof) or settlements, 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,
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
(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;
8.4(b). The Fund 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
any of the Indemnified Parties.
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), but failure to notify the Fund of any such claim shall not relieve it
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,
except to the extent that the Fund has been prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified Parties, the
<PAGE>
Fund will be entitled to participate, at its own expense, in the defense
thereof. The Fund shall also be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Fund to such party of the Fund'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 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). FirstGWL&A 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, without regard
to the New York Conflict of Laws provisions.
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 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, with or without cause, with respect to some or
all Portfolios, upon six (6) months advance written notice delivered to the
other parties; provided, however, that such notice shall not be given earlier
than six (6) months following the date of this Agreement; or
(b) at the option of FirstGWL&A or Schwab by written notice to the other parties
with respect to any Portfolio based upon FirstGWL&A's or Schwab's reasonable
determination that shares of such Portfolio are not reasonably available to meet
the requirements of the Contracts; or
(c) at the option of FirstGWL&A or Schwab 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 FirstGWL&A; or
(d) at the option of the Fund in the event that formal administrative
proceedings are instituted against FirstGWL&A or Schwab by the NASD, the SEC,
the Insurance Commissioner or like official of any state or any other regulatory
body regarding FirstGWL&A'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, if, in each case, the Fund reasonably determines in its sole
judgment exercised in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of FirstGWL&A or Schwab to
perform its obligations under this Agreement or related to the Contracts; or
(e) at the option of FirstGWL&A or Schwab in the event that formal
administrative proceedings are instituted against the Fund or the Adviser by the
NASD, the SEC, or any state securities or insurance department or any other
regulatory body, if Schwab or FirstGWL&A reasonably 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 the Adviser to
perform their obligations under this Agreement; or
(f) at the option of FirstGWL&A by written notice to the Fund with respect to
any Portfolio if FirstGWL&A reasonably believes that the Portfolio will fail to
<PAGE>
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 FirstGWL&A or Schwab has suffered a material adverse
change in their 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 FirstGWL&A's or Schwab's ability to perform its
obligations under this Agreement, (ii) the Fund or the Adviser notifies
FirstGWL&A or Schwab, as appropriate, of that determination and its intent to
terminate this Agreement, and (iii) after considering the actions taken by
FirstGWL&A or Schwab and any other changes in circumstances since the giving of
such a notice, the determination of the Fund or the 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 FirstGWL&A or Schwab, if (i) FirstGWL&A 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 the Adviser's ability to perform its
obligations under this Agreement, (ii) FirstGWL&A or Schwab notifies the Fund or
the Adviser, as appropriate, of that determination and its intent to terminate
this Agreement, and (iii) after considering the actions taken by the Fund or the
Adviser and any other changes in circumstances since the giving of such a
notice, the determination of FirstGWL&A 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 FirstGWL&A 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 FirstGWL&A
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; or at the option
of Schwab in the event that formal administrative proceedings are instituted
against FirstGWL&A by the NASD, the Securities and Exchange Commission, or any
state securities or insurance department or any other regulatory body regarding
FirstGWL&A'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 Schwab determines in its sole judgment
exercised in good faith, that any such administrative proceedings will have a
material adverse effect upon the ability of FirstGWL&A to perform its
obligations related to the Contracts; or
(k) at the option of any non-defaulting party hereto in the event of a material
breach of this Agreement by any party hereto (the "defaulting party") other than
as described in 10.1(a)-(j); provided, that the non-defaulting party gives
written notice thereof to the defaulting party, with copies of such notice to
all other non-defaulting parties, and if such breach shall not have been
remedied within thirty (30) days after such written notice is given, then the
nondefaulting party giving such written notice may terminate this Agreement by
giving thirty (30) days written notice of termination to the defaulting party.
10.2. Notice Requirement. No termination of this Agreement shall he 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 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
prior written notice shall be given in advance of the effective date of
termination as required by those provisions unless such notice period is
shortened by mutual written agreement of the parties;
<PAGE>
(b) in the event any termination is based upon the provisions of Section
10.1(d), 10.1(e), 10.1(i) or 10.10) 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 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,
other than as a result of a failure by either the Fund or FirstGWL&A to meet
Section 817(h) of the Code diversification requirements, the Fund and the
Adviser shall, at the option of FirstGWL&A or Schwab, continue to make available
additional shares of the Designated Portfolios 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 Designated
Portfolios, redeem investments in the Designated Portfolios and/or invest in the
Designated Portfolios 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 Schwab, and this Agreement shall remain in effect as to the
other parties; provided, however, that in the event of a termination by Schwab
the other parties shall have the option to terminate this Agreement upon 60
(sixty) days notice, rather than the six (6) months 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.
If to the Fund:
INVESCO Variable Investment Funds, Inc.
7800 East Union Avenue, Suite 800
Denver, CO 80237
Attention: General Counsel
If to FirstGWL&A:
First Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention: Assistant Vice President, Savings Products
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
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. Without limiting the foregoing, no party hereto shall disclose
any information that another party has designated as proprietary.
