As filed on April 17, 2000 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.
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Post-Effective Amendment No. 21 X
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 22 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)
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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)
X on April 30, 2000, pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ _____________, 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>
PROSPECTUS | April 30, 2000
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YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
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INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - 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.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks...........3
Fund Performance.................................4
Fees And Expenses................................5
Investment Risks.................................5
Risks Associated With Particular Investments.....6
Temporary Defensive Positions...................10
Portfolio Turnover..............................10
Fund Management.................................10
Portfolio Managers..............................11
Share Price.....................................11
Taxes...........................................12
Dividends And Capital Gain Distributions........12
Voting Rights...................................12
Financial Highlights............................13
[INVESCO ICON] INVESCO
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
<PAGE>
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] Investment Goals & Strategies
[ARROWS ICON] Potential Investment Risks
[GRAPH ICON] Past Performance
[INVESCO ICON] Working With INVESCO
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[KEY ICON] [ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the
Fund. Together with our affiliated companies, we at INVESCO direct all aspects
of the management of the Fund.
FOR MORE DETAILS ABOUT THE FUND'S CURRENT INVESTMENTS AND MARKET OUTLOOK,
PLEASE SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.
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.
The Fund seeks to make an investment grow. It also seeks current income.
The Fund is actively managed. It invests primarily in equity securities that
INVESCO believes will rise in price faster than other securities, as well as in
options and other investments whose values are based upon the values of equity
securities. It can also invest in debt securities.
The Fund invests primarily in common stocks of large companies that, at the
time of purchase, have market capitalizations of more than $15 billion and that
have a history of consistent earnings growth regardless of the business cycle.
In addition, INVESCO tries to identify companies that have - or are expected to
have - growing earnings, revenues and strong cash flows. INVESCO also examines a
variety of industries and businesses, and seeks to purchase the securities of
companies that we believe are best situated to grow 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.
The Fund is managed in the growth style. At INVESCO, growth investing
starts with research from the "bottom up," and focuses on company fundamentals
and growth prospects.
We require that securities purchased for the Fund meet the following standards:
o EXCEPTIONAL GROWTH: The markets and industries they represent are growing
significantly faster than the economy as a whole.
o LEADERSHIP: They are leaders -- or emerging leaders -- in these markets,
securing their positions through technology, marketing, distribution or
some other innovative means.
<PAGE>
o FINANCIAL VALIDATION: Their returns -- in the form of sales unit growth,
rising operating margins, internal funding and other factors --
demonstrate exceptional growth and leadership.
Although the Fund is subject to a number of risks that could affect its
performance, its principal risk is market risk - that is, that the prices of the
securities in its portfolio will rise and fall due to price movements in the
securities markets, and that the securities held in the Fund's portfolio may
decline in value more than the overall securities markets.
The Fund is subject to other principal risks such as potential conflicts,
liquidity, derivatives, options and futures, counterparty, interest rate,
duration, foreign securities, lack of timely information and credit risks. These
risks are described and discussed later in the Prospectus under the headings
"Investment Risks" and "Risks Associated With Particular Investments." An
investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation ("FDIC") or any other
government agency. As with any mutual fund, there is always a risk that an
investment in the Fund may lose money.
[GRAPH ICON] FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance for the years
ended December 31 (commonly known as its "total return") since inception. The
table below shows average annual total returns for various periods ended
December 31 for the Fund compared to the S&P 500 Index. The information in the
chart and table illustrates the variability of the Fund's total return and how
its performance compared to a broad measure of market performance. Remember,
past performance does not indicate how the Fund 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.
The chart below contains the following plot points:
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VIF- BLUE CHIP GROWTH FUND
ACTUAL ANNUAL TOTAL RETURN(1)
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1997 1998 1999
6.90% 38.99% 29.17%
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Best Calendar Qtr 12/98 27.21%
Worst Calendar Qtr. 9/98 (7.30%)
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AVERAGE ANNUAL TOTAL RETURN(1)
AS OF 12/31/99
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1 YEAR SINCE INCEPTION
VIF- Blue Chip Growth Fund 29.17% 31.92%(2)
S&P 500 Index(3) 21.03% 23.57%
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<PAGE>
(1) Total return figures include reinvested dividends and capital gain
distributions, and include the effect of the Fund's expenses.
(2) The Fund commenced investment operations on August 25, 1997.
(3) The S&P 500 Index is an unmanaged index considered representative of the
performance of the broad U.S. stock market. Please keep in mind that the
Index does not pay brokerage, management or administrative expenses, all of
which are paid by the Fund and are reflected in its annual return.
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
VIF - BLUE CHIP GROWTH FUND
Management Fees 0.85%
Distribution and Service (12b-1) Fees None
Other Expenses (1)(2)(3) 8.31%
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Total Annual Fund Operating Expenses (1)(2)(3) 9.16%
====
(1) The Fund's actual Total Annual Fund Operating Expenses were lower than
the figures shown, because its custodian fees were reduced under an
expense offset arrangement.
(2) The expense information presented in the table has been restated from
the financials to reflect a change in the administrative services fee.
(3) Certain expenses of the Fund were absorbed voluntarily by INVESCO in
order to ensure that expenses for the Fund did not exceed 1.50% of the
Fund's average net assets pursuant to a commitment between the Fund and
INVESCO. This commitment may be changed at any time following consultation
with the board of directors. After absorption, but excluding any expense
offset arrangements, the Fund's Other Expenses and Total Annual Fund
Operating Expenses for the fiscal year ended December 31, 1999 were 1.02%
and 1.87%, respectively, of the Fund's average net assets.
EXAMPLE
The Example is intended to help you compare the cost of investing in the
Fund to the cost of investing in other mutual funds.
The 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 life insurance contract. The Example also assumes a
hypothetical 5% return each year and that the Fund's operating expenses remain
the same. Although the actual costs and performance of the Fund may be higher or
lower, based on these assumptions your costs would have been:
1 year 3 years 5 years 10 years
$ 897 $2,580 $4,127 $7,464
[ARROWS ICON] INVESTMENT RISKS
You should determine the level of risk with which you are comfortable
before you allocate contract values to the Fund. The principal risks of any
mutual fund, including the Fund, are:
<PAGE>
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.
NOT INSURED. Mutual funds are not insured by the 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 and changes in the equity markets
as a whole.
[ARROWS ICON] 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. In general, the securities of large
businesses with outstanding securities worth $15 billion or more are less
volatile than those of mid-size businesses with outstanding securities worth
more than $2 billion or small businesses with outstanding securities worth less
than $2 billion.
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 companies in 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,
described below.
<PAGE>
OPTIONS AND FUTURES RISK
Options and futures are common types of derivatives that the Fund may
occasionally use to hedge its investments. An option is the right to buy or sell
a security or other instrument, index or commodity at a specific price on or
before a specific date. A future is an agreement to buy or sell a security or
other instrument, index or commodity at a specific price on a specific date.
COUNTERPARTY RISK
This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the transaction with the
Fund.
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 movements.
FOREIGN SECURITIES RISKS
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 assets in securities of non-U.S. issuers. Securities of Canadian
issuers and American Depository Receipts are not subject to this 25% limitation.
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 U.S. may permit trading practices that are not allowed in the
U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. 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 January 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.
<PAGE>
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.
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.
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.
The Fund generally invests in common stocks of large companies that, at the
time of purchase, have market capitalizations of more than $15 billion and that
have a history of consistent earnings growth regardless of business cycle.
However, in an effort to diversify its holdings and provide some protection
against the risk of other investments, the Fund also may invest in other types
of securities and other financial instruments, as indicated in the chart below.
These investments, which at any given time may constitute a significant portion
of the Fund's portfolio, have their own risks.
<TABLE>
<CAPTION>
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INVESTMENT RISKS
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<S> <C>
AMERICAN DEPOSITORY RECEIPTS (ADRS) Market, Information,
These are securities issued by U.S. banks that represent Political, Regulatory,
shares of foreign corporations held by those banks. Diplomatic, Liquidity
Although traded in U.S. securities markets and valued in and Currency Risks
U.S. dollars, ADRs carry most of the risks of investing
directly in foreign securities.
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DEBT SECURITIES
Securities issued by private companies or governments Market, Credit, Interest
representing an obligation to pay interest and to repay Rate and Duration Risks
principal when the security matures.
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<PAGE>
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INVESTMENT RISKS
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DELAYED DELIVERY OR WHEN-ISSUED SECURITIES
Ordinarily, the Fund purchases securities and pays for Market and Interest Rate
them in cash at the normal trade settlement time. When Risks
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.
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FORWARD FOREIGN CURRENCY CONTRACTS
A contract to exchange an amount of currency on a date Currency, Political,
in the future at an agreed-upon exchange rate might be Diplomatic, Counterparty
used by the Fund to hedge against changes in foreign and Regulatory Risks
currency exchange rates when the Fund invests in foreign
securities. Does not reduce price fluctu ations in
foreign securities, or prevent losses if the prices of
those securities decline.
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FUTURES
A futures contract is an agreement to buy or sell a Market, Liquidity and
specific amount of a financial instru ment (such as an Options and Futures Risks
index option) at a stated price on a stated date. The
Fund may use futures contracts to provide liquidity
and to hedge portfolio value.
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OPTIONS
The obligation or right to deliver or receive a security Credit, Information,
or other instrument, index or com modity, or cash Liquidity and Options
payment depending on the price of the underlying and Futures Risks
security or the perfor mance of an index or other
benchmark. Includes options on specific securities and
stock indices, and stock index futures. May be used in
Fund's portfolio to provide liquidity and hedge portfolio
value.
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OTHER FINANCIAL INSTRUMENTS
These may include forward contracts, swaps, caps, floors Counterparty, Credit,
and collars. They may be used to try to manage the Currency, Interest
Fund's foreign currency exposure and other investment Rate, Liquidity, Market
risks, which can cause its net asset value to rise or and Regulatory Risks
fall. The Fund may use these finan cial instruments,
commonly known as "derivatives," to increase or
decrease its expo sure to changing securities prices,
interest rates, currency exchange rates or other factors.
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<PAGE>
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INVESTMENT RISKS
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REPURCHASE AGREEMENTS
A contract under which the seller of a security agrees Credit and Counterparty
to buy it back at an agreed-upon price and time in the Risks
future.
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RULE 144A SECURITIES
Securities that are not registered, but which are bought Liquidity
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.
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</TABLE>
[ARROWS ICON] 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, even though that is not the normal investment strategy of the Fund.
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.
[ARROWS ICON] 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's portfolio turnover rate was 114% for the year ended December 31, 1999.
A portfolio turnover rate of 200%, for example, is equivalent to the Fund
buying and selling all of the securities in its portfolio two times in the
course of a year. A comparatively high turn-over rate may result in higher
brokerage commissions.
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISER
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $357 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the
investment adviser of the Fund. INVESCO was founded in 1932 and manages over
$31.9 billion for more than 960,478 shareholders of 45 INVESCO mutual funds.
INVESCO performs a wide variety of other services for the Funds, including
administrative and transfer agency functions (the processing of purchases, sales
and exchanges of Fund shares).
<PAGE>
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, 1999.
[INVESCO ICON] PORTFOLIO MANAGERS
The following individuals are primarily responsible for the day-to-day
management of the Fund's portfolio holdings:
TRENT E. MAY, a vice president of INVESCO, is the lead portfolio manager of
the Fund. Before joining INVESCO in 1996, Trent was a senior equity analyst with
Munder Capital Management and a research assistant with SunBank Capital
Management. He is a Chartered Financial Analyst. Trent holds an M.B.A. from
Rollins College and a B.S. in Engineering from Florida Institute of Technology.
DOUGLAS J. MCELDOWNEY, a vice president of INVESCO, is the co-portfolio
manager of the Fund. Before joining INVESCO in 1999, Doug was a senior vice
president and portfolio manager with Bank of America Investment Management, Inc.
and an investment officer and portfolio manager with SunTrust Banks, Inc. He is
a Chartered Financial Analyst and Certified Public Accountant. Doug holds an
M.B.A. in Finance from the Crummer Graduate School at Rollins College and a
B.B.A. in Finance from the University of Kentucky.
Trent May and Doug McEldowney are members of the INVESCO Growth Team, which
is led by Timothy J. Miller.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST AND DIVIDENDS
- - FUND DEBTS,
INCLUDING ACCRUED EXPENSES
- -------------------------------------
/ NUMBER OF SHARES
= YOUR 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 the regular trading day on that exchange
(normally, 4:00 p.m. Eastern 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 U.S.
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.
Foreign securities exchanges, which set the prices for foreign securities
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>
[GRAPH ICON] 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), you would not be considered to be an owner of
shares of the Fund. Therefore, 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.
[GRAPH ICON] 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.
[INVESCO ICON] 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
The financial highlights table is intended to help you understand the
financial performance of the Fund for the past five years (or, if shorter, the
period of the Fund's operations). Certain information reflects the financial
results for a single Fund share. The total returns in the table represent the
annual percentages that an investor would have earned (or lost) on an investment
in a share of the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the financial statements, is
included in INVESCO Variable Investment Funds, Inc.'s 1999 Annual Report to
Shareholders, which is incorporated by reference into the Statement of
Additional Information. This Report is available without charge by contacting
IDI at the address or telephone number on the back cover of this Prospectus.
<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED DECEMBER 31 DECEMBER 31
---------------------------------------------------------
1999 1998 1997(a)
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value--Beginning of Period $14.49 $10.69 $10.00
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss)(b) (0.00) 0.00 0.05
Net Gains on Securities
(Both Realized and Unrealized) 4.21 4.14 0.64
- ----------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 4.21 4.14 0.69
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.00 0.04 0.00
Distributions from Capital Gains 0.25 0.01 0.00
In Excess of Capital Gains 0.00 0.29 0.00
- ----------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.25 0.34 0.00
- ----------------------------------------------------------------------------------------
Net Asset Value--End of Period $18.45 $14.49 $10.69
========================================================================================
TOTAL RETURN(c) 29.17% 38.99% 6.90%(d)
RATIOS
Net Assets End of Period
($000 Omitted) $1,032 $371 $ 266
Ratio of Expenses to Average
Net Assets(e)(f) 1.87% 1.57% 0.29%(g)
Ratio of Net Investment Income (Loss)
to Average Net Assets(e) (0.38%) (0.07%) 1.45%(g)
Portfolio Turnover Rate 114% 78% 12%(d)
</TABLE>
(a) From August 25, 1997, commencement of investment operations, through
December 31, 1997.
(b) Net Investment Income (Loss) aggregated less than $0.01 on a per share basis
for the years ended December 31, 1999 and 1998.
<PAGE>
(c) Total return does not reflect expenses that apply to the related insurance
contracts, 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
years ended December 31, 1999 and 1998, and all of the expenses of the Fund
were voluntarily absorbed by INVESCO for the period ended December 31, 1997.
If INVESCO had not voluntarily absorbed these expenses, ratio of expenses to
average net assets would have been 8.99%, 12.04% and 28.76% (annualized),
respectively, and ratio of net investment loss to average net assets would
have been (7.50%), (10.54%) and (27.02%) (annualized), respectively.
(f) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (these may include
transfer agency and custodian fees).
(g) Annualized
<PAGE>
APRIL 30, 2000
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - BLUE CHIP GROWTH FUND
(FORMERLY, INVESCO VIF - GROWTH PORTFOLIO)
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 April 30, 2000 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 of the Fund may be accessed through the
INVESCO Web site at www.invesco.com. In addition, the Prospectus, annual report,
semiannual report and SAI of the Fund are available on the SEC Web site at
www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; 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. 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 1-202-942-8090. The SEC file numbers for the
Fund are 811-8038 and 033-70154.
811-8038
<PAGE>
PROSPECTUS | April 30, 2000
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- --------------------------------------------------------------------------------
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - DYNAMICS FUND
A MUTUAL FUND SOLD EXCLUSIVELY TO INSURANCE COMPANY SEPARATE ACCOUNTS FOR
VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks...........17
Fund Performance.................................18
Fees And Expenses................................19
Investment Risks.................................20
Risks Associated With Particular Investments.....20
Temporary Defensive Positions....................24
Fund Management..................................24
Portfolio Managers...............................25
Share Price......................................25
Taxes............................................26
Dividends And Capital Gain Distributions.........26
Voting Rights....................................26
Financial Highlights.............................27
[INVESCO ICON] INVESCO
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
<PAGE>
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] Investment Goals & Strategies
[ARROWS ICON] Potential Investment Risks
[GRAPH ICON] Past Performance
[INVESCO ICON] Working With INVESCO
- --------------------------------------------------------------------------------
[KEY ICON] [ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the
Fund. Together with our affiliated companies, we at INVESCO direct all aspects
of the management of the Fund.
FOR MORE DETAILS ABOUT THE FUND'S CURRENT INVESTMENTS AND MARKET OUTLOOK,
PLEASE SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.
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.
The Fund seeks to make an investment grow. It is actively managed. The Fund
invests primarily in equity securities that INVESCO believes will rise in price
faster than other securities, as well as in options and other investments whose
values are based upon the values of equity securities. It can also invest in
debt securities, including so-called "junk bonds."
The Fund invests primarily in common stocks of mid-sized U.S. companies -
those with market capitalizations between $2 billion and $15 billion at the time
of purchase but also has the flexibility to invest in other types of securities,
including preferred stocks, convertivble securities and bonds. The core of the
Fund's portfolio is invested in securities of established companies that are
leaders in attractive growth markets with a history of strong returns. The
remainder of the portfolio is invested in securities of companies that show
accelerating growth, driven by product cycles, favorable industry or sector
conditions and other factors that INVESCO believes will lead to rapid sales or
earnings growth.
The Fund's strategy relies on 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. Consequently, the Fund's
investments are usually bought and sold relatively frequently.
The Fund is managed in the growth style. At INVESCO, growth investing
starts with research from the "bottom up," and focuses on company fundamentals
and growth prospects.
<PAGE>
We require that securities purchased for the Fund meet the following
standards:
o EXCEPTIONAL GROWTH: The markets and industries they represent are
growing significantly faster than the economy as a whole.
o LEADERSHIP: They are leaders -- or emerging leaders -- in these markets,
securing their positions through technology, marketing, distribution or
some other innovative means.
o FINANCIAL VALIDATION: Their returns -- in the form of sales unit growth,
rising operating margins, internal funding and other factors -- demonstrate
exceptional growth and leadership.
While the Fund generally invests in mid-sized companies, the Fund sometimes
invests in the securities of smaller companies. The prices of these securities
tend to move up and down more rapidly than the securities prices of larger, more
established companies, and the price of Fund shares tends to fluctuate more than
it would if the Fund invested in the securities of larger companies.
The Fund is subject to other principal risks such as potential conflicts,
market, liquidity, derivatives, options and futures, counterparty, interest
rate, duration, foreign securities, lack of timely information and credit risks.
These risks are described and discussed later in the Prospectus under the
headings "Investment Risks" and "Risks Associated With Particular Investments."
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation ("FDIC") or any other
government agency. As with any mutual fund, there is always a risk that an
investment in the Fund may lose money.
[GRAPH ICON] FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance for the
years ended December 31 (commonly known as its "total return") since inception.
The table below shows average annual total returns for various periods ended
December 31 for the Fund compared to the S&P Mid Cap 400 Index. The information
in the chart and table illustrates the variability of the Fund's total return
and how its performance compared to a broad measure of market performance.
Remember, past performance does not indicate how the Fund 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.
The chart below contains the following plot points:
- --------------------------------------------------------------------------------
VIF - DYNAMICS FUND
ACTUAL ANNUAL TOTAL RETURN(1)
- --------------------------------------------------------------------------------
1997 1998 1999
3.40% 19.35% 55.60%
- --------------------------------------------------------------------------------
Best Calendar Qtr. 12/99 33.23%
Worst Calendar Qtr. 9/98 (19.95%)
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1)
as of 12/31/99
- --------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION
VIF- Dynamics Fund 55.60% 31.95%(2)
S&P Mid Cap 400 Index(3) 14.72% 16.80%(4)
- --------------------------------------------------------------------------------
(1) Total return figures include reinvested dividends and capital gain
distributions, and include the effect of the Fund's expenses.
(2) The Fund commenced investment operations on August 25, 1997.
(3) The S&P Mid Cap 400 Index is an unmanaged index that shows performance of
domestic mid-capitalization stocks. Please keep in mind that the Index
does not pay brokerage, management or administrative expenses, all of
which are paid by the Fund and are reflected in its annual return.
(4) Performance for the Index is calculated from July 31, 1997 to December 31,
1999.
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
VIF - DYNAMICS FUND
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (1)(2)(3) 1.53%
----
Total Annual Fund Operating Expenses (1)(2)(3) 2.28%
====
(1) The Fund's actual Total Annual Fund Operating Expenses were lower than
the figures shown, because its custodian fees were reduced under an
expense offset arrangement.
(2) The expense information presented in the table has been restated from
the financials to reflect a change in the administrative services fee.
(3) Certain expenses of the Fund were absorbed voluntarily by INVESCO in
order to ensure that expenses for the Fund did not exceed 1.15% of the
Fund's average net assets pursuant to a commitment between the Fund and
INVESCO. This commitment may be changed at any time following
consultation with the board of directors. After absorption, but excluding
any expense offset arrangements, the Fund's Other Expenses and Total Annual
Fund Operating Expenses for the fiscal year ended December 31, 1999 were
0.51% and 1.26%, respectively, of the Fund's average net assets.
EXAMPLE
The Example is intended to help you compare the cost of investing in the
Fund to the cost of investing in other mutual funds.
The 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 life insurance contract. The Example also assumes a
hypothetical 5% return each year and that the Fund's operating expenses remain
the same. Although the actual costs and performance of the Fund may be higher or
lower, based on these assumptions your costs would have been:
<PAGE>
1 year 3 years 5 years 10 years
$ 231 $ 712 $1,220 $2,619
[ARROWS ICON] INVESTMENT RISKS
You should determine the level of risk with which you are comfortable
before you allocate contract values to the Fund. The principal risks of any
mutual fund, including the Fund, are:
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.
NOT INSURED. Mutual funds are not insured by the 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 and changes in the equity
markets as a whole.
[ARROWS ICON] 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. In general, the securities of large
businesses with outstanding securities worth $15 billion or more are less
volatile than those of mid-size businesses with outstanding securities worth
more than $2 billion or small businesses with outstanding securities worth less
than $2 billion.
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 companies in 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 deriva tives 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,
described below.
OPTIONS AND FUTURES RISK
Options and futures are common types of derivatives that the Fund may
occasionally use to hedge its investments. An option is the right to buy or sell
a security or other instrument, index or commodity at a specific price on or
before a specific date. A future is an agreement to buy or sell a security or
other instrument, index or commodity at a specific price on a specific date.
COUNTERPARTY RISK
This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the transaction with the
Fund.
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 movements.
FOREIGN SECURITIES RISK
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 assets in securities of non-U.S. issuers. Securities of Canadian
issuers and American Depository Receipts are not subject to this 25% limitation.
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 U.S. may permit trading practices that are not allowed in the
U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. 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 January 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.
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.
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.
The Fund generally invests in common stocks of companies traded on U.S.
securities exchanges, as well as over-the-counter. However, in an effort to
diversify its holdings and provide some protection against the risk of other
investments, the Fund also may invest in other types of securities and other
financial instruments, as indicated in the chart below. These investments, which
at any given time may constitute a significant portion of the Fund's portfolio,
have their own risk.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
INVESTMENT RISKS
- ------------------------------------------------------------------------------------------
<S> <C>
AMERICAN DEPOSITORY RECEIPTS (ADRs) Market,
These are securities issued by U.S. banks that represent Information, Politi-
shares of foreign corporations held by those banks. Although cal, Regulatory,
traded in U.S. securities markets and valued in U.S. dollars, Diplomatic,
ADRs carry most of the risks of investing directly in foreign Liquidity and
securities. Currency Risks
- ------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------
INVESTMENT RISKS
- ------------------------------------------------------------------------------------------
DEBT SECURITIES Market, Credit,
Securities issued by private companies or governments Interest Rate and
representing an obligation to pay interest and to repay Duration Risks
principal when the security matures.
- ------------------------------------------------------------------------------------------
DELAYED DELIVERY OR WHEN-ISSUED SECURITIES Market and Interest
Ordinarily, the Fund purchases securities and pays for them Rate Risks
in cash at the normal trade 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 security is
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.
- ------------------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS Currency,
A contract to exchange an amount of currency on a date in the Political,
future at an agreed-upon exchange rate might be used by the Diplomatic,
Fund to hedge against changes in foreign currency exchange Counterparty and
rates when the Fund invests in foreign securities. Does not Regulatory Risks
reduce price fluctuations in foreign securities, or prevent
losses if the prices of those securities decline.
- -------------------------------------------------------------------------------------------
FUTURES
A futures contract is an agreement to buy or sell a specific Market, Liquidity
amount of a financial instrument (such as an index option) and Options and
at a and stated price on a stated date. The Fund may use Futures Risks
futures contracts to provide liquidity and to hedge portfolio
value.
- -------------------------------------------------------------------------------------------
JUNK BONDS Market, Credit,
Debt securities that are rated BB or lower by Standard & Interest Rate and
Poor's or Ba or lower by Moody's. Tend to pay higher interest Duration Risks
rates than higher-rated debt securities, but carry a higher credit
risk.
- -------------------------------------------------------------------------------------------
OPTIONS Credit,
The obligation or right to deliver or receive a security or Information, Liquid-
other instrument, index or commodity, or cash payment depending ity and Options and
on the price of the underlying security or the performance of Futures Risks
an index or other benchmark. Includes options on specific
securities and stock indices, and stock index futures. May be
used in Fund's portfolio to provide liquidity and hedge
portfolio value.
- --------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------
INVESTMENT RISKS
- ------------------------------------------------------------------------------------------
OTHER FINANCIAL INSTRUMENTS Counterparty,
These may include forward contracts, swaps, caps, floors and Credit, Currency,
collars. They may be used to try to manage the Fund's foreign Interest Rate,
currency exposure and other investment risks, which can cause Liquidity, Market
its net asset value to rise or fall. The Fund may use these and Regulatory Risks
financial instruments, commonly known as "derivatives," to
increase or decrease its exposure to changing securities
prices, interest rates, cur rency exchange rates or other
factors.
- --------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A contract under which the seller of a security agrees to buy Credit and
it back at an agreed-upon price and time in the future. Counterparty Risks
- --------------------------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not registered, but which are bought and Liquidity Risk
sold solely by institutional investors. The Fund considers
many Rule 144A securities to be "liquid," although the market
for such securi ties typically is less active than the
public securities markets.
- --------------------------------------------------------------------------------------------
</TABLE>
[ARROWS ICON] 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, even though that is not the normal investment strategy of the Fund.
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.
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISER
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $357 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
<PAGE>
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Fund. INVESCO was founded in 1932 and manages over $31.9 billion
for more than 960,478 shareholders of 45 INVESCO mutual funds. INVESCO performs
a wide variety of other services for the Funds, including administrative 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, 1999.
[INVESCO ICON] PORTFOLIO MANAGERS
The following individuals are primarily responsible for the day-to-day
management of the Fund's portfolio holdings:
TIMOTHY J. MILLER, a director and senior vice president of INVESCO, is the
lead portfolio manager of the Fund. Before joining INVESCO in 1992, Tim was a
portfolio manager with Mississippi Valley Advisors. He is a Chartered Financial
Analyst. Tim holds an M.B.A. from the University of Missouri -St. Louis and a
B.S.B.A. from St. Louis University.
THOMAS WALD, a vice president of INVESCO, is the co-portfolio manager of the
Fund. Before joining INVESCO in 1997, Tom was an analyst with Munder Capital
Management, Duff & Phelps and Prudential Investment Corp. He is a Chartered
Financial Analyst. Tom holds an M.B.A. from the Wharton School at the University
of Pennsylvania and a B.A. from Tulane University.
Tom Wald is a member of the INVESCO Growth Team, which is led by Tim
Miller.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST & DIVIDENDS
- - FUND DEBTS,
INCLUDING ACCRUED EXPENSES
- -----------------------------------
/ NUMBER OF SHARES
= YOUR 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 the regular trading day on that exchange
(normally, 4:00 p.m. Eastern 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 U.S.
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.
<PAGE>
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.
[GRAPH ICON] 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), you would not be considered to be an owner of
shares of the Fund. Therefore, 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.
[GRAPH ICON] 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.
[INVESCO ICON] 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
The financial highlights table is intended to help you understand the
financial performance of the Fund for the past five years (or, if shorter, the
period of the Fund's operations). Certain information reflects the financial
results for a single Fund share. The total returns in the table represent the
annual percentages that an investor would have earned (or lost) on an investment
in a share of the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the financial statements, is
included in INVESCO Variable Investment Funds, Inc.'s 1999 Annual Report to
Shareholders, which is incorporated by reference into the Statement of
Additional Information. This Report is available without charge by contacting
IDI at the address or telephone number on the back cover of this Prospectus.
<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED DECEMBER 31 DECEMBER 31
- ----------------------------------------------------------------------------------------
1999 1998 1997(a)
<S> <C> <C> <C>
PER SHARE DATA
Net Asset Value--Beginning of Period $ 12.15 $10.34 $10.00
- ----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)(b) 0.00 (0.00) 0.02
Net Gains on Securities
(Both Realized and Unrealized) 6.75 1.98 0.32
- ----------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 6.75 1.98 0.34
- ----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income(c) 0.00 0.02 0.00
In Excess of Net Investment Income(c) 0.00 0.00 0.00
Distributions from Capital Gains 0.00 0.15 0.00
- ----------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.00 0.17 0.00
- ----------------------------------------------------------------------------------------
Net Asset Value End of Period $ 18.90 $12.15 $10.34
========================================================================================
TOTAL RETURN(d) 55.60% 19.35% 3.40%(e)
RATIOS
Net Assets--End of Period ($000 Omitted) $29,667 $ 308 $ 257
Ratio of Expenses to Average Net
Assets(f)(g) 1.26% 1.45% 0.52%(h)
Ratio of Net Investment Income to
Average Net Assets(f) 0.04% (0.64%) 0.63%(h)
Portfolio Turnover Rate 70% 55% 28%(e)
</TABLE>
(a) From August 25, 1997, commencement of investment operations, through
December 31, 1997.
(b) Net Investment Income (Loss) aggregated less than $0.01 on a per share basis
for the years ended December 31, 1999 and 1998.
(c) Distributions from net investment income and in excess of net investment
income for the year ended December 31, 1999, aggregated less than $0.01 on
a per share basis.
(d) Total return does not reflect expenses that apply to the related insurance
contract, and inclusion of these charges sould reduce the total return
figures for the period shown.
<PAGE>
(e) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(f) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
years ended December 31, 1999 and 1998, and all of the expenses of the Fund
were voluntarily absorbed by INVESCO for the period ended December 31, 1997.
If INVESCO had not voluntarily absorbed these expenses, ratio of expenses to
average net assets would have been 2.25%, 14.76% and 34.18% (annualized),
respectively, and ratio of net investment loss to average net assets would
have been (0.95%), (13.95%) and (33.03%) (annualized), respectively.
(g) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (these may include
transfer agency and custodian fees).
(h) Annualized
<PAGE>
APRIL 30, 2000
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-DYNAMICS FUND
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 April 30, 2000, 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 of the Fund may be accessed through the
INVESCO Web site at www.invesco.com. In addition, the Prospectus, annual report,
semiannual report and SAI of the Fund are available on the SEC Web site at
www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; 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. 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 1-202-942-8090. The SEC file numbers for the
Fund are 811-8038 and 033-70154.
811-8038
<PAGE>
PROSPECTUS | April 30, 2000
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- --------------------------------------------------------------------------------
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - EQUITY INCOME FUND
(FORMERLY, INVESCO VIF - INDUSTRIAL INCOME PORTFOLIO)
A MUTUAL FUND SOLD EXCLUSIVELY TO INSURANCE COMPANY SEPARATE ACCOUNTS FOR
VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks..........31
Fund Performance................................32
Fees And Expenses...............................33
Investment Risks................................34
Risks Associated With Particular Investments....34
Temporary Defensive Positions...................38
Fund Management.................................39
Portfolio Managers..............................39
Share Price.....................................40
Taxes...........................................40
Dividends And Capital Gain Distributions........40
Voting Rights...................................40
Financial Highlights............................41
[INVESCO ICON] INVESCO
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
<PAGE>
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] Investment Goals & Strategies
[ARROWS ICON] Potential Investment Risks
[GRAPH ICON] Past Performance
[INVESCO ICON] Working With INVESCO
- --------------------------------------------------------------------------------
[KEY ICON] [ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the
Fund. Together with our affiliated companies, we at INVESCO direct all aspects
of the management of the Fund.
FOR MORE DETAILS ABOUT THE FUND'S CURRENT INVESTMENTS AND MARKET OUTLOOK,
PLEASE SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.
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.
The Fund seeks to make an investment grow. It also seeks current income.
The Fund is actively managed. It invests in a mix of equity securities and debt
securities, as well as in options and other investments whose values are based
on the values of these securities. Often, but not always, 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 invests primarily in dividend-paying common and preferred stocks.
Stocks selected for the Fund generally are expected to produce relatively high
levels of income and consistent, stable returns. Although the Fund focuses on
the stocks of larger companies with a strong record of paying dividends, it 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.
Because the Fund invests primarily in the securities of larger companies,
the Fund's price share tends to rise and fall with the up and down price
movements of larger company stocks. Due to its investment strategy, the Fund's
portfolio includes relatively few smaller companies, which may be a disadvantage
if smaller companies outperform the broad market.
Although the Fund is subject to a number of risks that could affect its
performance, its principal risk is market risk -- that is, that the price of the
securities in its portfolio will rise and fall due to price movements in the
<PAGE>
securities markets, and the securities held in the Fund's portfolio may decline
in value more than the overall securities markets. Since INVESCO has discretion
to allocate the amounts of equity securities and debt securities held by the
Fund, there is an additional risk that the portfolio of the Fund may not be
allocated in the most advantageous way between equity and debt securities,
particularly in times of significant market movements.
The Fund is subject to other principal risks such as potential conflicts,
credit, debt securities, foreign securities, interest rate, duration, liquidity,
derivatives, options and futures, counterparty and lack of timely information
risks. These risks are described and discussed later in the Prospectus under the
headings "Investment Risks" and "Risks Associated With Particular Investments."
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation ("FDIC") or any other
government agency. As with any mutual fund, there is always a risk that an
investment in the Fund may lose money.
[GRAPH ICON] FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance for the
years ended December 31 (commonly known as its "total return") since inception.
The table below shows average annual total returns for various periods ended
December 31 for the Fund compared to the S&P 500 Index and the Lehman
Government/Corporate Bond Index. The information in the chart and table
illustrates the variability of the Fund's total returns and how its performance
compared to a broad measure of market performance. Remember, past performance
does not indicate how the Fund 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.
The chart below contains the following plot points:
- --------------------------------------------------------------------------------
VIF-EQUITY INCOME FUND
ACTUAL ANNUAL TOTAL RETURN(1)
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
1.23% 29.25% 22.28% 28.17% 15.30% 14.84%
- --------------------------------------------------------------------------------
Best Calendar Qtr. 12/98 13.17%
Worst Calendar Qtr. 9/98 (7.56%)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1)
AS OF 12/31/99
- --------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION
VIF - Equity Income Fund 14.84% 21.81% 20.34%(2)
S&P 500 Index(3) 21.03% 28.54% 26.49%
Lehman Government/ (2.15%) 7.61% 6.78%(4)
Corporate Bond Index(3)
<PAGE>
(1) Total return figures include reinvested dividends and capital gain
distributions, and include the effect of the Fund's expenses.
(2) The Fund commenced investment operations on August 10, 1994.
(3) The S&P 500 Index is an unmanaged index that shows performance of the
broad U.S. stock market. The Lehman Government/Corporate Bond Index is an
unmanaged index that shows the performance of the broad fixed-income
market. Please keep in mind that the Indexes do not pay brokerage,
management or administrative expenses, all of which are paid by the Fund
and are reflected in its annual return.
(4) Performance for the Index is calculated from July 31, 1994 to December 31,
1999.
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
VIF - EQUITY INCOME FUND
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (1)(2)(3) 0.44%
----
Total Annual Fund Operating Expenses (1)(2)(3) 1.19%
====
(1) The Fund's actual Total Annual Fund Operating Expenses were lower than
the figures shown, because its custodian fees were reduced under an expense
offset arrangement.
(2) The expense information presented in the table has been restated from
the financials to reflect a change in the administrative services fee.
(3) Certain expenses of the Fund were absorbed voluntarily by INVESCO in order
to ensure that expenses for the Fund did not exceed 1.15% of the Fund's
average net assets pursuant to a commitment between the Fund and INVESCO.
This commitment may be changed at any time following consultation with the
board of directors. After absorption, but excluding any expense offset
arrangements, the Fund's Other Expenses and Total Annual Fund Operating
Expenses for the fiscal year ended December 31, 1999 were 0.42% and 1.17%,
respectively, of the Fund's average net assets.
EXAMPLE
The Example is intended to help you compare the cost of investing in the
Fund to the cost of investing in other mutual funds.
The 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 life insurance contract. The Example also assumes a
hypothetical 5% return each year and that the Fund's operating expenses remain
the same. Although the actual costs and performance of the Fund may be higher or
lower, based on these assumptions your costs would have been:
1 year 3 years 5 years 10 years
$121 $378 $654 $1,443
<PAGE>
[ARROWS ICON] INVESTMENT RISKS
You should determine the level of risk with which you are comfortable
before you allocate contract values to the Fund. The principal risks of any
mutual fund, including the Fund, are:
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.
NOT INSURED. Mutual funds are not insured by the 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 and changes in the equity and
debt markets as a whole.
[ARROWS ICON] 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. In general, the securities of large
businesses with outstanding securities worth $15 billion or more are less
volatile than those of mid-size businesses with outstanding securities worth
more than $2 billion, or small businesses with outstanding securities worth less
than $2 billion.
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.
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
<PAGE>
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 Investors Service, Inc. ("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 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. 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. 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 affect 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.
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 or 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.
FOREIGN SECURITIES RISK
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 assets in securities of non-U.S. issuers, provided that all such
securities are denominated and pay interest in U.S. dollars (such as Eurobonds
and Yankee Bonds). Securities of Canadian issuers and American Depository
Receipts are not subject to this 25% limitation.
<PAGE>
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 U.S. may permit trading practices that are not allowed in the
U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. 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 January 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 movements.
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 companies in 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,
described below.
OPTIONS AND FUTURES RISK
Options and futures are common types of derivatives that a Fund may
occasionally use to hedge its investments. An option is the right to buy or sell
a security or other investment, index or commodity at a specific price on or
before a specific date. A future is an agreement to buy or sell a security or
other investment, index or commodity at a specific price on a specific date.
COUNTERPARTY RISK
This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the 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
The Fund generally invests in equity and debt securities. However, in an
effort to diversify its holdings and provide some protection against the risk of
other investments, the Fund also may invest in other types of securities and
other financial instruments, as indicated in the chart below. These investments,
which at any given time may constitute a significant portion of the Fund's
portfolio, have their own risks.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
INVESTMENT RISKS
- -------------------------------------------------------------------------------------------
<S> <C>
AMERICAN DEPOSITORY RECEIPTS (ADRS)
These are securities issued by U.S. banks that represent Market, Information,
shares of foreign corporations held by those banks. Political, Regulatory,
Although traded in U.S. securities markets and valued in Diplomatic, Liquidity
U.S. dollars, ADRs carry most of the risks of investing and Currency Risks
directly in foreign securities.
- -------------------------------------------------------------------------------------------
FUTURES
A futures contract is an agreement to buy or sell a Market, Liquidity and
specific amount of a financial instrument (such as an Options and Futures Risks
index option) at a stated price on a stated date. The
Fund uses futures contracts to provide liquidity and to
hedge portfolio value.
- -------------------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------------------
INVESTMENT RISKS
- -------------------------------------------------------------------------------------------
ILLIQUID SECURITIES
Securities that cannot be sold quickly at fair value. Liquidity Risk
- -------------------------------------------------------------------------------------------
JUNK BONDS
Debt Securities that are rated BB or lower by S&P Market, Credit, Interest
or Ba or lower by Moody's. Tend to pay higher Rate and Duration Risks
interest rates than higher-rated debt securities,
but carry a higher credit risk.
- -------------------------------------------------------------------------------------------
OPTIONS Credit, Information,
The obligation or right to deliver or receive a security Liquidity and Options
or other investment, index or com modity, or cash and Futures Risks
payment depending on 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. May be used in
Fund's portfolio to provide liquidity and hedge portfolio
value.
- -------------------------------------------------------------------------------------------
OTHER FINANCIAL INSTRUMENTS
These may include forward contracts, swaps, caps, floors Counterparty, Credit,
and collars. They may be used to try to manage the Currency, Interest Rate,
Fund's foreign currency exposure and other investment Liquidity, Market and
risks, which can cause its net asset value to rise or Regulatory Risks
fall. The Fund may use these financial instruments,
commonly known as "derivatives," to increase or decrease
its exposure to changing securities prices, interest rates,
currency exchange rates or other factors.
- -------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A contract under which the seller of a security agrees Credit and Counterparty
to buy it back at an agreed-upon price and time in the Risks
future.
- -------------------------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not registered, but which are bought Liquidity Risk
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.
- -------------------------------------------------------------------------------------------
</TABLE>
[ARROWS ICON] 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, even though that is not the normal investment strategy of the Fund.
We have the right to invest up to 100% of the Fund's assets in these securities,
<PAGE>
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.
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISER
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $357 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Fund. INVESCO was founded in 1932 and manages over $31.9 billion
for more than 960,478 shareholders of 45 INVESCO mutual funds. INVESCO performs
a wide variety of other services for the Funds, including administrative 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, 1999.
[INVESCO ICON] PORTFOLIO MANAGERS
The following individuals are primarily responsible for the day-to-day
management of the Fund's portfolio holdings:
CHARLES P. MAYER, a director and senior vice president and Director of
Investments of INVESCO, is a co-portfolio manager of the Fund. Before joining
INVESCO in 1993, 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.
DONOVAN J. (JERRY) PAUL, a senior vice president of INVESCO, is a
co-portfolio manager of the Fund. Jerry manages several other INVESCO
fixed-income funds. Before joining INVESCO in 1994, he was a senior vice
president with Stein, Roe & Farnham, Inc. and president of Quixote Investment
Management. He is a Chartered Financial Analyst and a Certified Public
Accountant. Jerry received his M.B.A. from the University of Northern Iowa and
his B.B.A. from the University of Iowa.
<PAGE>
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST AND DIVIDENDS
- - FUND DEBTS,
INCLUDING ACCRUED EXPENSES
- -------------------------------------
/ NUMBER OF SHARES
= YOUR 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 the regular trading day on that exchange
(normally, 4:00 p.m. Eastern 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 U.S.
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.
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.
[GRAPH ICON] 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), you would not be considered to be an owner of
shares of the Fund. Therefore, 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.
[GRAPH ICON] 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.
[INVESCO ICON] 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
The financial highlights table is intended to help you understand the
financial performance of the Fund for the past five years (or, if shorter, the
period of the Fund's operations). Certain information reflects the financial
results for a single Fund share. The total returns in the table represent the
annual percentages that an investor would have earned (or lost) on an investment
in a share of the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the financial statements, is
included in INVESCO Variable Investment Funds, Inc.'s 1999 Annual Report to
Shareholders, which is incorporated by reference into the Statement of
Additional Information. This Report is available without charge by contacting
IDI at the address or telephone number on the back cover of this Prospectus.
YEAR ENDED DECEMBER 31
----------------------------------------------
1999 1998 1997 1996 1995
PER SHARE DATA
Net Asset Value--Beginning
of Period $18.61 $17.04 $14.33 $12.58 $10.09
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.26 0.33 0.30 0.28 0.19
Net Gains on Securities
(Both Realized and
Unrealized) 2.50 2.23 3.71 2.52 2.76
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS 2.76 2.56 4.01 2.80 2.95
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment
Income 0.25 0.32 0.29 0.28 0.20
Distributions from Capital
Gains 0.11 0.67 1.01 0.77 0.26
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.36 0.99 1.30 1.05 0.46
- --------------------------------------------------------------------------------
Net Asset Value--End of Period $ 21.01 $ 18.61 $ 17.04 $14.33 $12.58
================================================================================
TOTAL RETURN(a) 14.84% 15.30% 28.17% 22.28% 29.25%
RATIOS
Net Assets--End of Period
($000 Omitted) $ 79,893 $ 60,346 $40,093 $22,342 $8,362
Ratio of Expenses to
Average Net Assets(b)(c) 1.05% 0.93% 0.91% 0.95% 1.03%
Ratio of Net Investment Income
to Average Net Assets(b) 1.38% 1.98% 2.18% 2.87% 3.50%
Portfolio Turnover Rate 86% 73% 87% 93% 97%
(a) Total return does not reflect expenses that apply to the related insurance
contracts, and inclusion of these charges would reduce the total return
figures for the periods shown.
<PAGE>
(b) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
years ended December 31, 1998, 1997, 1996 and 1995. If INVESCO had not
voluntarily absorbed these expenses, ratio of expenses to average net assets
would have been 0.93%, 0.97%, 1.19% and 2.31%, respectively, and ratio of
net investment income to average net assets would have been 1.98%, 2.12%,
2.63% and 2.22%, respectively.
(c) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (these may include
transfer agency and custodian fees).
<PAGE>
APRIL 30, 2000
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - EQUITY INCOME FUND
(FORMERLY, INVESCO VIF - INDUSTRIAL INCOME PORTFOLIO)
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 April 30, 2000 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 of the Fund may be accessed through the
INVESCO Web site at www.invesco.com. In addition, the Prospectus, annual report,
semiannual report and SAI of the Fund are available on the SEC Web site at
www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; 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. 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 1-202-942-8090. The SEC file numbers for the
Fund are 811-8038 and 033-70154.
PV90 811-8038
<PAGE>
PROSPECTUS | April 30, 2000
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- --------------------------------------------------------------------------------
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - FINANCIAL SERVICES FUND
A MUTUAL FUND SOLD EXCLUSIVELY TO INSURANCE COMPANY SEPARATE ACCOUNTS FOR
VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks..........45
Fund Performance................................46
Fees And Expenses...............................46
Investment Risks................................47
Risks Associated With Particular Investments....47
Temporary Defensive Positions...................51
Fund Management.................................51
Portfolio Manager...............................52
Share Price.....................................52
Taxes...........................................52
Dividends And Capital Gain Distributions........53
Voting Rights...................................53
Financial Highlights............................54
[INVESCO ICON] INVESCO
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
<PAGE>
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] Investment Goals & Strategies
[ARROWS ICON] Potential Investment Risks
[GRAPH ICON] Past Performance
[INVESCO ICON] Working With INVESCO
- --------------------------------------------------------------------------------
[KEY ICON] [ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
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 direct 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.
The Fund seeks to make an investment grow. It is aggressively managed.
Although the Fund can invest in debt securities, it invests primarily in equity
securities that INVESCO believes will rise in price faster than other
securities, as well as in options and other investments whose values are based
upon the values of equity securities.
The Fund invests primarily in equity securities of companies involved in
the financial services sector. These companies include, among others, banks
(regional and money-centers), insurance companies (life, property and casualty,
and multiline), and investment and miscellaneous industries (asset managers,
brokerage firms, and government-sponsored agencies). A portion of the Fund's
assets is not required to be invested in the sector. To determine whether a
potential investment is truly doing business in the financial services 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 financial services sector;
o At least 50% of its assets must be devoted to producing revenues from the
financial services sector; or
o Based on other available information, we determine that its primary
business is within the financial services 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.
We place a greater emphasis on companies that are increasing their revenue
streams along with their earnings. We seek companies that we believe can grow
their revenues and earnings regardless of the interest rate environment -
<PAGE>
although securities prices of financial services companies generally are
interest rate-sensitive. We prefer companies that have both marketing expertise
and superior technology, because INVESCO believes these companies are more
likely to deliver products that match their customers' needs. We attempt to keep
the portfolio holdings well diversified across the entire financial services
sector. We adjust portfolio weightings depending on current economic conditions
and relative valuations of securities.
The Fund's investments are diversified across the financial services
sector. However, because the Fund's 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 the Fund tends to be more volatile than many other mutual funds, and
the value of its portfolio investments may tend to go up and down more rapidly.
As a result, the value of an investment in the Fund may rise or fall rapidly.
This sector is generally subject to extensive government regulation, which
may change frequently. In addition, the profitability of businesses in these
industries depends heavily upon the availability and cost of money, and may
fluctuate significantly in response to changes in interest rates, as well as
changes in general economic conditions. From time to time, severe competition
may also affect the profitability of these industries, and the insurance
industry in particular.
The Fund is subject to other principal risks such as potential conflicts,
market, credit, debt securities, foreign securities, interest rate, duration,
liquidity, counterparty and lack of timely information risks. These risks are
described and discussed later in this Prospectus under the headings "Investment
Risks" and "Risks Associated With Particular Investments." An investment in the
Fund is not a deposit of any bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation ("FDIC") or any other government agency.
As with any other mutual fund, there is always a risk that an investment in the
Fund may lose money.
[GRAPH ICON] FUND PERFORMANCE
The Fund commenced investment operations on September 21, 1999 and
therefore does not have a complete calendar year of performance.
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
VIF-FINANCIAL SERVICES FUND
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (1)(2) 1.75%
-----
Total Annual Fund Operating Expenses (1)(2) 2.50%
=====
(1) The Fund's actual Total Annual Fund Operating Expenses were lower than
the figures shown, because its custodian fees were reduced under an expense
offset arrangement.
<PAGE>
(2) Certain expenses of the Fund were absorbed voluntarily by INVESCO in
order to ensure that expenses for the Fund did not exceed 1.25% of the
Fund's average net assets pursuant to a commitment between the Fund and
INVESCO. This commitment may be changed at any time following consultation
with the board of directors. After absorption, but excluding any expense
offset arrangements, the Fund's Other Expenses and Total Annual Fund
Operating Expenses for the period ended December 31, 1999 were 0.64% and
1.39%, respectively, of the Fund's average net assets.
EXAMPLE
The Example is intended to help you compare the cost of investing in the
Fund to the cost of investing in other mutual funds.
The 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 life insurance contract. The Example also assumes a
hypothetical 5% return each year and that the Fund's operating expenses remain
the same. Although the actual costs and performance of the Fund may be higher or
lower, based on these assumptions your costs would have been:
1 year 3 years
$253 $779
[ARROWS ICON] INVESTMENT RISKS
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
allocate contract values to the Fund. The principal risks of any mutual fund,
including the Fund, are:
NOT INSURED. Mutual funds are not insured by the 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 and changes in the equity
markets as a whole.
[ARROWS ICON] 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
<PAGE>
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 investments. 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.
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 interest rate risks. 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 Investor Services, Inc. ("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 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. 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. 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 affect issuers of lower-rated debt
securities. The market for lower-rated straight debt securities may not be as
<PAGE>
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.
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, or 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.
FOREIGN SECURITIES RISKS
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 assets in securities of non-U.S. issuers. Securities of Canadian
issuers and American Depository Receipts are not subject to this 25% limitation.
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 U.S. may permit trading practices that are not allowed in the
U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. 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 January 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
<PAGE>
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 movements.
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 companies in emerging markets are subject
to a variety of risks, including potential lack of liquidity.
COUNTERPARTY RISK
This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the 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.
The Fund generally invests in equity securities of companies that are
related to financial services. However, in an effort to diversify its holdings
and provide some protection against the risk of other investments, the Fund also
may invest in other types of securities and other financial instruments, as
indicated in the chart below. These investments, which at any given time may
constitute a significant portion of the Fund's portfolio, have their own risks.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
INVESTMENT RISKS
- -------------------------------------------------------------------------------------
<S> <C>
AMERICAN DEPOSITORY RECEIPTS (ADRS) Market, Information,
These are securities issued by U.S. banks that represent Political, Regulatory,
shares of foreign corporations held by those banks. Diplomatic, Liquidity,
Although traded in U.S. securities markets and valued in and Currency Risks
U.S. dollars, ADRs carry most of the risks of investing
directly in foreign securities.
- -------------------------------------------------------------------------------------
DEBT SECURITIES
Securities issued by private companies or governments Market, Credit, Interest
representing an obligation to pay interest and to Rate, and Duration
repay principal when the security matures. Risks
- -------------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------------
INVESTMENT RISKS
- -------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A contract under which the seller of a security agrees Credit and Counterparty
to buy it back at an agreed-upon price and time in the Risks
future.
- -------------------------------------------------------------------------------------
</TABLE>
[ARROWS ICON] 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, even though that is not the normal investment strategy of the Fund.
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.
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISER
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT
MANAGEMENT COMPANY THAT MANAGES MORE THAN $357 BILLION IN ASSETS WORLDWIDE.
AMVESCAP IS BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND
SOUTH AMERICA, AND THE FAR EAST.
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the
investment adviser of the Fund. INVESCO was founded in 1932 and manages over
$31.9 billion for more than 960,478 shareholders of 45 INVESCO mutual funds.
INVESCO performs a wide variety of other services for the Funds, including
administrative 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 as of December 31, 1999.*
*Annualized from September 21, 1999, commencement of investment operations, to
period ended December 31, 1999.
<PAGE>
[INVESCO ICON] PORTFOLIO MANAGER
The following individual is responsible for the day-to-day management of
the Fund's portfolio holdings:
JEFFREY G. MORRIS, a vice president of INVESCO, is the portfolio manager of
the Fund. Jeff joined INVESCO in 1992 and served as a research analyst from 1994
to 1995. He is a Chartered Financial Analyst. Jeff received an M.S. in Finance
from the University of Colorado-Denver and a B.S. in Business Administration
from Colorado State University.
Jeff Morris is a member of the INVESCO Sector Team, which is co-led by
William R. Keithler and John R. Schroer.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST AND DIVIDENDS
- - FUND DEBTS,
INCLUDING ACCRUED EXPENSES
- -------------------------------------
/ NUMBER OF SHARES
= YOUR 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 the regular trading day on that exchange
(normally, 4:00 p.m. Eastern 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 U.S.
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.
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.
[GRAPH ICON] 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), you would not be considered to be an owner of
shares of the Fund. Therefore, 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>
[GRAPH ICON] 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, at least once a
year. All dividends and distributions of the Fund are reinvested in additional
shares of the Fund at net asset value.
[INVESCO ICON] 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
The financial highlights table is intended to help you understand the
financial performance of the Fund for the past five years (or, if shorter, the
period of the Fund's operations). Certain information reflects the financial
results for a single Fund share. The total returns in the table represent the
annual percentages that an investor would have earned (or lost) on an investment
in a share of the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the financial statements, is
included in INVESCO Variable Investment Funds, Inc.'s 1999 Annual Report to
Shareholders, which is incorporated by reference into the Statement of
Additional Information. This Report is available without charge by contacting
IDI at the address or telephone number on the back cover of this Prospectus.
PERIOD ENDED
DECEMBER 31
-----------------------------------------------
1999(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $10.00
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.01
Net Gains on Securities
(Both Realized and Unrealized) 1.09
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.10
- --------------------------------------------------------------------------------
Net Asset Value--End of Period $11.10
================================================================================
TOTAL RETURN(b) 11.00%(c)
RATIOS
Net Assets--End of Period ($000 Omitted) $9,179
Ratio of Expenses to Average Net Assets(d)(e) 1.39%(f)
Ratio of Net Investment Income to Average
Net Assets(d) 0.67%(f)
Portfolio Turnover Rate 37%(c)
(a) From September 21, 1999, commencement of investment operations, through
December 31, 1999.
(b) Total return does not reflect expenses that apply to the related insurance
contracts, 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 December 31, 1999. If INVESCO had not voluntarily absorbed
these expenses, ratio of expenses to average net assets would have been
2.48% (annualized), and ratio of net investment loss to average net assets
would have been (0.42%) (annualized).
(e) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (these may include
transfer agency and custodian fees).
(f) Annualized
<PAGE>
APRIL 30, 2000
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-FINANCIAL SERVICES FUND
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 April 30, 2000 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 of the Fund may be accessed through the
INVESCO Web site at www.invesco.com. In addition, the Prospectus, annual report,
semiannual report and SAI of the Fund are available on the SEC Web site at
www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; 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. 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 1-202-942-8090. The SEC file numbers for the
Fund are 811-8038 and 033-70154.
P180 811-8038
<PAGE>
PROSPECTUS | April 30, 2000
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- --------------------------------------------------------------------------------
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - HEALTH SCIENCES FUND
A MUTUAL FUND SOLD EXCLUSIVELY TO INSURANCE COMPANY SEPARATE ACCOUNTS FOR
VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks..........57
Fund Performance................................58
Fees And Expenses...............................59
Investment Risks................................60
Risks Associated With Particular Investments....60
Temporary Defensive Positions...................63
Portfolio Turnover..............................64
Fund Management.................................64
Portfolio Manager...............................64
Share Price.....................................65
Taxes...........................................65
Dividends And Capital Gain Distributions........65
Voting Rights...................................65
Financial Highlights............................66
[INVESCO ICON] INVESCO
The Securities and Exchange Commission has not approved or disapproved the
shares of these Funds. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
<PAGE>
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] Investment Goals & Strategies
[ARROWS ICON] Potential Investment Risks
[GRAPH ICON] Past Performance
[INVESCO ICON] Working With INVESCO
- --------------------------------------------------------------------------------
[KEY ICON] [ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
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 direct 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.
The Fund seeks to make an investment grow. It 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
securities, as well as options and other investments whose values are based upon
the values of equity securities.
The Fund invests primarily in equity securities of companies that develop,
produce or distribute products or services related to health care. These
companies include, but are not limited to, medical equipment or supplies,
pharmaceuticals, health care facilities, and applied research and development of
new products or services. A portion of the Fund's assets is 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 health sciences sector;
o At least 50% of its assets must be devoted to producing revenues from the
health sciences sector; or
o Based on other available information, we determine that its primary business
is within the health sciences 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.
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
<PAGE>
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' securities 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.
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 investments of
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.
The Fund is subject to other principal risks such as potential conflicts,
market, credit, debt securities, foreign securities, interest rate, duration,
liquidity, counterparty and lack of timely information risks. These risks are
described and discussed later in the Prospectus under the headings "Investment
Risks" and "Risks Associated With Particular Investments." An investment in the
Fund is not a deposit of any bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation ("FDIC") or any other government agency.
As with any mutual fund, there is always a risk that an investment in the Fund
may lose money.
[GRAPH ICON] FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance for the
years ended December 31 (commonly known as its "total return") since inception.
The table below shows average annual total returns for various periods ended
December 31 for the Fund compared to the S&P 500 Index. The information in the
chart and table illustrates the variability of the Fund's total return and how
its performance compared to a broad measure of market performance. Remember,
past performance does not indicate how the Fund 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.
The chart below contains the following plot points:
- --------------------------------------------------------------------------------
VIF-HEALTH SCIENCES FUND
ACTUAL ANNUAL TOTAL RETURN(1)
- --------------------------------------------------------------------------------
1997 1998 1999
10.40% 42.85% 4.86%
- --------------------------------------------------------------------------------
Best Calendar Qtr. 12/98 15.79%
Worst Calendar Qtr. 6/99 (5.48%)
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1)
AS OF 12/31/99
- --------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION
VIF-Health Sciences Fund 4.86% 21.22%(2)
S&P 500 Index(3) 21.03% 25.71%
- --------------------------------------------------------------------------------
(1) Total return figures include reinvested dividends and capital gain
distributions, and include the effect of the Fund's expenses.
(2) The Fund commenced investment operations on May 22, 1997.
(3) The S&P 500 Index is an unmanaged index that shows performance of the broad
U.S. stock market. Please keep in mind that the Index does not pay
brokerage, management or administrative expenses, all of which are paid by
the Fund and are reflected in its annual return.
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
VIF-HEALTH SCIENCES FUND
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (1)(2) 2.11%
-----
Total Annual Fund Operating Expenses (1)(2) 2.86%
=====
(1) The Fund's actual Total Annual Fund Operating Expenses were lower than
the figures shown, because its custodian fees were reduced under an expense
offset arrangement.
(2) Certain expenses of the Fund were absorbed voluntarily by INVESCO in
order to ensure that expenses for the Fund did not exceed 1.25% of the
Fund's average net assets pursuant to a commitment between the Fund and
INVESCO. This commitment may be changed at any time following consultation
with the board of directors After absorption, but excluding any expense
offset arrangements, the Fund's Other Expenses and Total Annual Fund
Operating Expenses for the fiscal year ended December 31, 1999 were 0.73%
and 1.48%, respectively of the Fund's average net assets.
EXAMPLE
The Example is intended to help you compare the cost of investing in the
Fund to the cost of investing in other mutual funds.
The 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 life insurance contract. The Example also assumes a
hypothetical 5% return each year and that the operating expenses of the Fund
remain the same. Although the actual costs and performance of the Fund may be
higher or lower, based on these assumptions your costs would have been:
1 year 3 years 5 years 10 years
$289 $886 $1,508 $3,185
<PAGE>
[ARROWS ICON] INVESTMENT RISKS
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
allocate contract values to the Fund. The principal risks of any mutual fund,
including the Fund, are:
NOT INSURED. Mutual funds are not insured by the 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 and changes in the equity
markets as a whole.
[ARROWS ICON] 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 investments. 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.
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.
<PAGE>
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 interest rate risks. 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 Investor Services, Inc. ("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 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. 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. 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 affect 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.
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, or 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.
FOREIGN SECURITIES RISKS
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 assets in securities of non-U.S. issuers. Securities of Canadian
issuers and American Depository Receipts are not subject to this 25% limitation.
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.
<PAGE>
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 U.S. may permit trading practices that are not allowed in the
U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. 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 January 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 movements.
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 companies in emerging markets are subject
to a variety of risks, including potential lack of liquidity.
COUNTERPARTY RISK
This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the 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.
The Fund invests primarily in equity securities of companies that develop,
produce or distribute products or services related to health care. However, in
an effort to diversify its holdings and provide some protection against the risk
of other investments, the Fund also may invest in other types of securities and
other financial instruments, as indicated in the chart below. These investments,
which at any given time may constitute a significant portion of the Fund's
portfolio, have their own risks.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
INVESTMENT RISKS
- -----------------------------------------------------------------------------------------
<S> <C>
AMERICAN DEPOSITORY RECEIPTS (ADRS) Market, Information,
These are securities issued by U.S. banks that represent Political, Regulatory,
shares of foreign corporations held by those banks. Diplomatic, Liquidity,
Although traded in U.S. securities markets and valued in and Currency Risks
U.S. dollars, ADRs carry most of the risks of investing
directly in foreign securities.
- -----------------------------------------------------------------------------------------
DEBT SECURITIES
Securities issued by private companies or governments Market, Credit, Interest
representing an obligation to pay interest and to repay Rate, and Duration Risks
principal when the security matures.
- -----------------------------------------------------------------------------------------
ILLIQUID SECURITIES
Securities that cannot be sold quickly at fair value. Liquidity Risk
- -----------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A contract under which the seller of a security agrees Credit and Counterparty
to buy it back at an agreed-upon price and time in the Risks
future.
- -----------------------------------------------------------------------------------------
</TABLE>
[ARROWS ICON] 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, even though that is not the normal investment strategy of the Fund.
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>
[ARROWS ICON] PORTFOLIO TURNOVER
We actively manage and trade the Fund's portfolio. Therefore, the Fund may
have a high portfolio turnover rate compared to many other mutual funds. The
Fund's portfolio turnover rate was 173% for the fiscal year ended December
31, 1999.
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.
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISER
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $357 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Fund. INVESCO was founded in 1932 and manages over $31.9 billion
for more than 960,478 shareholders of 45 INVESCO mutual funds. INVESCO performs
a wide variety of other services for the Funds, including administrative 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, 1999.
[INVESCO ICON] PORTFOLIO MANAGER
The following individual is responsible for the day-to-day management of
the Fund's portfolio holdings:
JOHN R. SCHROER, a senior vice president of INVESCO and vice president of
INVESCO Global Health Sciences Fund, is the portfolio manager of the Fund.
Before joining INVESCO in 1992, John was an assistant vice president with Trust
Company of the West from 1990 to 1992. He is a Chartered Financial Analyst. John
received an M.B.A. and B.S. from the University of Wisconsin-Madison.
John Schroer is a member of, and leads, the INVESCO Health Team.
<PAGE>
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST AND DIVIDENDS
- - FUND DEBTS,
INCLUDING ACCRUED EXPENSES
- -------------------------------------
/ NUMBER OF SHARES
= YOUR 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 the regular trading day on that exchange
(normally, 4:00 p.m. Eastern 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 U.S.
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.
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.
[GRAPH ICON] 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), you would not be considered to be an owner of
shares of the Fund. Therefore, 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.
[GRAPH ICON] 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.
[INVESCO ICON] 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
(The financial highlights table is intended to help you understand the
financial performance of the Fund for the past five years (or, if shorter, the
period of the Fund's operations). Certain information reflects the financial
results for a single Fund share. The total returns in the table represent the
annual percentages that an investor would have earned (or lost) on an investment
in a share of the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the financial statements, is
included in INVESCO Variable Investment Funds, Inc.'s 1999 Annual Report to
Shareholders, which is incorporated by reference into the Statement of
Additional Information. This Report is available without charge by contacting
IDI at the address or telephone number on the back cover of this Prospectus.
<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED DECEMBER 31 DECEMBER 31
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 1998(a) 1997(b)
PER SHARE DATA
Net Asset Value--Beginning of Period $15.29 $11.04 $10.00
- -----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.02 0.05 0.10
Net Gains on Securities (Both Realized
and Unrealized) 0.72 4.66 0.94
- -----------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.74 4.71 1.04
- -----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.01 0.03 0.00
Distributions from Capital Gains 0.00 0.34 0.00
In Excess of Capital Gains 0.00 0.09 0.00
- -----------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.01 0.46 0.00
- -----------------------------------------------------------------------------------------------
Net Asset Value--End of Period $16.02 $15.29 $11.04
===============================================================================================
TOTAL RETURN(c) 4.86% 42.85% 10.40%(d)
RATIOS
Net Assets--End of Period
($000 Omitted) $11,652 $2,378 $423
Ratio of Expenses to Average
Net Assets(e)(f) 1.48% 1.27% 0.60%(g)
Ratio of Net Investment Income
to Average Net Assets(e) 0.36% 0.35% 2.34%(g)
Portfolio Turnover Rate 173% 107% 112%(d)
</TABLE>
(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
contracts, 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.
<PAGE>
(e) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
years ended December 31, 1999 and 1998, and all of the expenses of the Fund
were voluntarily absorbed by INVESCO for the period ended December 31, 1997.
If INVESCO had not voluntarily absorbed these expenses, ratio of expenses to
average net assets would have been 2.85%, 4.20% and 21.45% (annualized),
respectively, and ratio of net investment loss to average net assets would
have been (1.01%), (2.58%) and (18.51%) (annualized), respectively.
(f) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (these may include
transfer agency and custodian fees).
(g) Annualized
<PAGE>
APRIL 30, 2000
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-HEALTH SCIENCES FUND
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 April 30, 2000 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 of the Fund may be accessed through the
INVESCO Web site at www.invesco.com. In addition, the Prospectus, SAI, annual
report and semiannual report of the Fund are available on the SEC Web site at
www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; 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. 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 1-202-942-8090. The SEC file numbers for the
Fund are 811-8038 and 033-70154.
PV12 811-8038
<PAGE>
PROSPECTUS | April 30, 2000
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- --------------------------------------------------------------------------------
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - HIGH YIELD FUND
A MUTUAL FUND SOLD EXCLUSIVELY TO INSURANCE COMPANY SEPARATE ACCOUNTS FOR
VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks..........70
Fund Performance................................71
Fees And Expenses...............................72
Investment Risks................................72
Risks Associated With Particular Investments....73
Temporary Defensive Positions...................76
Portfolio Turnover..............................76
Fund Management.................................76
Portfolio Manager...............................77
Share Price.....................................77
Taxes...........................................77
Dividends And Capital Gain Distributions........78
Voting Rights...................................78
Financial Highlights............................79
[INVESCO ICON] INVESCO
The Securities and Exchange Commission has not approved or disapproved the
shares of these Funds. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
<PAGE>
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] Investment Goals & Strategies
[ARROWS ICON] Potential Investment Risks
[GRAPH ICON] Past Performance
[INVESCO ICON] Working With INVESCO
- --------------------------------------------------------------------------------
[KEY ICON][ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
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 direct 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.
The Fund seeks to provide a high level of current income through
investments in debt securities. It also seeks to make an investment grow. The
Fund invests primarily in bonds and other debt securities, as well as in
preferred stocks. Often, but not always, when stock markets are up, debt markets
are down, and vice versa.
The Fund invests primarily in a diversified portfolio of high yield
corporate bonds rated below investment grade, commonly known as "junk bonds,"
and preferred stock with medium to lower credit ratings. These investments
generally offer higher rates of return, but are riskier than investments in
securities of issuers with higher credit ratings.
The rest of the Fund's assets are invested in securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities, bank CDs,
corporate short-term notes and municipal obligations. The Fund invests primarily
in debt securities maturing at least three years after they are issued. There
are no limitations on the maturities of the securities held by the Fund, and the
Fund's average maturity will vary as INVESCO responds to changes in interest
rates.
Although the Fund is subject to a number of risks that could affect its
performance, its principal risk is interest rate risk -- that is, the value of
the securities in its portfolio will rise and fall due to changes in interest
rates. 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 are usually more
sensitive to interest rate movements.
The Fund is subject to other principal risks such as potential conflicts,
credit, debt securities, foreign securities, duration, liquidity, counterparty
and lack of timely information risks. These risks are described and discussed
later in the Prospectus under the headings "Investment Risks" and "Risks
<PAGE>
Associated With Particular Investments." An investment in the Fund is not a
deposit of any bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation ("FDIC") or any other government agency. As with any other
mutual fund, there is always a risk that an investment in the Fund may lose
money.
[GRAPH ICON] FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance for the
years ended December 31 (commonly known as its "total return") since inception.
The table below shows average annual total returns for various periods ended
December 31 for the Fund compared to the Merrill Lynch High Yield Master Index.
The information in the chart and table illustrates the variability of the Fund's
total return and how its performance compared to a broad measure of market
performance. Remember, past performance does not indicate how the Fund 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.
The chart below contains the following plot points:
- --------------------------------------------------------------------------------
VIF-HIGH YIELD FUND
ACTUAL ANNUAL TOTAL RETURN(1)
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
0.60% 19.76% 16.59% 17.33% 1.42% 9.20%
- --------------------------------------------------------------------------------
Best Calendar Qtr. 9/96 6.96%
Worst Calendar Qtr. 9/98 (6.67%)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1)
AS OF 12/31/99
- --------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION
VIF-High Yield Fund 9.20% 12.65% 11.34%(2)
Merrill Lynch High Yield Master Index(3) 1.57% 9.61% 8.79%(4)
(1) Total return figures include reinvested dividends and capital gain
distributions, and include the effect of the Fund's expenses.
(2) The Fund commenced investment operations on May 27, 1994.
(3) The Merrill Lynch High Yield Master Index is an unmanaged index indicative
of the broad fixed-income and high-yield markets. Please keep in mind that
the Index does not pay brokerage, management or administrative expenses, all
of which are paid by the Fund and are reflected in its annual return.
(4) Performance for the Index is calculated from April 30, 1994 to December 30,
1999.
<PAGE>
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
VIF-HIGH YIELD FUND
Management Fees 0.60%
Distribution and Service (12b-1) Fees None
Other Expenses (1)(2)(3) 0.48%
-----
Total Annual Fund Operating Expenses (1)(2)(3) 1.08%
=====
(1) The Fund's actual "Total Annual Fund Operating Expenses" were lower
than the figures shown, because its custodian fees were reduced under an
expense offset arrangement.
(2) The expense information presented in the table has been restated from
the financials to reflect a change in the administrative services fee.
(3) Certain expenses of the Fund were absorbed voluntarily by INVESCO in order
to ensure that expenses for the Fund did not exceed 1.05% of the Fund's
average net assets pursuant to a commitment between the Fund and INVESCO.
This commitment may be changed at any time following consultation with the
board of directors. After absorption, but excluding any expense offset
arrangements, the Fund's Other Expenses and Total Annual Fund Operating
Expenses for the fiscal year ended December 31, 1999 were 0.47% and 1.07%,
respectively, of the Fund's average net assets.
EXAMPLE
The Example is intended to help you compare the cost of investing in the
Fund to the cost of investing in other mutual funds.
The 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 life insurance contract. The Example also assumes a
hypothetical 5% return each year and that the Fund's operating expenses remain
the same. Although the actual costs and performance of the Fund may be higher or
lower, based on these assumptions your costs would have been:
1 year 3 years 5 years 10 years
$110 $343 $595 $1,317
[ARROWS ICON] INVESTMENT RISKS
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
allocate contract values to the Fund. The principal risks of any mutual fund,
including the Fund, are:
NOT INSURED. Mutual funds are not insured by the 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.
<PAGE>
VOLATILITY. The price of Fund shares will increase or decrease with changes
in the value of the Fund's underlying investments and changes in the debt
markets as a whole.
[ARROWS ICON] 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.
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.
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.
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 Investors Service, Inc. ("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.
<PAGE>
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. 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. 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 affect 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.
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, or 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.
FOREIGN SECURITIES RISK
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 assets in securities of non-U.S. issuers. Securities of Canadian
issuers and American Depository Receipts are not subject to this 25% limitation.
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 U.S. may permit trading practices that are not allowed in the
U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. 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 January 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.
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 movements.
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 companies in emerging markets are subject
to a variety of risks, including potential lack of liquidity.
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.
The Fund generally invests in junk bonds and preferred stock, including
securities issued by foreign companies. However, in an effort to diversify its
holdings and provide some protection against the risk of other investments, the
Fund also may invest in other types of securities and other financial
instruments as indicated in the chart below. These investments, which at any
given time may constitute a significant portion of the Fund's portfolio, may
have their own risks.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
INVESTMENT RISKS
- -----------------------------------------------------------------------------------------
<S> <C>
AMERICAN DEPOSITORY RECEIPTS (ADRS) Market, Information,
These are securities issued by U.S. banks that represent Political, Regulatory,
shares of foreign corporations held by those banks. Diplomatic, Liquidity,
Although traded in U.S. securities markets and valued in and Currency Risks
U.S. dollars, ADRs carry most of the risks of investing
directly in foreign securities.
- -----------------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------------------
INVESTMENT RISKS
- -----------------------------------------------------------------------------------------
EUROBONDS AND YANKEE BONDS Market, Information,
Bonds issued by foreign branches of U.S. banks Currency, Political,
("Eurobonds") and bonds issued by a U.S. branch of a Diplomatic, Regulatory,
foreign bank and sold in the United States ("Yankee Liquidity, Credit,
bonds"). These bonds are bought and sold in U.S. Interest Rate and
dollars, but generally carry with them the same risks Duration Risks
as investing in foreign securities.
- -------------------------------------------------------------------------------------------
JUNK BONDS
Debt Securities that are rated BB or lower by S&P Market, Credit, Interest
or Ba or lower by Moody's. Tend to pay higher Rate and Duration Risks
interest rates than higher-rated debt securities,
but carry a higher credit risk.
- -------------------------------------------------------------------------------------------
</TABLE>
[ARROWS ICON] 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, even though that is not the normal investment strategy of the Fund.
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.
[ARROWS ICON] PORTFOLIO TURNOVER
We actively manage and trade the Fund's portfolio. Therefore, the Fund may
have a high portfolio turnover rate compared to many other mutual funds. The
Fund's portfolio turnover rate was 143% for the fiscal year ended December 31,
1999.
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.
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISER
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $357 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Fund. INVESCO was founded in 1932 and manages over $31.9 billion
for more than 960,478 shareholders of 45 INVESCO mutual funds. INVESCO
performs a wide variety of other services for the Funds, including
administrative and transfer agency functions (the processing of purchases, sales
and exchanges of Fund shares).
<PAGE>
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, 1999.
[INVESCO ICON] PORTFOLIO MANAGER
The following individual is primarily responsible for the day-to-day
management of the Fund's portfolio holdings:
DONOVAN J. (JERRY) PAUL, a senior vice president of INVESCO, is the
portfolio manager of the Fund. Jerry manages several other INVESCO fixed-income
funds. Before joining INVESCO in 1994, he was a senior vice president with
Stein, Roe & Farnham, Inc. and president of Quixote Investment Management. Jerry
is a Chartered Financial Analyst and a Certified Public Accountant. He received
his M.B.A. from the University of Northern Iowa and his B.B.A. from the
University of Iowa.
Jerry Paul is a member of, and leads, the INVESCO Fixed-Income Team.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST AND DIVIDENDS
- - FUND DEBTS,
INCLUDING ACCRUED EXPENSES
- -------------------------------------
/ NUMBER OF SHARES
= YOUR 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 the regular trading day on that exchange
(normally, 4:00 p.m. Eastern 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 U.S.
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.
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.
[GRAPH ICON] 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), you would not be considered to be an owner of
shares of the Fund. Therefore, 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.
[GRAPH ICON] 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.
[INVESCO ICON] 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
The financial highlights table is intended to help you understand the
financial performance of the Fund for the past five years (or, if shorter, the
period of the Fund's operations). Certain information reflects the financial
results for a single Fund share. The total returns in the table represent the
annual percentages that an investor would have earned (or lost) on an investment
in a share of the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the financial statements, is
included in INVESCO Variable Investment Funds, Inc.'s 1999 Annual Report to
Shareholders, which is incorporated by reference into the Statement of
Additional Information. This Report is available without charge by contacting
IDI at the address or telephone number on the back cover of this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value--
Beginning of Period $11.31 $12.46 $11.78 $11.04 $10.01
- --------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.93 0.97 0.78 0.72 0.55
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 0.11 (0.80) 1.26 1.11 1.43
- --------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.04 0.17 2.04 1.83 1.98
- --------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment
Income 0.84 0.98 0.78 0.71 0.55
Distributions from Capital Gains(a) 0.00 0.23 0.58 0.38 0.40
In Excess of Capital Gains 0.00 0.11 0.00 0.00 0.00
- --------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.84 1.32 1.36 1.09 0.95
- --------------------------------------------------------------------------------------
Net Asset Value--End of Period $11.51 $11.31 $12.46 $11.78 $11.04
======================================================================================
TOTAL RETURN (b) 9.20% 1.42% 17.33% 16.59% 19.76%
RATIOS
Net Assets--End of Period
($000 Omitted) $58,379 $42,026 $30,881 $14,033 $5,233
Ratio of Expenses to
Average Net Assets(c)(d) 1.05% 0.85% 0.83% 0.87% 0.97%
Ratio of Net Investment Income to
Average Net Assets(c) 8.81% 8.99% 8.67% 9.19% 8.79%
Portfolio Turnover Rate 143% 245% 344% 380% 310%
</TABLE>
(a) Distributions from capital gains for the year ended December 31, 1999,
aggregated less than $0.01 on a per share basis.
(b) Total return does not reflect expenses that apply to the related insurance
contracts, and inclusion of these charges would reduce the total return
figures for the periods shown.
<PAGE>
(c) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
years ended December 31, 1997, 1996 and 1995. If INVESCO had not
voluntarily absorbed these expenses, ratio of expenses to average net assets
would have been 0.94%, 1.32% and 2.71%, respectively, and ratio of net
investment income to average net assets would have been 8.56%, 8.74% and
7.05%, respectively.
(d) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (these may include
transfer agency and custodian fees).
<PAGE>
APRIL 30, 2000
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-HIGH YIELD FUND
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 April 30, 2000 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 of the Fund may be accessed through the
INVESCO Web site at www.invesco.com. In addition, the Prospectus, SAI, annual
report and semiannual report of the Fund are available on the SEC Web site at
www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; 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. 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 1-202-942-8090. The SEC file numbers for the
Fund are 811-8038 and 033-70154.
PV 93 811-8038
<PAGE>
PROSPECTUS | April 30, 2000
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- --------------------------------------------------------------------------------
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - MARKET NEUTRAL FUND
A MUTUAL FUND SOLD EXCLUSIVELY TO INSURANCE COMPANY SEPARATE ACCOUNTS FOR
VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks..........83
Fund Performance................................84
Fees And Expenses...............................84
Investment Risks................................85
Risks Associated With Particular Investments....85
Temporary Defensive Positions...................86
Fund Management.................................86
Portfolio Manager...............................87
Share Price.....................................87
Taxes...........................................88
Dividends And Capital Gain Distributions........88
Voting Rights...................................88
Financial Highlights............................89
[INVESCO ICON] INVESCO
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
<PAGE>
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] Investment Goals & Strategies
[ARROWS ICON] Potential Investment Risks
[GRAPH ICON] Past Performance
[INVESCO ICON] Working With INVESCO
- --------------------------------------------------------------------------------
[KEY ICON][ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
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 direct 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.
The objective of the Fund is to outperform the return on three-month U.S.
Treasury bills regardless of the movements of the broad securities market. The
Fund attempts to achieve its investment objective by using a management style
known as "market neutral."
Under this management style, the Fund constructs two portfolios of common
stocks. Each portfolio consists of stocks of approximately 100 large companies
that trade on U.S. exchanges. INVESCO purchases stocks which it expects will
increase in price for one portfolio, and borrows and sells stocks that it
expects will decline in price relative to the average owned stock position for
the other portfolio. The process of borrowing and selling the borrowed
securities is known as "shorting" or "selling short" a security. The performance
of the portfolio of owned stocks relative to the performance of the portfolio of
borrowed and sold stocks provides the Fund with its return relative to the
three-month U.S. Treasury bill benchmark.
In a rising market, the value of the securities owned by the Fund should
increase. Although the value of the short portfolio should also increase, if the
value of the owned securities rises more than the value of the short portfolio,
the Fund should generate a better return than the three-month U.S. Treasury bill
return. In a falling market, both owned and borrowed stocks should decline in
price, but if the owned stocks decline less than the borrowed stocks, the Fund
also should generate a better return than the three-month U.S. Treasury bill
return.
The Fund diversifies the two portfolios of common stocks by market
exposure, industry and economic sector. INVESCO seeks to manage the two portions
of the Fund's holdings so that securities owned by the Fund have similar risk
characteristics to the stocks borrowed and sold short. The Fund has
approximately 10% of its assets at any given time in short-term reserves,
primarily U.S. Treasury bills.
<PAGE>
In attempting to determine which stocks will outperform and which will
underperform, INVESCO evaluates more than 500 large companies on a weekly basis.
INVESCO analyzes the earnings momentum, value, fundamental stability and price
strength of each company. The result is an estimate of the expected monthly
return of each stock.
The principal risk involved in investing in the Fund is that INVESCO will
not be able to predict accurately which stocks will outperform and which ones
will underperform. Due to market activity, the portfolio of owned securities and
the portfolio of borrowed and sold securities may produce a complete loss of
Fund capital; the Fund has a higher potential risk than other mutual funds that
employ different investment strategies. Such a loss could occur, for example, if
the portfolio of owned securities rapidly lost value and the portfolio of
securities sold short rapidly grew in value without an opportunity for INVESCO
to rebalance the portfolios. To the extent that the characteristics of the
stocks the Fund buys and those it borrows do not match at any given time, the
Fund will not be neutral to market movements or the price movements of specific
industries and sectors within the markets, and the Fund's losses may exceed
those of other mutual funds. In addition, because the practice of selling short
has an inherent risk, and because any specific short sale has the potential for
unlimited loss, INVESCO seeks to minimize this potential risk by diversifying
the two portfolios.
The Fund is subject to other principal risks such as potential conflicts,
short sales, counterparty and market risks. These risks are described and
discussed later in this Prospectus under the headings "Investment Risks" and
"Risks Associated With Particular Investments." An investment in the Fund is not
a deposit of any bank and is not insured or guaranteed by the Federal Deposit
Insurance Corporation ("FDIC") or any other government agency. As with any other
mutual fund, there is always a risk that an investment in the Fund may lose
money.
[GRAPH ICON] FUND PERFORMANCE
The Fund commenced investment operations on November 10, 1999, and
therefore does not have a complete calendar year of performance.
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
VIF--MARKET NEUTRAL FUND
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (1)(2) 2.57%
-----
Total Annual Fund Operating Expenses (1)(2) 3.32%
=====
(1) The Fund's actual Total Annual Fund Operating Expenses were lower than
the figures shown, because its custodian fees were reduced under an expense
offset arrangement.
(2) Certain expenses of the Fund, excluding expenses related to dividends on
short sales, were absorbed voluntarily by INVESCO in order to ensure that
expenses for the Fund did not exceed 1.25% of the Fund's average net
assets pursuant to a commitment between the Fund and INVESCO. This
commitment may be changed at any time following consultation with the board
of directors. After absorption, but excluding any expense offset
arrangements, the Fund's Other Expenses and Total Annual Fund Operating
Expenses for the period ended December 31, 1999 were 1.51% and 2.26%,
respectively, of the Fund's average net assets.
<PAGE>
EXAMPLE
The Example is intended to help you compare the cost of investing in the
Fund to the cost of investing in other mutual funds.
The 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 life insurance contract. The Example also assumes a
hypothetical 5% return each year and that the Fund's operating expenses remain
the same. Although the actual costs and performance of the Fund may be higher or
lower, based on these assumptions your costs would have been:
1 year 3 years
$335 $1,021
[ARROWS ICON] INVESTMENT RISKS
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
allocate contract values to the Fund. The principal risks of any mutual fund,
including the Fund, are:
NOT INSURED. Mutual funds are not insured by the 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.
[ARROWS ICON] 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.
SHORT SALES RISK
A principle investment technique of the Fund is to "sell short" significant
amounts of securities. In a short sale, the Fund sells a security it does not
own in expectation that its price will decline relative to the average owned
position by the time the Fund closes out a short position. The Fund borrows the
security from a third party, and is obligated to replace the borrowed security.
<PAGE>
When the Fund sells a security short, it borrows the security in order to
enter into the short sale transaction, and the proceeds of the sale may be used
by the Fund as security for the borrowing to the extent necessary to meet margin
requirements. The Fund may also be required to pay a premium to borrow the
security.
Moreover, the Fund is required to maintain a segregated account with a
broker or a custodian consisting of cash or highly liquid securities. Until the
borrowed security is replaced, the Fund will maintain this account at a level so
that the amount deposited in the account, plus the collateral deposited with the
broker, will equal the current market value of the securities sold short.
COUNTERPARTY RISK
The Fund trades its securities on the basis of "blind principal" bids. This
type of trading involves stock price guarantees by brokers that trades will be
implemented at closing market prices. Although stock price guarantees are
usually met, there is a possibility that they may not be.
MARKET RISK
Equity stock prices vary. Variations in stock prices could have a
significant impact on the Fund's overall portfolio because of fluctuations in
the valuation of the portfolio of owned securities compared to the portfolio of
securities sold short.
[ARROWS ICON] 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, even though that is not the normal investment strategy of the Fund.
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.
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISER
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $357 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
<PAGE>
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Fund. INVESCO was founded in 1932 and manages over $31.9 billion
for more than 960,478 shareholders of 45 INVESCO mutual funds. INVESCO performs
a wide variety of other services for the Fund, including administrative and
transfer agency functions (the processing of purchases, sales and exchanges of
Fund shares).
INVESCO (NY), Inc. ("INY"). a Division of INVESCO, Inc., 1166 Avenue of the
Americas, New York, New York 10036, 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, INY and IDI are subsidiaries of AMVESCAP PLC.
The Fund paid 0.75 of its average annual net assets to INVESCO for its
advisory services as of December 31, 1999.*
*Annualized from November 10, 1999, commencement of investment operations, to
period ended December 31, 1999.
[INVESCO ICON] PORTFOLIO MANAGER
The Fund is managed on a day to day basis by INY, which serves as
sub-adviser to the Fund. INY uses a team management approach, which means that a
group of portfolio managers makes collective investment decisions for the Fund.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST AND DIVIDENDS
- - FUND DEBTS,
INCLUDING ACCRUED EXPENSES
- -------------------------------------
/ NUMBER OF SHARES
= YOUR 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 the regular trading day on that exchange
(normally, 4:00 p.m. Eastern 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 U.S.
NAV is calculated by adding together the current market value 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. Share price
is based on the next calculation of NAV after the order is received in proper
form by the Fund.
<PAGE>
[GRAPH ICON] 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), you would not be considered to be an owner of
shares of the Fund. Therefore, 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.
[GRAPH ICON] 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, at least once a
year. All dividends and distributions of the Fund are reinvested in additional
shares of the Fund at net asset value.
[INVESCO ICON] 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
The financial highlights table is intended to help you understand the
financial performance of the Fund for the past five years (or, if shorter, the
period of the Fund's operations). Certain information reflects the financial
results for a single Fund share. The total returns in the table represent the
annual percentages that an investor would have earned (or lost) on an investment
in a share of the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the financial statements, is
included in INVESCO Variable Investment Funds, Inc.'s 1999 Annual Report to
Shareholders, which is incorporated by reference into the Statement of
Additional Information. This Report is available without charge by contacting
IDI at the address or telephone number on the back cover of this Prospectus.
PERIOD ENDED
DECEMBER 31
-----------------------------------------------
1999(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $10.00
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.06
Net Gains on Securities
(Both Realized and Unrealized) 0.23
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.29
- --------------------------------------------------------------------------------
Net Asset Value--End of Period $10.29
================================================================================
TOTAL RETURN(b) 2.90%(c)
RATIOS
Net Assets--End of Period ($000 Omitted) $10,294
Ratio of Expenses to Average Net Assets(d)(e) 2.26%(f)
Ratio of Net Investment Income to Average
Net Assets(d) 4.17%(f)
Portfolio Turnover Rate 72%(c)
(a) From November 10, 1999, commencement of investment operations, through
December 31, 1999.