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 SEC, 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 FirstGWL&A are being conducted in a manner consistent with the New
York Variable Annuity Regulations and any other applicable law or regulations.
12.6. Any controversy or claim arising out of or relating to this Agreement, or
breach thereof, may be settled by arbitration in a forum jointly selected by the
relevant parties (but if applicable law requires some other forum, then such
other forum) in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, or other arbitration rules as mutually agreed upon by
the relevant parties, and judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof.
12.7. 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.
12.8. 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.
12.9. Schwab and FirstGWL&A are hereby expressly put on notice of the limitation
of liability as set forth in the Articles of Incorporation of the Fund and the
Adviser and agree that the obligations assumed by the Fund and the Adviser
pursuant to this Agreement shall be limited in any case to the Fund and Adviser
and their respective assets and neither Schwab nor FirstGWL&A shall seek
satisfaction of any such obligation from the shareholders of the Fund or the
Adviser, the Trustees, officers, employees or agents of the Fund or Adviser, or
any of them, except to the extent permitted under this Agreement.
12.10. The Fund and the Adviser agree that the obligations assumed by FirstGWL&A
and Schwab pursuant to this Agreement shall be limited in any case to FirstGWL&A
and Schwab and their respective assets and neither the Fund nor the Adviser
shall seek satisfaction of any such obligation from the shareholders of the
FirstGWL&A or Schwab, the directors, officers, employees or agents of the
FirstGWL&A or Schwab, or any of them, except to the extent permitted under this
Agreement.
12.11. No provision of this Agreement may be deemed or construed to modify or
<PAGE>
supersede any contractual rights, duties, or indemnifications, as between the
Adviser and the Fund.
<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.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By: /s/
Title: V.P., Marketing and Product Development
Date: 4/2/97
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
By: /s/Ronald L. Grooms
-----------------------------
Title: Treasurer
Date: 3/10/97
INVESCO FUNDS GROUP, INC.:
By its authorized officer,
By: /s/Ronald L. Grooms
------------------------------
Title: Senior Vice President and Treasurer
Date: 3/10/97
CHARLES SCHWAB & CO., INC.
By its authorized officer,
By: /s/Jack Bentor
------------------------------
VP Annuities Ins.
Date: 3/31/97
<PAGE>
Schwab Variable Annuity
SCHEDULE A
Contracts Form Numbers
First Great-West Life & Annuity Insurance Company
Group Variable/Fixed Annuity Contract J434NY
<PAGE>
SCHEDULE B
Designated Portfolios:
INVESCO VIF-Industrial Income Portfolio
INVESCO VIF-Total Return Portfolio
INVESCO VIF-High Yield Portfolio
<PAGE>
SCHEDULE C
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:
respond to Contractowner inquiries
delivery of prospectus - 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 prospectus.
B. For the services, Schwab shall receive a fee of 0.25% 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 payment
relates.
C. The Fund will calculate and Schwab will verify with FirstGWL&A the asset
balance for each day on which the fee is to be paid pursuant to this Agreement
with respect to each Designated Portfolio.
D. Schwab will communicate all purchase, withdrawal, and exchange orders it
receives from its customers to FirstGWL&A who will retransmit them to each fund.
<PAGE>
SCHEDULE D
Reports per Section 6.6
With regard to the reports relating to the quarterly testing of compliance
with the 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
to FirstGWL&A in the Form D1 attached hereto and incorporated herein by
reference, regarding the status under such sections of the Code of the
Designated Portfolio(s), 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 requirements of Subchapter M of the Code, referred to hereinafter as
"RIC status," the Fund will provide the reports on the following basis: (i) the
last quarter's quarterly reports can be supplied within the 20-day period, and
(ii) a year-end report will be provided 45 days after the end of the calendar
year. However, if a problem with regard to RIC status, as defined below, is
identified in the third quarter report, on a weekly basis, starting the first
week of December, additional interim reports will be provided specially
addressing the problems identified in the third quarter report. If any interim
report memorializes the cure of the problem, subsequent interim reports will not
be required.
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 percent of gross income is derived from sources
of income specified in Section 851(b)(2);
(b) Thirty percent or greater gross income is derived from the
sale or disposition of assets specified in Section 851(b)(3);
<PAGE>
(c) Less than fifty percent of the value of total assets consists of
assets specified in Section 851(b)(4)(A); and
(d) No more than twenty-five percent 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>
FORM D1
CERTIFICATE OF COMPLIANCE
I,________________, a duly authorized officer, director or agent of
________________ Fund hereby swear and affirm that _________________ Fund is in
compliance with all requirements of Section 817(h) and Subchapter M of the
Internal Revenue Code (the "Code") and the regulations thereunder as required in
the Fund Participation Agreement among First Great-West Life & Annuity Insurance
Company, Charles Schwab & Co., Inc. and other than the exceptions discussed
below:
Exceptions Remedial Action
- ---------------------------------- -----------------------------
- ---------------------------------- -----------------------------
- ---------------------------------- -----------------------------
- ---------------------------------- -----------------------------
If no exception to report, please indicate "None."
Signed this ____ day of ______, _________
----------------------------------------------------
(Signature)
By: -----------------------------------------------
(Type or Print Name and Title/Position)
Fund Participation Agreement
This Fund Participation Agreement ("Agreement"), dated as of the 8th day of
February, 1999 is made by and among Nationwide Life Insurance Company and/or
Nationwide Life and Annuity Insurance Company (separately or collectively
"Nationwide") and the Nationwide separate account(s) identified on Exhibit A
which is attached hereto and may be amended from time to time, and INVESCO Funds
Group, Inc. and INVESCO Distributors, Inc., which serve respectively as adviser
and distributor for the mutual funds (the "Funds") listed on Exhibit A. The
Funds, INVESCO Funds Group, Inc. and INVESCO Distributors, Inc. are collectively
referred to throughout this Agreement as INVESCO.
Nationwide and INVESCO mutually desire the inclusion of the Funds as underlying
investment media for variable life insurance policies and/or variable annuity
contracts (collectively, the "Contracts") issued by Nationwide; NOW therefore,
Nationwide and INVESCO, in consideration of the promises and undertakings
described herein, agree as follows:
Nationwide represents and warrants that
(a) the Variable Accounts have been established and are in good standing under
Ohio Law;
(b) the Variable Accounts have been registered as unit investment trusts under
the Investment Company Act of 1940 (the "1940 Act") or are exempt from
registration pursuant to section 3(c)(11) of the 1940 Act;
(c) the Contracts allow for the allocation of net amounts received by Nationwide
to separate subaccounts of the Variable Accounts for investment in shares of the
Funds and other similar funds; and
(d) selection of a particular sub-account (corresponding to a particular fund)
is made by the Contract owner, or, in the case of certain group Contracts, by
participants in various types of retirement plans which have purchased such
group Contracts, and such Contract Owners and/or participants may reallocate
their investments options among the sub-accounts of the Variable Accounts in
accordance with terms of the Contracts.
2. Nationwide agrees to make every reasonable effort to market its Contracts. It
will use its best efforts to give equal emphasis and promotion to shares of the
Funds as are given to other underlying investments of the Variable Accounts. In
marketing its Contracts, Nationwide shall comply with all applicable state
and/or federal laws.
3. INVESCO will use its reasonable best efforts to provide closing net asset
value, change in net asset value, dividend or daily accrual rate information and
capital gain information by 7:00 p.m. Eastern Standard Time each Business Day to
Nationwide ("Price Date"). "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which the Funds calculate their
net asset value as set forth in the Funds' then current Prospectuses and
Statements of Additional Information. Subject to the terms and conditions of
this Agreement, Nationwide shall be appointed to, and agrees, to act as a
limited agent of INVESCO, for the sole purpose of receiving instructions for the
purchase and redemption of Fund shares (from Contract owners or participants
making investment allocation decisions under the Contracts) prior to the close
of regular trading each Business Day. Except as particularly stated in the
preceding sentence, Nationwide shall have no authority to act on behalf of
INVESCO or to incur any cost or liability on its behalf. Nationwide shall use
this data provided each Business Day to calculate unit values. Unit values shall
be used to process that same Business Day's Variable Account transactions. The
Variable Account processing will be done the same evening, and orders for
purchases or redemptions shall be placed the morning of the following Business
Day no later than 10:00 a.m. Eastern Standard Time. Aggregate orders will be
sent directly to INVESCO or its specified agent An aggregate order for shares of
Funds shall be accepted by INVESCO at the respective Fund prices previously
determined, provided that Nationwide initiates a wire transfer of federal funds
for the aggregate purchases in the Funds by 11:00 a.m. Eastern Time, on the
business day following the Price Date, and INVESCO receives such wire transfer
by 12:00 noon, Eastern Standard Time, on the business day following the Price
Date. In the event that INVESCO fails to receive such federal funds by 12:00
<PAGE>
noon, Eastern Time, on the business day following the Price Date (other than
through the fault of INVESCO ), purchase orders shall be effective on the date
that federal funds are actually received by INVESCO. INVESCO will not accept any
order made on a conditional basis or subject to any delay or contingency.
Nationwide shall only place purchase orders for shares of Funds on behalf of its
customers whose addresses recorded on Nationwide's books are in a state or other
jurisdiction in which the Funds are registered or qualified for sale or exempt
from registration and qualification as confirmed in writing by INVESCO.
Payment for net purchases shall be wired to a custodial account designated by
INVESCO and payment for net redemptions will be wired to an account designated
by Nationwide. INVESCO will execute the orders at the net asset value as
determined as of the close of trading on the prior Business Day. INVESCO agrees
to initiate wire transfers of federal funds to Nationwide with respect to the
aggregate redemptions from the Funds by 11:00 a.m. Eastern Time, on the business
day following the Price Date for such redemptions; provided, however, that if
one or more Funds have determined to settle redemption transactions on a delayed
basis (more than one business day, but in no event more than seven calendar
days, after the Price Date, unless otherwise permitted by an order of the
Securities and Exchanged Commission under Section 22(e) of the Investment
Company Act of 1940), INVESCO shall be permitted to delay sending redemption
proceeds to Nationwide by wire transfer by the same number of days that the
applicable Funds are delaying sending redemption proceeds to their other
shareholders.