(b) Total return does not reflect expenses that apply to the related insurance
contracts, 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 December 31, 1999. If INVESCO had not voluntarily absorbed
these expenses, ratio of expenses to average net assets would have been
3.30%(annualized), and ratio of net investment income to average net assets
would have been 3.13%(annualized).
(e) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (these may include
transfer agency and custodian fees).
(f) Annualized
<PAGE>
APRIL 30, 2000
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF--MARKET NEUTRAL FUND
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 April 30, 2000 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 of the Fund may be accessed through the
INVESCO Web site at www.invesco.com. In addition, the Prospectus, SAI, annual
report and semiannual report of the Fund are available on the SEC Web site at
www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; 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. 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 1-202-942-8090. The SEC file numbers for the
Fund are 811-8038 and 033-70154.
P182 811-8038
<PAGE>
PROSPECTUS | April 30, 2000
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- --------------------------------------------------------------------------------
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - REAL ESTATE OPPORTUNITY FUND
(FORMERLY, INVESCO VIF - REALTY FUND)
A MUTUAL FUND SOLD EXCLUSIVELY TO INSURANCE COMPANY SEPARATE ACCOUNTS FOR
VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks..........92
Fund Performance................................93
Fees And Expenses...............................94
Investment Risks................................94
Risks Associated With Particular Investments....95
Temporary Defensive Positions...................98
Portfolio Turnover..............................98
Fund Management.................................99
Portfolio Manager...............................99
Share Price.....................................99
Taxes..........................................100
Dividends And Capital Gain Distributions.......100
Voting Rights..................................100
Financial Highlights...........................101
[INVESCO ICON] INVESCO
The Securities and Exchange Commission has not approved or disapproved the
shares of the Fund. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
<PAGE>
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] Investment Goals & Strategies
[ARROWS ICON] Potential Investment Risks
[GRAPH ICON] Past Performance
[INVESCO ICON] Working With INVESCO
- --------------------------------------------------------------------------------
[KEY ICON] [ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the Fund.
Together with our affiliated companies, we at INVESCO direct all aspects of the
management of the Fund.
FOR MORE DETAILS ABOUT THE FUND'S CURRENT INVESTMENTS AND MARKET OUTLOOK, PLEASE
SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.
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.
The Fund seeks to make an investment grow. It also seeks to provide current
income. The Fund is aggressively managed. Although the Fund can invest in debt
securities, it invests primarily in equity securities that INVESCO believes will
rise in price faster than other securities, as well as in options and other
instruments whose values are based upon the values of equity securities.
The Fund invests primarily in equity securities of companies doing business in
the real estate industry. These companies may include real estate investment
trusts, real estate brokers, home builders or real estate developers, companies
with substantial real estate holdings, and companies with significant
involvement in the real estate industry. A portion of the Fund's assets is not
required to be invested in the sector. The remainder of the Fund's assets are
invested in other income-producing securities. 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 real estate sector;
o At least 50% of its assets must be devoted to producing revenues from the
real estate sector; or
o Based on other available information, we determine that its primary
business is within the real estate 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.
The Fund's investments are diversified across the realty 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
<PAGE>
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.
The real estate industry is highly cyclical, and the value of securities issued
by companies doing business in that industry may fluctuate widely. The real
estate industry-- and, therefore, the performance of the Fund-- is highly
sensitive to national, regional and local economic conditions, interest rates,
property taxes, overbuilding and changes in rental income.
The Fund is subject to other principal risks such as potential conflicts,
market, credit, debt securities, foreign securities, interest rate, duration,
liquidity, counterparty and lack of timely information risks. These risks are
described and discussed later in the Prospectus under the headings "Investment
Risks" and "Risks Associated With Particular Investments." An investment in the
Fund is not a deposit of any bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation ("FDIC") or any other government agency.
As with any mutual fund, there is always a risk that an investment in the Fund
may lose money.
[GRAPH ICON] FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance for the
years ended December 31 (commonly known as its "total return") since inception.
The table below shows average annual total returns for various periods ended
December 31 for the Fund compared to the NAREIT Equity Index. The information in
the chart and table illustrates the variability of the Fund's total return and
how its performance compared to a broad measure of market performance. Remember,
past performance does not indicate how the Fund 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.
The chart below contains the following plot points:
- -------------------------------------------------
VIF - REAL ESTATE OPPORTUNITY FUND
ACTUAL ANNUAL TOTAL RETURN(1)
=================================================
1998 1999
(15.88%) 0.35%
- -------------------------------------------------
Best Calendar Qtr. 6/99 12.58%
Worst Calendar Qtr. 9/98 (13.89%)
- -------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1)
AS OF 12/31/99
- --------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION
VIF-Real Estate Opportunity Fund 0.35% (9.21%)(2)
NAREIT Equity Index(3) (4.62%) (12.55%)
(1) Total return figures include reinvested dividends and capital gain
distributions, and include the effect of the Fund's expenses.
(2) The Fund commenced investment operations on April 1, 1998.
(3) The NAREIT Equity Index is an unmanaged index indicative of the real estate
market. Please keep in mind that the Index does not pay brokerage,
management or administrative expenses, all of which are paid by the Fund
and are reflected in its annual return.
<PAGE>
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
VIF-REAL ESTATE OPPORTUNITY FUND
Management Fees 0.90%
Distribution and Service (12b-1) Fees None
Other Expenses (1)(2)(3) 8.87%
-----
Total Annual Fund Operating Expenses (1)(2)(3) 9.77%
=====
(1) The Fund's actual Total Annual Fund Operating Expenses were lower than the
figures shown, because its custodian fees were reduced under an expense
offset arrangements.
(2) The expense information presented in the table has been restated from the
financials to reflect a change in the administrative services fee.
(3) Certain expenses of the Fund were absorbed voluntarily by INVESCO in order
to ensure that expenses for the Fund did not exceed 1.35% of the Fund's
average net assets pursuant to a commitment between the Fund and INVESCO.
This commitment may be changed at any time following consultation with the
board of directors. After absorption, but excluding any expense offset
arrangements, the Fund's Other Expenses and Total Annual Fund Operating
Expenses for the fiscal year ended December 31, 1999 were 1.02% and 1.92%,
respectively, of the Fund's average net assets.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund to
the cost of investing in other mutual funds.
The 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 life insurance contract. The Example also assumes a
hypothetical 5% return each year and that the Fund's operating expenses remain
the same. Although the actual costs and performance of the Fund may be higher or
lower, based on these assumptions your costs would have been:
1 year 3 years 5 years 10 years
$954 $2,727 $4,335 $7,730
[ARROWS ICON] INVESTMENT RISKS
You should determine the level of risk with which you are comfortable before you
allocate contract values to the Fund. The principal risks of any mutual fund,
including the Fund, are:
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.
NOT INSURED. Mutual funds are not insured by the 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.
<PAGE>
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.
[ARROWS ICON] 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
investments. 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, bonds and commercial
paper. 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.
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
interest rate risks. 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 Investor Services, Inc. ("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 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.
<PAGE>
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. 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. 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 affect 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.
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, or 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.
FOREIGN SECURITIES RISK
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 assets in securities of non-U.S. issuers. Securities of Canadian
issuers and American Depository Receipts are not subject to this 25% limitation.
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 U.S. may permit trading practices that are not allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. 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 January 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 movements.
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 companies in emerging markets are subject
to a variety of risks, including potential lack of liquidity.
COUNTERPARTY RISK
This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the 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.
The Fund generally invests in companies doing business in the real estate
industry. However, in an effort to diversify its holdings and provide some
protection against the risk of other investments, the Fund also may invest in
other types of securities and other financial instruments as indicated in the
chart below. These investments, which at any given time may constitute a
significant portion of the Fund's portfolio, may have their own risks.
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RISKS
- --------------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS (ADRs) Market, Information,
These are securities issued by U.S. banks that Political, Regulatory,
represent shares of foreign corporations held Diplomatic, Liquidity and
by those banks. Although traded in U.S. Currency Risks
securities markets and valued in U.S. dollars,
ADRs carry most of the risks of investing
directly in foreign securities.
- --------------------------------------------------------------------------------
DEBT SECURITIES Market, Credit, Interest
Securities issued by private companies or Rate and Duration Risks
governments representing an obligation to
pay interest and to repay principal when
the security matures.
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS
Trusts that invest in real estate or Interest Rate and Market
interests in real estate. Shares of Risks
REITs are publicly 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
fluctuations.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS Credit and Counterparty
A contract under which the seller of a Risks
security agrees to buy it back at an
agreed-upon price and time in the future.
- --------------------------------------------------------------------------------
[ARROWS ICON] 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, even
though that is not the normal investment strategy of the Fund. 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.
[ARROWS ICON] PORTFOLIO TURNOVER
We actively manage and trade the Fund's portfolio. Therefore, the Fund may
have a high portfolio turnover rate compared to many other mutual funds. The
Fund's portfolio turnover rate was 465% for the fiscal year ended December 31,
1999. Portfolio turnover was greater than expected 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.
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>
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISER
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $357 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Fund. INVESCO was founded in 1932 and manages over $31.9 billion
for more than 960,478 shareholders of 45 INVESCO mutual funds. INVESCO performs
a wide variety of other services for the Funds, including administrative 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 0.90% of its average annual net assets to INVESCO for its advisory
services in the fiscal year ended December 31, 1999.
[INVESCO ICON] PORTFOLIO MANAGER
The following individual is primarily responsible for the day-to-day management
of the Fund's portfolio holdings:
SEAN KATOF, a portfolio manager of INVESCO, is the portfolio manager of the
Fund. Sean joined INVESCO in 1994. He holds an M.S. in Finance and a B.S. in
Business Administration from the University of Colorado.
Sean Katof is a member of INVESCO's Sector Team, which is co-led by William
R. Keithler and John R. Schroer.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST & DIVIDENDS
- - FUND DEBTS,
INCLUDING ACCRUED EXPENSES
- ----------------------------------------
/ NUMBER OF SHARES
= YOUR SHARE PRICE (NAV).
<PAGE>
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 the regular trading day on that exchange
(normally, 4:00 p.m. Eastern 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 U.S.
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.
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.
[GRAPH ICON] 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), you would not be considered to be an owner of
shares of the Fund. Therefore, 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.
[GRAPH ICON] 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.
[INVESCO ICON] 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
The financial highlights table is intended to help you understand the financial
performance of the Fund for the past five years (or, if shorter, the period of
the Fund's operations). Certain information reflects the financial results for a
single Fund share. The total returns in the table represent the annual
percentages that an investor would have earned (or lost) on an investment in a
share of the Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the financial statements, is included in
INVESCO Variable Investment Funds, Inc.'s 1999 Annual Report to Shareholders,
which is incorporated by reference into the Statement of Additional Information.
This Report is available without charge by contacting IDI at the address or
telephone number on the back cover of this Prospectus.
YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31
- --------------------------------------------------------------------------------
1999 1998(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $8.22 $10.00
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.29 0.29
Net Losses on Securities
(Both Realized and Unrealized) (0.28) (1.88)
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.01 (1.59)
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.32 0.19
- --------------------------------------------------------------------------------
Net Asset Value--End of Period $7.91 $8.22
================================================================================
TOTAL RETURN(b) 0.35% (15.88%)(c)
RATIOS
Net Assets--End of Period ($000 Omitted) $625 $501
Ratio of Expenses to Average Net Assets(d)(e) 1.92% 1.90%(f)
Ratio of Net Investment Income to Average
Net Assets (d) 4.25% 4.94%(f)
Portfolio Turnover Rate(g)(h) 465% 200%(c)
(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
contracts, 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 December 31, 1999 and the period ended December 31, 1998. If
INVESCO had not voluntarily absorbed these expenses, ratio of expenses to
average net assets would have been 9.72% and 8.54% (annualized),
respectively, and ratio of net investment loss to average net assets would
have been (3.55%) and (1.70%) (annualized), respectively.
(e) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (these may include
transfer agency and custodian fees).
(f) Annualized
(g) Portfolio turnover was greater than expected during the period ended
December 31, 1998 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.
(h) Portfolio turnover was greater than expected during the period ended
December 31, 1999 due to active trading undertaken in response to market
conditions.
<PAGE>
APRIL 30, 2000
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-REAL ESTATE OPPORTUNITY FUND
(FORMERLY, INVESCO VIF - REALTY FUND)
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 April 30, 2000 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 of the Fund may be accessed through the INVESCO
Web site at www.invesco.com. In addition, the Prospectus, SAI, annual report and
semiannual report of the Fund are available on the SEC Web site at www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; 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. 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 1-202-942-8090. The SEC file numbers for the
Fund are 811-8038 and 033-70154.
PV17 811-8038
<PAGE>
PROSPECTUS | April 30, 2000
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- --------------------------------------------------------------------------------
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - SMALL COMPANY GROWTH FUND
A MUTUAL FUND SOLD EXCLUSIVELY TO INSURANCE COMPANY SEPARATE ACCOUNTS FOR
VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks.........105
Fund Performance...............................106
Fees And Expenses..............................107
Investment Risks...............................107
Risks Associated With Particular Investments...108
Temporary Defensive Positions..................112
Portfolio Turnover.............................112
Fund Management................................112
Portfolio Managers.............................113
Share Price....................................113
Taxes..........................................114
Dividends And Capital Gain Distributions.......114
Voting Rights..................................114
Financial Highlights...........................115
[INVESCO ICON] INVESCO
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
<PAGE>
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] Investment Goals & Strategies
[ARROWS ICON] Potential Investment Risks
[GRAPH ICON] Past Performance
[INVESCO ICON] Working With INVESCO
- --------------------------------------------------------------------------------
[KEY ICON] [ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the Fund.
Together with our affiliated companies, we at INVESCO direct all aspects of the
management of the Fund.
FOR MORE DETAILS ABOUT THE FUND'S CURRENT INVESTMENTS AND MARKET OUTLOOK, PLEASE
SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.
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.
The Fund seeks to make an investment grow. It is actively managed. The Fund
invests primarily in equity securities that INVESCO believes will rise in price
faster than other securities, as well as in options and other investments whose
values are based upon the values of equity securities. It can also invest in
debt securities, including so-called "junk bonds."
The Fund invests primarily in small-capitalization companies -- those with
market capitalizations of $2 billion or less at the time of purchase. We are
primarily looking for companies in the developing stages of their life cycles,
which are currently priced below our estimation of their potential, 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, and/or structural changes in the
economy.
The Fund is managed in the growth style. At INVESCO, growth investing starts
with research from the "bottom up," and focuses on company fundamentals and
growth prospects.
We require that securities purchased for the Fund meet the following standards:
o EXCEPTIONAL GROWTH: The markets and industries they represent are growing
significantly faster than the economy as a whole.
o LEADERSHIP: They are leaders -- or emerging leaders -- in these markets,
securing their positions through technology, marketing, distribution or
some other innovative means.
o FINANCIAL VALIDATION: Their returns -- in the form of sales unit growth,
rising operating margins, internal funding and other factors -- demonstrate
exceptional growth and leadership.
Investments in small, developing companies carry greater risk than investments
in larger, more established companies. Developing companies generally face
intense competition, and have a higher rate of failure than larger companies. On
<PAGE>
the other hand, large companies were once small companies themselves, and the
growth opportunities of some small companies may be quite high.
The Fund is subject to other principal risks such as potential conflicts,
market, liquidity, derivatives, options and futures, counterparty, interest
rate, duration, foreign securities, lack of timely information and credit risks.
These risks are described and discussed later in the Prospectus under the
headings "Investment Risks" and "Risks Associated With Particular Investments."
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation ("FDIC") or any other
government agency. As with any mutual fund, there is always a risk that an
investment in the Fund may lose money.
[GRAPH ICON] FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance for the years
ended December 31 (commonly known as its "total return") since inception. The
table below shows average annual total returns for various periods ended
December 31 for the Fund compared to the Russell 2000 Index. The information in
the chart and table illustrates the variability of the Fund's total returns and
how its performance compared to a broad measure of market performance. Remember,
past performance does not indicate how the Fund 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.
The chart below contains the following plot points:
- -------------------------------------------------
VIF - SMALL COMPANY GROWTH FUND
ACTUAL ANNUAL TOTAL RETURN(1)
=================================================
1997 1998 1999
(0.90%) 16.38% 91.06%
- -------------------------------------------------
Best Calendar Qtr. 12/99 47.92%
Worst Calendar Qtr. 9/98 (17.29%)
- -------------------------------------------------
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AVERAGE ANNUAL TOTAL RETURN(1)
AS OF 12/31/99
- --------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION
VIF-Small Company Growth Fund 91.06% 39.89%(2)
Russell 2000 Index(3) 21.26% 9.91%
(1) Total return figures include reinvested dividends and capital gain
distributions, and include the effect of the Fund's expenses.
(2) The Fund commenced investment operations on August 25, 1997.
(3) The Russell 2000 Index is an unmanaged index that shows performance of
smaller-capitalization stocks. Please keep in mind that the Index does not
pay brokerage, management or administrative expenses, all of which are paid
by the Fund and are reflected in its annual return.
<PAGE>
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
VIF - SMALL COMPANY GROWTH FUND
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (1)(2)(3) 3.35%
------
Total Annual Fund Operating Expenses (1)(2)(3) 4.10%
======
(1) The Fund's actual Total Annual Fund Operating Expenses were lower than the
figures shown, because its custodian fees were reduced under an expense
offset arrangement.
(2) The expense information presented in the table has been restated from the
financials to reflect a change in the administrative services fee.
(3) Certain expenses of the Fund were absorbed voluntarily by INVESCO in order
to ensure that expenses for the Fund did not exceed 1.25% of the Fund's
average net assets pursuant to a commitment between the Fund and INVESCO.
This commitment may be changed at any time following consultation with the
board of directors. After absorption, but excluding any expense offset
arrangements, the Fund's Other Expenses and Total Annual Fund Operating
Expenses for the fiscal year ended December 31, 1999 were 0.95% and 1.70%,
respectively, of the Fund's average net assets.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund to
the cost of investing in other mutual funds.
The 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 life insurance contract. The Example also assumes a
hypothetical 5% return each year and that the Fund's operating expenses remain
the same. Although the actual costs and performance of the Fund may be higher or
lower, based on these assumptions your costs would have been:
1 year 3 years 5 years 10 years
$412 $1,247 $2,097 $4,289
[ARROWS ICON] INVESTMENT RISKS
You should determine the level of risk with which you are comfortable before you
allocate contract values to the Fund. The principal risks of any mutual fund,
including the Fund, are:
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.
NOT INSURED. Mutual funds are not insured by the 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.
<PAGE>
VOLATILITY. The price of Fund shares will increase or decrease with changes in
the value of the Fund's underlying investments and changes in the equity markets
as a whole.
[ARROWS ICON] 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. In general, the securities of large
businesses with outstanding securities worth $15 billion or more are less
volatile than those of mid-size businesses with outstanding securities worth
more than $2 billion or small businesses with outstanding securities worth less
than $2 billion.
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 companies in 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,
described below.
OPTIONS AND FUTURES RISK
Options and futures are common types of derivatives that the Fund may
occasionally use to hedge its investments. An option is the right to buy or sell
a security or other instrument, index or commodity at a specific price on or
before a specific date. A future is an agreement to buy or sell a security or
other instrument, index or commodity at a specific price on a specific date.
COUNTERPARTY RISK
This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the transaction with the
Fund.
<PAGE>
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 movements.
FOREIGN SECURITIES RISK
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 assets in securities of non-U.S. issuers. Securities of Canadian
issuers and American Depository Receipts are not subject to this 25% limitation.
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 U.S. may permit trading practices that are not allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. 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 January 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.
<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.
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.
The Fund generally invests in equity securities of companies with market
capitalizations of $2 billion or less at the time of purchase. However, in an
effort to diversify its holdings and provide some protection against the risk of
other investments, the Fund also may invest in other types of securities and
other financial instruments, as indicated in the chart below. These investments,
which at any given time may constitute a significant portion of the Fund's
portfolio, have their own risks.
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INVESTMENT RISKS
- --------------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS (ADRs)
These are securities issued by U.S. banks that Market, Information,
represent shares of foreign corporations held Political, Regulatory,
by those banks. Although traded in U.S. Diplomatic, Liquidity and
securities markets and valued in U.S. dollars, Currency Risks
ADRs carry most of the risks of investing
directly in foreign securities.
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DEBT SECURITIES
Securities issued by private companies or Market, Credit, Interest
governments representing an obligation to Rate and Duration Risks
pay interest and to repay principal when
the security matures.
- --------------------------------------------------------------------------------
DELAYED DELIVERY OR
WHEN-ISSUED SECURITIES
Ordinarily, the Fund purchases securities Market and
and pays for them in cash at the normal Interest Rate Risks
trade 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.
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<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RISKS
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
A contract to exchange an Currency, Political,
amount of currency on a Diplomatic, Counter-
date in the future at an party and Regulatory
agreed-upon exchange rate 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.
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FUTURES
A futures contract is an agreement Market, Liquidity and Options
to buy or sell a specific amount of and Futures Risks
a financial instru ment (such as an
index option) at a stated price on a
stated date. The Fund may use futures
contracts to provide liquidity and to
hedge portfolio value.
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JUNK BONDS
Debt Securities that are rated BB or Market, Credit, Interest Rate
lower by Standard & Poor's or Ba or and Duration Risks
lower by Moody's. Tend to pay higher
interest rates than higher-rated
debt securities, but carry a higher
credit risk.
- --------------------------------------------------------------------------------
OPTIONS
The obligation or right to deliver or Credit, Information,
receive a security or other instrument, Liquidity and Options and
index or com modity, or cash payment Futures Risks
depending on 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. May be used in
Fund's portfolio to provide liquidity and
hedge portfolio value.
- --------------------------------------------------------------------------------
OTHER FINANCIAL INSTRUMENTS
These may include forward contracts, Counterparty, Credit, Currency
swaps, caps, floors and collars. They Interest Rate, Liquidity,
may be used to try to manage the Fund's Market and Regulatory Risks
foreign currency exposure and other
investment risks, which can cause its
net asset value to rise or fall. The
Fund may use these financial
instruments, commonly known as
"derivatives," to increase or decrease
its exposure to changing securities
prices, interest rates, currency exchange
rates or other factors.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RISKS
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A contract under which the seller of a Credit and Counterparty
security agrees to buy it back at Risks
an agreed-upon price and time in the future.
- --------------------------------------------------------------------------------
RULE 144A SECURITIES
Securities that are not registered, but Liquidity Risk
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.
- --------------------------------------------------------------------------------
[ARROWS ICON] 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, even
though that is not the normal investment strategy of the Fund. 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.
[ARROWS ICON] 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's
portfolio turnover rate was 201% for the year ended December 31, 1999. Portfolio
turnover was greater than expected during this period due to active trading
undertaken in response to market conditions.
A portfolio turnover rate of 200%, for example, is equivalent to the Fund buying
and selling all of the securities in its portfolio two times in the course of a
year. A comparatively high turn-over rate may result in higher brokerage
commissions.
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISER
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $357 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the
investment adviser of the Fund. INVESCO was founded in 1932 and manages over
$31.9 billion for more than 960,478 shareholders of 45 INVESCO mutual funds.
INVESCO performs a wide variety of other services for the Funds, including
administrative 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.
<PAGE>
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, 1999.
[INVESCO ICON] PORTFOLIO MANAGERS
The following individuals are primarily responsible fo the day-to-day management
of the Fund's portfolio holdings:
STACIE COWELL, a vice president of INVESCO, is the lead portfolio manager
of the Fund. Before joining INVESCO in 1997, Stacie was a senior equity analyst
with Founders Asset Management and a capital markets and trading analyst with
Chase Manhattan Bank. She is a Chartered Financial Analyst. Stacie holds an M.S.
in Finance from the University of Colorado and a B.A. in Economics from Colgate
University.
TRENT E. MAY, a vice president of INVESCO, is a co-portfolio manager of the
Fund. Before joining INVESCO in 1996, Trent was a senior equity analyst with
Munder Capital Management and a research assistant with SunBank Capital
Management. He is a Chartered Financial Analyst. Trent holds an M.B.A. from
Rollins College and a B.S. in Engineering from Florida Institute of Technology.
TIMOTHY J. MILLER, a director and senior vice president of INVESCO, is a
co-portfolio manager of the Fund. Before joining INVESCO in 1992, Tim was a
portfolio manager with Mississippi Valley Advisors. He is a Chartered Financial
Analyst. Tim holds an M.B.A. from the University of Missouri - St. Louis and a
B.S.B.A. from St. Louis University.
Stacie Cowell and Trent May are members of the INVESCO Growth Team, which is led
by Tim Miller.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST & DIVIDENDS
- - FUND DEBTS,
INCLUDING ACCRUED EXPENSES
- ------------------------------------
/ NUMBER OF SHARES
= YOUR 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 the regular trading day on that exchange
(normally, 4:00 p.m. Eastern 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 U.S.
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.
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>
[GRAPH ICON] 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), you would not be considered to be an owner of
shares of the Fund. Therefore, 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.
[GRAPH ICON] 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.
[INVESCO ICON] 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
The financial highlights table is intended to help you understand the financial
performance of the Fund for the past five years (or, if shorter, the period of
the Fund's operations). Certain information reflects the financial results for a
single Fund share. The total returns in the table represent the annual
percentages that an investor would have earned (or lost) on an investment in a
share of the Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the financial statements, is included in
INVESCO Variable Investment Funds, Inc.'s 1999 Annual Report to Shareholders,
which is incorporated by reference into the Statement of Additional Information.
This Report is available without charge by contacting IDI at the address or
telephone number on the back cover of this Prospectus.
YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31
- --------------------------------------------------------------------------------
1999 1998 1997(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $11.51 $ 9.91 $ 10.00
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)(b) (0.00) (0.01) 0.02
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) 10.50 1.62 (0.11)
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 10.50 1.61 (0.09)
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS
In Excess of Net Investment Income 0.00 0.01 0.00
- --------------------------------------------------------------------------------
Net Asset Value--End of Period $22.01 $ 11.51 $ 9.91
================================================================================
TOTAL RETURN(c) 91.06% 16.38% (0.90%)(d)
RATIOS
Net Assets--End of Period
($000 Omitted) $4,950 $ 1,036 $ 247
Ratio of Expenses to Average
Net Assets(e)(f) 1.70% 1.87% 0.61%(g)
Ratio of Net Investment Income or
(Loss) to Average Net Assets (e) (0.71%) (0.90%) 0.52%(g)
Portfolio Turnover Rate 201%(h) 92% 25%(d)
(a) From August 25, 1997, commencement of investment operations, to December
31, 1997.
(b) Net Investment Income (Loss) aggregated less than $0.01 on a per share
basis for the year ended December 31, 1999.
(c) Total return does not reflect expenses that apply to the related insurance
contracts, 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
years ended December 31, 1999 and 1998, and all of the expenses of the Fund
were voluntarily absorbed by INVESCO for the period ended December 31,
1997. If INVESCO had not voluntarily absorbed these expenses, ratio of
expenses to average net assets would have been 4.05%, 12.46% and 35.99%
(annualized), respectively, and ratio of net investment loss to average net
assets would have been (3.06%), (11.49%) and (34.86%) (annualized),
respectively.
<PAGE>
(f) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (these may include
transfer agency and custodian fees).
(g) Annualized
(h) Portfolio turnover was greater than expected during this period due to
active trading undertaken in response to market conditions.
<PAGE>
APRIL 30, 2000
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - SMALL COMPANY GROWTH FUND
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 April 30, 2000 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 of the Fund may be accessed through the INVESCO
Web site at www.invesco.com. In addition, the Prospectus, SAI, annual report and
semiannual report of the Fund are available on the SEC Web site at www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; 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. 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 1-202-942-8090. The SEC file numbers for the
Fund are 811-8038 and 033-70154.
PV14 811-8038
<PAGE>
PROSPECTUS | April 30, 2000
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- --------------------------------------------------------------------------------
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - TECHNOLOGY FUND
A MUTUAL FUND SOLD EXCLUSIVELY TO INSURANCE COMPANY SEPARATE ACCOUNTS FOR
VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks.........119
Fund Performance...............................120
Fees And Expenses..............................121
Investment Risks...............................122
Risks Associated With Particular Investments...122
Temporary Defensive Positions..................125
Fund Management................................126
Portfolio Manager..............................126
Share Price....................................126
Taxes..........................................127
Dividends And Capital Gain Distributions.......127
Voting Rights..................................127
Financial Highlights...........................128
[INVESCO ICON] INVESCO
The Securities and Exchange Commission has not approved or disapproved the
shares of the Fund. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
<PAGE>
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] Investment Goals & Strategies
[ARROWS ICON] Potential Investment Risks
[GRAPH ICON] Past Performance
[INVESCO ICON] Working With INVESCO
- --------------------------------------------------------------------------------
[KEY ICON] [ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the Fund.
Together with our affiliated companies, we at INVESCO direct all aspects of the
management of the Fund.
FOR MORE DETAILS ABOUT THE FUND'S CURRENT INVESTMENTS AND MARKET OUTLOOK, PLEASE
SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.
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.
The Fund seeks to make an investment grow. It is aggressively managed.
Although the Fund can invest in debt securities, it invests primarily in equity
securities that INVESCO believes will rise in price faster than other
securities, as well as options and other investments whose values are based upon
the values of equity securities.
The Fund invests primarily in the equity securities of companies engaged in
technology-related industries. These include, but are not limited to, applied
technology, biotechnology, communications, computers, electronics, Internet, IT
services and consulting, oceanography, office and factory automation,
networking, robotics and video. 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 portion of the Fund's assets is not required to be
invested in the sector. To determine whether a potential investment is truly
doing business in the technology 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 technology sector;
o At least 50% of its assets must be devoted to producing revenues from the
technology sector; or
o Based on other available information, we determine that its primary
business is within the technology 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.
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
<PAGE>
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.
The Fund's investments are diversified across the technology sector. However,
because the Fund's investments are limited to a comparatively narrow segment of
the economy, the Fund's investments are not as diversified as investments of
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, an investment in the Fund may rise or fall rapidly.
The Fund is subject to other principal risks such as potential conflicts,
market, credit, debt securities, foreign securities, interest rate, duration,
liquidity, counterparty and lack of timely information risks. These risks are
described and discussed later in the Prospectus under the headings "Investment
Risks" and "Risks Associated With Particular Investments." An investment in the
Fund is not a deposit of any bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation ("FDIC") or any other government agency.
As with any mutual fund, there is always a risk that an investment in the Fund
may lose money.
[GRAPH ICON] FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance for the years
ended December 31 (commonly known as its "total return") since inception. The
table below shows average annual total returns for various periods ended
December 31 for the Fund compared to the S&P 500 Index. The information in the
chart and table illustrates the variability of the Fund's total returns and how
its performance compared to a broad measure of market performance. Remember,
past performance does not indicate how the Fund 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.
The chart below contains the following plot points:
- -------------------------------------------------
VIF - TECHNOLOGY FUND
ACTUAL ANNUAL TOTAL RETURN(1)
=================================================
1997 1998 1999
14.80% 25.69% 158.93%
- -------------------------------------------------
Best Calendar Qtr. 12/99 66.65%
Worst Calendar Qtr. 9/98 (18.86%)
- -------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1)
AS OF 12/31/99
- --------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION
VIF-Technology Fund 158.93% 65.49%(2)
S&P 500 Index(3) 21.03% 25.55%
(1) Total return figures include reinvested dividends and capital gain
distributions, and include the effect of the Fund's expenses.
(2) The Fund commenced investment operations on May 21, 1997.
(3) The S&P 500 Index is an unmanaged index considered representative of the
performance of the broad U.S. stock market. Please keep in mind that the
Index does not pay brokerage, management or administrative expenses, all of
which are paid by the Fund and are reflected in its annual return.
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
VIF-TECHNOLOGY FUND
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (1)(2) 0.78%
------
Total Annual Fund Operating Expenses (1)(2) 1.53%
======
(1) The Fund's actual Total Annual Fund Operating Expenses were lower than the
figures shown, because its custodian fees were reduced under an expense
offset arrangement.
(2) Certain expenses of the Fund were absorbed voluntarily by INVESCO in order
to ensure that expenses for the Fund did not exceed 1.25% of the Fund's
average net assets pursuant to a commitment between the Fund and INVESCO.
This commitment may be changed at any time following consultation with the
board of directors. After absorption, but excluding any expense offset
arrangments, the Fund's Other Expenses and Total Annual Fund Operating
Expenses for the fiscal year ended December 31, 1999 were 0.56% and 1.31%,
respectively of the Fund's average net assets.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund to
the cost of investing in other mutual funds.
The 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 life insurance contract. The Example also assumes a
hypothetical 5% return each year and that the Fund's operating expenses remain
the same. Although the actual costs and performance of the Fund may be higher or
lower, based on these assumptions your costs would have been:
1 year 3 years 5 years 10 years
$156 $483 $834 $1,824
<PAGE>
[ARROWS ICON] INVESTMENT RISKS
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
allocate contract values to the Fund. The principal risks of any mutual fund,
including the Fund, are:
NOT INSURED. Mutual funds are not insured by the 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 and changes in the equity markets
as a whole.
[ARROWS ICON] 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
investments. 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.
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.
<PAGE>
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 Investor Services, Inc. ("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 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. 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. 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 affect 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.
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 or 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.
FOREIGN SECURITIES RISKS
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 assets in securities of non-U.S. issuers. Securities of Canadian
issuers and American Depository Receipts are not subject to this 25% limitation.
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.
<PAGE>
REGULATORY RISK. Government regulations may affect the value of a security.
In foreign countries, securities markets that are less regulated than those
in the U.S. may permit trading practices that are not allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. 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 January 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 movements.
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 companies in emerging markets are subject
to a variety of risks, including potential lack of liquidity.
COUNTERPARTY RISK
This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the 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.
The Fund generally invests in equity securities of companies engaged in
technology related industries. However, in an effort to diversify its holdings
and provide some protection against the risk of other investments, the Fund also
may invest in other types of securities and other financial instruments as
indicated in the chart below. These investments, which at any given time may
constitute a significant portion of the Fund's portfolio, may have their own
risks.
- --------------------------------------------------------------------------------
INVESTMENT RISKS
- --------------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS (ADRs) Market, Information,
These are securities issued by U.S. banks that Political, Regulatory,
represent shares of foreign corporations held Diplomatic, Liquidity and
by those banks. Although traded in U.S. Currency Risks
securities markets and valued in U.S. dollars,
ADRs carry most of the risks of investing
directly in foreign securities.
- --------------------------------------------------------------------------------
DEBT SECURITIES Market, Credit, Interest
Securities issued by private companies or Rate and Duration Risks
governments representing an obligation to
pay interest and to repay principal when
the security matures.
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES Liquidity Risk
A security that cannot be sold quickly at
its fair value.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS Credit and Counterparty
A contract under which the seller of a Risks
security agrees to buy it back at an
agreed-upon price and time in the future.
- --------------------------------------------------------------------------------
[ARROWS ICON] 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, even
though that is not the normal investment strategy of the Fund. 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>
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISER
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $357 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Fund. INVESCO was founded in 1932 and manages over $31.9 billion
for more than 960,478 shareholders of 45 INVESCO mutual funds. INVESCO performs
a wide variety of other services for the Funds, including administrative 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, 1999.
[INVESCO ICON] PORTFOLIO MANAGER
The following individual is responsible for the day-to-day management of the
Fund's portfolio holdings:
WILLIAM R. KEITHLER, a senior vice president of INVESCO, is the portfolio
manager of the Technology Fund. Before joining INVESCO in 1999, Bill was a
portfolio manager with Berger Associates, Inc. He is a Chartered Financial
Analyst. Bill received an M.S. from the University of Wisconsin - Madison and a
B.A. from Webster College.
Bill is a member of the INVESCO Sector Team, which he co-leads with John R.
Schroer.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST & DIVIDENDS
- - FUND DEBTS,
INCLUDING ACCRUED EXPENSES
- ------------------------------------
/ NUMBER OF SHARES
= YOUR 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 the regular trading day on that exchange
(normally, 4:00 p.m. Eastern 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 U.S.
<PAGE>
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.
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.
[GRAPH ICON] 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), you would not be considered to be an owner of
shares of the Fund. Therefore, 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.
[GRAPH ICON] 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.
[INVESCO ICON] 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
The financial highlights table is intended to help you understand the financial
performance of the Fund for the past five years (or, if shorter, the period of
the Fund's operations). Certain information reflects the financial results for a
single Fund share. The total returns in the table represent the annual
percentages that an investor would have earned (or lost) on an investment in a
share of the Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the financial statements, is included in
INVESCO Variable Investment Funds, Inc.'s 1999 Annual Report to Shareholders,
which is incorporated by reference into the Statement of Additional Information.
This Report is available without charge by contacting IDI at the address or
telephone number on the back cover of this Prospectus.
YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31
- --------------------------------------------------------------------------------
1999 1998 1997(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $14.34 $ 11.49 $ 10.00
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)(b) (0.00) (0.03) 0.05
Net Gains on Securities
(Both Realized and Unrealized) 22.79 2.96 1.44
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 22.79 2.93 1.49
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.00 0.01 0.00
In Excess of Net Investment Income 0.00 0.01 0.00
Distributions from Capital Gains 0.00 0.06 0.00
- --------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.00 0.08 0.00
- --------------------------------------------------------------------------------
Net Asset Value--End of Period $37.13 $ 14.34 $ 11.49
================================================================================
TOTAL RETURN(c) 158.93% 25.69% 14.80%(d)
RATIOS
Net Assets--End of Period
($000 Omitted) $93,992 $ 1,577 $ 414
Ratio of Expenses to Average Net
Assets(e)(f) 1.31% 1.40% 0.48%(g)
Ratio of Net Investment Income (Loss)
to Average Net Assets(e) (0.40%) (0.14%) 0.95%(g)
Portfolio Turnover Rate 95% 239% 102%(d)
(a) From May 21, 1997, commencement of investment operations, to December 31,
1997.
(b) Net Investment Income (Loss) aggregated less than $0.01 on a per share basis
for the year ended December 31, 1999.
(c) Total return does not reflect expenses that apply to the related insurance
contracts, 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.
<PAGE>
(e) Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended December 31, 1999 and 1998, and all of expenses of the Fund were
voluntarily absorbed by INVESCO for the period ended December 31, 1997. If
INVESCO had not voluntarily absorbed these expenses, ratio of expenses to
average net assets would have been 1.52%, 6.47% and 19.25% (annualized),
respectively, and ratio of net investment loss to average net assets would
have been (0.61%), (5.21%) and (17.82%) (annualized), respectively.
(f) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (these may include
transfer agency and custodian fees).
(g) Annualized
<PAGE>
APRIL 30, 2000
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-TECHNOLOGY FUND
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 April 30, 2000 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 of the Fund may be accessed through the INVESCO
Web site at www.invesco.com. In addition, the Prospectus, SAI, annual report and
semiannual report of the Fund are available on the SEC Web site at www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; 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. 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 1-202-942-8090. The SEC file numbers for the
Fund are 811-8038 and 033-70154.
PV13 811-8038
<PAGE>
PROSPECTUS | April 30, 2000
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- --------------------------------------------------------------------------------
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-TELECOMMUNICATIONS FUND
A MUTUAL FUND SOLD EXCLUSIVELY TO INSURANCE COMPANY SEPARATE ACCOUNTS FOR
VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks.........132
Fund Performance...............................133
Fees And Expenses..............................133
Investment Risks...............................134
Risks Associated With Particular Investments...134
Temporary Defensive Positions..................138
Fund Management................................138
Portfolio Manager..............................139
Share Price....................................139
Taxes..........................................139
Dividends And Capital Gain Distributions.......140
Voting Rights..................................140
Financial Highlights...........................141
[INVESCO ICON] INVESCO
The Securities and Exchange Commission has not approved or disapproved the
shares of the Fund. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
<PAGE>
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] Investment Goals & Strategies
[ARROWS ICON] Potential Investment Risks
[GRAPH ICON] Past Performance
[INVESCO ICON] Working With INVESCO
- --------------------------------------------------------------------------------
[KEY ICON] [ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
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 direct 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.
The Fund seeks to make an investment grow. It also seeks to provide current
income. The Fund is aggressively managed. It invests primarily in equity
securities that INVESCO believes will rise in price faster than other
securities, as well as options and other investments whose values are based upon
the values of equity securities. It can also invest in debt securities.
The Fund invests primarily in the equity securities of companies that are
engaged in the design, development, manufacture, distribution, or sale of
communications services and equipment, and companies that are involved in
supplying equipment or services to such companies.
The telecommunications sector includes companies that offer telephone services,
wireless communications, satellite communications, television and movie
programming, broadcasting, and Internet access. To determine whether a potential
investment is truly doing business in the telecommunications 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 telecommunications sector;
o At least 50% of its assets must be devoted to producing revenues from the
telecommunications sector; or
o Based on other available information, we determine that its primary
business is within the telecommunications 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. We select stocks based on projected total return for
individual companies, while also analyzing country-specific factors that might
affect stock performance or influence company valuation. Normally, the Fund will
invest primarily in companies located in at least three different countries,
although U.S. issuers will often dominate the portfolio. The Fund's portfolio
emphasizes strongly managed market leaders, with a lesser weighting on small,
faster-growing companies which offer new products or services and/or are
increasing their market share.
<PAGE>
The Fund's investments are diversified across the telecommunications
sector. However, because the Fund's 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 the Fund tends to be more volatile than many other mutual funds, and
the value of its portfolio investments may tend to go up and down more rapidly.
As a result, the value of an investment in the Fund may rise or fall rapidly.
The telecommunications sector is highly regulated, and changes in government
regulation can play a significant role in the prospects of the sector or
specific markets within the telecommunications sector.
The Fund is subject to other principal risks such as potential conflicts,
market, credit, debt securities, foreign securities, interest rate, duration,
liquidity, derivatives, counterparty and lack of timely information risks. These
risks are described and discussed later in this Prospectus under the headings
"Investment Risks" and "Risks Associated With Particular Investments." An
investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation ("FDIC") or any other
government agency. As with any other mutual fund, there is always a risk that
an investment in the Fund may lose money.
[GRAPH ICON] FUND PERFORMANCE
The Fund commenced investment operations on September 21, 1999, and therefore
does not have a complete calendar year of performance.
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
VIF-TELECOMMUNICATIONS FUND
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses(1)(2) 0.55%
-----
Total Annual Fund Operating Expenses(1)(2) 1.30%
=====
(1) The Fund's actual Total Annual Fund Operating Expenses were lower than
the figures shown because its custodian fees were reduced under an
expense offset arrangement.
(2) Certain expenses of the Fund were absorbed voluntarily by INVESCO in order
to ensure that expenses for the Fund did not exceed 1.25% of the Fund's
average net assets pursuant to a commitment between the Fund and INVESCO.
This commitment may be changed at any time following consultation with the
board of directors. After absorption, but excluding any expense offset
arrangements, the Fund's Other Expenses and Total Annual Fund Operating
Expenses for the period ended December 31, 1999 were 0.52% and 1.27%,
respectively, of the Fund's average net assets.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund to
the cost of investing in other mutual funds.
The 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
<PAGE>
annuity or variable life insurance contract. The Example also assumes a
hypothetical 5% return each year and that the Fund's operating expenses remain
the same. Although the actual costs and performance of the Fund may be higher or
lower, based on these assumptions your costs would have been:
1 year 3 years
$132 $412
[ARROWS ICON] INVESTMENT RISKS
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
allocate contract values to the Fund. The principal risks of 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 and changes in the equity markets
as a whole.
[ARROWS ICON] 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
investments. 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
<PAGE>
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.
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
interest rate risk.
Moody's Investors Service, Inc. ("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 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. 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. 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 affect 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.
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 or 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.
<PAGE>
FOREIGN SECURITIES RISKS
Investments in foreign and emerging markets carry special risks, including
currency, political, regulatory and diplomatic risks. The Fund may invest 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 U.S. may permit trading practices that are not allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. 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 January 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 movements.
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 companies in 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,
described below.
COUNTERPARTY RISK
This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the 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.
The Fund generally invests in equity securities of companies that are related to
telecommunications. However, in an effort to diversify its holdings and provide
some protection against the risk of other investments, the Fund also may invest
in other types of securities and other financial instruments, as indicated in
the chart below. These investments, which at any given time may constitute a
significant portion of the Fund's portfolio, have their own risks.
- --------------------------------------------------------------------------------
INVESTMENT RISKS
- --------------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS (ADRs) Market, Information,
These are securities issued by U.S. banks that Political, Regulatory,
represent shares of foreign corporations held Diplomatic, Liquidity and
by those banks. Although traded in U.S. Currency Risks
securities markets and valued in U.S. dollars,
ADRs carry most of the risks of investing
directly in foreign securities.
- --------------------------------------------------------------------------------
DEBT SECURITIES Market, Credit, Interest
Securities issued by private companies or Rate and Duration Risks
governments representing an obligation to
pay interest and to repay principal when
the security matures.
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONRACTS Currency, Political,
A contract to exchange an Diplomatic, and
amount of currency on a Regulatory Risks
date in the future at an
agreed-upon exchange rate
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>
- --------------------------------------------------------------------------------
INVESTMENT RISKS
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES Liquidity Risk
A security that cannot be sold quickly at
its fair value.
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS Credit and Counterparty
A contract under which the seller of a Risks
security agrees to buy it back at an
agreed-upon price and time in the future.
- --------------------------------------------------------------------------------
[ARROWS ICON] 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, even
though that is not the normal investment strategy of the Fund. 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.
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISER
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $357 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Fund. INVESCO was founded in 1932 and manages over $31.9 billion
for more than 960,478 shareholders of 45 INVESCO mutual funds. INVESCO performs
a wide variety of other services for the Funds, including administrative 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 as of December 31, 1999.*
*Annualized from September 21, 1999, commencement of investment operations, to
period ended December 31, 1999.
<PAGE>
[INVESCO ICON] PORTFOLIO MANAGER
The following individual is responsible for the day-to-day management of the
Fund's portfolio holdings:
BRIAN B. HAYWARD, a vice president of INVESCO, is the portfolio manager of the
Fund. Before joining INVESCO in 1997, Brian was a senior equity analyst with
Mississippi Valley Advisors in St. Louis, Missouri. He is a Chartered Financial
Analyst. Brian received an M.A. in Economics and a B.A. in Mathematics from the
University of Missouri.
Brian Hayward is a member of the INVESCO Sector Team, which is co-led by William
R. Keithler and John R. Schroer.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST & DIVIDENDS
- - FUND DEBTS,
INCLUDING ACCRUED EXPENSES
- ------------------------------------
/ NUMBER OF SHARES
= YOUR 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 the regular trading day on that exchange
(normally, 4:00 p.m. Eastern 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 U.S.
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. Share price
is based on the next calculation of NAV after the order is received in proper
form by the Fund.
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.
[GRAPH ICON] 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), you would not be considered to be an owner of
shares of the Fund. Therefore, 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>
[GRAPH ICON] 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, at least once a
year. All dividends and distributions of the Fund are reinvested in additional
shares of the Fund at net asset value.
[INVESCO ICON] 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
The financial highlights table is intended to help you understand the financial
performance of the Fund for the past five years (or, if shorter, the period of
the Fund's operations). Certain information reflects the financial results for a
single Fund share. The total returns in the table represent the annual
percentages that an investor would have earned (or lost) on an investment in a
share of the Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the financial statements, is included in
INVESCO Variable Investment Funds, Inc.'s 1999 Annual Report to Shareholders,
which is incorporated by reference into the Statement of Additional Information.
This Report is available without charge by contacting IDI at the address or
telephone number on the back cover of this Prospectus.
PERIOD ENDED
DECEMBER 31
- --------------------------------------------------------------------------------
1999(a)
PER SHARE DATA
Net Asset Value-- Beginning of Period $ 10.00
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income(b) 0.00
Net Gains on Securities (Both Realized and Unrealized) 6.45
================================================================================
TOTAL FROM INVESTMENT OPERATIONS 6.45
================================================================================
Net Asset Value-- End of Period $ 16.45
================================================================================
TOTAL RETURN(c) 64.50%(d)
RATIOS
Net Assets-- End of Period ($000 Omitted) $ 67,650
Ratio of Expenses to Average Net Assets(e)(f) 1.27%(g)
Ratio of Net Investment Income to Average Net Assets(e) 0.11%(g)
Portfolio Turnover Rate 15%(d)
(a) From September 21, 1999, commencement of investment operations, to December
31, 1999.
(b) Net Investment Income aggregated less than $0.01 on a per share basis for
the period ended December 31, 1999.
(c) Total return does not reflect expenses that apply to the related insurance
contracts, 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 IFG for the period
ended December 31, 1999. If INVESCO had not voluntarily absorbed these
expenses, ratio of expenses to average net assets would have been 1.28%
(annualized), and ratio of net investment income to average net assets would
have been 0.10% (annualized).
(f) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed
by INVESCO, which is before any expense offset arrangements (these may
include transfer agency and custodian fees).
(g) Annualized
<PAGE>
APRIL 30, 2000
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-TELECOMMUNICATIONS FUND
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 April 30, 2000 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 of the Fund may be accessed through the INVESCO
Web site at www.invesco.com. In addition, the Prospectus, SAI, annual report and
semiannual report of the Fund are available on the SEC Web site at www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; 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. 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 1-202-942-8090. The SEC file numbers for the
Fund are 811-8038 and 033-70154.
P181 811-8038
<PAGE>
PROSPECTUS | April 30, 2000
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- --------------------------------------------------------------------------------
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-TOTAL RETURN FUND
A MUTUAL FUND SOLD EXCLUSIVELY TO INSURANCE COMPANY SEPARATE ACCOUNTS FOR
VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks.........144
Fund Performance...............................145
Fees And Expenses..............................146
Investment Risks...............................146
Risks Associated With Particular Investments...147
Temporary Defensive Positions..................151
Fund Management................................152
Portfolio Managers.............................152
Share Price....................................153
Taxes..........................................153
Dividends And Capital Gain Distributions.......154
Voting Rights..................................154
Financial Highlights...........................155
[INVESCO ICON] INVESCO
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
<PAGE>
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] Investment Goals & Strategies
[ARROWS ICON] Potential Investment Risks
[GRAPH ICON] Past Performance
[INVESCO ICON] Working With INVESCO
- --------------------------------------------------------------------------------
[KEY ICON] [ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the Fund.
Together with our affiliated companies, we at INVESCO direct all aspects of the
management of the Fund.
FOR MORE DETAILS ABOUT THE FUND'S CURRENT INVESTMENTS AND MARKET OUTLOOK, PLEASE
SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.
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.
The Fund seeks to make an investment grow. It also seeks to provide current
income. The Fund is actively managed. It invests in a mix of equity securities
and debt securities, as well as in options and other investments whose values
are based on the values of these securities. Often, but not always, 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 invests primarily in a combination of common stocks of companies with a
strong history of paying regular dividends. The Fund also invests in debt
securities, including obligations of the U.S. government and government
agencies. The remaining assets of the Fund are 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. To determine the actual allocations, the return that INVESCO believes
is available from each category of investments is weighed against the returns
expected from other categories. This analysis is continual, and is updated with
current market information.
The Fund is managed in the value style. That means we seek securities,
particularly stocks, that are currently undervalued by the market -- companies
that are performing well, or have solid management and products, but whose stock
prices do not reflect that value. Through our value process, we seek to provide
reasonably consistent returns over a variety of market cycles.
Although the Fund is subject to a number of risks that could affect its
performance, its principal risk is market risk -- that is, that the price of the
securities in its portfolio will rise and fall due to price movements in the
securities markets, and the securities held in the Fund's portfolio may decline
in value more than the overall securities markets. Since INVESCO has discretion
<PAGE>
to allocate the amounts of equity securities and debt securities held by the
Fund, there is an additional risk that the portfolio of the Fund may not be
allocated in the most advantageous way between equity and debt securities,
particularly in times of significant market movements.
The Fund is subject to other principal risks such as potential conflicts,
credit, debt securities, foreign securities, interest rate, duration, liquidity,
derivatives, options and futures, counterparty and lack of timely information
risks. These risks are described and discussed later in the Prospectus under the
headings "Investment Risks" and "Risks Associated With Particular Investments."
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation ("FDIC") or any other
government agency. As with any mutual fund, there is always a risk that an
investment in the Fund may lose money.
[GRAPH ICON] FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance for the years
ended December 31 (commonly known as its "total return") since inception. The
table below shows average annual total returns for various periods ended
December 31 for the Fund compared to the S&P 500 Index and the Lehman
Government/Corporate Bond Index. The information in the chart and table
illustrates the variability of the Fund's total returns and how its performance
compared to a broad measure of market performance. Remember, past performance
does not indicate how the Fund 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.
The chart below contains the following plot points:
- ---------------------------------------------------------------
VIF - TOTAL RETURN FUND
ACTUAL ANNUAL TOTAL RETURN(1)
===============================================================
1994 1995 1996 1997 1998 1999
1.75% 22.79% 12.18% 22.91% 9.50% (3.40%)
- ---------------------------------------------------------------
Best Calendar Qtr. 6/97 10.73%
Worst Calendar Qtr. 9/99 (10.12%)
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1)
AS OF 12/31/99
- --------------------------------------------------------------------------------
1 YEAR 5 YEARS SINCE INCEPTION
VIF-Total Return Fund (3.40%) 12.38% 11.36%(2)
S&P 500 Index(3) 21.03% 28.54% 25.61%
Lehman Government/Corporate Bond Index(3) (2.15%) 7.61% 6.90%(4)
(1) Total return figures include reinvested dividends and capital gain
distributions, and include the effect of the Fund's expenses.
(2) The Fund commenced investment operations on June 2, 1994.
<PAGE>
(3) The S&P 500 Index is an unmanaged index considered representative of the
performance of the broad U.S. stock market, while the Lehman Government
/Corporate Bond Index is an unmanaged index indicative of the broad
fixed-income and high-yield markets. Please keep in mind that the Indexes
do not pay brokerage, management, or administrative expenses, all of which
are paid by the Fund and are reflected in its annual return.
(4) Performance for the Index is calculated from May 31, 1994 to December 31,
1999.
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
VIF-TOTAL RETURN FUND
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (1)(2)(3) 0.55%
------
Total Annual Fund Operating Expenses (1)(2)(3) 1.30%
======
(1) The Fund's actual Total Annual Fund Operating Expenses were lower than the
figures shown, because its custodian fees were reduced under an expense
offset arrangement.
(2) The expense information presented in the table has been restated from the
financials to reflect a change in the administrative services fee.
(3) Certain expenses of the Fund were absorbed voluntarily by INVESCO in order
to ensure that expenses for the Fund did not exceed 1.15% of the Fund's
average net assets pursuant to a commitment between the Fund and INVESCO.
This commitment may be changed at any time following consultation with the
board of directors. After absorption, but excluding any expense offset
arrangements, the Fund's Other Expenses and Total Annual Fund Operating
Expenses for the fiscal year ended December 31, 1999 were 0.42% and 1.17%,
respectively, of the Fund's average net assets.
EXAMPLE
The Example is intended to help you compare the cost of investing in the Fund to
the cost of investing in other mutual funds.
The 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 life insurance contract. The Example also assumes a
hypothetical 5% return each year and that the Fund's operating expenses remain
the same. Although the actual costs and performance of the Fund may be higher or
lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years
$132 $412 $713 $1,568
[ARROWS ICON] INVESTMENT RISKS
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
allocate contract values to the Fund. The principal risks of any mutual fund,
including the Fund, are:
NOT INSURED. Mutual funds are not insured by the FDIC or any other agency,
unlike bank deposits such as CDs or savings accounts.
<PAGE>
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 and changes in the equity and
debt markets as a whole.
[ARROWS ICON] 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.
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 Investors Service, Inc. ("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
<PAGE>
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 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. 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. 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 affect 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.
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 or 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.
FOREIGN SECURITIES RISKS
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 assets in securities of non-U.S. issuers. Securities of Canadian
issuers and American Depository Receipts are not subject to this 25% limitation.
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 U.S. may permit trading practices that are not allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. 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 January 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 movements.
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 companies in 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,
described below.
OPTIONS AND FUTURES RISK
Options and futures are common types of derivatives that the Fund may
occasionally use to hedge its investments. An option is the right to buy or sell
a security or other investment, index or commodity at a specific price on or
before a
<PAGE>
specific date. A future is an agreement to buy or sell a security or other
investment, index or commodity at a specific price on a specific date.
COUNTERPARTY RISK
This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the 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.
The Fund generally invests in common stocks and debt securities. However, in an
effort to diversify its holdings and provide some protection against the risk of
other investments, the Fund also may invest in other types of securities and
other financial instruments as indicated in the chart below. These investments,
which at any given time may constitute a significant portion of the Fund's
portfolio, may have their own risks.
- --------------------------------------------------------------------------------
INVESTMENT RISKS
- --------------------------------------------------------------------------------
AMERICAN DEPOSITORY RECEIPTS (ADRs) Market, Information,
These are securities issued by U.S. banks that Political, Regulatory,
represent shares of foreign corporations held Diplomatic, Liquidity and
by those banks. Although traded in U.S. Currency Risks
securities markets and valued in U.S. dollars,
ADRs carry most of the risks of investing
directly in foreign securities.
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS
A contract to exchange an Currency, Political,
amount of currency on a Diplomatic, Counter-
date in the future at an party and Regulatory
agreed-upon exchange rate 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.
- --------------------------------------------------------------------------------
FUTURES
A futures contract is an agreement Market, Liquidity and Options
to buy or sell a specific amount of and Futures Risks
a financial instrument (such as an
index option) at a stated price on a
stated date. The Fund may use futures
contracts to provide liquidity and to
hedge portfolio value.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RISKS
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES
Securities that cannot be sold quickly Liquidity Risk
at fair value.
- --------------------------------------------------------------------------------
OPTIONS
The obligation or right to deliver or Credit, Information,
receive a security or other instrument, Liquidity and Options and
index or com modity, or cash payment Futures Risks
depending on 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. May be used in
Fund's portfolio to provide liquidity and
hedge portfolio value.
- --------------------------------------------------------------------------------
OTHER FINANCIAL INSTRUMENTS
These may include forward contracts, Counterparty, Credit, Currency
swaps, caps, floors and collars. They Interest Rate, Liquidity,
may be used to try to manage the Fund's Market and Regulatory Risks
foreign currency exposure and other
investment risks, which can cause its
net asset value to rise or fall. The
Fund may use these financial
instruments, commonly known as
"derivatives," to increase or decrease
its exposure to changing securities
prices, interest rates, currency exchange
rates or other factors.
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENTS Credit and Counterparty
A contract under which the seller of a Risks
security agrees to buy it back at an
agreed-upon price and time in the future.
- --------------------------------------------------------------------------------
RULE 144A SECURITIES Liquidity Risk
Securities that are not 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.
- --------------------------------------------------------------------------------
[ARROWS ICON] 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, even
though that is not the normal investment strategy of the Fund. 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.
<PAGE>
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.
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISER
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $357 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Fund. INVESCO was founded in 1932 and manages over $31.9 billion
for more than 960,478 shareholders of 45 INVESCO mutual funds. INVESCO performs
a wide variety of other services for the Funds, including administrative 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, 1999.
[INVESCO ICON] PORTFOLIO MANAGERS
The following individuals are primarily responsible for the day-to-day
management of the Fund's portfolio holdings:
JAMES O. BAKER, a vice president of ICM, is a co-portfolio manager of the Fund.
Prior to joining ICM in 1992, Jim was a portfolio manager with Willis Investment
Counsel and a broker with Morgan Keegan and Drexel Burnham Lambert. He is a
Chartered Financial Analyst. Jim received his B.A. from Mercer University.
DAVID S. GRIFFIN, a portfolio manager of ICM, is an assistant portfolio manager
of the Fund. Dave joined ICM in 1991. He is a Chartered Financial Analyst. Dave
received his M.B.A. from the College of William and Mary and his B.A. from Ohio
Wesleyan University.
MARGARET DURKES HOOGS, a portfolio manager of ICM, is an assistant portfolio
manager of the Fund. Before joining ICM in 1993, Peg was a vice president and
portfolio manager for Sovran Capital Management. She is a Chartered Financial
Analyst. Peg received her B.A. from The Colorado College.
<PAGE>
EDWARD C. MITCHELL, JR., a vice President of ICM, is a co-portfolio manager
of the Fund. Ed joined ICM in 1979, and manages other INVESCO Capital
Management, Inc. portfolios for investors. He is a Chartered Financial Analyst.
Ed received his M.B.A. from the University of Colorado and his B.A. from the
University of Virginia.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST & DIVIDENDS
- - FUND DEBTS,
INCLUDING ACCRUED EXPENSES
- ------------------------------------
/ NUMBER OF SHARES
= YOUR 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 the regular trading day on that exchange
(normally, 4:00 p.m. Eastern 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 U.S.
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.
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.
[GRAPH ICON] 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), you would not be considered to be an owner of
shares of the Fund. Therefore, 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>
[GRAPH ICON] 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.
[INVESCO ICON] 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
The financial highlights table is intended to help you understand the financial
performance of the Fund for the past five years (or, if shorter, the period of
the Fund's operations). Certain information reflects the financial results for a
single Fund share. The total returns in the table represent the annual
percentages that an investor would have earned (or lost) on an investment in a
share of the Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the financial statements, is included in
INVESCO Variable Investment Funds, Inc.'s 1999 Annual Report to Shareholders,
which is incorporated by reference into the Statement of Additional Information.
This Report is available without charge by contacting IDI at the address or
telephone number on the back cover of this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997 1996 1995
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net Asset Value-- Beginning of Period $ 16.58 $ 15.81 $ 13.21 $ 12.14 $ 10.09
==============================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.41 0.37 0.36 0.36 0.25
Net Gains or (Losses) on Securities
(Both Realized and Unrealized) (0.98) 1.13 2.66 1.12 2.05
==============================================================================================================
TOTAL FROM INVESTMENT OPERATIONS (0.57) 1.50 3.02 1.48 2.30
==============================================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.37 0.36 0.34 0.36 0.24
In Excess of Net Investment Income 0.00 0.00 0.00 0.05 0.00
Distributions from Capital Gains 0.06 0.37 0.08 0.00 0.01
==============================================================================================================
TOTAL DISTRIBUTIONS 0.43 0.73 0.42 0.41 0.25
==============================================================================================================
Net Asset Value-- End of Period $ 15.58 $ 16.58 $ 15.81 $ 13.21 $ 12.14
==============================================================================================================
TOTAL RETURN(a) (3.40%) 9.56% 22.91% 12.18% 22.79%
RATIOS
Net Assets-- End of Period ($000 Omitted) $ 27,739 $ 35,630 $ 23,268 $ 13,513 $ 6,553
Ratio of Expenses to Average Net Assets(b)(c) 1.17% 1.01% 0.92% 0.94% 1.01%
Ratio of Net Investment Income
to Average Net Assets(b) 2.14% 2.50% 3.07% 3.44% 3.91%
Portfolio Turnover Rate 36% 17% 27% 12% 5%
</TABLE>
(a) Total return does not reflect expenses that apply to the related insurance
contracts, and inclusion of these charges would reduce the total return
figures for the periods shown.
(b) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
years ended December 31, 1998, 1997, 1996 and 1995. If INVESCO had not
voluntarily absorbed these expenses, ratio of expenses to average net assets
would have been 1.01%, 1.10%, 1.30% and 2.51%, respectively, and ratio of
net investment income to average net assets would have been 2.50%, 2.89%,
3.08% and 2.41%, respectively.
(c) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (these may include
transfer agency and custodian fees).
<PAGE>
APRIL 30, 2000
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - TOTAL RETURN FUND
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 April 30, 2000 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 of the Fund may be accessed through the INVESCO
Web site at www.invesco.com. In addition, the Prospectus, SAI, annual report and
semiannual report of the Fund are available on the SEC Web site at www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; 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. 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 1-202-942-8090. The SEC file numbers for the
Fund are 811-8038 and 033-70154.
PV92 811-8038
<PAGE>
PROSPECTUS | April 30, 2000
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- --------------------------------------------------------------------------------
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - UTILITIES FUND
A MUTUAL FUND SOLD EXCLUSIVELY TO INSURANCE COMPANY SEPARATE ACCOUNTS FOR
VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks.........158
Fund Performance...............................159
Fees And Expenses..............................160
Investment Risks...............................161
Risks Associated With Particular Investments...161
Temporary Defensive Positions..................164
Fund Management................................165
Portfolio Manager..............................166
Share Price....................................166
Taxes..........................................167
Dividends And Capital Gain Distributions.......168
Voting Rights..................................168
Financial Highlights...........................169
[INVESCO ICON] INVESCO
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
<PAGE>
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] Investment Goals & Strategies
[ARROWS ICON] Potential Investment Risks
[GRAPH ICON] Past Performance
[INVESCO ICON] Working With INVESCO
- --------------------------------------------------------------------------------
[KEY ICON] [ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the
Fund. Together with our affiliated companies, we at INVESCO direct all aspects
of the management of the Fund.
FOR MORE DETAILS ABOUT THE FUND'S CURRENT INVESTMENTS AND MARKET OUTLOOK,
PLEASE SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.
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.
The Fund seeks to make an investment grow. It also seeks to provide you
with current income. The Fund is aggressively managed. Although the Fund can
invest in debt securities, it invests primarily in equity securities that
INVESCO believes will rise in price faster than other securities, as well as in
options and other instruments whose values are based upon the values of equity
securities.
The Fund invests primarily in equity securities of companies doing business
in the utilities economic sector. These companies include 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. A portion of the Fund's
assets is 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 utilities economic sector;
o At least 50% of its assets must be devoted to producing revenues from the
utilities economic sector; or
o Based on other available information, we determine that its primary
business is within the utilities economic 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.
The Fund's investments are diversified across the utilities sector.
However, because those investments are limited to a comparatively narrow segment
<PAGE>
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 an investment in the Fund may rise or fall rapidly.
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.
The Fund is subject to other principal risks such as potential conflicts,
market, credit, debt securities, foreign securities, interest rate, duration,
liquidity, counterparty and lack of timely information risks. These risks are
described and discussed later in the Prospectus under the headings "Investment
Risks" and "Risks Associated With Particular Investments." An investment in the
Fund is not a deposit of any bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation ("FDIC") or any other government agency.
As with any mutual fund, there is always a risk that an investment in the Fund
may lose money.
[GRAPH ICON] FUND PERFORMANCE
The bar chart below shows the Fund's actual yearly performance for the
years ended December 31 (commonly known as its "total return") since inception.
The table below shows average annual total returns for various periods ended
December 31 for the Fund compared to the S&P 500 and the S&P Utility Index. The
information in the chart and table illustrates the variability of the Fund's
total returns and how its performance compared to a broad measure of market
performance. Remember, past performance does not indicate how the Fund 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.
The chart below contains the following plot points:
- --------------------------------------------------------------------------------
VIF-UTILITIES FUND
ACTUAL ANNUAL TOTAL RETURN(1)
- --------------------------------------------------------------------------------
1995 1996 1997 1998 1999
9.09% 12.70% 23.41% 25.49% 19.13%
- --------------------------------------------------------------------------------
Best Calendar Qtr. 12/98 17.18%
Worst Calendar Qtr. 9/98 (4.70%)
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1)
AS OF 12/31/99
- --------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION
VIF - Utilities Fund 19.13% 17.83%(2)
S&P 500 Index(3) 21.03% 28.51%
S&P Utility Index(3) (8.88%) 13.66%
(1) Total return figures include reinvested dividends and capital gain
distributions, and include the effect of the Fund's expenses.
(2) The Fund commenced investment operations on January 3, 1995.
(3) The S&P 500 Index is an unmanaged index considered representative of
the performance of the broad U.S. stock market, while the S&P Utility Index is
an unmanaged index of domestic utilities stocks. Please keep in mind that the
Index does not pay brokerage, management or administrative expenses, all of
which are paid by the Fund and are reflected in its annual return.
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
VIF - UTILITIES FUND
Management Fees 0.60%
Distribution and Service (12b-1) Fees None
Other Expenses (1)(2)(3) 1.08%
----
Total Annual Fund Operating Expenses (1)(2)(3) 1.68%
====
(1) The Fund's actual Total Annual Fund Operating Expenses were lower than
the figures shown, because its custodian fees were reduced under an
expense offset arrangement.
(2) The expense information presented in the table has been restated from
the financials to reflect a change in the administrative services fee.
(3) Certain expenses of the Fund were absorbed voluntarily by INVESCO in
order to ensure that expenses for the Fund did not exceed 1.15% of the
Fund's average net assets pursuant to a commitment between the Fund and
INVESCO. This commitment may be changed at any time following consultation
with the board of directors. After absorption, but excluding any expense
offset arrangements, the Fund's Other Expenses and Total Annual Fund
Operating Expenses for the fiscal year ended December 31, 1999 were 0.61%
and 1.21%, respectively, of the Fund's average net assets.
EXAMPLE
The Example is intended to help you compare the cost of investing in the
Fund to the cost of investing in other mutual funds.
The 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 life insurance contract. The Example also assumes a
hypothetical 5% return each year and that the Fund's operating expenses remain
the same. Although the actual costs and performance of the Fund may be higher or
lower, based on these assumptions your costs would have been:
1 year 3 years 5 years 10 years
$171 $530 $913 $1,987
<PAGE>
[ARROWS ICON] INVESTMENT RISKS
You should determine the level of risk with which you are comfortable
before you allocate contract values to the Fund. The principal risks of any
mutual fund, including the Fund, are:
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.
NOT INSURED. Mutual funds are not insured by the 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.
[ARROWS ICON] 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 investments. 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, bonds and
commercial paper. 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.
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
<PAGE>
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 interest rate risks. 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 Investor Services, Inc. ("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 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. 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. 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 affect 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.
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, or 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.
FOREIGN SECURITIES RISKS
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 assets in securities of non-U.S. issuers. Securities of Canadian
issuers and American Depository Receipts are not subject to this 25% limitation.
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.
<PAGE>
REGULATORY RISK. Government regulations may affect the value of a security.
In foreign countries, securities markets that are less regulated than
those in the U.S. may permit trading practices that are not allowed in the
U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. 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 January 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 movements.
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 companies in emerging markets are subject
to a variety of risks, including potential lack of liquidity.
COUNTERPARTY RISK
This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the 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.
The Fund generally invests in companies doing business in the utilities
economic sector. However, in an effort to diversify its holdings and provide
some protection against the risk of other investments, the Fund also may invest
in other types of securities and other financial instruments, as indicated in
the chart below. These instruments, which at any given time may constitute a
significant portion of the Fund's portfolio, may have their own risks.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
INVESTMENT RISKS
- -------------------------------------------------------------------------------------------
<S> <C>
AMERICAN DEPOSITORY RECEIPTS (ADRS)
These are securities issued by U.S. banks that represent Market, Information,
shares of foreign corporations held by those banks. Political, Regulatory,
Although traded in U.S. securities markets and valued in Diplomatic, Liquidity and
U.S. dollars, ADRs carry most of the risks of investing Currency Risks
directly in foreign securities.
- --------------------------------------------------------------------------------------------
DEBT SECURITIES
Securities issued by private companies or governments Market, Credit, Interest
representing an obligation to pay interest and to repay Rate and Duration Risks
principal when the security matures.
- --------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
A contract under which the seller of a security agrees to Credit and Counterparty
buy it back at an agreed-upon price and time in the future. Risks
- --------------------------------------------------------------------------------------------
</TABLE>
[ARROWS ICON] 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, even though that is not the normal investment strategy of the Fund.
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>
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISER
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $357 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Fund. INVESCO was founded in 1932 and manages over $31.9 billion
for more than 960,478 shareholders of 45 INVESCO mutual funds. INVESCO performs
a wide variety of other services for the Funds, including administrative 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.
<PAGE>
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, 1999.
[INVESCO ICON] PORTFOLIO MANAGER
The following individual is responsible for the day-to-day management of
the Fund's portfolio holdings:
BRIAN B. HAYWARD, a vice president of INVESCO, is the portfolio manager of
the Fund. Before joining INVESCO in 1997, Brian was a senior equity analyst with
Mississippi Valley Advisors in St. Louis, Missouri. He is a Chartered Financial
Analyst. Brian received an M.A. in Economics and a B.A. in Mathematics from the
University of Missouri.
Brian Hayward is a member of the INVESCO Sector Team, which is led by
William R. Keithler and John R. Schroer.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST AND DIVIDENDS
- - FUND DEBTS,
INCLUDING ACCRUED EXPENSES
- -------------------------------------
/ NUMBER OF SHARES
= YOUR 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 the regular trading day on that exchange
(normally, 4:00 p.m. Eastern 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 U.S.
<PAGE>
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.
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.
[GRAPH ICON] 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), you would not be considered to be an owner of
shares of the Fund. Therefore, 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>
[GRAPH ICON] 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.
[INVESCO ICON] 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
The financial highlights table is intended to help you understand the
financial performance of the Fund for the past five years (or, if shorter, the
period of the Fund's operations). Certain information reflects the financial
results for a single Fund share. The total returns in the table represent the
annual percentages that an investor would have earned (or lost) on an investment
in a share of the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report, along with the financial statements, is
included in INVESCO Variable Investment Funds, Inc.'s 1999 Annual Report to
Shareholders, which is incorporated by reference into the Statement of
Additional Information. This Report is available without charge by contacting
IDI at the address or telephone number on the back cover of this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value-- Beginning of Period $ 17.78 $ 14.40 $ 11.95 $ 10.84 $ 10.00
==================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.22 0.25 0.31 0.13 0.07
Net Gains on Securities
(Both Realized and Unrealized) 3.17 3.41 2.48 1.26 0.84
==================================================================================================
TOTAL FROM INVESTMENT OPERATIONS 3.39 3.66 2.79 1.39 0.91
==================================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.20 0.24 0.29 0.13 0.07
In Excess of Net Investment Income 0.00 0.00 0.00 0.01 0.00
Distributions from Capital Gains 0.00 0.03 0.05 0.14 0.00
In Excess of Net Realized Gains 0.00 0.01 0.00 0.00 0.00
==================================================================================================
TOTAL DISTRIBUTIONS 0.20 0.28 0.34 0.28 0.07
==================================================================================================
Net Asset Value -- End of Period $ 20.97 $ 17.78 $ 14.40 $ 11.95 $ 10.84
==================================================================================================
TOTAL RETURN(a) 19.13% 25.48% 23.41% 12.76% 9.08%
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 9,137 $ 6,993 $ 4,588 $ 2,660 $ 290
Ratio of Expenses to Average
Net Assets(b)(c) 1.20% 1.08% 0.99% 1.16% 1.80%
Ratio of Net Investment Income
to Average Net Assets(b) 1.15% 1.73% 2.92% 2.92% 2.47%
Portfolio Turnover Rate 40% 35% 33% 48% 24%
</TABLE>
(a) Total return does not reflect expenses that apply to the related insurance
contracts, and inclusion of these charges would reduce the total return
figures for the period shown.
(b) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
years ended December 31, 1999, 1998, 1997, 1996 and 1995. If INVESCO had
not voluntarily absorbed these expenses, ratio of expenses to average net
assets would have been 1.53%, 1.60%, 2.07%, 5.36%, and 57.13% respectively,
and ratio of net investment income (loss) to average net assets would have
been 0.82%, 1.21%, 1.84%, (1.28%) and (52.86%), respectively.
(c) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (these may include
transfer agency and custodian fees).
<PAGE>
APRIL 30, 2000
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - UTILITIES FUND
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 April 30, 2000 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 of the Fund may be accessed through the
INVESCO Web site at www.invesco.com. In addition, the Prospectus, SAI, annual
report and semiannual report of the Fund are available on the SEC Web site at
www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; 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. 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 1-202-942-8090. The SEC file numbers for the
Fund are 811-8038 and 033-70154.
PV94 811-8038
<PAGE>
PROSPECTUS | April 30, 2000
- --------------------------------------------------------------------------------
YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
- --------------------------------------------------------------------------------
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF--DYNAMICS FUND
INVESCO VIF--FINANCIAL SERVICES FUND
INVESCO VIF--HEALTH SCIENCES FUND
INVESCO VIF--TECHNOLOGY FUND
INVESCO VIF--TELECOMMUNICATIONS FUND
FIVE MUTUAL FUNDS SOLD EXCLUSIVELY TO INSURANCE COMPANY SEPARATE ACCOUNTS FOR
VARIABLE ANNUITY AND VARIABLE LIFE INSURANCE CONTRACTS.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks ...............172
Fund Performance......................................177
Fees And Expenses.....................................178
Investment Risks......................................180
Risks Associated With Particular Investments..........180
Temporary Defensive Positions.........................186
Portfolio Turnover....................................186
Fund Management.......................................187
Portfolio Managers....................................187
Share Price...........................................188
Taxes.................................................189
Dividends And Capital Gain Distributions..............189
Voting Rights.........................................189
Financial Highlights..................................190
[INVESCO ICON] INVESCO
The Securities and Exchange Commission has not approved or disapproved the
shares of the Fund. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
<PAGE>
THIS PROSPECTUS WILL TELL YOU MORE ABOUT:
[KEY ICON] Investment Goals & Strategies
[ARROWS ICON] Potential Investment Risks
[GRAPH ICON] Past Performance
[INVESCO ICON] Working With INVESCO
- --------------------------------------------------------------------------------
[KEY ICON] [ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the Funds.
Together with our affiliated companies, we at INVESCO direct all aspects of the
management of the Funds.
FOR MORE DETAILS ABOUT EACH FUND'S CURRENT INVESTMENTS AND MARKET OUTLOOK,
PLEASE SEE THE MOST RECENT ANNUAL OR SEMIANNUAL REPORT.
The Funds are used solely as investment vehicles for variable annuity or
variable life insurance contracts issued by certain life insurance companies.
You cannot purchase shares of the Funds directly. As an owner of a variable
annuity or variable life insurance contract that offers the Funds 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 Funds.
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 Funds.
[KEY ICON] INVESCO VIF--DYNAMICS FUND
The Fund seeks to make an investment grow. It is actively managed. The Fund
invests primarily in equity securities that INVESCO believes will rise in price
faster than other securities, as well as in options and other investments whose
values are based upon the values of equity securities. It can also invest in
debt securities, including so-called "junk bonds."
The Fund invests primarily in common stocks of mid-sized U.S. companies -
those with market capitalizations between $2 billion and $15 billion at the time
of purchase but also has the flexibility to invest in other types of securities,
including preferred stocks, convertivble securities and bonds. The core of the
Fund's portfolio is invested in securities of established companies that are
leaders in attractive growth markets with a history of strong returns. The
remainder of the portfolio is invested in securities of companies that show
accelerating growth, driven by product cycles, favorable industry or sector
conditions and other factors that INVESCO believes will lead to rapid sales or
earnings growth.
The Fund's strategy relies on 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. Consequently, the Fund's
investments are usually bought and sold relatively frequently.
The Fund is managed in the growth style. At INVESCO, growth investing starts
with research from the "bottom up," and focuses on company fundamentals and
growth prospects.
We require that securities purchased for the Fund meet the following standards:
o EXCEPTIONAL GROWTH: The markets and industries they represent are growing
significantly faster than the economy as a whole.
o LEADERSHIP: They are leaders -- or emerging leaders -- in these markets,
securing their positions through technology, marketing, distribution or
some other innovative means.
<PAGE>
o FINANCIAL VALIDATION: Their returns - in the form of sales unit growth,
rising operating margins, internal funding and other factors - demonstrate
exceptional growth and leadership.
While the Fund generally invests in mid-sized companies, the Fund sometimes
invests in the securities of smaller companies. The prices of these securities
tend to move up and down more rapidly than the securities prices of larger, more
established companies, and the price of Fund shares tends to fluctuate more than
it would if the Fund invested in the securities of larger companies.
The Fund is subject to other principal risks such as potential conflicts,
market, credit, debt securities, foreign securities, interest rate, duration,
liquidity, derivatives, options and futures, counterparty and lack of timely
information risks. These risks are described and discussed later in the
Prospectus under the headings "Investment Risks" and "Risks Associated With
Particular Investments." An investment in the Fund is not a deposit of any bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation
("FDIC") or any other government agency. As with any mutual fund, there is
always a risk that an investment in the Fund may lose money.
[KEY ICON] INVESCO VIF--FINANCIAL SERVICES FUND
The Fund seeks to make an investment grow. It is aggressively managed.
Although the Fund can invest in debt securities, tt invests primarily in equity
securities that INVESCO believes will rise in price faster than other
securities, as well as in options and other investments whose values are based
upon the values of equity securities.
The Fund invests primarily in equity securities of companies involved in the
financial services sector. These companies include, among others, banks
(regional and money-centers), insurance companies (life, property and casualty,
and multiline), and investment and miscellaneous industries (asset managers,
brokerage firms, and government-sponsored agencies). A portion of the Fund's
assets is not required to be invested in the sector. To determine whether a
potential investment is truly doing business in the financial services 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 financial services sector;
o At least 50% of its assets must be devoted to producing revenues from the
financial services sector; or
o Based on other available information, we determine that its primary
business is within the financial services 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.
We place a greater emphasis on companies that are increasing their revenue
streams along with their earnings. We seek companies that we believe can grow
their revenues and earnings regardless of the interest rate environment -
although securities prices of financial services companies generally are
interest rate-sensitive. We prefer companies that have both marketing expertise
and superior technology, because INVESCO believes these companies are more
likely to deliver products that match their customers' needs. We attempt to keep
<PAGE>
the portfolio holdings well diversified across the entire financial
services sector. We adjust portfolio weightings depending on current economic
conditions and relative valuations of securities.
The Fund's investments are diversified across the financial services sector.
However, because the Fund's 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 the Fund tends to be more volatile than many other mutual funds, and the
value of its portfolio investments may tend to go up and down more rapidly. As a
result, the value of an investment in the Fund may rise or fall rapidly.
This sector is generally subject to extensive government regulation, which may
change frequently. In addition, the profitability of businesses in these
industries depends heavily upon the availability and cost of money, and may
fluctuate significantly in response to changes in interest rates, as well as
changes in general economic conditions. From time to time, severe competition
may also affect the profitability of these industries, and the insurance
industry in particular.
The Fund is subject to other principal risks such as potential conflicts,
market, credit, debt securities, foreign securities, interest rate, duration,
liquidity, counterparty and lack of timely information risks. These risks are
described and discussed later in this Prospectus under the headings "Investment
Risks" and "Risks Associated With Particular Investments." An investment in the
Fund is not a deposit of any bank and is not insured or guaranteed by the FDIC
or any other government agency. As with any other mutual fund, there is always a
risk that an investment in the Fund can lose money.
[KEY ICON] INVESCO VIF--HEALTH SCIENCES FUND
The Fund seeks to make an investment grow. It 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
securities, as well as options and other investments whose values are 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
companies include, but are not limited to, medical equipment or supplies,
pharmaceuticals, health care facilities, and applied research and development of
new products or services. A portion of the Fund's assets is 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 health sciences sector;
o At least 50% of its assets must be devoted to producing revenues from the
health sciences sector; or
o Based on other available information, we determine that its primary
business is within the health sciences 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>
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' securities 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.
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 investments of
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.
The Fund is subject to other principal risks such as potential conflicts,
market, credit, debt securities, foreign securities, interest rate, duration,
liquidity, derivatives, options and futures, counterparty and lack of timely
information risks. These risks are described and discussed later in the
Prospectus under the headings "Investment Risks" and "Risks Associated With
Particular Investments." An investment in the Fund is not a deposit of any bank
and is not insured or guaranteed by the FDIC or any other government agency. As
with any mutual fund, there is always a risk that an investment in the Fund may
lose money.
[KEY ICON] INVESCO VIF--TECHNOLOGY FUND
The Fund seeks to make an investment grow. It 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
securities, as well as options and other investments whose values are based upon
the values of equity securities.
The Fund invests primarily in equity securities of companies engaged in
technology-related industries. These include, but are not limited to, applied
technology, biotechnology, communications, computers, electronics, Internet, IT
services and consulting, oceanography, office and factory automation,
networking, robotics, and video. 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 portion of the Fund's assets is not required to be
invested in the sector. To determine whether a potential investment is truly
doing business in the technology 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 technology sector;
o At least 50% of its assets must be devoted to producing revenues from the
technology sector; or
o Based on other available information, we determine that its primary
business is within the technology sector.
<PAGE>
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.
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.
The Fund's investments are diversified across the technology sector.
However, because the Fund's investments are limited to a comparatively narrow
segment of the economy, the Fund's investments are not as diversified as
investments of 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 value of its portfolio investments tends to go up
and down more rapidly. As a result, an investment in the value of a Fund share
may rise or fall rapidly.
The Fund is subject to other principal risks such as potential conflicts,
market, credit, debt securities, foreign securities, interest rate, duration,
liquidity, counterparty and lack of timely information risks. These risks are
described and discussed later in the Prospectus under the headings "Investment
Risks" and "Risks Associated With Particular Investments." An investment in the
Fund is not a deposit of any bank and is not insured or guaranteed by the FDIC
or any other government agency. As with any mutual fund, there is always a risk
that an investment in the Fund may lose money.
[KEY ICON] INVESCO VIF--TELECOMMUNICATIONS FUND
The Fund seeks to make an investment grow. It also seeks to provide you
with current income. The Fund is aggressively managed. It invests primarily in
equity securities that INVESCO believes will rise in price faster than other
securities, as well as options and other investments whose values are based upon
the values of equity securities. It can also invest in debt securities.
The Fund invests primarily in equity securities of companies that are engaged in
the design, development, manufacture, distribution, or sale of communications
services and equipment, and companies that are involved in supplying equipment
or services to such companies.
The telecommunications sector includes companies that offer telephone services,
wireless communications, satellite communications, television and movie
programming, broadcasting, and Internet access. To determine whether a potential
investment is truly doing business in the telecommunications 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 telecommunications sector;
o At least 50% of its assets must be devoted to producing revenues from the
telecommunications sector; or
o Based on other available information, we determine that its primary
business is within the telecommunications sector.
<PAGE>
INVESCO uses a "bottom up" investment approach to create the Fund's
investment portfolio, focusing on company fundamentals and growth prospects when
selecting securities. We select stocks based on projected total return for
individual companies, while also analyzing country-specific factors that might
affect stock performance or influence company valuation. Normally, the Fund will
invest primarily in companies located in at least three different countries,
although U.S. issuers will often dominate the portfolio. The Fund's portfolio
emphasizes strongly managed market leaders, with a lesser weighting on small
faster growing companies which offer new products or services and/or are
increasing their market share.
The Fund's investments are diversified across the telecommunications
sector. However, because the Fund's 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 the Fund tends to be more volatile than many other mutual funds, and
the value of its portfolio investments may tend to go up and down more rapidly.
As a result, the value of an investment in the Fund may rise or fall rapidly.
The telecommunications sector is highly regulated, and changes in government
regulation can play a significant role in the prospects of the sector or
specific markets within the telecommunications sector.
The Fund is subject to other principal risks such as potential conflicts,
market, credit, debt securities, foreign securities, interest rate, duration,
liquidity, derivatives, counterparty and lack of timely information risks. These
risks are described and discussed later in this Prospectus under the headings
"Investment Risks" and "Risks Associated With Particular Investments." An
investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the FDIC or any other government agency. As with any other mutual
fund, there is always a risk that an investment in the Fund may lose money.
[GRAPH ICON] FUND PERFORMANCE
The bar charts below show VIF - Dynamics, VIF - Health Sciences and VIF
Technology Funds' actual yearly performance for the years ended December 31
(commonly known as its "total return") since inception. The table below shows
average annual total returns for various periods ended December 31 for each of
those Funds compared to the following relevant indexes: S&P Mid Cap 400 Index
and S&P 500 Index. The information in the charts and table illustrates the
variability of each Fund's total return and how its performance compared to a
broad measure of market performance. Remember, past performance does not
indicate how a Fund will perform in the future.
Each 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.
VIF-Financial Services and VIF-Telecommunications Funds commenced
operations on September 21, 1999, and therefore do not have a complete calendar
year of performance.
The charts below contains the following plot points:
- -------------------------------------------------
VIF - DYNAMICS FUND
ACTUAL ANNUAL TOTAL RETURN(1)
=================================================
1997 1998 1999
3.40% 19.35% 55.60%
- -------------------------------------------------
Best Calendar Qtr. 12/99 33.23%
Worst Calendar Qtr. 9/98 (19.95%)
- -------------------------------------------------
<PAGE>
- -------------------------------------------------
VIF - HEALTH SCIENCES FUND
ACTUAL ANNUAL TOTAL RETURN(1)
=================================================
1997 1998 1999
10.40% 42.85% 4.86%
- -------------------------------------------------
Best Calendar Qtr. 12/98 15.79%
Worst Calendar Qtr. 6/99 (5.48%)
- -------------------------------------------------
- -------------------------------------------------
VIF - TECHNOLOGY FUND
ACTUAL ANNUAL TOTAL RETURN(1)
=================================================
1997 1998 1999
14.80% 25.69% 158.93%
- -------------------------------------------------
Best Calendar Qtr. 12/99 66.65%
Worst Calendar Qtr. 9/98 (18.86%)
- -------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
AS OF 12/31/99
- --------------------------------------------------------------------------------
1 YEAR SINCE INCEPTION
VIF-Dynamics Fund 55.60% 31.95%(2)
S&P Mid Cap 400 Index(3) 14.72% 16.80%(4)
VIF-Health Sciences Fund 4.86% 21.22%(5)
S&P 500 Index(3) 21.03% 25.71%
VIF-Technology Fund 158.93% 65.49%(6)
S&P 500 Index(3) 21.03% 25.55%
(1) Total return figures include reinvested dividends and capital gain
distributions, and include the effect of the Fund's expenses.