Nationwide shall remit the purchase price of each purchase order in accordance
with written procedures as provided to Nationwide. Dividends and capital gain
distributions shall be reinvested in additional Fund shares at net asset value.
Notwithstanding the above, INVESCO shall not be held responsible for providing
Nationwide with ex-date net asset value, change in net asset value, dividend or
capital gain information when the New York Stock Exchange is closed, when an
emergency exists making the valuation of net assets not reasonably practicable,
or during any period when the Securities and Exchange Commission ("SEC") has by
order permitted the suspension of pricing shares for the protection of
shareholders.
Nationwide agrees to provide INVESCO, written reports indicating the number of
shareholders that hold interests in the Funds and such other information
(including books and records) that INVESCO may reasonably request or as may be
necessary or advisable to enable it to comply with any law, regulation or order.
4. All expenses incident to the performance by INVESCO under this Agreement
shall be paid by INVESCO. INVESCO shall provide Nationwide, or cause Nationwide
to be provided with, a reasonable quantity of the Funds' Prospectuses,
Statements of Additional Information and any supplements.
5. Nationwide and its agents shall make no representations concerning the Funds
or Funds' shares except those contained in the then current prospectuses of the
Funds and in current printed sales literature of the Funds that have been
approved in writing by INVESCO.
6. INVESCO and Nationwide hereby agree and represent that each of their
information technology systems will be Year 2000 compliant in accordance with
the Year 2000 compliance requirements of the SEC and the National Association of
Securities Dealers ("NASD")
INVESCO represents that it believes, in good faith, that the Funds are currently
qualified as regulated investment companies under Subchapter M of the Internal
Revenue Code of 1986 (the "Code"), as amended, and that the Funds shall make
every effort to maintain such qualification. INVESCO shall notify Nationwide
immediately upon having a reasonable basis for believing that the Funds have
ceased to so qualify, or that they may not qualify as such in the future.
INVESCO represents that it believes, in good faith, that, unless the Funds are
otherwise exempt from 817(h) and/or except as otherwise disclosed in each Fund's
prospectus, the Funds currently comply with the diversification requirements
pursuant to Section 817(h) of the Code and Section 1.817-5(b) of the Federal Tax
Regulations and that the Funds will make every effort to maintain the Funds'
compliance with such diversification requirements. INVESCO will notify
Nationwide immediately upon having a reasonable basis for believing that the
<PAGE>
Funds have ceased to so qualify, or that the Funds might not so qualify in the
future. Unless otherwise exempt, INVESCO shall provide to Nationwide a
certificate or statement indicating compliance with Section 817(h) and a
schedule of investment holdings, to be received by Nationwide no later than
twenty-five (25) days following the end of the calendar quarter.
Nationwide represents that it believes, in good faith, that the Contracts are
currently treated as annuity contracts or life insurance policies, whichever is
appropriate, under applicable provisions of the Code, and that it shall make
every effort to maintain such treatment and that it will notify INVESCO
immediately upon having a reasonable basis for believing that the Contracts have
ceased to be so treated, or that the Contracts may not be so treated in the
future. Nationwide represents that it believes, in good faith, that each
Variable Account is a "segregated asset account" and that interests in each
Variable Account are offered exclusively through the purchase of a .variable
contract", within the meaning of such terms pursuant to Section 1.817-5(f)(2) of
the Federal Tax Regulations, that it shall make every effort to continue to meet
such definitional requirements, and that it shall notify INVESCO immediately
upon having a reasonable basis for believing that such requirements have ceased
to be met or that they may not be met in the future.
Within five (5) Business Days after the end of each calendar month, INVESCO
shall provide Nationwide a monthly statement of account, which shall confirm all
transactions made during that particular month in the Variable Accounts.
Nationwide agrees to inform INVESCO of the existence of or any potential for any
material conflict of interest between the interests of the Contract owners of
the Variable Accounts investing in the Funds and/or any other separate accounts
of any other insurance company investing in the Funds. A material irreconcilable
conflict may arise for a variety of reasons, including but not limited to: (a)
an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or securities laws or
regulations, public ruling, private letter ruling, 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; or
(e) a difference in voting instructions given by Contract owners or by contract
owners of different life insurance companies currently utilizing the Funds. It
is agreed that if it is determined by a majority of the members of the Boards of
Directors of the Funds, or a majority of their disinterested Directors, that a
material conflict exists affecting Nationwide, Nationwide shall, at its own
expense, take whatever steps necessary to remedy or eliminate such material
conflict, which steps may include, but are not limited to:
(a) withdrawing the assets allocable to some or all of the separate accounts
from the Funds and
(i) reinvesting such assets in a different investment medium,
including other Funds; or
(ii) submitting the question of whether such segregation should be subjected to
a vote of all affected Contract owners, which may result in segregating the
assets of any particular group (i.e., annuity Contract owners, variable life
insurance Contract owners or qualified Contract owners) that votes in favor of
such segregation or offering to the affected Contract owners the option of
making such a change; or
(b) establishing a new registered management investment company or managed
separate account.
INVESCO agrees to inform Nationwide of the existence of or any potential for any
material conflict of interest and any possible implications of the same. A
material irreconcilable conflict may arise for a variety of reasons, including
but not limited to:
<PAGE>
(a) an action by any state regulatory authority;
(b) a change in applicable federal or state insurance, tax or securities laws or
regulations, public ruling, private letter ruling, or any similar action by
insurance, tax or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant
proceeding; or
(d) the manner in which the investments of any Fund are being managed.
It is agreed that if it is determined by Nationwide that a material conflict
exists affecting INVESCO, INVESCO shall, at its own expense, take whatever steps
are necessary to remedy or eliminate such material conflict.
10. This Agreement shall terminate as to the sale and issuance of new Contracts:
(a) at the option of Nationwide or INVESCO upon 60 days advance written notice
to the other;
(b) at any time, upon INVESCO's election, if the Funds determine that
liquidation of the Funds is in the best interest of the Funds and their
beneficial owners. Reasonable advance notice of election to liquidate shall be
furnished by INVESCO to permit the substitution of Fund shares with the shares
of another investment company pursuant to SEC regulation or if the Contracts are
not treated as annuity contracts or life insurance policies by the applicable
regulators or under applicable rules or regulations, or if the Variable Account
is not deemed a "segregated asset account" by the applicable regulators or under
applicable rules or regulations;
(c) at the option of Nationwide if Fund shares are not available for any reason
to meet the requirements of Contracts as determined by Nationwide. Reasonable
advance notice of election to terminate (and time to cure) shall be furnished by
Nationwide;
(d) at the option of Nationwide or INVESCO, upon institution of formal
proceedings against the Broker-Dealer(s) marketing the Contracts, the Variable
Accounts, Nationwide or the Funds by the NASD, the Department of Labor, the SEC
or any other regulatory body;
(e) upon a decision by Nationwide, in accordance with regulations of the SEC, to
substitute such Fund shares with the shares of another investment company for
Contracts for which the Fund shares have been selected to serve as the
underlying investment medium. Nationwide shall give 60 days written notice to
the Funds and INVESCO of any proposal to substitute Fund shares;
(f) upon assignment of this Agreement unless such assignment is made with the
written consent of each other party; and
(g) in the event Fund shares are not registered, issued or sold pursuant to
Federal law, or such law precludes the use of Fund shares as an underlying
investment medium of Contracts issued or to be issued by Nationwide. Prompt
written notice shall be given by either party to the other in the event the
conditions of this provision occur.
11. Each notice required by this Agreement shall be given orally and confirmed
in writing to:
Nationwide Life Insurance Company Nationwide Life and Annuity
Insurance Company One Nationwide Plaza 1-09-V3 Columbus, Ohio
43215 Attention: Vice President - Investment Product
Operations
<PAGE>
With a copy to:
Nationwide Life Insurance Company Nationwide Life and Annuity
Insurance Company One Nationwide Plaza 1-09-V3 Columbus, Ohio
43215 Attention: Compliance Manager - Securities
INVESCO:
INVESCO Distributors, Inc. 7800 East Union Avenue MS 201
Denver, Colorado 80237 Attention: General Counsel
INVESCO Funds Group, Inc. 7800 East Union Avenue, MS 201 P.O.
Box 173706 Denver, Colorado 80237 Attention: General Counsel
Advertising and sales literature with respect to the Funds prepared by
Nationwide or its agents for use in marketing its Contracts shall be submitted
to INVESCO, for review before Nationwide submits such material to the SEC or
NASD for review. Nationwide shall not, without the prior written consent of
INVESCO, make public references to any Fund or advertise a Fund in any manner
whatsoever.
13. 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,
Nationwide shall distribute all proxy material furnished by INVESCO (provided
that such material is received by Nationwide at least 10 business days prior to
the date scheduled for mailing to Contract owners) and shall vote Fund shares in
accordance with instructions received from the Contract owners who have such
interests in such Fund shares. Nationwide shall vote the Fund shares for which
no instructions have been received in the same proportion as Fund shares for
which said instructions have been received from Contract owners, provided that
such proportional voting is not prohibited by the Contract owners related plan
or trust document. Nationwide and its agents will in no way recommend action in
connection with or oppose or interfere with the solicitation of proxies for the
Fund shares held for the benefit of such Contract owners.
14.