(2) The Fund commenced investment operations on August 25, 1997.
(3) The S&P Mid Cap 400 Index is an unmanaged index that shows performance of
domestic mid-capitalization stocks. The S&P 500 Index is an unmanaged index
considered representative of the performance of the broad U.S. stock
market. Please keep in mind that the Indexes do not pay brokerage,
management or administrative expenses, all of which are paid by the Funds
and are reflected in their annual return.
(4) Performance for the Index is calculated from July 31, 1997 to December
31, 1999.
(5) The Fund commenced investment operations on May 22, 1997.
(6) The Fund commenced investment operations on May 21, 1997.
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
VIF--DYNAMICS FUND
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (1)(2)(3) 1.53%
------
Total Annual Fund Operating Expenses (1)(2)(3) 2.28%
======
<PAGE>
VIF-FINANCIAL SERVICES FUND
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (1)(3) 1.75%
------
Total Annual Fund Operating Expenses (1)(3) 2.50%
======
VIF-HEALTH SCIENCES FUND
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (1)(3) 2.11%
------
Total Annual Fund Operating Expenses (1)(3) 2.86%
======
VIF-TECHNOLOGY FUND
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (1)(3) 0.78%
------
Total Annual Fund Operating Expenses (1)(3) 1.53%
======
VIF-TELECOMMUNICATIONS FUND
Management Fees 0.75%
Distribution and Service (12b-1) Fees None
Other Expenses (1)(3) 0.55%
------
Total Annual Fund Operating Expenses (1)(3) 1.30%
======
(1) The Funds' Actual Total Annual Fund Operating Expenses were lower than the
figures shown, because their custodian fees were reduced under an expense
offset arrangement.
(2) The expense information presented in the table has been restated from the
financials to reflect a change in the administrative services fee.
(3) Certain expenses of VIF-Dynamics, VIF-Financial Services, VIF-Health
Sciences, VIF-Technology and VIF-Telecommunications Funds were absorbed
voluntarily by INVESCO in order to ensure that expenses for the Funds did
not exceed 1.15%, 1.25%, 1.25%, 1.25% and 1.25%, respectively, of each
Fund's average net assets pursuant to commitments between the Funds and
INVESCO. These commitments may be changed at any time following
consultation with the board of directors. After absorption, but excluding
any expense offset arrangements, VIF-Dynamics Fund's Other Expenses and
Total Annual Fund Operating Expenses for the fiscal year ended December
31, 1999 were 0.51% and 1.26%, respectively, of the Fund's average net
assets; VIF-Financial Services Fund's Other Expenses and Total Annual Fund
Operating Expenses for the period ended December 31, 1999 were 0.64% and
1.39%, respectively, of the Fund's average net assets; VIF-Health
Sciences Fund's Other Expenses and Total Annual Fund Operating Expenses
for the fiscal year ended December 31, 1999 were 0.73% and 1.48%,
respectively, of the Fund's average net assets; VIF-Technology Fund's
Other Expenses and Total Annual Fund Operating Expenses for the fiscal
year ended December 31, 1999 were 0.56% and 1.31%, respectively, of the
Fund's average net assets; VIF-Telecommunications Fund's Other Expenses
and Total Annual Fund Operating Expenses for the period ended December
31, 1999 were 0.52% and 1.27%, respectively, of the Fund's average net
assets.
<PAGE>
EXAMPLE
The Example is intended to help you compare the cost of investing in the Funds
to the cost of investing in other mutual funds.
The Example assumes a $10,000 allocation to a Fund for the time periods
indicated and does not reflect any of the fees or expenses of your variable
annuity or variable life insurance contract. The Example also assumes a
hypothetical 5% return each year and that a Fund's operating expenses remain the
same. Although the actual costs and performance of each Fund may be higher or
lower, based on these assumptions your costs would have been:
1 year 3 years 5 years 10 years
Dynamics Fund $231 $712 $1,220 $2,615
Financial Services Fund $253 $779 N/A N/A
Health Sciences Fund $289 $886 $1,508 $3,185
Technology Fund $156 $483 $ 834 $1,824
Telecommunications Fund $132 $412 N/A N/A
[ARROWS ICON] INVESTMENT RISKS
BEFORE ALLOCATING CONTRACT VALUES TO A 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
allocate contract values to a Fund. The principal risks of any mutual fund,
including the Funds, are:
NOT INSURED. Mutual funds are not insured by the 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 Funds 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 a Fund's underlying investments and changes in the equity markets
as a whole.
[ARROWS ICON] 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 a
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 Funds 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.
<PAGE>
MARKET RISK
Equity stock prices vary and may fall, thus reducing the value of a Fund's
investments. Certain stocks selected for any Fund's portfolio may decline in
value more than the overall stock market.
CREDIT RISK
The Funds 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.
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
interest rate risks. An increase in interest rates tends to reduce the market
values of debt securities in which a Fund invests. A decline in interest rates
tends to increase the market values of debt securities in which a Fund invests.
Moody's Investors Service, Inc. ("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 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. 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 a Fund would be forced to sell it at a loss. 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 affect 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 S&P (categories
BB, B, or 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.
FOREIGN SECURITIES RISKS
Investments in foreign and emerging markets carry special risks, including
currency, political, regulatory and diplomatic risks. VIF-Dynamics,
VIF-Financial Services, VIF-Health Sciences and VIF-Technology Fund may invest
up to 25% of its assets in securities of non-U.S. issuers;
VIF-Telecommunications Fund may invest an unlimited amount of its assets in
securities of non-U.S. issuers. Securities of Canadian issuers and American
Depository Receipts are not subject to this 25% limitation.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and a
foreign currency may reduce the value of a 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 U.S. may permit trading practices that are not allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. 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 January 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.
<PAGE>
INTEREST RATE RISK
Changes in interest rates will affect the resale value of debt securities held
in a 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 movements.
LIQUIDITY RISK
A 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 companies in 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,
described below.
OPTIONS AND FUTURES RISK
Options and futures are common types of derivatives that a Fund may
occasionally use to hedge its investments. An option is the right to buy or sell
a security or other instrument, index or commodity at a specific price on or
before a specific date. A future is an agreement to buy or sell a security or
other instrument, index or commodity at a specific price on a specific date.
COUNTERPARTY RISK
This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the transaction with a
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.
VIF--Dynamics Fund generally invests in common stocks of companies traded
on U.S. securities exchanges, as well as over-the-counter; and VIF--Financial
Services, VIF--Health Sciences, VIF--Technology and VIF--Telecommunications
Funds generally invest in equity securities of companies that are related to
their respective sectors. However, in an effort to diversify their holdings and
provide some protection against the risk of other investments, the Funds also
may invest in other types of securities and other financial instruments, as
indicated in the chart below. These investments, which at any given time may
constitute a significant portion of a Fund's portfolio, have their own risk.
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RISKS APPLIES TO THESE FUNDS
- --------------------------------------------------------------------------------
AMERICAN DEPOSITORY VIF-Dynamics
RECEIPTS (ADRs) Market, Information, VIF-Financial Services
These are securities issued Political, Regulatory, VIF-Health Sciences
by U.S. banks that represent Diplomatic, Liquidity VIF-Technology
shares of foreign corporations and Currency Risks VIF-Telecommunications
held by those banks.
Although traded in U.S. secu-
rities markets and valued in
U.S. dollars, ADRs carry most
of the risks of investing
directly in foreign securities.
- --------------------------------------------------------------------------------
DEBT SECURITIES VIF-Dynamics
Securities issued by private Market, Credit, VIF-Financial Services
companies or governments Interest Rate VIF-Health Sciences
representing an obligation to and Duration Risks VIF-Technology
pay interest and to repay VIF-Telecommunications
principal when the security
matures.
- --------------------------------------------------------------------------------
DELAYED DELIVERY OR VIF-Dynamics
WHEN-ISSUED SECURITIES
Ordinarily, the Fund purchases Market and
securities and pays for Interest Rate Risks
them in cash at the normal
trade settlement time. When
the Fund purchases a delayed
delivery or when-issued secu-
rity, 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.
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY VIF-Dynamics
CONTRACTS VIF-Telecommunications
A contract to exchange an Currency, Political,
amount of currency on a Diplomatic, Counter-
date in the future at an party and Regulatory
agreed-upon exchange rate 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>
- --------------------------------------------------------------------------------
INVESTMENT RISKS APPLIES TO THESE FUNDS
- --------------------------------------------------------------------------------
FUTURES VIF-Dynamics
A futures contract is an Market,
agreement to buy or sell a Liquidity, and
specific amount of a finan Options and
cial instrument (such as Futures Risks
an index option) at a
stated price on a stated date.
The Fund may use futures
contracts to provide liquidity
and to hedge portfolio value.
- --------------------------------------------------------------------------------
ILLIQUID SECURITIES VIF-Health Sciences
A security that cannot be Liquidity Risk VIF-Technology
sold quickly at its fair VIF-Telecommunications
value.
- --------------------------------------------------------------------------------
JUNK BONDS VIF-Dynamics
Debt securities that are Market, Credit,
rated BB or lower by S&P Interest Rate
or Ba or lower by Moody's. and Duration Risks
Tend to pay higher interest
rates than higher-rated
debt securities, but carry
a higher credit risk.
- --------------------------------------------------------------------------------
OPTIONS VIF-Dynamics
The obligation or right to Credit,
deliver or receive a Information,
security or other Liquidity, and
instrument, index, Options and
commodity, or cash payment Futures Risks
depending on the price of
the underly ing security
or the performance of an
index or other benchmark.
Includes options on specific
securities and stock indices,
and stock index futures. May
be used in the Fund's
portfolio to provide liquidity
and hedge portfolio value.
- --------------------------------------------------------------------------------
OTHER FINANCIAL INSTRUMENTS VIF-Dynamics
These may include forward Counterparty, Credit
contracts, swaps, caps, Currency, Interest
floors and collars. They may Rate, Liquidity,
be used to try to manage the Market, and
Fund's foreign currency Regulatory Risks
exposure and other investment
risks, which can cause its net
asset value to rise or fall.
The Fund may use these financial
instruments, commonly known as
"derivatives,"to increase or
decrease its exposure to
changing securities prices,
interest rates, currency exchange
rates or other factors.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT RISKS APPLIES TO THESE FUNDS
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS VIF-Dynamics
A contract under which the Credit and Counter- VIF-Financial Services
seller of a security agrees party Risks VIF-Health Sciences
to buy it back at an agreed- VIF-Technology
upon price and time in the VIF-Telecommunications
future.
- --------------------------------------------------------------------------------
RULE 144A SECURITIES VIF-Dynamics
Securities that are not regis- Liquidity Risk
tered, 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.
- --------------------------------------------------------------------------------
[ARROWS ICON] TEMPORARY DEFENSIVE POSITIONS
When securities markets or economic conditions are unfavorable or unsettled, we
might try to protect the assets of each 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, even
though that is not the normal investment strategy of any Fund. We have the right
to invest up to 100% of each 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, a Fund's performance could be comparatively lower if it
concentrates in defensive holdings.
[ARROWS ICON] PORTFOLIO TURNOVER
We actively manage and trade each Fund's portfolio. Therefore, a Fund may
have a high portfolio turnover rate compared to many other mutual funds. The
Health Sciences Fund had a portfolio turnover rate of 173% for the fiscal year
ended December 31, 1999.
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>
[INVESCO ICON] FUND MANAGEMENT
INVESTMENT ADVISER
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT MANAGEMENT
COMPANY THAT MANAGES MORE THAN $357 BILLION IN ASSETS WORLDWIDE. AMVESCAP IS
BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND SOUTH AMERICA,
AND THE FAR EAST.
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the investment
adviser of the Funds. INVESCO was founded in 1932 and manages over $31.9 billion
for more than 960,478 shareholders of 45 INVESCO mutual funds. INVESCO performs
a wide variety of other services for the Funds, including administrative 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
Funds' distributor and is responsible for the sale of the Funds' shares.
INVESCO and IDI are subsidiaries of AMVESCAP PLC.
The following table shows the fees the Funds paid to INVESCO for its advisory
services in the period ended December 31, 1999:
- ---------------------------------------------------------------------
ADVISORY FEE AS A PERCENTAGE OF
AVERAGE ANNUAL NET ASSETS UNDER MANAGEMENT
- ---------------------------------------------------------------------
VIF-Dynamics Fund 0.75%
VIF-Financial Services Fund 0.75%*
VIF-Health Sciences Fund 0.75%
VIF-Technology Fund 0.75%
VIF-Telecommunications Fund 0.75%*
*Annualized from September 21, 1999, commencement of investment operations, to
year ended December 31, 1999.
[INVESCO ICON] PORTFOLIO MANAGERS
The following individuals are primarily responsible for the day-to-day
management of each Fund's portfolio holdings:
FUND PORTFOLIO MANAGER(S)
VIF--Dynamics Timothy J. Miller
Thomas Wald
VIF--Financial Services Jeffrey G. Morris
VIF--Health Sciences John R. Schroer
VIF--Technology William R. Keithler
VIF--Telecommunications Brian B. Hayward
BRIAN B. HAYWARD, a vice president of INVESCO, is the portfolio manager of
Telecommunications Fund. Before joining INVESCO in 1997, Brian was a senior
equity analyst with Mississippi Valley Advisors in St. Louis, Missouri. He is a
Chartered Financial Analyst. Brian received an M.A. in Economics and a B.A. in
Mathematics from the University of Missouri.
WILLIAM R. KEITHLER, a senior vice president of INVESCO, is the portfolio
manager of Technology Fund. Before joining INVESCO in 1999, Bill was a portfolio
manager with Berger Associates, Inc. He is a Chartered Financial Analyst. Bill
received an M.S. from the University of Wisconsin - Madison and a B.A. from
Webster College.
<PAGE>
TIMOTHY J. MILLER, a director and senior vice president of INVESCO, is the
lead portfolio manager of Dynamics Fund. Before joining INVESCO in 1992, Tim was
a portfolio manager with Mississippi Valley Advisors. He is a Chartered
Financial Analyst. Tim holds an M.B.A. from the University of Missouri -St.
Louis and a B.S.B.A. from St. Louis University.
JEFFREY G. MORRIS, a vice president of INVESCO, is the portfolio manager of
Financial Services Fund. Jeff joined INVESCO in 1992 and served as a research
analyst from 1994 to 1995. He is a Chartered Financial Analyst. He received an
M.S. in Finance from the University of Colorado-Denver and a B.S. in Business
Administration from Colorado State University.
JOHN R. SCHROER, a senior vice president of INVESCO and vice president of
INVESCO Global Health Sciences Fund, is the portfolio manager of Health Sciences
Fund. Before joining INVESCO in 1992, John was an assistant vice president with
Trust Company of the West from 1990 to 1992. He is a Chartered Financial
Analyst. John received an M.B.A. and B.S. from the University of
Wisconsin-Madison.
THOMAS WALD, a vice president of INVESCO, is the co-portfolio manager of
Dynamics Fund. Before joining INVESCO in 1997, Tom was an analyst with Munder
Capital Management, Duff & Phelps and Prudential Investment Corp. He is a
Chartered Financial Analyst. Tom holds an M.B.A. from the Wharton School at the
University of Pennsylvania and a B.A. from Tulane University.
Tom Wald is a member of the INVESCO Growth Team, which is led by Tim
Miller.
Brian Hayward, Bill Keithler and Jeff Morris are members of the INVESCO
Sector Team, which is co-led by Bill Keithler and John Schroer.
John Schroer is a member of, and leads, the INVESCO Health Team.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST & DIVIDENDS
- - FUND DEBTS,
INCLUDING ACCRUED EXPENSES
- ------------------------------------
/ NUMBER OF SHARES
= YOUR SHARE PRICE (NAV).
The value of a Fund's 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 each Fund's portfolio each day that the New York Stock
Exchange ("NYSE") is open, at the close of the regular trading day on that
exchange (normally, 4:00 p.m. Eastern time). Therefore, shares of the Funds are
not priced on days when the NYSE is closed, which, generally, is on weekends and
national holidays in the U.S.
NAV is calculated by adding together the current market price of all of a 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.
Foreign securities exchanges, which set the prices for foreign securities held
by the Funds, 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
<PAGE>
observed by the NYSE and not by overseas exchanges. In this situation, the Funds
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 Funds on that day.
[GRAPH ICON] TAXES
Each 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 a 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 Funds are insurance companies (such as the
one that issues your contract), you would not be considered to be an owner of
shares of the Fund. Therefore, 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.
[GRAPH ICON] DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS ARE DISTRIBUTED TO
SHAREHOLDERS AT LEAST ANNUALLY.
Each 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 a Fund's investments,
minus the Fund's expenses (including the advisory fee). All of the Funds' net
realized capital gains, if any, are distributed periodically, no less frequently
than annually. All dividends and distributions of the Funds are reinvested in
additional shares of a Fund at net asset value.
[INVESCO ICON] VOTING RIGHTS
Since the shares of each Fund are owned by your insurance company and not by you
directly, you will not vote shares of a 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
The financial highlights tables are intended to help you understand the
financial performance of the Funds for the past five years (or, if shorter, the
period of a Fund's operations). Certain information reflects the financial
results for a single Fund share. The total returns in the tables represent the
annual percentages that an investor would have earned (or lost) on an investment
in a share of a Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the financial statements, is included in
INVESCO Variable Investment Funds, Inc.'s 1999 Annual Report to Shareholders,
which is incorporated by reference into the Statement of Additional Information.
This Report is available without charge by contacting IDI at the address or
telephone number on the back cover of this Prospectus.
PERIOD
ENDED
YEAR ENDED DECEMBER 31 DECEMBER 31
- --------------------------------------------------------------------------------
INVESCO VIF-DYNAMICS FUND 1999 1998 1997(a)
PER SHARE DATA
Net Asset Value--
Beginning of Period $ 12.15 $ 10.34 $ 10.00
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)(b) 0.00 (0.00) 0.02
Net Gains on Securities
(Both Realized and Unrealized) 6.75 1.98 0.32
================================================================================
TOTAL FROM INVESTMENT OPERATIONS 6.75 1.98 0.34
================================================================================
LESS DISTRIBUTIONS
Dividends from Net
Investment Income(c) 0.00 0.02 0.00
In Excess of Net
Investment Income(c) 0.00 0.00 0.00
Distributions from Capital Gains 0.00 0.15 0.00
================================================================================
TOTAL DISTRIBUTIONS 0.00 0.17 0.00
================================================================================
Net Asset Value--End of Period $ 18.90 $ 12.15 $ 10.34
================================================================================
TOTAL RETURN(d) 55.60% 19.35% 3.40%(e)
RATIOS
Net Assets--
End of Period ($000 Omitted) $ 29,667 $ 308 $ 257
Ratio of Expenses to
Average Net Assets(f)(g) 1.26% 1.45% 0.52%(h)
Ratio of Net Investment
Income (Loss) to
Average Net Assets(f) 0.04% (0.64%) 0.63%(h)
Portfolio Turnover Rate 70% 55% 28%(e)
(a) From August 25, 1997, commencement of investment operations, through
December, 31 1997.
(b) Net Investment Income (Loss) aggregated less than $0.01 on a per share basis
for the years ended December 31, 1999 and 1998.
(c) Distributions from net investment income and in excess of net investment
income for the year ended December 31, 1999, aggregated less than $0.01 on a
per share basis.
(d) Total return does not reflect expenses that apply to the related insurance
contracts, and inclusion of these charges would reduce the total return
figures for the period shown.
(e) Based on operations for the period shown and, accordingly, are not
representative of a full year.
<PAGE>
(f) Various expenses of the Fund were voluntarily absorbed by IFG for the years
ended December 31, 1999 and 1998, and all of expenses of the Fund were
voluntarily absorbed by INVESCO for the period ended December 31, 1997. If
INVESCO had not voluntarily absorbed these expenses, ratio of expenses to
average net assets would have been 2.25%, 14.76% and 34.18% (annualized),
respectively, and ratio of net investment loss to average net assets would
have been (0.95%), (13.95%) and (33.03%) (annualized), respectively.
(g) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (these may include
transfer agency and custodian fees).
(h) Annualized
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD ENDED
DECEMBER 31
- --------------------------------------------------------------------------------
INVESCO VIF-FINANCIAL SERVICES FUND 1999(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 10.00
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.01
Net Gains on Securities (Both Realized and Unrealized) 1.09
================================================================================
TOTAL FROM INVESTMENT OPERATIONS 1.10
================================================================================
Net Asset Value -- End of Period $ 11.10
================================================================================
TOTAL RETURN(b) 11.00%(c)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 9,179
Ratio of Expenses to Average Net Assets(d)(e) 1.39%(f)
Ratio of Net Investment Income (Loss) to Average Net Assets(d) 0.67%(f)
Portfolio Turnover Rate 37%(c)
(a) From September 21, 1999, commencement of investment operations, through
December, 31 1999.
(b) Total return does not reflect expenses that apply to the related insurance
contracts, 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 December 31, 1999. If INVESCO had not voluntarily absorbed
these expenses, ratio of expenses to average net assets would have been
2.48% (annualized), and ratio of net investment loss to average net assets
would have been (0.42%) (annualized).
(e) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (these may include
transfer agency and custodian fees).
(f) Annualized
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD ENDED
YEAR ENDED DECEMBER 31 DECEMBER 31
- --------------------------------------------------------------------------------
INVESCO VIF-HEALTH SCIENCES FUND 1999 1998(a) 1997(b)
PER SHARE DATA
Net Asset Value--
Beginning of Period $ 15.29 $ 11.04 $ 10.00
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.02 0.05 0.10
Net Gains on Securities
(Both Realized and Unrealized) 0.72 4.66 0.94
================================================================================
TOTAL FROM INVESTMENT OPERATIONS 0.74 4.71 1.04
================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.01 0.03 0.00
Distributions from Capital Gains 0.00 0.34 0.00
In Excess of Net Realized Gains 0.00 0.09 0.00
================================================================================
TOTAL DISTRIBUTIONS 0.01 0.46 0.00
================================================================================
Net Asset Value--End of Period $ 16.02 $ 15.29 $ 11.04
================================================================================
TOTAL RETURN(c) 4.86% 42.85% 10.40%(d)
RATIOS
Net Assets -- End of Period
($000 Omitted) $ 11,652 $ 2,378 $ 423
Ratio of Expenses to
Average Net Assets(e)(f) 1.48% 1.27% 0.60%(g)
Ratio of Net Investment
Income to Average Net Assets(e) 0.36% 0.35% 2.34%(g)
Portfolio Turnover Rate 173% 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
contracts, 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
years ended December 31, 1999 and 1998, and all of expenses of the Fund were
voluntarily absorbed by IFG for the period ended December 31, 1997. If
INVESCO had not voluntarily absorbed these expenses, ratio of expenses to
average net assets would have been 2.85%, 4.20% and 21.45% (annualized),
respectively, and ratio of net investment loss to average net assets would
have been (1.01%), (2.58%) and (18.51%) (annualized), respectively.
(f) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (these may include
transfer agency and custodian fees).
(g) Annualized
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD ENDED
YEAR ENDED DECEMBER 31 DECEMBER 31
- --------------------------------------------------------------------------------
INVESCO VIF-TECHNOLOGY FUND 1999 1998 1997(a)
PER SHARE DATA
Net Asset Value--Beginning of Period $ 14.34 $ 11.49 $ 10.00
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)(b) (0.00) (0.03) 0.05
Net Gains on Securities (Both Realized
and Unrealized) 22.79 2.96 1.44
================================================================================
TOTAL FROM INVESTMENT OPERATIONS 22.79 2.93 1.49
================================================================================
LESS DISTRIBUTIONS
Dividends from Net Investment Income 0.00 0.01 0.00
In Excess of Net Investment Income 0.00 0.01 0.00
Distributions from Capital Gains 0.00 0.06 0.00
================================================================================
TOTAL DISTRIBUTIONS 0.00 0.08 0.00
================================================================================
Net Asset Value--End of Period $ 37.13 $ 14.34 $ 11.49
================================================================================
TOTAL RETURN(c) 158.93% 25.69% 14.80%(d)
RATIOS
Net Assets -- End of Period
($000 Omitted) $ 93,992 $ 1,577 $ 414
Ratio of Expenses to Average Net
Assets(e)(f) 1.31% 1.40% 0.48%(g)
Ratio of Net Investment Income (Loss)
to Average Net Assets(e) (0.40%) (0.14%) 0.95%(g)
Portfolio Turnover Rate 95% 239% 102%(d)
(a) From May 21, 1997, commencement of investment operations, through December,
31 1997.
(b) Net Investment Income (Loss) aggregated less than $0.01 on a per share basis
for the year ended December 31, 1999.
(c) Total return does not reflect expenses that apply to the related insurance
contracts, 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
years ended December 31, 1999 and 1998, and all of expenses of the Fund were
voluntarily absorbed by INVESCO for the period ended December 31, 1997. If
INVESCO had not voluntarily absorbed these expenses, ratio of expenses to
average net assets would have been 1.52%, 6.47% and 19.25% (annualized),
respectively, and ratio of net investment loss to average net assets would
have been (0.61%), (5.21%) and (17.82%) (annualized), respectively.
(f) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (these may include
transfer agency and custodian fees).
(g) Annualized
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD ENDED
DECEMBER 31
- --------------------------------------------------------------------------------
INVESCO VIF-TELECOMMUNICATIONS FUND 1999(a)
PER SHARE DATA
Net Asset Value -- Beginning of Period $ 10.00
================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income(b) 0.00
Net Gains on Securities (Both Realized and Unrealized) 6.45
================================================================================
TOTAL FROM INVESTMENT OPERATIONS 6.45
================================================================================
Net Asset Value -- End of Period $ 16.45
================================================================================
TOTAL RETURN(c) 64.50%(d)
RATIOS
Net Assets -- End of Period ($000 Omitted) $ 67,650
Ratio of Expenses to Average Net Assets(e)(f) 1.27%(g)
Ratio of Net Investment Income to Average Net Assets(e) 0.11%(g)
Portfolio Turnover Rate 15%(d)
(a) From September 21, 1999, commencement of investment operations, through
December, 31 1999.
(b) Net Investment Income aggregated less than $0.01 on a per share basis for
the period ended December 31, 1999.
(c) Total return does not reflect expenses that apply to the related insurance
contracts, 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
period ended December 31, 1999. If INVESCO had not voluntarily absorbed
these expenses, ratio of expenses to average net assets would have been
1.28% (annualized), and ratio of net investment income to average net
assets would have been 0.10% (annualized).
(f) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
INVESCO, which is before any expense offset arrangements (these may include
transfer agency and custodian fees).
(g) Annualized
<PAGE>
APRIL 30, 2000
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF--DYNAMICS FUND
INVESCO VIF--FINANCIAL SERVICES FUND
INVESCO VIF--HEALTH SCIENCES FUND
INVESCO VIF--TECHNOLOGY FUND
INVESCO VIF--TELECOMMUNICATIONS FUND
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 April 30, 2000 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 of the Fund may be accessed through the INVESCO
Web site at www.invesco.com. In addition, the Prospectus, SAI, annual report,
and semiannual report of the Fund are available on the SEC Web site at
www.sec.gov.
To obtain a free copy of the current Prospectus, SAI, annual report or
semiannual report, write to INVESCO Distributors, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; 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. 20549-0102. This information can be
obtained by electronic request at the following E-mail address:
[email protected], or by calling 1-202-942-8090. The SEC file numbers for the
Fund are 811-8038 and 033-70154.
PSKV 811-8038
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - Blue Chip Growth Fund
(formerly, INVESCO VIF - Growth Portfolio)
INVESCO VIF - Dynamics Fund
INVESCO VIF - Equity Income Fund
(formerly, INVESCO VIF - Industrial Income Fund)
INVESCO VIF - Financial Services Fund
INVESCO VIF - Health Sciences Fund
INVESCO VIF - High Yield Fund
INVESCO VIF - Market Neutral Fund
INVESCO VIF - Real Estate Opportunity Fund
(formerly, INVESCO VIF - Realty Fund)
INVESCO VIF - Small Company Growth Fund
INVESCO VIF - Technology Fund
INVESCO VIF - Telecommunications Fund
INVESCO VIF - Total Return Fund
INVESCO VIF - Utilities Fund
Address: Mailing Address:
7800 E. Union Ave., Denver, CO 80237 P.O. Box173706, Denver, CO 80217-3706
Telephone:
In continental U.S., 1-800-525-8085
April 30, 2000
- ------------------------------------------------------------------------------
Prospectuses for INVESCO VIF - Blue Chip Growth, INVESCO VIF - Dynamics, INVESCO
VIF Equity Income, INVESCO VIF - Financial Services, INVESCO VIF - Health
Sciences, INVESCO VIF - High Yield, INVESCO VIF - Market Neutral, INVESCO VIF -
Real Estate Opportunity, INVESCO VIF - Small Company Growth, INVESCO VIF -
Technology, INVESCO VIF - Telecommunications, INVESCO VIF - Total Return and
INVESCO VIF - Utilities Funds dated April 30, 2000, 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, the current Prospectuses, SAI and annual and
semiannual reports of the Funds by writing to INVESCO Distributors, Inc., P.O.
Box 173706, Denver, CO 80217-3706 , or by calling 1-800-525-8085. The
Prospectuses of the Funds are also available through the INVESCO Web site at
www.invesco.com.
<PAGE>
TABLE OF CONTENTS
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .199
Investments, Policies and Risks . . . . . . . . . . . . . . . . . . . . 199
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . 219
Management of the Funds . . . . . . . . . . . . . . . . . . . . . . . . 223
Other Service Providers . . . . . . . . . . . . . . . . . . . . . . . . .249
Brokerage Allocation and Other Practices . . . . . . . . . . . . . . . . 250
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .253
Tax Consequences of Owning Shares of a Fund. . . . . . . . . . . . . . . 254
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . .259
Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .260
<PAGE>
THE COMPANY
The Company was incorporated under the laws of Maryland as INVESCO Variable
Investment Funds, Inc. on August 19, 1993.
The Company is an open-end, diversified, no-load management investment company
currently consisting of thirteen portfolios of investments: INVESCO VIF -- Blue
Chip Growth, INVESCO VIF -- Dynamics, INVESCO VIF -- Equity Income, INVESCO VIF
- - Financial Services, INVESCO VIF -- Health Sciences, INVESCO VIF -- High Yield,
INVESCO VIF - Market Neutral, INVESCO VIF -- Real Estate Opportunity, INVESCO
VIF -- Small Company Growth, INVESCO VIF -- Technology, INVESCO VIF -
Telecommunications, INVESCO VIF -- Total Return and INVESCO VIF -- Utilities
Funds (each a "Fund" and, collectively, 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 the
portfolio of each Fund 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 Market Neutral Fund are discussed in
the Fund's Prospectus. Market Neutral Fund may invest in equity securities of
companies traded on U.S. stock exchanges and U.S. Treasury bills. In addition,
Market Neutral Fund will engage in short sales. Please see below for additional
disclosure regarding equity securities and short sales.
The principal investments and policies of the remaining Funds are also discussed
in the Prospectuses of the Funds. The remaining 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.
CERTIFICATES OF DEPOSIT IN FOREIGN BANKS AND U.S. BRANCHES OF FOREIGN BANKS --
The Funds may maintain time deposits in and invest in U.S. dollar denominated
CDs issued by foreign banks and U.S. branches of foreign banks. The Funds limit
investments in foreign bank obligations to U.S. dollar denominated obligations
of foreign banks which have more than $10 billion in assets, have branches or
agencies in the U.S., and meet other criteria established by the board of
directors. Investments in foreign securities involve special considerations.
<PAGE>
There is generally less publicly available information about foreign issuers
since many foreign countries do not have the same disclosure and reporting
requirements as are imposed by the U.S. securities laws. Moreover, foreign
issuers are generally not bound by uniform accounting and auditing and financial
reporting requirements and standards of practice comparable to those applicable
to domestic issuers. Such investments may also entail the risks of possible
imposition of dividend withholding or confiscatory taxes, possible currency
blockage or transfer restrictions, expropriation, nationalization or other
adverse political or economic developments, and the difficulty of enforcing
obligations in other countries.
The Funds may also invest in bankers' acceptances, time deposits and
certificates of deposit of U.S. branches of foreign banks and foreign branches
of U.S. banks. Investments in instruments of U.S. branches of foreign banks will
be made only with branches that are subject to the same regulations as U.S.
banks. Investments in instruments issued by a foreign branch of a U.S. bank will
be made only if the investment risk associated with such investment is the same
as that involving an investment in instruments issued by the U.S. parent, with
the U.S. parent unconditionally liable in the event that the foreign branch
fails to pay on the investment for any reason.
COMMERCIAL PAPER -- Commercial paper is the term for short-term promissory
notes issued by domestic corporations to meet current working capital needs.
Commercial paper may be unsecured by the corporation's assets but may be backed
by a letter of credit from a bank or other financial institution. The letter of
credit enhances the paper's creditworthiness. The issuer is directly responsible
for payment but the bank "guarantees" that if the note is not paid at maturity
by the issuer, the bank will pay the principal and interest to the buyer.
INVESCO Funds Group, Inc. ("INVESCO"), the Funds' investment adviser, will
consider the creditworthiness of the institution issuing the letter of credit,
as well as the creditworthiness of the issuer of the commercial paper, when
purchasing paper enhanced by a letter of credit. Commercial paper is sold either
in an interest-bearing form or on a discounted basis, with maturities not
exceeding 270 days.
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.
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's ("S&P")
ratings 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." High Yield
Fund invests primarily in junk bonds. Equity Income Fund may invest up to 15% of
its portfolio in such securities. 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
<PAGE>
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, Equity Income, Financial Services, Health Sciences,
Real Estate Opportunity, Technology, Telecommunications and Utilites Funds'
investments have generally been limited to debt securities rated B or higher by
either S&P or Moody's. Blue Chip Growth, Dynamics, Equity Income and Small
Company Growth Funds are not permitted to invest in bonds that are in default or
are rated CCC or below by S&P or Caa or below by Moody's or, if unrated, are
judged by INVESCO to be of equivalent quality. Total Return Fund may invest only
in bonds rated BBB or higher by S&P or Baa or higher by Moody's, or, if unrated,
are judged by INVESCO to be of equivalent quality. Debt securities rated lower
than B by either S&P or Moody's are usually considered to be speculative. At the
time of purchase, INVESCO will limit Fund investments to debt securities which
INVESCO 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, INVESCO 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 or 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.
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
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 A.
<PAGE>
The Funds may invest in zero coupon bonds, step-up bonds, mortgage-backed
securities and asset-backed securities. Zero coupon bonds do not make regular
interest payments. Zero coupon bonds are sold at a discount from face value.
Principal and accrued discount (representing interest earned but not paid) are
paid at maturity in the amount of the face value. Step-up bonds initially make
no (or low) cash interest payments but begin paying interest (or a higher rate
of interest) at a fixed time after issuance of the bond. The market values of
zero coupon and step-up bonds generally fluctuate more in response to changes in
interest rates than interest-paying securities of comparable term and quality. A
Fund may be required to distribute income recognized on these bonds, even though
no cash may be paid to the Fund until the maturity or call date of a bond, in
order for the Fund to maintain its qualification as a regulated investment
company. These required distributions could reduce the amount of cash available
for investment by a Fund. Mortgage-backed securities represent interests in
pools of mortgages while asset-backed securities generally represent interests
in pools of consumer loans. Both of these are usually set up as pass-through
securities. Interest and principal payments ultimately depend on payment of the
underlying loans, although the securities may be supported, at least in part, by
letters of credit or other credit enhancements or, in the case of
mortgage-backed securities, guarantees by the U.S. government, its agencies or
instrumentalities. The underlying loans are subject to prepayments that may
shorten the securities' weighted average lives and may lower their returns.
DOMESTIC BANK OBLIGATIONS -- U.S. banks (including their foreign branches) issue
certificates of deposit (CDs) and bankers' acceptances which may be purchased by
the Funds if an issuing bank has total assets in excess of $5 billion and the
bank otherwise meets the Funds' credit rating requirements. CDs are issued
against deposits in a commercial bank for a specified period and rate and are
normally negotiable. Eurodollar CDs are certificates issued by a foreign branch
(usually London) of a U.S. domestic bank, and, as such, the credit is deemed to
be that of the domestic bank. Bankers' acceptances are short-term credit
instruments evidencing the promise of the bank (by virtue of the bank's
"acceptance") to pay at maturity a draft which has been drawn on it by a
customer (the "drawer"). Bankers' acceptances are used to finance the import,
export, transfer, or storage of goods and reflect the obligation of both the
bank and the drawer to pay the face amount. Both types of securities are subject
to the ability of the issuing bank to meet its obligations, and are subject to
risks common to all debt securities. In addition, banker's acceptances may be
subject to foreign currency risk and certain other risks of investment in
foreign securities.
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.
<PAGE>
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 the 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.
EUROBONDS AND YANKEE BONDS -- The Funds may invest in bonds issued by foreign
branches of U.S. banks ("Eurobonds") and bonds issued by a U.S. branch of a
foreign bank and sold in the United States ("Yankee bonds"). These bonds are
bought and sold in U.S. dollars, but generally carry with them the same risks as
investing in foreign securities.
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,
<PAGE>
auditing and financial reporting standards that apply to U.S. companies.
Therefore, 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 are 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.
FUTURES, OPTIONS AND OTHER FINANCIAL INSTRUMENTS
GENERAL. The adviser and/or sub-adviser may use various types of financial
instruments, some of which are derivatives, to attempt to manage the risk of a
Fund's investments or, in certain circumstances, for investment (e.g., as a
substitute for investing in securities). These financial instruments include
options, futures contracts (sometimes referred to as "futures"), forward
contracts, swaps, caps, floors and collars (collectively, "Financial
Instruments"). The policies in this section do not apply to other types of
instruments sometimes referred to as derivatives, such as indexed securities,
mortgage-backed and other asset-backed securities, and stripped interest and
principal of debt.
Hedging strategies can be broadly categorized as "short" hedges and "long" or
"anticipatory" hedges. A short hedge involves the use of a Financial Instrument
in order to partially or fully offset potential variations in the value of one
or more investments held in a Fund's portfolio. A long or anticipatory hedge
involves the use of a Financial Instrument in order to partially or fully offset
potential increases in the acquisition cost of one or more investments that the
Fund intends to acquire. In an anticipatory hedge transaction, the Fund does not
already own a corresponding security. Rather, it relates to a security or type
of security that the Fund intends to acquire. If the Fund does not eliminate the
hedge by purchasing the security as anticipated, the effect on the Fund's
portfolio is the same as if a long position were entered into. Financial
Instruments may also be used, in certain circumstances, for investment (e.g., as
a substitute for investing in securities).
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Financial Instruments on individual securities generally are used to attempt to
hedge against price movements in one or more particular securities positions
that a Fund already owns or intends to acquire. Financial Instruments on
indexes, in contrast, generally are used to attempt to hedge all or a portion of
a portfolio against price movements of the securities within a market sector in
which the Fund has invested or expects to invest.
The use of Financial Instruments is subject to applicable regulations of the
Securities and Exchange Commission ("SEC"), the several exchanges upon which
they are traded, and the Commodity Futures Trading Commission ("CFTC"). In
addition, the Funds' ability to use Financial Instruments will be limited by tax
considerations. See "Tax Consequences of Owning Shares of a Fund."
In addition to the instruments and strategies described below, the adviser
and/or sub-adviser may use other similar or related techniques to the extent
that they are consistent with a Fund's investment objective and permitted by its
investment limitations and applicable regulatory authorities. The Funds'
Prospectuses or Statement of Additional Information ("SAI") will be supplemented
to the extent that new products or techniques become employed involving
materially different risks than those described below or in the Prospectuses.
SPECIAL RISKS. Financial Instruments and their use involve special
considerations and risks, certain of which are described below.
(1) Financial Instruments may increase the volatility of a Fund. If the adviser
and/or sub-adviser employs a Financial Instrument that correlates imperfectly
with a Fund's investments, a loss could result, regardless of whether or not the
intent was to manage risk. In addition, these techniques could result in a loss
if there is not a liquid market to close out a position that a Fund has entered.
(2) There might be imperfect correlation between price movements of a Financial
Instrument and price movement of the investment(s) being hedged. For example, if
the value of a Financial Instrument used in a short hedge increased by less than
the decline in value of the hedged investment(s), the hedge would not be fully
successful. This might be caused by certain kinds of trading activity that
distorts the normal price relationship between the security being hedged and the
Financial Instrument. Similarly, the effectiveness of hedges using Financial
Instruments on indexes will depend on the degree of correlation between price
movements in the index and price movements in the securities being hedged.
The Funds are authorized to use options and futures contracts related to
securities with issuers, maturities or other characteristics different from the
securities in which it typically invests. This involves a risk that the options
or futures position will not track the performance of a Fund's portfolio
investments.
The direction of options and futures price movements can also diverge from the
direction of the movements of the prices of their underlying instruments, even
if the underlying instruments match a Fund's investments well. Options and
futures prices are affected by such factors as current and anticipated
short-term interest rates, changes in volatility of the underlying instrument,
and the time remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result from
differing levels of demand in the options and futures markets and the securities
markets, from structural differences in how options and futures and securities
are traded, or from imposition of daily price fluctuation limits or trading
halts. A Fund may take positions in options and futures contracts with a greater
or lesser face value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in volatility between
the contract and the securities, although this may not be successful in all
cases.
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(3) If successful, the above-discussed hedging strategies can reduce risk
of loss by wholly or partially offsetting the negative effect of unfavorable
price movements of portfolio securities. However, such strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable price
movements. For example, if a Fund entered into a short hedge because the adviser
and/ or sub-adviser projected a decline in the price of a security in the Fund's
portfolio, and the price of that security increased instead, the gain from that
increase would likely be wholly or partially offset by a decline in the value of
the short position in the Financial Instrument. Moreover, if the price of the
Financial Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss.
(4) A Fund's ability to close out a position in a Financial Instrument prior to
expiration or maturity depends on the degree of liquidity of the market or, in
the absence of such a market, the ability and willingness of the other party to
the transaction (the "counterparty") to enter into a transaction closing out the
position. Therefore, there is no assurance that any position can be closed out
at a time and price that is favorable to a Fund.
(5) As described below, the Funds are required to maintain assets as "cover,"
maintain segregated accounts or make margin payments when they take positions in
Financial Instruments involving obligations to third parties (i.e., Financial
Instruments other than purchased options). If a Fund is unable to close out its
positions in such Financial Instruments, it might be required to continue to
maintain such assets or segregated accounts or make such payments until the
position expired. These requirements might impair a Fund's ability to sell a
portfolio security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security at a
disadvantageous time.
COVER. Positions in Financial Instruments, other than purchased options, expose
the Funds to an obligation to another party. A Fund will not enter into any such
transaction unless it owns (1) an offsetting ("covered") position in securities,
currencies or other options, futures contracts or forward contracts, or (2) cash
and liquid assets with a value, marked-to-market daily, sufficient to cover its
obligations to the extent not covered as provided in (1) above. The Funds will
comply with SEC guidelines regarding cover for these instruments and will, if
the guidelines so require, designate cash or liquid assets as segregated in the
prescribed amount as determined daily.
Assets used as cover or held as segregated cannot be sold while the position in
the corresponding Financial Instrument is open unless they are replaced with
other appropriate assets. As a result, the commitment of a large portion of a
Fund's assets to cover or to hold as segregated could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
OPTIONS. Each Fund may engage in certain strategies involving options to attempt
to manage the risk of its investments or, in certain circumstances, for
investment (e.g., as a substitute for investing in securities). A call option
gives the purchaser the right to buy, and obligates the writer to sell the
underlying investment at the agreed-upon exercise price during the option
period. A put option gives the purchaser the right to sell, and obligates the
writer to buy the underlying investment at the agreed-upon exercise price during
the option period. Purchasers of options pay an amount, known as a premium, to
the option writer in exchange for the right under the option contract. See
"Options on Indexes" below with regard to cash settlement of option contracts on
index values.
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The purchase of call options can serve as a hedge against a price rise of the
underlier and the purchase of put options can serve as a hedge against a price
decline of the underlier. Writing call options can serve as a limited short
hedge because declines in the value of the hedged investment would be offset to
the extent of the premium received for writing the option. However, if the
security or currency appreciates to a price higher than the exercise price of
the call option, it can be expected that the option will be exercised and a Fund
will be obligated to sell the security or currency at less than its market
value.
Writing put options can serve as a limited long or anticipatory hedge because
increases in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security or
currency depreciates to a price lower than the exercise price of the put option,
it can be expected that the put option will be exercised and a Fund will be
obligated to purchase the security or currency at more than its market value.
The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the price volatility of the underlying investment and general market
and interest rate conditions. Options that expire unexercised have no value.
A Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option, which is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option, which is known as a
closing sale transaction. Closing transactions permit a Fund to realize profits
or limit losses on an option position prior to its exercise or expiration.
RISKS OF OPTIONS ON SECURITIES. Options embody the possibility of large amounts
of exposure, which will result in a Fund's net asset value being more sensitive
to changes in the value of the related investment. A Fund may purchase or write
both exchange-traded and OTC options. Exchange-traded options in the United
States are issued by a clearing organization affiliated with the exchange on
which the option is listed that, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between a Fund and its counterparty (usually a securities dealer or a bank) with
no clearing organization guarantee. Thus, when a Fund purchases an OTC option,
it relies on the counterparty from whom it purchased the option to make or take
delivery of the underlying investment upon exercise of the option. Failure by
the counterparty to do so would result in the loss of any premium paid by a Fund
as well as the loss of any expected benefit from the transaction.
The Funds' ability to establish and close out positions in options depends
on the existence of a liquid market. However, there can be no assurance that
such a market will exist at any particular time. Closing transactions can be
made for OTC options only by negotiating directly with the counterparty, or by a
transaction in the secondary market if any such market exists. There can be no
assurance that a Fund will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
counterparty, a Fund might be unable to close out an OTC option position at any
time prior to the option's expiration. If a Fund is not able to enter into an
offsetting closing transaction on an option it has written, it will be required
to maintain the securities subject to the call or the liquid assets underlying
the put until a closing purchase transaction can be entered into or the option
expires. However, there can be no assurance that such a market will exist at any
particular time.
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If a Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
OPTIONS ON INDEXES. Puts and calls on indexes are similar to puts and calls on
securities or futures contracts except that all settlements are in cash and
changes in value depend on changes in the index in question. When a Fund writes
a call on an index, it receives a premium and agrees that, prior to the
expiration date, upon exercise of the call, the purchaser will receive from the
Fund an amount of cash equal to the positive difference between the closing
price of the index and the exercise price of the call times a specified multiple
("multiplier"), which determines the total dollar value for each point of such
difference. When a Fund buys a call on an index, it pays a premium and has the
same rights as to such call as are indicated above. When a Fund buys a put on an
index, it pays a premium and has the right, prior to the expiration date, to
require the seller of the put to deliver to the Fund an amount of cash equal to
the positive difference between the exercise price of the put and the closing
price of the index times the multiplier. When a Fund writes a put on an index,
it receives a premium and the purchaser of the put has the right, prior to the
expiration date, to require the Fund to deliver to it an amount of cash equal to
the positive difference between the exercise price of the put and the closing
level of the index times the multiplier.
The risks of purchasing and selling options on indexes may be greater than
options on securities. Because index options are settled in cash, when a Fund
writes a call on an index it cannot fulfill its potential settlement obligations
by delivering the underlying securities. A Fund can offset some of the risk of
writing a call index option by holding a diversified portfolio of securities
similar to those on which the underlying index is based. However, a Fund cannot,
as a practical matter, acquire and hold a portfolio containing exactly the same
securities as underlie the index and, as a result, bears a risk that the value
of the securities held will vary from the value of the index.
Even if a Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level. As with other kinds of options, a Fund as the call
writer will not learn what it has been assigned until the next business day. The
time lag between exercise and notice of assignment poses no risk for the writer
of a covered call on a specific underlying security, such as common stock,
because in that case the writer's obligation is to deliver the underlying
security, not to pay its value as of a moment in the past. In contrast, the
writer of an index call will be required to pay cash in an amount based on the
difference between the closing index value on the exercise date and the exercise
price. By the time a Fund learns what it has been assigned, the index may have
declined. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure.
If a Fund has purchased an index option and exercises it before the closing
index value for that day is available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund nevertheless will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer.
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OTC OPTIONS. Unlike exchange-traded options, which are standardized with respect
to the underlying instrument, expiration date, contract size, and strike price,
the terms of OTC options (options not traded on exchanges) generally are
established through negotiation with the other party to the option contract.
While this type of arrangement allows a Fund great flexibility to tailor the
option to its needs, OTC options generally involve greater risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchange where they are traded.
Generally, OTC foreign currency options used by a Fund are European-style
options. This means that the option is only exercisable immediately prior to its
expiration. This is in contrast to American-style options, which are exercisable
at any time prior to the expiration date of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. When a Fund purchases or
sells a futures contract, it incurs an obligation respectively to take or make
delivery of a specified amount of the obligation underlying the contract at a
specified time and price. When a Fund writes an option on a futures contract, it
becomes obligated to assume a position in the futures contract at a specified
exercise price at any time during the term of the option. If a Fund writes a
call, on exercise it assumes a short futures position. If it writes a put, on
exercise it assumes a long futures position.
The purchase of futures or call options on futures can serve as a long or an
anticipatory hedge, and the sale of futures or the purchase of put options on
futures can serve as a short hedge. Writing call options on futures contracts
can serve as a limited short hedge, using a strategy similar to that used for
writing call options on securities or indexes. Similarly, writing put options on
futures contracts can serve as a limited long or anticipatory hedge.
In addition, futures strategies can be used to manage the "duration" (a measure
of anticipated sensitivity to changes in interest rates, which is sometimes
related to the weighted average maturity of a portfolio) and associated interest
rate risk of a Fund's fixed-income portfolio. If the adviser and/or sub-adviser
wishes to shorten the duration of a Fund's fixed-income portfolio (i.e., reduce
anticipated sensitivity), the Fund may sell an appropriate debt futures contract
or a call option thereon, or purchase a put option on that futures contract. If
the adviser and/or sub-adviser wishes to lengthen the duration of a Fund's
fixed-income portfolio (i.e., increase anticipated sensitivity), the Fund may
buy an appropriate debt futures contract or a call option thereon, or sell a put
option thereon.
At the inception of a futures contract, a Fund is required to deposit
"initial margin" in an amount generally equal to 10% or less of the contract
value. Initial margin must also be deposited when writing a call or put option
on a futures contract, in accordance with applicable exchange rules. Subsequent
"variation margin" payments are made to and from the futures broker daily as the
value of the futures or written option position varies, a process known as
"marking-to-market." Unlike margin in securities transactions, initial margin on
futures contracts and written options on futures contracts does not represent a
borrowing on margin, but rather is in the nature of a performance bond or
good-faith deposit that is returned to the Fund at the termination of the
transaction if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, a Fund may be required to
increase the level of initial margin deposits. If the Fund has insufficient cash
to meet daily variation margin requirements, it might need to sell securities in
order to do so at a time when such sales are disadvantageous.
<PAGE>
Purchasers and sellers of futures contracts and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. However, there can be no assurance that a liquid
market will exist for a particular contract at a particular time. In such event,
it may not be possible to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a futures contract or an option on a futures contract
can vary from the previous day's settlement price; once that limit is reached,
no trades may be made that day at a price beyond the limit. Daily price limits
do not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures contract or an option on a futures
contract position due to the absence of a liquid market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to continue to maintain the
position being hedged by the futures contract or option or to continue to
maintain cash or securities in a segregated account.
To the extent that a Fund enters into futures contracts, options on futures
contracts and options on foreign currencies traded on a CFTC-regulated exchange,
in each case that is not for bona fide hedging purposes (as defined by the
CFTC), the aggregate initial margin and premiums required to establish these
positions (excluding the amount by which options are "in-the-money" at the time
of purchase) may not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into. This policy does not limit to 5% the
percentage of the Fund's assets that are at risk in futures contracts, options
on futures contracts and currency options.
RISKS OF FUTURES CONTRACTS AND OPTIONS THEREON. The ordinary spreads at a given
time between prices in the cash and futures markets (including the options on
futures markets), due to differences in the natures of those markets, are
subject to the following factors. First, 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 the cash and futures markets. Second, the liquidity of the futures
market depends on participants entering into offsetting transactions rather than
making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Due to the possibility of distortion, a hedge may not be successful.
Although stock index futures contracts do not require physical delivery, under
extraordinary market conditions, liquidity of such futures contracts also could
be reduced. Additionally, the adviser and/or sub-adviser may be incorrect in its
expectations as to the extent of various interest rates, currency exchange rates
or stock market movements or the time span within which the movements take
place.
INDEX FUTURES. The risk of imperfect correlation between movements in the price
of index futures and movements in the price of the securities that are the
subject of a hedge increases as the composition of a Fund's portfolio diverges
from the index. The price of the index futures may move proportionately more
than or less than the price of the securities being hedged. If the price of the
index futures moves proportionately less than the price of the securities that
are the subject of the hedge, the hedge will not be fully effective. Assuming
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the price of the securities being hedged has moved in an unfavorable direction,
as anticipated when the hedge was put into place, the Fund would be in a better
position than if it had not hedged at all, but not as good as if the price of
the index futures moved in full proportion to that of the hedged securities.
However, if the price of the securities being hedged has moved in a favorable
direction, this advantage will be partially offset by movement of the price of
the futures contract. If the price of the futures contract moves more than the
price of the securities, the Fund will experience either a loss or a gain on the
futures contract that will not be completely offset by movements in the price of
the securities that are the subject of the hedge.
Where index futures are purchased in an anticipatory hedge, it is possible that
the market may decline instead. If a Fund then decides not to invest in the
securities at that time because of concern as to possible further market decline
or for other reasons, it will realize a loss on the futures contract that is not
offset by a reduction in the price of the securities it had anticipated
purchasing.
FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. A Fund may use
options and futures contracts on foreign currencies, as mentioned previously,
and forward currency contracts, as described below, to attempt to hedge against
movements in the values of the foreign currencies in which the Fund's securities
are denominated or, in certain circumstances, for investment (e.g., as a
substitute for investing in securities denominated in foreign currency).
Currency hedges can protect against price movements in a security that a Fund
owns or intends to acquire that are attributable to changes in the value of the
currency in which it is denominated.
A Fund might seek to hedge against changes in the value of a particular currency
when no Financial Instruments on that currency are available or such Financial
Instruments are more expensive than certain other Financial Instruments. In such
cases, a Fund may seek to hedge against price movements in that currency by
entering into transactions using Financial Instruments on another currency or a
basket of currencies, the value of which the adviser and/or sub-adviser believes
will have a high degree of positive correlation to the value of the currency
being hedged. The risk that movements in the price of the Financial Instrument
will not correlate perfectly with movements in the price of the currency subject
to the hedging transaction may be increased when this strategy is used.
The value of Financial Instruments on foreign currencies depends on the value of
the underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of such Financial Instruments, a
Fund could be disadvantaged by having to deal in the odd-lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Quotation information
generally is representative of very large transactions in the interbank market
and thus might not reflect odd-lot transactions where rates might be less
favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Financial Instruments until they reopen.
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Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
a Fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
FORWARD CURRENCY CONTRACTS AND FOREIGN CURRENCY DEPOSITS. The Funds may enter
into forward currency contracts to purchase or sell foreign currencies for a
fixed amount of U.S. dollars or another foreign currency. A forward currency
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days (term) from the date of the
forward currency contract agreed upon by the parties, at a price set at the time
the forward currency contract is entered. Forward currency contracts are
negotiated directly between currency traders (usually large commercial banks)
and their customers.
Such transactions may serve as long or anticipatory hedges. For example, a Fund
may purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the Fund intends to acquire.
Forward currency contracts may also serve as short hedges. For example, a Fund
may sell a forward currency contract to lock in the U.S. dollar equivalent of
the proceeds from the anticipated sale of a security or a dividend or interest
payment denominated in a foreign currency.
The Funds may also use forward currency contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. Such a hedge
would tend to offset both positive and negative currency fluctuations, but would
not offset changes in security values caused by other factors. A Fund could also
hedge the position by entering into a forward currency contract to sell another
currency expected to perform similarly to the currency in which the Fund's
existing investments are denominated. This type of hedge could offer advantages
in terms of cost, yield or efficiency, but may not hedge currency exposure as
effectively as a simple hedge against U.S. dollars. This type of hedge may
result in losses if the currency used to hedge does not perform similarly to the
currency in which the hedged securities are denominated.
The Funds may also use forward currency contracts in one currency or a basket of
currencies to attempt to hedge against fluctuations in the value of securities
denominated in a different currency if the adviser anticipates that there will
be a positive correlation between the two currencies.
The cost to a Fund of engaging in forward currency contracts varies with factors
such as the currency involved, the length of the contract period and the market
conditions then prevailing. Because forward currency contracts are usually
entered into on a principal basis, no fees or commissions are involved. When a
Fund enters into a forward currency contract, it relies on the counterparty to
make or take delivery of the underlying currency at the maturity of the
contract. Failure by the counterparty to do so would result in the loss of some
or all of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can be
no assurance that a Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
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insolvency of the counterparty, the Fund might be unable to close out a forward
currency contract. In either event, the Fund would continue to be subject to
market risk with respect to the position, and would continue to be required to
maintain a position in securities denominated in the foreign currency or to
segregate cash or liquid assets.
The precise matching of forward currency contract amounts and the value of the
securities, dividends or interest payments involved generally will not be
possible because the value of such securities, dividends or interest payments,
measured in the foreign currency, will change after the forward currency
contract has been established. Thus, a Fund might need to purchase or sell
foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
Forward currency contracts may substantially change a Fund's investment exposure
to changes in currency exchange rates and could result in losses to the Fund if
currencies do not perform as the adviser anticipates. There is no assurance that
the adviser's and/or sub-adviser's use of forward currency contracts will be
advantageous to a Fund or that it will hedge at an appropriate time.
The Funds may also purchase and sell foreign currency and invest in foreign
currency deposits. Currency conversion involves dealer spreads and other costs,
although commissions usually are not charged.
COMBINED POSITIONS. A Fund may purchase and write options or futures in
combination with each other, or in combination with futures or forward currency
contracts, to manage the risk and return characteristics of its overall
position. For example, a Fund may purchase a put option and write a call option
on the same underlying instrument, in order to construct a combined position
whose risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at one
strike price and buying a call option at a lower price, in order to reduce the
risk of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs.
TURNOVER. The Funds' options and futures activities may affect their turnover
rates and brokerage commission payments. The exercise of calls or puts written
by a Fund, and the sale or purchase of futures contracts, may cause it to sell
or purchase related investments, thus increasing its turnover rate. Once a Fund
has received an exercise notice on an option it has written, it cannot effect a
closing transaction in order to terminate its obligation under the option and
must deliver or receive the underlying securities at the exercise price. The
exercise of puts purchased by a Fund may also cause the sale of related
investments, increasing turnover. Although such exercise is within the Fund's
control, holding a protective put might cause it to sell the related investments
for reasons that would not exist in the absence of the put. A Fund will pay a
brokerage commission each time it buys or sells a put or call or purchases or
sells a futures contract. Such commissions may be higher than those that would
apply to direct purchases or sales.
SWAPS, CAPS, FLOORS AND COLLARS. The Funds are authorized to enter into swaps,
caps, floors and collars. Swaps involve the exchange by one party with another
party of their respective commitments to pay or receive cash flows, e.g., an
exchange of floating rate payments for fixed rate payments. The purchase of a
cap or a floor entitles the purchaser, to the extent that a specified index
exceeds in the case of a cap, or falls below in the case of a floor, a
<PAGE>
predetermined value, to receive payments on a notional principal amount from the
party selling such instrument. A collar combines elements of buying a cap and
selling a floor.
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 net 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.
INVESTMENT COMPANY SECURITIES -- To manage their daily cash positions, the Funds
may invest in securities issued by other investment companies that invest in
short-term debt securities and seek to maintain a net asset value of $1.00 per
share ("money market funds"). The Funds also may invest in Standard & Poor's
Depository Receipts ("SPDRs") and shares of other investment companies. SPDRs
are investment companies whose portfolios mirror the compositions of specific
S&P indices, such as the S&P 500 and the S&P 400. SPDRs are traded on the
American Stock Exchange. SPDR holders such as a Fund are paid a "Dividend
Equivalent Amount" that corresponds to the amount of cash dividends accruing to
the securities held by the SPDR Trust, net of certain fees and expenses. The
Investment Company Act of 1940, as amended (the "1940 Act"), limits investments
in securities of other investment companies, such as the SPDR Trust. These
limitations include, among others, that, subject to certain exceptions, no more
than 10% of a Fund's total assets may be invested in securities of other
investment companies and no more than 5% of its total assets may be invested in
the securities of any one investment company. As a shareholder of another
investment company, a Fund would bear its pro rata portion of the other
investment company's expenses, including advisory fees, in addition to the
expenses the Fund bears directly in connection with its own operations.
MUNICIPAL OBLIGATIONS -- Municipal debt securities including municipal
bonds, notes and commercial paper. The VIF-High Yield Fund may invest in
municipal obligations, but under normal circumstances does not intend to make
significant investments in these securities.
<PAGE>
The VIF-High Yield Fund may invest in the following types of municipal
obligations:
MUNICIPAL BONDS -- Municipal bonds are classified as general obligation or
revenue bonds. General obligation bonds are secured by the issuer's pledge
of its full faith, credit and unlimited taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues
generated by a particular facility or class of facility, or in some cases
from the proceeds of a special excise tax or specific revenue source.
Industrial development obligations are a particular kind of municipal bond
which are issued by or on behalf of public authorities to obtain funds for
many kinds of local, privately operated facilities. Such obligations are,
in most cases, revenue bonds that generally are secured by a lease with a
particular private corporation.
MUNICIPAL NOTES -- Municipal notes are short-term debt obligations issued
by municipalities which normally have a maturity at the time of issuance of
six months to three years. Such notes include tax anticipation notes, bond
anticipation notes, revenue anticipation notes and project notes. Notes
sold in anticipation of collection of taxes, a bond sale or receipt of
other revenues are normally obligations of the issuing municipality or
agency.
MUNICIPAL COMMERCIAL PAPER -- Municipal commercial paper consists of short-
term debt obligations issued by municipalities. Although done so
infrequently, municipal commercial paper may be issued at a discount
(sometimes referred to as Short-Term Discount Notes). These obligations are
issued to meet seasonal working capital needs of a municipality or interim
construction financing and are paid from a municipality's general revenues
or refinanced with long-term debt. Although the availability of municipal
commercial paper has been limited, from time to time the amounts of such
debt obligations offered have increased, and INVESCO believes that this
increase may continue.
VARIABLE RATE OBLIGATIONS -- The interest rate payable on a variable rate
municipal obligation is adjusted either at predetermined periodic intervals
or whenever there is a change in the market rate of interest upon which the
interest rate payable is based. A variable rate obligation may include a
demand feature pursuant to which the Fund would have the right to demand
prepayment of the principal amount of the obligation prior to its stated
maturity. The issuer of the variable rate obligation may retain the right
to prepay the principal amount prior to maturity.
REITS -- Real Estate Investment Trusts are investment trusts that invest
primarily in real estate and securities of businesses connected to the real
estate industry.
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
<PAGE>
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 INVESCO and the
applicable sub-adviser must use to review the creditworthiness of any bank,
broker or dealer that is a 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 15% of the
Fund's net 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.
RULE 144A SECURITIES -- 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.
SECURITIES LENDING -- Each Fund may lend its portfolio securities. 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.
SHORT SALES (Market Neutral Fund only) -- This discussion relates solely to
Market Neutral Fund; no other Fund intends to sell securities short (except to
sell short "against the box."). Market Neutral Fund will sell a security short
and borrow the same security from a broker or other institution to complete the
sale. Market Neutral Fund will lose money on a short sale transaction if the
price of the borrowed security increases between the date of the short sale and
<PAGE>
the date on which the Fund closes the short position; conversely, the Fund may
realize a gain if the price of the borrowed security declines between those
dates.
There is no guarantee that Market Neutral Fund will be able to close out a short
position at any particular time or at an acceptable price. During the time that
the Fund is short the security, it is subject to the risk that the lender of the
security will terminate the loan at a time when the Fund is unable to borrow the
same security from another lender. If that occurs, the Fund may be "bought in"
at the price required to purchase the security needed to close out the short
position.
In short sale transactions, Market Neutral Fund's gain is limited to the price
at which it sold the security short; its loss is limited only by the maximum
price it must pay to acquire the security less the price at which the security
was sold. In theory, losses from short sales may be unlimited. Further, because
the Fund will attempt to remain market neutral, if the Fund must close out a
short position at a time or price not of its choosing, it may also have to sell
a corresponding security it owns at an unfavorable time or price in order to
maintain market neutrality. Until a security that is sold short is acquired by
the Fund, the Fund must pay the lender any dividends that accrue during the loan
period. In order to borrow the security, the Fund usually is required to pay
compensation to the lender. Short sales also cause the Fund to incur brokerage
fees and other transaction costs. Therefore, the amount of any gain the Fund may
receive from a short sale transaction is decreased - and the amount of any loss
increased -- by the amount of compensation to the lender, dividend and expenses
Market Neutral Fund may be required to pay.
Until Market Neutral Fund replaces a borrowed security, it must segregate liquid
securities or other collateral with a broker or other custodian in an amount
equal to the current market value of the security sold short. The Fund expects
to receive interest on the collateral it deposits. The use of short sales may
result in Market Neutral Fund realizing more short-term capital gains than it
would if the Fund did not engage in short sales.
SOVEREIGN DEBT -- In certain emerging countries, the central government and its
agencies are the largest debtors to local and foreign banks and others.
Sovereign debt involves the risk that the government, as a result of political
considerations or cash flow difficulties, may fail to make scheduled payments of
interest or principal and may require holders to participate in rescheduling of
payments or even to make additional loans. If an emerging country government
defaults on its sovereign debt, there is likely to be no legal proceeding under
which the debt may be ordered repaid, in whole or in part. The ability or
willingness of a foreign sovereign debtor to make payments of principal and
interest in a timely manner may be influenced by, among other factors, its cash
flow, the magnitude of its foreign reserves, the availability of foreign
exchange on the payment date, the debt service burden to the economy as a whole,
the debtor's then current relationship with the International Monetary Fund and
its then current political constraints. Some of the emerging countries issuing
such instruments have experienced high rates of inflation in recent years and
have extensive internal debt. Among other effects, high inflation and internal
debt service requirements may adversely affect the cost and availability of
future domestic sovereign borrowing to finance government programs, and may have
other adverse social, political and economic consequences, including effects on
the willingness of such countries to service their sovereign debt. An emerging
country government's willingness and ability to make timely payments on its
sovereign debt also are likely to be heavily affected by the country's balance
of trade and its access to trade and other international credits. If a country's
exports are concentrated in a few commodities, such country would be more
<PAGE>
significantly exposed to a decline in the international prices of one or more of
such commodities. A rise in protectionism on the part of its trading partners,
or unwillingness by such partners to make payment for goods in hard currency,
could also adversely affect the country's ability to export its products and
repay its debts. Sovereign debtors may also be dependent on expected receipts
from such agencies and others abroad to reduce principal and interest arrearages
on their debt. However, failure by the sovereign debtor or other entity to
implement economic reforms negotiated with multilateral agencies or others, to
achieve specified levels of economic performance, or to make other debt payments
when due, may cause third parties to terminate their commitments to provide
funds to the sovereign debtor, which may further impair such debtor's
willingness or ability to service its debts.
The Funds may invest in debt securities issued under the "Brady Plan" in
connection with restructurings in emerging country debt markets or earlier
loans. These securities, often referred to as "Brady Bonds," are, in some cases,
denominated in U.S. dollars and collateralized as to principal by U.S. Treasury
zero coupon bonds having the same maturity. At least one year's interest
payments, on a rolling basis, are collateralized by cash or other investments.
Brady Bonds are actively traded on an over-the-counter basis in the secondary
market for emerging country debt securities. Brady Bonds are lower-rated bonds
and are highly volatile.
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, notes, and 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 U.S.
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
U.S. Treasury. GNMA Certificates are mortgage-backed securities representing
part ownership of a pool of mortgage loans. These loans -- issued by lenders
such as mortgage bankers, commercial banks and savings and loan associations --
are either insured by the Federal Housing Administration or guaranteed by the
Veterans Administration. A "pool" or group of such mortgages is assembled and,
after being approved by GNMA, is offered to investors through securities
dealers. Once approved by GNMA, the timely payment of interest and principal on
each mortgage is guaranteed by GNMA and backed by the full faith and credit of
the 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,
a 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 INVESCO and the applicable sub-advisers are satisfied that the credit risk
with respect to any such instrumentality is comparatively minimal.
<PAGE>
WHEN-ISSUED/DELAYED DELIVERY -- The Funds normally 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.
INVESTMENT RESTRICTIONS
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 without prior
approval of a majority of the outstanding voting securities of a Fund, as
defined in the 1940 Act.
Each Fund may not:
1. purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities or municipal securities) if, as a result, more than 25% of
the Fund's total assets would be invested in the securities of companies
whose principal business activities are in the same industry, except that:
(i) Financial Services Fund may invest more than 25% of the value of its
total assets in one or more industries relating to financial services; (ii)
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
investments in the combined long and short portfolios of Market Neutral Fund
may exceed 25% of the value of its total assets in one or more industries;
(iv) Real Estate Opportunity Fund may invest more than 25% of the value of
its total assets in one or more industries relating to the real estate
industry; (v) Technology Fund may invest more than 25% of the value of its
total assets in the one or more industries relating to technology; (vi)
Telecommunications Fund may invest more than 25% of the value of its total
assets in one or more industries relating to telecommunications; and (vii)
Utilities Fund may invest more than 25% of the value of its total assets in
one or more industries relating to the utilities industry;
2. with respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the
U.S. government or any of its agencies or instrumentalities, or securities
<PAGE>
of other investment companies) if, as a result, (i) more than 5% of a Fund's
total assets would be invested in the securities of that issuer, or (ii) a
Fund would hold more than 10% of the outstanding voting securities of that
issuer;
3. underwrite securities of other issuers, except insofar as it may be
deemed to be an underwriter under the 1933 Act in connection with the
disposition of the Fund's portfolio securities;
4. borrow money, except that the Fund may borrow money in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings); with respect to Market Neutral Fund,
short sales and related borrowings of securities and cash to satisfy margin
requirements are not subject to this restriction;
5. issue senior securities, except as permitted under the 1940 Act;
6. lend any security or make any loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this limitation
does not apply to the purchase of debt securities or to repurchase
agreements;
7. purchase or sell physical commodities; however, this policy shall
not prevent the Fund from purchasing and selling foreign currency, futures
contracts, options, forward contracts, swaps, caps, floors, collars and
other financial instruments; or
8. purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Fund from investing in securities or other instruments backed by real estate
or securities of companies engaged in the real estate business). This
restriction shall not prohibit the Real Estate Opportunity Fund from
directly holding real estate if such real estate is acquired by the Fund as
a result of a default on debt securities held by the Fund.
9. Each Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a single
open-end management investment company managed by INVESCO or an affiliate or
a successor thereof, with substantially the same fundamental investment
objective, policies and limitations as the Fund.
In addition, each Fund has the following non-fundamental policies, which may be
changed without shareholder approval:
A. The Fund (with the exception of Market Neutral Fund) may not sell
securities short (unless it owns or has the right to obtain securities
equivalent in kind and amount to the securities sold short) or purchase
securities on margin, except that (i) this policy does not prevent the Fund
from entering into short positions in foreign currency, futures contracts,
options, forward contracts, swaps, caps, floors, collars and other financial
instruments, (ii) the Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and (iii) the Fund may make
margin payments in connection with futures contracts, options, forward
contracts, swaps, caps, floors, collars and other financial instruments.
B. The Fund may borrow money only from a bank or from an open-end
management investment company managed by INVESCO or an affiliate or a
successor thereof for temporary or emergency purposes (not for leveraging or
investing) or by engaging in reverse repurchase agreements with any party
<PAGE>
(reverse repurchase agreements will be treated as borrowings for purposes of
fundamental limitation (4)). This limitation shall not prevent Market
Neutral Fund from borrowing money from brokers from time to time to meet
margin requirements on the securities it sells short. Any such borrowings
will be short-term in nature.
C. The Fund does not currently intend to purchase any security if, as a
result, more than 15% of its net assets would be invested in securities that
are deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued.
D. The Fund may invest in securities issued by other investment
companies to the extent that such investments are consistent with the Fund's
investment objective and policies and permissible under the 1940 Act.
E. With respect to fundamental limitation (1), domestic and foreign
banking will be considered to be different industries.
In addition, with respect to a Fund that may invest in municipal obligations,
the following non-fundamental policy applies, which may be changed without
shareholder approval:
Each state (including the District of Columbia and Puerto Rico), territory
and possession of the United States, each political subdivision, agency,
instrumentality and authority thereof, and each multi-state agency of which
a state is a member is a separate "issuer." When the assets and revenues of
an agency, authority, instrumentality or other political subdivision are
separate from the government creating the subdivision and the security is
backed only by assets and revenues of the subdivision, such subdivision
would be deemed to be the sole issuer. Similarly, in the case of an
Industrial Development Bond or Private Activity bond, if that bond is backed
only by the assets and revenues of the non-governmental user, then that
non-governmental user would be deemed to be the sole issuer. However, if the
creating government or another entity guarantees a security, then to the
extent that the value of all securities issued or guaranteed by that
government or entity and owned by a Fund exceeds 10% of the Fund's total
assets, the guarantee would be considered a separate security and would be
treated as issued by that government or entity.
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%.
<PAGE>
(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.
- --------------------------------------------------------------------------------
SMALL COMPANY
INVESTMENT BLUE CHIP GROWTH DYNAMICS GROWTH
- --------------------------------------------------------------------------------
EQUITY SECURITIES Unlimited Unlimited Normally, at
least 65% in
companies with
market capi-
talizations of
$2 billion or
less
- --------------------------------------------------------------------------------
LOWER-RATED CORPORATE Not Allowed Up to 5%
DEBT SECURITIES
- --------------------------------------------------------------------------------
FOREIGN SECURITIES Up to 25% Up to 25% Up to 25%
(PERCENT AGES EXCLUDE
ADRS AND SECURITIES OF
CANADIAN ISSUERS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT EQUITY INCOME HIGH YIELD TOTAL RETURN
- --------------------------------------------------------------------------------
DEBT SECURITIES Normally, up At least 65% Normally, a
to 35% in securities minimum of 30%
maturing at (investment
least three grade only)
years after
issuance
- --------------------------------------------------------------------------------
EQUITY SECURITIES Normally, at least Normally, a
65% in dividend- minimum of 30%;
paying common and the remainder will
preferred stocks; vary with
up to 30% in non- market conditions
dividend paying
common stock
- --------------------------------------------------------------------------------
FOREIGN SECURITIES Up to 25% Up to 25% Up to 25%
(PERCENT AGES EXCLUDE (must be
ADRS AND SECURITIES denominated
CANADIAN ISSUERS) and pay
interest in
U.S. dollars)
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
REAL ESTATE
INVESTMENT FINANCIAL SERVICES HEALTH SCIENCES OPPORTUNITY
- --------------------------------------------------------------------------------
WITHIN SECTOR Normally, at Normally, at Normally, at
least 80%(a) least 80%(a) least 65% and
no one
property type
will represent
more than 50%
of the Fund's
total assets
(c)(d)
- --------------------------------------------------------------------------------
OUTSIDE SECTOR Up to 20%(b) Up to 20%(b) Up to 35%
- --------------------------------------------------------------------------------
FOREIGN SECURITIES Up to 25% Up to 25% Up to 25%
(PERCENTAGES EXCLUDE
ADRS AND SECURITIES OF
CANADIAN ISSUERS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT TECHNOLOGY TELECOMMUNICATIONS UTILITIES
- --------------------------------------------------------------------------------
WITHIN SECTOR Normally, at Normally, at Normally, at
least 80%(a) least 65%(C) least 80%(a)
- --------------------------------------------------------------------------------
OUTSIDE SECTOR Up to 20%(b) Up to 35%; up to Up to 20%(b)
35% in infrastruc-
ture
- --------------------------------------------------------------------------------
FOREIGN SECURITIES Up to 25% Unlimited; may be Up to 25%
(PERCENTAGES EXCLUDE 65% or more
ADRS AND SECURITIES OF
CANADIAN ISSUERS)
- --------------------------------------------------------------------------------
(a) The Fund normally invests at least 80% of its assets in the equity
securities (common and preferred stocks and convertible bonds) of companies
primarily doing business in a specific business sector.
(b) The remainder of the Fund's assets may be invested in any securities or
other instruments deemed appropriate by INVESCO, consistent with the Fund's
investment policies and restrictions. These investments include, but are not
limited to, debt securities issued by companies outside the Fund's business
sector, short-term high grade debt obligations maturing no later than one year
from the date of purchase (including U.S. government and agency securities,
domestic bank certificates of deposit, commercial paper rated at least A-2 by
S&P or P-2 by Moody's and repurchase agreements) and cash.
(c) At least 65% in equity securities - including common stocks, preferred
stocks, securities convertible into common stock and warrants; up to 35% in debt
securities of which no more than 15% can be in junk bonds.
(d) Investment in unrated securities may not exeed 25% of the Fund's total
assets. The Fund may not invest in bonds rated below B- by S&P or B by Moody's.
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISER
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the Company's
investment adviser. INVESCO was founded in 1932 and serves as an investment
adviser to:
<PAGE>
INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.)
INVESCO Combination Stock & Bond Funds, Inc. (formerly, INVESCO Flexible
Funds, Inc.)
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic Portfolios, Inc.)
INVESCO Stock Funds, Inc. (formerly, INVESCO Equity Funds, Inc.)
INVESCO Treasurer's Series Funds, Inc. (formerly, INVESCO Treasurer's
Series Trust)
INVESCO Variable Investment Funds, Inc.
As of March 1, 2000, INVESCO managed 45 mutual funds having combined assets of
$31.9 billion, on behalf of more than 960,478 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 $357 billion in assets under management on December 31, 1999.
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 recordkeeping 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 recordkeeping, tax reporting and
compliance. ITC acts as trustee or custodian to these plans. ITC
accepts contributions and provides complete transfer agency
functions: correspondence, sub-accounting, telephone communications
and processing of distributions.
INVESCO, Inc., Atlanta, Georgia, manages individualized investment
portfolios of equity, fixed-income and real estate securities for
institutional clients, including mutual funds and the collective
investment entities. INVESCO, Inc. includes the following Divisions:
INVESCO Capital Management Division, Atlanta, Georgia, manages
institutional investment portfolios, consisting primarily of
discretionary employee benefit plans for corporations and state and
local governments, and endowment funds.
INVESCO Management & Research Division, Boston, Massachusetts,
primarily manages pension and endowment accounts.
<PAGE>
PRIMCO Capital Management Division, Louisville, Kentucky,
specializes in managing stable return investments, principally on
behalf of Section 401(k) retirement plans.
INVESCO Realty Advisors Division, 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.
INVESCO (NY) Division, 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 further serves as
investment adviser to several closed-end investment companies, and
as sub-adviser with respect to certain commingled employee benefit
trusts.
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 dated February 28, 1997 (the "Agreement") with the Company.
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 Articles
of Incorporation, Bylaws and Registration Statement, as from time to time
amended, under the 1940 Act, and in any prospectus and/or statement of
additional information of the 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;
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 the investment analysis and research,
<PAGE>
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 prospectuses, statements
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; and
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;
o 0.55% of each Fund's average net assets from $1 billion;
o 0.45% of each Fund's average net assets from $2 billion;
o 0.40% of each Fund's average net assets from $4 billion;
<PAGE>
o 0.375% of each Fund's average net assets from $6 billion; and
o 0.35% of each Fund's average net assets from $8 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;
o 0.45% of each Fund's average net assets from $1 billion;
o 0.40% of each Fund's average net assets from $4 billion;
o 0.375% of each Fund's average net assets from $6 billion; and
o 0.35% of each Fund's average net assets from $8 billion.
Small Company Growth, Health Sciences and Technology Funds
o 0.75% on the first $350 million of each Fund's average net assets;
o 0.65% on the next $350 million of each Fund's average net assets;
o 0.55% of each Fund's average net assets from $700 million;
o 0.45% of each Fund's average net assets from $2 billion;
o 0.40% of each Fund's average net assets from $4 billion;
o 0.375% of each Fund's average net assets from $6 billion; and
o 0.35% of each Fund's average net assets from $8 billion.
Dynamics Fund
o 0.75% on the first $1 billion of the Fund's average net assets;
o 0.60% on the next $1 billion of the Fund's average net assets;
o 0.45% of the Fund's average net assets from $2 billion;
o 0.40% of the Fund's average net assets from $4 billion;
o 0.375% of the Fund's average net assets from $6 billion; and
o 0.35% of the Fund's average net assets from $8 billion;
Blue Chip Growth Fund
o 0.85% 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;
o 0.65% of the Fund's average net assets from $1 billion;
o 0.45% of the Fund's average net assets from $2 billion;
o 0.40% of the Fund's average net assets from $4 billion;
<PAGE>
o 0.375% of the Fund's average net assets from $6 billion; and
o 0.35% of the Fund's average net assets from $8 billion.
Real Estate Opportunity 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;
o 0.65% of the Fund's average net assets from $1 billion;
o 0.45% of the Fund's average net assets from $2 billion;
o 0.40% of the Fund's average net assets from $4 billion;
o 0.375% of the Fund's average net assets from $6 billion; and
o 0.35% of the Fund's average net assets from $8 billion.
Financial Services, Market Neutral and Telecommunications Funds
o 0.75% of each Fund's average net assets.
During the fiscal years ended December 31, 1999, 1998 and 1997, 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 INVESCO's
fees were not in excess of the expense limitations shown below, which have been
voluntarily agreed to by the Company and INVESCO.
Advisory Total Expense Total Expense
Fee Dollars Reimbursements Limitations
------------ -------------- ------------
BLUE CHIP GROWTH FUND
December 31, 1999 $ 5,079 42,862 1.50%
December 31, 1998 2,589 32,023 1.50%(1)
December 31, 1997 781 26,170 1.25%
DYNAMICS FUND
December 31, 1999 $ 29,422 $ 41,017 1.15%
December 31, 1998 1,652 36,773 1.15%(1)
December 31, 1997 554 31,429 0.90%
EQUITY INCOME FUND
December 31, 1999 $ 528,557 $ 0 1.15
December 31, 1998 377,741 245 1.15%(1)
December 31, 1997 223,880 16,285 0.90%
FINANCIAL SERVICES FUND(2)
December 31, 1999 $ 9,483 $ 14,434 1.25%
December 31, 1998 N/A N/A N/A
December 31, 1997 N/A N/A N/A
HEALTH SCIENCES FUND
December 31, 1999 $ 24,354 $ 45,308 1.25%
December 31, 1998 9,945 39,165 1.25%(1)
December 31, 1997 1,191 33,488 1.00%
<PAGE>
HIGH YIELD FUND
December 31, 1999 $ 293,782 $ 0 1.05%
December 31, 1998 224,864 0 1.05%(1)
December 31, 1997 117,624 20,919 0.80%
MARKET NEUTRAL FUND(3)
December 31, 1999 $ 10,448 $ 15,164 1.25%
December 31, 1998 N/A N/A N/A
December 31, 1997 N/A N/A N/A
REAL ESTATE OPPORTUNITY FUND(4)
December 31, 1999 $ 5,110 $ 44,380 1.35%
December 31, 1998 2,558 18,881 1.35%(1)
December 31, 1997 N/A N/A N/A
SMALL COMPANY GROWTH FUND
December 31, 1999 $ 16,772 $ 53,048 1.25%
December 31, 1998 2,726 39,139 1.25%(1)
December 31, 1997 684 32,621 1.00%
TECHNOLOGY FUND
December 31, 1999 $ 92,023 $ 26,323 1.25%
December 31, 1998 5,670 38,752 1.25%(1)
December 31, 1997 1,318 33,352 1.00%
TELECOMMUNICATIONS FUND(2)
December 31, 1999 $ 50,901 $ 1,193 1.25%
December 31, 1998 N/A N/A N/A
December 31, 1997 N/A N/A N/A
TOTAL RETURN FUND
December 31, 1999 $ 244,455 $ 0 1.15%
December 31, 1998 219,888 196 1.15%(1)
December 31, 1997 126,159 30,247 0.90%
UTILITIES FUND
December 31, 1999 $ 49,534 $ 26,909 1.15%
December 31, 1998 32,195 28,048 1.15%(1)
December 31, 1997 19,549 35,201 0.90%
(1) Expense limitations prior to July 8, 1998 for Blue Chip Growth,
Dynamics, Equity Income, Health Sciences, High Yield, Real Estate
Opportunity, Small Company Growth, Technology, Total Return and Utilities
Funds were 1.25%, 0.90%, 0.90%, 1.00%, 0.80%, 1.10%, 1.00%, 1.00%, 0.90% and
0.90%, respectively.
(2) The Fund commenced investment operations on September 21, 1999.
(3) The Fund commenced investment operations on November 10, 1999.
(4) The Fund commenced investment operations on April 1, 1998.
<PAGE>
THE SUB-ADVISORY AGREEMENT
With respect to Market Neutral Fund, INVESCO (NY) Division ("INY") serves as
sub-adviser to the Fund pursuant to a sub-advisory agreement dated August 30,
1999 (the "Market Neutral Sub-Agreement") with INVESCO.
With respect to Total Return Fund, INVESCO Capital Management Division ("ICM")
serves as sub-adviser to the Fund pursuant to a sub-advisory agreement dated
February 28, 1997 (the "Total Return Sub-Agreement") with INVESCO.
The Market Neutral Sub-Agreement and Total Return Sub-Agreement (the
"Sub-Agreements") provide that INY and ICM, as applicable, subject to the
supervision of INVESCO, shall manage the investment portfolios of the respective
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 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; (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 INY 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, INY 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. The sub-advisory fees
are paid by INVESCO, NOT the Funds. The fees are calculated at the following
annual rates:
Market Neutral Fund
o 0.30% of the Fund's average net assets.
<PAGE>
Total Return Fund
o 0.30% on the first $500 million of the Fund's average net assets;
o 0.26% on the next $500 million of the Fund's average net assets;
o 0.22% of the Fund's average net assets from $1 billion;
o 0.18% of the Fund's average net assets from $2 billion;
o 0.16% of the Fund's average net assets from $4 billion;
o 0.15% of the Fund's average net assets from $6 billion; and
o 0.14% of the Fund's average net assets from $8 billion.
ADMINISTRATIVE SERVICES AGREEMENT
INVESCO, either directly or through affiliated companies, provides certain
administrative, sub-accounting, and recordkeeping services to the Funds pursuant
to an Administrative Services Agreement dated February 28, 1997 with the
Company.
The Administrative Services Agreement requires INVESCO to provide the following
services to the Funds:
o such sub-accounting and recordkeeping services and functions as are
reasonably necessary for the operation of the Funds; and
o such sub-accounting, recordkeeping, 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.
As full compensation for services provided under the Administrative Services
Agreement, each Fund pays a monthly fee to INVESCO consisting of a base fee per
Fund of $10,000 per year, plus an additional incremental fee computed daily and
paid monthly at an annual rate of 0.015% of the average net assets of each Fund
and an additional 0.25% per year of new assets of each Fund acquired after July
8, 1998.
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 with the Company.
The Transfer Agency Agreement provides that each Fund pay INVESCO an annual fee
of $5,000. This fee is paid monthly at the rate of 1/12 of the annual fee.
<PAGE>
FEES PAID TO INVESCO
For the fiscal years ended December 31, 1999, 1998 and 1997, the Funds paid the
following fees to INVESCO (prior to the voluntary absorption of certain Fund
expenses by INVESCO and the sub-adviser, where applicable):
Administrative Transfer
Advisory Services Agency
-------- -------------- --------
BLUE CHIP GROWTH FUND
December 31, 1999 $ 5,079 $ 10,581 $ 5,000
December 31, 1998 2,589 10,047 5,000
December 31, 1997 781 6,680 3,333
DYNAMICS FUND
December 31, 1999 $ 29,422 $ 19,574 $ 5,000
December 31, 1998 1,652 10,042 5,000
December 31, 1997 554 10,014 5,000
EQUITY INCOME FUND
December 31, 1999 $ 528,557 $ 103,227 $ 5,000
December 31, 1998 377,741 25,519 5,000
December 31, 1997 223,880 14,478 5,000
FINANCIAL SERVICES FUND(1)
December 31, 1999 $ 9,483 $ 6,128 $ 1,389
December 31, 1998 N/A N/A N/A
December 31, 1997 N/A N/A N/A
HEALTH SCIENCES FUND
December 31, 1999 $ 24,354 $ 18,605 $ 5,000
December 31, 1998 9,945 11,874 5,000
December 31, 1997 1,191 10,024 5,000
HIGH YIELD FUND
December 31, 1999 $ 293,782 $ 122,285 $ 5,000
December 31, 1998 224,864 26,312 5,000
December 31, 1997 117,624 12,941 5,000
<PAGE>
MARKET NEUTRAL FUND(2)
December 31, 1999 $ 10,488 $ 5,123 $ 708
December 31, 1998 N/A N/A N/A
December 31, 1997 N/A N/A N/A
REAL ESTATE OPPORTUNITY FUND(3)
December 31, 1999 $ 5,110 $ 11,222 $ 5,000
December 31, 1998 2,558 7,669 3,750
December 31, 1997 N/A N/A N/A
SMALL COMPANY GROWTH FUND
December 31, 1999 $ 16,772 $ 14,763 $ 5,000
December 31, 1998 2,726 10,192 5,000
December 31, 1997 684 10,014 5,000
TECHNOLOGY FUND
December 31, 1999 $ 92,023 $ 42,515 $ 5,000
December 31, 1998 5,670 11,005 5,000
December 31, 1997 1,318 10,026 5,000
TELECOMMUNICATIONS FUND(1)
December 31, 1999 $ 50,901 $ 20,763 $ 1,389
December 31, 1998 N/A N/A N/A
December 31, 1997 N/A N/A N/A
TOTAL RETURN FUND
December 31, 1999 $ 244,455 $ 54,679 $ 5,000
December 31, 1998 219,888 19,501 5,000
December 31, 1997 126,159 12,534 5,000
UTILITIES FUND
December 31, 1999 $ 49,534 $ 19,441 $ 5,000
December 31, 1998 32,195 11,535 5,000
December 31, 1997 19,549 10,489 5,000
(1) The Fund commenced investment operations on September 21, 1999.