(a) Nationwide agrees to reimburse and/or indemnify and hold harmless INVESCO
and each of its directors, officers, employees, agents and each person, if any,
who controls INVESCO within the meaning of the Securities Act of 1933 (the "1933
Act") against any losses, claims, damages or liabilities to which INVESCO or any
such director, officer, employee, agent or controlling person may become
subject, under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon, but not limited to:
(i) any untrue statement or alleged untrue statement of any material fact
contained in information furnished by Nationwide;
(ii) the omission or the alleged omission to state in the Registration
Statements or prospectuses of the Variable Accounts a material fact required to
be stated therein or necessary to make the statements therein not misleading;
(iii) conduct statements or representations of Nationwide or its agents, with
respect to the sale and distribution of Contracts for which Fund shares are an
underlying investment;
(iv) the failure of Nationwide to provide the services and furnish the materials
under the terms of this Agreement;
(v) a breach of this Agreement or of any of the representations contained
herein; or
(vi) any failure to register the Contracts or the Variable Accounts under
federal or state securities laws or to otherwise comply with such laws, rules,
regulations or orders.
Provided however, that Nationwide shall not be liable in any such case to the
extent any such statement, omission or representation or such alleged statement,
alleged omission or alleged representation was made in reliance upon and in
<PAGE>
conformity with written information furnished to Nationwide by or on behalf of
INVESCO specifically for use therein.
Nationwide shall reimburse any legal or other expenses reasonably incurred by
INVESCO or any such director, officer, employee, agent or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that Nationwide shall have prior
approval of the use of said counsel or the expenditure of said fees.
This indemnity agreement shall be in addition to any liability which Nationwide
may otherwise have.
(b) INVESCO agrees to indemnify and hold harmless Nationwide and each of its
directors, officers, employees, agents and each person, if any, who controls
Nationwide within the meaning of the 1933 Act against any losses, claims,
damages or liabilities to which Nationwide or any such director, officer,
employee, agent or controlling person may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material fact
contained in any information furnished by INVESCO, including but not limited to,
the Registration Statements, Prospectuses, or sales literature of the Funds;
(ii) the omission or the alleged omission to state in the Registration
Statements or prospectuses of the Funds a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(iii) INVESCO's failure to keep the Funds fully diversified and qualified as
regulated investment companies as required by the applicable provisions of the
Code, the 1940 Act, and the applicable regulations promulgated thereunder,
(iv) the failure of INVESCO to provide the services and furnish the materials
under the terms of this Agreement;
(v) a breach of this Agreement or of any of the representations contained
herein; or
(vi) any failure to register the Funds under federal or state securities laws or
to otherwise comply with such laws, rules, regulations or orders. Provided
however, that INVESCO shall not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon an act
or omission of Nationwide or untrue statement or omission or alleged omission
made in conformity with written information furnished to INVESCO by Nationwide
specifically for use therein. INVESCO shall reimburse any reasonable legal or
other expenses reasonably incurred by Nationwide or any such director, officer,
employee, agent or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that INVESCO shall have prior approval of the use of said counsel or the
expenditure of said fees. This indemnity agreement will be in addition to any
liability which INVESCO may otherwise have.
(c) Each party shall promptly notify the other in writing of any situation
which presents or appears to involve a claim which may be the subject of
indemnification hereunder and the indemnifying party shall have the option to
defend against any such claim. In the event the indemnifying party so elects, it
shall notify the indemnified party and shall assume the defense of such claim,
and the indemnified party shall cooperate fully with the indemnifying party, at
the indemnifying party's expense, in the defense of such claim. Notwithstanding
the foregoing, the indemnified party shall be entitled to participate in the
defense of such claim at its own expense through counsel of its own choosing.
Neither party shall confess any claim nor make any compromise in any action or
proceeding which may result in a finding of wrongdoing by the other party
without the other party's prior written consent. Any notice given by the
indemnifying party to an indemnified party or participation in or control of the
litigation of any such claim by the indemnifying party shall in no event be
deemed to be an admission by the indemnifying party of culpability, and the
indemnifying party shall be free to contest liability with respect to the claim
among the parties.
<PAGE>
15. The forbearance or neglect of any party to insist upon strict compliance by
another party with any of the provisions of this Agreement, whether continuing
or not, or to declare a forfeiture of termination against the other parties,
shall not be construed as a waiver of any of the rights or privileges of any
party hereunder. No waiver of any right or privilege of any party arising from
any default or failure of performance by any party shall affect the rights or
privileges of the other parties in the event of a further default or failure of
performance.
16. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of Ohio, without respect to its choice of
law provisions. This Agreement shall be subject to the provisions of the federal
securities statutes, rules and regulations, including such exemptions from those
statutes, rules and regulations as the SEC may grant and the terms hereof shall
be interpreted and construed in accordance therewith.
17. Each party hereby represents and warrants to the other that the persons
executing this Agreement on its behalf are duly authorized and empowered to
execute and deliver the Agreement and that the Agreement constitutes its legal,
valid and binding obligation, enforceable against it in accordance with its
terms. Except as particularly set forth herein, neither party assumes any
responsibility hereunder, and will not be liable to the other for any damage,
loss of data, delay or any other loss whatsoever caused by events beyond its
reasonable control.