(2) The Fund commenced investment operations on November 10, 1999.
(3) The Fund commenced investment operations on April 1, 1998.
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.
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.
<PAGE>
The Company has a brokerage committee. The committee meets periodically to
review soft dollar and other brokerage transactions by the Funds, and to review
policies and procedures of INVESCO with respect to 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 INVESCO 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 Company has a legal committee and an insurance committee. These
committees meet when necessary to review legal and insurance matters of
importance to the directors of the Company.
The Company has a nominating committee. The committee meets periodically to
review and nominate candidates for positions as independent directors to fill
vacancies on the 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 or
the Funds for their services as officers. INVESCO 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 International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic Portfolios, Inc.)
INVESCO Stock Funds, Inc. (formerly, INVESCO Equity Funds, Inc.)
INVESCO Treasurer's Series Funds, Inc. (formerly, INVESCO Treasurer's
Series Trust)
INVESCO Variable Investment Funds, Inc.
The table below provides information about each of the Company's directors and
officers. Their affiliations represent their principal occupations.
Position(s) Held Principal Occupations
Name, Address, and Age With Company During Past Five Years
Mark H. Williamson(2)(3) President, Chief President, Chief
7800 E. Union Avenue Executive Officer Executive Officer and
Denver, Colorado and Chairman of the Chairman of the Board
Age: 48 Board of INVESCO Funds
Group, Inc.; President,
Chief Executive Officer
and Chairman of the Board
of INVESCO Distributors,
Inc.; President, Chief
Operating Officer and
Trustee of INVESCO Global
Health Sciences Fund;
formerly, Chairman and
Chief Executive Officer
of NationsBanc Advisors,
Inc.; formerly, Chairman
of NationsBanc Invest-
ments, Inc.
<PAGE>
Position(s) Held Principal Occupations
Name, Address, and Age With Company During Past Five Years
Fred A. Deering Vice Chairman of the Trustee of INVESCO Global
(1)(2)(7)(8) Board Health Sciences Fund;
Security Life Center formerly, Chairman of the
1290 Broadway Executive Committee
Denver, Colorado and Chairman of the Board
Age: 72 of Security Life of Denver
Insurance Company;
Director of ING American
Holdings Company and First
ING Life Insurance
Company of New York.
Victor L. Andrews, Director Professor Emeritus,
Ph.D.(4)(6) Chairman Emeritus and
34 Seawatch Drive Chairman of the CFO
Savannah, Georgia Roundtable of the
Age: 69 Department of 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
Sheffield Funds, Inc.
Bob R. Baker (2)(4)(5)(9) Director Consultant (since
37 Castle Pines Dr., North 2000); formerly, President
Castle Rock, Colorado and Chief Executive
Age: 63 Officer (1989 to 2000)
of AMC Cancer Research
Center, Denver, Colorado;
until mid-December 1988,
Vice Chairman of the Board
of First Columbia
Financial Corporation,
Englewood, Colorado;
Chairman of the Board and
Chief Executive Officer
of First Columbia
Financial Corporation.
Charles W. Brady(3) Director Chairman of the Board
1315 Peachtree St., N.E. of INVESCO Global
Atlanta, Georgia Health Sciences Fund;
Age: 64 Chief Executive Officer
and Chairman of AMVESCAP
PLC, London, England and
various subsidiaries of
AMVESCAP PLC.
<PAGE>
Position(s) Held Principal Occupations
Name, Address, and Age With Company During Past Five Years
Lawrence H. Budner(1)(5) Director Trust Consultant;
7608 Glen Albens Circle prior to June 30,
Dallas, Texas 1987, Senior Vice
Age: 69 President and Senior
Trust Officer of
InterFirst Bank,
Dallas, Texas.
James T. Bunch(4)(5)(9) Director Principal and Founder
3600 Republic Plaza of Green Manning &
370 Seventeenth Street Bunch Ltd., Denver,
Denver, Colorado Colorado, since August
Age: 57 1988; Director and
Secretary of Green
Manning & Bunch
Securities, Inc.,
Denver, Colorado since
September 1993; Vice
President and Director
of Western Golf
Association and Evans
Scholars Foundation;
formerly, General
Counsel and Director
of Boettcher & Co.,
Denver, Colorado;
formerly, Chairman and
Managing Partner of
Davis Graham & Stubbs,
Denver, Colorado.
<PAGE>
Position(s) Held Principal Occupations
Name, Address, and Age With Company During Past Five Years
Wendy L. Gramm, Director Self-employed (since
Ph.D.(4)(6)(9) 1993); Professor of
4201 Yuma Street, N.W. Economics and Public
Washington, DC Administration,
Age: 55 University of Texas at
Arlington; formerly,
Chairman, Commodity
Futures Trading Commission
Administrator for Inform-
ation and Regulatory
Affairs at the
Office of Management and
Budget, Executive Director
of the Presidential Task
Force on Regulatory
Relief, and Director of
the Federal Trade Com-
mission's Bureau of Eco-
nomics. Also, Director of
Chicago Mercantile
Exchange, Enron Corpora-
tion, IBP, Inc., State
Farm Insurance Company,
Independent Women's
Forum, International
Republic Institute, and
the Republican Women's
Federal Forum.
Richard W. Healey(3) Director Director and Senior
7800 E. Union Avenue Vice President of
Denver, Colorado INVESCO Distributors,
Age: 45 Inc. since 1998;
formerly, Senior Vice
President of GT Global
North America
(1996 to 1998) and The
Boston Company (1993
to 1996).
<PAGE>
Position(s) Held Principal Occupations
Name, Address, and Age With Company During Past Five Years
Gerald J. Lewis(1)(6)(7) Director Chairman of Lawsuit
701 "B" Street Resolution Services,
Suite 2100 San Diego, California
San Diego, California since 1987; Director
Age: 66 of General Chemical
Group, Inc., Hampdon, New
Hamp shire, since 1996;
formerly, Associate
Justice of the California
Court of Appeals;
formerly, Director of
Wheelabrator Technologies,
Inc., Fisher Scientific
Inc., Henley
Manufacturing, Inc., and
California Coastal Proper
ties, Inc.; Of
Counsel, Latham & Watkins,
San Diego, California
(1987 to 1997).
John W. McIntyre Director Retired. Formerly,
(1)(2)(5)(7) Vice Chairman of the
7 Piedmont Center Board of Directors of
Suite 100 the Citizens and
Atlanta, Georgia Southern Corporation and
Age: 69 Chairman of the Board and
Chief Executive Officer
of the Citizens and
Southern Georgia Corp. and
the Citizens and Southern
National Bank; Trustee of
INVESCO Global Health
Sciences Fund, Gables
Residential Trust,
Employee's Retirement
System of GA, Emory
University, and J.M. Tull
Charitable Foundation;
Director of Kaiser Foun-
dation Health Plans of
Georgia, Inc.
<PAGE>
Position(s) Held Principal Occupations
Name, Address, and Age With Company During Past Five Years
Larry Soll, Ph.D.(4)(6)(9) Director Retired. Formerly,
345 Poorman Road Chairman of the Board
Boulder, Colorado (1987 to 1994), Chief
Age: 57 Executive Officer
(1982 to 1989 and 1993 to
1994) and President (1982
to 1989) of Synergen Inc.;
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,
7800 E. Union Avenue General Counsel and
Denver, Colorado Secretary of INVESCO
Age: 52 Funds Group, Inc.; Senior
Vice President, Secretary
and General Counsel of
INVESCO Distributors,
Inc.; Secretary of INVESCO
Global Health Sciences
Fund; formerly, General
Counsel of INVESCO Trust
Company (1989 to1998) and
employee of a U.S. regula-
tory agency, Washington,
D.C. (1973 to 1989).
<PAGE>
Position(s) Held Principal Occupations
Name, Address, and Age With Company During Past Five Years
Ronald L. Grooms Chief Accounting Senior Vice President,
7800 E. Union Avenue Officer, Chief Finan- Treasurer and Director
Denver, Colorado cial Officer and of INVESCO Funds
Age: 53 Treasurer Group, Inc.; Senior
Vice President,
Treasurer and Director
of INVESCO
Distributors, Inc.;
Treasurer and
Principal Financial
and Accounting Officer
of INVESCO Global
Health Sciences Fund;
formerly, Senior Vice
President and
Treasurer of INVESCO
Trust Com pany (1988
to 1998).
William J. Galvin, Jr. Asssitant Secretary Senior Vice President
7800 E. Union Avenue and Assistant
Denver, Colorado Secretary of INVESCO
Age: 43 Funds Group, Inc.;
Senior Vice President
and Assistant
Secretary of INVESCO
Distributors, Inc.;
formerly, Trust
Officer of INVESCO
Trust Company (1995 to
1998).
Pamela J. Piro Vice President and
7800 E. Union Avenue Assistant Treasurer Assis tant Treasurer
Denver, Colorado of INVESCO Funds
Age: 39 Group, Inc.; Assistant
Treasurer of INVESCO
Distributors, Inc.;
formerly, Assistant
Vice President (1996
to 1997), Director -
Portfolio Accounting
(1994 to 1996),
Portfolio Account ing
Manager (1993 to 1994)
and Assistant
Accounting Manager
(1990 to 1993).
<PAGE>
Position(s) Held Principal Occupations
Name, Address, and Age With Company During Past Five Years
Alan I. Watson Assistant Secretary Vice President of
7800 E. Union Avenue INVESCO Funds Group,
Denver, Colorado Inc.; formerly, Trust
Age: 58 Officer of INVESCO
Trust Company.
Judy P. Wiese Assistant Secretary Vice President and
7800 E. Union Avenue Assistant Secretary
Denver, Colorado of INVESCO Funds
Age: 51 Group, Inc.; Assistant
Secretary of INVESCO
Distributors, Inc.;
formerly, Trust Officer of
INVESCO Trust Company.
(1) Member of the audit committee of the Company.
(2) Member of the executive committee of the Company. On occasion, the executive
committee acts upon the current and ordinary business of the Company between
meetings of the board of directors. Except for certain powers which, under
applicable law, may only be exercised by the full board of directors, the
executive committee may exercise all powers and authority of the board of
directors in the management of the business of the Company. All decisions are
subsequently submitted for ratification by the board of directors.
(3) These directors are "interested persons" of the Company as defined in the
1940 Act.
(4) Member of the management liaison committee of the Company.
(5) Member of the brokerage committee of the Company.
(6) Member of the derivatives committee of the Company.
(7) Member of the legal committee of the Company.
(8) Member of the insurance committee of the Company.
(9) Member of the nominating committee of the Company.
<PAGE>
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, 1999.
In addition, the table sets forth the total compensation paid by all of the
INVESCO Funds and INVESCO Global Health Sciences Fund (collectively, the
"INVESCO Complex") to these direc-tors or trustees for services rendered in
their capacities as directors or trustees during the year ended December 31,
1999. As of December 31, 1999, there were 46 funds in the INVESCO Complex.
- -------------------------------------------------------------------------------
Benefits Estimated Total
Name of Aggregate Accrued Annual Compensation
Person and Compensation as part of Benefits From INVESCO
Position From Company(1) Company Upon Complex Paid
Expenses(2) Retirement(3) to Directors(7)
- -------------------------------------------------------------------------------
Fred A.Deering, $10,047 $ 585 $ 286 $107,050
Vice Chairman of
the Board
- -------------------------------------------------------------------------------
Victor L. Andrews $10,022 $ 560 $ 331 $ 84,700
- -------------------------------------------------------------------------------
Bob R. Baker $10,009 $ 500 $ 443 $ 82,850
- -------------------------------------------------------------------------------
Lawrence H. Budner $10,009 $ 560 $ 331 $ 82,850
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
Benefits Estimated Total
Name of Aggregate Accrued Annual Compensation
Person and Compensation as part of Benefits From INVESCO
Position From Company(1) Company Upon Complex Paid
Expenses(2) Retirement(3) to Directors(7)
- -------------------------------------------------------------------------------
James T. Bunch(4) 0 0 0 0
- -------------------------------------------------------------------------------
Daniel D.Chabris(5) $ 118 559 272 $ 34,000
- -------------------------------------------------------------------------------
Wendy L. Gramm $ 9,998 0 0 $ 81,350
- -------------------------------------------------------------------------------
Kenneth T. King(5) $10,031 $ 592 $ 272 $ 85,850
- -------------------------------------------------------------------------------
Gerald J. Lewis(4) 0 0 0 0
- -------------------------------------------------------------------------------
John W. McIntyre $10,046 $ 154 $ 331 $ 108,700
- -------------------------------------------------------------------------------
Larry Soll $10,004 0 0 $ 100,900
- -------------------------------------------------------------------------------
Total $80,284 $3,510 $2,266 $ 768,250
- -------------------------------------------------------------------------------
% of Net Assets 0.0200%(6) 0.0009%(6) 0.0024%(7)
- -------------------------------------------------------------------------------
(1) The vice chairman of the board, the chairmen of the Funds' committees
who are Independent Directors, and the members of the Funds' committees who are
Independent Directors, each receive compensation for serving in such capacities
in addition to the compensation paid to all Independent Directors.
(2) Represents estimated 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 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 Drs. Soll and Gramm and Messrs.
Bunch and Lewis, each of these directors has served as a director 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.
Mr. McIntyre became eligible to participate in the Defined Benefit Deferred
Compensation Plan as of November 1, 1998, he was included in the calculation of
retirement benefits as of November 1, 1999.
(4) Messrs. Bunch and Lewis became directors of the Company on January 1, 2000.
(5) Mr. Chabris retired as a director of the Company on September 30, 1998.
Mr. King retired as a director of the Company on December 31, 1999.
(6) Totals as a percentage of the Company's net assets as of December 31, 1999.
<PAGE>
(7) Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1999.
Messrs. Brady, Healey and Williamson, as "interested persons" of the Company and
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 directors of the mutual funds in the INVESCO Funds have adopted a
Defined Benefit Deferred Compensation Plan (the "Plan") for the Independent
Directors of the funds. Under this Plan, each director who is not an interested
person of the funds (as defined in Section 2(a)(19) of the 1940 Act) and who has
served for at least five years (a "Qualified Director") is entitled to receive,
if the Qualified Director retires upon reaching age 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/her retirement (the "Basic Benefit"). Commencing with any such director's
second year of retirement, commencing with the first year of retirement of any
Qualified Director whose retirement has been extended by the board for three
years, and commencing with attainment of age 72 by a Qualified Director who
voluntarily retires prior to reaching age 72, 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 Reduced Benefit
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 him/her or his/her 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 payments under the Plan to
Mr. Chabris as of October 1, 1998 and to Mr. King as of January 1, 2000. 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. A
similar plan has been adopted by INVESCO Global Health Sciences Fund's board of
trustees. All trustees of INVESCO Global Health Sciences Fund are also directors
of the INVESCO Funds.
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 certain of the INVESCO
Funds. Certain of the deferred amounts have been invested in the shares of all
INVESCO Funds except Funds offered by the Company in which the directors are
legally precluded from investing. Each Independent Director may, therefore, be
deemed to have an indirect interest in shares of each such INVESCO Fund, in
addition to any INVESCO Fund shares the Independent Director may own either
directly or beneficially.
Officers and directors of the Company are legally precluded from investing
in any of the Funds' shares.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
As of March 31, 2000, 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:
<PAGE>
Blue Chip Growth Fund
- --------------------------------------------------------------------------------
Basis of Ownership Percentage
Name and Address (Record/Beneficial) Owned
- --------------------------------------------------------------------------------
Nationwide Insurance Co. Record 61.98%
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
- --------------------------------------------------------------------------------
INVESCO Funds Group, Inc. Record 38.02%
Attn. Sheila Wendland
P.O. Box 173706
Denver, CO 80217-3706
- --------------------------------------------------------------------------------
Dynamics Fund
- --------------------------------------------------------------------------------
Basis of Ownership Percentage
Name and Address (Record/Beneficial) Owned
- --------------------------------------------------------------------------------
American Skandia Life Assurance Record 92.70%
Variable Account B Class 1
Attn. Investment Accounting
PO Box 883
1 Corporate DR
Shelton, CT 06484-6208
- --------------------------------------------------------------------------------
Equity Income Fund
- --------------------------------------------------------------------------------
Basis of Ownership Percentage
Name and Address (Record/Beneficial) Owned
- --------------------------------------------------------------------------------
Great-West Life & Annuity Record 38.46%
Unit Valuations 2T2
8515 E. Orchard Rd.
Englewood, CO 80111-5037
- --------------------------------------------------------------------------------
Security Life Record 19.73%
Separate Account L1
Attn. Chris Smythe
Unit Valuations 2T2
1475 Dunwoody Dr
West Chester, PA 19380-1478
- -------------------------------------------------------------------------------
Annuity Investors Life Record 10.27%
Insurance Company
250 East Fifth Street
Cincinnati, OH 45202-4119
- --------------------------------------------------------------------------------
Security Life Record 9.53%
Separate Account A1
Attn. Chris Smythe
Unit Valuations 2T2
1475 Dunwoody Dr
West Chester, PA 19380-1478
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Basis of Ownership Percentage
Name and Address (Record/Beneficial) Owned
- -------------------------------------------------------------------------------
Conseco Variable Insurance CO
Attn. Separate Accounts C1B Record 6.31%
11825 North Pennsylvania Street
Carmel, IN 46032-4555
- --------------------------------------------------------------------------------
Financial Services Fund
- --------------------------------------------------------------------------------
Basis of Ownership Percentage
Name and Address (Record/Beneficial) Owned
- --------------------------------------------------------------------------------
None
- --------------------------------------------------------------------------------
Health Sciences Fund
- --------------------------------------------------------------------------------
Basis of Ownership Percentage
Name and Address (Record/Beneficial) Owned
- --------------------------------------------------------------------------------
American Skandia Life Assurance Record 92.14%
Variable Account B Class 1
Attn. Investment Accounting
PO Box 883
1 Corporate DR
Shelton, CT 06484-6208
- --------------------------------------------------------------------------------
High Yield Fund
- --------------------------------------------------------------------------------
Basis of Ownership Percentage
Name and Address (Record/Beneficial) Owned
- --------------------------------------------------------------------------------
Great-West Life & Annuity Record 39.04%
Unit Valuations 2T2
8515 E Orchard Rd
Englewood, CO 80111-5037
- --------------------------------------------------------------------------------
Conseco Variable Insurance Co. Record 20.64%
Attn. Separate Accounts C1B
11825 North Pennsylvania Street
Carmel, IN 46032-4555
- --------------------------------------------------------------------------------
Security Life Record 18.77%
Separate Account L1
Attn. Chris Smythe
Unit Valuations 2T2
1475 Dunwoody Dr
West Chester, PA 19380-1478
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Basis of Ownership Percentage
Name and Address (Record/Beneficial) Owned
- --------------------------------------------------------------------------------
Security Life Record 8.58%
Separate Account A1
Attn. Chris Smythe
Unit Valuations 2T2
1475 Dunwoody Dr
West Chester, PA 19380-1478
- --------------------------------------------------------------------------------
Annuity Investors Life Record 5.36%
Insurance Co.
250 East Fifth St.
Cincinatti, OH 46032-4555
- --------------------------------------------------------------------------------
Market Neutral Fund
- --------------------------------------------------------------------------------
None
- --------------------------------------------------------------------------------
Real Estate Opportunity Fund
- --------------------------------------------------------------------------------
Basis of Ownership Percentage
Name and Address (Record/Beneficial) Owned
- --------------------------------------------------------------------------------
Safeco Mutual Funds Record 68.19%
Attn. Steve Ballagh
P.O. Box 34890
Seattle, WA 98124-1890
- --------------------------------------------------------------------------------
INVESCO Funds Group, Inc. Record 31.58%
Attn. Sheila Wendland
P.O. Box 173706
Denver, CO 80217-3706
- --------------------------------------------------------------------------------
Small Company Growth Fund
- --------------------------------------------------------------------------------
Basis of Ownership Percentage
Name and Address (Record/Beneficial) Owned
- --------------------------------------------------------------------------------
Security Life Record 92.96%
Separate Account L1
Attn. Chris Smythe
Unit Valuations 2T2
1475 Dunwood Dr
West Chester, PA 19380-1478
- --------------------------------------------------------------------------------
INVESCO Funds Group, Inc. Record 7.04%
Attn. Sheila Wendland
P.O. Box 173706
Denver, CO 80217-3706
- --------------------------------------------------------------------------------
<PAGE>
Technology Fund
- --------------------------------------------------------------------------------
Basis of Ownership Percentage
Name and Address (Record/Beneficial) Owned
- --------------------------------------------------------------------------------
American Skandia Life Assurance Record 87.18%
Variable Account B Class 1
Attn. Investment Accounting
PO Box 883
1 Corporate DR
Shelton, CT 06484-6208
- --------------------------------------------------------------------------------
Telecommunications Fund
- --------------------------------------------------------------------------------
None
- --------------------------------------------------------------------------------
Total Return Fund
- --------------------------------------------------------------------------------
Basis of Ownership Percentage
Name and Address (Record/Beneficial) Owned
- --------------------------------------------------------------------------------
Security Life Record 53.11%
Separate Account L1
Attn. Chris Smythe
Unit Valuations 2T2
1475 Dunwoody Dr
West Chester, PA 19380-1478
- --------------------------------------------------------------------------------
Security Life Record 23.41%
Separate Account A1
Attn. Chris Smythe
Unit Valuations 2T2
1475 Dunwoody Dr
West Chester, PA 19380-1478
- --------------------------------------------------------------------------------
Annuity Investors Life Record 14.23%
Insurance Company
250 East Fifth Street
Cincinnati, OH 45202-4119
- --------------------------------------------------------------------------------
Utilities Fund
- --------------------------------------------------------------------------------
Basis of Ownership Percentage
Name and Address (Record/Beneficial) Owned
- --------------------------------------------------------------------------------
Security Life Record 48.71%
Separate Account L1
Attn. Chris Smythe
Unit Valuations 2T2
1475 Dunwoody Dr
West Chester, PA 19380-1478
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Basis of Ownership Percentage
Name and Address (Record/Beneficial) Owned
- --------------------------------------------------------------------------------
Security Life Record 38.14%
Separate Account A1
Attn. Chris Smythe
Unit Valuations 2T2
1475 Dunwoody Dr
West Chester, PA 19380-1478
- --------------------------------------------------------------------------------
Southland Life Insurance Co. Record 8.66%
Southland Separate Account L1
Attn Dir Mkt Support Services
1475 Dunwoody Dr
West Chester, PA 19380-1478
- ----------------------------------------------------------------------------
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, Suite 2500, 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.
TRANSFER AGENT
INVESCO, 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, 1800 Massachusetts Avenue, N.W., 2nd
Floor, Washington, D.C., is legal counsel for the Company. The firm of Moye,
Giles, O'Keefe, Vermeire & Gorrell LLP, 1225 17th Street, Suite 2900, Denver,
Colorado, acts as special counsel to the Company.
<PAGE>
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 broker-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 favorable 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 favorable execution of a Fund's
transactions.
Portfolio transactions also may be effected through broker-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 broker-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-dealer in selecting among
qualified broker-dealers.
Market Neutral Fund depends upon a prime broker for a variety of services
related to its short sales. If the prime broker becomes insolvent, there will be
delays in enforcing the Fund's rights, which may subject the Fund to additional
losses. Certain of these losses may be covered by insurance. Market Neutral Fund
utilizes so-called "blind principal" trading. In this process, broker-dealers
are asked to bid on making trades for the Fund when it rebalances its portfolio.
The broker-dealer bids for the right to execute all required portfolio trades at
closing market price for a specific commission. The broker-dealer guarantees the
closing market price on the trade date and thus has its own capital at risk.
Certain of the INVESCO Funds utilize fund brokerage commissions to pay custody
fees for each respective fund. This program requires that the participating
funds receive favorable execution.
<PAGE>
The aggregate dollar amount of underwriting discounts and brokerage commissions
paid by each Fund for the fiscal years outlined below were:
Blue Chip Growth Fund
December 31, 1999 $ 1,445
December 31, 1998 1,746
December 31, 1997 267
Dynamics Fund
December 31, 1999 $ 27,990
December 31, 1998 574
December 31, 1997 335
Equity Income Fund
December 31, 1999 $ 286,511
December 31, 1998 278,819
December 31, 1997 239,249
Financial Services Fund(1)
December 31, 1999 $ 22,184
December 31, 1998 N/A
December 31, 1997 N/A
Health Sciences Fund
December 31, 1999 $ 44,909
December 31, 1998 5,650
December 31, 1997 563
High Yield Fund
December 31, 1999 $ 83,031
December 31, 1998 178,000
December 31, 1997 143,282
Market Neutral Fund(2)
December 31, 1999 $ 62,438
December 31, 1998 N/A
December 31, 1997 N/A
Real Estate Opportunity Fund(3)
December 31, 1999 $ 5,970
December 31, 1998 179
December 31, 1997 N/A
Small Company Growth Fund
December 31, 1999 $ 40,243
December 31, 1998 4,907
December 31, 1997 712
Technology Fund
December 31, 1999 $ 94,463
December 31, 1998 14,920
December 31, 1997 5,012
Telecommunications Fund(1)
December 31, 1999 $ 67,179
December 31, 1998 N/A
December 31, 1997 N/A
<PAGE>
Total Return Fund
December 31, 1999 $ 12,909
December 31, 1998 484
December 31, 1997 6,797
Utilities Fund
December 31, 1999 $ 19,205
December 31, 1998 9,136
December 31, 1997 13,372
(1) The Fund commenced investment operations on September 21, 1998.
(2) The Fund commenced investment operations on November 10, 1999.
(3) The Fund commenced investment operations on April 1, 1998.
For the fiscal year ended December 31, 1999, brokers providing research
services received $193,150 in commissions on portfolio transactions effected for
the Funds. The aggregate dollar amount of such portfolio transactions was
$142,385,271 Commissions totaling $0 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, 1999.
At December 31, 1999, each Fund held debt and equity securities of its
regular brokers or dealers, or their parents, as follows:
- --------------------------------------------------------------------------------
Fund Broker or Dealer Value of Securities
at December 31, 1999
- --------------------------------------------------------------------------------
Blue Chip Growth State Street Bank and Trust $164,000
- --------------------------------------------------------------------------------
Dynamics State Street Bank and Trust $4,147,000
- --------------------------------------------------------------------------------
Equity Income State Street Bank and Trust $6,586,000
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter $999,250
- --------------------------------------------------------------------------------
Financial Services State Street Bank and Trust $917,000
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Fund Broker or Dealer Value of Securities
at December 31, 1999
- --------------------------------------------------------------------------------
Goldman Sachs Group $131,863
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter $471,075
- --------------------------------------------------------------------------------
Toronto-Dominion Bank $126,900
- --------------------------------------------------------------------------------
Health Sciences None
- --------------------------------------------------------------------------------
High Yield State Street Bank and Trust $2,968,000
- --------------------------------------------------------------------------------
Market Neutral State Street Bank and Trust $743,000
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter $185,575
- --------------------------------------------------------------------------------
Bear Stearns ($81,225)
- --------------------------------------------------------------------------------
Lehman Brothers Holdings $177,844
- --------------------------------------------------------------------------------
Real Estate Opportunity None
- --------------------------------------------------------------------------------
Small Company Growth State Street Bank and Trust $442,000
- --------------------------------------------------------------------------------
Technology State Street Bank and Trust $7,914,000
- --------------------------------------------------------------------------------
Telecommunications State Street Bank and Trust $11,129,000
- --------------------------------------------------------------------------------
Total Return State Street Bank and Trust $738,000
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter $428,250
- --------------------------------------------------------------------------------
State Street Corporations $109,594
- --------------------------------------------------------------------------------
ABN Amro Securities $199,650
- --------------------------------------------------------------------------------
Utilities State Street Bank and Trust $567,000
- --------------------------------------------------------------------------------
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-dealer that executes transactions for the Funds.
CAPITAL STOCK
The Company is authorized to issue up to 1,500,000,000 shares of common
stock with a par value of $0.01 per share. As of March 31, 2000, the following
shares of each Fund were outstanding:
<PAGE>
Blue Chip Growth Fund 68,146
Dynamics Fund 3,173,730
Equity Income Fund 4,138,441
Financial Services Fund 3,702,875
Health Sciences Fund 4,368,848
High Yield Fund 4,808,309
Market Neutral Fund 1,000,100
Real Estate Opportunity Fund 84,472
Small Company Growth Fund 353,669
Technology Fund 8,091,580
Telecommunications Fund 12,088,881
Total Return Fund 1,285,441
Utilities Fund 447,315
All shares of a Fund will be voted together 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 1940 Act.
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 A 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 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 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 distribute all of its net investment income
or net capital gains, it will be subject to income and excise taxes on the
amount that is not distributed. If a Fund does not qualify as a regulated
investment company, it will be subject to income tax on its net investment
income and net capital gains at the corporate tax rates.
<PAGE>
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. 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. These gains or losses may increase or
decrease the amount of a Fund's investment company taxable income to be
distributed to its shareholders.
You should consult your contract prospectus and your own tax adviser regarding
specific questions as to federal, state and local taxes 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 telephone number or
address on the back cover of the Funds' Prospectuses.
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 since inception
periods ended December 31, 1999, was:
Name of Fund 1 Year 5 Year Since Inception*
Blue Chip Growth Fund 29.17% N/A 31.92%
Dynamics Fund 55.60% N/A 31.95%
Equity Income Fund 14.84% 21.81% 20.34%
Financial Services Fund N/A N/A 11.00%
Health Sciences Fund 4.86% N/A 21.22%
High Yield Fund 9.20% 12.65% 11.34%
Market Neutral Fund N/A N/A 2.90%
Real Estate Opportunity Fund 0.35% N/A (9.21%)
Small Company Growth Fund 91.06% N/A 39.89%
Technology Fund 158.93% N/A 65.49%
Telecommunications Fund N/A N/A 64.50%
Total Return Fund (3.40%) 12.38% 11.36%
Utilities Fund 19.13% N/A 17.83%
<PAGE>
*Inception dates were as follows:
Blue Chip Growth August 25, 1997
Dynamics August 25, 1997
Equity Income August 10, 1994
Financial Services September 21, 1999
Health Sciences May 22, 1997
High Yield May 27, 1994
Market Neutral November 10, 1999
Real Estate Opportunity April 1, 1998
Small Company Growth August 25, 1997
Technology May 21, 1997
Telecommunications September 21, 1999
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)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.
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, S&P,
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 Inc.; or (iii) by other recognized analytical
services.
<PAGE>
The Lipper 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:
Lipper Mutual
Fund Fund Category
---- -------------
Blue Chip Growth Fund Growth Funds
Dynamics Fund Capital Appreciation Funds
Equity Income Fund Equity Income Funds
Financial Services Fund Financial Services Funds
Health Sciences Fund Health Biotechnology Funds
High Yield Fund High Current Yield Funds
Market Neutral Fund Variable Specialty/Miscellaneous Funds
Real Estate Opportunity Fund Real Estate Funds
Small Company Growth Fund Small Company Growth Funds
Technology Fund Science and Technology Funds
Telecommunications Fund Global 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 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 Funds for the fiscal year ended December 31,
1999, are incorporated herein by reference from INVESCO Variable Investment
Funds, Inc.'s Annual Reports to Shareholders dated December 31, 1999.
<PAGE>
APPENDIX A
BOND RATINGS
The following is a description of Moody's and S&P's bond ratings:
Moody's Corporate Bond Ratings
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risk appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes, and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any longer period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
<PAGE>
S&P CORPORATE BOND RATINGS
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB - Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
B - Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
CCC - Bonds rated CCC have a currently identifiable vulnerability to default and
are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) (1) Articles of Incorporation filed August 19, 1993.(2)
(2) Articles of Amendment of the Articles of Incorpora-
tion filed October 21, 1993.(2)
(3) Articles Supplementary to Articles of Incorporation
filed October 22, 1993.(2)
(4) Articles Supplementary to Articles of Incorporation
filed February 11, 1997.(2)
(5) Articles Supplementary to Articles of Incorporation
dated January 5, 1998.(5)
(6) Articles of Amendment to Articles of Incorporation
filed August 13, 1999.(8)
(7) Articles of Amendment to Articles of Incorporation
filed August 13, 1999.(8)
(8) Articles Supplementary to Articles of Incorporation
filed August 17, 1999.(8)
(9) Articles Supplementary to Articles of Incorporation
filed February 29, 2000.
(b) Bylaws as of July 21, 1993.(3)
(c) Not applicable.
(d) (1) Investment Advisory Agreement between Company and
INVESCO Funds, Group, Inc. dated August 30, 1999.(8)
(2) Sub-Advisory Agreement between INVESCO Funds Group,
Inc. and INVESCO Capital Management, Inc. dated
February 28, 1997.(2)
(i) Amendment dated January 1, 1998 to Sub-Advisory
Agreement dated February 28, 1997.(7)
(ii) Amendment dated May 13, 1999 to Sub-Advisory
Agreement.(8)
(3) Sub-Advisory Agreement between INVESCO Funds Group,
Inc. and INVESCO Realty Advisors, Inc. dated February 28,
1997.(7)
(i) Amendment dated January 1, 1998 to Sub-Advisory
Agreement dated February 28, 1997.(7)
(ii) Amendment dated May 13, 1999 to Sub-Advisory
Agreement.(8)
<PAGE>
(4) Sub-Advisory Agreement between INVESCO Funds Group,
Inc. and INVESCO (NY) dated August 30, 1999.(9)
(e) (1) General Distribution Agreement between Company and
INVESCO Funds Group, Inc. dated February 28, 1997.(2)
(2) General Distribution Agreement between Company and
INVESCO Distributors, Inc. dated September 30, 1997.(3)
(f) (1) Defined Benefit Deferred Compensation Plan for
Non-Interested Directors and Trustees.(2)
(2) Amended Defined Benefit Deferred Compensation Plan
for Non-Interested Directors and Trustees.(6)
(g) (1) Custody Agreement between Company and State Street
Bank and Trust Company dated October 20, 1993.(3)
(2) Amendment to Custody Agreement dated October 25,
1995.(2)
(3) Data Access Services Addendum.(3)
(4) Additional Fund Letter dated November 13, 1997.(5)
(5) Additional Fund Letter dated August 18, 1999.(8)
(h) (1) Transfer Agency Agreement between Company and INVESCO
Funds Group, Inc. dated February 28, 1997.(2)
(2) Administrative Services Agreement between Company and
INVESCO Funds Group, Inc. dated February 28, 1997.(2)
(i) Amendment to Administrative Services Agreement
dated July 1, 1998.(6)
(3) Participation Agreement dated March 22, 1994, among
Registrant, INVESCO Funds Group, Inc., Transamerica
Occidental Life Insurance Company and Charles Schwab &
Co., Inc.(4)(10)
(4) Participation Agreement, dated August 26, 1994, among
Registrant, INVESCO Funds Group, Inc. and Security Life
of Denver Insurance Company.(3)
(i) First Amendment to Participation Agreement.
(ii) Second Amendment to Participation Agreement.(6)
(iii) Third Amendment to Participation Agreement.
(iv) Fourth Amendment to Participation Agreement.
(v) Fifth Amendment to Participation Agreement.
(5) Participation Agreement, dated September 19, 1994
among Registrant, INVESCO Funds Group, Inc. and First ING
Life Insurance Company of New York.(4)
(i) First Amendment to Participation Agreement.
(6) Participation Agreement, dated December 1, 1994,
among Registrant, INVESCO Funds Group, Inc., First
Transamerica Life Insurance Company and Charles Schwab
& Co., Inc.(4)
<PAGE>
(7) Participation Agreement, dated September 14, 1995,
among Registrant, INVESCO Funds Group, Inc. and
Southland Life Insurance Company.(1)
(8) Participation Agreement, dated October 31, 1995, among
Registrant, INVESCO Funds Group, Inc. and American
Partners Life Insurance Company.(1)
(9) Participation Agreement, dated April 15, 1996,
among Registrant, INVESCO Funds Group, Inc. and
Allmerica Financial Life Insurance and Annuity Company.(2)
(10) Participation Agreement, dated December 4, 1996,
among Registrant, INVESCO Funds Group, Inc. and
American Centurion Life Assurance Company.(3)
(11) Participation Agreement, dated April 15, 1997,
among Registrant, INVESCO Funds Group, Inc. and
Prudential Insurance Company of America.(3)
(i) Amendment to Participation Agreement.
(12) Participation Agreement, dated May 30, 1997, among
Registrant, INVESCO Funds Group, Inc. and Annuity
Investors Life Insurance Company.(3)
(13) Participation Agreement, dated August 17, 1998,
among Registrant, INVESCO Funds Group, Inc. and
Metropolitan Life Insurance Company.(6)
(14) Participation Agreement, dated October 1, 1998, among
Registrant, INVESCO Funds Group, Inc. and Business Mens'
Assurance Company of America.(6)
(15) Participation Agreement dated July 8, 1997, among
Registrant, INVESCO Funds Group, Inc., First Great-West
Life & Annuity Insurance Company and Charles Schwab & Co.
Inc.(6)
(i) Amendment of Schedule B and C to Participation
Agreement.
(ii) Amendment to revise Schedule B of Participation
Agreement.
(16) 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.(6)
(17) Participation Agreement dated June 19, 1996,
among Registrant, INVESCO Funds Group and Great American
Reserve Insurance Company.(6)
(i) Amendment to Participation Agreement to change the
company name to Conseco Variable Insurance Company.
<PAGE>
(18) Participation Agreement dated April 16, 1998, among
Registrant, INVESCO Funds Group and SAFECO Life Insurance
Company.
(19) Participation Agreement dated August 16, 1999, among
Registrant, INVESCO Funds Group and Great American Life
Insurance Company of New York.
(20) Participation Agreement dated October 25, 1996,
among Registrant, INVESCO Funds Group, Great-West Life &
Annuity Insurance Company and Charles Schwab & Co. Inc.
(i) Amendment of Schedule B and C to Participation
Agreement.
(ii) Amendment to revise Schedule B of the
Participation Agreement.
(21) Participation Agreement dated June 18, 1999, among
Registrant, INVESCO Funds Group and Great-West Life and
Annuity Insurance Co.
(22) Participation Agreement dated October 18, 1999,
among Registrant, INVESCO Funds Group and American Skandia
Life Assurance Corporation.
(23) Participation Agreement dated March 14, 1995, among
Registrant, INVESCO Funds Group and American United Life
Insurance Co.
(24) Participation Agreement dated November 17, 1999,
among Registrant, INVESCO Funds Group and Cova Financial
Services Life Insurance Company.
(25) Participation Agreement dated November 17, 1999,
among Registrant, INVESCO Funds Group and Cova Financial
Services Life Insurance Company.
(26) Participation Agreement dated August 14, 1997, among
Registrant, INVESCO Funds Group and First Fortis Life
Insurance Company.
(27) Participation Agreement dated April 30, 1997, among
Registrant, INVESCO Funds Group and Fortis Benefits
Insurance Company.
(28) Participation Agreement dated October 8, 1999, among
Registrant, INVESCO Funds Group and PFL Life Insurance
Company.
(29) Participation Agreement dated July 8, 1999, among
Registrant, INVESCO Funds Group and United Investors Life
Insurance Company.
(30) Participation Agreement dated October 8, 1999, among
Registrant, INVESCO Funds Group and Western Reserve Life
Assurance Company of Ohio.
<PAGE>
(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)
(j) Consent of Independent Accountants.
(k) Not applicable.
(l) Not applicable.
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(1)Previously filed with Post-Effective Amendment No. 4 to the Registration
Statement on April 11, 1996, and incorporated by reference herein.
(2)Previously filed with Post-Effective Amendment No. 6 to the Registration
Statement on February 14, 1997, and incorporated by reference herein.
(3)Previously filed with Post-Effective Amendment No. 7 to the Registration
Statement on November 12, 1997, and incorporated by reference herein.
(4)Previously filed with Post-Effective Amendment No. 8 to the Registration
Statement on November 24, 1997, and incorporated by reference herein.
(5)Previously filed with Post-Effective Amendment No. 10 to the Registration
Statement on February 27, 1998, and incorporated by reference herein.
(6)Previously filed with Post-Effective Amendment No. 13 to the Registration
Statement on February 22, 1999, and incorporated by reference herein.
(7)Previously filed with Post-Effective Amendment No. 14 to the Registration
Statement on April 30, 1999, and incorporated by reference herein.
(8)Previously filed with Post-Effective Amendment No. 17 to the Registration
Statement on August 30, 1999, and incorporated by reference herein.
(9)Previously filed with Post-Effective Amendment No. 18 to the Registration
Statement on October 8, 1999, and incorporated by reference herein.
(10)Participation agreement is not active.
<PAGE>
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.
ITEM 25. INDEMNIFICATION
Indemnification provisions for officers, directors and employees of Registrant
are set forth in Article VII of the Articles of Incorporation, and are hereby
incorporated by reference. See Item 23(a) 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 Company also
maintains liability insurance policies covering its directors and officers.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "Fund Management" in the Funds' Prospectuses and "Management of the Funds"
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.
- --------------------------------------------------------------------------------
POSITION WITH PRINCIPAL OCCUPATION AND
NAME ADVISER COMPANY AFFILIATION
- --------------------------------------------------------------------------------
Mark H. Williamson Chairman and Officer Chairman of the Board,
President & Chief
Executive Officer
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Raymond R. Cunningham Officer Senior Vice President
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 & Director Senior Vice President
& Treasurer
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Richard W. Healey Officer & Director Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
William R. Keithler Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Trent E. May Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- ------------------------------------------------------------------------------
Charles P. Mayer Officer & Director Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Timothy J. Miller Officer & Director 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
- --------------------------------------------------------------------------------
Linda J. Gieger Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Stuart Holland Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Campbell C. Judge Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Steve King Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Thomas A. Kolbe 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
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
George A. Matyas Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Corey M. McClintock Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Douglas J. McEldowney 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
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Pamela J. Piro Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Anthony R. Rogers 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
- --------------------------------------------------------------------------------
James B. Sandidge Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Thomas H. Scanlan Officer Regional Vice President
INVESCO Funds Group, Inc.
12028 Edgepark Court
Potomac, MD 20854
- --------------------------------------------------------------------------------
John S. Segner Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
Reagan A. Shopp Officer Regional 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
& Assistant General
Counsel
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
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Michael D. Legoski Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
William S. Mechling Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------
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. (a) PRINCIPAL UNDERWRITERS
INVESCO Bond Funds, Inc.
INVESCO Combination Stock & Bond Funds, Inc.
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc.
INVESCO Stock Funds, Inc.
INVESCO Variable Investment Funds, Inc.
(b)
POSITIONS AND POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH OFFICES WITH
BUSINESS ADDRESS UNDERWRITER THE COMPANY
- ------------------ ------------ -------------
Raymond R. Cunningham Senior Vice
7800 E. Union Avenue President
Denver, CO 80237
William J. Galvin, Jr. Senior Vice Assistant Secretary
7800 E. Union Avenue President &
Denver, CO 80237 Asst. Secretary
<PAGE>
Ronald L. Grooms Senior Vice Treasurer,
7800 E. Union Avenue President, Chief Fin'l
Denver, CO 80237 Treasurer, & Officer, and
Director Chief Acctg. Off.
Richard W. Healey Senior Vice
7800 E. Union Avenue President &
Denver, CO 80237 Director
Charles P. Mayer Director
7800 E. Union Avenue
Denver, CO 80237
Timothy J. Miller 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
Pamela J. Piro Assistant Treasurer Assistant Treasurer
7800 E. Union Avenue
Denver, CO 80237
Judy P. Wiese Assistant Secretary Assistant Secretary
7800 E. Union Avenue
Denver, CO 80237
Mark H. Williamson Chairman of the Board, Chairman of the
7800 E. Union Avenue President, & Chief Board, President and
Denver, CO 80237 Executive Officer CEO
(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 certifies that it meets all the
requirements for effectiveness of this Registration Statement under Rule 485(b)
under the Securities Act and 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 17th day of April,
2000.
INVESCO Variable Investment Funds, Inc.
Attest:
/s/ Mark H. Williamson
----------------------------------
/s/ Glen A. Payne Mark H. Williamson, President
- --------------------------------
Glen A. Payne, Secretary
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/ Wendy L. Gramm*
- ------------------------------- -----------------------------
Charles W. Brady, Director Wendy L. Gramm, Director
/s/ James T. Bunch* /s/ Gerald J. Lewis*
- ------------------------------- -----------------------------
James T. Bunch, Director Gerald J. Lewis, Director
/s/ Glen A. Payne
By _____________________________ By _________________________
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 (with the exception of Messrs. Bunch and Lewis)
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
- -------------- ----------------------
a(9) 276
h(4)(i) 278
h(4)(iii) 280
h(4)(iv) 282
h(4)(v) 284
h(5)(i) 286
h(11)(i) 288
h(15)(i) 291
h(15)(ii) 295
h(17)(i) 297
h(18) 299
h(19) 323
h(20) 347
h(20)(i) 395
h(20)(ii) 399
h(21) 401
h(22) 444
h(23) 472
h(24) 482
h(25) 507
h(26) 540
h(27) 567
h(28) 594
h(29) 626
h(30) 655
j 687
99.POA Bunch 688
99.POA Lewis 689
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Investment Funds, Inc., a corporation organized and
existing under the General Corporation Law of the State of Maryland (the
"Company"), hereby certifies to the State Department of Assessments and Taxation
of Maryland that:
The name INVESCO VIF - Realty Fund, a series of the Company, has been
changed to INVESCO VIF - Real Estate Opportunity Fund.
The foregoing amendment, in accordance with the requirements of Section
2-605 of the General Corporation Law of Maryland, was unanimously approved by
the board of directors of the Company on January 26, 2000.
The undersigned, President of the Company, who is executing on behalf of
the Company the foregoing Articles of Amendment, of which this paragraph is made
a part, hereby acknowledges, in the name and on behalf of the Company, the
foregoing Articles of Amendment to be the corporate act of the Company and
further verifies under oath that, to the best of his knowledge, information and
belief, the matters and facts set forth herein are true in all material
respects, under the penalties of perjury.
IN WITNESS WHEREOF, INVESCO Variable Investment Funds, Inc. has caused
these Articles of Amendment to be signed in its name and on its behalf by its
President and witnessed by its President on the 28th day of February, 2000.
These Articles of Amendment shall be effective as accepted as of the 1st
day of March, 2000 by the Maryland State Department of Assessments and Taxation.
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By: /s/ Mark H. Williamson
----------------------
Mark H. Williamson,
President
WITNESSED:
By: /s/ Glen A. Payne
-----------------
Glen A. Payne, Secretary
<PAGE>
CERTIFICATION
I, Ruth A. Christensen, a notary public in and for the City and County of
Denver, and State of Colorado, do hereby certify that Mark H. Williamson,
personally known to me to be the person whose name is subscribed to the
foregoing Articles of Amendment, appeared before me this date in person and
acknowledged that he signed, sealed and delivered said instrument as his full
and voluntary act and deed for the uses and purposes therein set forth.
Given my hand and official seal this 28th day of February, 2000.
/s/ Ruth A. Christensen
------------------------------------
Notary Public
My Commission Expires: March 16, 2002
FIRST 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 Company's
portfolios are to be made available to certain variable life insurance and/or
variable annuity contracts (the "Contracts") offered by 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 an
additional Contract funded by the Separate Accounts;
NOW, THEREFORE, in consideration of their mutual promises, Insurance
Company, 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 Variable Universal Life policy to the list of Contracts
funded by the Separate Accounts.
Executed this 22ND day of February, 1995.
Invesco Variable Investment Funds, Inc.
ATTEST: /s/ Glen A. Payne BY: /s/ Dan Hesser
------------- ----------
Security Life of Denver Insurance Company
ATTEST: BY: /s/Steve Largent
--------------- ----------------
Invesco Funds Group, Inc.
ATTEST: /s/ Glen A. Payne BY: /s/ Dan Hesser
----------------- --------------
<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
Universal Life Life Insurance Policy)
THIRD 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 an
additional Contract 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 Variable Survivorship Universal Life Policy to the list of Contracts
funded by the Separate Accounts.
Executed this 4th day of June, 1999.
ATTEST: INVESCO Variable Investment Funds, Inc.
BY: /s/Ronald L. Grooms
-------------------
ATTEST: Security Life of Denver Insurance Company
BY: /s/Gary Waggoner
----------------
INVESCO Funds Group, Inc.
BY: /s/Ronald L. Grooms
-------------------
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE B
Contracts
<S> <C> <C>
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 Universal Life (Flexible Premium Variable Universal Life
Insurance Policy)
4. First Line II Variable Universal Life (Flexible Premium Variable Universal Life
Insurance Policy)
5. Strategic Advantage II Variable Universal Life (Flexible Premium Variable Universal Life
Insurance Policy)
6. Variable Survivorship Universal Life (Flexible Premium Variable Universal Life
Insurance Policy)
</TABLE>
FOURTH 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 an
additional Contract 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 Corporate Benefits Variable Universal Life Policy to the list of Contracts
funded by the Separate Accounts.
Executed this 3rd day of November, 1999.
ATTEST: INVESCO Variable Investment Funds, Inc.
BY: \s\Ronald L. Grooms
-------------------
Ronald L. Grooms
Senior Vice President
ATTEST: Security Life of Denver Insurance
Company
By: \s\Gary W. Waggoner
-------------------
Gary W. Waggoner
Vice President
ATTEST: INVESCO Funds Group, Inc.
BY: \s\Ronald L. Grooms
-------------------
Ronald L. Grooms
Senior Vice President
<PAGE>
SCHEDULE B
Contracts
1. The Exchequer Variable Annuity (Flexible Premium Deferred Combination
Fixed and Variable Annuity Contract)
2. FirstLine (Flexible Premium Variable Life
Insurance Policy)
3. Strategic Advantage Variable (Flexible Premium Variable Universal
Universal Life Life Insurance Policy)
4. FirstLine II Variable Universal Life (Flexible Premium Variable Universal
Life Insurance Policy)
5. Strategic Advantage II Variable (Flexible Premium Variable Universal
Universal Life Life Insurance Policy)
6. Variable Survivorship Universal Life (Flexible Premium Variable Universal
Life Insurance Policy)
7. Corporate Benefits Variable (Flexible Premium Variable Universal
Universal Life Life Insurance Policy)
FIFTH 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 an
additional Contract funded by the Separate Accounts;
NOW THEREFORE, in consideration of their mutual promises, the Insurance
Company and the Company 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 Estate Designer Variable Universal Life and the Strategic Benefit Variable
Universal Life Policies to the list of Contracts funded by the Separate
Accounts.
Executed this 21st day of February, 2000
ATTEST: INVESCO Variable Investment Funds, Inc.
BY: /s/Ronald L. Grooms
------------------------
Ronald L. Grooms
Treasurer
ATTEST: Security Life of Denver Insurance Company
/s/Eric Banta BY: /s/Gary W. Waggoner
- ------------------ ------------------------
Eric Banta Gary W. Waggoner
Assistant Secretary Vice President
ATTEST: INVESCO Funds Group, Inc.
BY: /s/Ronald L. Grooms
------------------------
Ronald L. Grooms
Senior Vice President
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE B
Contracts
<S> <C>
1. The Exchequer Variable Annuity (Flexible Premium Deferred Combination
Fixed and Variable Annuity Contract)
2. FirstLine (Flexible Premium Variable Life Insurance
Policy)
3. Strategic Advantage Variable Universal Life (Flexible Premium Variable Universal Life
Insurance Policy)
4. FirstLine II Variable Universal Life (Flexible Premium Variable Universal Life
Insurance Policy)
5. Strategic Advantage II Variable Universal Life (Flexible Premium Variable Universal Life
Insurance Policy)
6. Variable Survivorship Universal Life (Flexible Premium Variable Universal Life
Insurance Policy)
7. Corporate Benefits Variable Universal Life (Flexible Premium Variable Universal Life
Insurance Policy)
8. Estate Designer Variable Universal Life (Flexible Premium Variable Universal Life
Insurance Policy)
9. Strategic Benefit Variable Universal Life (Flexible Premium Variable Universal Life
Insurance Policy)
</TABLE>
FIRST AMENDMENT TO PARTICIPATION AGREEMENT
THIS AGREEMENT is made by and among First ING Life Insurance Company of New
York, a life insurance company organized under the laws of the State of New York
("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 September 19,
1994 (the "Participation Agreement"), governing how shares of Company's
portfolios are to be made available to certain variable life insurance and/or
variable annuity contracts (the "Contracts") offered by 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 an
additional Contract funded by the Separate Accounts;
NOW, THEREFORE, in consideration of their mutual promises, Insurance
Company, 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 Variable Universal Life policy to the list of Contracts
funded by the Separate Accounts.
Executed this 22nd day of February, 1995.
Invesco Variable Investment Funds, Inc.
ATTEST: /s/ Glen A. Payne BY: /s/ Dan Hesser
----------------- --------------
First ING Life Insurance Company of New York
ATTEST: BY: /s/Steve Largent
----------------- ----------------
Invesco Funds Group, Inc.
ATTEST: /s/ Glen A. Payne BY: /s/ Dan Hesser
----------------- --------------
<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
Universal Life Life Insurance Policy)
AMENDMENT TO PARTICIPATION AGREEMENT
This Amendment to Participation Agreement, made and entered into this 11th
day of February, 2000 by and among Prudential Insurance Company of America
("Insurance Company"), on its own behalf and on behalf of each segregated asset
account of the Insurance Company set forth on Schedule A hereto, INVESCO
Distributors, Inc. ("Distributors"), INVESCO Funds Group, Inc., ("INVESCO"), and
INVESCO Variable Investment Funds, Inc. ("Company").
WHEREAS the Insurance Company, Distributors, INVESCO, and the Company have
entered into a Participation Agreement, dated April 15, 1997 ("Participation
Agreement"), and
WHEREAS Insurance Company, Distributors, INVESCO, and the Company desire
that each segregated asset account of the Insurance Company set forth in
Schedule A hereto be enabled to invest in portfolios of the Company, and
WHEREAS Insurance Company, Distributors, INVESCO, and the Company desire
to have the portfolios of the Company offered in additional insurance contracts
underwritten and distributed by Insurance Company as set forth in Schedule B
hereto, and
NOW, THEREFORE Insurance Company, INVESCO, and the Company agree as
follows:
1. Schedule A of the Participation Agreement, which designates the
Insurance Company Accounts which invest in portfolios of the Company,
and Schedule B of the Participation Agreement, which designates the
contracts offered by Insurance Company, are superseded and replaced by
Schedules A and B attached hereto.
2. Article 1.6 of the Participation Agreement shall be deleted in
its entirety.
3. All of the other provisions contained in the Participation
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
to Participation Agreement to be executed in its name and on behalf of its duly
authorized representatives.
PRUDENTIAL INSURANCE COMPANY INVESCO FUNDS GROUP, INC./
OF AMERICA INVESCO DISTRIBUTORS, INC.
By: /s/ Ken Montgomery By: /s/ Ronald L. Grooms
------------------ --------------------
Kenneth H. Montgomery Ronald L. Grooms
Senior Vice President Senior Vice President and Treasurer
Date: _____________________________ Date: February 11, 2000
INVESCO VARIABLE INVESTMENT
FUNDS, INC.
By: /s/ Ronald L. Grooms
--------------------
Ronald L. Grooms
Treasurer and Chief Financial
and Accounting Officer
Date: February 11, 2000
<PAGE>
SCHEDULE A
ACCOUNTS
DATE OF RESOLUTION OF INSURANCE
COMPANY'S BOARD WHICH
NAME OF ACCOUNT ESTABLISHED THE ACCOUNT
The Prudential Variable Contract Account GI-2 Est. 6/24/88
Prudential Discovery Premier Group Variable
Contract Account 11/9/99
<PAGE>
SCHEDULE B
CONTRACTS
1. Contract Form ___________________________________
The Prudential Variable Contract Account GI-2
Group Variable Universal Life Contracts Series: 89759
Prudential Discovery Premier Group Variable Contract Account
DC-401-97, NQ-127-96, DC-403(B)-97, NQ-401-96, NQ-401-97
(amended form #DCA-1-DP)
Corresponding Active Life Certificates are ALC-403-97 and ALC-403(B)-97
(rider form #DCR-1-DP)
GAA-7900-SECULAR(NY) (amended form #DCA-2-DP-8110)
Corresponding Active Life Certificate is GAA-7987(NY)-8110 (rider form
#DCR-2-DP-8110).
CHARLES SCHWAB
- --------------------------------------------------------------------------------
THE SCHWAB BUILDING*101 MONTGOMERY STREET*SAN FRANCISCO, CA 94104*(415)627-7000
April 19,1999
Mr. Richard Healey
Senior Vice President and Director of Marketing
INVESCO Funds Group, Inc.
7800 East Union Ave., Ste. 220
Denver, CO 80237
General Counsel
INVESCO Variable Investment Funds, Inc.
7800 East Union Ave., Ste. 800
Denver, CO 80237
RE: AMENDED SCHEDULE B AND C TO PARTICIPATION AGREEMENTS
----------------------------------------------------
Dear Sirs:
Enclosed are drafts of amended Schedule B ("Schedule B") and Schedule C
("Schedule C") to our participation agreements, dated October 25, 1996 and July
8, 1997, with INVESCO Variable Investment Funds, Inc. and INVESCO Funds Group,
Inc. (each, an "Agreement"; collectively, the "Agreements").
Schedule B reflects the deletion of the INVESCO VIF Total Return Portfolio
("deleted portfolio"), pursuant to our letter to you dated February 9, 1999
("February 9 letter"). The Schedule shall replace the existing Schedule B to
each Agreement effective as of our receipt of the SEC substitution order
described in our February 9 letter.
Schedule C reflects the additional administrative services that Schwab
intends to provide effective May 1, 1999 and the related changes in the
compensation therefor. Schedule C shall replace the existing Schedule C to each
Agreement effective May 1, 1999.
The Agreements otherwise remain unchanged and shall continue in full force
and effect.
In the space provided below, please acknowledge your agreement to the
foregoing.
CHARLES SCHWAB & CO., INC., MEMBER SIPC, NEW YORK STOCK EXCHANGE AND OTHER
PRINCIPAL STOCK AND OPTIONS EXCHANGES
<PAGE>
Very truly yours,
Charles Schwab & Co., Inc.
By: \s\ Lynnda Sarinske
-----------------------
Lynnda Sarinske
Vice President, Insurance & Annuities
Great-West Life & Annuity Insurance Company
and First Great-West Life & Annuity
Insurance Company
By: \s\ David G. McDonald
-------------------------
David G. McDonald
Vice President, Institutional Insurance
ACKNOWLEDGED AND AGREED TO:
INVESCO Variable Investment Funds, Inc.
By: \s\ Ronald L. Grooms
- -------------------------
Title: Treasurer
Date: 4-29-99
INVESCO Funds Group, Inc.
By: \s\ Richard W. Healey
- --------------------------
Title: Senior Vice President
Date: 4-29-99
cc: B. Byrne, Esq.
Great-West Life & Annuity Insurance Company
and First Great-West Life & Annuity Insurance Company
E. O'Riordan
T. Perrino, Esq.
M. Armosino
Charles Schwab & Co., Inc.
Enc: Amended Schedules B & C
<PAGE>
INVESCO - SCHEDULE B (Last Revised May 1, 1999)
Designated Portfolios
- ---------------------
INVESCO VIF-Industrial Income Portfolio
INVESCO VIF-High Yield Portfolio
<PAGE>
INVESCO - SCHEDULE C (Last Revised May 1, 1999)
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
Contract information and questions - including the following:
o respond to Contractowner inquiries
o mail fund and Contract prospectuses
o entry of initial and subsequent orders
o transfer of cash to GWL&A and/or FGWL&A and/or Fund
o explanations of Designated Portfolio objectives and characteristics
o entry of transfers between Unaffiliated Funds, including the Designated
Portfolios
o Contract balance and allocation inquiries
o communicate all purchase, withdrawal, and exchange orders received
from Contractowners to GWL&A and/or FGWL&A which will transmit orders to
Funds
o train call center representatives to explain Fund objectives,
Morningstar categories, Fund selection data and differences between
publicly traded funds and the Funds
o provide performance data and Fund prices
o shareholder services including researching trades, resolving trade
disputes, etc.
o coordinate the writing, printing and distribution of semi-annual and annual
reports to Contractowners investing in the Designated Portfolios
o create and update Designated Portfolio profiles and other shareholder
communications
o establish scheduled account rebalances
o Web trading and account servicing
o touch-tone telephone trading and account servicing
o establish dollar cost averaging
o communications to Contractowners related to product changes, including but
not limited to changes in the available Designated Portfolios
B. For the foregoing services, Schwab shall receive a monthly fee equal to 0.30%
per annum of the average daily value of the shares of the Designated Portfolios
listed on Schedule B attributable to Contractowners, 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 GWL&A and/or FGV&&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.
Great-West Life & Annuity Insurance Company
and First Great-West Life & Annuity Insurance
Company
By:/s/ David G. McDonald
------------------------
David G. McDonald
Vice President, Institutional Insurance
ACKNOWLEDGED AND AGREED TO:
INVESCO Variable Investment Funds, Inc.
By: /s/ Ronald L. Grooms
- ------------------------
Title: Senior Vice President
Date: February 15, 2000
INVESCO Funds Group, Inc.
By: /s/Ronald L. Grooms
- ------------------------
Title: Senior Vice President
Date: February 15, 2000
cc: B. Byrne, Esq.
Great-West Life & Annuity Insurance Company
and First Great-West Life & Annuity Insurance Company
E. O'Riordan
T. Perrino, Esq.
Charles Schwab & Co., Inc.
Enc: Amended Schedule B
<PAGE>
INVESCO - SCHEDULE B (Last Revised February 3, 2000)
Designated Portfolios
- ---------------------
INVESCO VIF-Industrial Income Portfolio
INVESCO VIF-High Yield Portfolio
INVESCO VIF-Technology Fund
AMENDMENT TO PARTICIPATION AGREEMENT
This Amendment to Participation Agreement, made and entered into this 31st
day of December, 1999 by and among Great American Reserve Insurance Company
("Insurance Company"), on its own behalf and on behalf of each segregated asset
account of the Insurance Company set forth on Schedule B hereto INVESCO Funds
Group, Inc., ("INVESCO"), and INVESCO Variable Investment Funds, Inc.
("Company").
WHEREAS the Insurance Company, INVESCO, and the Company have entered into
a Participation Agreement, dated July 19, 1996 ("Participation Agreement"), and
WHEREAS the Insurance Company has changed its name to Conseco Variable
Insurance Company, and
WHEREAS Insurance Company, INVESCO, and the Company desire to have the
portfolios of the Company offered in additional insurance contracts underwritten
and distributed by Insurance Company as set forth in Schedule A hereto, and
WHEREAS Insurance Company, INVESCO, and the Company desire that each
segregated asset account of the Insurance Company set forth in Schedule B hereto
be enabled to invest in portfolios of the Company, and
WHEREAS Insurance Company, INVESCO, and the Company desire to remedy
certain technical deficiencies in the Participation Agreement.
NOW, THEREFORE Insurance Company, INVESCO, and the Company agree as
follows:
1. Insurance Company has changed its name to Conseco Variable
Insurance Company. Such name change does not constitute a change of
control of Insurance Company, or an assignment of any investment
advisory or sub-advisory contract, as those terms are defined in the
Investment Company Act of 1940. All rights, obligations, and remedies
of Insurance Company, INVESCO, and the Company contained in the
Participation Agreement continue in force without modification except as
provided by this Amendment and Schedules A and B attached hereto.
2. Schedule A of the Participation Agreement, which designate the
contracts offered by Insurance Company, and Schedule B of the
Participation Agreement, which designates the Insurance Company Accounts
which invest in portfolios of the Company, are superseded and replaced by
Schedules A and B attached hereto
3. Section 2.7 of the Participation Agreement is deleted in its
entirety and replaced with the following:
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
<PAGE>
and distribute the Company shares in accordance with the laws of the
State of Colorado and all applicable state and federal securities
laws, including without limitation the 1933 Act, the 1934 Act, and
the 1940 Act.
4. Section 2.9 of the Participation Agreement is deleted in its
entirety and replaced with the following:
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.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
to Participation Agreement to be executed in its name and on behalf of its duly
authorized representatives.
CONSECO VARIABLE INSURANCE COMPANY
/s/ Michael A. Colliflower
--------------------------
Michael A. Colliflower
Senior Vice President
INVESCO FUNDS GROUP, INC.
/s/ Ronald L. Grooms
--------------------
Ronald L. Grooms
Senior Vice President and Treasurer
INVESCO VARIABLE INVESTMENT FUNDS, INC.
/s/ Ronald L. Grooms
--------------------
Ronald L. Grooms
Treasurer and Chief Financial and Accounting Officer
PARTICIPATION AGREEMENT
AMONG
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO FUNDS GROUP, INC.
AND
SAFECO LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this 16th day of April, 1998 by and
among SAFECO Life Insurance COMPANY, (hereinafter the "Insurance Company"), a
Washington 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
Orders"); 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] contacts
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 Contacts; and
WHEREAS, the Insurance Company has registered or will register each Account
as a unit investment trust under the 1940 Act and
<PAGE>
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 8:30
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 dally 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 8:30 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 Contacts 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
<PAGE>
(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.
1.7. The Insurance Company shall pay for Company shares by 1:00 p.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.
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 5:00 p.m.,
Mountain Time.
<PAGE>
ARTICLE II. Representations and Warranties
2.1. The Insurance Company represents and warrants that the Contacts are,
or will be, registered under the 1933 Act; that the Contacts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws and that the sale of the Contacts 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 48 of the Washington Insurance Code and
has registered, or prior to any issuance or sale of the Contacts will register,
the Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts.
2.2. The Company represents and warrants that Company shares sold pursuant
to this Agreement shall be registered under the 1933 Act duly authorized for
issuance and sale in compliance with the laws of the State of Maryland and all
applicable federal securities laws and that the Company is and shall remain
registered under the 1940 Act. The Company shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The
Company shall register and qualify the shares for sale in accordance with the
laws of the various states only if and to the extent deemed advisable by the
Company or INVESCO.
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 and 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.
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 Washington and 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 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 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 for sales to new contract holders.
INVESCO shall provide the Insurance Company (at INVESCO's) expense) with as many
copies of the Company's current prospectus as is necessary to mail to existing
contract holders. 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). The Insurance Company will be responsible
for mailing costs associated with distributing to existing and prospective
contract holders.
<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 Contact 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 Contract 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 Contacts other than the information or
representations contained in a registration statement or prospectus for the
Contacts, 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 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.
<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 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
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
<PAGE>
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 owner's 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 Accounts 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 regulators decision applicable to the Insurance Company
conflicts with the majority of other state regulators, then the Insurance
Company will withdraw the affected Accounts 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 regulators 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 Accounts 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
<PAGE>
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) to 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 Contacts or
contained in the Contacts 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
Contacts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contacts or
shares of the Company;
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the
Company not supplied by the Insurance Company, or persons under
its control) or wrongful conduct of the Insurance Company or
persons under its control, with respect to the sale or
distribution of the Contracts or Company Shares; or
(iii)arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement prospectus,
or sales literature of the Company or any amendment thereof or
supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished in writing to the Company by or on behalf of the
Insurance Company; or
<PAGE>
(iv) arise as a result of any failure by the Insurance Company to
provide the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Insurance Company in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Insurance Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party that
may arise from that Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of that Indemnified Party's duties or by reason of
that Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Company, whichever is applicable.
8.1(c). The Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless that Indemnified Party shall have notified the Insurance Company in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon that
Indemnified Party (or after the Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Insurance Company of its obligations; hereunder except to the extent
that the Insurance Company has been prejudiced by such failure to give notice.
In addition, any failure by the Indemnified Party to notify the Insurance
Company of any such claim shall not relieve the Insurance Company from any
liability which it may have to the Indemnified Party against whom the action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Insurance Company
shall be entitled to participate, at its own expense, in the defense of the
action. The Insurance Company also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action; provided,
however, that if the Indemnified Party shall have reasonably concluded that
there may be defenses available to it which are different from or additional to
those available to the Insurance Company, the Insurance Company shall not have
the right to assume said defense, but shall pay the costs and expenses thereof
(except that in no event shall the Insurance Company be liable for the fees and
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 Contacts or the
operation of the Company.
<PAGE>
8.2. Indemnification by INVESCO
8.2(a). INVESCO agrees to indemnify and hold harmless; the Insurance
Company and each of its directors and officers and each person, if any, who
controls the Insurance Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of INVESCO) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Company's shares or the Contacts
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 Contacts 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
Contacts 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 Contacts, 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.
<PAGE>
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. 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 Contacts 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, willful misconduct or reckless
disregard of duty of the Board or any member thereof, are related to the
operations of the Company and:
<PAGE>
(i) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company;
as limited by, and in accordance with the provisions of, Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party that may arise from the
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of the Indemnified Party's duties or by reason of the Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Insurance Company, the Company, INVESCO or the Account, whichever is
applicable.
8.3(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Indemnified Party (or after
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 partly 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.
<PAGE>
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 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 90 days 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 Contacts, 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 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
(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 Contacts issued or to be issued by the Insurance Company;
or
<PAGE>
(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; 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 fight 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,
<PAGE>
(a) in the event that any termination is based upon the provisions of
Article VIII, 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 Contacts 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, 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:
SAFECO Life Insurance COMPANY
15411 NE 51st Street
Redmond, WA 98052
Attention: William E. Crawford, Assistant 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.
<PAGE>
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
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 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.
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
SAFECO LIFE INSURANCE COMPANY
By: \s\Scott Bartholomaus
---------------------
Title: Assistant Vice President
Date: 5/6/98
COMPANY:
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By: \s\ Ronald L. Grooms
---------------------
Title: Treasurer
Date: May 14, 1998
INVESCO:
INVESCO FUNDS GROUP, INC.
By: \s\ Ronald L. Grooms
---------------------
Title: Senior Vice President
Date: May 14, 1998
<PAGE>
SCHEDULE A
ACCOUNTS
Name of Account Date of Resolution of Insurance Company's Board
which Established the Account
1. Separate Account SL November 6, 1986
2. SAFECO Resource Variable Account B February 6, 1986
3. SAFECO Separate Account C September 14, 1993
4. SAFECO Separate Account D (Non-registered) March 12, 1993
<PAGE>
SCHEDULE B
CONTRACTS
1. Contract Form _________
1. Separate Account SL L-9450 10/86
L-972HEP 11/96
2. SAFECO Resource Variable Account B LPC-417 7/93
3. SAFECO Separate Account C LPC-412 7/93
LPC-717 9/95
4. SAFECO Separate Account D LPC-333 6/92
(Non-registered) LPC-336 6/92
<PAGE>
SCHEDULE C
PERSONS AUTHORIZED TO GIVE INSTRUCTIONS TO THE COMPANY AND INVESCO
NAME ADDRESS AND PHONE NUMBER
(1) Scott Bartholomaus 15411 NE 51st Street, Redmond, WA 98052
- ------------------------------------ ----------------------------------------
Print or Type Name
\s\Scott Bartholomaus Phone: (425)867-8340
- ------------------------------------ --------------------------------
Signature
(2) Valerie Leyva 15411 NE 51st Street, Redmond, WA 98052
- ------------------------------------ ----------------------------------------
Print or Type Name
\s\Valerie Leyva Phone: (425)867-8350
- ------------------------------------ --------------------------------
Signature
(3)Annabelle Meneses(Trading Info only) SAFECO Tower Seattle, WA 98124
- ------------------------------------ ----------------------------------------
Print or Type Name
\s\Annabelle Meneses Phone: (205) 545-6407
- ------------------------------------ --------------------------------
Signature
(4)Deonnie Dunkentell(Trading Info only)SAFECO Tower Seattle, WA 98124
- ------------------------------------ ----------------------------------------
Print or Type Name
\s\Deonnie Dunkentell
- ------------------------------------ Phone: (206) 545-3014
Signature --------------------------------
Lisa Rong (Trading Info only) SAFECO Tower Seattle, WA 98124
(208) 545-3329
Steve Handley (Trading Info only) SAFECO Tower Seattle, WA 98124
\s\Steve Handley (208) 545-5934
<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 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 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.
<PAGE>
SCHEDULE E
REVENUE SHARING
Annual rate of 0. 15% of the average of aggregate net asset value of outstanding
shares of the Companies held by contract holders and purchased through Insurance
Company pursuant to this Agreement The average of aggregate net assets will be
measured on each business day during each calendar quarter, the applicable
portion of which is payable within 10 business days following end of each
calendar quarter, PROVIDED that no payments shall be made in an amount less than
$25.00..
PARTICIPATION AGREEMENT
Among
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO FUNDS GROUP, INC.
And
GREAT AMERICAN LIFE INSURANCE COMPANY OF NEW YORK
THIS AGREEMENT, made and entered into this 16th day of August, 1999 by and
among GREAT AMERICAN LIFE INSURANCE COMPANY OF NEW YORK, (hereinafter the
"Insurance Company"), a New York corporation, on its own behalf and on behalf of
each segregated asset account of the Insurance Company set forth on Schedule A
hereto as may be amended from time to time (each such account hereinafter
referred to as the "Account"), INVESCO VARIABLE INVESTMENT FUNDS, INC., a
Maryland corporation (the "Company") and INVESCO FUNDS GROUP, INC. ("INVESCO"),
a Delaware corporation.
WHEREAS, the Company engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable annuity and life insurance contracts
to be offered by insurance companies which have entered into participation
agreements substantially identical to this Agreement ("Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Company is divided into several
series of shares, each designated a "Fund" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Company has obtained an order from the Securities and Exchange
Commission (the "Commission"), dated December 29, 1993 (File No. 812-8590),
granting Participating Insurance Companies and their separate accounts
exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the
Investment Company Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(I
5) and 6e-3(T)(b)(I 5) 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
<PAGE>
WHEREAS, the Insurance Company has registered or will register each Account
as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurance Company intends to purchase shares in the Funds on
behalf of the Accounts to fund the Contracts and, INVESCO. is authorized to sell
such shares to unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Insurance
Company, the Company and INVESCO agree as follows:
ARTICLE I. Sale of Company Shares
1.1. INVESCO agrees to sell to the Insurance Company those shares of the
Company which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Company or its designee of
the order for the shares of the Company. For purposes of this Section 1.1, the
Insurance Company shall be the designee of the Company for receipt of such
orders from the Accounts and receipt by such designee shall constitute receipt
by the Company; provided that the Company receives notice of such order by 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. Not withstanding 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.
<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 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
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.
<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; 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 New York Insurance Law Section 4240 and has
registered, or prior to any issuance or sale of the Contracts will register, the
Account as a unit investment trust in accordance with the provisions of the 1940
Act to serve as a segregated investment account for the Contracts.
2.2. The Company represents and warrants that Company shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sale in compliance with the laws of the State of Maryland and all
applicable federal securities laws and that the Company is and shall remain
registered under the 1940 Act. The Company shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The
Company shall register and qualify the shares for sale in accordance with the
laws of the various states only if and to the extent deemed advisable by the
Company or INVESCO.
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 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 New York and 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 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 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.
<PAGE>
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, 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 (ie., 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 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.
<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 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
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
<PAGE>
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 (eg., 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 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
<PAGE>
(iv) arise as a result of any failure by the Insurance Company to
provide the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Insurance Company in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Insurance Company,
as limited by and in accordance with the provisions of Sections 8.1(b)and
8.1(c) hereof.
8.1(b). The Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party that
may arise from that Indemnified Party's willful misfeasance, bad faith, or
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.
<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 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 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.
<PAGE>
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
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:
<PAGE>
(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 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.
<PAGE>
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
(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 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
Company and/or invest in the Company upon the making of additional purchase
<PAGE>
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.
<PAGE>
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.
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 AMERICA LIFE INSURANCE, COMPANY OF NEW YORK
By its authorized officer,
/s/Mark F. Muething
-------------------
By: Mark F. Muething
Title: Senior Vice President
Date: August 16, 1999
Company:
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
/s/Ronald L. Grooms
-------------------
By:
Title: Treasurer and Chief Financial
and Accounting Officer
Date:
INVESCO:
INVESCO FUNDS GROUP, INC.
By its authorized officer,
/s/Ronald L. Grooms
-------------------
By:
Title: Senior Vice President and Treasurer
Date:
<PAGE>
SCHEDULE A
----------
ACCOUNTS
--------
Name of Account Date of Resolution of Insurance Company's Board which
Established the Account
GALIC of New York
Separate Account I May 7,1999
<PAGE>
SCHEDULE B
----------
CONTRACTS
---------
1. Contract Form
NY3332G99 Group Deferred Variable Annuity Contract
NY3342G99 Group Deferred Variable Annuity Contract
NY3352G99 Group Deferred Variable Annuity Contract
NY3382NQ99 Individual Nonqualified Deferred Variable Annuity Contract
NY3383Q99 Individual Qualified Deferred Variable Annuity Contract
NY3384NQ99 Individual Nonqualified Deferred Variable Annuity Contract
NY3385Q99 Individual Qualified Deferred Variable Annuity Contract
NY3386NQ99 Individual Nonqualified Deferred Variable Annuity Contract
NY3387Q99 Individual Qualified Deferred Variable Annuity Contract
<PAGE>
SCHEDULE C
----------
PERSONS AUTHORIZED TO GIVE INSTRUCTIONS TO THE COMPANY AND INVESCO
------------------------------------------------------------------
NAME ADDRESS AND PHONE NUMBER
(1) Brian Sponaugle 250 E. Fifth St. Cincinnati, OH 45202
--------------------------- --------------------------------------------
Print or Type Name
/s/Brian Sponaugle Phone: 513/412-2931
- ----------------------------- -----------------------------------
Signature
(2) Todd Gayhart 250 E. Fifth St. Cincinnati, OH 45202
--------------------------- --------------------------------------------
Print or Type Name
/s/Todd Gayhart Phone: 513/412-2932
- ----------------------------- -----------------------------------
Signature
(3) John Burress 250 E. Fifth St. Cincinnati, OH 45202
--------------------------- --------------------------------------------
Print or Type Name
/s/John Burress Phone: 513/412-3194
- ----------------------------- ----------------------------------
Signature
(4) Scott Soudrette 250 E. Fifth St. Cincinnati, OH 45202
--------------------------- --------------------------------------------
Print or Type Name
/s/Scott Soudrette Phone: 513/412-2938
- ----------------------------- -----------------------------------
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.
<PAGE>
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," ie.,
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.
<PAGE>
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
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 ____ day of ____________, 1996
by and among GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY (hereinafter "GWL&A"),
a Colorado 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 GWL&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
<PAGE>
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(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, GWL&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 GWL&A on July
24, 1995, to set aside and invest assets attributable to the Contracts; and
WHEREAS, GWL&A has registered the Account as a unit investment trust under the
1940 Act and has registered the securities deemed to be issued by the Account
under the 1933 Act; and
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
GWL&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
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, GWL&A, Schwab, the
Fund and the Adviser agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to GWL&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, GWL&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.
<PAGE>
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 GWL&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 GWL&A's request, any full or
fractional shares of the Fund held by GWL&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 GWL&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, GWL&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.
<PAGE>
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. GWL&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.
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 GWL&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 GWL&A of any income, dividends or capital gain
distributions payable on the Designated Portfolio(s)' shares. GWL&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.
GWL&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 GWL&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 GWL&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 GWL&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 GWL&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 GWL&A for crediting of such amounts to the applicable
Contractowners accounts. Upon notification by the Adviser of any overpayment due
to a material error, GWL&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 GWL&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 GWL&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 "material error" for
purposes of this Agreement.
<PAGE>
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
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. GWL&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. GWL&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 10-7-401, et. seq. of
the Colorado 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.
<PAGE>
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 willmake 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 -Colorado 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 GWL&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. GWL&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 GWL&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.
<PAGE>
2.5. The Fund represents and warrants that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and shall remain duly
registered under all applicable federal and state securities laws and that it
shall perform its obligations for the Fund in compliance in all material
respects with the laws of the State of Colorado and any applicable state and
federal securities laws.
2.7. The Fund and the Adviser represent and warrant that all of their respective
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 GWL&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 GWL&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 GWL&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.
<PAGE>
2.10. GWL&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,
GWL&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. GWL&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 GWL&A and Schwab with as many
copies of the Fund's current prospectus for the Designated Portfolio(s) as GWL&A
and Schwab may reasonably request for marketing purposes (including distribution
to Contractowners with respect to new sales of a Contract). If requested by
GWL&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 GWL&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.
<PAGE>
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 GWL&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 GWL&A may reasonably require to permit timely distribution thereof to
Contractowners. The SAIs may name or describe portfolios 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 GWL&A or Schwab).
3.3. The Fund and/or the Adviser shall provide GWL&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 GWL&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 GWL&A or Schwab provided in writing by that party, neither GWL&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.
<PAGE>
3.5. If and to the extent required by law GWL&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. GWL&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. GWL&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 GWL&A and the Fund. The Fund agrees to
promptly notify GWL&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.
<PAGE>
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. GWL&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 GWL&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. GWL&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 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 GWL&A and
Schwab, a copy of each piece of sales literature or other promotional material
in which GWL&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 GWL&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 GWL&A or concerning GWL&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 GWL&A or its designee, except with the permission of GWL&A.
<PAGE>
4.5. GWL&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 GWL&A and Schwab at least one complete copy of all
registration statements, prospectuses, SAls, 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. GWL&A or Schwab will provide to the Fund at least one complete copy of all
registration statements, prospectuses, SAls, 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, SAls, shareholder reports, and proxy materials and any other
material constituting sales literature or advertising under the NASD rules, 1933
Act or the 1940 Act.
<PAGE>
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 GWL&A under this
Agreement, and GWL&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.
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 GWL&A, in
accordance with Schedule E.
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 GWL&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).
<PAGE>
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.
<PAGE>
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 GWL&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
without in any way limiting or restricting any other remedies available to GWL&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 GWL&A and any federal income taxes or tax penalties and interest
thereon (or "toll charges" or exactments or amounts paid in settlement) incurred
by GWL&A with respect to itself or owners of its Contracts in connection with
any such failure.
<PAGE>
6.6. The Fund at the Fund's expense shall provide GWL&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. GWL&A agrees that if the Internal Revenue Service ("IRS") asserts in
writing in connection with any governmental audit or review of GWL&A or, to
GWL&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
GWL&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) GWL&A shall promptly notify the Fund and the Adviser of such assertion or
potential claim;
(b) GWL&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) GWL&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 GWL&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 GWL&A to the Fund and the Adviser (together with any supporting
information or analysis) within at least two (2) business days prior to
submission;
<PAGE>
(e) GWL&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
GWL&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) GWL&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, GWL&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 Adviser shall bear the costs
and expenses, including reasonable attorney's fees, incurred by GWL&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
<PAGE>
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 GWL&A if it
determines that an irreconcilable material conflict exists and the implications
thereof.
7.2. GWL&A will report any potential or existing conflicts of which it is aware
to the Board. GWL&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 GWL&A to inform
the Board whenever contract owner voting instructions are to be disregarded.
Such responsibilities shall be carried out by GWL&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, GWL&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.
<PAGE>
7.4. If a material irreconcilable conflict arises because of a decision by GWL&A
to disregard contract owner voting instructions and that decision represents a
minority position or would preclude a majority vote, GWL&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 GWL&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 GWL&A conflicts with the majority
of other state regulators, then GWL&A will withdraw the Account's investment in
the Fund and terminate this Agreement within six months after the Board informs
GWL&A in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Fund shall
continue to accept and implement orders by GWL&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. GWL&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 GWL&A will withdraw the Account's
investment in the Fund and terminate this Agreement within six (6) months after
the Board informs GWL&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.
<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 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 GWL&A
8.1(a). GWL&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 GWL&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:
<PAGE>
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration statement or
prospectus or SAI 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 GWL&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 GWL&A or persons
under its control) or wrongful conduct of GWL&A or persons under its
control, with respect to the sale or distribution of the Contracts or Fund
Shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature of the Fund, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, if such a statement or omission was made in reliance upon
information furnished in writing to the Fund by or on behalf of GWL&A; or
(iv) arise as a result of any failure by GWL&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 GWL&A in this Agreement or arise out of or result
from any other material breach of this Agreement by GWL&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.
<PAGE>
8.1(b). GWL&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). GWL&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 GWL&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 GWL&A of any such claim shall not relieve GWL&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 GWL&A has been prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified Parties,
GWL&A shall be entitled to participate, at its own expense, in the defense of
such action. GWL&A also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from GWL&A
to such party of GWL&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 GWL&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 GWL&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.
<PAGE>
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:
(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 GWL&A or Schwab
by or on behalf of the Adviser or the Fund or to Schwab by GWL&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
<PAGE>
(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.
<PAGE>
8.2(d). The Indemnified Parties will promptly notify Schwab of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.3. INDEMNIFICATION BY THE ADVISER
8.3(a). The Adviser agrees to indemnify and hold harmless GWL&A and Schwab
and each of their directors and officers and each person, if any, who controls
GWL&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 GWL&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
<PAGE>
(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
GWL&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). GWL&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 GWL&A and Schwab and
each of their directors and officers and each person, if any, who controls GWL&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:
<PAGE>
(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 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.
<PAGE>
8.4(d). GWL&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 Colorado, without regard
to the Colorado 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
<PAGE>
(b) at the option of GWL&A or Schwab by written notice to the other parties with
respect to any Portfolio based upon GWL&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 GWL&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 GWL&A; or
(d) at the option of the Fund in the event that formal administrative
proceedings are instituted against GWL&A or Schwab by the NASD, the SEC, the
Insurance Commissioner or like official of any state or any other regulatory
body regarding GWL&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 GWL&A or Schwab to perform its
obligations under this Agreement or related to the Contracts; or
(e) at the option of GWL&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 GWL&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 GWL&A by written notice to the Fund with respect to any
Portfolio if GWL&A reasonably believes that the Portfolio will fail to meet the
Section 817(h) diversification requirements or Subchapter M qualifications
specified in Article VI hereof, or
(g) at the option of either the Fund or the Adviser, if (i) the Fund or Adviser,
respectively, shall determine, in their sole judgment reasonably exercised in
good faith, that either GWL&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 GWL&A's or Schwab's ability to perform its obligations under
this Agreement, (ii) the Fund or the Adviser notifies GWL&A or Schwab, as
appropriate, of that determination and its intent to terminate this Agreement,
and (iii) after considering the actions taken by GWL&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
<PAGE>
(h) at the option of either GWL&A or Schwab, if (i) GWL&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) GWL&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 GWL&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 GWL&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 GWL&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
(j) at the option of Schwab in the event that formal administrative proceedings
are instituted against GWL&A by the NASD, the Securities and Exchange
Commission, or any state securities or insurance department or any other
regulatory body regarding GWL&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 GWL&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.I(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
non-defaulting party giving such written notice may terminate this Agreement by
giving thirty (30) days written notice of termination to the defaulting party.
<PAGE>
10.2. NOTICE REQUIREMENT. No termination of this Agreement shall be effective
unless and until the party terminating this Agreement gives prior written notice
to all other parties of its intent to terminate, which notice shall set forth
the basis for the termination. Furthermore,
(a) in the event 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;
(b) in the event any termination is based upon the provisions of Section
10.1(d), 10.1(e), 10.1(i) or 10.1(j) 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.I(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 GWL&A to meet Section
817(h) of the Code diversification requirements, the Fund and the Adviser shall,
at the option of GWL&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.
<PAGE>
10.4. SURVIVING PROVISIONS. Notwithstanding any termination of this Agreement,
each party's obligations under Article VIII to indemnify other parties shall
survive and not be affected by any termination of this Agreement. In addition,
with respect to Existing Contracts, all provisions of this Agreement shall also
survive and not be affected by any termination of this Agreement.
10.5. SURVIVAL OF AGREEMENT. A termination by Schwab shall terminate this
Agreement only as to 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 GWL&A:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention: Assistant Vice President, Savings Products
<PAGE>
If to the Adviser:
INVESCO Funds Group, Inc.
7800 East Union Avenue, Suite 800
Denver, CO 80237
Attention: General Counsel
If to Schwab:
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
Attention: General Counsel
ARTICLE XII. MISCELLANEOUS
12.1. Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain. 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.
<PAGE>
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 furish the Colorado 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 GWL&A are being conducted in a manner consistent with the Colorado
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 assigned
by any party without the prior written consent of all parties hereto.
12.9. Schwab and GWL&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 GWL&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.
<PAGE>
12.10. The Fund and the Adviser agree that the obligations assumed by GWL&A and
Schwab pursuant to this Agreement shall be limited in any case to GWL&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 GWL&A or
Schwab, the directors, officers, employees or agents of the GWL&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
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.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By: /s/ K. Shaw
------------
Title: Vice President, Marketing and
Product Development
Date: October 25, 1996
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
By /s/ Ronald L. Grooms
--------------------
Title: Treasurer
Date: 10/22/96
INVESCO FUNDS GROUP, INC.:
By its authorized officer,
By: /s/ Ronald L. Grooms
--------------------
Title: Senior Vice President & Treasurer
Date: 10/12/96
CHARLES SCHWAB & CO., INC.
By its authorized officer,
By /s/ J. Benton
-------------
Title: VP, Annuities & Life Insurance
Date: 10/24/96
<PAGE>
SCHWAB VARIABLE ANNUITY
SCHEDULE A
Contracts Form Numbers
- --------- ------------
Great-West Life & Annuijy Insurance Company
- -------------------------------------------
Group Variable/Fixed Annuity Contract J434
Individual Variable/Fixed Annuity Contract J434IND
<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 GWL&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 GWL&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 GWL&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);
(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 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)
<PAGE>
SCHEDULE E
EXPENSES
The Fund and/or Adviser, and GWL&A will coordinate the functions and pay the
costs of the completing these functions based upon an allocation of costs in the
tables below. Costs shall be allocated to reflect the Fund's share of the total
costs determined according to the number of pages of the Fund's respective
portions of the documents.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Item Function Party Responsible Party Responsible
for Coordination for Expense
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mutual Fund Printing of combined GWL&A Fund or Adviser,
Prospectus prospectuses as applicable
- --------------------------------------------------------------------------------------------
Fund or Adviser shall GWL&A Fund or Adviser,
supply GWL&A with as applicable
such numbers of the
Designatied Portfolio(s)
prospectus(es) as
GWL&A shall
reasonably request
- --------------------------------------------------------------------------------------------
Distribution to New GWL&A GWL&A
and Inforce Clients
- --------------------------------------------------------------------------------------------
Distribution to Schwab Schwab
Prospective Clients
- --------------------------------------------------------------------------------------------
Product Prospectuses Printing for Inforce GWL&A GWL&A
Clients
- --------------------------------------------------------------------------------------------
Printing for Prospective GWL&A Schwab
Clients
- --------------------------------------------------------------------------------------------
Distribution to New GWL&A GWL&A
and Infore Clients
- --------------------------------------------------------------------------------------------
Distribution to Schwab Schwab
Prospective Clients
- --------------------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------------------
Item Function Party Responsible Party Responsible
for Coordination for Expense
- --------------------------------------------------------------------------------------------
Mutual Fund If Required by Fund or Fund or Adviser Fund or Adviser
Prospecutus Update & Adviser
Distribution
- --------------------------------------------------------------------------------------------
If Required by GWL&A GWL&A GWL&A
- --------------------------------------------------------------------------------------------
If Required by Schwab Schwab Schwab
- --------------------------------------------------------------------------------------------
Product Prospectus If Required by Fund or GWL&A Fund or Adviser
Update & Distribution Adviser
- --------------------------------------------------------------------------------------------
If Required by GWL&A GWL&A GWL&A
- --------------------------------------------------------------------------------------------
If Required by Schwab Schwab Schwab
- --------------------------------------------------------------------------------------------
Mutual Fund SAI Printing Fund or Adviser Fund or Adviser
- --------------------------------------------------------------------------------------------
Distribution GWL&A GWL&A
- --------------------------------------------------------------------------------------------
Product SAI Printing GWL&A GWL&A
- --------------------------------------------------------------------------------------------
Distribution GWL&A GWL&A
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Item Function Party Responsible Party Responsible
for Coordination for Expense
- --------------------------------------------------------------------------------------------
Proxy Material for Printing if proxy Fund or Adviser Fund or Adviser
Mutual Fund: Required by Law
- --------------------------------------------------------------------------------------------
Distribution (including GWL&A Fund or Adviser
Labor) if proxy required
by Law
- --------------------------------------------------------------------------------------------
Printing & Distribution GWL&A GWL&A
if required by GWL&A
- --------------------------------------------------------------------------------------------
Printing & Distribution GWL&A Schwab
if required by Schwab
- --------------------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------------------
Item Function Party Responsible Party Responsible
for Coordination for Expense
- --------------------------------------------------------------------------------------------
Mutual Fund Annual & Printing of combined GWL&A Fund or adviser
Semi-Annual Report Reports
- --------------------------------------------------------------------------------------------
Distribution GWL&A GWL&A and Schwab
- --------------------------------------------------------------------------------------------
Other commuinication If Required by the Schwab Fund or Adviser
to New and Prospective Fund or Adviser
Clients
- --------------------------------------------------------------------------------------------
If Required by GWL&A Schwab GWL&A
- --------------------------------------------------------------------------------------------
If Required by Schwab Schwab Schwab
- --------------------------------------------------------------------------------------------
Other communication Distribution (including GWL&A Fund or Adviser
to inforce labor) if required by
the Fund or Adviser
- --------------------------------------------------------------------------------------------
If Required by GWL&A GWL&A GWL&A
- --------------------------------------------------------------------------------------------
If Required by Schwab GWL&A Schwab
- --------------------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------------------
Item Function Party Responsible Party Responsible
for Coordination for Expense
- --------------------------------------------------------------------------------------------
Errors in Share Price Cost of error to GWL&A Fund or Adviser
calculation pursuant participants
to Section 1.10
- --------------------------------------------------------------------------------------------
Cost of administrative GWL&A Fund or Adviser
work to correct error
- --------------------------------------------------------------------------------------------
Operations of the Fund All operations and Fund or Adviser Fund or Adviser
related expenses,
including the cost of
registration and
qualification of shares,
taxes on the issuance or
transfer of shares, cost
of management of the
business affairs of the
Fund, and expenses
paid or assumed by the
fund pursuant to any
Rule 12b-1 plan
- --------------------------------------------------------------------------------------------
Operations of the Federal registration of GWL&A GWL&A
Account units of separate
account (24f-2 fees)
- --------------------------------------------------------------------------------------------
</TABLE>
CHARLES SCHWAB
- --------------------------------------------------------------------------------
THE SCHWAB BUILDING*101 MONTGOMERY STREET*SAN FRANCISCO, CA 94104*(415)627-7000
April 19,1999
Mr. Richard Healey
Senior Vice President and Director of Marketing
INVESCO Funds Group, Inc.
7800 East Union Ave., Ste. 220
Denver, CO 80237
General Counsel
INVESCO Variable Investment Funds, Inc.
7800 East Union Ave., Ste. 800
Denver, CO 80237
RE: AMENDED SCHEDULE B AND C TO PARTICIPATION AGREEMENTS
----------------------------------------------------
Dear Sirs:
Enclosed are drafts of amended Schedule B ("Schedule B") and Schedule C
("Schedule C") to our participation agreements, dated October 25, 1996 and July
8, 1997, with INVESCO Variable Investment Funds, Inc. and INVESCO Funds Group,
Inc. (each, an "Agreement"; collectively, the "Agreements").
Schedule B reflects the deletion of the INVESCO VIF Total Return Portfolio
("deleted portfolio"), pursuant to our letter to you dated February 9, 1999
("February 9 letter"). The Schedule shall replace the existing Schedule B to
each Agreement effective as of our receipt of the SEC substitution order
described in our February 9 letter.
Schedule C reflects the additional administrative services that Schwab
intends to provide effective May 1, 1999 and the related changes in the
compensation therefor. Schedule C shall replace the existing Schedule C to each
Agreement effective May 1, 1999.
The Agreements otherwise remain unchanged and shall continue in full force
and effect.
In the space provided below, please acknowledge your agreement to the
foregoing.
CHARLES SCHWAB & CO., INC., MEMBER SIPC, NEW YORK STOCK EXCHANGE AND OTHER
PRINCIPAL STOCK AND OPTIONS EXCHANGES
<PAGE>
Very truly yours,
Charles Schwab & Co., Inc.
By: \s\ Lynnda Sarinske
-----------------------
Lynnda Sarinske
Vice President, Insurance & Annuities
Great-West Life & Annuity Insurance Company
and First Great-West Life & Annuity
Insurance Company
By: \s\ David G. McDonald
-------------------------
David G. McDonald
Vice President, Institutional Insurance
ACKNOWLEDGED AND AGREED TO:
INVESCO Variable Investment Funds, Inc.
By: \s\ Ronald L. Grooms
- -------------------------
Title: Treasurer
Date: 4-29-99
INVESCO Funds Group, Inc.
By: \s\ Richard W. Healey
- --------------------------
Title: Senior Vice President
Date: 4-29-99
cc: B. Byrne, Esq.
Great-West Life & Annuity Insurance Company
and First Great-West Life & Annuity Insurance Company
E. O'Riordan
T. Perrino, Esq.
M. Armosino
Charles Schwab & Co., Inc.
Enc: Amended Schedules B & C
<PAGE>
INVESCO - SCHEDULE B (Last Revised May 1, 1999)
Designated Portfolios
- ---------------------
INVESCO VIF-Industrial Income Portfolio
INVESCO VIF-High Yield Portfolio
<PAGE>
INVESCO - SCHEDULE C (Last Revised May 1, 1999)
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
Contract information and questions - including the following:
o respond to Contractowner inquiries
o mail fund and Contract prospectuses
o entry of initial and subsequent orders
o transfer of cash to GWL&A and/or FGWL&A and/or Fund
o explanations of Designated Portfolio objectives and characteristics
o entry of transfers between Unaffiliated Funds, including the Designated
Portfolios
o Contract balance and allocation inquiries
o communicate all purchase, withdrawal, and exchange orders received
from Contractowners to GWL&A and/or FGWL&A which will transmit orders to
Funds
o train call center representatives to explain Fund objectives,
Morningstar categories, Fund selection data and differences between
publicly traded funds and the Funds
o provide performance data and Fund prices
o shareholder services including researching trades, resolving trade
disputes, etc.
o coordinate the writing, printing and distribution of semi-annual and annual
reports to Contractowners investing in the Designated Portfolios
o create and update Designated Portfolio profiles and other shareholder
communications
o establish scheduled account rebalances
o Web trading and account servicing
o touch-tone telephone trading and account servicing
o establish dollar cost averaging
o communications to Contractowners related to product changes, including but
not limited to changes in the available Designated Portfolios
B. For the foregoing services, Schwab shall receive a monthly fee equal to 0.30%
per annum of the average daily value of the shares of the Designated Portfolios
listed on Schedule B attributable to Contractowners, 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 GWL&A and/or FGV&&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.
Great-West Life & Annuity Insurance Company
and First Great-West Life & Annuity Insurance
Company
By: /s/David G. McDonald
-------------------------
David G. McDonald
Vice President, Institutional Insurance
ACKNOWLEDGED AND AGREED TO:
INVESCO Variable Investment Funds, Inc.
By: /s/Ronald L. Grooms
- ------------------------
Title: Senior Vice President
Date: February 15, 2000
INVESCO Funds Group, Inc.
By: /s/Ronald L. Grooms
- ------------------------
Title: Senior Vice President
Date: February 15, 2000
cc: B. Byrne, Esq.
Great-West Life & Annuity Insurance Company
and First Great-West Life & Annuity Insurance Company
E. O'Riordan
T. Perrino, Esq.
Charles Schwab & Co., Inc.
Enc: Amended Schedule B
<PAGE>
INVESCO - SCHEDULE B (Last Revised February 3, 2000)
Designated Portfolios
- ---------------------
INVESCO VIF-Industrial Income Portfolio
INVESCO VIF-High Yield Portfolio
INVESCO VIF-Technology Fund
PARTICIPATION AGREEMENT
Among
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
INVESCO Variable Investment Funds, Inc.,
INVESCO Funds Group, Inc.,
And
INVESCO Distributors, Inc.
THIS AGREEMENT, made and entered into as of this 18th day of June, 1999 by
and among GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY (hereinafter "GWL&A"), a
Colorado life insurance company, on its own behalf and on behalf of its Separate
Accounts: the COLI VUL Series Account 2 and the FutureFunds Series Account
(collectively 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 corporation organized
under the laws of Delaware; and INVESCO Distributors, Inc., a corporation
organized under the laws of Delaware (hereinafter the "Distributor").
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 GWL&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
<PAGE>
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (hereinafter the "SEC"), dated December 29, 1993 (File No. 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 and
qualified pension and retirement plans ("Qualified Plans") (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, the Distributor 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, GWL&A has registered 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 such Schedule may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account(s) are duly organized, validly existing segregated
asset accounts, established by resolution of the Board of Directors of GWL&A,
under the insurance laws of the State of Colorado, to set aside and invest
assets attributable to the Contracts; and
<PAGE>
WHEREAS, GWL&A has registered the Account as a unit investment trust under
the 1940 Act and has registered 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, GWL&A intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto and incorporated herein by reference, as such
Schedule 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
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
NOW, THEREFORE, in consideration of their mutual promises, GWL&A, the Fund,
the Distributor and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Fund agrees to sell to GWL&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, GWL&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 12:00 noon 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.
<PAGE>
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 GWL&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 its
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 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 GWL&A's request, any full or
fractional shares of the Fund held by GWL&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 GWL&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, GWL&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 12:00 noon 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
<PAGE>
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. GWL&A shall pay for Fund shares by or prior to the close of the Fed
funds wire system on the next Business Day after an order to purchase Fund
shares is made in accordance with the provisions of Section 1.1 hereof. Payment
shall be in federal funds transmitted by wire and/or by a credit for any shares
redeemed the same day as the purchase.
1.7. The Fund shall pay and transmit the proceeds of redemptions of Fund
shares by or prior to the close of the Fed funds wire system 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 GWL&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 GWL&A of any income, dividends or capital gain
distributions payable on the Designated Portfolio(s)' shares. GWL&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.
GWL&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 GWL&A by
the end of the next following Business Day of the number of shares so issued as
payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each Designated
Portfolio available to GWL&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
<PAGE>
distribution (each, a "pricing error"), the Adviser or the Fund shall
immediately notify GWL&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 GWL&A for the costs of adjustments made to
correct Contractowner accounts in accordance with the provisions of Schedule D.
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
GWL&A for crediting of such amounts to the applicable Contractowners accounts.
Upon notification by the Adviser of any overpayment due to a material error,
GWL&A shall promptly remit to Adviser any overpayment that has not been paid to
Contractowners; however, Adviser acknowledges that GWL&A does 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 GWL&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 "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 SEC as of the date of
this Agreement. In the event the views of the SEC staff are later modified or
<PAGE>
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. GWL&A represents and warrants that the Contracts and 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. GWL&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 10-7-401, et.
seq. of the Colorado 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 and that it will maintain such
registration for so long as any Contracts are outstanding as required by
applicable law.
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 l2b-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. In any
event, the Fund and Adviser agree to comply with applicable provisions and SEC
staff interpretations of the 1940 Act to assure that the investment advisory or
management fees paid to the Adviser by the Fund are in accordance with the
requirements of the 1940 Act. To the extent that the Fund decides to finance
<PAGE>
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 l2b-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 Colorado 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 the insurance laws of the
State of Colorado and all applicable state insurance and securities laws. 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. GWL&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 GWL&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 Colorado and any applicable state and
federal securities laws.
<PAGE>
2.7. The Distributor represents and warrants that it is and shall remain
duly registered under all applicable federal and state securities laws and that
it shall perform its obligations for the Fund in compliance in all material
respects with the laws of the State of Colorado and any applicable state and
federal securities laws.
2.8. The Fund and the Adviser represent and warrant that all of their
respective 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 one or more blanket fidelity bonds or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage required by Rule l7g-1 under the 1940 Act or related provisions
as may be promulgated from time to time. The aforesaid bonds shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company.
2.9. The Fund will provide GWL&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
GWL&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 GWL&A as a
result of actions taken by the Fund, consistent with the allocation of expenses
contained in Schedule D attached hereto and incorporated herein by reference.
2.10. GWL&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 and at the time of
issuance will be 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 Fund, the Distributor 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, GWL&A
<PAGE>
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. GWL&A will use every
effort to continue to meet such definitional requirements, and it will notify
the Fund, the Distributor 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. GWL&A represents and warrants that it will not
purchase Fund shares with assets derived from tax-qualified retirement plans
except, indirectly, through Contracts purchased in connection with such plans.
ARTICLE III. Prospectuses and Proxy Statements; Voting
-----------------------------------------
3.1. At least annually, the Adviser or Distributor shall provide GWL&A with
as many copies of the Fund's current prospectus for the Designated Portfolio(s)
as GWL&A may reasonably request for marketing purposes (including distribution
to Contractowners with respect to new sales of a Contract), with expenses to be
borne in accordance with Schedule D hereof. If requested by GWL&A in lieu
thereof, the Adviser, Distributor 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 GWL&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 prospectus (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 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, Distributor and/or the Adviser shall provide
GWL&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
<PAGE>
Schedule D hereof, as GWL&A may reasonably require to permit timely distribution
thereof to Contractowners. The Adviser, Distributor 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
GWL&A).
3.3. The Fund, Distributor and/or Adviser shall provide GWL&A 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 D hereof, as GWL&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 GWL&A provided in writing by that party, GWL&A is not 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 Distributor, the Adviser or the Designated Portfolio(s) provided in
writing by the Fund, the Distributor or the Adviser, neither the Fund, the
Distributor 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 GWL&A shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares held in the Account in
accordance with instructions received from Contractowners: and
(iii)vote Designated Portfolio shares held in the Account 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.
GWL&A reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent
permitted by law.
<PAGE>
3.6. GWL&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 GWL&A and the Fund. The Fund agrees to
promptly notify GWL&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. GWL&A 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 GWL&A, respectively, develops or proposes to use and in which the
Fund (or a Portfolio thereof), its Adviser or one of its sub-advisers or the
Distributor 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. GWL&A 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, prospectus or SAI for the Fund shares, as the same may be amended or
supplemented from time to time, or in sales literature or other promotional
material approved by the Fund, Distributor or Adviser, except with the
permission of the Fund, Distributor or Adviser.
<PAGE>
4.3. The Fund or the Adviser shall furnish, or shall cause to be furnished,
to GWL&A, a copy of each piece of sales literature or other promotional material
in which GWL&A and/or its separate account(s), is named at least ten (10)
Business Days prior to its use. No such material shall be used if GWL&A objects
to such use within five (5) Business Days after receipt of such material.
4.4. The Fund, the Distributor and the Adviser shall not give any
information or make any representations on behalf of GWL&A or concerning GWL&A,
the Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus or SAI for the Contracts, as
the same may be amended or supplemented from time to time, or in sales
literature or other promotional material approved by GWL&A or its designee,
except with the permission of GWL&A.
4.5. The Fund will provide to GWL&A at least one complete copy of all
registration statements, prospectuses, SAIs, 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. GWL&A 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; eg.,
online 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
<PAGE>
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 shareholder reports, and proxy
materials (including solicitations for voting instructions) and any other
material constituting sales literature or advertising under the NASD rules, the
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 and the Adviser shall pay no fee or other compensation to
GWL&A under this Agreement, and GWL&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 D, Articles III, V, and other
provisions of this Agreement.
5.2. All expenses incident to performance by the Fund, the Distributor and
the Adviser under this Agreement shall be paid by the appropriate party, as
further provided in Schedule D. 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 GWL&A, in
accordance with Schedule D.
<PAGE>
5.4. The Fund, the Distributor 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, the Distributor
and the Adviser agree to cooperate with GWL&A 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 between
Unaffiliated Funds.
ARTICLE VI. Diversification and Qualification
---------------------------------
6.1. The Fund, the Distributor 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, Distributor 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 *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, the Distributor and the Adviser agree
that shares of the Designated Portfolio(s) will be sold only to Participating
Insurance Companies and their separate accounts and to Qualified Plans.
6.2. No shares of any Designated Portfolio of the Fund will be sold to the
general public.
6.3. The Fund, the Distributor 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.
<PAGE>
6.4. The Fund, Distributor or Adviser will notify GWL&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 8.2, 8.3 and 8.4
hereof and without in any way limiting or restricting any other remedies
available to GWL&A, the Adviser or Distributor 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 GWL&A and any federal income
taxes or tax penalties and interest thereon (or "toll charges" or exactments or
amounts paid in settlement) incurred by GWL&A with respect to itself or owners
of its Contracts in connection with any such failure or anticipated or
reasonably foreseeable failure.
6.6. The Fund at the Fund's expense shall provide GWL&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 C 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 noncompliance.
6.7. GWL&A agrees that if the Internal Revenue Service ("IRS") asserts in
writing in connection with any governmental audit or review of GWL&A or, to
GWL&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
<PAGE>
GWL&A otherwise becomes aware of any facts that could give rise to any claim
against the Fund, Distributor or Adviser as a result of such a failure or
alleged failure:
(a) GWL&A shall promptly notify the Fund, the Distributor and the Adviser
of such assertion or potential claim;
(b) GWL&A shall consult with the Fund, the Distributor and the Adviser as
to how to minimize any liability that may arise as a result of such failure
or alleged failure;
(c) GWL&A shall use its best efforts to minimize any liability of the Fund,
the Distributor 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 GWL&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 GWL&A to the Fund, the Distributor and
the Adviser (together with any supporting information or analysis) within
at least two(2) business days prior to submission;
(e) GWL&A shall provide the Fund, the Distributor and the Adviser with such
cooperation as the Fund, the Distributor and the Adviser shall reasonably
request (including, without limitation, by permitting the Fund, the
Distributor and the Adviser to review the relevant books and records of
GWL&A) in order to facilitate review by the Fund, the Distributor 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;
<PAGE>
(f) GWL&A shall not with respect to any claim of the IRS or any
Contractowner that would give rise to a claim against the Fund, the
Distributor 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, the
Distributor and the Adviser, which shall not be unreasonably withheld;
provided that, GWL&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, the Distributor and the
Adviser shall bear the costs and expenses, including reasonable attorney's
fees, incurred by GWL&A in complying with this clause (f).
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 GWL&A if it
determines that an irreconcilable material conflict exists and the implications
thereof.
7.2. GWL&A will report any potential or existing conflicts of which it is
aware to the Board. GWL&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
<PAGE>
by GWL&A to inform the Board whenever contract owner voting instructions are to
be disregarded. Such responsibilities shall be carried out by GWL&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 Distributor, the
Adviser or any sub-adviser to any of the Designated Portfolios (the "Independent
Directors"), that a material irreconcilable conflict exists, GWL&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
GWL&A to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, GWL&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, the
Distributor and the Fund shall continue to accept and implement orders by GWL&A
for the purchase (and redemption) of shares of the Fund.
<PAGE>
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to GWL&A conflicts with the
majority of other state regulators, then GWL&A will withdraw the Account's
investment in the Fund and terminate this Agreement within six months after the
Board informs GWL&A in writing that it has determined that such decision has
created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Fund shall continue to accept and implement orders by GWL&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 disinterested members of the Board 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.
GWL&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 GWL&A will withdraw the Account's
investment in the Fund and terminate this Agreement within six (6) months after
the Board informs GWL&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 6e3-(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,
<PAGE>
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 GWL&A
------------------------
8.1(a). GWL&A agrees to indemnify and hold harmless the Fund, the
Distributor and the Adviser and each of their respective officers and directors
or trustees and each person, if any, who controls the Fund, Distributor or
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 and liabilities (including amounts paid in
settlement with the written consent of GWL&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 or liabilities (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 or other promotional material 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, provide 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 GWL&A by or on
behalf of the Adviser, Distributor or Fund for use in the registration
statement or prospectus for the Contracts or in the Contracts or sales
literature or other promotional material (or any amendment or
supplement to any of the foregoing) 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 or other promotional
material of the Fund not supplied by GWL&A or persons under its
control) or wrongful conduct of GWL&A or persons under its control,
with respect to the sale or distribution of the Contracts or Fund
Shares; or
<PAGE>
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, SAI,
or sales literature or other promotional material 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 GWL&A; or
(iv) arise as a result of any failure by GWL&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 GWL&A in this Agreement or arise out of or
result from any other material breach of this Agreement by GWL&A,
including without limitation Section 2.11 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). GWL&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). GWL&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 GWL&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 GWL&A of any such claim shall not relieve GWL&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 GWL&A has been prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified Parties,
GWL&A shall be entitled to participate, at its own expense, in the defense of
<PAGE>
such action. GWL&A also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from GWL&A
to such party of GWL&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 GWL&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 GWL&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 the Adviser
------------------------------
8.2(a). The Adviser agrees to indemnify and hold harmless GWL&A and its
directors and officers and each person, if any, who controls GWL&A 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, 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, the Distributor 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, provide 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, the Distributor or the Fund by or on behalf of
GWL&A for use in the registration statement, prospectus or SAI for the
Fund or in sales literature or other promotional material (or any
amendment or supplement to any of the foregoing) or otherwise for use
in connection with the sale of the Contracts or the Fund shares; or
<PAGE>
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained, in the registration
statement, prospectus, 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, the Distributor 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 or other promotional material 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 GWL&A by or on
behalf of the Adviser, the Distributor or the Fund; or
(iv) arise as a result of any failure by the Fund, the Distributor 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, the Distributor or the Adviser in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Adviser, the Distributor or the Fund;
or
(vi) arise out of or result from the incorrect or untimely calculation or
reporting by the Fund, the Distributor or the Adviser 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 8.2(b) and
8.2(c) hereof. This indemnification is in addition to and apart from the
responsibilities and obligations of the Adviser specified in Article VI hereof.
8.2(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
<PAGE>
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). 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.
8.2(d). GWL&A agrees to promptly 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.
8.3. Indemnification By the Fund
---------------------------
8.3(a). The Fund agrees to indemnify and hold harmless GWL&A and its
directors and officers and each person, if any, who controls GWL&A 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 and liabilities (including amounts paid in settlement with the written
<PAGE>
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;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(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.
8.3(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 Fund will be entitled to participate, at its own
<PAGE>
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.
8.3(d). GWL&A each agrees to promptly 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.
8.4. Indemnification by the Distributor
----------------------------------
8.4(a). The Distributor agrees to indemnify and hold harmless GWL&A and its
directors and officers and each person, if any, who controls GWL&A 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 and liabilities (including amounts paid in settlement with the written
consent of the Distributor) 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, Adviser or Distributor (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
<PAGE>
in reliance upon and in conformity with information furnished in
writing to the Adviser, the Distributor or Fund by or on behalf of
GWL&A for use in the registration statement or SAI or prospectus for
the Fund or in sales literature or other promotional material (or any
amendment or supplement to any of the foregoing) 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, SAI, sales literature or other promotional
material for the Contracts not supplied by the Distributor or persons
under its control) or wrongful conduct of the Fund, the Distributor or
Adviser or persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, SAI,
sales literature or other promotional material 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 GWL&A by or on
behalf of the Adviser, the Distributor or Fund; or
(iv) arise as a result of any failure by the Fund, Adviser or Distributor
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, Adviser or Distributor in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Fund, Adviser or Distributor; or
(vi) arise out of or result from the 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 8.4(b) and
8.4(c) hereof. This indemnification is in addition to and apart from the
responsibilities and obligations of the Distributor specified in Article VI
hereof.
<PAGE>
8.4(b). The Distributor 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 or 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 Distributor 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 Distributor 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 Distributor of
any such claim shall not relieve the Distributor 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
Distributor has been prejudiced by such failure to give notice. In case any such
action is brought against the Indemnified Parties, the Distributor will be
entitled to participate, at its own expense, in the defense thereof. The
Distributor also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Distributor
to such party of the Distributor'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 Distributor 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). GWL&A agrees to promptly notify the Distributor of the commencement
of any litigation or proceedings against it or any of its officers or directors
in connection with the issuance or sale of the Contracts or the operation of the
Account.
<PAGE>
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 Colorado,
without regard to the Colorado 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 SEC 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 GWL&A by written notice to the other parties with
respect to any Portfolio based upon GWL&A's determination that shares
of such Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) at the option of GWL&A 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 GWL&A; or
(d) at the option of the Fund, Distributor or Adviser in the event
that formal administrative proceedings are instituted against GWL&A by
the NASD, the SEC, the Insurance Commissioner or like official of any
state or any other regulatory body regarding GWL&A'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, Distributor or Adviser, as the case may be, reasonably
<PAGE>
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon
the ability of GWL&A to perform its obligations under this Agreement;
or
(e) at the option of GWL&A in the event that formal administrative
proceedings are instituted against the Fund, the Distributor or the
Adviser by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body, if GWL&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, the Distributor or the Adviser to perform
their obligations under this Agreement; or
(f) at the option of GWL&A by written notice to the Fund with respect
to any Portfolio if GWL&A reasonably believes that the Portfolio will
fail to meet the Section 817(h) diversification requirements or
Subchapter M qualifications specified in Article VI hereof, or
(g) at the option of either the Fund, the Distributor or the Adviser,
if (i) the Fund, Distributor or Adviser, respectively, shall
determine, in its sole judgment reasonably exercised in good faith,
that GWL&A 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 GWL&A's ability to perform its obligations under
this Agreement, (ii) the Fund, Distributor or Adviser notifies GWL&A
of that determination and its intent to terminate this Agreement, and
(iii) after considering the actions taken by GWL&A and any other
changes in circumstances since the giving of such a notice, the
determination of the Fund, Distributor or Adviser shall continue to
apply on the sixtieth (60th) day following the giving of that notice,
which sixtieth day shall be the effective date of termination; or
(h) at the option of GWL&A, if (i) GWL&A shall determine, in its sole
judgment reasonably exercised in, good faith, that the Fund,
Distributor or 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, Distributor's or Adviser's
ability to perform its obligations under this Agreement, (ii) GWL&A
notifies the Fund, Distributor or Adviser, as appropriate, of that
determination and its intent to terminate this Agreement, and (iii)
after considering the actions taken by the Fund, Distributor or
Adviser and any other changes in circumstances since the giving of
such a notice, the determination of GWL&A shall continue to apply on
the sixtieth (60th) day following the giving of that notice, which
sixtieth day shall be the effective date of termination; or
<PAGE>
(i) at the option of 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 non-defaulting 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 be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties of its intent to terminate, which notice
shall set forth the basis for the termination. Furthermore,
(a) in the event 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;
(b) in the event any termination is based upon the provisions of
Section 10.1(d), 10.1(e), 10.1(i) or 10.1(j) 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 GWL&A to
meet Section 817(h) of the Code diversification requirements, the Fund, the
Distributor and the Adviser shall, at the option of GWL&A, continue to make
available additional shares of the Designated Portfolio(s) 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
Portfolio(s), redeem investments in the Designated Portfolio(s) and/or invest in
<PAGE>
the Designated Portfolio(s) 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.
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 E. Union Ave., MS 201
Denver CO 80237
Attention: General Counsel
If to GWL&A:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention: Vice President, Institutional Insurance
If to the Adviser:
INVESCO Funds Group, Inc.
7800 E. Union Ave., MS 801
Denver CO 80237
Attention: Chief Financial Officer
<PAGE>
If to the Distributor:
INVESCO Distributors, Inc.
7800 E. Union Ave., MS 801
Denver CO 80237
Attention: Chief Financial Officer
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
counterpart 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
<PAGE>
agrees to furnish the Colorado 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 GWL&A are being conducted in a manner consistent with the Colorado
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, shall 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, 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 a by any party without the prior written consent of all parties hereto.
12.9. The Fund, the Distributor and the Adviser agree that the obligations
assumed by GWL&A pursuant to this Agreement shall be limited in any case to
GWL&A and its assets and neither the Fund, Distributor nor Adviser shall seek
satisfaction of any such obligation from the shareholders of GWL&A, the
directors, officers, employees or agents of GWL&A, or any of them, except to the
extent permitted under this Agreement.
12.10. No provision of this Agreement may be deemed or construed to modify
or supersede any contractual rights, duties, or indemnifications, as between the
Adviser and the Fund, and the Distributor 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.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By: /s/Ron Laeyendeck
---------------------
Title: Vice President
Date: June 18, 1999
INVESCO Variable Investment Funds, Inc.
By its authorized officer,
By: /s/Ronald L. Grooms
-----------------------
Title:
Date:
INVESCO Funds Group, Inc.
By its authorized officer,
By: /s/Ronald L. Grooms
------------------------
Title:
Date:
INVESCO Distributors, Inc.
By its authorized officer,
By: /s/ Ronald L. Grooms
------------------------
Title:
Date:
<PAGE>
SCHEDULE A
----------
Contracts Form Numbers
- --------- ------------
Future Fund Series GTDAMF92 Vol
GTDAMF92 ER
GTSMG184-1
GTSAMF191
COLI VUL J355.
<PAGE>
SCHEDULE B
----------
Designated Portfolios
- ---------------------
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
INVESCO Variable Utilities Funds
Additional Funds may be offered in the future, and may be included in this Fund
Participation Agreement, under identical terms, after written amendment or
substitution of this Schedule B.
<PAGE>
SCHEDULE C
----------
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 GWL&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);
(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 CI
CERTIFICATE OF COMPLIANCE
For the quarter ended: ____________________
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 Great West Life & Annuity Insurance
Company, 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)
<PAGE>
SCHEDULE D
EXPENSES
--------
The Fund and/or the Distributor and/or Adviser, and GWL&A will coordinate the
functions and pay the costs of the completing these functions based upon an
allocation of costs in the tables below. Costs shall be allocated to reflect the
Fund's share of the total costs determined according to the number of pages of
the Fund's respective portions of the documents.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Item Function Party Responsible for Party Responsible
Coordination for Expense
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mutual Fund Prospectus Printing of combined GWL&A Fund, Distributor
prospectuses or Adviser, as
applicable
- -------------------------------------------------------------------------------------------------
Fund, Distributor or GWL&A Fund, Distributor
Adviser shall supply or Adviser, as
GWL&A with such applicable
numbers of the
Designated Portfolio(s)
prospectus(es) as
GWL&A shall reasonably
request
- --------------------------------------------------------------------------------------------------
Distribution to New GWL&A GWL&A
and Inforce Clients
- --------------------------------------------------------------------------------------------------
Distribution to GWL&A GWL&A
Prospective Clients
- --------------------------------------------------------------------------------------------------
Product Prospectus Printing for Inforce GWL&A GWL&A
Clients
- --------------------------------------------------------------------------------------------------
Printing for Prospective GWL&A GWL&A
Clients
- --------------------------------------------------------------------------------------------------
Distribution to New GWL&A GWL&A
and Inforce Clients
- --------------------------------------------------------------------------------------------------
Distribution to GWL&A GWL&A
Prospective Clients
- --------------------------------------------------------------------------------------------------
Item Function Party Responsible for Party Responsible
Coordination for Expense
- --------------------------------------------------------------------------------------------------
Mutual Fund Prospectus If Required by Fund, Fund, Distributor or Fund, Distributor
Update & Distribution Distributor or Adviser Adviser or Adviser
- --------------------------------------------------------------------------------------------------
If Required by GWL&A GWL&A GWL&A
- --------------------------------------------------------------------------------------------------
Product Prospectus If Required by Fund, GWL&A Fund, Distributor
Update & Distribution Distributor or Adviser or Adviser
- --------------------------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------------------------
Item Function Party Responsible for Party Responsible
Coordination for Expense
- -------------------------------------------------------------------------------------------------
If Required by GWL&A GWL&A GWL&A
- -------------------------------------------------------------------------------------------------
Mutual Fund SAI Printing Fund, Distributor or Fund, Distributor
Adviser or Adviser
- -------------------------------------------------------------------------------------------------
Distribution GWL&A GWL&A
- -------------------------------------------------------------------------------------------------
Product SAI Printing GWL&A GWL&A
- -------------------------------------------------------------------------------------------------
Distribution GWL&A GWL&A
- -------------------------------------------------------------------------------------------------
Item Function Party Responsible for Party Responsible
Coordination for Expense
- -------------------------------------------------------------------------------------------------
Proxy Material for Printing if proxy Fund, Distributor or Fund, Distributor
Mutual Fund required by Law Adviser or Adviser
- -------------------------------------------------------------------------------------------------
Distribution GWL&A Fund, Distributor
(including labor) or Adviser
if proxy required
by Law
- -------------------------------------------------------------------------------------------------
Printing & distribution GWL&A GWL&A
if required by GWL&A
=================================================================================================
Item Function Party Responsible for Party Responsible
Coordination for Expense
- -------------------------------------------------------------------------------------------------
Mutual Fund Annual & Printing of combined GWL&A Fund, Distributor
Semi-Annual Report reports or Adviser
- -------------------------------------------------------------------------------------------------
Distribution GWL&A GWL&A
- -------------------------------------------------------------------------------------------------
Other communication to If Required by the GWL&A Fund, Distributor
New and Prospective Fund, Distributor or Adviser
clients or Adviser
- -------------------------------------------------------------------------------------------------
If Required by GWL&A GWL&A GWL&A
- -------------------------------------------------------------------------------------------------
Item Function Party Responsible for Party Responsible
Coordination for Expense
- -------------------------------------------------------------------------------------------------
Other communication Distribution (including GWL&A Fund, Distributor
to inforce labor and printing) if or Adviser
required by the Fund,
Distributor or Adviser
- -------------------------------------------------------------------------------------------------
Distribution (including GWL&A GWL&A
labor and printing) if
required by GWL&A
=================================================================================================
<PAGE>
- -------------------------------------------------------------------------------------------------
Item Function Party Responsible for Party Responsible
Coordination for Expense
- -------------------------------------------------------------------------------------------------
Errors in Share Price Cost of error to GWL&A Fund or Adviser
calculation pursuant to participants
Section 1.10
- -------------------------------------------------------------------------------------------------
Cost of administrative GWL&A Fund or Adviser
work to correct error
- -------------------------------------------------------------------------------------------------
Operations of the Fund All operations and Fund, Distributor or Fund or Adviser
related expenses, Adviser
including the cost
of registration and
qualification of
shares, taxes on the
issuance or transfer
of shares, cost of
management of the
business affairs
of the Fund, and
expenses paid or
assumed by the fund
pursuant to any Rule
12b-1 plan
- --------------------------------------------------------------------------------------------------
Operations of the Federal registration of GWL&A GWL&A
Account units of separate
account (24f-2 fees)
- --------------------------------------------------------------------------------------------------
</TABLE>
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 18th day of October 1999 (the "
Agreement") by and among American Skandia Life Assurance Corporation, organized
under the laws of the State of Connecticut (the "Insurance Company"), on behalf
of itself and each separate account of the Insurance Company named in Schedule A
to this Agreement, as may be amended from time to time (each separate account
referred to as the "Separate Account" and collectively as the " Separate
Accounts"); INVESCO Variable Investment Funds, Inc., an open-end management
investment company organized under the laws of the State of Maryland (the "
Investment Company"); INVESCO Funds Group, Inc. a corporation organized under
the laws of the State of Delaware and investment adviser to the Investment
Company (the " Adviser" ); and INVESCO Distributors, Inc., a corporation
organized under the laws of the State of Delaware and principal
underwriter/distributor of the Investment Company.
WHEREAS, the Investment Company engages in business as an open-end diversified,
management investment company and was established for the purpose of serving as
the investment vehicle for separate accounts established for variable life
insurance contracts and variable annuity contracts to be offered by insurance
companies which have entered into participation agreements substantially similar
to this Agreement (the "Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Investment Company are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (each, a "Fund" and collectively, the
"Funds"); and
WHEREAS, the Insurance Company, as depositor, has established the Separate
Accounts to serve as investment vehicles for certain variable annuity contracts
and variable life insurance policies and funding agreements offered by the
Insurance Company set forth on Schedule A (the "Contracts"); and
WHEREAS, the Separate Accounts are duly organized, validly existing segregated
asset accounts, established by resolutions of the Board of Directors of the
Insurance Company under the insurance laws of the State of Connecticut. to set
aside and invest assets attributable to the Contracts; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Insurance Company intends to purchase shares of the Funds named in Schedule
B, as such schedule may be amended from time to time (the " Designated Funds")
on behalf of the Separate Accounts to fund the Contracts; and
WHEREAS, the Distributor is authorized to sell such shares of the Funds to unit
investment trusts such as the Separate Accounts at net asset value.
NOW, THEREFORE, in consideration of their mutual promises, the Insurance
Company, the Investment Company, the Adviser and the Distributor agree as
follows:
ARTICLE I - SALE OF FUND SHARES
1.1 The Distributor agrees to sell to the Insurance Company those shares of the
Designated Funds which the Insurance Company orders on behalf of each
Separate Account, executing such orders on a daily basis at the net asset
value (and with no sales charges) next computed after receipt and
acceptance by the Investment Company or its designee of the order for the
shares of the Investment Company. For purposes of this Section 1.1, the
Insurance Company will be the designee of the Investment Company for
receipt of such orders from each Separate Account and receipt by such
designee will constitute receipt by the Investment Company; provided that
the Investment Company receives notice of such order by 11:00 a.m. Eastern
Time on the next following business day. "Business Day" will mean any day
on which the New York Stock Exchange is open for trading and on which the
<PAGE>
Investment Company calculates its net asset value pursuant to the rules of
the Securities and Exchange Commission (the "Commission"). If the
Investment Company does not receive actual notice of such purchase order
before 11:00 a.m. Eastern Time on the Business Day next following Insurance
Company's acceptance of such order on behalf of each Separate Account, such
order will be executed at the net asset value next calculated by the
Investment Company or its designee pursuant to the rules of the Commission.
Payment will be made in federal funds transmitted by wire to the Investment
Company's account as designated by the Investment Company in writing from
time to time, on the same Business Day the Investment Company receives
notice of the purchase order from the Insurance Company. The Investment
Company may net the notice of redemptions it receives from the Insurance
Company under Section 1.3 of this Agreement against the notice of purchases
it receives from the Insurance Company under this Section 1.1.
1.2 The Insurance Company will pay for Designated Fund shares on the next
Business Day after an order to purchase Designated Fund shares is made in
accordance with Section 1.1. Payment will be made in federal funds
transmitted by wire. Upon receipt by the Investment Company of the payment,
such funds shall cease to be the responsibility of the Insurance Company
and shall become the responsibility of the Investment Company.
1.3 The Investment Company agrees to redeem for cash, upon the Insurance
Company's request, any full or fractional shares of the Investment Company
held by the Insurance Company, executing such requests on a daily basis at
the net asset value next computed after receipt and acceptance by the
Investment Company or its agent of the request for redemption. For purposes
of this Section 1.3, the Insurance Company will be the designee of the
Investment Company for receipt of requests for redemption from each
Separate Account and receipt by such designee will constitute receipt by
the Investment Company; provided the Investment Company receives notice of
such requests for redemption by 11:00 a.m. Eastern Time on the next
following Business Day. If the Investment Company does not receive actual
notice of such redemption order before 11:00 a.m. Eastern Time on the
Business Day next following Insurance Company's acceptance of such order on
behalf of each Separate Account, such order will be executed at the net
asset value next calculated by the Investment Company or its designee
pursuant to the rules of the Commission. Payment will be made in federal
funds transmitted by wire to the Insurance Company's account as designated
by the Insurance Company in writing from time to time, on the same Business
Day the Investment Company receives notice of the redemption order from the
Insurance Company. After consulting with the Insurance Company, the
Investment Company reserves the right to delay payment of redemption
proceeds, but in no event may such payment be delayed longer than the
period permitted under Section 22(e) of the Investment Company Act of 1940
(the " 1940 Act'). The Investment Company will not bear any responsibility
whatsoever for the proper disbursement or crediting of redemption proceeds;
the Insurance Company alone will be responsible for such action. If
notification of redemption is received after 11:00 Eastern Time, payment
for redeemed shares will be made on the next following Business Day. The
Investment Company may net the notice of purchases it receives from the
Insurance Company under Section 1. 1 of this Agreement against the notice
of redemptions it receives from the Insurance Company under this Section
1.3.
1.4 The Investment Company agrees to make shares of the Designated Funds
available continuously for purchase at the applicable net asset value per
share by Participating Insurance Companies and their separate accounts on
those days on which the Investment Company calculates the net asset value
of each Fund pursuant to rules of the Commission; provided, however, that
<PAGE>
the Board of Directors of the Investment Company (the " Directors") 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 Directors, 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 Fund.
1.5 The Investment Company and the Distributor agree that shares of the
Investment Company will be sold only to Participating Insurance Companies
and their separate accounts, qualified pension and retirement plans or such
other persons as are permitted under applicable provisions of the Internal
Revenue Code of 1986, as amended, (the "Code"), and regulations promulgated
thereunder, the sale to which will not impair the tax treatment currently
afforded the Contracts. No shares of any Fund will be sold directly to the
general public.
1.6 The Investment Company will not sell Fund shares to any insurance company
or separate account unless agreement containing provisions substantially
the same as Articles I, III, V, and VII and Section 2.8 of Article II of
this Agreement are in effect to govern such sales.
1.7 The Insurance Company agrees to purchase and redeem the shares of the
Designated Funds offered by the then current prospectus of the Investment
Company in accordance with the provisions of such prospectus.
1.8 Issuance and transfer of the Investment Company's shares will be by book
entry only. Stock certificates will not be issued to the Insurance Company
or to any Separate Account. Purchase and redemption orders for Fund shares
will be recorded in an appropriate title for each Separate Account or the
appropriate sub-account of each Separate Account.
1.9 The Investment Company will furnish same day notice (by facsimile) to the
Insurance Company of the declaration of any income, dividends or capital
gain distributions payable on each Designated Fund's shares. The Insurance
Company hereby elects to receive all such dividends and distributions as
are payable on the Fund shares in the form of additional shares of that
Fund at the ex-dividend date net asset values. The Insurance Company
reserves the right to revoke this election and to receive all such
dividends and distributions in cash. The Investment Company will notify the
Insurance Company of the number of shares so issued as payment of such
dividends and distributions.
1.10 The Investment Company will make the net asset value per share for each
Designated Fund available to the Insurance Company via electronic means on
a daily basis as soon as reasonably practical after the net asset value per
share is calculated and will use its best efforts to make such net asset
value per share available by 6:00 p.m., Eastern Time, each Business Day. If
the Investment Company provides the Insurance Company materially incorrect
net asset value per share information (as determined under SEC guidelines),
the Insurance Company shall be entitled to an adjustment to the number of
shares purchased or redeemed 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 gain information shall be reported to
the Insurance Company upon discovery by the Investment 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 Securities Act of 1933 (the " 1933 Act"), or
are exempt from registration thereunder, and that the Contracts will be
issued and sold in compliance with all applicable federal and state laws.
The Insurance Company further represents and warrants that: (i) it is an
insurance company duly organized and in good standing under applicable law;
(ii) it has legally and validly established each Separate Account as a
separate account under Section 38a-433 of the General Statutes of
Connecticut; (iii) each Separate Account is or will be registered as a unit
investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts, or is exempt from
registration thereunder; and (iv) it will maintain such registration for so
long as any Contracts are outstanding. The Insurance Company will amend
each registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Separate Account from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Insurance
Company will register and qualify the Contracts for sale in accordance with
the securities laws of the various states only if, and to the extent,
deemed necessary by the Insurance Company.
2.2 Subject to the Investment Company's representations in Article III, the
Insurance Company represents that the contracts are currently and at the
time of issuance will be treated as annuity contracts and/or life insurance
policies (as applicable) under applicable provisions of the Code, and that
it will make every effort to maintain such treatment and that it will
notify the Investment Company and the Distributor 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.
2.3 The Insurance Company represents and warrants to the Investment Company,
the Adviser, and the Distributor that its has a Year 2000 compliance
program in existence and that each reasonably intends to be Year 2000
compliant so as to be able perform all of the services and/or obligations
contemplated by or under this Agreement without interruption. The Insurance
Company shall immediately notify the Investment Company, the Adviser, and
the Distributor if it determines that it will be unable perform all of the
services and/or obligations contemplated by or under this Agreement in a
manner that is Year 2000 compliant.
2.4 The Insurance Company represents and warrants that it will not purchase
shares of the Designated Fund(s) with assets derived from tax-qualified
retirement plans except, indirectly, through Contracts purchased in
connection with such plans.
2.5 The Investment Company represents and warrants that shares of the
Designated Fund(s) sold pursuant to this Agreement will be registered under
the 1933 Act and duly authorized for issuance in accordance with applicable
law and that the Investment Company is and will remain registered as an
open-end diversified, management investment company under the 1940 Act for
as long as such shares of the Designated Fund(s) are sold. The Investment
Company will 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 Investment Company will register and
qualify the shares of the Designated Fund(s) for sale in accordance with
the laws of the various states only if and to the extent deemed advisable
by the Investment Company or the Distributor.
<PAGE>
2.6 The Investment Company represents that it will use its best efforts to
comply with any applicable state insurance laws or regulations as they may
apply to the investment objectives, policies and restrictions of the Funds,
to the extent specifically requested in writing by the Insurance Company.
If the Investment Company cannot comply with such state insurance laws or
regulations, it will so notify the Insurance Company in writing. The
Investment Company makes no other 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 any
state. The Insurance Company represents that it will use its best efforts
to notify the Investment Company of any restrictions imposed by state
insurance laws that may become applicable to the Investment Company as a
result of the Separate Accounts' investments therein. The Investment
Company and the Adviser agree that they will furnish the information
required by state insurance laws to assist the Insurance Company in
obtaining the authority needed to issue the Contracts in various states.
2.7 The Investment Company represents and warrants that, to the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1 under the
1940 Act, the Investment Company undertakes to have the Directors, a
majority of whom are not " interested" persons of the Investment Company,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses. The Investment Company shall notify the Insurance Company
immediately upon determining to finance distribution expenses pursuant to
Rule 12b-1.
2.8 The Investment 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 applicable provisions of the 1940 Act.
2.9 The Investment Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
having access to the funds and/or securities of the Investment Company are
and continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Investment Company in an amount not
less than the minimal coverage as required currently by Rule 17g-(1) of the
1940 Act or related provisions as may be promulgated from time to time. The
aforesaid bond includes coverage for larceny and embezzlement and is issued
by a reputable bonding company.
2.10 The Adviser represents and warrants that: (i) it is duly registered as an
investment adviser under the Investment Advisers Act of 1940, as amended,
and will remain duly registered under all applicable federal and state
securities laws; and (ii) it will perform its obligations for the
Investment Company in accordance in all material respects with the laws of
the State of Delaware and any applicable state and federal securities laws.
2.11 The Distributor represents and warrants that it: (i) is registered as a
broker-dealer under the Securities and Exchange Act of 1934, as amended
(the " 1934 Act") and will remain duly registered under all applicable
federal and state securities laws; (ii) is a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD"); (iii) serves as
principal underwriter/distributor of the Investment Company; and (iv) will
perform its obligations for the Investment Company in accordance in all
material respects with the laws of the State of Delaware and any applicable
state and federal securities laws.
<PAGE>
2.12 The Investment Company, the Adviser and the Distributor represent and
warrant to the Insurance Company that each has a Year 2000 compliance
program in existence and that each reasonably intends to be Year 2000
compliant so as to be able to perform all of the services and/or
obligations contemplated by or under this Agreement without interruption.
The Investment Company, the Adviser, and the Distributor shall immediately
notify the Insurance Company if it determines that it will be unable to
perform all of the services and/or obligations contemplated by or under
this Agreement in a manner that is Year 2000 compliant.
ARTICLE III - FUND COMPLIANCE
3.1 The Investment Company, the Adviser and the Distributor acknowledge that
any failure (whether intentional or in good faith or otherwise) to comply
with the requirements of Subchapter M of the Code or the diversification
requirements of Section 817(h) of the Code may result in the Contracts not
being treated as variable contracts for federal income tax purposes, which
would have adverse tax consequences for Contract owners and could also
adversely affect the Insurance Company's corporate tax liability. The
Investment Company, the Adviser and the Distributor further acknowledge
that any such failure may result in costs and expenses being incurred by
the Insurance Company in obtaining whatever regulatory authorizations are
required to substitute shares of another investment company for those of
the failed Fund as well as fees and expenses of legal counsel and other
advisors to the Insurance Company and any federal income taxes, interest or
tax penalties incurred by the Insurance Company in connection with any such
failure.
3.2 The Investment Company represents and warrants that it is currently
qualified as a Regulated Investment Company under Subchapter M of the Code,
and that it will maintain such 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.
3.3 The Investment Company represents that it will at all times invest money
from the Contracts in such a manner as to ensure that the Contracts will be
treated as variable contracts under the Code and the regulations issued
thereunder; including, but not limited to, that the Investment Company will
at all times comply with Section 817(h) of the Code and Treasury Regulation
1.817-5, as amended from time to time, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts,
and with Section 817(d) of the Code, relating to the definition of a
variable contract, and any amendments or other modifications to such
Section or Regulation. The Investment Company will notify the Insurance
Company immediately upon having a reasonable basis for believing that the
Investment Company or a Fund thereunder has ceased to comply with the
diversification requirements or that the Investment Company or Fund might
not comply with the diversification requirements in the future. In the
event of a breach of this representation by the Investment Company, it will
take all reasonable steps to adequately diversify the Investment Company so
as to achieve compliance within the grace period afforded by Treasury
Regulation 1.817-5.
3.4 The Adviser agrees to provide the Insurance Company with a certificate or
statement indicating compliance by each Fund of the Investment Company with
Section 817(h) of the Code, such certificate or statement to be sent to the
Insurance Company no later than thirty (30) days following the end of each
calendar quarter.
<PAGE>
ARTICLE IV - PROSPECTUS AND PROXY STATEMENTS; VOTING
4.1 The Investment Company or the Distributor will provide the Insurance
Company with as many copies of the current Investment Company prospectus
and any supplements thereto for the Designated Fund(s) as the Insurance
Company may reasonably request, at the Investment Company's or
Distributor's expense, for distribution to Contract owners at the time of
Contract fulfillment and confirmation. To the extent that the Designated
Fund(s) are one or more of several Funds of the Investment Company, the
Investment Company shall bear the cost of providing the Insurance Company
only with disclosure related to the Designated Fund(s). The Investment
Company will provide as many copies of said prospectus as necessary for
distribution, at the Investment Company's or Distributor's expense, to
existing Contract owners. The Investment Company will provide the copies of
said prospectus to the Insurance Company or to its mailing agent. The
Insurance Company will distribute the prospectus to existing Contract
owners and will bill the Investment Company or the Distributor for the
reasonable cost of such distribution. If requested by the Insurance
Company, in lieu thereof, the Investment Company or the Distributor will
provide such documentation, including a final copy of a current prospectus
set in type at the Investment Company's or the Distributor's expense, and
other assistance as is reasonably necessary in order for the Insurance
Company at least annually (or more frequently if the Investment Company
prospectus is amended more frequently) to have the new prospectus for the
Contracts and the Investment Company's new prospectus printed together, in
which case the Investment Company or the Distributor agrees to pay its
proportionate share of reasonable expenses directly related to the required
disclosure of information concerning the Investment Company. The Investment
Company or the Distributor will, upon request, provide the Insurance
Company with a copy of the Investment Company's prospectus through
electronic means to facilitate the Insurance Company's efforts to provide
Investment Company prospectuses via electronic delivery, in which case the
Investment Company or the Distributor agrees to pay its proportionate share
of reasonable expenses related to the required disclosure of information
concerning the Investment Company.
4.2 The Investment Company's prospectus will state that the Statement of
Additional Information (the " SAI") for the Investment Company is available
from the Distributor or, in the Investment Company's discretion, the
Prospectus shall state that such statement is available from the Investment
Company.
4.3 The Investment Company, at its expense, will provide the Insurance Company
or its mailing age copies of its proxy material, if any, reports to
shareholders/Contract owners and other communications to shareholders/
Contract owners in such quantity as the Insurance Company will reasonably
require. The Insurance Company will distribute this proxy material, reports
and other communications to existing Contract owners and will bill the
Investment Company for the reasonable cost of such distribution.
4.4 If and to the extent required by law, the Insurance Company will:
(a) solicit voting instructions from Contract owners;
(b) vote the shares of the Designated Funds held in the Separate
Account in accordance with instructions received from Contract
owners;
(c) and vote shares of the Designated Funds held in the Separate
Account for which no timely instructions have been received, in
the same proportion as shares of such Designated Fund for which
instructions have been received from the Insurance Company's
Contract owners,
<PAGE>
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 Investment Company shares held in any segregated
asset account in its own right, to the extent permitted by law.
The Insurance Company will be responsible for assuring that the
Separate Accounts participating in the Investment Company
calculates voting privileges in a manner consistent with all
legal requirements, including the Proxy Voting Procedures set
forth in Schedule C and the Mixed and Shared Funding Order, as
described in Section 7. 1.
4.5 The Investment Company will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular, the Investment Company
either will 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 Investment Company currently intends, to comply with Section 16(c)
of the 1940 Act (although the Investment Company is not one of the trusts
described in Section 16(c) of the 1940 Act) as well as with Sections 16(a)
and, if and when applicable, 16(b) of the 1940 Act. Further, the Investment
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 V - SALES MATERIAL AND INFORMATION
5.1 The Insurance Company will furnish, or will cause to be furnished, to the
Investment Company or the Distributor, each piece of sales literature or
other promotional material in which the Investment Company, the Adviser or
the Distributor is named, at least ten (10) business days prior to its use.
No such material will be used if the Investment Company or the Distributor
reasonably objects to such use within five (5) business days after receipt
of such material.
5.2 The Insurance Company will not give any information or make any
representations or statements on behalf of the Investment Company or
concerning the Investment Company in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement, prospectus or SAI for Investment Company shares, as
such registration statement, prospectus and SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the
Investment Company, or in published reports for the Investment Company
which are in the public domain or approved by the Investment Company, the
Adviser or the Distributor for distribution, or in sales literature or
other material provided by the Investment Company, the Adviser or the
Distributor, except with permission of the Investment Company, the Adviser
or the Distributor. The Investment Company, the Adviser or the Distributor
agree to respond to any request for approval on a prompt and timely basis.
5.3 The Investment Company, the Adviser or the Distributor will furnish, or
will 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 or its separate account is named, at least ten (10)
business days prior to its use. No such material will be used if the
Insurance Company reasonably objects to such use within five (5) business
days after receipt of such material.
5.4 The Investment Company, the Adviser or the Distributor will not give any
information or make any representations or statements on behalf of the
Insurance Company or concerning the Insurance Company, each Separate
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus or SAI for the Contracts,
as such registration statement, prospectus and SAI may be amended or
supplemented from time to time, or in published reports for each Separate
<PAGE>
Account or the Contracts which are in the public domain or approved by the
Insurance Company for distribution to Contract owners, or in sales
literature or other material provided by the Insurance Company, except with
permission of the Insurance Company. The Insurance Company agrees to
respond to any request for approval on a prompt and timely basis.
5.5 The Investment Company will provide to the Insurance Company 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 Investment Company or
its shares, within a reasonable time after filing of each such document
with the Commission or the NASD.
5.6 The Insurance Company will provide to the Investment Company at least one
complete copy of all definitive prospectuses, definitive SAI, 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 each Separate Account, contemporaneously with the filing of
each such document with the Commission or the NASD (Except that with
respect to post-effective amendments to such prospectuses and SAIs and
sales literature and promotional material, only those prospectuses and SAIs
and sales literature and promotional material that relate to or refer to
the Investment Company or one or more of the Designated Funds will be
provided.) In addition, the Insurance Company will provide to the
Investment Company at least one complete copy of (i) a registration
statement that relates to the Contracts or each Separate Account,
containing representative and relevant disclosure concerning the Investment
Company; and (ii) any post-effective amendments to any registration
statements relating to the Contracts or such Separate Account that refer to
or relate to the Investment Company.
5.7 For purposes of this Article V, the phrase " sales literature or 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,
(i.e., on-line networks such as the Internet or other electronic
messages)), 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, registration statements, prospectuses, SAIs,
shareholder reports, and proxy materials and any other material
constituting sales literature or advertising under the NASD Conduct Rules,
the 1933 Act or the 1940 Act.
5.8 The Investment Company, the Adviser and the Distributor hereby consent to
the Insurance Company's use of the names of the INVESC0, AMVESCAP and
INVESCO Funds Group, Inc. as well as the names of the Designated Funds set
forth in Schedule B of this Agreement, in connection with marketing the
Contracts, subject to the terms of Sections 5.1 of this Agreement.
Insurance Company acknowledges and agrees that Adviser and Distributor
and/or their affiliates own all right, title and interest in an to the name
INVESCO and the INVESCO open circle design, and covenants not, at any time,
to challenge the rights of Adviser and Distributor and/or their affiliates
to such name or design, or the validity or distinctiveness thereof. The
Investment Company, the Adviser and the Distributor hereby consent to the
use of any trademark, trade name, service mark or logo used by the
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Investment Company, the Adviser and the Distributor, subject to the
Investment Company's, the Adviser's and/or the Distributor's approval of
such use and in accordance with reasonable requirements of the Investment
Company, the Adviser or the Distributor. Such consent will terminate with
the termination of this Agreement. Adviser or Distributor may withdraw this
consent as to any particular use of any such name or identifying marks at
any time (i) upon Adviser's or Distributor's reasonable determination that
such use would have a material adverse effect on the reputation or
marketing efforts of Adviser, Distributor or such Funds or (ii) if no
investment company, or series or class of shares of any investment company
advised by Adviser or distributed by Distributor continues to be offered
through variable insurance contracts issued by Insurance Company; provided
however, that Adviser or Distributor may, in eithers individual discretion,
continue to use materials prepared or printed prior to the withdrawal of
such authorization. The Insurance Company agrees and acknowledges that all
use of any designation comprised in whole or in part of the name,
trademark, trade name, service mark and logo under this Agreement shall
inure to the benefit of the Investment Company, Adviser and/or the
Distributor.
5.9 The Investment Company, the Adviser, the Distributor and the Insurance
Company agree to adopt and implement procedures reasonably designed to
ensure that information concerning the Insurance Company, the Investment
Company, the Adviser or the Distributor, respectively, and their respective
affiliated companies, that is intended for use only by brokers or agents
selling the Contracts (i.e. information that is not intended for
distribution to Contract owners or prospective Contract owners) and is
properly marked as "Not For Use With The Public" or "For Broker-Dealer Use
Only" and that such information is only so used.
ARTICLES VI - FEES, COSTS AND EXPENSES
6.1 The Investment Company will pay no fee or other compensation to the
Insurance Company under this Agreement, except subject to a plan pursuant
to Rule 12b-1 under the 1940 Act to finance distribution expenses, in which
case, subject to obtaining any required exemptive orders or other
regulatory approvals, the Investment Company or Distributor may make
payments to the Insurance Company or to the underwriter for the Contracts
if and in such amounts agreed to by the Investment Company in writing. Each
party, however, shall, in accordance with the allocation of expenses
specified in this Agreement, reimburse other parties for expenses initially
paid by one party but allocated to another party. In addition, nothing
herein shall prevent the parties hereto from otherwise agreeing to perform,
and arranging for appropriate compensation for, other administrative
services provided to Contract owners relating to the Investment Company
that are not primarily intended to result in the sale of shares of the
Designated Funds.
6.2 All expenses incident to performance by the Investment Company of this
Agreement will be paid by the Investment Company or the Distributor to the
extent permitted by law. All shares of the Designated Funds will be duly
authorized for issuance and registered in accordance with applicable
federal law and, to the extent deemed advisable by the Investment Company,
in accordance with applicable state law, prior to sale. The Investment
Company will bear the expenses for the cost of registration and
qualification of the Investment Company's shares, including without
limitation, the preparation of and filing with the SEC of Forms N-SAR and
Rule 24-2 Notices and payment of all applicable registration or filing fees
(if applicable) with respect to shares of the Investment Company;
preparation and filing of the Investment Company's prospectus, SAI and
registration statement, proxy materials and reports; typesetting the
Investment Company's prospectus; typesetting and printing proxy materials
and reports to Contract owners (including the costs of printing an
<PAGE>
Investment Company prospectus that constitutes an annual report); the
preparation of all statements and notices required by any federal or state
law; all taxes on the issuance or transfer of the Investment Company's
shares; any expenses permitted to be paid or assumed by the Investment
Company pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act;
and other costs associated with preparation of prospectuses and SAIs for
the Designated Funds in electronic or typeset format.
6.3 The Insurance Company shall bear all expenses associated with the
registration, qualification, and filing of the Contracts under applicable
federal securities and state insurance laws; the cost of preparing,
printing, and distributing the Contracts' prospectus and SAI; and the cost
of printing and distributing annual individual account statements for
Contract owners are required by state law.
ARTICLE VII - MIXED & SHARED FUNDING RELIEF
7.1 The Investment Company represents and warrants that it has received an
order from the Commission granting Participating Insurance Companies and
variable annuity separate accounts and variable life insurance separate
accounts relief from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the 1940 Act and Rules 6e-2(b)(I 5) and 6e-3(T)(b)(15) thereunder,
to the extent necessary to permit shares of the Investment Company to be
sold to and held by variable annuity separate accounts and variable life
insurance separate accounts of both affiliated and unaffiliated
Participating Insurance Companies and qualified pension and retirement
plans outside of the separate account context (the "Mixed and Shared
Funding Order"). The parties to this Agreement agree that the conditions or
undertakings specified in the Mixed and Shared Funding Order and that may
be imposed on the Insurance Company, the Investment Company and/or the
Adviser by virtue of the receipt of such order by the Commission, will be
incorporated herein by reference, and such parties agree to comply with
such conditions and undertakings to the extent applicable to each such
party.
7.2 The Directors will monitor the Investment Company for the existence of any
material irreconcilable conflict among the interests of the Contract owners
of all separate accounts investing in the Investment Company. A material
irreconcilable conflict may arise for a variety of reasons, including, but
not limited to: (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 Fund are being managed; (e) a difference in voting
instructions given by Participating Insurance Companies or by variable
annuity and variable life insurance Contract owners; or (f) a decision by
an insurer to disregard the voting instructions of Contract owners. The
Directors will promptly inform the Insurance Company if it determines that
a material irreconcilable conflict exists and the implications thereof. A
majority of the Directors will consist of persons who are not " interested"
persons of the Investment Company.
<PAGE>
7.3 The Insurance Company will report any potential or existing conflicts of
which it is aware to the Directors. The Insurance Company agrees to assist
the Directors in carrying out its responsibilities under the Mixed and
Shared Funding Order by providing the Directors with all information
reasonably necessary for the Directors to consider any issues raised. This
includes, but is not limited to, an obligation by the Insurance Company to
inform the Directors whenever Contract owner voting instructions are to be
disregarded. The Directors will record in its minutes, or other appropriate
records, all reports received by it and all action with regard to a
conflict.
7.4 If it is determined by a majority of the Directors, or a majority of the
disinterested Directors of the Fund's Board, that a material irreconcilable
conflict exists, the Insurance Company and other Participating Insurance
Companies will, at their expense and to the extent reasonably practicable
(as determined by a majority of the disinterested Directors), take whatever
steps are necessary to remedy or eliminate the material irreconcilable
conflict, up to and including: (a) withdrawing the assets allocable to some
or all of the Separate Accounts from the Investment Company or any Fund and
reinvesting such assets in a different investment medium, including (but
not limited to) another Fund of the Investment Company, or submitting the
question whether such segregation should be submitted to a vote of all
affected Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., variable annuity Contract owners or variable life
insurance 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 (b) establishing a
new registered management investment company or managed separate account.
7.5 If a material irreconcilable conflict arises because of a decision by the
Insurance Company to disregard Contract owner voting instructions, and such
disregard of voting instructions could conflict with the majority of
Contract owner voting instructions, and the Insurance Company's judgment
represents a minority position or would preclude a majority vote, the
Insurance Company may be required, at the Investment Company's election, to
withdraw the affected sub-account of the Separate Accounts investment in
the Investment Company and terminate this Agreement with respect to such
sub-account; provided, however, that such withdrawal and termination will
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Directors of the
Fund's Board. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal and termination must take place within six
(6) months after the Investment Company gives written notice to the
Insurance Company that this provision is being implemented. Until the end
of such six-month period the Adviser and Investment Company will, to the
extent permitted by law and any exemptive relief previously granted to the
Investment Company, continue to accept and implement orders by the
Insurance Company for the purchase (and redemption) of shares of the
Investment Company.
7.6 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 insurance regulators, then the
Insurance Company will withdraw the affected sub-account of the Separate
Account's investment in the Investment Company and terminate this Agreement
with respect to such sub-account; provided, however, that such withdrawal
and termination will be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the
disinterested Directors of the Fund's Board. No charge or penalty will be
imposed as a result of such withdrawal. Any such withdrawal and termination
must take place within six (6) months after the Investment Company gives
written notice to the Insurance Company that this provision is being
implemented. Until the end of such six-month period the Advisor and
<PAGE>
Investment Company will, to the extent permitted by law and any exemptive
relief previously granted to the Investment Company, continue to accept and
implement orders by the Insurance Company for the purchase (and redemption)
of shares of the Investment Company.
7.7 For purposes of Sections 7.4 through 7.7 of this Agreement, a majority of
the disinterested members of the Directors will determine whether any
proposed action adequately remedies any material irreconcilable conflict,
but in no event, other than as specified in Section 7.4, will the
Investment Company be required to establish a new funding medium for the
Contracts. The Insurance Company will not be required by Section 7.4 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 affected by the
material irreconcilable conflict.
7.8 The Insurance Company will at least annually submit to the Directors such
reports, materials or data as the Directors may reasonably request so that
the Directors may fully carry out the duties imposed upon it as delineated
in the Mixed and Shared Funding Order, and said reports, materials and data
will be submitted more frequently if deemed appropriate by the Directors.
7.9 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3(T) is adopted, to provide 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 Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Order, then: (a) the Investment Company and/or the Participating Insurance
Companies, as appropriate, will 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 4.4, 4.5, 7.1,
7.2, 7.3, 7.4, and 7.5 of this Agreement will 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 THE INSURANCE COMPANY
(a) The Insurance Company agrees to indemnify and hold harmless the
Investment Company, the Adviser, the Distributor, and each of the
Investment Company's or the Adviser's or the Distributor's directors,
officers, employees or agents and each person, if any, who controls or
is associated with the Investment Company, the Adviser, the
Distributor within the meaning of such terms under the federal
securities laws (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 actions in respect thereof
(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 litigations in respect thereof) or
settlements:
(1) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement, prospectus or SAI for the Contracts or
contained in the Contracts or sales literature or other
promotional material 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 or necessary to make such
statements not misleading in light of the circumstances in which
they were made; provided that this agreement to indemnify will
<PAGE>
not apply as to any Indemnified Party if such statement or
omission of such alleged statement or omission was made in
reliance upon and in conformity with information furnished to the
Insurance Company in writing by or on behalf of the Investment
Company, the Adviser, of the Distributor for use in the
registration statement, prospectus or SAI 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 Investment Company shares; or
(2) arise out of or as a result of statements or representations by
or on behalf of the Insurance Company (other than statements or
representations contained in the Investment Company registration
statement, prospectus, SAI or sales literature or other
promotional material of the Investment Company, or any amendment
or supplement to the foregoing, 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 Investment Company
shares; or
(3) arise out of untrue statement or alleged untrue statement of a
material fact contained in the Investment Company registration
statement, prospectus, SAI or sales literature or other
promotional material of the Investment Company (or amendment or
supplement) or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to
make such statements not misleading in light of the circumstances
in which they were made, if such a statement or omission was made
in reliance upon and in conformity with information furnished to
the Investment Company by or on behalf of the Insurance Company
or persons under its control; or
(4) 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
(5) arise out of 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 by the Insurance
Company of this Agreement;
except to the extent provided in Sections 8.1(b) and 8.4 hereof. This
indemnification will be in addition to any liability that the
Insurance Company otherwise may have.
(b) No party will be entitled to indemnification under Section 8.1(a) if
such loss, claim, damage, liability or litigation is due to the
willful misfeasance, bad faith, gross negligence, or reckless
disregard in the performance of such party's duties and obligations
under this Agreement.
(c) The Indemnified Parties promptly will notify the Insurance Company of
the commencement of any litigation, proceedings, complaints or
litigation by regulatory authorities against them in connection with
the issuance or sale of the Investment Company shares or the Contracts
or the operation of the Investment Company.
8.2 IDEMNIFICATION BY THE ADVISER & DISTRIBUTOR
(a) The Adviser and Distributor agree to indemnify and hold harmless the
Insurance Company and each of its directors, officers, employees or
agents and each person, if any, who controls or is associated with the
Insurance Company within the meaning of such terms under the federal
securities (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
<PAGE>
consent of the Adviser and Distributor) or litigation in respect
thereof (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 litigation in respect thereof) or
settlements:
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus or SAI for the Investment
Company or sales literature or other promotional material of the
Investment 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 or necessary to make such statements not misleading in
light of the circumstances in which they were made; provided that
this agreement to indemnify will not apply as to any Indemnified
Party if such statement or omission of such alleged statement or
omission was made in reliance upon and in conformity with
information furnished in writing to the Adviser or Investment
Company by or on behalf of the Insurance Company for use in the
registration statement, prospectus or SAI for the Investment
Company or in sales literature of the Investment Company (or any
amendment or supplement thereto) or otherwise for use in
connection with the sale of the Contracts or Investment Company
shares; or
(2) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Contracts or in the Contract or Investment Company registration
statements, prospectuses or statements of additional information
or sales literature or other promotional material for the
Contracts or of the Investment Company, or any amendment or
supplement to the foregoing, not supplied by the Adviser or the
Investment Company or persons under the control of the Adviser or
the Investment Company respectively) or wrongful conduct of the
Adviser or the Investment Company or persons under the control of
the Adviser or the Investment Company respectively, with respect
to the sale or distribution of the Contracts or Investment
Company shares; or
(3) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, SAI or sales literature or other promotional material
covering the Contracts (or any amendment or supplement thereto),
or the omission or alleged omission to state therein a material
fact required to be stated or necessary to make such statement or
statements not misleading in light of the circumstances in which
they were made, if such statement or omission was made in
reliance upon and in conformity with information furnished to the
Insurance Company by or on behalf of the Adviser or the
Investment Company or persons under the control of the Adviser or
the Investment Company; or
(4) arise as a result of any failure by the Investment Company or the
Adviser to provide the services and furnish the materials under
the terms of this Agreement; or
<PAGE>
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser or the
Investment Company in this Agreement, or arise out of or result
from any other material breach of this Agreement by the Adviser
or the Investment Company (including a failure, whether
intentional or in good faith or otherwise, to comply with the
requirements of Subchapter M of the Code specified in Article
III, Section 3.2 of this Agreement and the diversification
requirements specified in Article III, Section 3.3 of this
Agreement, as described more fully in Section 8.5 below);
except to the extent provided in Sections 8.2(b) and 8.4 hereof. This
indemnification will be in addition to any liability that the Adviser
or Distributor otherwise may have.
(b) No party will be entitled to indemnification under Section 8.2(a) if
such loss, claim, damage, liability or litigation is due to the
willful misfeasance, bad faith, gross negligence, or reckless
disregard in the performance of such party's duties and obligations
under this Agreement.
(c) The Indemnified Parties will promptly notify the Adviser and the
Investment Company of the commencement of any litigation, proceedings,
complaints or litigation by regulatory authorities against them in
connection with the issuance or sale of the Contracts or the operation
of the Separate Account.
8.3 INDEMNIFICATION BY THE INVESTMENT COMPANY
(a) The Investment Company agrees to indemnify and hold harmless the
Insurance Company and each of its directors, officers, employees or
agents and each person, if any, who controls or is associated with the
Insurance Company within the meaning of such terms under the federal
securities (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 Investment Company) or litigation in respect thereof
(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 litigation in respect thereof) or
settlements, are related to the operations of the Investment Company
and:
(1) arise as a result of any failure by the Investment Company to
provide the services and furnish the materials under the terms of
this Agreement; or
(2) arise out of or result from any material breach of any
representation and/or warranty made by the Investment Company in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Investment Company (including a
failure, whether intentional or in good faith or otherwise, to
comply with the requirements of Subchapter M of the Code
specified in Article III, Section 3.2 of this Agreement and the
diversification requirements specified in Article III, Section
3.3 of this Agreement as described more fully in Section 8.5
below); or
(3) arise out of or result from the incorrect or untimely calculation
or reporting of daily net asset value per share or dividend or
capital gain distribution rate;
except to the extent provided in Sections 8.3(b) and 8.4 hereof. This
indemnification will be in addition to any liability that the
Investment Company otherwise may have.
<PAGE>
(b) No party will be entitled to indemnification under Section 8.3(a) if
such loss, claim, damage, liability or litigation is due to the
willful misfeasance, bad faith, gross negligence, or reckless
disregard in the performance of such party's duties and obligations
under this Agreement.
(c) The Indemnified Parties will promptly notify the Investment Company of
the commencement of any litigation, proceedings, complaints or actions
by regulatory authorities against them in connection with the issuance
or sale of the Contracts or the operation of the Separate Account.
8.4 INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this Article VIII
("Indemnifying Party" for the purpose of this Section 8.4) will not be
liable under the indemnification provisions of this Article VIII with
respect to any claim made against a party entitled to indemnification under
this Article VIII ("Indemnified Party" for the purpose of this Section 8.4)
unless such Indemnified Party will have notified the Indemnifying Party in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim will have been served
upon such Indemnified Party (or after such party will have received notice
of such service on any designated agent), but failure to notify the
Indemnifying Party of any such claim will not relieve the Indemnifying
Party from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of the
indemnification provision of this Article VIII, except to the extent that
the failure to notify results in the failure of actual notice to the
Indemnifying Party and such Indemnifying Party is damaged solely as a
result of failure to give such notice. In case any such action is brought
against the Indemnified Party, the Indemnifying Party will be entitled to
participate, at its own expense, in the defense thereof. The Indemnifying
Party also will be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the
Indemnifying Party to the Indemnified Party of the Indemnifying Party's
election to assume the defense thereof, the Indemnified Party will bear the
fees and expenses of any additional counsel retained by it, and the
Indemnifying Party 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, unless: (a) the Indemnifying Party and the
Indemnified Party will have mutually agreed to the retention of such
counsel; or (b) the named parties to any such proceeding (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
The Indemnifying Party will not be liable for any settlement of any
proceeding effected without its written consent but if settled with such
consent or if there is a final judgment for the plaintiff, the Indemnifying
Party agrees to indemnify the Indemnified Party from and against any loss
or liability by reason of such settlement or judgment. A successor by law
of the parties to this Agreement will be entitled to the benefits of the
indemnification contained in this Article VIII. The indemnification
provisions contained in this Article VIII will survive any termination of
this Agreement.
<PAGE>
8.5 INDEMNIFICATION FOR FAILURE TO COMPLY WITH DIVERSIFICATION REQUIREMENTS
The Investment Company and the Adviser acknowledge that any failure
(whether intentional or in good faith or otherwise) to comply with the
diversification requirements specified in Article III, Section 3.3 of this
Agreement may result in the Contracts not being treated as variable
contracts for federal income tax purposes, which would have adverse tax
consequences for Contract owners and could also adversely affect the
Insurance Company's corporate tax liability. Accordingly, without in any
way limiting the effect of Sections 8.2(a) and 8.3(a) hereof and without in
any way limiting or restricting any other remedies available to the
Insurance Company, the Investment Company, the Adviser and the distributor
will pay on a joint and several basis all costs associated with or arising
out of any failure, or any anticipated or reasonably foreseeable failure,
of the Investment Company or any Fund to comply with Section 3.3 of this
Agreement, including all costs associated with correcting or responding 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 Investment Company or
Fund (including but not limited to an order pursuant to Section 26(b) of
the 1940 Act); fees and expenses of legal counsel and other advisors to the
Insurance Company and any federal income taxes or tax penalties (or "toll
charges" or exactments or amounts paid in settlement) incurred by the
Insurance Company in connection with any such failure or anticipated or
reasonably foreseeable failure. Such indemnification and reimbursement
obligation shall be in addition to any other indemnification and
reimbursement obligations of the Investment Company, the Adviser and/or the
Distributor under this Agreement.
ARTICLE IX - APPLICABLE LAW
9.1 This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Delaware
9.2 This Agreement will be subject to the provisions of the 1933 Act, the 1934
Act and the 1940 Act, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Commission may grant (including, but not limited to, the Mixed and Shared
Funding Order) and the terms hereof will be interpreted and construed in
accordance therewith.
ARTICLE X - TERMINATION
10.1 This Agreement will terminate automatically in the event of its assignment,
unless made with the written consent of each party, or:
(a) at the option of any party, with or without cause, with respect to
one, some or all of the Funds, upon six (6) month's advance written
notice to the other parties or, if later, upon receipt of any required
exemptive relief or orders from the SEC, unless otherwise agreed in a
separate written agreement among the parties; or
(b) at the option of the Insurance Company, upon written notice to the
other parties, with respect to any Fund if shares of the Fund are not
reasonably available to meet the requirements of the Contracts as
determined in good faith by the Insurance Company; or
(c) at the option of the Insurance Company, upon written notice to the
other parties, with respect to any Fund in the event any of the Fund'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 Insurance Company; or
<PAGE>
(d) at the option of the Investment Company upon institution of formal
proceedings against the Insurance Company by the NASD, the Commission,
the insurance commission of any state or any other regulatory body
regarding the Insurance Company's duties under this Agreement or
related to the sale of the Contracts, the administration of the
Contracts, the operation of the Separate Account, or the purchase of
the Investment Company shares, provided that the Investment Company
determines in its sole judgment that any such proceeding would have a
October 7, 1999 material adverse effect on the Insurance Company's
ability to perform its obligations under this Agreement; or
(e) at the option of the Insurance Company upon institution of formal
proceedings against Investment Company, the Adviser or the Distributor
by the NASD, the Commission or any state securities or insurance
commission or any other regulatory body, provided that the Insurance
Company determines in its sole judgment that any such proceeding would
have a material adverse effect on the Investment Company's, the
Adviser's or the Distributor's ability to perform its obligations
under this Agreement; or
(f) at the option of the Insurance Company, if the Investment 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 Investment Company may
fail to so qualify; or
(g) at the option of the Insurance Company, with respect to any Fund, if
the Investment Company fails to meet the diversification requirements
specified in Section 3.3 hereof or if the Insurance Company reasonably
believes the Investment Company may fail to meet such requirements; or
(h) at the option of any party to this Agreement, upon another party's
material breach of any provision of this Agreement; or
(i) at the option of the Insurance Company, if the Insurance Company
determines in its sole judgment exercised in good faith that either
the Investment Company, the Adviser or the Distributor has suffered a
material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of
material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Insurance Company or
the Contracts (including the sale thereof); or
(j) at the option of the Investment Company, the Adviser or the
Distributor, if the Investment Company, the Adviser or the Distributor
respectively, determines in its sole judgment exercised in good faith
that the Insurance Company has suffered a material adverse change in
its business, operations or financial condition since the date of this
Agreement or is the subject of material adverse publicity which is
likely to have a material adverse impact upon the business and
operations of the Investment Company, the Adviser or the Distributor;
or
(k) at the option of the Insurance Company or the Investment Company upon
receipt of any necessary regulatory approvals and/or the vote of the
Contract owners having an interest in the Separate Account (or any
sub-account) to substitute the shares of another investment company
for the corresponding Fund's shares of the Investment Company in
accordance with the terms of the Contracts for which those Fund shares
had been selected to serve as the underlying portfolio. The Insurance
Company will give sixty (60) days' prior written notice to the
Investment Company of the date of any proposed vote or other action
taken to replace the Investment Company's shares or of the filing of
any required regulatory approval(s); or
<PAGE>
(1) at the option of the Insurance Company or the Investment Company upon
a determination by a majority of the Investment Company Board, or a
majority of the disinterested Directors, material irreconcilable
conflict exists among the interests of: (1) all Contract owners of
variable insurance products of all separate accounts; or (2) the
interests of the Participating Insurance Companies investing in the
Investment Company as set forth in Article VII of this Agreement; or
(m) subject to the Investment Company's compliance with Article III, at
the option of the Investment Company in the event any of the Contracts
are not issued or sold in accordance with applicable federal and/or
state law. Termination will be effective immediately upon occurrence
without notice.
10.2 NOTICE REQUIREMENT
(a) In the event that any termination of this Agreement is based upon the
provisions of Article VII, such prior written notice will be given in
advance of the effective date of termination as required by such
provisions.
(b) In the event that a party to this Agreement terminates the Agreement
based upon the provisions of Sections 10.1(b)-(h), prompt written
notice of the election to terminate this Agreement for cause shall be
furnished by the party terminating the Agreement to the
non-terminating party. The Agreement shall be terminated effective
upon receipt of such notice by the nonterminating party(ies).
(c) In the event that a party to this Agreement terminates the Agreement
based upon the provisions of Sections 10.1(i) or (j), prior written
notice of the election to terminate this Agreement for cause shall be
furnished by the party terminating the Agreement to the
non-terminating party(ies). Such prior written notice shall be given
by the party terminating this Agreement to the non-terminating
party(ies) at least sixty (60) days before the effective date of
termination.
10.3 EFFECT OF TERMINATION
Notwithstanding any termination of this Agreement, the Investment Company,
the Adviser and the Distributor will, at the option of the Insurance
Company, continue to make available additional shares of the Investment
Company 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 will be permitted to
reallocate investments in the Designated Funds (as in effect on such date),
redeem investments in the Designated Funds and/or invest in the Designated
Funds upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.3 will not apply to any
terminations under Article VII and the effect of such Article VII
terminations will 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 will
survive and not be affected by any termination of this Agreement. In
addition, with respect to Existing Contracts, all provisions of this
Agreement also will survive and not be affected by any termination of this
Agreement.
<PAGE>
ARTICLE XI - NOTICES
Any notice will be deemed duly given when sent by certified mail, return receipt
requested, 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 parties. All notices will be deemed given three (3) business days after
the date received or rejected by the addressee:
If to the Insurance Company:
---------------------------
American Skandia Life Assurance Corporation
I Corporate Drive
P.O. Box 883
Shelton, Connecticut 08484-0883
Attn: Mr. Gordon C. Boronow
If to the Fund:
--------------
INVESCO Variable Investment Funds, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: Mr. Ronald L. Grooms
If to the Adviser:
-----------------
INVESCO Funds Group, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: Mr. Ronald L. Grooms
If to the Distributor:
---------------------
INVESCO Distributors, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: Mr. Ronald L. Grooms]
ARTICLE XII - MISCELLANEOUS
12.1 All persons dealing with the Investment Company must look solely to the
property of the Investment Company for the enforcement of any claims
against the Investment Company as neither the Directors, officers, agents
or shareholders assume any personal liability for obligations entered into
on behalf of the Investment Company.
12.2 The Investment Company, the Adviser and the Distributor acknowledge that
the identities of the customers of the Insurance Company or any of its
affiliates (collectively the "Protected Parties" for purposes of this
Section 12.2), information maintained regarding those customers, and all
computer programs and procedures developed by the Protected Parties or any
of their employees or agents in connection with the Insurance Company's
performance of its duties under this Agreement are the valuable property of
the Protected Parties. The Investment Company, the Adviser and the
Distributor agree that if they come into possession of any list or
compilation of the identities of or other information about the Protected
Parties' customers, or any other property of the Protected Parties, other
<PAGE>
than such information as may be independently developed or compiled by the
Investment Company, the Adviser and the Distributor from information
supplied to them by the Protected Parties' customers who also maintain
accounts directly with the Investment Company, the Adviser and the
Distributor, the Investment Company, the Adviser and the Distributor will
hold such information or property in confidence and refrain from using,
disclosing or distributing any of such information or other property
except: (a) with the Insurance Company's prior written consent; or (b) as
required by law or judicial process. The Investment Company and the Adviser
acknowledge that any breach of the agreements in this Section 12.2 would
result in immediate and irreparable harm to the Protected Parties for which
there would be no adequate remedy at law and agree that in the event of
such a breach, the Protected Parties will be entitled to equitable relief
by way of temporary and permanent injunctions, as well as such other relief
as any court of competent jurisdiction deems appropriate.
12.3 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.
12.4 This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
12.5 If any provision of this Agreement will be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement will
not be affected thereby.
12.6 This Agreement will not be assigned by any party hereto without the prior
written consent of all the parties.
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 law.
12.8 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect.
12.9 Each party to this Agreement will cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and will permit each
other and 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.
12.10Each party represents that the execution and delivery of this Agreement and
the consummation of the transactions contemplated herein have been duly
authorized by all necessary corporate action, as applicable, by such party
and when so executed and delivered this Agreement will be the valid and
binding obligation of such party enforceable in accordance with its terms.
12.11The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts, the
Separate Accounts or the Funds of the Investment Company or other
applicable terms of this Agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the date specified below.
AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
By: /s/Gordon C. Boronow
---------------------
Gordon C. Boronow
Deputy Chief Executive Officer and President
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By: /s/Ronald L. Grooms
-------------------
Ronald L. Grooms
Treasurer
INVESCO FUNDS GROUP INC.
By: /s/Glen A. Payne
----------------
Glen A. Payne
Senior Vice President
INVESCO DISTRIBUTORS, INC.