18. Nationwide acknowledges that the identity of INVESCO's (and its affiliates'
and/or subsidiaries') customers and all information maintained about those
customers constitute the valuable property of INVESCO. Nationwide agrees that,
should it come into contact or possession of any such information (including,
but not limited to, lists or compilations of the identity of such customers),
Nationwide shall hold such information or property in confidence and shall not
use, disclose or distribute any such information or property except with
INVESCO's prior written consent or as required by law or judicial process.
INVESCO acknowledges that the identity of Nationwide's (and its affiliates'
and/or subsidiaries') customers and all information maintained about those
customers constitute the valuable property of Nationwide. INVESCO agrees that,
should it come into contact or possession of any such information (including,
but not limited to, lists or compilations of the identity of such customers),
INVESCO shall hold such information or property in confidence and shall not use,
disclose or distribute any such information or property except with Nationwide's
prior written consent or as required by law or judicial process.
This section shall survive the expiration or termination of this Agreement.
19. Nothing in this Agreement shall be deemed to create a partnership or joint
venture by and among the parties hereto.
20. This Agreement may be executed by facsimile signature and it may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
NATIONWIDE LIFE INSURANCE COMPANY AND NATIONWIDE LIFE AND
ANNUITY INSURANCE COMPANY
By: Joseph P. Rath /s/
Title: Vice President
Office of Product and Market Compliance
INVESCO FUNDS GROUP INC.
By: Ronald L. Grooms
Title: Senior Vice President
INVESCO DISTRIBUTORS, INC.
By: Ronald L. Grooms
Title: Senior Vice President
<PAGE>
EXHIBIT A
This Exhibit corresponds with the Agreement dated ________________
<TABLE>
<CAPTION>
<S> <C> <C>
Variable Accounts of Nationwide Corresponding Nationwide Contracts Corresponding Funds
- ------------------------------------------------------------------------------------------------------------------
Nationwide DC Variable Account Group Flexible Fund Retirement Contracts -INVESCO Industrial Income Fund
-INVESCO Dynamics Fund
-INVESCO Total Return Fund
- ------------------------------------------------------------------------------------------------------------------
NACo Variable Account Group Flexible Fund Retirement Contracts -INVESCO Dynamics Fund
-INVESCO Total Return Fund
- ------------------------------------------------------------------------------------------------------------------
Nationwide Qualified Plans Qualified Plans Variable Group Annuity -INVESCO Industrial Income Fund
Variable Account ("QPVA") Contract -INVESCO Dynamics Fund
-INVESCO Stragegic Technology Fund
-INVESCO Total Return Fund
- ------------------------------------------------------------------------------------------------------------------
Nationwide Governmental Plans Governmental Plans Variable Group Annuity -INVESCO Industrial Income Fund
Variable Account ("GPVA") Contracts and Governmental Plans Group
Variable Fund Retirement Contracts
(Allocated)
- ------------------------------------------------------------------------------------------------------------------
Ohio DC Variable Account Group Flexible Fund Retiremenmt Contracts -INVESCO Industrial Income Fund
- ------------------------------------------------------------------------------------------------------------------
Nationwide Variable Account Individual Deferred Variable Annuity -INVESCO Dynamics Fund
Contracts ("Soloist")
- ------------------------------------------------------------------------------------------------------------------
Nationwide VL Separate Account-D Nationwide's Private Corporate Variable -INVESCO VIF High Yield
Universal Life -INVESCO VIF Total Return
-INVESCO VIF Industrial Income
-INVESCO VIF Growth
-INVESCO VIF Dynamics
-INVESCO VIF Small Company Growth
-INVESCO VIF Health Sciences
-INVESCO VIF Realty
-INVESCO VIF Technology
-INVESCO VIF Utilities
</TABLE>
PARTICIPATION
AGREEMENT
Among
INVESCO VARIABLE INVESTMENT FUNDS,
INC.
INVESCO FUNDS GROUP, INC.
and
THIS AGREEMENT, made and entered into this 19th day of June, 1996 by and
among Great American Reserve Insurance COMPANY, (hereinafter the "Insurance
Company"), a Texas 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
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 as 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 / 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;
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises, the Insurance
Company, the Company and INVESCO agree as follows:
ARTICLE 1. 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
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 if
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 11 not sell I 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
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.
<PAGE>
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.
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 Section 3 (g) of the Insurance Code 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.
<PAGE>
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.
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 / life insurance / endowment / modified endowment]
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 I
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 of 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 of and any applicable
state and federal securities laws.
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 dealing with the money and/or securities of the Company
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 Section 17g-(1) of 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.
<PAGE>
2.11. The Insurance Company represents and warrants that all of its
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Company 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 of 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. The Insurance Company further represents
and warrants that the employees of Insurance Company, or such other persons
designated by Insurance Company, listed on Schedule C have been authorized by
all necessary action of Insurance Company to give directions, instructions and
certifications to the Company and INVESCO an behalf of Insurance Company. The
Company and INVESCO are authorized to act and rely upon any directions,
instructions and certifications received from such persons unless and until they
have been notified in writing by the Insurance Company of a change in such
persons, and the Company and INVESCO shall incur no liability in doing so.