By: /s/Ronald L. Grooms
-------------------
Ronald L. Grooms
Senior Vice President
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE A
The following Separate Accounts and Associated Contracts of American Skandia
Life Assurance Corporation are permitted in accordance with the provisions of
this Agreement to invest in Funds of the Investment
Company shown in Schedule B:
NAME OF SEPARATE ACCOUNT:
American Skandia Life Assurance Corporation Variable
Account B (Class I Sub-accounts)
CONTRACT(S):
American Skandia Advisor Plan (ASAP(SM))
American Skandia Advisor Plan II(SM)(ASAP II)
American Skandia XTra Creditsm(SM) (ASXT)
American Skandia LifeVest(R)(ASL(R))
American Skandia Protector(SM)(AS Pros(SM))
Wells Fargo Stagecoach Variable Annuity Plus
Wells Fargo Stagecoach Extra Credit
Wells Fargo Stagecoach Variable Annuity Flex
NAME OF SEPARATE ACCOUNT:
American Skandia Life Assurance Corporation Variable
Account B (Class 2 Sub-accounts)
CONTRACT(S):
American Skandia Advisors Choice(R)(2000) (Choice(2000))
NAME OF SEPARATE ACCOUNT:
American Skandia Life Assurance Corporation Variable
Account B (Class 3 Sub-accounts)
CONTRACT(S):
American Skandia Impact (AS Impact(SM))
NAME OF SEPARATE ACCOUNT:
American Skandia Life Assurance Corporation Separate Account Q
CONTRACT(S):
American Skandia AS(k) Group Variable Annuity
NAME OF SEPARATE ACCOUNT:
American Skandia Life Assurance Corporation Separate Account F
CONTRACT(S):
American Skandia Trophy (AS Trophy) Modified Single Premium Variable Life
Insurance
American Skandia Life Champion (AS Life Champion) Flexible Premium Variable Life
Insurance
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE B
The Separate Account(s) shown on Schedule A may invest in the following Funds of
the Investment Company.
INVESCO VIF - Health Sciences Fund
INVESCO VIF - Technology Fund
INVESCO VIF - Financial Services Fund
INVESCO VIF - Telecommunications Fund
INVESCO VIF - Dynamics Fund
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Investment 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 proxy proposals are given to the Insurance Company by the Investment
Company as early as possible before the date set by the Investment Company
for the shareholder meeting to enable the Insurance Company to consider and
prepare for the solicitation of voting instructions from owners of the
Contracts and to facilitate the establishment of tabulation procedures. At
this time the Investment Company 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 as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Insurance Company will use its best efforts
to call 'in the number of Customers to the Investment Company, as soon as
possible, but no later than two weeks after the Record Date.
3. The Investment Company's Annual Report must be sent to each Customer by the
Insurance Company either before or together with the Customers' receipt of
voting, instructional solicitation material. The Investment Company will
provide the last Annual Report to the Insurance Company pursuant to the
terms of Section 6.2 of the Agreement to which this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Insurance Company by the Investment Company. The Insurance
Company, at its expense, shall produce and personalize the Voting
Instruction Cards. The Investment Company or its affiliate 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:
* name (legal name as found on account registration)
* address
* Investment Company or account number
* coding to state number of units
* individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Investment 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, the Investment Company will develop, produce and 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 the Insurance Company Will include:
* Voting Instruction Card(s)
* one proxy notice and statement (One document)
* return envelope (postage pre-paid by Insurance Company) addressed to
the Insurance Company or its tabulation agent
* "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
Investment Company.)
* cover letter - optional, supplied by Insurance Company and reviewed
and approved in advance by the Investment Company
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 the
Investment Company.
7. Package mailed by the Insurance Company.
* The Investment 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 and has not been
required by the Investment Company in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
NOTE: For Example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
<PAGE>
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be NOT RECEIVED for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to why
they did not complete the system. Any questions on those Cards are usually
remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that 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.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Investment Company receives the
tabulations stated in terms of a percentage and the number of SHARES.) The
Investment Company must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Insurance Company to
the Investment Company on the morning of the meeting not later than 10:00
a.m. Eastern time. The Investment Company may request an earlier deadline
if reasonable and if required to calculate the vote in time for the
meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Insurance Company as well as an original copy of the
final vote. The Investment Company will provide a standard form for each
Certification.
15. 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, the
Investment Company will be permitted reasonable access to such Cards.
16. All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
FUND PARTICIPATION AGREEMENT
American United Life Insurance Company (hereinafter called "AUL"), for
itself and on behalf of one or more separate accounts of AUL (hereinafter called
"Separate Accounts"), INVESCO Funds Group, Inc. (hereinafter called
"Distributor") and INVESCO Dynamics Fund, Inc. (hereinafter called "Fund"), for
good and valuable consideration, hereby agree on this 14th day of March, 1995,
that shares of the Fund shall be made available to serve as an underlying
investment medium for Group Variable Annuity Contracts (hereinafter called
"Contract(s)") to be offered by AUL subject to the following provisions:
1. AUL represents and warrants that: (i) it has established the Separate
Accounts as separate accounts under Indiana law; (ii) AUL has registered
the Separate Accounts as unit investment trusts under the Investment
Company Act of 1940, as amended (the "1940 Act") to serve as an investment
vehicle for certain Contracts or, alternatively, has not registered one
or more of the Separate Accounts in proper reliance upon an exclusion from
registration under the 1940 Act; and (iii) the Contracts provide for the
allocation of net amounts received by AUL to separate subaccounts of the
Separate Accounts, for investment in the shares of specified investment
companies selected among those companies available through the Separate
Accounts to act as underlying investment media.
2. AUL agrees to make every reasonable effort to market its Contracts. In
marketing its Contracts, AUL will comply in all material respects with
applicable state insurance and federal and state securities laws.
3. Distributor represents that it is registered as a broker-dealer under the
Securities Exchange Act of 1934, and may properly cause Fund shares to be
made available for the purposes of this Agreement pursuant to a general
distribution agreement between the Fund and the Distributor.
4. The Fund, or any such other agency as specified by the Fund, will use its
best efforts to provide net asset value, dividend information and capital
gain information to AUL on each day on which the Fund is priced (the
"Price Date"). The Distributor appoints AUL as its agent for the limited
purpose of accepting orders for Fund shares. AUL agrees to notify
Distributor by 10:00 a.m., Eastern Time, on the next business day following
the Price Date of the net amount of orders that were placed by
Contractholders in each Separate Account by the close of the New York Stock
Exchange on the Price Date. Payment for net purchases will be wired to a
custodial account designated by the Fund by 12:00 noon, Eastern Time, on
the business day following the Price Date. Likewise, orders for
liquidation of shares of the Fund will be paid in cash and wired from the
Fund's custodial account to an account designated by AUL. Such orders shall
ordinarily be paid by 12:00 noon, Eastern Time, on the business day
following the Price Date. However, the Fund reserves the right to postpone
payment upon redemption consistent with Section 22(e) of the 1940 Act.
Subject to its receipt of orders and, in the case of purchase orders,
federal funds, prior to the foregoing deadlines, the Fund will execute
orders at the net asset value as determined as of the business day
<PAGE>
following the Price Date. However, the Fund reserves the right to postpone
payment upon redemption consistent with Section 22(e) of the 1940 Act.
Subject to its receipt of orders and, in the case of purchase orders,
federal funds, prior to the foregoing deadlines, the Fund will execute
orders at the net asset value as determined as of the close of trading on
the Price Date, except that with respect to orders for redemption, the
Fund reserves the right to suspend the right of redemption, consistent
with Section 22(e) of the 1940 Act and any rules thereunder. Dividends and
capital gains distributions shall be reinvested in additional shares at the
ex-date net asset value.
If the Fund provides incorrect share net asset value information, AUL
shall be entitled to an adjustment to the number of shares purchased or
redeemed to reflect the correct net asset value per share (and, if and
to the extent necessary, AUL shall make adjustments to the number of units
credited and/or unit values for the Contracts for the periods affected).
Any error in the calculation or reporting of net asset value per share,
dividend or capital gains information greater than or equal to $.01 per
share shall be reported promptly to AUL. Any error of a lesser amount
shall be corrected in the next business day's net asset value per share.
In the event adjustments are required to correct any error in the
computation of the Fund's net asset value per share, or dividend or capital
gain distribution, the Distributor or the Fund shall notify AUL promptly
after discovering the need for such adjustments. If an adjustment is
necessary to correct an error which has caused Contractholders to receive
less than the amount to which they are entitled, the Fund shall make
all necessary adjustments to the number of shares owned by the Separate
Accounts and distribute to the Separate Accounts the amount of the
underpayment. AUL will adjust the number of shares of the applicable sub-
account of each Contractholder and credit the appropriate amount of such
payment to each Contractholder. In no event shall AUL be liable to
Contractholders for any such adjustments or underpayment amounts. If
Contractholders have received amounts in excess of the amounts to which
they otherwise would have been entitled prior to an adjustment for an
error, the parties agree to discuss the situation and, where it is
mutually agreed that it would be reasonable to attempt to collect such
excess amounts from the Contractholders, AUL will make a good faith
attempt to collect such excess amounts. In no event shall AUL be
liable to the Fund or the Distributor for any such adjustments or
overpayment amounts, provided that the overpayment was not caused by AUL.
5. All expenses incident to the performance by Distributor or the Fund under
this Agreement shall be paid by Distributor or the Fund. The Fund shall pay
the cost of registration of its shares with the Securities and Exchange
Commission (the "SEC"). The Fund shall distribute to the Separate
Accounts its proxy material , periodic Fund reports to shareholders and
other material the Fund may require to be sent to participants. The Fund
shall pay the cost of qualifying Fund shares in states where required. The
Distributor shall provide the Separate Accounts with a reasonable quantity
of the Fund's prospectuses and sales literature upon request to be
used in connection with the transactions contemplated by this Agreement.
6. AUL and its agents shall make no representations concerning the Fund or
Fund shares except those contained in the then current registration
statement or prospectus of the Fund, in periodic reports or proxy
statements for the Fund, or in current printed sales literature prepared or
approved by Distributor, except with the prior permission of the
<PAGE>
Distributor or its designee. The parties agree that total return
information of the Fund derived from net asset values and dividend
information provided by the Fund, from the prospectus or registration
statement of the Fund or from reports provided by the Fund or the
Distributor to AUL may be used by AUL in connection with the sale of the
Contracts without prior approval of the Distributor; however, AUL shall
be responsible for using such information in conformity with all
applicable laws and regulations including, without limitation,
disclosing that such total return information does not include charges and
expenses attributable to the Contracts and/or restating such information to
give effect to such charges and expenses on a pro forma basis.
7. a. Administrative services to participants shall be the responsibility of
AUL and shall not be the responsibility of Distributor or the Fund.
The Fund recognizes that AUL will be the sole shareholder of shares
of the Fund issued pursuant to the Contracts. Such arrangement will
result in aggregated share orders. Distributor recognizes that it
will derive a savings of administrative expense by virtue of having
a sole shareholder rather than multiple shareholders. In consideration
of the administrative savings resulting from such arrangement, wherein
AUL keeps deferred compensation plan participant records under the
Contracts, the Distributor agrees to pay to AUL such fees as are set
forth in Exhibit A attached hereto and hereby incorporated herein by
reference. AUL understands that the Fund and the Distributor have
entered into an agreement under a plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act for making payments to certain persons for
distribution assistance and shareholder servicing. AUL further
understands that the payment of the fees set forth in Exhibit A has
been authorized pursuant to the Plan, that the Plan has been
approved by the board of directors and shareholders of the Fund, and
that such fees will be paid out of the fees paid to Distributor as the
Fund's investment advisor or distributor, the Distributor's past
profits, or any other such source available to Distributor, and
shall be paid only so long as the Plan is in effect. Distributor
agrees to notify AUL promptly in the event that the Plan is
terminated or amended in a fashion that would impact Distributor's
obligations under this provision.
b. AUL shall, for all purposes herein, be deemed to be an independent
contractor and shall have, unless otherwise expressly provided or
authorized, no authority to act for or represent the Distributor
or the Fund in any way or otherwise be deemed an agent of the
Distributor or the Fund. The services to be provided by AUL to its
Separate Account customers include mailing and otherwise making
available to AUL's customers, shareholder communications including,
without limitation, prospectuses, proxy materials, shareholder
reports, unaudited semi-annual and audited annual financial
statements, and other notices; handling general shareholder relations
between the Fund and Separate Account customers; including, without
limitation, advising as to performance, yield being earned, dividends
<PAGE>
declared, and providing assistance with other questions concerning the
Fund; and such other services and assistance to the Distributor with
respect to AUL's customers as the Distributor shall reasonably request
including, without limitation, assistance in maintaining shareholder
accounts and records.
8. This Agreement shall terminate as to the sale and issuance of Contracts:
a. at the option of AUL, Distributor or the Fund upon three months'
advance written notice to the other parties;
b. at the option of AUL, Distributor or the Fund, upon institution
of formal proceedings relating to (i) the marketing of the
Contracts, (ii) the Separate Accounts, (iii) AUL, (iv)
Distributor or (v) the Fund by the National Association of
Securities Dealers ("NASD"), the SEC or any other regulatory
body; provided, however, that the terminating party determines
in good faith that such proceedings will have a material adverse
effect upon the ability of the party which is the subject of such
proceedings to perform its obligations under this Agreement;
c. at the option of the Fund, the Distributor, or AUL, upon
termination of Distributor's general distribution agreement
with the Fund or upon termination of the Plan. Notice of such
termination shall be promptly furnished. This paragraph (c) shall
not be deemed to apply if, contemporaneously with such
termination, a new contract of substantially similar terms is
entered into between Distributor and the Fund or a new Plan
having substantially similar terms is approved;
d. upon assignment of this Agreement, at the option of any party not
making the assignment, unless made with the written consent of
the other parties; or
e. in the event interests in the Separate Accounts, the Contracts,
or Fund shares are not registered, issued or sold in conformity
with federal law or such law precludes the use of Fund shares as
an underlying investment medium of Contracts issued or to be
issued by AUL. Prompt notice shall be given by the terminating
party to the other parties in the event the conditions of this
provision occur.
9. Further, this Agreement may terminate upon a decision by AUL, in accordance
with regulations of the SEC, to substitute 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. AUL will give
60 days' written notice to the Fund and the Distributor upon the
occurrence of the earlier of the following actions taken for the purpose
of substituting shares of the Fund: (1) an application made to the SEC,
(2) a proposed Contractowner vote, or (3) AUL's determination to substitute
Fund shares with the shares of another investment company.
<PAGE>
10. Each notice required by this Agreement shall be given in writing and
delivered via overnight courier, facsimile transmission or certified
mail, return receipt requested, as follows:
If to AUL:
American United Life Insurance Company
One American Square
Indianapolis, Indiana 46206
Attention: Richard A. Wacker, Associate General Counsel
If to the Distributor or to the Fund:
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, Colorado 80237
Attention: General Counsel
or to such other address as may be specified in a written notice given to
the other parties. The date of service of any notice shall be the
date it is received by the recipient.
11. The Fund shall send to AUL, within ten days after the end of each month, a
monthly statement confirming all transactions made by the Fund on behalf of
the Separate Accounts.
12. AUL will distribute all proxy material furnished by the Fund to the extent
required by applicable law. For so long as the SEC interprets the 1940 Act
to require pass-through voting by insurance companies whose separate
accounts are registered as investment companies under the 1940 Act
("Registered Separate Accounts"), AUL shall vote shares of the Fund
held in Registered Separate Accounts at shareholder meetings of the Fund
in accordance with instructions timely received by AUL (or its designated
agent) from owners of Contracts funded by such Registered Separate
Accounts having a voting interest in the Fund. AUL shall vote shares of the
Fund held in Registered Separate Accounts that are attributable to the
Contracts as to which no timely instructions are received, as well as
shares held in such Registered Separate Account that are not
attributable to the Contracts and owned beneficially by AUL (resulting
from charges against the Contracts or otherwise), in the same proportion as
the votes cast by owners of the Contracts funded by the Separate Account
having a voting interest in the Fund from. whom instructions have been
timely received. AUL shall vote shares of the Fund held in its general
account or in any Separate Account that is not registered under the 1940
Act, if any, in its discretion or in the same proportion as the votes cast
with respect to shares of the Fund held in all Registered Separate Accounts
of AUL, in the aggregate. AUL will in no way recommend action in connection
with or oppose or interfere with the solicitation of proxies for the Fund
shares held for such Contractowners.
13. Each party hereto shall cooperate with the other parties and all
appropriate governmental authorities and shall permit authorities access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
<PAGE>
14. a. AUL agrees to indemnify and hold harmless the Fund, Distributor and
each of their respective trustees, directors, officers, employees,
and each person, if any, who controls the Fund or the Distributor
within the meaning of the Securities Act of 1933 (the "1933 Act")
against any losses, claims, damages or liabilities to which the Fund,
Distributor or any such director, officer, employee 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 wrongful
act or omission of AUL; (ii) any untrue statement or alleged untrue
statement of any material fact contained in the registration
statement, prospectus or sales literature of the Contracts, or 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 however, that AUL will 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 untrue statement or
omission or alleged untrue statement or omission made in such
registration statement, prospectus or sales literature in conformity
with written information furnished to AUL by the Distributor or
the Fund specifically for use therein relating to the Distributor
or the Fund; (iii) any material breach of any representation,
warranty or covenant made by AUL in this Agreement; (iv) any untrue
statement or alleged untrue statement of any material fact contained
in information furnished in writing by AUL specifically for use in
the Registration Statement or prospectus of the Fund, or the omission
or the alleged omission to state therein a material fact relating to
AUL or its Separate Accounts required to be stated therein or
necessary to make the statements therein not misleading; or (v)
any conduct, statements or representations (other than statements
or representations contained in the prospectus, registration
statement, proxy, or periodic reports of the Fund or other information
provided by the Fund or the Distributor or the designee of either, or
in sales literature of the Fund or sales literature that has been
approved by the Distributor or its designee) of AUL or its agents,
with respect to the sale and distribution of the Separate Accounts
for which Fund shares are an underlying investment; and AUL will
reimburse any legal or other expenses reasonably incurred by the Fund,
the Distributor or any such director, officer, employee, or
controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action. This indemnity
agreement will be in addition to any liability which AUL may otherwise
have.
b. The Fund, to the extent provided below, and the Distributor agree
to indemnify and hold harmless AUL, the Separate Accounts, and
each of AUL's directors, officers, employees, and each person, if any,
who controls AUL within the meaning of the 1933 Act against any
losses, claims, damages or liabilities to which AUL or any such
director, officer, employee, 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
<PAGE>
are based upon: (i) any wrongful act or omission of Distributor or
the Fund; (ii) any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement or
prospectus or sales literature of the Fund, or 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, however, that the Fund and the Distributor
will 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 untrue
statement or omission or alleged untrue statement or omission made
in such Registration Statement, prospectus or sales literature in
conformity with written information furnished to the Fund or
Distributor by AUL specifically for use therein relating to AUL or its
Separate Accounts; (iii) any material breach of any representation,
warranty or covenant made by the Fund or Distributor in this
Agreement; (iv) any untrue statement or alleged untrue statement of
any material fact contained in information furnished in writing by
the Fund or the Distributor specifically for use in the
registration statement or prospectus for the Contracts, or the
omission or the alleged omission to state therein a material fact
relating to the Fund or the Distributor required to be stated
therein or necessary to make the statements therein not misleading;
or (v) the Fund's failure to maintain its qualification as a regulated
investment company as required by the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the 1940 Act,
and any other law or regulation; and the Fund or Distributor will
reimburse any legal or other expenses reasonably incurred by AUL
or any such director, officer, employee, or controlling person in
connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Fund and the
Distributor shall have no obligations under this Section 14.b. for
any loss, liability, claim, damage or expense to the extent arising
out of any untrue statement or omission or alleged untrue statement or
omission made in a prospectus of the Fund but eliminated or remedied
in a subsequent Fund prospectus if (i) such subsequent Fund prospectus
was not delivered at or prior to the time required by the 1933 Act or
the regulations thereunder or the 1940 Act or the regulations
thereunder; (ii) AUL had an obligation to deliver such subsequent
prospectus; and (iii) the acquisition of the Contracts or interest
thereunder arose after the time that the subsequent prospectus could
reasonably have been delivered. The Fund shall not have any
indemnification obligation pursuant to this Section 14.b. unless the
loss, claim, damage or liability results from the gross negligence,
bad faith, willful misconduct or reckless disregard of duty of the
Board of Directors of the Fund or any member thereof. This
indemnity agreement will be in addition to any liability which the
Fund or Distributor may otherwise have.
c. Promptly after receipt by an indemnified party under this paragraph of
notice of the commencement of an action, such indemnified party will,
if a claim in respect thereof is to be made against the
<PAGE>
indemnifying party under this paragraph, notify the indemnifying
party of the commencement thereof, but the omission so to notify
the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than under this
paragraph. In case any such action is brought against any indemnified
party, and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, assume the defense
thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof,
the indemnifying party will not be liable to such indemnified party
under this paragraph for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense
thereof.
15. Except as provided elsewhere in this Agreement, advertising and sales
literature with respect to the Fund prepared by AUL or its agents for
use in marketing its Contracts will be submitted to Distributor for review
before such material is either used or submitted to the SEC or NASD for
review.
16. This Agreement shall be construed in accordance with the laws of the State
of Indiana.
17. The Fund shall comply with Subchapter M of the Code and the regulations
thereunder and shall qualify as a regulated investment company thereunder,
and shall comply with the applicable provisions of the 1940 Act. The
Distributor shall provide AUL each quarter with a letter from the
appropriate Fund officer certifying the Fund compliance as a regulated
investment company. The Distributor agrees that the Fund shall be managed
consistent in all material respects with its investment objective or
objectives, investment policies, and investment restrictions as described
in the Fund's prospectus and registration statement, as amended or
modified from time to time.
18. This Agreement and the Fund account application completed by AUL contain
the entire understanding and agreement among the parties with respect to
the subject matter of this Agreement and may not be amended except by
written agreement of the parties hereto.
19. This Agreement shall extend to and be binding upon AUL, the Distributor and
the Fund and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by any party without the prior
written consent of the other parties. For purposes of this provision,
"assignable" shall be defined with reference to the definition and
description of "assignment" in the 1940 Act and the regulations
thereunder.
20. The Distributor and the Fund agree that the names, addresses, and other
information relating to the owners of the Contracts or participants or
prospects for the sale of the Contracts are the exclusive property of AUL
and may not be used by Distributor or the Fund without the written consent
of AUL.
<PAGE>
21. 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
AMERICAN UNITED LIFE INSURANCE COMPANY, for
itself and on behalf of the Separate Accounts
By: \s\ James H. Akins Jr.
----------------------------
Title: Vice President Pension Contracts
& Compliance
INVESCO FUNDS GROUP, INC.
By: \s\ Dan Hesser
--------------------------
Title: President and CEO
INVESCO DYNAMICS FUND, INC.
By: \s\ Dan Hesser
------------------------
Title: President
<PAGE>
EXHIBIT A
Effective March 14, 1995, payments to AUL will be made according to the
following schedule:
Annual rate of 0.25% of average of aggregate net asset value of
outstanding shares of the Fund held by AUL, measured on each calendar day
during each calendar quarter, the applicable portion of which is payable
within 10 business days following the end of each calendar quarter,
provided that no payments shall be made in an amount less than $25.00.
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 17th day of November 1999 (the
"Agreement") by and among Cova Financial Life Insurance Company, organized under
the laws of the State of California (the "Company"), on behalf of itself and
each separate account of the Company named in Schedule A to this Agreement, as
may be amended from time to time (each account referred to as the "Account" and
collectively as the "Accounts"); INVESCO Variable Investment Funds, Inc., an
open-end management investment company organized under the laws of the State of
Maryland (the "Fund"); INVESCO Funds Group, Inc., a corporation organized under
the laws of the State of Delaware and investment adviser to the Fund (the
"Adviser"); and INVESCO Distributors, Inc., a corporation organized under the
laws of the State of Delaware and principal underwriter/distributor of the Fund
(the "Distributor).
WHEREAS, the Fund engages in business as an open-end management investment
company and was established for the purpose of serving as the investment vehicle
for separate accounts established for variable life insurance contracts and
variable annuity contracts to be offered by insurance companies which have
entered into participation agreements substantially similar to this Agreement
(the "Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Fund are divided into several series of
shares, each representing the interest in a particular managed portfolio of
securities and other assets (the "Portfolios"); and
WHEREAS, the Company, as depositor, has established the Accounts to serve as
investment vehicles for certain variable annuity contracts and variable life
insurance policies and funding agreements offered by the Company set forth on
Schedule A (the "Contracts"); and
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts, established by resolutions of the Board of Directors of the Company
under the insurance laws of the State of California, to set aside and invest
assets attributable to the Contracts; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of the Portfolios named in Schedule B, as
such schedule may be amended from time to time (the "Designated Portfolios") on
behalf of the Accounts to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Adviser and the Distributor agree as follows:
ARTICLE I - SALE OF FUND SHARES
1.1 The Fund agrees to sell to the Company those shares of the Designated
Portfolios which each Account orders, executing such orders on a daily
basis at the net asset value (and with no sales charges) next computed
after receipt and acceptance by the Fund or its designee of the order for
the shares of the Fund. For purposes of this Section 1.1, the Company will
be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee will constitute receipt by the Fund; provided
that the Fund receives notice of such order by 11:00 a.m. Eastern Time on
the next following business day. "Business Day" will 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 Securities and
Exchange Commission (the "Commission"). The Fund may net the notice of
redemptions it receives from the Company under Section 1.3 of this
Agreement against the notice of purchases it receives from the Company
under this Section 1.1.
<PAGE>
1.2 The Company will pay for Fund shares on the next Business Day after an
order to purchase Fund shares is made in accordance with Section 1.1.
Payment will be made in federal funds transmitted by wire. Upon receipt by
the Fund of the payment, such funds shall cease to be the responsibility of
the Company and shall become the responsibility of the Fund.
1.3 The Fund agrees to redeem for cash, upon the Company's request, any full or
fractional shares of the Fund held by the Company, executing such requests
on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For
purposes of this Section 1.3, the Company will be the designee of the Fund
for receipt of requests for redemption from each Account and receipt by
such designee will constitute receipt by the Fund; provided the Fund
receives notice of such requests for redemption by 11:00 a.m. Eastern Time
on the next following Business Day. Payment will be made in federal funds
transmitted by wire to the Company's account as designated by the Company
in writing from time to time, on the same Business Day the Fund receives
notice of the redemption order from the Company. After consulting with the
Company, the Fund reserves the right to delay payment of redemption
proceeds, but in no event may such payment be delayed longer than the
period permitted under Section 22(e) of the Investment Company Act of 1940
(the "1940 Act"). The Fund will not bear any responsibility whatsoever for
the proper disbursement or crediting of redemption proceeds; the Company
alone will be responsible for such action. If notification of redemption is
received after 11:00 Eastern Time, payment for redeemed shares will be made
on the next following Business Day. The Fund may net the notice of
purchases it receives from the Company under Section 1.1 of this Agreement
against the notice of redemptions it receives from the Company under this
Section 1.3.
1.4 The Fund agrees to make shares of the Designated Portfolios available
continuously for purchase at the applicable net asset value per share by
Participating Insurance Companies and their separate accounts on those days
on which the Fund calculates its Designated Portfolio net asset value
pursuant to rules of the Commission; provided, however, that the Board of
Directors of the Fund (the "Fund 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 Fund
Board, acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, necessary in the best interests of
the shareholders of such Portfolio.
1.5 The Fund agrees that shares of the Fund will be sold only to Participating
Insurance Companies and their separate accounts, qualified pension and
retirement plans or such other persons as are permitted under Section
817(h)(4) of the Internal Revenue Code of 1986, as amended, (the "Code"),
and regulations promulgated thereunder, the sale to which will not impair
the tax treatment currently afforded the Contracts. No shares of any
Portfolio will be sold directly to the general public.
1.6 The Fund will not sell Fund shares to any insurance company or separate
account unless an agreement containing provisions substantially the same as
Articles I, III, V, and VI of this Agreement are in effect to govern such
sales.
1.7 The Company agrees to purchase and redeem the shares of the Designated
Portfolios offered by the then current prospectus of the Fund in accordance
with the provisions of such prospectus.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or to any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate sub-account of each
Account.
<PAGE>
1.9 The Fund will furnish same day notice (by facsimile) to the Company of the
declaration of any income, dividends or capital gain distributions payable
on each Designated Portfolio's shares. The Company hereby elects to receive
all such dividends and distributions as are payable on the Portfolio shares
in the form of additional shares of that Portfolio at the ex-dividend date
net asset values. The Company reserves the right to revoke this election
and to receive all such dividends and distributions in cash. The Fund will
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10 The Fund will make the net asset value per share for each Designated
Portfolio available to the Company via electronic means on a daily basis as
soon as reasonably practical after the net asset value per share is
calculated and will use its best efforts to make such net asset value per
share available by 6:30 p.m., Eastern Time, each business day. In the event
the Fund is unable to meet the 6:30 p.m. time stated herein, it shall
provided additional time for the Company to place orders for the purchase
and redemption of shares. Such additional time shall equal the additional
time which the Fund takes to make the net asset value abailableto the
Company. Notwithstanding the foregoing, such purchase or redemption orders
shall not be placed by Company later than 12:30 p.m. Eastern Time on the
Business Day next following receipt of such order by Company. If the Fund
provides the Company materially incorrect net asset value per share
information (as determined under SEC guidelines), the Company shall be
entitled to an adjustment to the number of shares purchased or redeemed 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
gain information shall be reported to the Company upon discovery by the
Fund. Furthermore, the Distributor shall be liable for the reasonable
administrative costs incurred by the Company in relation to the correction
of any material error. Administrative costs shall include reasonable
allocation of staff time, costs of outside service providers, printing and
postage.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will be
registered under the Securities Act of 1933 (the "1933 Act"), or are exempt
from registration thereunder, and that the Contracts will be issued and
sold in compliance with all applicable federal and state laws. The 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 each Account as a separate account under the laws
of the State of California and that each Account is or will be registered
as a unit investment trust in accordance with the provisions of the 1940
Act to serve as a segregated investment account for the Contracts, or is
exempt from registration thereunder, and that it will maintain such
registration for so long as any Contracts are outstanding, as applicable.
The Company will amend the registration statement under the 1933 Act for
the Contracts and the registration statement under the 1940 Act for the
Account from time to time as required in order to effect the continuous
offering of the Contracts or as may otherwise be required by applicable
law. The Company will register and qualify the Contracts for sale in
accordance with the securities laws of the various states only if and to
the extent deemed necessary by the Company.
2.2 The Company represents that the Contracts are currently and at the time of
issuance will be treated as annuity contracts and/or life insurance
policies (as applicable) under applicable provisions of the Code, and that
it will make every effort to maintain such treatment and that it will
notify 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.
<PAGE>
2.3 The Company represents and warrants that it will not purchase shares of the
Designated Portfolio(s) with assets derived from tax-qualified retirement
plans except, indirectly, through Contracts purchased in connection with
such plans.
2.4 The Fund represents and warrants that shares of the Designated Portfolio(s)
sold pursuant to this Agreement will be registered under the 1933 Act and
duly authorized for issuance in accordance with applicable law and that the
Fund is and will remain registered as an open-end management investment
company under the 1940 Act for as long as such shares of the Designated
Portfolio(s) are sold. The Fund will 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 Fund
will register and qualify the shares of the Designated Portfolio(s) for
sale in accordance with the laws of the various states only if and to the
extent deemed advisable by the Fund.
2.5 The Fund represents that it will use its best efforts to comply with any
applicable state insurance laws or regulations as they may apply to the
investment objectives, policies and restrictions of the Portfolios, as they
may apply to the Fund, to the extent specifically requested in writing by
the Company. If the Fund cannot comply with such state insurance laws or
regulations, it will so notify the Company in writing. The Fund makes no
other 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 any state. The Company represents
that it will use its best efforts to notify the Fund of any restrictions
imposed by state insurance laws that may become applicable to the Fund as a
result of the Accounts' investments therein. The Fund and the Adviser agree
that they will furnish the information required by state insurance laws to
assist the Company in obtaining the authority needed to issue the Contracts
in various states.
2.6 The Fund 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 reserves the right to make such payments in the
future. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have the directors of its
Fund Board, a majority of whom are not "interested" persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.7 The Fund 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 applicable provisions of the 1940 Act.
2.8 The Fund represents and warrants that all of its directors, officers,
employees, investment advisers, and other individuals/entities having
access to the funds and/or securities of the Fund are and 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 as
required currently by Rule 17g-(1) of the 1940 Act or related provisions as
may be promulgated from time to time. The aforesaid bond includes coverage
for larceny and embezzlement and is issued by a reputable bonding company.
2.9 The Adviser represents and warrants that it is duly registered as an
investment adviser under the Investment Advisers Act of 1940, as amended,
and will remain duly registered under all applicable federal and state
securities laws and that it will perform its obligations for the Fund in
accordance in all material respects with the laws of the State of Delaware
and any applicable state and federal securities laws.
2.10 The Distributor represents and warrants that it is registered as a
broker-dealer under the Securities and Exchange Act of 1934, as amended
(the "1934 Act") and will remain duly registered under all applicable
federal and state securities laws, and is a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD") and serves as
principal underwriter/distributor of the Funds and that it will perform its
obligations for the Fund in accordance in all material respects with the
laws of the State of Delaware and any applicable state and federal
securities laws.
<PAGE>
2.11 The Fund, the Adviser and the Distributor represents and warrants to the
Company that each has a Year 2000 compliance program in existence and that
each reasonably intends to be Year 2000 compliant so as to be able perform
all of the services and/or obligations contemplated by or under this
Agreement without interruption. The Fund, the Adviser, and the Distributor
shall immediately notify the Company if it determines that it will be
unable perform all of the services and/or obligations contemplated by or
under this Agreement in a manner that is Year 2000 compliant.
ARTICLE III - FUND COMPLIANCE
3.1 The Fund and the Adviser acknowledge that any failure (whether intentional
or in good faith or otherwise) to comply with the requirements of
Subchapter M of the Code or the diversification requirements of Section
817(h) of the Code may result in the Contracts not being treated as
variable contracts for federal income tax purposes, which would have
adverse tax consequences for Contract owners and could also adversely
affect the Company's corporate tax liability. The Fund and the Adviser
further acknowledge that any such failure may result in costs and expenses
being incurred by the Company in obtaining whatever regulatory
authorizations are required to substitute shares of another investment
company for those of the failed Fund or as well as fees and expenses of
legal counsel and other advisors to the Company and any federal income
taxes, interest or tax penalties incurred by the Company in connection with
any such failure.
3.2 The Fund represents and warrants that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Code, and that it
will maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify the 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.
3.3 The Fund represents that it will at all times invest money from the
Contracts in such a manner as to ensure that the Contracts will be treated
as variable contracts under the Code and the regulations issued thereunder;
including, but not limited to, that the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, as amended from
time to time, relating to the diversification requirements for variable
annuity, endowment, or life insurance contracts, and with Section 817(d) of
the Code, relating to the definition of a variable contract, and any
amendments or other modifications to such Section or Regulation. The Fund
will notify the Company immediately upon having a reasonable basis for
believing that the Fund or a Portfolio thereunder has ceased to comply with
the diversification requirements or that the Fund or Portfolio might not
comply with the diversification requirements in the future. In the event of
a breach of this representation by the Fund, it will take all reasonable
steps to adequately diversify the Fund so as to achieve compliance within
the grace period afforded by Treasury Regulation 1.817-5.
3.4 The Adviser agrees to provide the Company with a certificate or statement
indicating compliance by each Portfolio of the Fund with Section 817(h) of
the Code, such certificate or statement to be sent to the Company no later
than thirty (30) days following the end of each calendar quarter.
ARTICLE IV - PROSPECTUS AND PROXY STATEMENTS/VOTING
4.1 The Fund will provide the Company with as many copies of the current Fund
prospectus and any supplements thereto for the Designated Portfolio(s) as
the Company may reasonably request for distribution, at the Fund's expense,
to Contract owners at the time of Contract fulfillment and confirmation. To
the extent that the Designated Portfolio(s) are one or more of several
Portfolios of the Fund, the Fund shall bear the cost of providing the
Company only with disclosure related to the Designated Portfolio(s). The
Fund will provide, at the Fund's expense, as many copies of said prospectus
<PAGE>
as necessary for distribution, at the Fund's expense, to existing Contract
owners. The Fund will provide the copies of said prospectus to the Company
or to its mailing agent. The Company will distribute the prospectus to
existing Contract owners and will bill the Fund for the reasonable cost of
such distribution. If requested by the Company, in lieu thereof, the Fund
will provide such documentation, including a final copy of a current
prospectus set in type at the Fund's expense, and other assistance as is
reasonably necessary in order for the Company at least annually (or more
frequently if the Fund prospectus is amended more frequently) to have the
new prospectus for the Contracts, prospectuses of other funds available
under the Contract, and the Fund's new prospectus printed together, in
which case the Fund agrees to pay its proportionate share of reasonable
expenses directly related to the required disclosure of information
concerning the Fund. The Fund will, upon request, provide the Company with
a copy of the Fund's prospectus through electronic means to facilitate the
Company's efforts to provide Fund prospectuses via electronic delivery, in
which case the Fund agrees to pay its proportionate share of reasonable
expenses related to the required disclosure of information concerning the
Fund.
4.2 The Fund's prospectus will state that the Statement of Additional
Information (the "SAI") for the Fund is available from the Company. The
Fund will provide the Company, at the Fund's expense, with as many copies
of the SAI and any supplements thereto as the Company may reasonably
request for distribution, at the Fund's expense, to prospective Contract
owners and applicants. To the extent that the Designated Portfolio(s) are
one or more of several Portfolios of the Fund, the Fund shall bear the cost
of providing the Company only with disclosure related to the Designated
Portfolio(s). The Fund will provide, at the Fund's expense, as many copies
of said SAI as necessary for distribution, at the Fund's expense, to any
existing Contract owner who requests such statement or whenever state or
federal law requires that such statement be provided. The Fund will provide
the copies of said SAI to the Company or to its mailing agent. The Company
will distribute the SAI as requested or required and will bill the Fund for
the reasonable cost of such distribution.
4.3 The Fund, at its expense, will provide the Company or its mailing agent
with copies of its proxy material, if any, reports to shareholders/Contract
owners and other permissible communications to shareholders/Contract owners
in such quantity as the Company will reasonably require. The Company will
distribute this proxy material, reports and other communications to
existing Contract owners and will bill the Fund for the reasonable cost of
such distribution.
4.4 If and to the extent required by law, the Company will:
(a) solicit voting instructions from Contract owners;
(b) vote the shares of the Designated Portfolios held in the Account in
accordance with instructions received from Contract owners; and
(c) vote shares of the Designated Portfolios held in the Account for which
no timely instructions have been received, in the same proportion as
shares of such Designated Portfolio for which instructions have been
received from the Company's Contract owners,
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 Company reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent permitted by law.
The Company will be responsible for assuring that the Accounts
participating in the Fund calculates voting privileges in a manner
consistent with all legal requirements, including the Proxy Voting
Procedures set forth in Schedule C and the Mixed and Shared Funding
Exemptive Order, as described in Section 7.1.
<PAGE>
4.5 The Fund will comply with all provisions of the 1940 Act requiring voting
by shareholders, and in particular, the Fund either will 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 Fund currently intends,
to comply with Section 16(c) of the 1940 Act (although the Fund is not one
of the trusts described in Section 16(c) of the 1940 Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund 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 V - SALES MATERIAL AND INFORMATION
5.1 The Company will furnish, or will cause to be furnished, to the Fund or the
Adviser, each piece of sales literature or other promotional material in
which the Fund or the Adviser is named, at least ten (10) Business Days
prior to its use. No such material will be used if the Fund or the Adviser
reasonably objects to such use within five (5) Business Days after receipt
of such material.
5.2 The Company will not give any information or make any representations or
statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement, prospectus or SAI for Fund shares,
as such registration statement, prospectus and SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the
Fund, or in published reports for the Fund which are in the public domain
or approved by the Fund or the Adviser for distribution, or in sales
literature or other material provided by the Fund or by the Adviser, except
with permission of the Fund or the Adviser. The Fund and the Adviser agree
to respond to any request for approval on a prompt and timely basis.
5.3 The Fund or the Adviser will furnish, or will cause to be furnished, to the
Company or its designee, each piece of sales literature or other
promotional material in which the Company or its separate account is named,
at least ten (10) Business Days prior to its use. No such material will be
used if the Company reasonably objects to such use within five (5) Business
Days after receipt of such material.
5.4 The Fund and the Adviser will not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or SAI
for the Contracts, as such registration statement, prospectus and SAI may
be amended or supplemented from time to time, or in published reports for
each Account or the Contracts which are in the public domain or approved by
the Company for distribution to Contract owners, or in sales literature or
other material provided by the Company, except with permission of the
Company. The Company agrees to respond to any request for approval on a
prompt and timely basis.
5.5 The Fund will provide to the Company 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 Fund or its shares, within a reasonable time
after filing of each such document with the Commission or the NASD.
5.6 The Company will provide to the Fund at least one complete copy of all
definitive prospectuses, definitive SAI, 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 each
Account, contemporaneously with the filing of each such document with the
Commission or the NASD (Except that with respect to post-effective
amendments to such prospectuses and SAIs and sales literature and
promotional material, only those prospectuses and SAIs and sales literature
and promotional material that relate to or refer to the Fund will be
<PAGE>
provided.) In addition, the Company will provide to the Fund at least one
complete copy of (i) a registration statement that relates to the Contracts
or each Account, containing representative and relevant disclosure
concerning the Fund; and (ii) any post-effective amendments to any
registration statements relating to the Contracts or such Account that
refer to or relate to the Fund.
5.7 For purposes of this Article V, the phrase "sales literature or 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,
(i.e., on-line networks such as the Internet or other electronic
messages)), 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, registration statements, prospectuses, SAIs,
shareholder reports, and proxy materials and any other material
constituting sales literature or advertising under the NASD rules, the 1933
Act or the 1940 Act.
5.8 The Fund and the Adviser hereby consent to the Company's use of the names
INVESCO, AMVESCAP and INVESCO Funds Group, Inc., as well as the names of
the Designated Portfolios set forth in Schedule B of this Agreement, in
connection with marketing the Contracts, subject to the terms of Sections
5.1 and 5.2 of this Agreement. The Fund and the Adviser hereby consent to
the use of any logo or mark used by the Fund or Adviser, subject to the
Fund's and/or the Adviser's approval of such use and in accordance with
reasonable requirements of the Fund or the Adviser. Such consent will
terminate with the termination of this Agreement. The Company agrees and
acknowledges that either of the Fund, the Adviser or the Distributor are
the owner of the name, logo or mark and that all use of any designation
comprised in whole or in part of the name, logo or mark under this
Agreement shall inure to the benefit of the Fund, Adviser and/or the
Distributor.
5.9 The Fund, the Adviser, the Distributor and the Company agree to adopt and
implement procedures reasonably designed to ensure that information
concerning the Company, the Fund, the Adviser or the Distributor,
respectively, and their respective affiliated companies, that is intended
for use only by brokers or agents selling the Contracts is properly marked
as "Not For Use With The Public" and that such information is only so used.
ARTICLES VI - FEES, COSTS AND EXPENSES
6.1 The Fund will pay no fee or other compensation to the Company under this
Agreement, except as provided below: (a) if the Fund or any Designated
Portfolio adopts and implements a plan pursuant to Rule 12b-1 under the
1940 Act to finance distribution expenses, then, subject to obtaining any
required exemptive orders or other regulatory approvals, the Fund may make
payments to the Company or to the underwriter for the Contracts if and in
such amounts agreed to by the Fund in writing; (b) the Fund may pay fees to
the Company for administrative services provided to Contract owners that
are not primarily intended to result in the sale of shares of the
Designated Portfolio or of underlying Contracts.
6.2 All expenses incident to performance by the Fund of this Agreement will be
paid by the Fund to the extent permitted by law. All shares of the
Designated Portfolios will be duly authorized for issuance and registered
in accordance with applicable federal law and, to the extent deemed
advisable by the Fund, in accordance with applicable state law, prior to
sale. The Fund will bear the expenses for the cost of registration and
qualification of the Fund's shares, including without limitation, the
preparation of and filing with the SEC of Forms N-SAR and Rule 24f-2
<PAGE>
Notices and payment of all applicable registration or filing fees with
respect to shares of the Fund; preparation and filing of the Fund's
prospectus, SAI and registration statement, proxy materials and reports;
typesetting the Fund's prospectus; typesetting and printing proxy materials
and reports to Contract owners (including the costs of printing a Fund
prospectus that constitutes an annual report); the preparation of all
statements and notices required by any federal or state law; all taxes on
the issuance or transfer of the Fund's shares; any expenses permitted to be
paid or assumed by the Fund pursuant to a plan, if any, under Rule 12b-1
under the 1940 Act; and other costs associated with preparation of
prospectuses and SAIs for the Designated Portfolios in electronic or
typeset format, as well as any distribution expenses as set forth in
Article III of this Agreement.
6.3 In the event the Fund intends to terminate the existence of a Portfolio(s),
the parties shall negotiate in good faith to determine a fair and equitable
allocation between the parties of all expenses incurred in connection with
any fund substitution undertaken by the Company as a result of such
termination. Such expenses shall include but not be limited to legal,
accounting and brokerage costs.
ARTICLE VII - MIXED & SHARED FUNDING RELIEF
7.1 The Fund represents and warrants that it has received an order from the
Commission granting Participating Insurance Companies and variable annuity
separate accounts and variable life insurance separate accounts relief from
the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of 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 separate accounts and variable life insurance separate accounts of
both affiliated and unaffiliated Participating Insurance Companies and
qualified pension and retirement plans outside of the separate account
context (the "Mixed and Shared Funding Exemptive Order"). The parties to
this Agreement agree that the conditions or undertakings specified in the
Mixed and Shared Funding Exemptive Order and that may be imposed on the
Company, the Fund and/or the Adviser by virtue of the receipt of such order
by the Commission, will be incorporated herein by reference, and such
parties agree to comply with such conditions and undertakings to the extent
applicable to each such party.
7.2 The Fund Board will monitor the Fund for the existence of any
irreconcilable material conflict among 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, but not limited to:
(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 Participating Insurance Companies or by variable
annuity and variable life insurance Contract owners; or (f) a decision by
an insurer to disregard the voting instructions of Contract owners. The
Fund Board will promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof. A
majority of the Fund Board will consist of persons who are not "interested"
persons of the Fund.
<PAGE>
7.3 The Company will report any potential or existing conflicts of which it is
aware to the Fund Board. The Company agrees to assist the Fund Board in
carrying out its responsibilities, as delineated in the Mixed and Shared
Funding Exemptive Order, by providing the Fund Board with all information
reasonably necessary for the Fund Board to consider any issues raised. This
includes, but is not limited to, an obligation by the Company to inform the
Fund Board whenever Contract owner voting instructions are to be
disregarded. The Fund Board will record in its minutes, or other
appropriate records, all reports received by it and all action with regard
to a conflict.
7.4 If it is determined by a majority of the Fund Board, or a majority of its
disinterested directors, that an irreconcilable material conflict exists,
the Company and other Participating Insurance Companies will, at their
expense and to the extent reasonably practicable (as determined by a
majority of the disinterested directors), take whatever steps are necessary
to remedy or eliminate the irreconcilable material conflict, up to and
including: (a) withdrawing the assets allocable to some or all of the
Accounts from the Fund or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be submitted to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
variable annuity Contract owners or variable life insurance 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 (b) establishing a new registered management
investment company or managed separate account.
7.5 If a material irreconcilable conflict arises because of a decision by the
Company to disregard Contract owner voting instructions, and such disregard
of voting instructions could conflict with the majority of Contract owner
voting instructions, and the Company's judgment represents a minority
position or would preclude a majority vote, the Company may be required, at
the Fund's election, to withdraw the affected sub-account of the Account's
investment in the Fund and terminate this Agreement with respect to such
sub-account; provided, however, that such withdrawal and termination will
be limited to the extent required by the foregoing irreconcilable material
conflict as determined by a majority of the disinterested directors of the
Fund Board. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal and termination must take place within six
(6) months after the Fund gives written notice to the Company that this
provision is being implemented. Until the end of such six-month period the
Adviser and Fund will, to the extent permitted by law and any exemptive
relief previously granted to the Fund, continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the
Fund.
7.6 If an irreconcilable conflict arises because a particular state insurance
regulator's decision applicable to the Company conflicts with the majority
of other state insurance regulators, then the Company will withdraw the
affected sub-account of the Account's investment in the Fund and terminate
this Agreement with respect to such sub-account; provided, however, that
such withdrawal and termination will be limited to the extent required by
the foregoing irreconcilable material conflict as determined by a majority
of the disinterested directors of the Fund Board. No charge or penalty will
be imposed as a result of such withdrawal. Any such withdrawal and
termination must take place within six (6) months after the Fund gives
written notice to the Company that this provision is being implemented.
Until the end of such six-month period the Advisor and Fund will, to the
extent permitted by law and any exemptive relief previously granted to the
Fund, continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
<PAGE>
7.7 For purposes of Sections 7.4 through 7.7 of this Agreement, a majority of
the disinterested members of the Fund Board will determine whether any
proposed action adequately remedies any irreconcilable material conflict,
but in no event, other than as specified in Section 7.4, will the Fund be
required to establish a new funding medium for the Contracts. The Company
will not be required by Section 7.4 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 affected by the irreconcilable material conflict.
7.7 The Company will at least annually submit to the Fund Board such reports,
materials or data as the Fund Board may reasonably request so that the Fund
Board may fully carry out the duties imposed upon it as delineated in the
Mixed and Shared Funding Exemptive Order, and said reports, materials and
data will be submitted more frequently if deemed appropriate by the Fund
Board.
7.8 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, will 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 4.4, 4.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement will
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 THE COMPANY
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, the Distributor, and each person, if any, who controls or is
associated with the Fund, the Adviser, or the Distributor within the
meaning of such terms under the federal securities laws and any
director, trustee, officer, employee or agent of the foregoing
(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 the Company) or actions in respect thereof (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:
(1) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement, prospectus or SAI for the Contracts or
contained in the Contracts or sales literature or other
promotional material 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 or necessary to make such
statements not misleading in light of the circumstances in which
they were made; provided that this agreement to indemnify will
not apply as to any Indemnified Party if such statement or
omission of such alleged statement or omission was made in
reliance upon and in conformity with information furnished to the
Company by or on behalf of the Fund, the Adviser, of the
Distributor for use in the registration statement, prospectus or
SAI for the Contracts or in the Contracts or sales literature (or
any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
<PAGE>
(2) arise out of or as a result of statements or representations by
or on behalf of the Company (other than statements or
representations contained in the Fund registration statement,
prospectus, SAI or sales literature or other promotional material
of the Fund, or any amendment or supplement to the foregoing, not
supplied by the Company or persons under its control) or wrongful
conduct of the Company or persons under its control, with respect
to the sale or distribution of the Contracts or Fund shares; or
(3) arise out of untrue statement or alleged untrue statement of a
material fact contained in the Fund registration statement,
prospectus, SAI or sales literature or other promotional material
of the Fund (or amendment or supplement) or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make such statements not
misleading in light of the circumstances in which they were made,
if such a statement or omission was made in reliance upon and in
conformity with information furnished to the Fund by or on behalf
of the Company or persons under its control; or
(4) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement; or
(5) arise out of 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 by the Company of this
Agreement;
except to the extent provided in Sections 8.1(b) and 8.4 hereof. This
indemnification will be in addition to any liability that the Company
otherwise may have.
(b) No party will be entitled to indemnification under Section 8.1(a) if
such loss, claim, damage, liability or action is due to the willful
misfeasance, bad faith, or gross negligence in the performance of such
party's duties under this Agreement, or by reason of such party's
reckless disregard of its obligations or duties under this Agreement.
(c) The Indemnified Parties promptly will notify the Company of the
commencement of any litigation, proceedings, complaints or actions by
regulatory authorities 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 THE ADVISER & DISTRIBUTOR
(a) The Adviser and Distributor agree to indemnify and hold harmless the
Company and each person, if any, who controls or is associated with
the Company within the meaning of such terms under the federal
securities laws and any director, officer, employee or agent of the
foregoing (collectively, the "Indemnified Parties" for purposes of
this Section 8.2) against any and all losses, claims, expenses,
damages, liabilities (including amounts paid in settlement with the
written consent of the Adviser and Distributor) or actions in respect
thereof (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
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus or SAI for the Fund or sales
literature or other promotional material of the Fund (or any
amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated or necessary to
make such statements not misleading in light of the circumstances
in which they were made; provided that this agreement to
indemnify will not apply as to any Indemnified Party if such
<PAGE>
statement or omission of such alleged statement or omission was
made in reliance upon and in conformity with information
furnished to the Adviser or Distributor by or on behalf of the
Company for use in the registration statement, prospectus or SAI
for the Fund or in sales literature of the Fund (or any amendment
or supplement thereto) or otherwise for use in connection with
the sale of the Contracts or Fund shares; or
(2) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Contracts or in the Contract or Fund registration statements,
prospectuses or statements of additional information or sales
literature or other promotional material for the Contracts or of
the Fund, or any amendment or supplement to the foregoing, not
supplied by the Distributor, or Adviser or persons under the
control of the Adviser or the Distributorr respectively) or
wrongful conduct of the Adviser or the Distributor or persons
under the control of the Distributor, or Adviser respectively,
with respect to the sale or distribution of the Contracts or Fund
shares; or
(3) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, SAI or sales literature or other promotional material
covering the Contracts (or any amendment or supplement thereto),
or the omission or alleged omission to state therein a material
fact required to be stated or necessary to make such statement or
statements not misleading in light of the circumstances in which
they were made, if such statement or omission was made in
reliance upon and in conformity with information furnished to the
Company by or on behalf of the Distributor or Adviser, or persons
under the control of the Adviser or the Distributor; or
(4) arise as a result of any failure by the Distributor or the
Adviser to provide the services and furnish the materials under
the terms of this Agreement; or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser or the
Distributor in this Agreement, or arise out of or result from any
other material breach of this Agreement by the Adviser or the
Distributor (including a failure, whether intentional or in good
faith or otherwise, to comply with the requirements of Subchapter
M of the Code specified in Article III, Section 3.2 of this
Agreement and the diversification requirements specified in
Article III, Section 3.3 of this Agreement, as described more
fully in Section 8.5 below);
except to the extent provided in Sections 8.2(b) and 8.4 hereof. This
indemnification will be in addition to any liability that the Adviser
or Distributor otherwise may have.
(b) No party will be entitled to indemnification under Section 8.2(a) if
such loss, claim, damage, liability or action is due to the willful
misfeasance, bad faith, or gross negligence in the performance of such
party's duties under this Agreement, or by reason of such party's
reckless disregard or its obligations or duties under this Agreement.
(c) The Indemnified Parties will promptly notify the Adviser and the
Distributor of the commencement of any litigation, proceedings,
complaints or actions by regulatory authorities against them in
connection with the issuance or sale of the Contracts or the operation
of the Account.
<PAGE>
8.3 INDEMNIFICATION BY THE FUND
(a) The Fund agrees to indemnify and hold harmless the Company and each
person, if any, who controls or is associated with the Company within
the meaning of such terms under the federal securities laws and any
director, officer, employee or agent of the foregoing (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 Fund) or
action in respect thereof (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 operations of the
Fund and:
(1) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement; or
(2) 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 (including a failure, whether intentional
or in good faith or otherwise, to comply with the requirements of
Subchapter M of the Code specified in Article III, Section 3.2 of
this Agreement and the diversification requirements specified in
Article III, Section 3.3 of this Agreement as described more
fully in Section 8.5 below); or
(3) arise out of or result from the incorrect or untimely calculation
or reporting of daily net asset value per share or dividend or
capital gain distribution rate;
except to the extent provided in Sections 8.3(b) and 8.4 hereof. This
indemnification will be in addition to any liability that the Fund
otherwise may have.
(b) No party will be entitled to indemnification under Section 8.3(a) if
such loss, claim, damage, liability or action is due to the willful
misfeasance, bad faith, or gross negligence in the performance of such
party's duties under this Agreement, or by reason of such party's
reckless disregard of its obligations and duties under this Agreement.
(c) The Indemnified Parties will promptly notify the Fund of the
commencement of any litigation, proceedings, complaints or actions by
regulatory authorities against them in connection with the issuance or
sale of the Contracts or the operation of the Account.
8.4 INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this Article VIII
("Indemnifying Party" for the purpose of this Section 8.4) will not be
liable under the indemnification provisions of this Article VIII with
respect to any claim made against a party entitled to indemnification under
this Article VIII ("Indemnified Party" for the purpose of this Section 8.4)
unless such Indemnified Party will have notified the Indemnifying Party in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim will have been served
upon such Indemnified Party (or after such party will have received notice
of such service on any designated agent), but failure to notify the
Indemnifying Party of any such claim will not relieve the Indemnifying
Party from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of the
indemnification provision of this Article VIII, except to the extent that
the failure to notify results in the failure of actual notice to the
Indemnifying Party and such Indemnifying Party is damaged solely as a
result of failure to give such notice. In case any such action is brought
<PAGE>
against the Indemnified Party, the Indemnifying Party will be entitled to
participate, at its own expense, in the defense thereof. The Indemnifying
Party also will be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the
Indemnifying Party to the Indemnified Party of the Indemnifying Party's
election to assume the defense thereof, the Indemnified Party will bear the
fees and expenses of any additional counsel retained by it, and the
Indemnifying Party 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, unless: (a) the Indemnifying Party and the
Indemnified Party will have mutually agreed to the retention of such
counsel; or (b) the named parties to any such proceeding (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
The Indemnifying Party will not be liable for any settlement of any
proceeding effected without its written consent but if settled with such
consent or if there is a final judgment for the plaintiff, the Indemnifying
Party agrees to indemnify the Indemnified Party from and against any loss
or liability by reason of such settlement or judgment. A successor by law
of the parties to this Agreement will be entitled to the benefits of the
indemnification contained in this Article VIII. The indemnification
provisions contained in this Article VIII will survive any termination of
this Agreement.
8.5 INDEMNIFICATION FOR FAILURE TO COMPLY WITH DIVERSIFICATION REQUIREMENTS
The Fund and the Adviser acknowledge that any failure (whether intentional
or in good faith or otherwise) to comply with the diversification
requirements specified in Article III, Section 3.3 of this Agreement may
result in the Contracts not being treated as variable contracts for federal
income tax purposes, which would have adverse tax consequences for Contract
owners and could also adversely affect the Company's corporate tax
liability. Accordingly, without in any way limiting the effect of Sections
8.2(a) and 8.3(a) hereof and without in any way limiting or restricting any
other remedies available to the Company, the Fund, the Adviser and the
Distributor will pay on a joint and several basis all costs associated with
or arising out of any failure, or any anticipated or reasonably foreseeable
failure, of the Fund or any Portfolio to comply with Section 3.3 of this
Agreement, including all costs associated with correcting or responding 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 Fund or Portfolio
(including but not limited to an order pursuant to Section 26(b) of the
1940 Act); fees and expenses of legal counsel and other advisors to the
Company and any federal income taxes or tax penalties (or "toll charges" or
exactments or amounts paid in settlement) incurred by the Company in
connection with any such failure or anticipated or reasonably foreseeable
failure. Such indemnification and reimbursement obligation shall be in
addition to any other indemnification and reimbursement obligations of the
Fund, the Adviser and/or the Distributor under this Agreement.
<PAGE>
ARTICLE IX - APPLICABLE LAW
9.1 This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Delaware.
9.2 This Agreement will be subject to the provisions of the 1933 Act, the 1934
Act and the 1940 Act, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Commission may grant (including, but not limited to, the Mixed and Shared
Funding Exemptive Order) and the terms hereof will be interpreted and
construed in accordance therewith.
ARTICLE X - TERMINATION
10.1 This Agreement will terminate:
(a) at the option of any party, with or without cause, with respect to
one, some or all of the Portfolios, upon six (6) month's advance
written notice to the other parties or, if later, upon receipt of any
required exemptive relief or orders from the SEC, unless otherwise
agreed in a separate written agreement among the parties; or
(b) at the option of the Company, upon written notice to the other
parties, with respect to any Portfolio if shares of the Portfolio are
not reasonably available to meet the requirements of the Contracts as
determined in good faith by the Company; or
(c) at the option of the Company, upon 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 Company; or
(d) at the option of the Fund, upon written notice to the other parties,
upon institution of formal proceedings against the Company by the
NASD, the Commission, the Insurance Commission of any state or any
other regulatory body regarding the Company's duties under this
Agreement or related to the sale of the Contracts, the administration
of the Contracts, the operation of the Account, or the purchase of the
Fund shares, provided that the Fund determines in its sole judgment,
exercised in good faith, that any such proceeding would have a
material adverse effect on the Company's ability to perform its
obligations under this Agreement; or
(e) at the option of the Company, upon written notice to the other
parties, upon institution of formal proceedings against the Fund or
the Adviser by the NASD, the Commission or any state securities or
insurance department or any other regulatory body, provided that the
Company determines in its sole judgment, exercised in good faith, that
any such proceeding would have a material adverse effect on the Fund's
or the Adviser's ability to perform its obligations under this
Agreement; or
(f) at the option of the Company, upon written notice to the other
parties, if the Fund ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code, or under any successor or
similar provision, or if the Company reasonably and in good faith
believes that the Fund may fail to so qualify; or
(g) at the option of the Company, upon written notice to the other
parties, with respect to any Portfolio if the Fund fails to meet the
diversification requirements specified in Section 3.3 hereof or if the
Company reasonably and in good faith believes the Fund may fail to
meet such requirements; or
(h) at the option of any party to this Agreement, upon written notice to
the other parties, upon another party's material breach of any
provision of this Agreement; or
<PAGE>
(i) at the option of the Company, if the Company determines in its sole
judgment exercised in good faith that either the Fund or the Adviser
has suffered a material adverse change in its business, operations or
financial condition since the date of this Agreement or is the subject
of material adverse publicity which is likely to have a material
adverse impact upon the business and operations of the Company, such
termination to be effective sixty (60) days' after receipt by the
other parties of written notice of the election to terminate; or
(j) at the option of the Fund or the Adviser, if the Fund or Adviser
respectively, determines in its sole judgment exercised in good faith
that the Company has suffered a material adverse change in its
business, operations or financial condition since the date of this
Agreement or is the subject of material adverse publicity which is
likely to have a material adverse impact upon the business and
operations of the Fund or the Adviser, such termination to be
effective sixty (60) days' after receipt by the other parties of
written notice of the election to terminate; or
(k) at the option of the Company or the Fund upon receipt of any necessary
regulatory approvals and/or the vote of the Contract owners having an
interest in the Account (or any sub-account) to substitute the shares
of another investment company for the corresponding Portfolio's shares
of the Fund in accordance with the terms of the Contracts for which
those Portfolio shares had been selected to serve as the underlying
portfolio. The Company will give sixty (60) days' prior written notice
to the Fund of the date of any proposed vote or other action taken to
replace the Fund's shares or of the filing of any required regulatory
approval(s); or
(1) at the option of the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of the disinterested Fund
Board members, that an irreconcilable material conflict exists among
the interests of: (1) all Contract owners of variable insurance
products of all separate accounts; or (2) the interests of the
Participating Insurance Companies investing in the Fund as set forth
in Article VII of this Agreement; or
(m) at the option of the Fund in the event any of the Contracts are not
issued or sold in accordance with applicable federal and/or state law.
Termination will be effective immediately upon such occurrence without
notice.
10.2 NOTICE REQUIREMENT
(a) No termination of this Agreement, except a termination under Section
10.1 (m) of this Agreement, will be effective unless and until the
party terminating this Agreement gives prior written notice to all
other parties of its intent to terminate, which notice will set forth
the basis for the termination.
(b) In the event that any termination of this Agreement is based upon the
provisions of Article VII, such prior written notice will be given in
advance of the effective date of termination as required by such
provisions.
10.3 EFFECT OF TERMINATION
Notwithstanding any termination of this Agreement, the Fund, the Adviser
and the Distributor will, at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and
conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts will be permitted to reallocate investments in the Designated
Portfolios (as in effect on such date), redeem investments in the
<PAGE>
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 will not apply to any terminations
under Article VII and the effect of such Article VII terminations will 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 will survive and not be
affected by any termination of this Agreement. In addition, with respect to
Existing Contracts, all provisions of this Agreement also will survive and
not be affected by any termination of this Agreement.
ARTICLE XI - NOTICES
Any notice will be deemed duly 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 parties.
If to the Company:
------------------
Cova Financial Life Insurance Company
One Tower Lane
Suite 3000
Oakbrook Terrace IL 60181
Attn: General Counsel
If to the Fund:
---------------
INVESCO Variable Investment Funds, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: General Counsel
If to the Adviser:
------------------
INVESCO Funds Group, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: General Counsel
If to the Distributor:
----------------------
INVESCO Distributors, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: General Counsel
ARTICLE XII - MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the property of the
Fund for the enforcement of any claims against the Fund as neither the
directors, officers, agents or shareholders assume any personal liability
for obligations entered into on behalf of the Fund.
<PAGE>
12.2 The Fund and the Adviser acknowledge that the identities of the customers
of the Company or any of its affiliates (collectively the "Protected
Parties" for purposes of this Section 12.2), information maintained
regarding those customers, and all computer programs and procedures
developed by the Protected Parties or any of their employees or agents in
connection with the Company's performance of its duties under this
Agreement are the valuable property of the Protected Parties. The Fund and
the Adviser agree that if they come into possession of any list or
compilation of the identities of or other information about the Protected
Parties' customers, or any other property of the Protected Parties, other
than such information as may be independently developed or compiled by the
Fund or the Adviser from information supplied to them by the Protected
Parties' customers who also maintain accounts directly with the Fund or the
Adviser, the Fund and the Adviser will hold such information or property in
confidence and refrain from using, disclosing or distributing any of such
information or other property except: (a) with the Company' s prior written
consent; or (b) as required by law or judicial process. The Fund and the
Adviser acknowledge that any breach of the agreements in this Section 12.2
would result in immediate and irreparable harm to the Protected Parties for
which there would be no adequate remedy at law and agree that in the event
of such a breach, the Protected Parties will be entitled to equitable
relief by way of temporary and permanent injunctions, as well as such other
relief as any court of competent jurisdiction deems appropriate.
12.3 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.
12.4 This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
12.5 If any provision of this Agreement will be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement will
not be affected thereby.
12.6 This Agreement will not be assigned by any party hereto without the prior
written consent of all the parties.
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 law.
12.8 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect.
12.9 Each party to this Agreement will cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and will permit each
other and 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.
12.10Each party represents that the execution and delivery of this Agreement and
the consummation of the transactions contemplated herein have been duly
authorized by all necessary corporate or board action, as applicable, by
such party and when so executed and delivered this Agreement will be the
valid and binding obligation of such party enforceable in accordance with
its terms.
12.11The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts, the
Accounts or the Portfolios of the Fund or other applicable terms of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the date specified below.
COVA FINANCIAL LIFE INSURANCE COMPANY
By: /s/ Norma J. Naselli
- ------------------------
Norma J. Naselli
Assistant Vice President
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By: /s/ Ronald L. Grooms
- ------------------------
Ronald L. Grooms
Treasurer
INVESCO FUNDS GROUP, INC.
By: /s/ Ronald L. Grooms
- ------------------------
Ronald L. Grooms
Senior Vice President
INVESCO DISTRIBUTORS, INC.
By: /s/ Ronald L. Grooms
- ------------------------
Ronald L. Grooms
Senior Vice President
<PAGE>
SCHEDULE A
The following Separate Accounts and Associated Contracts of Cova Financial Life
Insurance Company are permitted in accordance with the provisions of this
Agreement to invest in Portfolios of the Fund shown in Schedule B:
CONTRACTS FUNDED BY SEPARATE ACCOUNT NAME OF SEPARATE ACCOUNT
- ------------------------------------ ------------------------
Navigator Variable Annuity Cova Variable Annuity Account One
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE B
The Separate Account(s) shown on Schedule A may invest in the following
Portfolios of the Fund.
INVESCO VIF - Dynamics Fund
INVESCO VIF - High Yield Fund
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the 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 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 as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call in
the number of Customers to the Fund, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting,
instruction solicitation material. The Fund will provide the last Annual
Report to the Company pursuant to the terms of Section 6.2 of the Agreement
to which this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate 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:
* name (legal name as found on account registration)
* address
* Fund or account number
* coding to state number of units
* individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
<PAGE>
5. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
* Voting Instruction Card(s)
* one proxy notice and statement (one document)
* return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
* "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 Fund.)
* cover letter - optional, supplied by Company and reviewed and
approved in advance by the Fund
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the 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 and has not been
required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card. Note: For Example, if the account registration is
under "John A. Smith, Trustee," then that is the exact legal name to be
printed on the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be NOT RECEIVED for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to why
they did not complete the system. Any questions on those Cards are usually
remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that 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>
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of SHARES.) The Fund must review
and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The Fund
may request an earlier deadline if reasonable and if required to calculate
the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
15. The 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, the Fund will be
permitted reasonable access to such Cards.
16. All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 17th day of November 1999 (the
"Agreement") by and among Cova Financial Services Life Insurance Company,
organized under the laws of the State of Missouri (the "Company"), on behalf of
itself and each separate account of the Company named in Schedule A to this
Agreement, as may be amended from time to time (each account referred to as the
"Account" and collectively as the "Accounts"); INVESCO Variable Investment
Funds, Inc., an open-end management investment company organized under the laws
of the State of Maryland (the "Fund"); INVESCO Funds Group, Inc., a corporation
organized under the laws of the State of Delaware and investment adviser to the
Fund (the "Adviser"); and INVESCO Distributors, Inc., a corporation organized
under the laws of the State of Delaware and principal underwriter/distributor of
the Fund (the "Distributor).
WHEREAS, the Fund engages in business as an open-end management investment
company and was established for the purpose of serving as the investment vehicle
for separate accounts established for variable life insurance contracts and
variable annuity contracts to be offered by insurance companies which have
entered into participation agreements substantially similar to this Agreement
(the "Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Fund are divided into several series of
shares, each representing the interest in a particular managed portfolio of
securities and other assets (the "Portfolios"); and
WHEREAS, the Company, as depositor, has established the Accounts to serve as
investment vehicles for certain variable annuity contracts and variable life
insurance policies and funding agreements offered by the Company set forth on
Schedule A (the "Contracts"); and
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts, established by resolutions of the Board of Directors of the Company
under the insurance laws of the State of Missouri, to set aside and invest
assets attributable to the Contracts; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of the Portfolios named in Schedule B, as
such schedule may be amended from time to time (the "Designated Portfolios") on
behalf of the Accounts to fund the Contracts;
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Adviser and the Distributor agree as follows:
ARTICLE I - SALE OF FUND SHARES
1.1 The Fund agrees to sell to the Company those shares of the Designated
Portfolios which each Account orders, executing such orders on a daily
basis at the net asset value (and with no sales charges) next computed
after receipt and acceptance by the Fund or its designee of the order for
the shares of the Fund. For purposes of this Section 1.1, the Company will
be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee will constitute receipt by the Fund; provided
that the Fund receives notice of such order by 11:00 a.m. Eastern Time on
the next following business day. "Business Day" will 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 Securities and
Exchange Commission (the "Commission"). The Fund may net the notice of
redemptions it receives from the Company under Section 1.3 of this
Agreement against the notice of purchases it receives from the Company
under this Section 1.1.
1.2 The Company will pay for Fund shares on the next Business Day after an
order to purchase Fund shares is made in accordance with Section 1.1.
Payment will be made in federal funds transmitted by wire. Upon receipt by
the Fund of the payment, such funds shall cease to be the responsibility
of the Company and shall become the responsibility of the Fund.
1.3 The Fund agrees to redeem for cash, upon the Company's request, any full
or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after
receipt and acceptance by the Fund or its agent of the request for
redemption. For purposes of this Section 1.3, the Company will be the
designee of the Fund for receipt of requests for redemption from each
Account and receipt by such designee will constitute receipt by the Fund;
provided the Fund receives notice of such requests for redemption by 11:00
a.m. Eastern Time on the next following Business Day. Payment will be made
in federal funds transmitted by wire to the Company's account as
designated by the Company in writing from time to time, on the same
Business Day the Fund receives notice of the redemption order from the
Company. After consulting with the Company, the Fund reserves the right to
delay payment of redemption proceeds, but in no event may such payment be
delayed longer than the period permitted under Section 22(e) of the
Investment Company Act of 1940 (the "1940 Act"). The Fund will not bear
any responsibility whatsoever for the proper disbursement or crediting of
<PAGE>
redemption proceeds; the Company alone will be responsible for such
action. If notification of redemption is received after 11:00 Eastern
Time, payment for redeemed shares will be made on the next following
Business Day. The Fund may net the notice of purchases it receives from
the Company under Section 1.1 of this Agreement against the notice of
redemptions it receives from the Company under this Section 1.3.
1.4 The Fund agrees to make shares of the Designated Portfolios available
continuously for purchase at the applicable net asset value per share by
Participating Insurance Companies and their separate accounts on those
days on which the Fund calculates its Designated Portfolio net asset value
pursuant to rules of the Commission; provided, however, that the Board of
Directors of the Fund (the "Fund 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 Fund
Board, acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, necessary in the best interests of
the shareholders of such Portfolio.
1.5 The Fund agrees that shares of the Fund will be sold only to Participating
Insurance Companies and their separate accounts, qualified pension and
retirement plans or such other persons as are permitted under Section
817(h)(4) of the Internal Revenue Code of 1986, as amended, (the "Code"),
and regulations promulgated thereunder, the sale to which will not impair
the tax treatment currently afforded the Contracts. No shares of any
Portfolio will be sold directly to the general public.
1.6 The Fund will not sell Fund shares to any insurance company or separate
account unless an agreement containing provisions substantially the same
as Articles I, III, V, and VI of this Agreement are in effect to govern
such sales.
1.7 The Company agrees to purchase and redeem the shares of the Designated
Portfolios offered by the then current prospectus of the Fund in
accordance with the provisions of such prospectus.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or to any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate sub-account of each
Account.
1.9 The Fund will furnish same day notice (by facsimile) to the Company of the
declaration of any income, dividends or capital gain distributions payable
on each Designated Portfolio's shares. The Company hereby elects to
receive all such dividends and distributions as are payable on the
Portfolio shares in the form of additional shares of that Portfolio at the
ex-dividend date net asset values. The Company reserves the right to
revoke this election and to receive all such dividends and distributions
<PAGE>
in cash. The Fund will notify the Company of the number of shares so
issued as payment of such dividends and distributions.
1.10 The Fund will make the net asset value per share for each Designated
Portfolio available to the Company via electronic means on a daily basis
as soon as reasonably practical after the net asset value per share is
calculated and will use its best efforts to make such net asset value per
share available by 6:30 p.m., Eastern Time, each business day. In the
event the Fund is unable to meet the 6:30 p.m. time stated herein, it
shall provided additional time for the Company to place orders for the
purchase and redemption of shares. Such additional time shall equal the
additional time which the Fund takes to make the net asset value
abailableto the Company. Notwithstanding the foregoing, such purchase or
redemption orders shall not be placed by Company later than 12:30 p.m.
Eastern Time on the Business Day next following receipt of such order by
Company. If the Fund provides the Company materially incorrect net asset
value per share information (as determined under SEC guidelines), the
Company shall be entitled to an adjustment to the number of shares
purchased or redeemed 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 gain information shall be reported to the
Company upon discovery by the Fund. Furthermore, the Distributor shall be
liable for the reasonable administrative costs incurred by the Company in
relation to the correction of any material error. Administrative costs
shall include reasonable allocation of staff time, costs of outside
service providers, printing and postage.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will be
registered under the Securities Act of 1933 (the "1933 Act"), or are
exempt from registration thereunder, and that the Contracts will be issued
and sold in compliance with all applicable federal and state laws. The
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 each Account as a separate account under
the laws of the State of Missouri and that each Account is or will be
registered as a unit investment trust in accordance with the provisions of
the 1940 Act to serve as a segregated investment account for the
Contracts, or is exempt from registration thereunder, and that it will
maintain such registration for so long as any Contracts are outstanding,
as applicable. The Company will amend the registration statement under the
1933 Act for the Contracts and the registration statement under the 1940
Act for the Account from time to time as required in order to effect the
continuous offering of the Contracts or as may otherwise be required by
<PAGE>
applicable law. The Company will register and qualify the Contracts for
sale in accordance with the securities laws of the various states only if
and to the extent deemed necessary by the Company.
2.2 The Company represents that the Contracts are currently and at the time of
issuance will be treated as annuity contracts and/or life insurance
policies (as applicable) under applicable provisions of the Code, and that
it will make every effort to maintain such treatment and that it will
notify 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.
2.3 The Company represents and warrants that it will not purchase shares of
the Designated Portfolio(s) with assets derived from tax-qualified
retirement plans except, indirectly, through Contracts purchased in
connection with such plans.
2.4 The Fund represents and warrants that shares of the Designated
Portfolio(s) sold pursuant to this Agreement will be registered under the
1933 Act and duly authorized for issuance in accordance with applicable
law and that the Fund is and will remain registered as an open-end
management investment company under the 1940 Act for as long as such
shares of the Designated Portfolio(s) are sold. The Fund will 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 Fund will register and qualify the shares of the
Designated Portfolio(s) for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Fund.
2.5 The Fund represents that it will use its best efforts to comply with any
applicable state insurance laws or regulations as they may apply to the
investment objectives, policies and restrictions of the Portfolios, as
they may apply to the Fund, to the extent specifically requested in
writing by the Company. If the Fund cannot comply with such state
insurance laws or regulations, it will so notify the Company in writing.
The Fund makes no other 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
any state. The Company represents that it will use its best efforts to
notify the Fund of any restrictions imposed by state insurance laws that
may become applicable to the Fund as a result of the Accounts' investments
therein. The Fund and the Adviser agree that they will furnish the
information required by state insurance laws to assist the Company in
obtaining the authority needed to issue the Contracts in various states.
2.6 The Fund 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 reserves the right to make such payments in the
future. To the extent that it decides to finance distribution expenses
<PAGE>
pursuant to Rule 12b-1, the Fund undertakes to have the directors of its
Fund Board, a majority of whom are not "interested" persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.7 The Fund 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 applicable provisions of the 1940 Act.
2.8 The Fund represents and warrants that all of its directors, officers,
employees, investment advisers, and other individuals/entities having
access to the funds and/or securities of the Fund are and 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 as
required currently by Rule 17g-(1) of the 1940 Act or related provisions
as may be promulgated from time to time. The aforesaid bond includes
coverage for larceny and embezzlement and is issued by a reputable bonding
company.
2.9 The Adviser represents and warrants that it is duly registered as an
investment adviser under the Investment Advisers Act of 1940, as amended,
and will remain duly registered under all applicable federal and state
securities laws and that it will perform its obligations for the Fund in
accordance in all material respects with the laws of the State of Delaware
and any applicable state and federal securities laws.
2.10 The Distributor represents and warrants that it is registered as a
broker-dealer under the Securities and Exchange Act of 1934, as amended
(the "1934 Act") and will remain duly registered under all applicable
federal and state securities laws, and is a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD") and serves as
principal underwriter/distributor of the Funds and that it will perform
its obligations for the Fund in accordance in all material respects with
the laws of the State of Delaware and any applicable state and federal
securities laws.
2.11 The Fund, the Adviser and the Distributor represents and warrants to the
Company that each has a Year 2000 compliance program in existence and that
each reasonably intends to be Year 2000 compliant so as to be able perform
all of the services and/or obligations contemplated by or under this
Agreement without interruption. The Fund, the Adviser, and the Distributor
shall immediately notify the Company if it determines that it will be
unable perform all of the services and/or obligations contemplated by or
under this Agreement in a manner that is Year 2000 compliant.
<PAGE>
ARTICLE III - FUND COMPLIANCE
3.1 The Fund and the Adviser acknowledge that any failure (whether intentional
or in good faith or otherwise) to comply with the requirements of
Subchapter M of the Code or the diversification requirements of Section
817(h) of the Code may result in the Contracts not being treated as
variable contracts for federal income tax purposes, which would have
adverse tax consequences for Contract owners and could also adversely
affect the Company's corporate tax liability. The Fund and the Adviser
further acknowledge that any such failure may result in costs and expenses
being incurred by the Company in obtaining whatever regulatory
authorizations are required to substitute shares of another investment
company for those of the failed Fund or as well as fees and expenses of
legal counsel and other advisors to the Company and any federal income
taxes, interest or tax penalties incurred by the Company in connection
with any such failure.
3.2 The Fund represents and warrants that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Code, and that it
will maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify the 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.
3.3 The Fund represents that it will at all times invest money from the
Contracts in such a manner as to ensure that the Contracts will be treated
as variable contracts under the Code and the regulations issued
thereunder; including, but not limited to, that the Fund will at all times
comply with Section 817(h) of the Code and Treasury Regulation 1.817-5, as
amended from time to time, relating to the diversification requirements
for variable annuity, endowment, or life insurance contracts, and with
Section 817(d) of the Code, relating to the definition of a variable
contract, and any amendments or other modifications to such Section or
Regulation. The Fund will notify the Company immediately upon having a
reasonable basis for believing that the Fund or a Portfolio thereunder has
ceased to comply with the diversification requirements or that the Fund or
Portfolio might not comply with the diversification requirements in the
future. In the event of a breach of this representation by the Fund, it
will take all reasonable steps to adequately diversify the Fund so as to
achieve compliance within the grace period afforded by Treasury Regulation
1.817-5.
<PAGE>
3.4 The Adviser agrees to provide the Company with a certificate or statement
indicating compliance by each Portfolio of the Fund with Section 817(h) of
the Code, such certificate or statement to be sent to the Company no later
than thirty (30) days following the end of each calendar quarter.
ARTICLE IV - PROSPECTUS AND PROXY STATEMENTS/VOTING
4.1 The Fund will provide the Company with as many copies of the current
Fund prospectus and any supplements thereto for the Designated
Portfolio(s) as the Company may reasonably request for distribution, at
the Fund's expense, to Contract owners at the time of Contract
fulfillment and confirmation. To the extent that the Designated
Portfolio(s) are one or more of several Portfolios of the Fund, the Fund
shall bear the cost of providing the Company only with disclosure
related to the Designated Portfolio(s). The Fund will provide, at the
Fund's expense, as many copies of said prospectus as necessary for
distribution, at the Fund's expense, to existing Contract owners. The
Fund will provide the copies of said prospectus to the Company or to its
mailing agent. The Company will distribute the prospectus to existing
Contract owners and will bill the Fund for the reasonable cost of such
distribution. If requested by the Company, in lieu thereof, the Fund
will provide such documentation, including a final copy of a current
prospectus set in type at the Fund's expense, and other assistance as
is reasonably necessary in order for the Company at least annually (or
more frequently if the Fund prospectus is amended more frequently) to
have the new prospectus for the Contracts, prospectuses of other funds
available under the Contract, and the Fund's new prospectus printed
together, in which case the Fund agrees to pay its proportionate
share of reasonable expenses directly related to the required disclosure
of information concerning the Fund. The Fund will, upon request, provide
the Company with a copy of the Fund's prospectus through electronic
means to facilitate the Company's efforts to provide Fund prospectuses
via electronic delivery, in which case the Fund agrees to pay its
proportionate share of reasonable expenses related to the required
disclosure of information concerning the Fund.
4.2 The Fund's prospectus will state that the Statement of Additional
Information (the "SAI") for the Fund is available from the Company. The
Fund will provide the Company, at the Fund's expense, with as many copies
of the SAI and any supplements thereto as the Company may reasonably
request for distribution, at the Fund's expense, to prospective Contract
owners and applicants. To the extent that the Designated Portfolio(s)
are one or more of several Portfolios of the Fund, the Fund shall bear the
cost of providing the Company only with disclosure related to the
Designated Portfolio(s). The Fund will provide, at the Fund's expense,
as many copies of said SAI as necessary for distribution, at the Fund's
<PAGE>
expense, to any existing Contract owner who requests such statement or
whenever state or federal law requires that such statement be provided.
The Fund will provide the copies of said SAI to the Company or to its
mailing agent. The Company will distribute the SAI as requested or
required and will bill the Fund for the reasonable cost of such
distribution.
4.3 The Fund, at its expense, will provide the Company or its mailing agent
with copies of its proxy material, if any, reports to shareholders/
Contract owners and other permissible communications to shareholders/
Contract owners in such quantity as the Company will reasonably
require. The Company will distribute this proxy material, reports and
other communications to existing Contract owners and will bill the
Fund for the reasonable cost of such distribution.
4.4 If and to the extent required by law, the Company will:
(a) solicit voting instructions from Contract owners;
(b) vote the shares of the Designated Portfolios held in the Account in
accordance with instructions received from Contract owners; and
(c) vote shares of the Designated Portfolios held in the Account for
which no timely instructions have been received, in the same
proportion as shares of such Designated Portfolio for which
instructions have been received from the Company's Contract owners,
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 Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent
permitted by law. The Company will be responsible for assuring that the
Accounts participating in the Fund calculates voting privileges in a
manner consistent with all legal requirements, including the Proxy Voting
Procedures set forth in Schedule C and the Mixed and Shared Funding
Exemptive Order, as described in Section 7.1.
4.5 The Fund will comply with all provisions of the 1940 Act requiring voting
by shareholders, and in particular, the Fund either will 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 Fund currently
intends, to comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of the 1940 Act) as
well as with Sections 16(a) and, if and when applicable, 16(b). Further,
the Fund 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.
<PAGE>
ARTICLE V - SALES MATERIAL AND INFORMATION
5.1 The Company will furnish, or will cause to be furnished, to the Fund or
the Adviser, each piece of sales literature or other promotional material
in which the Fund or the Adviser is named, at least ten (10) Business Days
prior to its use. No such material will be used if the Fund or the Adviser
reasonably objects to such use within five (5) Business Days after receipt
of such material.
5.2 The Company will not give any information or make any representations or
statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement, prospectus or SAI for Fund
shares, as such registration statement, prospectus and SAI may be amended
or supplemented from time to time, or in reports or proxy statements for
the Fund, or in published reports for the Fund which are in the public
domain or approved by the Fund or the Adviser for distribution, or in
sales literature or other material provided by the Fund or by the Adviser,
except with permission of the Fund or the Adviser. The Fund and the
Adviser agree to respond to any request for approval on a prompt and
timely basis.
5.3 The Fund or the Adviser will furnish, or will cause to be furnished, to
the Company or its designee, each piece of sales literature or other
promotional material in which the Company or its separate account is
named, at least ten (10) Business Days prior to its use. No such material
will be used if the Company reasonably objects to such use within five (5)
Business Days after receipt of such material.
5.4 The Fund and the Adviser will not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or SAI
for the Contracts, as such registration statement, prospectus and SAI may
be amended or supplemented from time to time, or in published reports for
each Account or the Contracts which are in the public domain or approved
by the Company for distribution to Contract owners, or in sales literature
or other material provided by the Company, except with permission of the
Company. The Company agrees to respond to any request for approval on a
prompt and timely basis.
5.5 The Fund will provide to the Company 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 Fund or its shares, within a reasonable time
after filing of each such document with the Commission or the NASD.
<PAGE>
5.6 The Company will provide to the Fund at least one complete copy of all
definitive prospectuses, definitive SAI, 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 each
Account, contemporaneously with the filing of each such document with the
Commission or the NASD (Except that with respect to post-effective
amendments to such prospectuses and SAIs and sales literature and
promotional material, only those prospectuses and SAIs and sales
literature and promotional material that relate to or refer to the Fund
will be provided.) In addition, the Company will provide to the Fund at
least one complete copy of (i) a registration statement that relates to
the Contracts or each Account, containing representative and relevant
disclosure concerning the Fund; and (ii) any post-effective amendments to
any registration statements relating to the Contracts or such Account that
refer to or relate to the Fund.
5.7 For purposes of this Article V, the phrase "sales literature or 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, (i.e., on-line networks such as the Internet or other
electronic messages)), 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, registration statements, prospectuses, SAIs,
shareholder reports, and proxy materials and any other material
constituting sales literature or advertising under the NASD rules, the
1933 Act or the 1940 Act.
5.8 The Fund and the Adviser hereby consent to the Company's use of the names
INVESCO, AMVESCAP and INVESCO Funds Group, Inc., as well as the names of
the Designated Portfolios set forth in Schedule B of this Agreement, in
connection with marketing the Contracts, subject to the terms of Sections
5.1 and 5.2 of this Agreement. The Fund and the Adviser hereby consent to
the use of any logo or mark used by the Fund or Adviser, subject to the
Fund's and/or the Adviser's approval of such use and in accordance with
reasonable requirements of the Fund or the Adviser. Such consent will
terminate with the termination of this Agreement. The Company agrees and
acknowledges that either of the Fund, the Adviser or the Distributor are
the owner of the name, logo or mark and that all use of any designation
comprised in whole or in part of the name, logo or mark under this
Agreement shall inure to the benefit of the Fund, Adviser and/or the
Distributor.
<PAGE>
5.9 The Fund, the Adviser, the Distributor and the Company agree to adopt and
implement procedures reasonably designed to ensure that information
concerning the Company, the Fund, the Adviser or the Distributor,
respectively, and their respective affiliated companies, that is intended
for use only by brokers or agents selling the Contracts is properly marked
as "Not For Use With The Public" and that such information is only so
used.
ARTICLES VI - FEES, COSTS AND EXPENSES
6.1 The Fund will pay no fee or other compensation to the Company under this
Agreement, except as provided below: (a) if the Fund or any Designated
Portfolio adopts and implements a plan pursuant to Rule 12b-1 under the
1940 Act to finance distribution expenses, then, subject to obtaining any
required exemptive orders or other regulatory approvals, the Fund may make
payments to the Company or to the underwriter for the Contracts if and in
such amounts agreed to by the Fund in writing; (b) the Fund may pay fees
to the Company for administrative services provided to Contract owners
that are not primarily intended to result in the sale of shares of the
Designated Portfolio or of underlying Contracts.