2.12. The Insurance Company represents and warrants that it will not
purchase Company shares with Account assets derived from tax-qualifiied
retirement plans except indirectly, through Contracts purchased in connection
with such plans.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. INVESCO shall provide the Insurance Company (at the Insurance
Company's expense) with as many copies of the Company's current prospectus as
the Insurance Company may reasonably request. If requested by the Insurance
Company in lieu thereof, the Company shall provide such documentation (including
a final copy of the new prospectus as set in type at the Company's expense) and
other assistance as is reasonably necessary in order for the Insurance Company
once each year (or more frequently if the prospectus for the Company is amended)
to have the prospectus for the Contracts and the Company's prospectus printed
together in one document (at the Insurance Company's expense).
3.2. The Company's prospectus shall state that the Statement of
Additional Information for the Company (the "SAI") is available from INVESCO (or
in the Company's discretion, the Prospectus shall state that the SAI is
available from the Company), and INVESCO (or the Company), at its expense, shall
print and provide the SAI free of charge to the Insurance Company and to any
owner of a Contract or prospective owner who requests the SAI.
3.3. The Company, at its expense, shall provide the Insurance Company
with copies of its proxy material , reports to stockholders and other
communications to stockholders in such quantity as the Insurance Company shall
reasonably require for distributing to Contract owners.
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
(iii) vote Company shares for which no instructions have been
received in the same proportion as Company shares of such
portfolio 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 0
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.
<PAGE>
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, i if and when applicable i , 16 (b) . Further, the
Company will 11 act i 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 or prospectus for the
Company's shares, as such registration statement and prospectus may be amended
or 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
object 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 or prospectus for the
Contracts, as that registration statement and prospectus 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.
<PAGE>
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
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.
5.3. The Insurance Company shall bear the expenses of printing and
distributing to Contract owners the Contract prospectuses and 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
<PAGE>
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.
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
subadviser 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 and obtaining approval thereof by
the Commission.
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 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.
<PAGE>
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
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
<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 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
(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
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
<PAGE>
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
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
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.
<PAGE>
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.
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
<PAGE>
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
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 1 liability I which it may have to the Indemnified Party against whom such
action on 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
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
<PAGE>
(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
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 the subject of material adverse publicity and that material
<PAGE>
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
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- i 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.
<PAGE>
If to the Company:
P.O. Box 173706
Denver, Colorado 80217-3706
Attention: General Counsel
If to the Insurance Company:
11814 North Pennsylvania
Carmel, IN 46032
Attention: L Gregory Gloeckner
If to INVESCO:
P.O. Box 173706
Denver, Colorado 80217-3706
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 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:
GREAT AMERICAN RESERVE INSURANCE COMPANY
By its authorized officer,
SEAL By: /s/L Gregory Gloeckner
------------------------------
Title: Senior Vice President
Date: June 13, 1996
Company:
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
SEAL By: /s/Ronald L. Grooms
------------------------------
Title: Treasurer and Chief Financial and
Accounting Officer
Date: July 19, 1996
INVESCO:
INVESCO FUNDS GROUP, INC.
By its authorized officer,
SEAL By: /s/Ronald L. Grooms
-------------------------------
Title: Senior Vice President and
Treasurer
Date:July 19, 1996
<PAGE>
Schedule A
Contract
1. Contract Form 224056
<PAGE>
Schedule B
Accounts
Name of Account Date of Resolution of Insurance Company's
Board which Established the Account
Great American Reserve Variable
Annuity Account G January 18, 1996
<PAGE>
Schedule C
Persons Authorized to Give Instructions to the Company and INVESCO
Name
(1) /s/ L. Gregory Gloeckner 11815 North Pennsylvania
------------------------------ Carmel, IN 46032
Print or Type Name
------------------------------ Phone: 317-817-3700
Signature
(2) /s/Timothy M. Meyer 11815 North Pennsylvania
------------------------------ Carmel, IN 46032
Print or Type Name
------------------------------ Phone: 271-817-3700
<PAGE>
Schedule D
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)
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.)
<PAGE>
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.
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 on. Such mutilated 1 or illegible 11 e Cards
are "hand verified " i.e., 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.
<PAGE>
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.
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 13 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated January 29, 1999, relating to the financial
statements and financial highlights appearing in the December 31, 1998 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
Prospectuses and under the headings "Independent Accountants" in the Statement
of Additional Information.
/s/ PricewaterhouseCoopers LLP
- -------------------------
PricewaterhouseCoopers LLP
Denver, Colorado
February 18, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000912744
<NAME> INVESCO VARIABLE INVESTMENT FUNDS, INC.
<SERIES>
<NUMBER> 9
<NAME> INVESCO VARIABLE GROWTH FUND
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<NAME> INVESCO VARIABLE INVESTMENT FUNDS, INC.
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<NAME> INVESCO VARIABLE UTILITIES FUND
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