6.2 All expenses incident to performance by the Fund of this Agreement will be
paid by the Fund to the extent permitted by law. All shares of the
Designated Portfolios will be duly authorized for issuance and registered
in accordance with applicable federal law and, to the extent deemed
advisable by the Fund, in accordance with applicable state law, prior to
sale. The Fund will bear the expenses for the cost of registration and
qualification of the Fund's shares, including without limitation, the
preparation of and filing with the SEC of Forms N-SAR and Rule 24f-2
Notices and payment of all applicable registration or filing fees with
respect to shares of the Fund; preparation and filing of the Fund's
prospectus, SAI and registration statement, proxy materials and reports;
typesetting the Fund's prospectus; typesetting and printing proxy
materials and reports to Contract owners (including the costs of printing
a Fund prospectus that constitutes an annual report); the preparation of
all statements and notices required by any federal or state law; all taxes
on the issuance or transfer of the Fund's shares; any expenses permitted
to be paid or assumed by the Fund pursuant to a plan, if any, under Rule
12b-1 under the 1940 Act; and other costs associated with preparation of
prospectuses and SAIs for the Designated Portfolios in electronic or
typeset format, as well as any distribution expenses as set forth in
Article III of this Agreement.
6.3 In the event the Fund intends to terminate the existence of a
Portfolio(s), the parties shall negotiate in good faith to determine a
fair and equitable allocation between the parties of all expenses incurred
<PAGE>
in connection with any fund substitution undertaken by the Company as a
result of such termination. Such expenses shall include but not be limited
to legal, accounting and brokerage costs.
ARTICLE VII - MIXED & SHARED FUNDING RELIEF
7.1 The Fund represents and warrants that it has received an order from the
Commission granting Participating Insurance Companies and variable annuity
separate accounts and variable life insurance separate accounts relief
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of 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 separate accounts and variable life insurance separate accounts of
both affiliated and unaffiliated Participating Insurance Companies and
qualified pension and retirement plans outside of the separate account
context (the "Mixed and Shared Funding Exemptive Order"). The parties to
this Agreement agree that the conditions or undertakings specified in the
Mixed and Shared Funding Exemptive Order and that may be imposed on the
Company, the Fund and/or the Adviser by virtue of the receipt of such
order by the Commission, will be incorporated herein by reference, and
such parties agree to comply with such conditions and undertakings to the
extent applicable to each such party.
7.2 The Fund Board will monitor the Fund for the existence of any
irreconcilable material conflict among 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, but not
limited to: (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 Participating Insurance Companies or by variable
annuity and variable life insurance Contract owners; or (f) a decision by
an insurer to disregard the voting instructions of Contract owners. The
Fund Board will promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof. A
majority of the Fund Board will consist of persons who are not
"interested" persons of the Fund.
7.3 The Company will report any potential or existing conflicts of which it is
aware to the Fund Board. The Company agrees to assist the Fund Board in
carrying out its responsibilities, as delineated in the Mixed and Shared
Funding Exemptive Order, by providing the Fund Board with all information
<PAGE>
reasonably necessary for the Fund Board to consider any issues raised.
This includes, but is not limited to, an obligation by the Company to
inform the Fund Board whenever Contract owner voting instructions are to
be disregarded. The Fund Board will record in its minutes, or other
appropriate records, all reports received by it and all action with regard
to a conflict.
7.4 If it is determined by a majority of the Fund Board, or a majority of its
disinterested directors, that an irreconcilable material conflict exists,
the Company and other Participating Insurance Companies will, at their
expense and to the extent reasonably practicable (as determined by a
majority of the disinterested directors), take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up
to and including: (a) withdrawing the assets allocable to some or all of
the Accounts from the Fund or any Portfolio and reinvesting such assets in
a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be submitted to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
variable annuity Contract owners or variable life insurance 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 (b) establishing a new registered
management investment company or managed separate account.
7.5 If a material irreconcilable conflict arises because of a decision by the
Company to disregard Contract owner voting instructions, and such
disregard of voting instructions could conflict with the majority of
Contract owner voting instructions, and the Company's judgment represents
a minority position or would preclude a majority vote, the Company may be
required, at the Fund's election, to withdraw the affected sub-account of
the Account's investment in the Fund and terminate this Agreement with
respect to such sub-account; provided, however, that such withdrawal and
termination will be limited to the extent required by the foregoing
irreconcilable material conflict as determined by a majority of the
disinterested directors of the Fund Board. No charge or penalty will be
imposed as a result of such withdrawal. Any such withdrawal and
termination must take place within six (6) months after the Fund gives
written notice to the Company that this provision is being implemented.
Until the end of such six-month period the Adviser and Fund will, to the
extent permitted by law and any exemptive relief previously granted to the
Fund, continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.6 If an irreconcilable conflict arises because a particular state insurance
regulator's decision applicable to the Company conflicts with the majority
of other state insurance regulators, then the Company will withdraw the
affected sub-account of the Account's investment in the Fund and terminate
<PAGE>
this Agreement with respect to such sub-account; provided, however, that
such withdrawal and termination will be limited to the extent required by
the foregoing irreconcilable material conflict as determined by a majority
of the disinterested directors of the Fund Board. No charge or penalty
will be imposed as a result of such withdrawal. Any such withdrawal and
termination must take place within six (6) months after the Fund gives
written notice to the Company that this provision is being implemented.
Until the end of such six-month period the Advisor and Fund will, to the
extent permitted by law and any exemptive relief previously granted to the
Fund, continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.7 For purposes of Sections 7.4 through 7.7 of this Agreement, a majority of
the disinterested members of the Fund Board will determine whether any
proposed action adequately remedies any irreconcilable material conflict,
but in no event, other than as specified in Section 7.4, will the Fund be
required to establish a new funding medium for the Contracts. The Company
will not be required by Section 7.4 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 affected by the irreconcilable material conflict.
7.7 The Company will at least annually submit to the Fund Board such reports,
materials or data as the Fund Board may reasonably request so that the
Fund Board may fully carry out the duties imposed upon it as delineated in
the Mixed and Shared Funding Exemptive Order, and said reports, materials
and data will be submitted more frequently if deemed appropriate by the
Fund Board.
7.8 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, will 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 4.4, 4.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this
Agreement will 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 THE COMPANY
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, the Distributor, and each person, if any, who controls or
is associated with the Fund, the Adviser, or the Distributor within
<PAGE>
the meaning of such terms under the federal securities laws and any
director, trustee, officer, employee or agent of the foregoing
(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 the Company) or actions in respect thereof (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:
(1) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement, prospectus or SAI for the
Contracts or contained in the Contracts or sales literature
or other promotional material 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 or
necessary to make such statements not misleading in light
of the circumstances in which they were made; provided
that this agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission of such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company by
or on behalf of the Fund, the Adviser, of the Distributor
for use in the registration statement, prospectus or SAI
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
(2) arise out of or as a result of statements or representations
by or on behalf of the Company (other than statements or
representations contained in the Fund registration statement,
prospectus, SAI or sales literature or other promotional
material of the Fund, or any amendment or supplement to the
foregoing, not supplied by the Company or persons under its
control) or wrongful conduct of the Company or persons under
its control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(3) arise out of untrue statement or alleged untrue statement of a
material fact contained in the Fund registration statement,
prospectus, SAI or sales literature or other promotional
material of the Fund (or amendment or supplement) or the
omission or alleged omission to state therein a material fact
<PAGE>
required to be stated therein or necessary to make such
statements not misleading in light of the circumstances in
which they were made, if such a statement or omission was made
in reliance upon and in conformity with information furnished
to the Fund by or on behalf of the Company or persons under
its control; or
(4) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement; or
(5) arise out of 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 by the Company of
this Agreement;
except to the extent provided in Sections 8.1(b) and 8.4 hereof.
This indemnification will be in addition to any liability that the
Company otherwise may have.
(b) No party will be entitled to indemnification under Section 8.1(a) if
such loss, claim, damage, liability or action is due to the willful
misfeasance, bad faith, or gross negligence in the performance of
such party's duties under this Agreement, or by reason of such
party's reckless disregard of its obligations or duties under this
Agreement.
(c) The Indemnified Parties promptly will notify the Company of the
commencement of any litigation, proceedings, complaints or actions
by regulatory authorities 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 THE ADVISER & DISTRIBUTOR
(a) The Adviser and Distributor agree to indemnify and hold harmless
the Company and each person, if any, who controls or is associated
with the Company within the meaning of such terms under the federal
securities laws and any director, officer, employee or agent of the
foregoing (collectively, the "Indemnified Parties" for purposes of
this Section 8.2) against any and all losses, claims, expenses,
damages, liabilities (including amounts paid in settlement with the
written consent of the Adviser and Distributor) or actions in
respect thereof (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:
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus or SAI for the Fund or
sales literature or other promotional material of the Fund
(or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the
<PAGE>
alleged omission to state therein a material fact required
to be stated or necessary to make such statements not
misleading in light of the circumstances in which they
were made; provided that this agreement to indemnify will
not apply as to any Indemnified Party if such statement or
omission of such alleged statement or omission was made in
reliance upon and in conformity with information furnished
to the Adviser or Distributor by or on behalf of the Company
for use in the registration statement, prospectus or SAI
for the Fund or in sales literature of the Fund (or any
amendment or supplement thereto) or otherwise for use in
connection with the sale of the Contracts or Fund
shares; or
(2) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Contracts or in the Contract or Fund registration statements,
prospectuses or statements of additional information or sales
literature or other promotional material for the Contracts or
of the Fund, or any amendment or supplement to the foregoing,
not supplied by the Distributor, or Adviser or persons under
the control of the Adviser or the Distributorr respectively)
or wrongful conduct of the Adviser or the Distributor or
persons under the control of the Distributor, or Adviser
respectively, with respect to the sale or distribution of the
Contracts or Fund shares; or
(3) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, SAI or sales literature or other promotional
material covering the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to
state therein a material fact required to be stated or
necessary to make such statement or statements not misleading
in light of the circumstances in which they were made, if such
statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on
behalf of the Distributor or Adviser, or persons under the
control of the Adviser or the Distributor; or
(4) arise as a result of any failure by the Distributor or the
Adviser to provide the services and furnish the materials
under the terms of this Agreement; or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser or the
Distributor in this Agreement, or arise out of or result from
any other material breach of this Agreement by the Adviser or
the Distributor (including a failure, whether intentional or
in good faith or otherwise, to comply with the requirements of
<PAGE>
Subchapter M of the Code specified in Article III, Section 3.2
of this Agreement and the diversification requirements
specified in Article III, Section 3.3 of this Agreement, as
described more fully in Section 8.5 below);
except to the extent provided in Sections 8.2(b) and 8.4 hereof.
This indemnification will be in addition to any liability that the
Adviser or Distributor otherwise may have.
(b) No party will be entitled to indemnification under Section 8.2(a) if
such loss, claim, damage, liability or action is due to the willful
misfeasance, bad faith, or gross negligence in the performance of
such party's duties under this Agreement, or by reason of such
party's reckless disregard or its obligations or duties under this
Agreement.
(c) The Indemnified Parties will promptly notify the Adviser and the
Distributor of the commencement of any litigation, proceedings,
complaints or actions by regulatory authorities against them in
connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 INDEMNIFICATION BY THE FUND
(a) The Fund agrees to indemnify and hold harmless the Company and each
person, if any, who controls or is associated with the Company
within the meaning of such terms under the federal securities laws
and any director, officer, employee or agent of the foregoing
(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 Fund) or action in respect thereof (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 operations of the Fund and:
(1) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement; or
(2) 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 (including a failure,
whether intentional or in good faith or otherwise, to comply
with the requirements of Subchapter M of the Code specified
in Article III, Section 3.2 of this Agreement and the
diversification requirements specified in Article III,
Section 3.3 of this Agreement as described more fully in
Section 8.5 below); or
<PAGE>
(3) arise out of or result from the incorrect or untimely
calculation or reporting of daily net asset value per share or
dividend or capital gain distribution rate;
except to the extent provided in Sections 8.3(b) and 8.4 hereof.
This indemnification will be in addition to any liability that the
Fund otherwise may have.
(b) No party will be entitled to indemnification under Section 8.3(a) if
such loss, claim, damage, liability or action is due to the willful
misfeasance, bad faith, or gross negligence in the performance of
such party's duties under this Agreement, or by reason of such
party's reckless disregard of its obligations and duties under this
Agreement.
(c) The Indemnified Parties will promptly notify the Fund of the
commencement of any litigation, proceedings, complaints or actions
by regulatory authorities against them in connection with the
issuance or sale of the Contracts or the operation of the Account.
8.4 INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this Article VIII
("Indemnifying Party" for the purpose of this Section 8.4) will not be
liable under the indemnification provisions of this Article VIII with
respect to any claim made against a party entitled to indemnification
under this Article VIII ("Indemnified Party" for the purpose of this
Section 8.4) unless such Indemnified Party will have notified the
Indemnifying Party in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
will have been served upon such Indemnified Party (or after such party
will have received notice of such service on any designated agent), but
failure to notify the Indemnifying Party of any such claim will not
relieve the Indemnifying Party from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on
account of the indemnification provision of this Article VIII, except to
the extent that the failure to notify results in the failure of actual
notice to the Indemnifying Party and such Indemnifying Party is damaged
solely as a result of failure to give such notice. In case any such action
is brought against the Indemnified Party, the Indemnifying Party will be
entitled to participate, at its own expense, in the defense thereof. The
Indemnifying Party also will be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice
from the Indemnifying Party to the Indemnified Party of the Indemnifying
Party's election to assume the defense thereof, the Indemnified Party will
bear the fees and expenses of any additional counsel retained by it, and
the Indemnifying Party 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, unless: (a) the Indemnifying Party and
the Indemnified Party will have mutually agreed to the retention of such
counsel; or (b) the named parties to any such proceeding (including any
<PAGE>
impleaded parties) include both the Indemnifying Party and the Indemnified
Party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
The Indemnifying Party will not be liable for any settlement of any
proceeding effected without its written consent but if settled with such
consent or if there is a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify the Indemnified Party from and
against any loss or liability by reason of such settlement or judgment. A
successor by law of the parties to this Agreement will be entitled to the
benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII will survive any
termination of this Agreement.
8.5 INDEMNIFICATION FOR FAILURE TO COMPLY WITH DIVERSIFICATION REQUIREMENTS
The Fund and the Adviser acknowledge that any failure (whether intentional
or in good faith or otherwise) to comply with the diversification
requirements specified in Article III, Section 3.3 of this Agreement may
result in the Contracts not being treated as variable contracts for
federal income tax purposes, which would have adverse tax consequences for
Contract owners and could also adversely affect the Company's corporate
tax liability. Accordingly, without in any way limiting the effect of
Sections 8.2(a) and 8.3(a) hereof and without in any way limiting or
restricting any other remedies available to the Company, the Fund, the
Adviser and the Distributor will pay on a joint and several basis all
costs associated with or arising out of any failure, or any anticipated or
reasonably foreseeable failure, of the Fund or any Portfolio to comply
with Section 3.3 of this Agreement, including all costs associated with
correcting or responding 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 Fund or Portfolio (including but not limited to an order
pursuant to Section 26(b) of the 1940 Act); fees and expenses of legal
counsel and other advisors to the Company and any federal income taxes or
tax penalties (or "toll charges" or exactments or amounts paid in
settlement) incurred by the Company in connection with any such failure or
anticipated or reasonably foreseeable failure. Such indemnification and
reimbursement obligation shall be in addition to any other indemnification
and reimbursement obligations of the Fund, the Adviser and/or the
Distributor under this Agreement.
<PAGE>
ARTICLE IX - APPLICABLE LAW
9.1 This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Delaware.
9.2 This Agreement will be subject to the provisions of the 1933 Act, the 1934
Act and the 1940 Act, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the Commission may grant (including, but not limited to,
the Mixed and Shared Funding Exemptive Order) and the terms hereof will be
interpreted and construed in accordance therewith.
ARTICLE X - TERMINATION
10.1 This Agreement will terminate:
(a) at the option of any party, with or without cause, with respect to
one, some or all of the Portfolios, upon six (6) month's advance
written notice to the other parties or, if later, upon receipt of
any required exemptive relief or orders from the SEC, unless
otherwise agreed in a separate written agreement among the parties;
or
(b) at the option of the Company, upon written notice to the other
parties, with respect to any Portfolio if shares of the Portfolio
are not reasonably available to meet the requirements of the
Contracts as determined in good faith by the Company; or
(c) at the option of the Company, upon 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 Company; or
(d) at the option of the Fund, upon written notice to the other parties,
upon institution of formal proceedings against the Company by the
NASD, the Commission, the Insurance Commission of any state or any
other regulatory body regarding the Company's duties under this
Agreement or related to the sale of the Contracts, the
administration of the Contracts, the operation of the Account, or
the purchase of the Fund shares, provided that the Fund determines
in its sole judgment, exercised in good faith, that any such
proceeding would have a material adverse effect on the Company's
ability to perform its obligations under this Agreement; or
<PAGE>
(e) at the option of the Company, upon written notice to the other
parties, upon institution of formal proceedings against the Fund or
the Adviser by the NASD, the Commission or any state securities or
insurance department or any other regulatory body, provided that the
Company determines in its sole judgment, exercised in good faith,
that any such proceeding would have a material adverse effect on the
Fund's or the Adviser's ability to perform its obligations under
this Agreement; or
(f) at the option of the Company, upon written notice to the other
parties, if the Fund ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code, or under any successor or
similar provision, or if the Company reasonably and in good faith
believes that the Fund may fail to so qualify; or
(g) at the option of the Company, upon written notice to the other
parties, with respect to any Portfolio if the Fund fails to meet the
diversification requirements specified in Section 3.3 hereof or if
the Company reasonably and in good faith believes the Fund may fail
to meet such requirements; or
(h) at the option of any party to this Agreement, upon written notice to
the other parties, upon another party's material breach of any
provision of this Agreement; or
(i) at the option of the Company, if the Company determines in its sole
judgment exercised in good faith that either the Fund or the Adviser
has suffered a material adverse change in its business, operations
or financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the
Company, such termination to be effective sixty (60) days' after
receipt by the other parties of written notice of the election to
terminate; or
(j) at the option of the Fund or the Adviser, if the Fund or Adviser
respectively, determines in its sole judgment exercised in good
faith that the Company has suffered a material adverse change in its
business, operations or financial condition since the date of this
Agreement or is the subject of material adverse publicity which is
likely to have a material adverse impact upon the business and
operations of the Fund or the Adviser, such termination to be
effective sixty (60) days' after receipt by the other parties of
written notice of the election to terminate; or
(k) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the Contract
owners having an interest in the Account (or any sub-account) to
substitute the shares of another investment company for the
corresponding Portfolio's shares of the Fund in accordance with the
terms of the Contracts for which those Portfolio shares had
<PAGE>
been selected to serve as the underlying portfolio. The Company
will give sixty (60) days' prior written notice to the Fund of the
date of any proposed vote or other action taken to replace the
Fund's shares or of the filing of any required regulatory
approval(s); or
(1) at the option of the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of the disinterested Fund
Board members, that an irreconcilable material conflict exists among
the interests of: (1) all Contract owners of variable insurance
products of all separate accounts; or (2) the interests of the
Participating Insurance Companies investing in the Fund as set forth
in Article VII of this Agreement; or
(m) at the option of the Fund in the event any of the Contracts are not
issued or sold in accordance with applicable federal and/or state
law. Termination will be effective immediately upon such occurrence
without notice.
10.2 NOTICE REQUIREMENT
(a) No termination of this Agreement, except a termination under Section
10.1 (m) of this Agreement, will be effective unless and until the
party terminating this Agreement gives prior written notice to all
other parties of its intent to terminate, which notice will set
forth the basis for the termination.
(b) In the event that any termination of this Agreement is based upon
the provisions of Article VII, such prior written notice will be
given in advance of the effective date of termination as required by
such provisions.
10.3 EFFECT OF TERMINATION
Notwithstanding any termination of this Agreement, the Fund, the Adviser
and the Distributor will, at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and
conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts will be permitted to reallocate investments in the
Designated Portfolios (as in effect on such date), 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 will not apply to any
terminations under Article VII and the effect of such Article VII
terminations will 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 will survive and
not be affected by any termination of this Agreement. In addition, with
<PAGE>
respect to Existing Contracts, all provisions of this Agreement also will
survive and not be affected by any termination of this Agreement.
ARTICLE XI - NOTICES
Any notice will be deemed duly 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
parties.
If to the Company:
-----------------
Cova Financial Services Life Insurance Company
One Tower Lane
Suite 3000
Oakbrook Terrace IL 60181
Attn: General Counsel
If to the Fund:
--------------
INVESCO Variable Investment Funds, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: General Counsel
If to the Adviser:
-----------------
INVESCO Funds Group, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: General Counsel
If to the Distributor:
---------------------
INVESCO Distributors, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: General Counsel
ARTICLE XII - MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the property of the
Fund for the enforcement of any claims against the Fund as neither the
directors, officers, agents or shareholders assume any personal liability
for obligations entered into on behalf of the Fund.
12.2 The Fund and the Adviser acknowledge that the identities of the customers
of the Company or any of its affiliates (collectively the "Protected
Parties" for purposes of this Section 12.2), information maintained
regarding those customers, and all computer programs and procedures
developed by the Protected Parties or any of their employees or agents in
connection with the Company's performance of its duties under this
<PAGE>
Agreement are the valuable property of the Protected Parties. The Fund and
the Adviser agree that if they come into possession of any list or
compilation of the identities of or other information about the Protected
Parties' customers, or any other property of the Protected Parties, other
than such information as may be independently developed or compiled by the
Fund or the Adviser from information supplied to them by the Protected
Parties' customers who also maintain accounts directly with the Fund or
the Adviser, the Fund and the Adviser will hold such information or
property in confidence and refrain from using, disclosing or distributing
any of such information or other property except: (a) with the Company' s
prior written consent; or (b) as required by law or judicial process. The
Fund and the Adviser acknowledge that any breach of the agreements in this
Section 12.2 would result in immediate and irreparable harm to the
Protected Parties for which there would be no adequate remedy at law and
agree that in the event of such a breach, the Protected Parties will be
entitled to equitable relief by way of temporary and permanent
injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
12.3 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.
12.4 This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
12.5 If any provision of this Agreement will be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement will
not be affected thereby.
12.6 This Agreement will not be assigned by any party hereto without the prior
written consent of all the parties.
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 law.
12.8 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect.
12.9 Each party to this Agreement will cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and will permit each
other and 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.
12.10 Each party represents that the execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or board action, as applicable,
<PAGE>
by such party and when so executed and delivered this Agreement will be
the valid and binding obligation of such party enforceable in accordance
with its terms.
12.11 The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts, the
Accounts or the Portfolios of the Fund or other applicable terms of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the date specified below.
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY
By: /s/ Norma J. Naselli
- ----------------------------------
Norma J. Naselli
Assistant Vice President
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By: /s/ Ronald L. Grooms
- -----------------------------
Ronald L. Grooms
Treasurer
INVESCO FUNDS GROUP, INC.
By: /s/ Ronald L. Grooms
- -----------------------------
Ronald L. Grooms
Senior Vice President
INVESCO DISTRIBUTORS, INC.
By: /s/ Ronald L. Grooms
- -----------------------------
Ronald L. Grooms
Senior Vice President
<PAGE>
SCHEDULE A
The following Separate Accounts and Associated Contracts of Cova Financial
Services Life Insurance Company are permitted in accordance with the provisions
of this Agreement to invest in Portfolios of the Fund shown in Schedule B:
CONTRACTS FUNDED BY SEPARATE ACCOUNT NAME OF SEPARATE ACCOUNT
- ------------------------------------ ------------------------
Navigator Variable Annuity Cova Variable Annuity Account One
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE B
The Separate Account(s) shown on Schedule A may invest in the following
Portfolios of the Fund.
INVESCO VIF - Dynamics Fund
INVESCO VIF - High Yield Fund
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as possible
before the date set by the Fund for the shareholder meeting to enable the
Company to consider and prepare for the solicitation of voting instructions
from owners of the Contracts and to facilitate the establishment of
tabulation procedures. At this time the Fund will inform the 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 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 as of
the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call in
the number of Customers to the Fund , as soon as possible, but no later than
two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company either
before or together with the Customers' receipt of voting, instruction
solicitation material. The Fund will provide the last Annual Report to the
Company pursuant to the terms of Section 6.2 of the Agreement to which this
Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate 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:
o name (legal name as found on account registration)
o address
o Fund or account number
o coding to state number of units
o individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
<PAGE>
5. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices and
statements will be sent to Company for insertion into envelopes (envelopes
and return envelopes are provided and paid for by the Company). Contents of
envelope sent to Customers by the Company will include:
o Voting Instruction Card(s)
o one proxy notice and statement (one document)
o return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
o "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 Fund.)
o cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the 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 and has not been
required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card. Note: For Example, if the account registration is
under "John A. Smith, Trustee," then that is the exact legal name to be
printed on the Card and is the signature needed on the Card.
10.If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a new
Card and return envelope. The mutilated or illegible Card is disregarded and
considered to be NOT RECEIVED for purposes of vote tabulation. Any Cards that
have been "kicked out" (e.g. mutilated, illegible) of the procedure are "hand
verified," i.e., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
11.There are various control procedures used to ensure proper tabulation of
votes and accuracy of that 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>
12.The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of SHARES.) The Fund must review and
approve tabulation format.
13.Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The Fund
may request an earlier deadline if reasonable and if required to calculate
the vote in time for the meeting.
14.A Certification of Mailing and Authorization to Vote Shares will be required
from the Company as well as an original copy of the final vote. The Fund will
provide a standard form for each Certification.
15.The 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, the Fund will be permitted
reasonable access to such Cards.
16.All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
PARTICIPATION AGREEMENT
AMONG
FIRST FORTIS LIFE INSURANCE COMPANY,
FORTIS INVESTORS, INC.,
INVESCO VARIABLE INVESTMENT FUNDS, INC.
AND
INVESCO FUNDS GROUP, INC.
DATED AS OF
AUGUST 14, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1 Additional Portfolios 2
SECTION 2 Processing Transactions 2
2.1 Timely Pricing and Orders 2
2.2 Timely payments 3
2.3 Redemption in Kind 3
2.4 Applicable Price 4
SECTION 3 Costs and Expenses
3.1 General 4
3.2 Registration 4
3.3 Other (Non-Sales-Related) 5
3.4 Sales-Related 6
3.5 Parties to Cooperate 6
SECTION 4 Legal Compliance
4.1 Tax Laws 6
4.2 Insurance and Certain Other Laws 8
4.3 Securities Laws 9
4.4 Notice of Certain Proceedings and Other Circumstances 11
4.5 First Fortis to Provide Documents 12
4.6 Fund to Provide Documents 13
SECTION 5 Mixed and Shared Funding
5.1 General 13
5.2 Disinterested Directors 13
5.3 Monitoring for Material Irreconcilable Conflicts 14
5.4 Conflict Remedies 15
5.5 Notice to First Fortis 17
5.6 Information Requested by Board of Directors 17
5.7 Compliance with SEC Rules 18
<PAGE>
Page
SECTION 6 Termination
6.1 Events of Termination 18
6.2 Funds to Remain Available 20
6.3 Survival of Warranties and Indemnifications 21
6.4 Continuance of Agreement for Certain Purposes 21
6.5 Reimbursement of Expenses 21
SECTION 7 Parties to Cooperate Respecting Termination 22
SECTION 8 Assignment 22
SECTION 9 Notices 22
SECTION 10 Voting Procedures 24
SECTION 11 Indemnification
11.1 Of Fund and Adviser by First Fortis 25
11.2 Of First Fortis and Fortis Investors by Adviser 28
11.3 Effect of Notice 32
SECTION 12 Applicable Law 33
SECTION 13 Execution in Counterparts 33
SECTION 14 Severabilitv 33
SECTION 15 Rights Cumulative 34
SECTION 16 Restrictions on Sales of Fund Shares 34
SECTION 17 Headings 34
SECTION 18 Sales Material and Information 35
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the ___ day of August, 1997
("Agreement"), by and among First Fortis Life Insurance Company, a New York Life
Insurance Company ("First Fortis") (on behalf of itself and its "Separate
Account," defined below); Fortis Investors, Inc., a Minnesota corporation
("Fortis Investors"), the principal underwriter with respect to the Contracts
referred to below; INVESCO Variable Investment Funds, Inc., a Maryland
corporation (the "Fund"); and INVESCO Funds Group, Inc., a Delaware corporation,
the Fund's investment adviser; and, the Fund's principal distributor ("INVESCO")
(collectively, the "Parties"),
WITNESSETH THAT:
WHEREAS First Fortis, INVESCO, and the Fund desire that shares of the
Fund's Industrial Income Portfolio, Health Services Portfolio, and Technology
Portfolio (the "Portfolios"; reference herein to the "Fund" includes reference
to each Portfolio to the extent the context requires) be made available by
INVESCO to serve as underlying investment media for those combination fixed and
variable annuity contracts of First Fortis that are the subject of First
Fortis's Form N-4 registration statement filed with the Securities and Exchange
Commission (the " SEC "), File No. 333-20343 (the "Contracts"), to be offered
through Fords Investors and other registered broker-dealer firms as agreed to by
First Fortis and Fortis Investors; and,
WHEREAS the Contracts provide for the allocation of net amounts received by
First Fortis to separate series (the "Divisions;" reference herein to the
"Separate Account" includes reference to each Division to the extent the context
requires) of the Separate Account for investment in the shares of corresponding
Portfolios of the Fund that are made available through the Separate Account to
act as underlying investment media,
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Fund and INVESCO will make shares of the Portfolios
available to First Fortis for this purpose at net asset value and with no sales
charges, all subject to the following provisions:
SECTION 1. ADDITIONAL PORTFOLIOS
The Fund may from time to time add additional Portfolios, which will become
subject to this Agreement, if, upon the written consent of each of the Parties
hereto, they are made available as investment media for the Contracts.
SECTION 2. PROCESSING TRANSACTIONS
2.1 Timely Pricing and Orders.
The Fund or its designated agent will provide closing net asset value,
dividend and capital gain information for each Portfolio to First Fortis at the
close of trading on each day (a "Business Day") on which (a) the New York Stock
Exchange is open for regular trading, and (b) the Fund calculates the
Portfolio's net asset value. The Fund or its designated agent will use its best
efforts to provide this information by 5:00 p.m., Central time. First Fortis
will use these data to calculate unit values, which in turn will be used to
process transactions that receive that same Business Day's Separate Account
Divisions unit values. Such Separate Account processing will be done the same
evening, and corresponding orders with respect to Fund shares win be placed the
morning of the following Business Day. First Fortis will use its best efforts to
place such orders with the Fund by 9:00 a.m., Central time.
<PAGE>
2.2 Timely Payments.
First Fortis will transmit orders for purchases and redemptions of Fund
shares to INVESCO, and will wire payment for net purchases to a custodial
account designated by the Fund on the day the order for Fund shares is placed,
to the extent practicable, and in any event, no later than 1:00 p.m. Central
time on the next business day after the order for Fund shares is placed. Payment
for net redemptions will be wired by the Fund to an account designated by First
Fortis on the same day as the order is placed, to the extent practicable, and in
any event be made within six calendar days after the date the order is placed in
order to enable First Fortis to pay redemption proceeds within the time
specified in Section 22(e) of the Investment Company Act of 1940, as amended
(the " 1940 Act").
2.3 Redemption in Kind.
The Fund reserves the right to pay any portion of a redemption in kind of
portfolio securities, if the Fund's board of directors (the "Board of
Directors") determines that it would be detrimental to the best interests of
shareholders to make a redemption wholly in cash.
2.4 Applicable Price.
The Parties agree that Portfolio share purchase and redemption orders
resulting from Contract owner purchase payments, surrenders, partial
withdrawals, routine withdrawals of charges, or other transactions under
Contracts will be executed at the net asset values as determined as of the close
of regular trading on the New York Stock Exchange on the Business Day that First
Fortis processes such transactions, which will be deemed to be the Business Day
prior to INVESCO's receipt of the corresponding orders for purchases and
redemptions of Portfolio shares. All other purchases and redemptions of
Portfolio shares by First Fortis, will be effected at the net asset values next
computed after receipt by INVESCO of the order therefor, and such orders win be
irrevocable. First Fortis hereby elects to reinvest all dividends and capital
gains distributions in additional shares of the corresponding Portfolio at the
record-date net asset values until First Fortis otherwise notifies the Fund in
writing, it being agreed by the Parties that the record date and the payment
date with respect to any dividend or distribution will be the same Business Day.
<PAGE>
SECTION 3. COSTS AND EXPENSES
3.1 General.
Except as otherwise specifically provided herein, each Party will bear all
expenses incident to its performance under this Agreement.
3.2 Registration.
The Fund will bear the cost of its registering as a management investment
company under the 1940 Act and registering its shares under the Securities Act
of 1933, as amended (the "1933 Act"), and keeping such registrations current and
effective; including, without limitation, the preparation of and filing with the
SEC of Forms N-SAR and Rule 24-f2 Notices respecting the Fund and its shares and
payment of all applicable registration or filing fees with respect to any of the
foregoing. First Fortis will bear the cost of registering the Separate Account
as a unit investment trust under the 1940 Act and registering units of interest
under the Contracts under the 1933 Act and keeping such registrations current
and effective; including, without limitation, the preparation and filing with
the SEC of Forms N-SAR and Rule 24-f2 Notices respecting the Separate Account
and its units of interest and payment of all applicable registration or filing
fees with respect to any of the foregoing.
3.3 Other (Non-Sales-Related).
The Fund will bear the costs of preparing, filing with the SEC and setting
for printing the Fund's prospectus, statement of additional information and any
amendments or supplements thereto (collectively, the "Fund Prospectus"),
periodic reports to shareholders, Fund proxy material and other shareholder
communications and any related requests for voting instructions from
Participants (as defined below). First Fortis will bear the costs of preparing,
filing with the SEC and setting for printing, the Separate Account's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "Separate Account Prospectus"), any periodic reports to
owners , annuitants or participants under the Contracts (collectively,
"Participants"), and other Participant communications. The Fund and First Fortis
each will bear the costs of printing in quantity and delivering to existing
Participants the documents as to which it bears the cost of preparation as set
forth above in this Section 3.3, it being understood that reasonable cost
allocations will be made in cases where any such Fund and First Fortis documents
are printed or mailed on a combined or coordinated basis. If requested by First
Fortis, the Fund will provide annual Prospectus text to First Fortis on diskette
for printing and binding with the Separate Account Prospectus. First Fortis will
be reasonably compensated by the Fund for costs associated with production of
mailing lists and tabulation of votes with respect to Fund proxy solicitations.
3.4 Sales-Related.
Expenses of distributing the Portfolio's shares and the Contracts will be
paid by Investors and other parties, as they shall determine by separate
agreement.
<PAGE>
3.5 Parties to Cooperate.
The Fund, Adviser, First Fortis, Fortis Investors and INVESCO each agrees
to cooperate with the others, as applicable, in arranging to print, mail and/or
deliver combined or coordinated prospectuses or other materials of the Fund and
Separate Account.
SECTION 4. LEGAL COMPLIANCE
4.1 Tax Laws.
(a) The Fund will use its best efforts to qualify and to maintain
qualification of each Portfolio as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and
the Fund, Adviser or INVESCO will notify First Fortis immediately upon having a
reasonable basis for believing that a Portfolio has ceased to so qualify or that
it might not so qualify in the future.
(b) First Fortis represents that it believes, in good faith, that the
Contracts will be treated as annuity contracts under applicable provisions of
the Code and that it will make every effort to maintain such treatment; First
Fortis will notify the Fund and INVESCO immediately upon having a reasonable
basis for believing that any of the Contracts have ceased to be so treated or
that they might not be so treated in the future.
(c) The Fund will use its best efforts to comply and to maintain each
Portfolio's compliance with the diversification requirements set forth in
Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the
Code, and the Fund, Adviser or INVESCO will notify First Fortis immediately upon
having a reasonable basis for believing that a Portfolio has ceased to so comply
or that a Portfolio might not so comply in the future.
(d) First Fortis represents that it believes, in good faith, that the
Separate Account is a "segregated asset account" and that interests in the
Separate Account are offered exclusively through the purchase of or transfer
into a "variable contract," within the meaning of such terms under Section
817(h) of the Code and the regulations thereunder. First Fortis, win make every
effort to continue to meet such definitional requirements, and it will notify
the Fund and INVESCO 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.
<PAGE>
(e) The Adviser will manage the Fund as a RIC in compliance with Subchapter
M of the Code and will use its best efforts to manage to be in compliance with
Section 817(h) of the Code and regulations thereunder. The Fund has adopted and
will maintain procedures for ensuring that the Fund is managed in compliance
with Subchapter M and Section 817(h) and regulations thereunder. On request, the
Fund shall also provide First Fortis with such materials, cooperation and
assistance as may be reasonably necessary for First Fortis or any person
designated by First Fortis to review from time to time the procedures and
practices of Adviser or any other provider of services to the Fund for ensuring
that the Fund is managed in compliance with Subchapter M and Section 817(h) and
regulations thereunder.
(f) Should the Fund, INVESCO, or Adviser become aware of a failure of Fund,
or any of its Portfolios, to be in compliance with Subchapter M of the Code or
Section 817(h) of the Code and regulations thereunder, they represent and agree
that they will immediately notify First Fortis of such in writing.
4.2 Insurance and Certain Other Laws.
(a) The Fund will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested in writing
by First Fortis. If it cannot comply, it will so notify First Fortis in writing.
(b) First Fortis represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of New York and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains the
Separate Account as a segregated asset account under Section 4240 of the New
York Insurance Code, and (iii) the Contracts comply in all material respects
with all other applicable federal and state laws and regulations.
(c) First Fortis and Fortis Investors represent and warrant that Fortis
Investors is a business corporation duly organized, validly existing, and in
good standing under the laws of the State of New York and has full corporate
power, authority and legal right to execute, deliver, and perform its duties and
comply with its obligations under this Agreement.
(d) INVESCO represents and warrants that it is a business corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware and has full corporate power, authority and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
(e) INVESCO and the Fund represent and warrant that the Fund is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Maryland and has full power, authority, and legal right to
execute, deliver, and perform its duties and comply with its obligations under
this Agreement.
<PAGE>
4.3 Securities Laws.
(a) First Fortis represents and warrants that (i) interests in the Separate
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act and the Contracts will be duly authorized for
issuance and sold in compliance with New York law, (ii) the Separate Account is
and will remain registered under the 1940 Act, to the extent required under the
1940 Act, (iii) the Separate Account does and will comply in all material
respects with the requirements of the 1940 Act and the rules thereunder, (iv)
the Separate Account's 1933 Act registration statement relating to the
Contracts, together with any amendments thereto, will at all times comply in all
material respects with the requirements of the 1933 Act and the rules
thereunder, and (v) the Separate Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) The Fund and INVESCO represent and warrant that (i) Fund shares sold
pursuant to this Agreement will be registered under the 1933 Act to the extent
required by the 1933 Act and duly authorized for issuance and sold in compliance
with Maryland law, (ii) the Fund is and will remain registered under the 1940
Act to the extent required by the 1940 Act, (iii) the Fund will amend the
registration statement for its shares under the 1933 Act and itself under the
1940 Act from time to time as required in order to effect the continuous
offering of its shares, (iv) the Fund does and will comply in all material
respects with the requirements of the 1940 Act and the rules thereunder, (v) the
Fund's 1933 Act registration statement, together with any amendments thereto,
will at all times comply in all material respects with the requirements of the
1933 Act and rules thereunder, and (vi) the Fund Prospectus will at all times
comply in all material respects with the requirements of the 1933 Act and the
rules thereunder.
(c) The Fund will register and qualify its shares for sale in accordance
with the laws of any state or other jurisdiction only if and to the extent
reasonably deemed advisable by the Fund, First Fortis or any other life
insurance company utilizing the Fund.
(d) INVESCO and Fords Investors each represents and warrants that it is
registered as a broker-dealer with the SEC under the Securities Exchange Act of
1934, as amended, and is a member in good standing of the National Association
of Securities Dealers, Inc. (the "NASD").
4.4 Notice of Certain Proceedings and Other Circumstances.
(a) INVESCO or the Fund shall immediately notify First Fortis of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to the Fund's registration statement
under the 1933 Act or the Fund Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or Fund Prospectus, (iii) the
initiation of any proceedings for that purpose or for any other purpose relating
to the registration or offering of the Funds shares, or (iv) any other action or
circumstances that may prevent the lawful offer or sale of Fund shares in any
state or jurisdiction, including, without limitation, any circumstances in which
(x) the Fund's shares are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law or (y) such law
precludes the use of such shares as an underlying investment medium of the
Contracts issued or to be issued by First Fortis. INVESCO and the Fund will make
every reasonable effort to prevent the issuance of any such stop order, cease
and desist order or similar order and, if any such order is issued, to obtain
the lifting thereof at the earliest possible time.
<PAGE>
(b) First Fortis or Fortis Investors shall immediately notify the Fund of
(i) the issuance by any court or regulatory body of any stop order, cease and
desist order, or other similar order with respect to the Separate Account's
registration statement under the 1933 Act relating to the Contracts or the
Separate Account Prospectus, (ii) any request by the SEC for any amendment to
such registration statement or Separate Account Prospectus, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of the Separate Account interests pursuant to the
Contracts, or (iv) any other action or circumstances that may prevent the lawful
offer or sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. First Fortis and Fortis Investors will make every reasonable effort
to prevent the issuance of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof at
the earliest possible time.
4.5 First Fortis to Provide Documents.
Upon request, First Fortis will provide to the Fund and INVESCO one
complete copy of SEC registration statements, Separate Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and amendments to
any of the above, that relate to the Separate Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6 Fund to Provide Documents.
Upon request, the Fund will provide to First Fortis one complete copy of
SEC registration statements, Fund Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or its
shares, contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
SECTION 5. MIXED AND SHARED FUNDING
5.1 General.
The Fund has obtained an order from the Securities and Exchange Commission
exempting it from certain provisions of the 1940 Act and rules thereunder so
that, subject to compliance with Section 17 of this Agreement, the Fund may be
available for investment by certain other entities, including, without
limitation, separate accounts funding variable life insurance policies and
separate accounts of insurance companies unaffiliated with First Fortis ("Mixed
and Shared Funding").
5.2 Disinterested Directors.
The Fund agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of Adviser or INVESCO within the meaning of Section 2(a)(19) of the 1940
Act.
5.3 Monitoring for Material Irreconcilable Conflicts.
The Fund agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
participants in all separate accounts of life insurance companies utilizing the
Fund, including the Separate Account. First Fortis agrees to inform the Board of
Directors of the Fund of the existence of or any potential for any such material
irreconcilable conflict of which it is aware. The concept of a "material
irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder,
but the Parties recognize that such a conflict may arise for a variety of
reasons, including, without limitation:
<PAGE>
(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, 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 participants or by participants
of different life insurance companies utilizing the Fund; or
(f) a decision by a life insurance company utilizing the Fund to disregard
the voting instructions of participants.
Consistent with the SEC's requirements in connection with exemptive
proceedings of the type referred to in Section 5.1 hereof, First Fortis will
assist the Board of Directors in carrying out its responsibilities by providing
the Board of Directors with all information reasonably necessary for the Board
of Directors to consider any issue raised, including information as to a
decision by First Fortis to disregard voting instructions of Participants.
5.4 Conflict Remedies.
(a) It is agreed that if it is determined by a majority of the members of
the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, First Fortis and the other life
insurance companies utilizing the Fund will, at their own expense and to the
extent reasonably practicable (as determined by a majority of the Disinterested
Directors), take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, which steps may include, but are not limited
to:
(i) withdrawing the assets allocable to some or all of the separate
accounts from the Fund or any Portfolio and reinvesting such assets in
a different investment medium, including another Portfolio of the
Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected participants and, as
appropriate, segregating the assets of any particular group (e.g.,
annuity contract owners or participants, life insurance contract
owners or all contract owners and participants of one or more life
insurance companies utilizing the Fund) that votes in favor of such
segregation, or offering to the affected contract owners or
participants the option of making such a change; and
(ii) establishing a new registered investment company of the type defined
as a "Management Company" in Section 4(3) of the 1940 Act or a new
separate account that is operated as a Management Company.
(b) If the material irreconcilable conflict arises because of First
Fortis's decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, First Fortis
may be required, at the Fund's election, to withdraw the Separate Account's
investment in the Fund. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal must take place within six months after the Fund
gives notice to First Fortis that this provision is being implemented, and until
such withdrawal INVESCO and the Fund shall continue to accept and implement
orders by First Fortis for the purchase and redemption of shares of the Fund.
<PAGE>
(c) If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to First Fortis conflicts with the
majority of other state regulators, then First Fortis will withdraw the Separate
Account's investment in the Fund within six months after the Fund's Board of
Directors informs First Fortis that it has determined that such decision has
created a material irreconcilable conflict, and until such withdrawal INVESCO
and Fund shall continue to accept and implement orders by First Fortis for the
purchase and redemption of shares of the Fund.
(d) First Fortis agrees that any remedial action taken by it in resolving
any material irreconcilable conflict will be carried out at its expense and with
a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will the Fund or INVESCO be
required to establish a new funding medium for any Contracts. First Fortis will
not be required by the terms hereof to establish a new funding medium for any
Contracts if an offer to do so has been declined by vote of a majority of
Participants materially adversely affected by the material irreconcilable
conflict.
5.5 Notice to First Fortis.
The Fund will promptly make known in writing to First Fortis the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 Information Requested by Board of Directors.
First Fortis and the Fund will at least annually submit to the Board of
Directors of the Fund such reports, materials or data as the Board of Directors
may reasonably request so that the Board of Directors may fully carry out the
obligations imposed upon it by the provisions hereof and said reports, materials
and data will be submitted at any reasonable time deemed appropriate by the
Board of Directors. All reports received by the Board of Directors of potential
or existing conflicts, and all Board of Directors actions with regard to
determining the existence of a conflict, notifying life insurance companies
utilizing the Fund of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the minutes of the
Board of Directors or other appropriate records, and such minutes or other
records will be made available to the SEC upon request.
5.7 Compliance with SEC Rules.
If, at any time during which the Fund is serving an investment medium for
variable life insurance policies, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2
are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to
mixed and shared funding, the Parties agree that they will comply with the terms
and conditions thereof and that the terms of this Section 5 shall be deemed
modified if and only to the extent required in order also to comply with the
terms and conditions of such exemptive relief that is afforded by any of said
rules that are applicable.
<PAGE>
SECTION 6. TERMINATION
6.1 Events of Termination.
Subject to Section 6.4 below, this Agreement will terminate as to a
Portfolio:
(a) at the option of First Fortis or INVESCO upon at least six 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 Fund upon (i) at least sixty days advance written
notice to the other parties, and (ii) approval by (x) a majority of the
disinterested Directors upon a finding that a continuation of this agreement is
contrary to the best interests of the Fund, or (y) a majority vote of the shares
of the affected Portfolio in the corresponding Division of the Separate Account
(pursuant to the procedures set forth in Section 10 of this Agreement for voting
Fund shares in accordance with Participant instructions).
(c) at the option of the Fund upon institution of formal proceedings
against First Fortis or Fortis Investors by the NASD, the SEC, any state
insurance regulator or any other regulatory body regarding First Fortis's
obligations under this Agreement or related to the sale of the Contracts, the
operation of the Separate Account, or the purchase of the Fund shares, if, in
each case, the Fund reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of imposing
material adverse consequences on the Portfolio to be terminated; or
(d) at the option of First Fortis upon institution of formal proceedings
against the Fund or INVESCO by the NASD, the SEC, or any state insurance
regulator or any other regulatory body regarding the Fund's or INVESCO's
obligations under this Agreement or related to the operation or management of
the Fund or the purchase of Fund shares, if, in each case, First Fortis
reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on First Fortis, Fortis Investors or the Division
corresponding to the Portfolio to be terminated; or
(e) at the option of any Party in the event that (i) the Portfolio's shares
are not registered and, in all material respects, issued and sold in accordance
with any applicable state and federal law or (ii) such law precludes the use of
such shares as an underlying investment medium of the Contracts issued or to be
issued by First Fortis; or
(f) upon termination of the corresponding Division's investment in the
Portfolio pursuant to Section 5 hereof; or
(g) at the option of First Fortis if the Portfolio ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions, or
if First Fortis reasonably believes that the Portfolio may fail to so qualify;
or
(h) at the option of First Fortis if the Portfolio fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if First
Fortis reasonably believes that the Portfolio may fail to so comply; or
(i) at the option of First Fortis if First Fortis reasonably believes that
any change in a Fund's investment adviser or investment practices will
materially increase the risks incurred by First Fortis.
<PAGE>
6.2 Funds to Remain Available.
Except (i) as necessary to implement Participant-initiated transactions,
(ii) as required by state insurance laws or regulations, (iii) as required
pursuant to Section 5 of this Agreement, or (iv) with respect to any Portfolio
as to which this Agreement has terminated, First Fortis shall not (x) redeem
Fund shares attributable to the Contracts, or (y) prevent Participants from
allocating payments to or transferring amounts from a Portfolio that was
otherwise available under the Contracts, until, in either case, 90 calendar days
after First Fortis shall have notified the Fund or INVESCO of its intention to
do so.
6.3 Survival of Warranties and Indemnifications.
All warranties and indemnifications will survive the termination of this
Agreement.
6.4 Continuance of Agreement for Certain Purpose.
If any Party terminates this Agreement with respect to any Portfolio
pursuant to Sections 6.1(c), 6.1(d), 61(e), 6.1(g), 6.1(h) or 6.1(i) hereof,
this Agreement shall nevertheless continue in effect as to any shares of that
Portfolio that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the earlier of the date as
of which the Separate Account owns no shares of the affected Portfolio or a date
(the "Final Termination Date") six months following the Initial Termination
Date, except that First Fortis may, by written notice to the other Parties,
shorten said six month period in the case of a termination pursuant to Sections
6.1(e), 6.1(g) or 6.1(h).
6.5 Reimbursement of Expenses
If this Agreement is terminated as to any Portfolio (i) by INVESCO pursuant
to 6.1(a), or (ii) pursuant to 6.1(b), 6.1(d), 6.1(g), 6.1(h), or 6.1(i),
INVESCO will reimburse First Fortis for its reasonable costs and expenses in
combining the affected Division with another Division, substituting interests in
a new Division for those of the affected Portfolio, or otherwise terminating the
participation of the Contracts in such Portfolio. Irrespective of the above, if
this Agreement is terminated as to any Portfolio by reason of the breach(?) by
First Fortis of its obligation under this Agreement, INVESCO shall have no
obligation of reimbursement hereunder. Furtherwise, if this Agreement is
terminated as to any Portfolio pursuant to 6.1(d) or 6.1(i), INVESCO's
reimbursement obligation shall be limited to 50% of such reasonable costs and
expenses. The costs associated with such may include such expenditures as (1)
outside counsel fees related to obtaining an exemption order from the Securities
and Exchange Commission and (2) drafting, printing, and mailing costs of the
necessary notification forms to be mailed to affected Contract holders.
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The other Parties hereto agree to cooperate with and give reasonable
assistance to First Fortis in taking all necessary and appropriate steps for the
purpose of ensuring that the Separate Account owns no shares of a Portfolio
after the Final Termination Date with respect thereto, or, in the case of a
termination pursuant to Sections 6.1(a) or 6.1(b), the termination date
specified in the notice of termination.
<PAGE>
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the written
consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 2 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement 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:
First Fortis Life
Insurance Company
P.O. Box 30249
Syracuse, New York 13220
Attn.: General Counsel
FAX: (612) 738-5262
Fortis Investors, Inc.
500 Bielenberg Drive
Woodbury, Minnesota 55125
Attn.: David A. Peterson
FAX: (612) 738-5262
INVESCO Variable Investment Funds, Inc.
7800 East Union Avenue
Denver, Colorado 80217
Attn: Ronald G. Grooms
FAX: (303) 930-6307
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, Colorado 80217
Attn: Ronald G. Grooms
FAX: (303) 930-6307
<PAGE>
SECTION 10. VOTING PROCEDURES
10.1 The Fund, at its expense, shall provide First Fortis with copies of
its proxy material, reports to stockholders and other communications to
stockholders in such quantity as First Fortis shall reasonably require for
distributing to Contract owners.
10.2 If and to the extent required by law, First Fortis shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received from
Contract owners; and,
(iii)vote Fund shares for which no instructions have been received in the
same proportion as Fund shares of such portfolio for which
instructions have been received;
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. First Fortis reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law. First Fortis shall be responsible for assuring that each of
their separate accounts participating in the Fund 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 win also be
provided to the other participating insurance companies.
<PAGE>
SECTION 11. INDEMNIFICATION
11.1 Of Fund and INVESCO by First Fortis.
(a) Except to the extent provided in Sections 11.1(b) and 11.1(c),
below, First Fortis agrees to indemnify and hold harmless the Fund and INVESCO,
each of their directors, officers and employees, and each person, if any, who
controls the Fund or INVESCO within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 11.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of First Fortis) or actions in respect
thereof (including, to the extent 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 actions are related to the sale, acquisition, or holding of the Fund's shares
and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Separate Account's
1933 Act registration statement, the Separate Account Prospectus, the
Contracts or, to the extent prepared by First Fortis or Fortis
Investors, sales literature or advertising 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 to First
Fortis or Fortis Investors by or on behalf of the Fund or INVESCO for
use in the Separate Account's 1933 Act registration statement, the
Separate Account Prospectus, the Contracts, or sales literature or
advertising (or any amendment or supplement to any of the foregoing);
or
(ii) arise out of or as a result of any other statements or representations
(other than statements or representations contained in the Fund's 1933
Act registration statement, Fund Prospectus, sales literature or
advertising of the Fund, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of First
Fortis or Fortis Investors) or the negligent, illegal or fraudulent
conduct of First Fortis or Fortis Investors or persons under their
control (including, without limitation, their employees and
"Associated Persons," as that term is defined in paragraph (m) of
Article I of the NASD's By-Laws), in connection with the sale or
distribution of the Contracts or Fund shares; or
(iii)arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Fund's 1933 Act
registration statement, Fund Prospectus, sales literature or
advertising of the Fund, or any amendment or supplement to any of the
foregoing, 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 to
the Fund or INVESCO by or on behalf of First Fortis or Fortis
Investors for use in the Fund's 1933 Act registration statement, Fund
Prospectus, sales literature or advertising of the Fund, or any
amendment or supplement to any of the foregoing; or
<PAGE>
(iv) arise as a result of any failure by First Fortis or Fortis Investors
to perform the obligations, provide the services and furnish the
materials required of them under the terms of this Agreement.
(b) First Fortis shall not be liable under this Section 11. 1 with respect
to any losses, claims, damages, liabilities or actions to which an Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance by that Indemnified Party of its duties or
by reason of that Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to INVESCO or to the Fund.
(c) First Fortis shall not be liable under this Section 11.1 with respect
to any action against an Indemnified Party unless the Fund or INVESCO shall have
notified First Fortis in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the action 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 First Fortis of any such action shall not relieve First Fortis from
any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this Section 11.1. In case any
such action is brought against an Indemnified Party, First Fortis shall be
entitled to participate, at its own expense, in the defense of such action.
First Fortis also shall be entitled to assume the defense thereof, with counsel
approved by the Indemnified Party named in the action, which approval shall not
be unreasonably withheld. After notice from First Fortis to such Indemnified
Party of First Fortis's election to assume the defense thereof the Indemnified
Party will cooperate fully with First Fortis and shall bear the fees and
expenses of any additional counsel retained by it, and First Fortis will not be
liable to such Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof, other than reasonable costs of
investigation.
11.2 Of First Fortis and Fortis Investors by INVESCO.
(a) Except to the extent provided in Sections 11.2(d) and 11.2(e), below,
INVESCO agrees to indemnify and hold harmless First Fortis and Fortis Investors,
each of their directors, officers, and employees and each person, if any, who
controls First Fortis or Fortis Investors within the meaning of Section 15 of
the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 11.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of INVESCO) or
actions in respect thereof (including, to the extent reasonable, 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 actions are related to the sale, acquisition, or holding of the Fund's shares
and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Fund's 1933 Act
registration statement, Fund Prospectus, sales literature or
advertising of the Fund or, to the extent not prepared by First Fortis
or Fortis Investors, sales literature or advertising 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 to
INVESCO or the Fund by or on behalf of First Fortis or Fortis
Investors for use in the Fund's 1933 Act registration statement, Fund
Prospectus, or in sales literature or advertising (or any amendment or
supplement to any of the foregoing); or
<PAGE>
(ii) arise out of or as a result of any other statements or representations
(other than statements or representations contained in the Separate
Account's 1933 Act registration statement, Separate Account
Prospectus, sales literature or advertising for the Contracts, or any
amendment or supplement to any of the foregoing, not supplied for use
therein by or on behalf of INVESCO or the Fund) or the negligent,
illegal or fraudulent conduct of the Fund, INVESCO or persons under
their control (including, without limitation, their employees and
Associated Persons), in connection with the sale or distribution of
the Contracts or Fund shares; or
(iii)arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Separate Account's
1933 Act registration statement, Separate Account Prospectus, sales
literature or advertising covering the Contracts, or any amendment or
supplement to any of the foregoing, 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 statement or omission was made in reliance upon and in conformity
with information furnished to First Fortis or Fortis Investors by or
on behalf of the Fund or INVESCO for use in the Separate Account's
1933 Act registration statement, Separate Account Prospectus, sales
literature or advertising covering the Contracts, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by the Fund or INVESCO to perform the
obligations, provide the services and furnish the materials required
of them under the terms of this Agreement;
(b) Except to the extent provided in Sections 11.2(d) and 11.2(e) hereof,
INVESCO agrees to indemnify and hold harmless the Indemnified Parties from and
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement thereof with the written consent of INVESCO) or actions in respect
thereof (including, to the extent reasonable, legal and other expenses) to which
the Indemnified Parties may become subject directly or indirectly under any
statute, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or actions directly or indirectly result from or arise out of the
failure of any Portfolio to operate as a regulated investment company in
compliance with (i) Subchapter M of the Code and regulations thereunder and (ii)
Section 817(h) of the Code and regulations thereunder, including, without
limitation, any income taxes and related penalties, rescission charges,
liability under state law to Contract owners or Participants asserting liability
against First Fortis or Fortis Investors pursuant to the Contracts, the costs of
any ruling and closing agreement or other settlement with the Internal Revenue
Service, and the cost of any substitution by First Fortis of shares of another
investment company or portfolio for those of any adversely affected Portfolio as
a funding medium for the Separate Account that First Fortis deems necessary or
appropriate as a result of the noncompliance.
(c) The written consent of INVESCO referred to in Section 11.2(b) above
shall not be unreasonably withheld.
(d) INVESCO shall not be liable under this Section 11.2 with respect to any
losses, claims, damages, liabilities or actions to which an indemnified Party
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance by that Indemnified Party of its duties or by
reason of such Indemnified Party's reckless disregard of its obligations and
duties under this Agreement or to First Fortis, Fortis Investors or the Separate
Account.
<PAGE>
(e) INVESCO shall not be liable under this Section 11.2 with respect to any
action against an Indemnified Party unless First Fortis or Fortis Investors
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
action 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 INVESCO of any such action 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 Section 11.2. In
case any such action is brought against an Indemnified Party, INVESCO will be
entitled to participate, at its own expense, in the defense of such action.
INVESCO also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the Internal Revenue Service),
with counsel approved by the Indemnified Party named in the action, which
approval shall not be unreasonably withheld. After notice from INVESCO to such
Indemnified Party of INVESCO's election to assume the defense thereof, the
Indemnified Party will cooperate fully with INVESCO and shall bear the fees and
expenses of any additional counsel retained by it, and INVESCO will not be
liable to such Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof, other than reasonable costs of
investigation.
12.3 Effect of Notice.
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Section 11.1(c) or 11.2(e) above of participation in or control of any
action by the indemnifying Party will in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
SECTION 12. APPLICABLE LAW
12.1 This Agreement will be construed and the provisions hereof interpreted
under and in accordance with New York law, without regard for that state's
principles of conflict of laws.
12.2 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 Securities and
Exchange Commission may grant (including, but not limited to, the Mixed and
Shared Funding order described in Section 5 hereof) and the terms hereof shall
be interpreted and construed in accordance therewith.
SECTION 13. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more counterparts,
each of taken together will constitute one and the same instrument.
SECTION 14. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute or otherwise, the remainder of this Agreement will not be
affected thereby.
<PAGE>
SECTION 15. 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.
SECTION 16. RESTRICTIONS ON SALES OF FUND SHARES
First Fortis agrees that the Fund will be permitted (subject to the other
terms of this Agreement) to make its shares available to separate accounts of
other life insurance companies. However, neither the Fund nor INVESCO, nor any
of their related persons and entities, will enter into any arrangement for
utilization of the Fund by any other life insurance company under which the term
granted to that insurance company are more favorable than those provided
hereunder without so notifying First Fortis.
SECTION 17. HEADINGS
The Table of Contents and 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.
SECTION 18 SALES MATERIAL AND INFORMATION
18.1 First Fortis shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund, 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 Fund or its designee objects to such use within ten calendar days
after receipt of such material.
18.2 First Fortis shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund'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 Fund,
or in sales literature or other promotional material approved by the Fund, or
its designee or by INVESCO, except with the permission of the Fund or INVESCO.
18.3 The Fund, INVESCO, or its designee shall furnish, or shall cause to be
furnished, to First Fortis or its designee, each piece of sales literature or
other promotional material in which First Fortis and/or its separate account(s),
is named at least fifteen calendar days prior to its use. No such material shall
be used if First Fortis or its designee object to such use within ten calendar
days after receipt of that material.
18.4 The Fund and INVESCO shall not give any information or make any
representations on behalf of First Fortis or concerning First Fortis, 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 which are in the public domain or approved by First Fortis for
distribution to Contract owners, or in sales literature or other promotional
material approved by First Fortis or its designee, except with the permission of
First Fortis.
<PAGE>
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.
FIRST FORTIS LIFE INSURANCE COMPANY
By \s\Terry Kryshak
----------------
Terry Kryshak
Title: Senior Vice President
FORTIS INVESTORS, INC.
By \s\John Eric Hite
-----------------
John Eric Hite
Title: Second Vice President
INVESCO Variable Investment Funds, Inc.
By \s\Ronald L. Grooms
-------------------
Title: Treasurer & Chief Financial and Accounting Officer
INVESCO Funds Group, Inc.
By \s\Ronald L. Grooms
-------------------
Title: Senior Vice President & Treasurer
<PAGE>
SCHEDULE A
ACCOUNTS
- --------------------------------------------------------------------------------
Name of Account Date of Resolution of Insurance Company's Board which
Established the Account
- --------------------------------------------------------------------------------
Separate Account A October 7, 1993
<PAGE>
SCHEDULE B
CONTRACTS
1. Contract Form #56952
------
<PAGE>
SCHEDULE C
PERSONS AUTHORIZED TO GIVE INSTRUCTIONS TO THE COMPANY AND INVESCO
NAME ADDRESS AND PHONE NUMBER
(1) Bruce Fiedler P.O. Box 64284, St. Paul MN 55164
------------------------ ----------------------------------------
Print or Type Name
------------------------ Phone: 612-738-4700
Signature ----------------------------
(2) Wendy Houman Same as above
------------------------ ----------------------------------------
Print or Type Name
------------------------ Phone: 612-738-4469
Signature ----------------------------
(3) Brian Perkins Same as above
------------------------ ----------------------------------------
Print or Type Name
------------------------ Phone: 612-738-4308
Signature ----------------------------
(4) Carrie Belland Same as above
------------------------ ----------------------------------------
Print or Type Name
------------------------ Phone: 612-738-4042
Signature ----------------------------
<PAGE>
SCHEDULE D
PROXY VOTING PROCEDURE
The following is a list of procedures and correspondence responsibilities for
the handling of proxies relating to the Fund by INVESCO, the Fund and First
Fortis. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "First Fortis" shall also include
the department or third party assigned by First Fortis to perform the steps
delineated below.
1. The number of proxy proposals is given to First Fortis by INVESCO as early
as possible before the date set by the Fund for the shareholder meeting to
facilitate the establishment of tabulation procedures. At this time,
INVESCO will inform First Fortis of the Record, Mailing and Meeting dates.
This will be done verbally approximately two months before meeting.
2. Promptly after the Record Date, First Fortis 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. First Fortis will use its best efforts to
call in the number of Customers to INVESC0, 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 First Fortis by the Fund. First Fortis, at the Fund's or
INVESCO's 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 Fund or
INVESCO will pay for the Notice of Proxy and the Proxy Statement (one
document). Printed and folded notices and statements will be sent to First
Fortis for insertion into envelopes (envelopes and return envelopes are
provided and paid for by the Fund or INVESCO). Contents of envelope sent to
customers by First Fortis will include:
a. Voting Instruction Card(s);
b. One proxy notice and statement (one document);
c. Return envelope (postage pre-paid) addressed to First Fortis 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
Fund.)
e. Cover Letter - optional supplied by First Fortis.
<PAGE>
5. The above contents should be received by First Fortis approximately 3 - 5
business days before mail date. Individual in charge at First Fortis
reviews and approves the contents of the mailing package to ensure
correctness and completeness.
6. Package mailed by First Fortis.
The Fund must allow at least a 15-day solicitation time to First
Fortis as the shareholder. (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 Fund receives the tabulations stated
in terms of a percentage and the number of shares.) If First Fortis uses a
proxy tabulation firm other than one recommended by INVESCO, INVESCO Legal
must review and approve tabulation format.
11. Final tabulation in shares is verbally given by First Fortis to INVESC0
Legal on the morning of the meeting, not later than 10:00 a.m., Denver
time. INVESC0 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 First Fortis, as well as, an original copy of the final vote. INVESCO
Legal will provide a standard form for each Certification.
13. First Fortis 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
FORTIS BENEFITS INSURANCE COMPANY,
FORTIS INVESTORS, INC.,
INVESCO VARIABLE INVESTMENT FUNDS, INC.
AND
INVESCO FUNDS GROUP, INC.
DATED AS OF
APRIL 30, 1997
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 Additional Portfolio 2
SECTION 2 Processing Transactions
2.1 Timely Pricing and Orders 2
2.2 Timely payments 3
2.3 Redemption in Kind 3
2.4 Applicable Price 4
SECTION 3 Costs and Expenses
3.1 General 4
3.2 Registration 4
3.3 Other (Non-Sales-Related) 5
3.4 Sales-Related 6
3.5 Parties to Cooperate 6
SECTION 4 Legal Compliance
4.1 Tax Laws 6
4.2 Insurance and Certain Other Laws 8
4.3 Securities Laws 9
4.4 Notice of Certain Proceedings and Other Circumstances 11
4.5 Fortis Benefits to Provide Documents 12
4.6 Fund to Provide Documents 13
SECTION 5 Mixed and Shared Funding
5.1 General 13
5.2 Disinterested Directors 13
5.3 Monitoring for Material Irreconcilable Conflicts 14
5.4 Conflict Remedies 15
5.5 Notice to Fortis Benefits 17
5.6 Information Requested by Board of Directors 17
5.7 Compliance with SEC Rules 18
SECTION 6 Termination
6.1 Events of Termination 18
6.2 Funds to Remain Available 20
6.3 Survival of Warranties and Indemnifications
6.4 Continuance of Agreement for Certain Purposes 21
6.5 Reimbursement of Expenses 21
<PAGE>
Page
SECTION 7 Parties to Cooperate Respecting Termination 22
SECTION 8 Assignment 22
SECTION 9 Notices 22
SECTION 10 Voting Procedures 24
SECTION 11 Indemnification
11.1 Of Fund and Adviser by Fortis Benefits 25
11.2 Of Fortis Benefits and Fortis Investors by Adviser 28
11.3 Effect of Notice 32
SECTION 12 Applicable Law 33
SECTION 13 Execution in Counterparts
SECTION 14 Severability 33
SECTION 15 Rights Cumulative 34
SECTION 16 Restrictions on Sales of Fund Shares 34
SECTION 17 Headings 34
SECTION 18 Sales Material and Information 35
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 30th day of April, 1997
("Agreement"), by and among Fortis Benefits Insurance Company, a Minnesota life
insurance company ("Fortis Benefits") (on behalf of itself and its "Separate
Account," defined below); Fortis Investors, Inc., a Minnesota corporation
("Fortis Investors"), the principal underwriter with respect to the Contracts
referred to below; INVESCO Variable Investment Funds, Inc., a Maryland
corporation (the "Fund"); and INVESCO Funds Group, Inc., a Delaware corporation,
the Fund's investment adviser and the Fund's principal distributor ("INVESCO")
(collectively, the "Parties"),
WITNESSETH THAT:
WHEREAS Fortis Benefits, INVESCO, and the Fund desire that shares of the
Fund's Industrial Income Portfolio, Health Services Portfolio, and Technology
Portfolio (the "Portfolios"; reference herein to the "Fund" includes reference
to each Portfolio to the extent the context requires) be made available by
INVESCO to serve as underlying investment media for those combination fixed and
variable annuity contracts of Fortis Benefits that are the subject of Fortis
Benefit's Form N-4 registration statement filed with the Securities and Exchange
Commission (the "SEC"), File No. 3363935 (the "Contracts"), to be offered
through Fortis Investors and other registered broker-dealer firms as agreed to
by Fortis Benefits and Fortis Investors; and,
WHEREAS the Contracts provide for the allocation of net amounts received by
Fortis Benefits to separate series (the "Divisions;" reference herein to the
"Separate Account" includes reference to each Division to the extent the context
requires) of the Separate Account for investment in the shares of corresponding
Portfolios of the Fund that are made available through the Separate Account to
act as underlying investment media,
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Fund and INVESCO will make shares of the Portfolios
available to Fortis Benefits for this purpose at net asset value and with no
sales charges, all subject to the following provisions:
SECTION 1. ADDITIONAL PORTFOLIOS
The Fund may from time to time add additional Portfolios, which will become
subject to this Agreement, if, upon the written consent of each of the Parties
hereto, they are made available as investment media for the Contracts.
SECTION 2. PROCESSING TRANSACTIONS
2.1 Timely Pricing and Orders.
The Fund or its designated agent will provide closing net asset value,
dividend and capital gain information for each Portfolio to Fortis Benefits at
the close of trading on each day (a "Business Day") on which (a) the New York
Stock Exchange is open for regular trading, and (b) the Fund calculates the
Portfolios net asset value. The Fund or its designated agent will use its best
efforts to provide this information by 5:00 p.m., Central time. Fortis Benefits
will use these data to calculate unit values, which in turn will be used to
process transactions that receive that same Business Day's Separate Account
Division's unit values. Such Separate Account processing will be done the same
evening, and corresponding orders with respect to Fund shares will be placed the
morning of the following Business Day. Fortis Benefits will use its best efforts
to place such orders with the Fund by 9:00 am., Central time.
<PAGE>
2.2 Timely Payments.
Fortis Benefits will transmit orders for purchases and redemptions of Fund
shares to INVESCO, and will wire payment for net purchases to a custodial
account designated by the Fund on the day the order for Fund shares is placed,
to the extent practicable, and in any event, no later than 1:00 p.m. Central
time on the next business day after the order for Fund shares is placed. Payment
for net redemptions will be wired by the Fund to an account designated by Fortis
Benefits on the same day as the order is placed, to the extent practicable, and
in any event be made within six calendar days after the date the order is placed
in order to enable Fortis Benefits to pay redemption proceeds within the time
specified in Section 22(e) of the Investment Company Act of 1940, as amended
(the " 1940 Act").
2.3 Redemption in Kind.
The Fund reserves the right to pay any portion of a redemption in kind of
portfolio securities, if the Fund's board of directors (the "Board of
Directors") determines that it would be detrimental to the best interests of
shareholders to make a redemption wholly in cash.
2.4 Applicable Price.
The Parties agree that Portfolio share purchase and redemption orders
resulting from Contract owner purchase payments, surrenders, partial
withdrawals, routine withdrawals of charges, or other transactions under
Contracts will be executed at the net asset values as determined as of the close
of regular trading on the New York Stock Exchange on the Business Day that
Fortis Benefits processes such transactions, which will be deemed to be the
Business Day prior to INVESCO's receipt of the corresponding orders for
purchases and redemptions of Portfolio shares. All other purchases and
redemptions of Portfolio shares by Fortis Benefits, will be effected at the net
asset values next computed after receipt by INVESCO of the order therefor, and
such orders will be irrevocable. Fortis Benefits hereby elects to reinvest all
dividends and capital gains distributions in additional shares of the
corresponding Portfolio at the record-date net asset values until Fortis
Benefits otherwise notifies the Fund in writing, it being agreed by the Parties
that the record date and the payment date with respect to any dividend or
distribution will be the same Business Day.
SECTION 3. COSTS AND EXPENSES
3.1 General.
Except as otherwise specifically provided herein, each Party will bear all
expenses incident to its performance under this Agreement.
3.2 Registration.
The Fund will bear the cost of its registering as a management investment
company under the 1940 Act and registering its shares under the Securities Act
of 1933, as amended (the "1933 Act"), and keeping such registrations current and
effective; including, without limitation, the preparation of and filing with the
SEC of Forms N-SAR and Rule 24-2 Notices respecting the Fund and its shares and
payment of all applicable registration or filing fees with respect to any of the
foregoing. Fortis Benefits will bear the cost of registering the Separate
Account as a unit investment trust under the 1940 Act and registering units of
interest under the Contracts under the 1933 Act and keeping such registrations
current and effective; including, without limitation, the preparation and filing
with the SEC of Forms N-SAR and Rule 24-2 Notices respecting the Separate
Account and its units of interest and payment of all applicable registration or
filing fees with respect to any of the foregoing.
<PAGE>
3.3 Other (Non-Sales-Related).
The Fund will bear the costs of preparing, filing with the SEC and setting
for printing the Fund's prospectus, statement of additional information and any
amendments or supplements thereto (collectively, the "Fund Prospectus"),
periodic reports to shareholders, Fund proxy material and other shareholder
communications and any related requests for voting instructions from
Participants (as defined below). Fortis Benefits will bear the costs of
preparing, filing with the SEC and setting for printing the Separate Accounts
prospectus, statement of additional information and any amendments or
supplements thereto (collectively, the "Separate Account Prospectus"), any
periodic reports to owners, annuitants or participants under the Contracts
(collectively, "Participants"), and other Participant communications. The Fund
and Fortis Benefits each will bear the costs of printing in quantity and
delivering to existing Participants the documents as to which it bears the cost
of preparation as set forth above in this Section 3.3, it being understood that
reasonable cost allocations will be made in cases where any such Fund and Fortis
Benefits documents are printed or mailed on a combined or coordinated basis. If
requested by Fortis Benefits, the Fund will provide annual Prospectus text to
Fortis Benefits on diskette for printing and binding with the Separate Account
Prospectus. Fortis Benefits will be reasonably compensated by the Fund for costs
associated with production of mailing lists and tabulation of votes with respect
to Fund proxy solicitations.
3.4 Sales-Related.
Expenses of distributing the Portfolio's shares and the Contracts will be
paid by Investors and other parties, as they shall. determine by separate
agreement.
3.5 Parties to Cooperate.
The Fund, Adviser, Fortis Benefits, Fortis Investors and INVESCO each
agrees to cooperate with the others, as applicable, in arranging to print, mail
and/or deliver combined or coordinated prospectuses or other materials of the
Fund and Separate Account.
<PAGE>
SECTION 4. LEGAL COMPLIANCE
4.1 Tax Laws.
(a) The Fund will use its best efforts to qualify and to maintain
qualification of each Portfolio as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and
the Fund, Adviser or INVESCO will notify Fortis Benefits immediately upon having
a reasonable basis for believing that a Portfolio has ceased to so qualify or
that it might not so qualify in the future.
(b) Fortis Benefits represents that it believes, in good faith, that the
Contracts will be treated as annuity contracts under applicable provisions of
the Code and that it will make every effort to maintain such treatment; Fortis
Benefits will notify the Fund and INVESCO immediately upon having a reasonable
basis for believing that any of the Contracts have ceased to be so treated or
that they might not be so treated in the future.
(c) The Fund will use its best efforts to comply and to maintain each
Portfolio's compliance with the diversification requirements set forth in
Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the
Code, and the Fund, Adviser or INVESCO will notify Fortis Benefits immediately
upon having a reasonable basis for believing that a Portfolio has ceased to so
comply or that a Portfolio might not so comply in the future.
(d) Fortis Benefits represents that it believes, in good faith, that the
Separate Account is a "segregated asset account" and that interests in the
Separate Account are offered exclusively through the purchase of or transfer
into a "variable contract," within the meaning of such terms under Section
817(h) of the Code and the regulations thereunder. Fortis Benefits will make
every effort to continue to meet such definitional requirements, and it will
notify the Fund and INVESCO 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.
(e) INVESCO will manage the Fund as a RIC in compliance with Subchapter M
of the Code and will use its best efforts to manage to be in compliance with
Section 817(h) of the Code and regulations thereunder. The Fund has adopted and
will maintain procedures for ensuring that the Fund is managed in compliance
with Subchapter M and Section 817(h) and regulations thereunder. On request, the
Fund shall also provide Fortis Benefits with such materials, cooperation and
assistance as may be reasonably necessary for Fortis Benefits or any person
designated by Fortis Benefits to review from time to time the procedures and
practices of Adviser or any other provider of services to the Fund for ensuring
that the Fund is managed in compliance with Subchapter M and Section 817(h) and
regulations thereunder.
<PAGE>
(f) Should the Fund or INVESCO become aware of a failure of Fund, or any of
its Portfolios, to be in compliance with Subchapter M of the Code or Section
817(h) of the Code and regulations thereunder, they represent and agree that
they will immediately notify Fortis Benefits of such in writing.
4.2 Insurance and Certain Other Laws.
(a) The Fund will use its best efforts to comply with any applicable state
insurance laws or regulations to the extent specifically requested in writing by
Fortis Benefits. If it cannot comply, it will so notify Fortis Benefits in
writing.
(b) Fortis Benefits represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of Minnesota and has full corporate power, authority and legal right
to execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains the
Separate Account as a segregated asset account under Section 61A.14 of the
Minnesota Insurance Code, and (iii) the Contracts comply in all material
respects with all other applicable federal and state laws and regulations.
(c) Fortis Benefits and Fortis Investors represent and warrant that Fortis
Investors is a business corporation duly organized, validly existing, and in
good standing under the laws of the State of Minnesota and has full corporate
power, authority and legal right to execute, deliver, and perform its duties and
comply with its obligations under this Agreement.
(d) INVESCO represents and warrants that it is a business corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware and has full corporate power, authority and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
(e) INVESCO and the Fund represent and warrant that the Fund is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Maryland and has full power, authority, and legal right to
execute, deliver, and perform its duties and comply with its obligations under
this Agreement.
<PAGE>
4.3 Securities Laws.
(a) Fortis Benefits represents and warrants that (i) interests in the
Separate Account pursuant to the Contracts will be registered under the 1933 Act
to the extent required by the 1933 Act and the Contracts will be duly authorized
for issuance and sold in compliance with Minnesota law, (ii) the Separate
Account is and will remain registered under the 1940 Act, to the extent required
under the 1940 Act, (iii) the Separate Account does and will comply in all
material respects with the requirements of the 1940 Act and the rules
thereunder, (iv) the Separate Account's 1933 Act registration statement relating
to the Contracts, together with any amendments thereto, will at all times comply
in all material respects with the requirements of the 1933 Act and the rules
thereunder, and (v) the Separate Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) The Fund and INVESCO represent and warrant that (i) Fund shares sold
pursuant to this Agreement will be registered under the 1933 Act to the extent
required by the 1933 Act and duly authorized for issuance and sold in compliance
with Maryland law, (ii) the Fund is and will remain registered under the 1940
Act to the extent required by the 1940 Act, (iii) the Fund will amend the
registration statement for its shares under the 1933 Act and itself under the
1940 Act from time to time as required in order to effect the continuous
offering of its shares, (iv) the Fund does and will comply in all material
respects with the requirements of the 1940 Act and the rules thereunder, (v) the
Fund's 1933 Act registration statement, together with any amendments thereto,
will at all times comply in all material respects with the requirements of the
1933 Act and rules thereunder, and (vi) the Fund Prospectus will at all times
comply in all material respects with the requirements of the 1933 Act and the
rules thereunder.
(c) The Fund will register and qualify its shares for sale in accordance
with the laws of any state or other jurisdiction only if and to the extent
reasonably deemed advisable by the Fund, Fortis Benefits or any other life
insurance company utilizing the Fund.
(d) INVESCO and Fortis Investors each represents and warrants that it is
registered as a broker-dealer with the SEC under the Securities Exchange Act of
1934, as amended, and is a member in good standing of the National Association
of Securities Dealers, Inc. (the "NASD").
4.4 Notice of Certain Proceedings and Other Circumstances.
(a) INVESCO or the Fund shall immediately notify Fortis Benefits of (I) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to the Fund's registration statement
under the 1933 Act or the Fund Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or Fund Prospectus, (iii) the
initiation of any proceedings for that purpose or for any other purpose relating
to the registration or offering of the Fund's shares, or (iv) any other action
or circumstances that may prevent the lawful offer or sale of Fund shares in any
state or jurisdiction, including, without limitation, any circumstances in which
(x) the Fund's shares are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law or (y) such law
precludes the use of such shares as an underlying investment medium of the
Contracts issued or to be issued by Fortis Benefits. INVESCO and the Fund will
make every reasonable effort to prevent the issuance of any such stop order,
cease and desist order or similar order and, if any such order is issued, to
obtain the lifting thereof at the earliest possible time.
<PAGE>
(b) Fortis Benefits or Fortis Investors shall immediately notify the Fund
of (I) the issuance by any court or regulatory body of any stop order, cease and
desist order, or other similar order with respect to the Separate Account's
registration statement under the 1933 Act relating to the Contracts or the
Separate Account Prospectus, (ii) any request by the SEC for any amendment to
such registration statement or Separate Account Prospectus, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of the Separate Account interests pursuant to the
Contracts, or (iv) any other action or circumstances that may prevent the lawful
offer or sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. Fortis Benefits and Fortis Investors will make every reasonable
effort to prevent the issuance of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof at
the earliest possible time.
4.5 Fortis Benefits to Provide Documents.
Upon request, Fortis Benefits will provide to the Fund and INVESCO one
complete copy of SEC registration statements, Separate Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and to any of the
above, that relate to the Separate Account or the Contracts, contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.6 Fund to Provide Documents.
Upon request, the Fund will provide to Fortis Benefits one complete copy of
SEC registration statements, Fund Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or its
shares, contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
SECTION 5. MIXED AND SHARED FUNDING
5.1 General.
The Fund has obtained an order from the Securities and Exchange Commission
exempting it from certain provisions of the 1940 Act and rules thereunder so
that, subject to compliance with Section 17 of this Agreement, the Fund may be
available for investment by certain other entities, including, without
limitation, separate accounts funding variable life insurance policies and
separate accounts of insurance companies unaffiliated with Fortis Benefits
("Mixed and Shared Funding").
5.2 Disinterested Directors.
The Fund agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of Adviser or INVESCO within the meaning of Section 2(a)(19) of the 1940
Act.
5.3 Monitoring for Material Irreconcilable Conflicts.
The Fund agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
participants in all separate accounts of life insurance companies utilizing the
Fund, including the Separate Account. Fortis Benefits agrees to inform the Board
of Directors of the Fund of the existence of or any potential for any such
material irreconcilable conflict of which it is aware. The concept of a
"material irreconcilable conflict" is not defined by the 1940 Act or the rules
thereunder, but the Parties recognize that such a conflict may arise for a
variety of reasons, including, without limitation:
<PAGE>
(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, 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 participants or by participants
of different fife insurance companies utilizing the Fund; or
(f) a decision by a life insurance company utilizing the Fund to disregard
the voting instructions of participants.
Consistent with the SEC's requirements in connection with exemptive
proceedings of the type referred to in Section 5.1 hereof Fortis Benefits will
assist the Board of Directors in carrying out its responsibilities by providing
the Board of Directors with all information reasonably necessary for the Board
of Directors to consider any issue raised, including information as to a
decision by Fortis Benefits to disregard voting instructions of Participants.
<PAGE>
5.4 Conflict Remedies.
(a) It is agreed that if it is determined by a majority of the members of
the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, Fortis Benefits and the other life
insurance companies utilizing the Fund will, at their own expense and to the
extent reasonably practicable (as determined by a majority of the Disinterested
Directors), take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, which steps may include, but are not limited
to:
(i) withdrawing the assets allocable to some or all of the separate
accounts from the Fund or any Portfolio and reinvesting such assets in
a different investment medium, including another Portfolio of the
Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected participants and, as
appropriate, segregating the assets of any particular group (e.g.,
annuity contract owners or participants, life insurance contract
owners or all contract owners and participants of one or more life
insurance companies utilizing the Fund) that votes in favor of such
segregation, or offering to the affected contract owners or
participants the option of making such a change; and
(ii) establishing a new registered investment company of the type defined
as a "Management Company" in Section 4(3) of the 1940 Act or a new
separate account that is operated as a Management Company.
(b) If the material irreconcilable conflict arises because of Fortis
Benefits's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote,
Fortis Benefits may be required, at the Fund's election, to withdraw the
Separate Account's investment in the Fund. No charge or penalty will be imposed
as a result of such withdrawal. Any such withdrawal must take place within six
months after the Fund gives notice to Fortis Benefits that this provision is
being implemented, and until such withdrawal INVESCO and the Fund shall,
continue to accept and implement orders by Fortis Benefits for the purchase and
redemption of shares of the Fund.
<PAGE>
(c) If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to Fortis Benefits conflicts with the
majority of other state regulators, then Fortis Benefits will withdraw the
Separate Account's investment in the Fund within six months after the Fund's
Board of Directors informs Fortis Benefits that it has determined that such
decision has created a material irreconcilable conflict, and until such
withdrawal INVESCO and Fund shall continue to accept and implement orders by
Fortis Benefits for the purchase and redemption of shares of the Fund.
(d) Fortis Benefits agrees that any remedial action taken by it in
resolving any material irreconcilable conflict will be carried out at its
expense and with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will the Fund or INVESCO be
required to establish a new funding medium for any Contracts. Fortis Benefits
will not be required by the terms hereof to establish a new funding medium for
any Contracts if an offer to do so has been declined by vote of a majority of
Participants materially adversely affected by the material irreconcilable
conflict.
5.5 Notice to Fortis Benefits.
The Fund will promptly make known in writing to Fortis Benefits the Board
of Directors' determination of the existence of a material irreconcilable
conflict, a description of the facts that give rise to such conflict and the
implications of such conflict.
5.6 Information Requested by Board of Directors.
Fortis Benefits and the Fund will at least annually submit to the Board of
Directors of the Fund such reports, materials or data as the Board of Directors
may reasonably request so that the Board of Directors may fully carry out the
obligations imposed upon it by the provisions hereof and said reports, materials
and data will be submitted at any reasonable time deemed appropriate by the
Board of Directors. All reports received by the Board of Directors of potential
or existing conflicts, and all Board of Directors actions with regard to
determining the existence of a conflict, notifying life insurance companies
utilizing the Fund of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the minutes of the
Board of Directors or other appropriate records, and such minutes or other
records will be made available to the SEC upon request.
5.7 Compliance with SEC Rules.
If, at any time during which the Fund is serving an investment medium for
variable life insurance policies, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2
are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to
mixed and shared funding, the Parties agree that they will comply with the terms
and conditions thereof and that the terms of this Section 5 shall be deemed
modified if and only to the extent required in order also to comply with the
terms and conditions of such exemptive relief that is afforded by any of said
rules that are applicable.
<PAGE>
SECTION 6. TERMINATION
6.1 Events of Termination.
Subject to Section 6.4 below, this Agreement will terminate as to a
Portfolio:
(a) at the option of Fortis Benefits or INVESCO upon at least six 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 Fund upon (i) at least sixty days advance written
notice to the other parties, and (ii) approval by (x) a majority of the
disinterested Directors upon a finding that a continuation of this agreement is
contrary to the best interests of the Fund, or (y) a majority vote of the shares
of the affected Portfolio in the corresponding Division of the Separate Account
(pursuant to the procedures set forth in Section 10 of this Agreement for voting
Fund shares in accordance with Participant instructions).
(c) at the option of the Fund upon institution of formal proceedings
against Fortis Benefits or Fortis Investors by the NASD, the SEC, any state
insurance regulator or any other regulatory body regarding Fortis Benefits's
obligations under this Agreement or related to the sale of the Contracts, the
operation of the Separate Account, or the purchase of the Fund shares, if, in
each case, the Fund reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material likelihood of imposing
material adverse consequences on the Portfolio to be terminated; or
(d) at the option of Fortis Benefits upon institution of formal proceedings
against the Fund or INVESCO by the NASD, the SEC, or any state insurance
regulator or any other regulatory body regarding the Fund's or INVESCO's
obligations under this Agreement or related to the operation or management of
the Fund or the purchase of Fund shares, if, in each case, Fortis Benefits
reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on Fortis Benefits, Fortis Investors or the Division
corresponding to the Portfolio to be terminated; or
(e) at the option of any Party in the event that (i) the Portfolio's shares
are not registered and, in all material respects, issued and sold in accordance
with any applicable state and federal law or (ii) such law precludes the use of
such shares as an underlying investment medium of the Contracts issued or to be
issued by Fortis Benefits; or
(f) upon termination of the corresponding Division's investment in the
Portfolio pursuant to Section 5 hereof, or
(g) at the option of Fortis Benefits if the Portfolio ceases to qualify as
a RIC under Subchapter M of the Code or under successor or similar provisions,
or if Fortis Benefits reasonably believes that the Portfolio may fail to so
qualify; or
(h) at the option of Fortis Benefits if the Portfolio fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if Fortis
Benefits reasonably believes that the Portfolio may fail to so comply; or
(i) at the option of Fortis Benefits if Fortis Benefits reasonably believes
that any change in a Fund's investment adviser or investment practices will
materially increase the risks incurred by Fortis Benefits.
<PAGE>
6.2 Funds to Remain Available.
Except (i) as necessary to implement Participant-initiated transactions,
(ii) as required by state insurance laws or regulations, (iii) as required
pursuant to Section 5 of this Agreement, or (iv) with respect to any Portfolio
as to which this Agreement has terminated, Fortis Benefits shall not (x) redeem
Fund shares attributable to the Contracts, or (y) prevent Participants from
allocating payments to or transferring amounts from a Portfolio that was
otherwise available under the Contracts, until, in either case, 90 calendar days
after Fortis Benefits shall have notified the Fund or INVESCO of its intention
to do so.
6.3 Survival of Warranties and Indemnifications.
All warranties and indemnifications will survive the termination of this
Agreement.
6.4 Continuance of Agreement for Certain Purposes.
If any Party terminates this Agreement with respect to any Portfolio
pursuant to Sections 6.1(c), 6.1(d), 6.1(e), 6.1(g), 6.1(h) or 6.1(i) hereof,
this Agreement shall nevertheless continue in effect as to any shares of that
Portfolio that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the earlier of the date as
of which the Separate Account owns no shares of the affected Portfolio or a date
(the "Final Termination Date") six months following the Initial Termination
Date, except that Fortis Benefits may, by written notice to the other Parties,
shorten said six month period in the case of a termination pursuant to Sections
6.1(e), 6.1(g) or 6.1(h).
6.5 Reimbursement of Expenses
If this Agreement is terminated as to any Portfolio (i) by INVESCO pursuant
to 6.1(a), or (ii) pursuant to 6.1(b), 6.1(d), 6.1(g), 6.1(h), or 6.1(i),
INVESCO will reimburse Fortis Benefits for its reasonable costs and expenses in
combining the affected Division with another Division, substituting interests in
a new Division for those of the affected Portfolio, or otherwise terminating the
participation of the Contracts in such Portfolio. Irrespective of the above, if
this Agreement is terminated as to any Portfolio by reason of the breach by
Fortis Benefits of its obligation under this Agreement, INVESCO shall have no
obligation of reimbursement hereunder. Furthermore, if this Agreement is
terminated as to any Portfolio pursuant to 6.1(d) or 6.1(i), INVESCO's
reimbursement obligation shall be limited to 50% of such reasonable costs and
expenses. The costs associated with such may include such expenditures as (1)
outside counsel fees related to obtaining an exemption order from the Securities
and Exchange Commission and (2) drafting, printing, and mailing costs of the
necessary notification forms to be mailed to affected Contract holders.
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The other Parties hereto agree to cooperate with and give reasonable
assistance to Fortis Benefits in taking all necessary and appropriate steps for
the purpose of ensuring that the Separate Account owns no shares of a Portfolio
after the Final Termination Date with respect thereto, or, in the case of a
termination pursuant to Sections 6.1(a) or 6.1(b), the termination date
specified in the notice of termination.
<PAGE>
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the written
consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 2 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement 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:
Fortis Benefits Insurance Company
500 Bielenberg Drive
Woodbury, Minnesota 55125
Attn.: General Counsel
FAX: 612-738-5262
Fortis Investors, Inc.
500 Bielenberg Drive
Woodbury, Minnesota 55125
Attn: General Counsel
FAX: 612-738-5262
INVESCO Variable Investment Funds, Inc.
7800 East Union Avenue
Denver, Colorado 80217
Attn: Ronald L. Grooms
FAX: 303-930-6307
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, Colorado 80217
Ronald L. Grooms
FAX: 303-930-6307
<PAGE>
SECTION 10. VOTING PROCEDURES
10.1 The Fund, at its expense, shall provide Fortis Benefits with copies of
its proxy material, reports to stockholders and other communications to
stockholders in such quantity as Fortis Benefits shall reasonably require for
distributing to Contract owners.
10.2 If and to the extent required by law, Fortis Benefits shall:
(I) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received from
Contract owners; and,
(iii)vote Fund shares for which no instructions have been received in the
same proportion as Fund shares of such portfolio for which
instructions have been received;
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. Fortis Benefits reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law. Fortis Benefits shall be responsible for assuring that each of
their separate accounts participating in the Fund 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.
SECTION 11. INDEMNIFICATION
11.1 Of Fund and INVESCO by Fortis Benefits.
(a) Except to the extent provided in Sections 11. 1 (b) and 11. 1 (c),
below, Fortis Benefits agrees to indemnify and hold harmless the Fund and
INVESCO, each of their directors, officers and employees, and each person, if
any, who controls the Fund or INVESCO within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
11.1) any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Fortis Benefits) or actions in respect
thereof (including, to the extent 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 actions are related to the sale, acquisition, or holding of the Fund's shares
and:
(i) wise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Separate Accounts 1933
Act registration statement, the Separate Account Prospectus, the
Contracts or, to the extent prepared by Fortis Benefits or Fortis
Investors, sales literature or advertising 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 to
Fortis Benefits or Fortis Investors by or on behalf of the Fund or
INVESCO for use in the Separate Account's 1933 Act registration
statement, the Separate Account Prospectus, the Contracts, or sales
literature or advertising (or any amendment or supplement to any of
the foregoing); or
<PAGE>
(ii) arise out of or as a result of any other statements or representations
(other than statements or representations contained in the Fund's 1933
Act registration statement, Fund Prospectus, sales literature or
advertising of the Fund, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of Fortis
Benefits or Fortis Investors) or the negligent, illegal or fraudulent
conduct of Fortis Benefits or Fortis Investors or persons under their
control (including, without limitation, their employees and
"Associated Persons," as that term is defined in paragraph (m) of
Article I of the NASD's By-Laws), in connection with the sale or
distribution of the Contracts or Fund shares; or
(iii)arise out of or are based upon any untrue statement or alleged.
untrue statement of any material fact contained in the Fund's 1933 Act
registration statement, Fund Prospectus, sales literature or
advertising of the Fund, or any amendment or supplement to any of the
foregoing, 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 to
the Fund or INVESCO by or on behalf of Fortis Benefits or Fortis
Investors for use in the Fund's 1933 Act registration statement, Fund
Prospectus, sales literature or advertising of the Fund, or any
amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by Fortis Benefits or Fortis
Investors to perform the obligations, provide the services and furnish
the materials required of them under the term of this Agreement.
(b) Fortis Benefits shall not be liable under this Section 11.1 with
respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of that Indemnified Party's reckless disregard of
obligations or duties under this Agreement or to INVESCO or to the Fund.
(c) Fortis Benefits shall not be liable under this Section 11.1 with
respect to any action against an Indemnified Party unless the Fund or INVESCO
shall have notified Fortis Benefits in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
action 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 Fortis Benefits of any such action shall not
relieve Fortis Benefits from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
Section 11. 1. In case any such action is brought against an Indemnified Party,
Fortis Benefits shall be entitled to participate, at its own expense, in the
defense of such action. Fortis Benefits also shall be entitled to assume the
defense thereof, with counsel approved by the Indemnified Party named in the
action, which approval shall not be unreasonably withheld. After notice from
Fortis Benefits to such Indemnified Party of Fortis Benefits's election to
assume the defense thereof, the Indemnified Party will cooperate fully with
Fortis Benefits and shall bear the fees and expenses of any additional counsel
retained by it, and Fortis Benefits will not be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently incurred by
such Indemnified Party independently in connection with the defense thereof,
other than reasonable costs of investigation.
<PAGE>
11.2 Of Fortis Benefits and Fortis Investors by INVESCO.
(a) Except to the extent provided in Sections 11.2(d) and 11.2(e), below,
INVESCO agrees to indemnify and hold harmless Fortis Benefits and Fortis
Investors, each of their directors, officers, and employees and each person, if
any, who controls Fortis Benefits or Fortis Investors within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes
of this Section 11.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of INVESCO) or
actions in respect thereof (including, to the extent reasonable, 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 actions are related to the sale, acquisition, or holding of the Fund's shares
and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Fund's 1933 Act
registration statement, Fund Prospectus, sales literature or
advertising of the Fund or, to the extent not prepared by Fortis
Benefits or Fortis Investors, sales literature or advertising 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 to INVESCO or the Fund by or on behalf of Fortis Benefits or
Fortis Investors for use in the Fund's 1933 Act registration
statement, Fund Prospectus, or in sales literature or advertising (or
any amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or representations
(other than statements or representations contained in the Separate
Account's 1933 Act registration statement, Separate Account
Prospectus, sales literature or advertising for the Contracts, or any
amendment or supplement to any of the foregoing, not supplied for use
therein by or on behalf of INVESCO or the Fund) or the negligent,
illegal or fraudulent conduct of the Fund, INVESCO or persons under
their control (including, without limitation, their employees and
Associated Persons), in connection with the sale or distribution of
the Contracts or Fund shares; or
(iii)arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Separate Accounts 1933
Act registration statement, Separate Account Prospectus, sales
literature or advertising covering the Contracts, or any amendment or
supplement to any of the foregoing, 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 statement or omission was made in reliance upon and in conformity
with information furnished to Fortis Benefits or Fortis Investors by
or on behalf of the Fund or INVESCO for use in the Separate Account's
1933 Act registration statement, Separate Account Prospectus, sales
literature or advertising covering the Contracts, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by the Fund or INVESCO to perform the
obligations, provide the services and furnish the materials required
of them under the terms of this Agreement;
<PAGE>
(b) Except to the extent provided in Sections 11.2(d) and 11.2(e) hereof,
INVESCO agrees to indemnify and hold harmless the Indemnified Parties from and
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement thereof with the written consent of INVESCO) or actions in respect
thereof (including, to the extent reasonable, legal and other expenses) to which
the Indemnified Parties may become subject directly or indirectly under any
statute, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or actions directly or indirectly result from or arise out of the
failure of any Portfolio to operate as a regulated investment company in
compliance with (I) Subchapter M of the Code and regulations thereunder and (ii)
Section 817(h) of the Code and regulations thereunder, including, without
limitation, any income taxes and related penalties, rescission charges,
liability under state law to Contract owners Participants asserting liability
against Fortis Benefits or Fortis Investors pursuant to the Contracts, the costs
of any ruling and closing agreement or other settlement with the Internal
Revenue Service, and the cost of any substitution by Fortis Benefits of shares
of another investment company or portfolio for those of any adversely affected
Portfolio as a funding medium for the Separate Account that Fortis Benefits
deems necessary or appropriate as a result of the noncompliance.
(c) The written consent of INVESCO referred to in Section 11.2(b) above
shall not be unreasonably withheld.
(d) INVESCO shall not be liable under this Section 11.2 with respect to any
losses, claims, damages, liabilities or actions to which an Indemnified Party
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance by that Indemnified Party of its duties or by
reason of such Indemnified Party's reckless disregard of its obligations and
duties under this Agreement or to Fortis Benefits, Fortis Investors or the
Separate Account.
(e) INVESCO shall not be liable under this Section 11.2 with respect to any
action against an Indemnified Party unless Fortis Benefits or Fortis Investors
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
action 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 INVESCO of any such action 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 Section 11.2. In
case any such action is brought against an Indemnified Party, INVESCO will be
entitled to participate, at its own expense, in the defense of such action.
INVESCO also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the Internal Revenue Service),
with counsel approved by the Indemnified Party named in the action, which
approval shall not be unreasonably withheld. After notice from INVESCO to such
Indemnified Party of INVESCO's election to assume the defense thereof the
Indemnified Party will cooperate fully with INVESCO and shall bear the fees and
expenses of any additional counsel retained by it, and INVESCO will not be
liable to such Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof, other than reasonable costs of
investigation.
12.3 Effect of Notice.
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Section 11.1 (c) or 11.2(e) above of participation in or control of any
action by the indemnifying Party will, in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
<PAGE>
SECTION 12. APPLICABLE LAW
12.1 This Agreement will be construed and the provisions hereof interpreted
under accordance with MINNESOTA law, without regard for that state's principles
of conflict of laws.
12.2 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 Securities and
Exchange Commission may grant (including, but not limited to, the Mixed and
Shared Funding order described in Section 5 hereof) and the terms hereof shall
be interpreted and construed in. accordance therewith.
SECTION 13. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more counterparts,
each of taken together will constitute one and the same instrument.
SECTION 14. 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.
SECTION 15. 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.
SECTION 16. RESTRICTIONS ON SALES OF FUND SHARES
Fortis Benefits agrees that the Fund will be permitted (subject to the
other terms of this Agreement) to make its shares available to separate accounts
of other life insurance companies. However, neither the Fund nor INVESCO, nor
any of their related persons and entities, will enter into any arrangement for
utilization of the Fund by any other life insurance company under which the
terms granted to that insurance company are more favorable than those provided
hereunder without so notifying Fortis Benefits.
SECTION 17. HEADINGS
The Table of Contents and 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.
SECTION 18. SALES MATERIAL AND INFORMATION
18.1 Fortis Benefits shall furnish or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund, a sub-advisor of one of the Funds, or INVESCO is
named, at least fifteen calendar days prior to its use. No such shall be used if
the Fund or its designee objects to such use within ten calendar days after such
material.
<PAGE>
18.2 Fortis Benefits shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund'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 Fund,
or in sales literature or other promotional material approved by the Fund, or
its designee or by INVESCO, except the permission of the Fund or INVESCO.
18.3 The Fund, INVESCO, or its designee shall furnish, or shall cause to be
Fortis Benefits or its designee, each piece of sales literature or other
promotional material in Fortis Benefits and/or its separate account(s), is named
at least fifteen calendar days prior to its use. No such material shall be used
if Fortis Benefits or its designee object to such use within ten days after
receipt of that material.
18.4 The Fund and INVESCO shall not give any information or make any
representations on behalf of Fortis Benefits or concerning Fortis Benefits, 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 which are in the public domain or approved by Fortis Benefits
for distribution to Contract owners, or in sales literature or other promotional
material approved by Fortis Benefits or its designee, except with the permission
of Fortis Benefits.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed names
and on their behalf by and through their duly authorized officers signing below.
FORTIS BENEFITS INSURANCE COMPANY
By \s\Jon Nichol
-------------
Title Senior Vice President
---------------------
FORTIS INVESTORS, INC.
By \s\John Eric Hite
-----------------
Title 2nd VICE PRESIDENT
----------------------
INVESCO Variable Investment Funds, Inc.
By \s\Ronald L. Grooms
-------------------
Title TREASURER & CHIEF FINANCIAL AND ACCOUNTING OFFICER
--------------------------------------------------
INVESCO Funds Group, Inc.
By \s\Ronald L. Grooms
-------------------
Title SENIOR VICE PRESIDENT AND TREASURER
-----------------------------------
<PAGE>
SCHEDULE D
PROXY VOTING PROCEDURE
The following is a list of procedures and correspondence responsibilities for
the handling of proxies relating to the Fund by INVESCO, the Fund and Fortis
Benefits. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Fortis Benefits" shall also
include the department or third party assigned by Fortis Benefits to perform the
steps delineated below.
1. The number of proxy proposals is given to Fortis Benefits by INVESCO as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time, INVESCO will inform Fortis Benefits of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, Fortis Benefits 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. Fortis Benefits 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 Fortis Benefits by the Fund. Fortis Benefits, at the Fund's or
INVESCO's 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 Fund or
INVESCO will pay for the Notice of Proxy and the Proxy Statement (one
document). Printed and folded notices and statements will be sent to Fortis
Benefits for insertion into envelopes (envelopes and return envelopes are
provided and paid for by the Fund or INVESCO). Contents of envelope sent to
customers by Fortis Benefits will include:
a. Voting Instruction Card(s);
b. One proxy notice and statement (one document);
c. Return envelope (postage pre-paid) addressed to Fortis Benefits 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
Fund.)
e. Cover Letter - optional, supplied by Fortis Benefits.
<PAGE>
5. The above contents should be received by Fortis Benefits approximately 3-5
business days before mail date. Individual in charge at Fortis Benefits
reviews and approves the contents of the mailing package to ensure
correctness and completeness.
6. Package mailed by Fortis Benefits. The Fund must allow at least a 15-day
solicitation time to Fortis Benefits as the shareholder. (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 Fund receives the tabulations stated
in terms of a percentage and the number of shares.) If Fortis Benefits uses
a proxy tabulation firm other than one recommended by INVESCO, INVESCO
Legal must review and approve tabulation format.
11. Final tabulation in shares is verbally given by Fortis Benefits to INVESCO
Legal on the morning of the meeting, not later than 10:00 a.m., Denver
time. INVESCO Legal nay 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 Fortis Benefits, as well as, an original copy of the final vote.
INVESCO Legal will provide a standard form for each Certification.
13. Fortis Benefits 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>
SCHEDULE A
ACCOUNTS
- --------------------------------------------------------------------------------
Name of Account Date of Resolution of Insurance Company's Board
which Established the Account
- --------------------------------------------------------------------------------
Separate Account D October 14, 1987
<PAGE>
SCHEDULE B
CONTRACTS
1. Contract Form #56758 (and various state variations)
------
<PAGE>
SCHEDULE C
PERSONS AUTHORIZED TO GIVE INSTRUCTIONS TO THE COMPANY AND INVESCO
NAME ADDRESS AND PHONE NUMBER
(1) Bruce Fiedler P.O. B 64284, St. Paul, MN 55164
- ------------------------------------- --------------------------------------
Print or Type Name
- ------------------------------------- Phone: 612-738-4700
Signature -------------------------------
(2) Wendy Houman Same as above
- ------------------------------------- --------------------------------------
Print or Type Name
- ------------------------------------- Phone: 612-738-4469
Signature --------------------------------------
(3) Brian Perkins Same as above
- ------------------------------------- --------------------------------------
Print or Type Name
- ------------------------------------- Phone: 612-738-4308
Signature --------------------------------------
(4) Carrie Belland Same as above
- ------------------------------------- --------------------------------------
Print or Type Name
- ------------------------------------- Phone: 612-738-4042
Signature --------------------------------------
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 8th day October of 1999 (the
"Agreement") by and among PFL Life Insurance Company, organized under the laws
of the State of Iowa (the "Company"), on behalf of itself and each separate
account of the Company named in Schedule A to this Agreement, as may be amended
from time to time (each account referred to as the "Account" and collectively as
the "Accounts"); INVESCO Variable Investment Funds, Inc., an open-end management
investment company organized under the laws of the State of Maryland (the
"Fund"); INVESCO Funds Group, Inc., a corporation organized under the laws of
the State of Delaware and investment adviser to the Fund (the "Adviser"); and
INVESCO Distributors, Inc., a corporation organized under the laws of the State
of Delaware and principal underwriter/distributor of the Fund.
WHEREAS, the Fund engages in business as an open-end management investment
company and was established for the purpose of serving as the investment vehicle
for separate accounts established for variable life insurance contracts and
variable annuity contracts to be offered by insurance companies which have
entered into participation agreements substantially similar to this Agreement
(the "Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Fund are divided into several series of
shares, each representing the interest in a particular managed portfolio of
securities and other assets (the "Portfolios"); and
WHEREAS, the Company, as depositor, has established the Accounts to serve as
investment vehicles for certain variable annuity contracts and variable life
insurance policies and funding agreements offered by the Company set forth on
Schedule A (the "Contracts"); and
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts, established by resolutions of the Board of Directors of the Company
under the insurance laws of the State of Iowa, to set aside and invest assets
attributable to the Contracts; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of the Portfolios named in Schedule B, as
such schedule may be amended from time to time (the "Designated Portfolios") on
behalf of the Accounts to fund the Contracts;
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Adviser and the Distributor agree as follows:
ARTICLE I - SALE OF FUND SHARES
1.1 The Fund agrees to sell to the Company those shares of the Designated
Portfolios which each Account orders, executing such orders on a daily
basis at the net asset value (and with no sales charges) next computed
after receipt and acceptance by the Fund or its designee of the order for
the shares of the Fund. For purposes of this Section 1.1, the Company will
be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee will constitute receipt by the Fund; provided
that the Fund receives notice of such order by 11:00 a.m. Eastern Time on
the next following business day. "Business Day" will 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 Securities and
Exchange Commission (the "Commission"). The Fund may net the notice of
redemptions it receives from the Company under Section 1.3 of this
Agreement against the notice of purchases it receives from the Company
under this Section 1.1.
1.2 The Company will pay for Fund shares on the next Business Day after an
order to purchase Fund shares is made in accordance with Section 1.1.
Payment will be made in federal funds transmitted by wire. Upon receipt by
the Fund of the payment, such funds shall cease to be the responsibility
of the Company and shall become the responsibility of the Fund.
1.3 The Fund agrees to redeem for cash, upon the Company's request, any full
or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after
receipt and acceptance by the Fund or its agent of the request for
redemption. For purposes of this Section 1.3, the Company will be the
designee of the Fund for receipt of requests for redemption from each
Account and receipt by such designee will constitute receipt by the Fund;
provided the Fund receives notice of such requests for redemption by 11:00
a.m. Eastern Time on the next following Business Day. Payment will be made
in federal funds transmitted by wire to the Company's account as
designated by the Company in writing from time to time, on the same
Business Day the Fund receives notice of the redemption order from the
Company. After consulting with the Company, the Fund reserves the right to
delay payment of redemption proceeds, but in no event may such payment be
delayed longer than the period permitted under Section 22(e) of the
Investment Company Act of 1940 (the "1940 Act"). The Fund will not bear
<PAGE>
any responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds; the Company alone will be responsible for such
action. If notification of redemption is received after 11:00 Eastern
Time, payment for redeemed shares will be made on the next following
Business Day. The Fund may net the notice of purchases it receives from
the Company under Section 1.1 of this Agreement against the notice of
redemptions it receives from the Company under this Section 1.3.
1.4 The Fund agrees to make shares of the Designated Portfolios available
continuously for purchase at the applicable net asset value per share by
Participating Insurance Companies and their separate accounts on those
days on which the Fund calculates its Designated Portfolio net asset value
pursuant to rules of the Commission; provided, however, that the Board of
Directors of the Fund (the "Fund 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 Fund
Board, acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, necessary in the best interests of
the shareholders of such Portfolio.
1.5 The Fund agrees that shares of the Fund will be sold only to Participating
Insurance Companies and their separate accounts, qualified pension and
retirement plans or such other persons as are permitted under applicable
provisions of the Internal Revenue Code of 1986, as amended, (the "Code"),
and regulations promulgated thereunder, the sale to which will not impair
the tax treatment currently afforded the Contracts. No shares of any
Portfolio will be sold directly to the general public.
1.6 The Fund will not sell Fund shares to any insurance company or separate
account unless an agreement containing provisions substantially the same
as Articles I, III, V, and VI of this Agreement are in effect to govern
such sales.
1.7 The Company agrees to purchase and redeem the shares of the Designated
Portfolios offered by the then current prospectus of the Fund in
accordance with the provisions of such prospectus.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or to any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate sub-account of each
Account.
1.9 The Fund will furnish same day notice (by facsimile) to the Company of the
declaration of any income, dividends or capital gain distributions payable
on each Designated Portfolio's shares. The Company hereby elects to
receive all such dividends and distributions as are payable on the
Portfolio shares in the form of additional shares of that Portfolio at the
ex-dividend date net asset values. The Company reserves the right to
revoke this election and to receive all such dividends and distributions
<PAGE>
in cash. The Fund will notify the Company of the number of shares so
issued as payment of such dividends and distributions.
1.10 The Fund will make the net asset value per share for each Designated
Portfolio available to the Company via electronic means on a daily basis
as soon as reasonably practical after the net asset value per share is
calculated and will use its best efforts to make such net asset value per
share available by 6:30 p.m., Eastern Time, each business day. If the Fund
provides the Company materially incorrect net asset value per share
information (as determined under SEC guidelines), the Company shall be
entitled to an adjustment to the number of shares purchased or redeemed 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
gain information shall be reported to the Company upon discovery by the
Fund.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will be
registered under the Securities Act of 1933 (the "1933 Act"), or are
exempt from registration thereunder, and that the Contracts will be issued
and sold in compliance with all applicable federal and state laws. The
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 each Account as a separate account under
Iowa law and that each Account is or will be registered as a unit
investment trust in accordance with the provisions of the 1940 Act to
serve as a segregated investment account for the Contracts, or is exempt
from registration thereunder, and that it will maintain such registration
for so long as any Contracts are outstanding, as applicable. The Company
will amend the registration statement under the 1933 Act for the Contracts
and the registration statement under the 1940 Act for the Account from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company
will register and qualify the Contracts for sale in accordance with the
securities laws of the various states only if and to the extent deemed
necessary by the Company.
2.2 The Company represents that the Contracts are currently and at the time of
issuance will be treated as annuity contracts and/or life insurance
policies (as applicable) under applicable provisions of the Code, and that
it will make every effort to maintain such treatment and that it will
notify 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.
<PAGE>
2.3 The Company represents and warrants that it will not purchase shares of
the Designated Portfolio(s) with assets derived from tax-qualified
retirement plans except, indirectly, through Contracts purchased in
connection with such plans.
2.4 The Fund represents and warrants that shares of the Designated
Portfolio(s) sold pursuant to this Agreement will be registered under the
1933 Act and duly authorized for issuance in accordance with applicable
law and that the Fund is and will remain registered as an open-end
management investment company under the 1940 Act for as long as such
shares of the Designated Portfolio(s) are sold. The Fund will 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 Fund will register and qualify the shares of the
Designated Portfolio(s) for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Fund.
2.5 The Fund represents that it will use its best efforts to comply with any
applicable state insurance laws or regulations as they may apply to the
investment objectives, policies and restrictions of the Portfolios, as
they may apply to the Fund. If the Fund cannot comply with such state
insurance laws or regulations, it will so notify the Company in writing.
The Fund makes no other 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
any state. The Company represents that it will use its best efforts to
notify the Fund of any restrictions imposed by state insurance laws that
may become applicable to the Fund as a result of the Accounts' investments
therein. The Fund and the Adviser agree that they will furnish the
information required by state insurance laws to assist the Company in
obtaining the authority needed to issue the Contracts in various states.
2.6 The Fund 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 reserves the right to make such payments in the
future. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have the directors of its
Fund Board, a majority of whom are not "interested" persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.7 The Fund 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 applicable provisions of the 1940 Act.
2.8 The Fund represents and warrants that all of its directors, officers,
employees, investment advisers, and other individuals/entities having
access to the funds and/or securities of the Fund are and 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 as
<PAGE>
required currently by Rule 17g-(1) of the 1940 Act or related provisions
as may be promulgated from time to time. The aforesaid bond includes
coverage for larceny and embezzlement and is issued by a reputable bonding
company.
2.9 The Adviser represents and warrants that it is duly registered as an
investment adviser under the Investment Advisers Act of 1940, as amended,
and will remain duly registered under all applicable federal and state
securities laws and that it will perform its obligations for the Fund in
accordance in all material respects with the laws of the State of Delaware
and any applicable state and federal securities laws.
2.10 The Distributor represents and warrants that it is registered as a
broker-dealer under the Securities and Exchange Act of 1934, as amended
(the "1934 Act") and will remain duly registered under all applicable
federal and state securities laws, and is a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD") and serves as
principal underwriter/distributor of the Funds and that it will perform
its obligations for the Fund in accordance in all material respects with
the laws of the State of Delaware and any applicable state and federal
securities laws.
2.11 The Fund, the Adviser and the Distributor represents and warrants to the
Company that each has a Year 2000 compliance program in existence and that
each reasonably intends to be Year 2000 compliant so as to be able perform
all of the services and/or obligations contemplated by or under this
Agreement without interruption. The Fund, the Adviser, and the Distributor
shall immediately notify the Company if it determines that it will be
unable perform all of the services and/or obligations contemplated by or
under this Agreement in a manner that is Year 2000 compliant.
ARTICLE III - FUND COMPLIANCE
3.1 The Fund and the Adviser acknowledge that any failure (whether intentional
or in good faith or otherwise) to comply with the requirements of
Subchapter M of the Code or the diversification requirements of Section
817(h) of the Code may result in the Contracts not being treated as
variable contracts for federal income tax purposes, which would have
adverse tax consequences for Contract owners and could also adversely
affect the Company's corporate tax liability. The Fund and the Adviser
further acknowledge that any such failure may result in costs and expenses
being incurred by the Company in obtaining whatever regulatory
authorizations are required to substitute shares of another investment
company for those of the failed Fund or as well as fees and expenses of
legal counsel and other advisors to the Company and any federal income
taxes, interest or tax penalties incurred by the Company in connection
with any such failure.
<PAGE>
3.2 The Fund represents and warrants that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Code, and that it
will maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify the 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.
3.3 The Fund represents that it will at all times invest money from the
Contracts in such a manner as to ensure that the Contracts will be treated
as variable contracts under the Code and the regulations issued
thereunder; including, but not limited to, that the Fund will at all times
comply with Section 817(h) of the Code and Treasury Regulation 1.817-5, as
amended from time to time, relating to the diversification requirements
for variable annuity, endowment, or life insurance contracts, and with
Section 817(d) of the Code, relating to the definition of a variable
contract, and any amendments or other modifications to such Section or
Regulation. The Fund will notify the Company immediately upon having a
reasonable basis for believing that the Fund or a Portfolio thereunder has
ceased to comply with the diversification requirements or that the Fund or
Portfolio might not comply with the diversification requirements in the
future. In the event of a breach of this representation by the Fund, it
will take all reasonable steps to adequately diversify the Fund so as to
achieve compliance within the grace period afforded by Treasury Regulation
1.817-5.
3.4 The Adviser agrees to provide the Company with a certificate or statement
indicating compliance by each Portfolio of the Fund with Section 817(h) of
the Code, such certificate or statement to be sent to the Company no later
than thirty (30) days following the end of each calendar quarter.
ARTICLE IV - PROSPECTUS AND PROXY STATEMENTS/VOTING
4.1 The Fund will provide the Company with as many copies of the current Fund
prospectus and any supplements thereto for the Designated Portfolio(s) as
the Company may reasonably request for distribution, at the Fund's
expense, to Contract owners at the time of Contract fulfillment and
confirmation. To the extent that the Designated Portfolio(s) are one or
more of several Portfolios of the Fund, the Fund shall bear the cost of
providing the Company only with disclosure related to the Designated
Portfolio(s). The Fund will provide, at the Fund's expense, as many copies
of said prospectus as necessary for distribution, at the Fund's expense,
to existing Contract owners. The Fund will provide the copies of said
prospectus to the Company or to its mailing agent. The Company will
distribute the prospectus to existing Contract owners and will bill the
Fund for the reasonable cost of such distribution. If requested by the
<PAGE>
Company, in lieu thereof, the Fund will provide such documentation,
including a final copy of a current prospectus set in type at the Fund's
expense, and other assistance as is reasonably necessary in order for the
Company at least annually (or more frequently if the Fund prospectus is
amended more frequently) to have the new prospectus for the Contracts and
the Fund's new prospectus printed together, in which case the Fund agrees
to pay its proportionate share of reasonable expenses directly related to
the required disclosure of information concerning the Fund. The Fund will,
upon request, provide the Company with a copy of the Fund's prospectus
through electronic means to facilitate the Company's efforts to provide
Fund prospectuses via electronic delivery, in which case the Fund agrees
to pay its proportionate share of reasonable expenses related to the
required disclosure of information concerning the Fund.
4.2 The Fund's prospectus will state that the Statement of Additional
Information (the "SAI") for the Fund is available from the Company. The
Fund will provide the Company, at the Fund's expense, with as many copies
of the SAI and any supplements thereto as the Company may reasonably
request for distribution, at the Fund's expense, to prospective Contract
owners and applicants. To the extent that the Designated Portfolio(s) are
one or more of several Portfolios of the Fund, the Fund shall bear the
cost of providing the Company only with disclosure related to the
Designated Portfolio(s). The Fund will provide, at the Fund's expense, as
many copies of said SAI as necessary for distribution, at the Fund's
expense, to any existing Contract owner who requests such statement or
whenever state or federal law requires that such statement be provided.
The Fund will provide the copies of said SAI to the Company or to its
mailing agent. The Company will distribute the SAI as requested or
required and will bill the Fund for the reasonable cost of such
distribution.
4.3 The Fund, at its expense, will provide the Company or its mailing agent
with copies of its proxy material, if any, reports to
shareholders/Contract owners and other permissible communications to
shareholders/Contract owners in such quantity as the Company will
reasonably require. The Company will distribute this proxy material,
reports and other communications to existing Contract owners and will bill
the Fund for the reasonable cost of such distribution.
4.4 If and to the extent required by law, the Company will:
(a) solicit voting instructions from Contract owners;
(b) vote the shares of the Designated Portfolios held in the Account in
accordance with instructions received from Contract owners; and
(c) vote shares of the Designated Portfolios held in the Account for
which no timely instructions have been received, in the same
proportion as shares of such Designated Portfolio for which
instructions have been received from the Company's Contract owners,
<PAGE>
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 Company reserves the right to vote Fund shares held
in any segregated asset account in its own right, to the extent permitted
by law. The Company will be responsible for assuring that the Accounts
participating in the Fund calculates voting privileges in a manner
consistent with all legal requirements, including the Proxy Voting
Procedures set forth in Schedule C and the Mixed and Shared Funding
Exemptive Order, as described in Section 7.1.
4.5 The Fund will comply with all provisions of the 1940 Act requiring voting
by shareholders, and in particular, the Fund either will 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 Fund currently
intends, to comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of the 1940 Act) as
well as with Sections 16(a) and, if and when applicable, 16(b). Further,
the Fund 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 V - SALES MATERIAL AND INFORMATION
5.1 The Company will furnish, or will cause to be furnished, to the Fund or
the Adviser, each piece of sales literature or other promotional material
in which the Fund or the Adviser is named, at least ten (10) Business Days
prior to its use. No such material will be used if the Fund or the Adviser
reasonably objects to such use within five (5) Business Days after receipt
of such material.
5.2 The Company will not give any information or make any representations or
statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement, prospectus or SAI for Fund
shares, as such registration statement, prospectus and SAI may be amended
or supplemented from time to time, or in reports or proxy statements for
the Fund, or in published reports for the Fund which are in the public
domain or approved by the Fund or the Adviser for distribution, or in
sales literature or other material provided by the Fund or by the Adviser,
except with permission of the Fund or the Adviser. The Fund and the
Adviser agree to respond to any request for approval on a prompt and
timely basis.
5.3 The Fund or the Adviser will furnish, or will cause to be furnished, to
the Company or its designee, each piece of sales literature or other
promotional material in which the Company or its separate account is
named, at least ten (10) Business Days prior to its use. No such material
will be used if the Company reasonably objects to such use within five (5)
Business Days after receipt of such material.
<PAGE>
5.4 The Fund and the Adviser will not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or SAI
for the Contracts, as such registration statement, prospectus and SAI may
be amended or supplemented from time to time, or in published reports for
each Account or the Contracts which are in the public domain or approved
by the Company for distribution to Contract owners, or in sales literature
or other material provided by the Company, except with permission of the
Company. The Company agrees to respond to any request for approval on a
prompt and timely basis.
5.5 The Fund will provide to the Company 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 Fund or its shares, within a reasonable time
after filing of each such document with the Commission or the NASD.
5.6 The Company will provide to the Fund at least one complete copy of all
definitive prospectuses, definitive SAI, 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 each
Account, contemporaneously with the filing of each such document with the
Commission or the NASD (Except that with respect to post-effective
amendments to such prospectuses and SAIs and sales literature and
promotional material, only those prospectuses and SAIs and sales
literature and promotional material that relate to or refer to the Fund
will be provided.) In addition, the Company will provide to the Fund at
least one complete copy of (i) a registration statement that relates to
the Contracts or each Account, containing representative and relevant
disclosure concerning the Fund; and (ii) any post-effective amendments to
any registration statements relating to the Contracts or such Account that
refer to or relate to the Fund.
5.7 For purposes of this Article V, the phrase "sales literature or 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, (i.e., on-line networks such as the Internet or other
electronic messages)), 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, registration statements, prospectuses, SAIs,
<PAGE>
shareholder reports, and proxy materials and any other material
constituting sales literature or advertising under the NASD rules, the
1933 Act or the 1940 Act.
5.8 The Fund and the Adviser hereby consent to the Company's use of the names
INVESCO, AMVESCAP and INVESCO Funds Group, Inc., as well as the names of
the Designated Portfolios set forth in Schedule B of this Agreement, in
connection with marketing the Contracts, subject to the terms of Sections
5.1 and 5.2 of this Agreement. The Fund and the Adviser hereby consent to
the use of any logo or mark used by the Fund or Adviser, subject to the
Fund's and/or the Adviser's approval of such use and in accordance with
reasonable requirements of the Fund or the Adviser. Such consent will
terminate with the termination of this Agreement. The Company agrees and
acknowledges that either of the Fund, the Adviser or the Distributor are
the owner of the name, logo or mark and that all use of any designation
comprised in whole or in part of the name, logo or mark under this
Agreement shall inure to the benefit of the Fund, Adviser and/or the
Distributor.
5.9 The Fund, the Adviser, the Distributor and the Company agree to adopt and
implement procedures reasonably designed to ensure that information
concerning the Company, the Fund, the Adviser or the Distributor,
respectively, and their respective affiliated companies, that is intended
for use only by brokers or agents selling the Contracts is properly marked
as "Not For Use With The Public" and that such information is only so
used.
ARTICLES VI - FEES, COSTS AND EXPENSES
6.1 The Fund will pay no fee or other compensation to the Company under this
Agreement, except as provided below: (a) if the Fund or any Designated
Portfolio adopts and implements a plan pursuant to Rule 12b-1 under the
1940 Act to finance distribution expenses, then, subject to obtaining any
required exemptive orders or other regulatory approvals, the Fund may make
payments to the Company or to the underwriter for the Contracts if and in
such amounts agreed to by the Fund in writing; (b) the Fund may pay fees
to the Company for administrative services provided to Contract owners
that are not primarily intended to result in the sale of shares of the
Designated Portfolio or of underlying Contracts.
6.2 All expenses incident to performance by the Fund of this Agreement will be
paid by the Fund to the extent permitted by law. All shares of the
Designated Portfolios will be duly authorized for issuance and registered
in accordance with applicable federal law and, to the extent deemed
advisable by the Fund, in accordance with applicable state law, prior to
sale. The Fund will bear the expenses for the cost of registration and
qualification of the Fund's shares, including without limitation, the
preparation of and filing with the SEC of Forms N-SAR and Rule 24f-2
Notices and payment of all applicable registration or filing fees with
<PAGE>
respect to shares of the Fund; preparation and filing of the Fund's
prospectus, SAI and registration statement, proxy materials and reports;
typesetting the Fund's prospectus; typesetting and printing proxy
materials and reports to Contract owners (including the costs of printing
a Fund prospectus that constitutes an annual report); the preparation of
all statements and notices required by any federal or state law; all taxes
on the issuance or transfer of the Fund's shares; any expenses permitted
to be paid or assumed by the Fund pursuant to a plan, if any, under Rule
12b-1 under the 1940 Act; and other costs associated with preparation of
prospectuses and SAIs for the Designated Portfolios in electronic or
typeset format, as well as any distribution expenses as set forth in
Article IV of this Agreement.
ARTICLE VII - MIXED & SHARED FUNDING RELIEF
7.1 The Fund represents and warrants that it has received an order from the
Commission granting Participating Insurance Companies and variable annuity
separate accounts and variable life insurance separate accounts relief
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of 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 separate accounts and variable life insurance separate accounts of
both affiliated and unaffiliated Participating Insurance Companies and
qualified pension and retirement plans outside of the separate account
context (the "Mixed and Shared Funding Exemptive Order"). The parties to
this Agreement agree that the conditions or undertakings specified in the
Mixed and Shared Funding Exemptive Order and that may be imposed on the
Company, the Fund and/or the Adviser by virtue of the receipt of such
order by the Commission, will be incorporated herein by reference, and
such parties agree to comply with such conditions and undertakings to the
extent applicable to each such party.
7.2 The Fund Board will monitor the Fund for the existence of any
irreconcilable material conflict among 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, but not
limited to: (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 Participating Insurance Companies or by variable
annuity and variable life insurance Contract owners; or (f) a decision by
<PAGE>
an insurer to disregard the voting instructions of Contract owners. The
Fund Board will promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof. A
majority of the Fund Board will consist of persons who are not
"interested" persons of the Fund.
7.3 The Company will report any potential or existing conflicts of which it is
aware to the Fund Board. The Company agrees to assist the Fund Board in
carrying out its responsibilities, as delineated in the Mixed and Shared
Funding Exemptive Order, by providing the Fund Board with all information
reasonably necessary for the Fund Board to consider any issues raised.
This includes, but is not limited to, an obligation by the Company to
inform the Fund Board whenever Contract owner voting instructions are to
be disregarded. The Fund Board will record in its minutes, or other
appropriate records, all reports received by it and all action with regard
to a conflict.
7.4 If it is determined by a majority of the Fund Board, or a majority of its
disinterested directors, that an irreconcilable material conflict exists,
the Company and other Participating Insurance Companies will, at their
expense and to the extent reasonably practicable (as determined by a
majority of the disinterested directors), take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up
to and including: (a) withdrawing the assets allocable to some or all of
the Accounts from the Fund or any Portfolio and reinvesting such assets in
a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be submitted to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
variable annuity Contract owners or variable life insurance 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 (b) establishing a new registered
management investment company or managed separate account.
7.5 If a material irreconcilable conflict arises because of a decision by the
Company to disregard Contract owner voting instructions, and such
disregard of voting instructions could conflict with the majority of
Contract owner voting instructions, and the Company's judgment represents
a minority position or would preclude a majority vote, the Company may be
required, at the Fund's election, to withdraw the affected sub-account of
the Account's investment in the Fund and terminate this Agreement with
respect to such sub-account; provided, however, that such withdrawal and
termination will be limited to the extent required by the foregoing
irreconcilable material conflict as determined by a majority of the
disinterested directors of the Fund Board. No charge or penalty will be
imposed as a result of such withdrawal. Any such withdrawal and
termination must take place within six (6) months after the Fund gives
written notice to the Company that this provision is being implemented.
Until the end of such six-month period the Adviser and Fund will, to the
extent permitted by law and any exemptive relief previously granted to the
<PAGE>
Fund, continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.6 If an irreconcilable conflict arises because a particular state insurance
regulator's decision applicable to the Company conflicts with the majority
of other state insurance regulators, then the Company will withdraw the
affected sub-account of the Account's investment in the Fund and terminate
this Agreement with respect to such sub-account; provided, however, that
such withdrawal and termination will be limited to the extent required by
the foregoing irreconcilable material conflict as determined by a majority
of the disinterested directors of the Fund Board. No charge or penalty
will be imposed as a result of such withdrawal. Any such withdrawal and
termination must take place within six (6) months after the Fund gives
written notice to the Company that this provision is being implemented.
Until the end of such six-month period the Advisor and Fund will, to the
extent permitted by law and any exemptive relief previously granted to the
Fund, continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.7 For purposes of Sections 7.4 through 7.7 of this Agreement, a majority of
the disinterested members of the Fund Board will determine whether any
proposed action adequately remedies any irreconcilable material conflict,
but in no event, other than as specified in Section 7.4, will the Fund be
required to establish a new funding medium for the Contracts. The Company
will not be required by Section 7.4 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 affected by the irreconcilable material conflict.
7.8 The Company will at least annually submit to the Fund Board such reports,
materials or data as the Fund Board may reasonably request so that the
Fund Board may fully carry out the duties imposed upon it as delineated in
the Mixed and Shared Funding Exemptive Order, and said reports, materials
and data will be submitted more frequently if deemed appropriate by the
Fund Board.
7.9 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, will 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 4.4, 4.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this
Agreement will 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.
<PAGE>
ARTICLE VIII - INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, the Distributor, and each person, if any, who controls or
is associated with the Fund, the Adviser, or the Distributor within
the meaning of such terms under the federal securities laws and any
director, trustee, officer, employee or agent of the foregoing
(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 the Company) or actions in respect thereof (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:
(1) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in the registration statement, prospectus or SAI for the
Contracts or contained in the Contracts or sales literature
or other promotional material 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 or necessary to make such statements not misleading
in light of the circumstances in which they were made;
provided that this agreement to indemnify will not apply as
to any Indemnified Party if such statement or omission of
such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company
by or on behalf of the Fund, the Adviser, of the
Distributor for use in the registration statement,
prospectus or SAI 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
(2) arise out of or as a result of statements or representations
by or on behalf of the Company (other than statements or
representations contained in the Fund registration statement,
prospectus, SAI or sales literature or other promotional
material of the Fund, or any amendment or supplement to the
foregoing, not supplied by the Company or persons under its
control) or wrongful conduct of the Company or persons under
its control, with respect to the sale or distribution of the
Contracts or Fund shares; or
<PAGE>
(3) arise out of untrue statement or alleged untrue statement of a
material fact contained in the Fund registration statement,
prospectus, SAI or sales literature or other promotional
material of the Fund (or amendment or supplement) or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make such
statements not misleading in light of the circumstances in
which they were made, if such a statement or omission was made
in reliance upon and in conformity with information furnished
to the Fund by or on behalf of the Company or persons under
its control; or
(4) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement; or
(5) arise out of 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 by the Company of
this Agreement;
except to the extent provided in Sections 8.1(b) and 8.4 hereof.
This indemnification will be in addition to any liability that the
Company otherwise may have.
(b) No party will be entitled to indemnification under Section 8.1(a) if
such loss, claim, damage, liability or action is due to the willful
misfeasance, bad faith, or gross negligence in the performance of
such party's duties under this Agreement, or by reason of such
party's reckless disregard of its obligations or duties under this
Agreement.
(c) The Indemnified Parties promptly will notify the Company of the
commencement of any litigation, proceedings, complaints or actions
by regulatory authorities 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 THE ADVISER & DISTRIBUTOR
(a) The Adviser and Distributor agree to indemnify and hold harmless the
Company and each person, if any, who controls or is associated with
the Company within the meaning of such terms under the federal
securities laws and any director, officer, employee or agent of the
foregoing (collectively, the "Indemnified Parties" for purposes of
this Section 8.2) against any and all losses, claims, expenses,
damages, liabilities (including amounts paid in settlement with the
written consent of the Adviser and Distributor) or actions in
respect thereof (including reasonable legal and other expenses) to
which the Indemnified Parties may become subject under any statute,
<PAGE>
regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements:
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus or SAI for the Fund or
sales literature or other promotional material of the Fund (or
any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated or
necessary to make such statements not misleading in light of
the circumstances in which they were made; provided that this
agreement to indemnify will not apply as to any Indemnified
Party if such statement or omission of such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Adviser or Fund by or on behalf
of the Company for use in the registration statement,
prospectus or SAI for the Fund or in sales literature of the
Fund (or any amendment or supplement thereto) or otherwise for
use in connection with the sale of the Contracts or Fund
shares; or
(2) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Contracts or in the Contract or Fund registration statements,
prospectuses or statements of additional information or sales
literature or other promotional material for the Contracts or
of the Fund, or any amendment or supplement to the foregoing,
not supplied by the Adviser or the Fund or persons under the
control of the Adviser or the Fund respectively) or wrongful
conduct of the Adviser or the Fund or persons under the
control of the Adviser or the Fund respectively, with respect
to the sale or distribution of the Contracts or Fund shares;
or
(3) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, SAI or sales literature or other promotional
material covering the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to
state therein a material fact required to be stated or
necessary to make such statement or statements not misleading
in light of the circumstances in which they were made, if such
statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on
behalf of the Adviser or the Fund or persons under the control
of the Adviser or the Fund; or
<PAGE>
(4) 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; or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser or the Fund
in this Agreement, or arise out of or result from any other
material breach of this Agreement by the Adviser or the Fund
(including a failure, whether intentional or in good faith or
otherwise, to comply with the requirements of Subchapter M of
the Code specified in Article III, Section 3.2 of this
Agreement and the diversification requirements specified in
Article III, Section 3.3 of this Agreement, as described more
fully in Section 8.5 below);
except to the extent provided in Sections 8.2(b) and 8.4 hereof.
This indemnification will be in addition to any liability that the
Adviser or Distributor otherwise may have.
(b) No party will be entitled to indemnification under Section 8.2(a) if
such loss, claim, damage, liability or action is due to the willful
misfeasance, bad faith, or gross negligence in the performance of
such party's duties under this Agreement, or by reason of such
party's reckless disregard or its obligations or duties under this
Agreement.
(c) The Indemnified Parties will promptly notify the Adviser and the
Fund of the commencement of any litigation, proceedings, complaints
or actions by regulatory authorities against them in connection with
the issuance or sale of the Contracts or the operation of the
Account.
8.3 INDEMNIFICATION BY THE FUND
(a) The Fund agrees to indemnify and hold harmless the Company and each
person, if any, who controls or is associated with the Company
within the meaning of such terms under the federal securities laws
and any director, officer, employee or agent of the foregoing
(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 Fund) or action in respect thereof (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 operations of the Fund and:
(1) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement; or
<PAGE>
(2) 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 (including a failure,
whether intentional or in good faith or otherwise, to comply
with the requirements of Subchapter M of the Code specified in
Article III, Section 3.2 of this Agreement and the
diversification requirements specified in Article III, Section
3.3 of this Agreement as described more fully in Section 8.5
below); or
(3) arise out of or result from the incorrect or untimely
calculation or reporting of daily net asset value per share or
dividend or capital gain distribution rate;
except to the extent provided in Sections 8.3(b) and 8.4 hereof.
This indemnification will be in addition to any liability that the
Fund otherwise may have.
(b) No party will be entitled to indemnification under Section 8.3(a) if
such loss, claim, damage, liability or action is due to the willful
misfeasance, bad faith, or gross negligence in the performance of
such party's duties under this Agreement, or by reason of such
party's reckless disregard of its obligations and duties under this
Agreement.
(c) The Indemnified Parties will promptly notify the Fund of the
commencement of any litigation, proceedings, complaints or actions
by regulatory authorities against them in connection with the
issuance or sale of the Contracts or the operation of the Account.
8.4 INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this Article VIII
("Indemnifying Party" for the purpose of this Section 8.4) will not be
liable under the indemnification provisions of this Article VIII with
respect to any claim made against a party entitled to indemnification
under this Article VIII ("Indemnified Party" for the purpose of this
Section 8.4) unless such Indemnified Party will have notified the
Indemnifying Party in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
will have been served upon such Indemnified Party (or after such party
will have received notice of such service on any designated agent), but
failure to notify the Indemnifying Party of any such claim will not
relieve the Indemnifying Party from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on
account of the indemnification provision of this Article VIII, except to
the extent that the failure to notify results in the failure of actual
notice to the Indemnifying Party and such Indemnifying Party is damaged
solely as a result of failure to give such notice. In case any such action
<PAGE>
is brought against the Indemnified Party, the Indemnifying Party will be
entitled to participate, at its own expense, in the defense thereof. The
Indemnifying Party also will be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice
from the Indemnifying Party to the Indemnified Party of the Indemnifying
Party's election to assume the defense thereof, the Indemnified Party will
bear the fees and expenses of any additional counsel retained by it, and
the Indemnifying Party 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, unless: (a) the Indemnifying Party and
the Indemnified Party will have mutually agreed to the retention of such
counsel; or (b) the named parties to any such proceeding (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
The Indemnifying Party will not be liable for any settlement of any
proceeding effected without its written consent but if settled with such
consent or if there is a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify the Indemnified Party from and
against any loss or liability by reason of such settlement or judgment. A
successor by law of the parties to this Agreement will be entitled to the
benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII will survive any
termination of this Agreement.
8.5 INDEMNIFICATION FOR FAILURE TO COMPLY WITH DIVERSIFICATION REQUIREMENTS
The Fund and the Adviser acknowledge that any failure (whether intentional
or in good faith or otherwise) to comply with the diversification
requirements specified in Article III, Section 3.3 of this Agreement may
result in the Contracts not being treated as variable contracts for
federal income tax purposes, which would have adverse tax consequences for
Contract owners and could also adversely affect the Company's corporate
tax liability. Accordingly, without in any way limiting the effect of
Sections 8.2(a) and 8.3(a) hereof and without in any way limiting or
restricting any other remedies available to the Company, the Fund, the
Adviser and the Distributor will pay on a joint and several basis all
costs associated with or arising out of any failure, or any anticipated or
reasonably foreseeable failure, of the Fund or any Portfolio to comply
with Section 3.3 of this Agreement, including all costs associated with
correcting or responding 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 Fund or Portfolio (including but not limited to an order
pursuant to Section 26(b) of the 1940 Act); fees and expenses of legal
<PAGE>
counsel and other advisors to the Company and any federal income taxes or
tax penalties (or "toll charges" or exactments or amounts paid in
settlement) incurred by the Company in connection with any such failure or
anticipated or reasonably foreseeable failure. Such indemnification and
reimbursement obligation shall be in addition to any other indemnification
and reimbursement obligations of the Fund, the Adviser and/or the
Distributor under this Agreement.
ARTICLE IX - APPLICABLE LAW
9.1 This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Delaware.
9.2 This Agreement will be subject to the provisions of the 1933 Act, the 1934
Act and the 1940 Act, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the Commission may grant (including, but not limited to,
the Mixed and Shared Funding Exemptive Order) and the terms hereof will be
interpreted and construed in accordance therewith.
ARTICLE X - TERMINATION
10.1 This Agreement will terminate:
(a) at the option of any party, with or without cause, with respect to
one, some or all of the Portfolios, upon six (6) month's advance
written notice to the other parties or, if later, upon receipt of
any required exemptive relief or orders from the SEC, unless
otherwise agreed in a separate written agreement among the parties;
or
(b) at the option of the Company, upon written notice to the other
parties, with respect to any Portfolio if shares of the Portfolio
are not reasonably available to meet the requirements of the
Contracts as determined in good faith by the Company; or
(c) at the option of the Company, upon 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 Company; or
(d) at the option of the Fund, upon written notice to the other parties,
upon institution of formal proceedings against the Company by the
NASD, the Commission, the Insurance Commission of any state or any
other regulatory body regarding the Company's duties under this
<PAGE>
Agreement or related to the sale of the Contracts, the administration
of the Contracts, the operation of the Account, or the purchase of
the Fund shares, provided that the Fund determines in its sole
judgment, exercised in good faith, that any such proceeding would
have a material adverse effect on the Company's ability to perform
its obligations under this Agreement; or
(e) at the option of the Company, upon written notice to the other
parties, upon institution of formal proceedings against the Fund or
the Adviser by the NASD, the Commission or any state securities or
insurance department or any other regulatory body, provided that the
Company determines in its sole judgment, exercised in good faith,
that any such proceeding would have a material adverse effect on the
Fund's or the Adviser's ability to perform its obligations under this
Agreement; or
(f) at the option of the Company, upon written notice to the other
parties, if the Fund ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code, or under any successor or
similar provision, or if the Company reasonably and in good faith
believes that the Fund may fail to so qualify; or
(g) at the option of the Company, upon written notice to the other
parties, with respect to any Portfolio if the Fund fails to meet the
diversification requirements specified in Section 3.3 hereof or if
the Company reasonably and in good faith believes the Fund may fail
to meet such requirements; or
(h) at the option of any party to this Agreement, upon written notice to
the other parties, upon another party's material breach of any
provision of this Agreement; or
(i) at the option of the Company, if the Company determines in its sole
judgment exercised in good faith that either the Fund or the Adviser
has suffered a material adverse change in its business, operations or
financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the
Company, such termination to be effective sixty (60) days' after
receipt by the other parties of written notice of the election to
terminate; or
(j) at the option of the Fund or the Adviser, if the Fund or Adviser
respectively, determines in its sole judgment exercised in good faith
that the Company has suffered a material adverse change in its
business, operations or financial condition since the date of this
Agreement or is the subject of material adverse publicity which is
likely to have a material adverse impact upon the business and
operations of the Fund or the Adviser, such termination to be
effective sixty (60) days' after receipt by the other parties of
written notice of the election to terminate; or
<PAGE>
(k) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the Contract owners
having an interest in the Account (or any sub-account) to substitute
the shares of another investment company for the corresponding
Portfolio's shares of the Fund in accordance with the terms of the
Contracts for which those Portfolio shares had been selected to serve
as the underlying portfolio. The Company will give sixty (60) days'
prior written notice to the Fund of the date of any proposed vote or
other action taken to replace the Fund's shares or of the filing of
any required regulatory approval(s); or
(1) at the option of the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of the disinterested Fund
Board members, that an irreconcilable material conflict exists among
the interests of: (1) all Contract owners of variable insurance
products of all separate accounts; or (2) the interests of the
Participating Insurance Companies investing in the Fund as set forth
in Article VII of this Agreement; or
(m) at the option of the Fund in the event any of the Contracts are not
issued or sold in accordance with applicable federal and/or state
law. Termination will be effective immediately upon such occurrence
without notice.
10.2 NOTICE REQUIREMENT
(a) No termination of this Agreement, except a termination under Section
10.1 (m) of this Agreement, will be effective unless and until the
party terminating this Agreement gives prior written notice to all
other parties of its intent to terminate, which notice will set
forth the basis for the termination.
(b) In the event that any termination of this Agreement is based upon
the provisions of Article VII, such prior written notice will be
given in advance of the effective date of termination as required by
such provisions.
10.3 EFFECT OF TERMINATION
Notwithstanding any termination of this Agreement, the Fund, the Adviser
and the Distributor will, at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and
conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts will be permitted to reallocate investments in the
Designated Portfolios (as in effect on such date), 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 will not apply to any
terminations under Article VII and the effect of such Article VII
terminations will be governed by Article VII of this Agreement.
<PAGE>
10.4 SURVIVING PROVISIONS
Notwithstanding any termination of this Agreement, each party's
obligations under Article VIII to indemnify other parties will survive and
not be affected by any termination of this Agreement. In addition, with
respect to Existing Contracts, all provisions of this Agreement also will
survive and not be affected by any termination of this Agreement.
ARTICLE XI - NOTICES
Any notice will be deemed duly 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
parties.
If to the Company:
-----------------
PFL Life Insurance Company
c/o Extraordinary Markets Divisions
4333 Edgewood Road NE
Cedar Rapids IA 52499
If to the Fund:
--------------
INVESCO Variable Investment Funds, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: Glen A. Payne - Senior Vice President
If to the Adviser:
-----------------
INVESCO Funds Group, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: Glen A. Payne - Senior Vice President
If to the Distributor:
---------------------
INVESCO Distributors, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: Glen A. Payne - Senior Vice President
ARTICLE XII - MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the property of the
Fund for the enforcement of any claims against the Fund as neither the
directors, officers, agents or shareholders assume any personal liability
for obligations entered into on behalf of the Fund.
12.2 The Fund and the Adviser acknowledge that the identities of the customers
of the Company or any of its affiliates (collectively the "Protected
Parties" for purposes of this Section 12.2), information maintained
<PAGE>
regarding those customers, and all computer programs and procedures
developed by the Protected Parties or any of their employees or agents in
connection with the Company's performance of its duties under this
Agreement are the valuable property of the Protected Parties. The Fund and
the Adviser agree that if they come into possession of any list or
compilation of the identities of or other information about the Protected
Parties' customers, or any other property of the Protected Parties, other
than such information as may be independently developed or compiled by the
Fund or the Adviser from information supplied to them by the Protected
Parties' customers who also maintain accounts directly with the Fund or
the Adviser, the Fund and the Adviser will hold such information or
property in confidence and refrain from using, disclosing or distributing
any of such information or other property except: (a) with the Company' s
prior written consent; or (b) as required by law or judicial process. The
Fund and the Adviser acknowledge that any breach of the agreements in this
Section 12.2 would result in immediate and irreparable harm to the
Protected Parties for which there would be no adequate remedy at law and
agree that in the event of such a breach, the Protected Parties will be
entitled to equitable relief by way of temporary and permanent
injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
12.3 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.
12.4 This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
12.5 If any provision of this Agreement will be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement will
not be affected thereby.
12.6 This Agreement will not be assigned by any party hereto without the prior
written consent of all the parties.
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 law.
12.8 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect.
12.9 Each party to this Agreement will cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and will permit each
other and 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.
<PAGE>
12.10 Each party represents that the execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or board action, as applicable,
by such party and when so executed and delivered this Agreement will be
the valid and binding obligation of such party enforceable in accordance
with its terms.
12.11 The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts, the
Accounts or the Portfolios of the Fund or other applicable terms of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the date specified below.
PFL LIFE INSURANCE COMPANY
By: /s/ William L. Busler
William L. Busler
President
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By: /s/ Mark H. Williamson
Mark H. Williamson
President
INVESCO FUNDS GROUP, INC.
By: /s/ Mark H. Williamson
Mark H. Williamson
Chairman and Chief Executive Officer
INVESCO DISTRIBUTORS, INC.
By: /s/ Mark H. Williamson
Mark H. Williamson
Chairman and Chief Executive Officer
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE A
The following Separate Accounts and Associated Contracts of Western Reserve Life
Assurance Company of Ohio are permitted in accordance with the provisions of
this Agreement to invest in Portfolios of the Fund shown in Schedule B:
CONTRACTS FUNDED BY SEPARATE ACCOUNT NAME OF SEPARATE ACCOUNT
- ------------------------------------ ------------------------
Advantage V PFL Corporate Account One
WL 712 136 84 798 (may vary by state)
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE B
The Separate Account(s) shown on Schedule A may invest in the following
Portfolios of the Fund.
INVESCO VIF - Blue Chip Growth Fund
INVESCO VIF - Dynamics Fund
INVESCO VIF - Equity Income Fund
INVESCO VIF - Financial Services Fund
INVESCO VIF - Health Sciences Fund
INVESCO VIF - High Yield Fund
INVESCO VIF - Market Neutral Fund
INVESCO VIF - Realty Fund
INVESCO VIF - Small Company Growth Fund
INVESCO VIF - Technology Fund
INVESCO VIF - Telecommunications Fund
INVESCO VIF - Total Return Fund
INVESCO VIF - Utilities Fund
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as possible
before the date set by the Fund for the shareholder meeting to enable the
Company to consider and prepare for the solicitation of voting instructions
from owners of the Contracts and to facilitate the establishment of
tabulation procedures. At this time the Fund will inform the 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 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 as of
the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call in
the number of Customers to the Fund , as soon as possible, but no later than
two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company either
before or together with the Customers' receipt of voting, instruction
solicitation material. The Fund will provide the last Annual Report to the
Company pursuant to the terms of Section 6.2 of the Agreement to which this
Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate 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:
o name (legal name as found on account registration)
o address
o Fund or account number
o coding to state number of units
o individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
<PAGE>
5. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices and
statements will be sent to Company for insertion into envelopes (envelopes
and return envelopes are provided and paid for by the Company). Contents of
envelope sent to Customers by the Company will include:
o Voting Instruction Card(s)
o one proxy notice and statement (one document)
o return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
o "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 Fund.)
o cover letter - optional, supplied by Company and reviewed and
approved in advance by the Fund
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the 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
and has not been required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card. NOTE: For Example, if the account registration is
under "John A. Smith, Trustee," then that is the exact legal name to be
printed on the Card and is the signature needed on the Card.
10.If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a new
Card and return envelope. The mutilated or illegible Card is disregarded and
considered to be NOT RECEIVED for purposes of vote tabulation. Any Cards that
have been "kicked out" (e.g. mutilated, illegible) of the procedure are "hand
verified," i.e., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
11.There are various control procedures used to ensure proper tabulation of
votes and accuracy of that 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.
12.The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of SHARES.) The Fund must review and
approve tabulation format.
<PAGE>
13.Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The Fund
may request an earlier deadline if reasonable and if required to calculate
the vote in time for the meeting.
14.A Certification of Mailing and Authorization to Vote Shares will be required
from the Company as well as an original copy of the final vote. The Fund will
provide a standard form for each Certification.
15.The 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, the Fund will be permitted
reasonable access to such Cards.
16.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
UNITED INVESTORS LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this 8th day of July, 1998 by and
among United Investors Life Insurance Company, (hereinafter the "Insurance
Company), 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 60(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
<PAGE>
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]
contacts 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 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 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
am, 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.
<PAGE>
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 following Business Day. Payment shall be in federal funds transmitted
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 Paragraphs
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.
<PAGE>
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.
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
<PAGE>
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
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
<PAGE>
to be at all times covered by a blanket fidelity bond or similar coverage for
the benefit of the Company, in an amount not lessthan 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 Contacts 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, 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 contacts 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 contacts not
funded by Company 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 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.
<PAGE>
3.4. If and to the extent required by law, the Insurance Company shall:
(i) solicit voting instructions from Contact 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 riot 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 Contacts 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
<PAGE>
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.
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.
<PAGE>
ARTICLE VII. POTENTIAL CONFLICT
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 ft 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
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
<PAGE>
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 Contacts. 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 arid 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.
<PAGE>
ARTICLE VIll. 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
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement
prospectus, or sales literature of the Company or any amendment
thereof or supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information
furnished in writing to the Company by or on behalf of the
Insurance Company; or
<PAGE>
(iv) arise as a result of any failure by the Insurance Company
to provide the services and furnish the materials under the 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 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.
<PAGE>
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
Contacts 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
Contacts, 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
<PAGE>
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the term 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 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 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
<PAGE>
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 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:
(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.
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 forgoing, 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
<PAGE>
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 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
<PAGE>
duties under this Agreement or related to the sale of the
Contacts, 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
(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 riot 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,
<PAGE>
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 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 VIl, 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 Contacts").
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
<PAGE>
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.
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:
United Investors Life Insurance Company
2001 Third Avenue South
Birmingham Alabama 35233
Attn: James L. Sedgewick 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 Contacts 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.
<PAGE>
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.
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:
UNITED INVESTORS LIFE INSURANCE COMPANY
By its authorized officer,
By: \s\ James L. Sedgwick
-------------------------
Title: President
Date: 7/7/98
Company:
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
By: \s\ Ronald L. Grooms
------------------------
Title: Treasurer
Date: July 8, 1998
<PAGE>
INVESCO:
INVESCO FUNDS GROUP, INC.
By its authorized officer,
By: \s\ Ronald L. Grooms
------------------------
Senior Vice President
Date: July 8, 1998
DISTRIBUTORS:
INVESCO DISTRIBUTORS, INC.
By its authorized officer,
By: \s\ Ronald L. Grooms
------------------------
Title: Senior Vice President
Date: July 8, 1998
<PAGE>
SCHEDULE A
ACCOUNTS
Name of Account Date of Resolution of Insurance
Company's Board which Established the
Account
RetireMap Variable Account September 20, 1996
<PAGE>
SCHEDULE B
CONTRACTS
1. Contract Form V96
---
<PAGE>
SCHEDULE C
PERSONS AUTHORIZED TO GIVE INSTRUCTIONS TO THE COMPANY AND INVESCO
<TABLE>
<CAPTION>
NAME ADDRESS AND PHONE NUMBER
<S> <C>
(1) Bob Boyles 301 West 11th Street, Kansas City, MO 64105
Print or Type Name
\s\ Bob Boyles
Signature Phone: 816-435-1962
(2) Julia Seward 301 West 11th Street, Kansas City, MO 64105
Print or Type Name
\s\ Julia Seward
Signature Phone: 816-435-6164
(3) Patricia Johnston 301 West 11th Street, Kansas City, MO 64105
Print or Type Name
\s\ Patricia Johnston
Signature Phone: 816-435-6163
(4) Greg Fisch 301 West 11th Street, Kansas City, MO 64105
Print or Type Name
\s\ Greg Fisch
Signature Phone: 816-435-6118
(5) Paula McCormick 301 West 11th Street, Kansas City, MO 64105
Print or Type Name
\s\ Paula McCormick
Signature Phone: 816-435-1955
(6) Madharan Fivakumar 301 West 11th Street, Kansas City, MO 64105
Print or Type Name
\s\ Madadharan Fivakumar
Signature Phone: 816-435-7295
</TABLE>
<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:
<PAGE>
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 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.
<PAGE>
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 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-of" may be done orally, but must always be
followed up in writing.
<PAGE>
Schedule E
REVENUE SHARING
Annual rate of 0.25% of the average of aggregate net asset value of outstanding
shares of the Companies held by contract holders and purchased through Insurance
Company pursuant to this Agreement. The average of aggregate net assets will be
measured on each business day during each calendar quarter, the applicable
portion of which is payable within 10 business days following end of each
calendar quarter, PROVIDED that no payments shall be made in an amount less than
$25.00.
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 8th day October of 1999 (the
"Agreement") by and among Western Reserve Life Assurance Co. of Ohio, organized
under the laws of the State of Ohio (the "Company"), on behalf of itself and
each separate account of the Company named in Schedule A to this Agreement, as
may be amended from time to time (each account referred to as the "Account" and
collectively as the "Accounts"); INVESCO Variable Investment Funds, Inc., an
open-end management investment company organized under the laws of the State of
Maryland (the "Fund"); INVESCO Funds Group, Inc., a corporation organized under
the laws of the State of Delaware and investment adviser to the Fund (the
"Adviser"); and INVESCO Distributors, Inc., a corporation organized under the
laws of the State of Delaware and principal underwriter/distributor of the Fund.
WHEREAS, the Fund engages in business as an open-end management investment
company and was established for the purpose of serving as the investment vehicle
for separate accounts established for variable life insurance contracts and
variable annuity contracts to be offered by insurance companies which have
entered into participation agreements substantially similar to this Agreement
(the "Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Fund are divided into several series of
shares, each representing the interest in a particular managed portfolio of
securities and other assets (the "Portfolios"); and
WHEREAS, the Company, as depositor, has established the Accounts to serve as
investment vehicles for certain variable annuity contracts and variable life
insurance policies and funding agreements offered by the Company set forth on
Schedule A (the "Contracts"); and
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts, established by resolutions of the Board of Directors of the Company
under the insurance laws of the State of Ohio, to set aside and invest assets
attributable to the Contracts; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of the Portfolios named in Schedule B, as
such schedule may be amended from time to time (the "Designated Portfolios") on
behalf of the Accounts to fund the Contracts;
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Adviser and the Distributor agree as follows:
ARTICLE I - SALE OF FUND SHARES
1.1 The Fund agrees to sell to the Company those shares of the Designated
Portfolios which each Account orders, executing such orders on a daily
basis at the net asset value (and with no sales charges) next computed
after receipt and acceptance by the Fund or its designee of the order for
the shares of the Fund. For purposes of this Section 1.1, the Company will
be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee will constitute receipt by the Fund; provided
that the Fund receives notice of such order by 11:00 a.m. Eastern Time on
the next following business day. "Business Day" will 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 Securities and
Exchange Commission (the "Commission"). The Fund may net the notice of
redemptions it receives from the Company under Section 1.3 of this
Agreement against the notice of purchases it receives from the Company
under this Section 1.1.
1.2 The Company will pay for Fund shares on the next Business Day after an
order to purchase Fund shares is made in accordance with Section 1.1.
Payment will be made in federal funds transmitted by wire. Upon receipt by
the Fund of the payment, such funds shall cease to be the responsibility
of the Company and shall become the responsibility of the Fund.
1.3 The Fund agrees to redeem for cash, upon the Company's request, any full
or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after
receipt and acceptance by the Fund or its agent of the request for
redemption. For purposes of this Section 1.3, the Company will be the
designee of the Fund for receipt of requests for redemption from each
Account and receipt by such designee will constitute receipt by the Fund;
provided the Fund receives notice of such requests for redemption by 11:00
a.m. Eastern Time on the next following Business Day. Payment will be made
in federal funds transmitted by wire to the Company's account as
designated by the Company in writing from time to time, on the same
Business Day the Fund receives notice of the redemption order from the
Company. After consulting with the Company, the Fund reserves the right to
delay payment of redemption proceeds, but in no event may such payment be
delayed longer than the period permitted under Section 22(e) of the
Investment Company Act of 1940 (the "1940 Act"). The Fund will not bear
any responsibility whatsoever for the proper disbursement or crediting of
<PAGE>
redemption proceeds; the Company alone will be responsible for such
action. If notification of redemption is received after 11:00 Eastern
Time, payment for redeemed shares will be made on the next following
Business Day. The Fund may net the notice of purchases it receives from
the Company under Section 1.1 of this Agreement against the notice of
redemptions it receives from the Company under this Section 1.3.
1.4 The Fund agrees to make shares of the Designated Portfolios available
continuously for purchase at the applicable net asset value per share by
Participating Insurance Companies and their separate accounts on those
days on which the Fund calculates its Designated Portfolio net asset value
pursuant to rules of the Commission; provided, however, that the Board of
Directors of the Fund (the "Fund 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 Fund
Board, acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, necessary in the best interests of
the shareholders of such Portfolio.
1.5 The Fund agrees that shares of the Fund will be sold only to Participating
Insurance Companies and their separate accounts, qualified pension and
retirement plans or such other persons as are permitted under applicable
provisions of the Internal Revenue Code of 1986, as amended, (the "Code"),
and regulations promulgated thereunder, the sale to which will not impair
the tax treatment currently afforded the Contracts. No shares of any
Portfolio will be sold directly to the general public.
1.6 The Fund will not sell Fund shares to any insurance company or separate
account unless an agreement containing provisions substantially the same
as Articles I, III, V, and VI of this Agreement are in effect to govern
such sales.
1.7 The Company agrees to purchase and redeem the shares of the Designated
Portfolios offered by the then current prospectus of the Fund in
accordance with the provisions of such prospectus.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or to any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate sub-account of each
Account.
1.9 The Fund will furnish same day notice (by facsimile) to the Company of the
declaration of any income, dividends or capital gain distributions payable
on each Designated Portfolio's shares. The Company hereby elects to
receive all such dividends and distributions as are payable on the
Portfolio shares in the form of additional shares of that Portfolio at the
ex-dividend date net asset values. The Company reserves the right to
revoke this election and to receive all such dividends and distributions
in cash. The Fund will notify the Company of the number of shares so
<PAGE>
issued as payment of such dividends and distributions.
1.10 The Fund will make the net asset value per share for each Designated
Portfolio available to the Company via electronic means on a daily basis
as soon as reasonably practical after the net asset value per share is
calculated and will use its best efforts to make such net asset value per
share available by 6:30 p.m., Eastern Time, each business day. If the Fund
provides the Company materially incorrect net asset value per share
information (as determined under SEC guidelines), the Company shall be
entitled to an adjustment to the number of shares purchased or redeemed 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
gain information shall be reported to the Company upon discovery by the
Fund.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will be
registered under the Securities Act of 1933 (the "1933 Act"), or are
exempt from registration thereunder, and that the Contracts will be issued
and sold in compliance with all applicable federal and state laws. The
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 each Account as a separate account under
Ohio law and that each Account is or will be registered as a unit
investment trust in accordance with the provisions of the 1940 Act to
serve as a segregated investment account for the Contracts, or is exempt
from registration thereunder, and that it will maintain such registration
for so long as any Contracts are outstanding, as applicable. The Company
will amend the registration statement under the 1933 Act for the Contracts
and the registration statement under the 1940 Act for the Account from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company
will register and qualify the Contracts for sale in accordance with the
securities laws of the various states only if and to the extent deemed
necessary by the Company.
2.2 The Company represents that the Contracts are currently and at the time of
issuance will be treated as annuity contracts and/or life insurance
policies (as applicable) under applicable provisions of the Code, and that
it will make every effort to maintain such treatment and that it will
notify 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.
<PAGE>
2.3 The Company represents and warrants that it will not purchase shares of
the Designated Portfolio(s) with assets derived from tax-qualified
retirement plans except, indirectly, through Contracts purchased in
connection with such plans.
2.4 The Fund represents and warrants that shares of the Designated
Portfolio(s) sold pursuant to this Agreement will be registered under the
1933 Act and duly authorized for issuance in accordance with applicable
law and that the Fund is and will remain registered as an open-end
management investment company under the 1940 Act for as long as such
shares of the Designated Portfolio(s) are sold. The Fund will 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 Fund will register and qualify the shares of the
Designated Portfolio(s) for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Fund.
2.5 The Fund represents that it will use its best efforts to comply with any
applicable state insurance laws or regulations as they may apply to the
investment objectives, policies and restrictions of the Portfolios, as
they may apply to the Fund. If the Fund cannot comply with such state
insurance laws or regulations, it will so notify the Company in writing.
The Fund makes no other 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
any state. The Company represents that it will use its best efforts to
notify the Fund of any restrictions imposed by state insurance laws that
may become applicable to the Fund as a result of the Accounts' investments
therein. The Fund and the Adviser agree that they will furnish the
information required by state insurance laws to assist the Company in
obtaining the authority needed to issue the Contracts in various states.
2.6 The Fund 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 reserves the right to make such payments in the
future. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have the directors of its
Fund Board, a majority of whom are not "interested" persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.7 The Fund 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 applicable provisions of the 1940 Act.
2.8 The Fund represents and warrants that all of its directors, officers,
employees, investment advisers, and other individuals/entities having
access to the funds and/or securities of the Fund are and 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 as
<PAGE>
required currently by Rule 17g-(1) of the 1940 Act or related provisions
as may be promulgated from time to time. The aforesaid bond includes
coverage for larceny and embezzlement and is issued by a reputable bonding
company.
2.9 The Adviser represents and warrants that it is duly registered as an
investment adviser under the Investment Advisers Act of 1940, as amended,
and will remain duly registered under all applicable federal and state
securities laws and that it will perform its obligations for the Fund in
accordance in all material respects with the laws of the State of Delaware
and any applicable state and federal securities laws.
2.10 The Distributor represents and warrants that it is registered as a
broker-dealer under the Securities and Exchange Act of 1934, as amended
(the "1934 Act") and will remain duly registered under all applicable
federal and state securities laws, and is a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD") and serves as
principal underwriter/distributor of the Funds and that it will perform
its obligations for the Fund in accordance in all material respects with
the laws of the State of Delaware and any applicable state and federal
securities laws.
2.11 The Fund, the Adviser and the Distributor represents and warrants to the
Company that each has a Year 2000 compliance program in existence and that
each reasonably intends to be Year 2000 compliant so as to be able perform
all of the services and/or obligations contemplated by or under this
Agreement without interruption. The Fund, the Adviser, and the Distributor
shall immediately notify the Company if it determines that it will be
unable perform all of the services and/or obligations contemplated by or
under this Agreement in a manner that is Year 2000 compliant.
ARTICLE III - FUND COMPLIANCE
3.1 The Fund and the Adviser acknowledge that any failure (whether intentional
or in good faith or otherwise) to comply with the requirements of
Subchapter M of the Code or the diversification requirements of Section
817(h) of the Code may result in the Contracts not being treated as
variable contracts for federal income tax purposes, which would have
adverse tax consequences for Contract owners and could also adversely
affect the Company's corporate tax liability. The Fund and the Adviser
further acknowledge that any such failure may result in costs and expenses
being incurred by the Company in obtaining whatever regulatory
authorizations are required to substitute shares of another investment
company for those of the failed Fund or as well as fees and expenses of
legal counsel and other advisors to the Company and any federal income
taxes, interest or tax penalties incurred by the Company in connection
with any such failure.
<PAGE>
3.2 The Fund represents and warrants that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Code, and that it
will maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify the 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.
3.3 The Fund represents that it will at all times invest money from the
Contracts in such a manner as to ensure that the Contracts will be treated
as variable contracts under the Code and the regulations issued
thereunder; including, but not limited to, that the Fund will at all times
comply with Section 817(h) of the Code and Treasury Regulation 1.817-5, as
amended from time to time, relating to the diversification requirements
for variable annuity, endowment, or life insurance contracts, and with
Section 817(d) of the Code, relating to the definition of a variable
contract, and any amendments or other modifications to such Section or
Regulation. The Fund will notify the Company immediately upon having a
reasonable basis for believing that the Fund or a Portfolio thereunder has
ceased to comply with the diversification requirements or that the Fund or
Portfolio might not comply with the diversification requirements in the
future. In the event of a breach of this representation by the Fund, it
will take all reasonable steps to adequately diversify the Fund so as to
achieve compliance within the grace period afforded by Treasury Regulation
1.817-5.
3.4 The Adviser agrees to provide the Company with a certificate or statement
indicating compliance by each Portfolio of the Fund with Section 817(h) of
the Code, such certificate or statement to be sent to the Company no later
than thirty (30) days following the end of each calendar quarter.
ARTICLE IV - PROSPECTUS AND PROXY STATEMENTS/VOTING
4.1 The Fund will provide the Company with as many copies of the current Fund
prospectus and any supplements thereto for the Designated Portfolio(s) as
the Company may reasonably request for distribution, at the Fund's
expense, to Contract owners at the time of Contract fulfillment and
confirmation. To the extent that the Designated Portfolio(s) are one or
more of several Portfolios of the Fund, the Fund shall bear the cost of
providing the Company only with disclosure related to the Designated
Portfolio(s). The Fund will provide, at the Fund's expense, as many copies
of said prospectus as necessary for distribution, at the Fund's expense,
to existing Contract owners. The Fund will provide the copies of said
prospectus to the Company or to its mailing agent. The Company will
distribute the prospectus to existing Contract owners and will bill the
Fund for the reasonable cost of such distribution. If requested by the
<PAGE>
Company, in lieu thereof, the Fund will provide such documentation,
including a final copy of a current prospectus set in type at the Fund's
expense, and other assistance as is reasonably necessary in order for the
Company at least annually (or more frequently if the Fund prospectus is
amended more frequently) to have the new prospectus for the Contracts and
the Fund's new prospectus printed together, in which case the Fund agrees
to pay its proportionate share of reasonable expenses directly related to
the required disclosure of information concerning the Fund. The Fund will,
upon request, provide the Company with a copy of the Fund's prospectus
through electronic means to facilitate the Company's efforts to provide
Fund prospectuses via electronic delivery, in which case the Fund agrees
to pay its proportionate share of reasonable expenses related to the
required disclosure of information concerning the Fund.
4.2 The Fund's prospectus will state that the Statement of Additional
Information (the "SAI") for the Fund is available from the Company. The
Fund will provide the Company, at the Fund's expense, with as many copies
of the SAI and any supplements thereto as the Company may reasonably
request for distribution, at the Fund's expense, to prospective Contract
owners and applicants. To the extent that the Designated Portfolio(s) are
one or more of several Portfolios of the Fund, the Fund shall bear the
cost of providing the Company only with disclosure related to the
Designated Portfolio(s). The Fund will provide, at the Fund's expense, as
many copies of said SAI as necessary for distribution, at the Fund's
expense, to any existing Contract owner who requests such statement or
whenever state or federal law requires that such statement be provided.
The Fund will provide the copies of said SAI to the Company or to its
mailing agent. The Company will distribute the SAI as requested or
required and will bill the Fund for the reasonable cost of such
distribution.
4.3 The Fund, at its expense, will provide the Company or its mailing agent
with copies of its proxy material, if any, reports to
shareholders/Contract owners and other permissible communications to
shareholders/Contract owners in such quantity as the Company will
reasonably require. The Company will distribute this proxy material,
reports and other communications to existing Contract owners and will bill
the Fund for the reasonable cost of such distribution.
4.4 If and to the extent required by law, the Company will:
(a) solicit voting instructions from Contract owners;
(b) vote the shares of the Designated Portfolios held in the Account in
accordance with instructions received from Contract owners; and
(c) vote shares of the Designated Portfolios held in the Account for which
no timely instructions have been received, in the same proportion as
shares of such Designated Portfolio for which instructions have been
received from the Company's Contract owners,
<PAGE>
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 Company reserves the right to vote Fund shares held
in any segregated asset account in its own right, to the extent permitted
by law. The Company will be responsible for assuring that the Accounts
participating in the Fund calculates voting privileges in a manner
consistent with all legal requirements, including the Proxy Voting
Procedures set forth in Schedule C and the Mixed and Shared Funding
Exemptive Order, as described in Section 7.1.
4.5 The Fund will comply with all provisions of the 1940 Act requiring voting
by shareholders, and in particular, the Fund either will 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 Fund currently
intends, to comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of the 1940 Act) as
well as with Sections 16(a) and, if and when applicable, 16(b). Further,
the Fund 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 V - SALES MATERIAL AND INFORMATION
5.1 The Company will furnish, or will cause to be furnished, to the Fund or
the Adviser, each piece of sales literature or other promotional material
in which the Fund or the Adviser is named, at least ten (10) Business Days
prior to its use. No such material will be used if the Fund or the Adviser
reasonably objects to such use within five (5) Business Days after receipt
of such material.
5.2 The Company will not give any information or make any representations or
statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement, prospectus or SAI for Fund
shares, as such registration statement, prospectus and SAI may be amended
or supplemented from time to time, or in reports or proxy statements for
the Fund, or in published reports for the Fund which are in the public
domain or approved by the Fund or the Adviser for distribution, or in
sales literature or other material provided by the Fund or by the Adviser,
except with permission of the Fund or the Adviser. The Fund and the
Adviser agree to respond to any request for approval on a prompt and
timely basis.
5.3 The Fund or the Adviser will furnish, or will cause to be furnished, to
the Company or its designee, each piece of sales literature or other
promotional material in which the Company or its separate account is
named, at least ten (10) Business Days prior to its use. No such material
will be used if the Company reasonably objects to such use within five (5)
Business Days after receipt of such material.
<PAGE>
5.4 The Fund and the Adviser will not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or SAI
for the Contracts, as such registration statement, prospectus and SAI may
be amended or supplemented from time to time, or in published reports for
each Account or the Contracts which are in the public domain or approved
by the Company for distribution to Contract owners, or in sales literature
or other material provided by the Company, except with permission of the
Company. The Company agrees to respond to any request for approval on a
prompt and timely basis.
5.5 The Fund will provide to the Company 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 Fund or its shares, within a reasonable time
after filing of each such document with the Commission or the NASD.
5.6 The Company will provide to the Fund at least one complete copy of all
definitive prospectuses, definitive SAI, 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 each
Account, contemporaneously with the filing of each such document with the
Commission or the NASD (Except that with respect to post-effective
amendments to such prospectuses and SAIs and sales literature and
promotional material, only those prospectuses and SAIs and sales
literature and promotional material that relate to or refer to the Fund
will be provided.) In addition, the Company will provide to the Fund at
least one complete copy of (i) a registration statement that relates to
the Contracts or each Account, containing representative and relevant
disclosure concerning the Fund; and (ii) any post-effective amendments to
any registration statements relating to the Contracts or such Account that
refer to or relate to the Fund.
5.7 For purposes of this Article V, the phrase "sales literature or 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, (i.e., on-line networks such as the Internet or other
electronic messages)), 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, registration statements, prospectuses, SAIs,
<PAGE>
shareholder reports, and proxy materials and any other material
constituting sales literature or advertising under the NASD rules, the
1933 Act or the 1940 Act.
5.8 The Fund and the Adviser hereby consent to the Company's use of the names
INVESCO, AMVESCAP and INVESCO Funds Group, Inc., as well as the names of
the Designated Portfolios set forth in Schedule B of this Agreement, in
connection with marketing the Contracts, subject to the terms of Sections
5.1 and 5.2 of this Agreement. The Fund and the Adviser hereby consent to
the use of any logo or mark used by the Fund or Adviser, subject to the
Fund's and/or the Adviser's approval of such use and in accordance with
reasonable requirements of the Fund or the Adviser. Such consent will
terminate with the termination of this Agreement. The Company agrees and
acknowledges that either of the Fund, the Adviser or the Distributor are
the owner of the name, logo or mark and that all use of any designation
comprised in whole or in part of the name, logo or mark under this
Agreement shall inure to the benefit of the Fund, Adviser and/or the
Distributor.
5.9 The Fund, the Adviser, the Distributor and the Company agree to adopt and
implement procedures reasonably designed to ensure that information
concerning the Company, the Fund, the Adviser or the Distributor,
respectively, and their respective affiliated companies, that is intended
for use only by brokers or agents selling the Contracts is properly marked
as "Not For Use With The Public" and that such information is only so
used.
ARTICLES VI - FEES, COSTS AND EXPENSES
6.1 The Fund will pay no fee or other compensation to the Company under this
Agreement, except as provided below: (a) if the Fund or any Designated
Portfolio adopts and implements a plan pursuant to Rule 12b-1 under the
1940 Act to finance distribution expenses, then, subject to obtaining any
required exemptive orders or other regulatory approvals, the Fund may make
payments to the Company or to the underwriter for the Contracts if and in
such amounts agreed to by the Fund in writing; (b) the Fund may pay fees
to the Company for administrative services provided to Contract owners
that are not primarily intended to result in the sale of shares of the
Designated Portfolio or of underlying Contracts.
6.2 All expenses incident to performance by the Fund of this Agreement will be
paid by the Fund to the extent permitted by law. All shares of the
Designated Portfolios will be duly authorized for issuance and registered
in accordance with applicable federal law and, to the extent deemed
advisable by the Fund, in accordance with applicable state law, prior to
sale. The Fund will bear the expenses for the cost of registration and
qualification of the Fund's shares, including without limitation, the
preparation of and filing with the SEC of Forms N-SAR and Rule 24f-2
<PAGE>
Notices and payment of all applicable registration or filing fees with
respect to shares of the Fund; preparation and filing of the Fund's
prospectus, SAI and registration statement, proxy materials and reports;
typesetting the Fund's prospectus; typesetting and printing proxy
materials and reports to Contract owners (including the costs of printing
a Fund prospectus that constitutes an annual report); the preparation of
all statements and notices required by any federal or state law; all taxes
on the issuance or transfer of the Fund's shares; any expenses permitted
to be paid or assumed by the Fund pursuant to a plan, if any, under Rule
12b-1 under the 1940 Act; and other costs associated with preparation of
prospectuses and SAIs for the Designated Portfolios in electronic or
typeset format, as well as any distribution expenses as set forth in
Article IV of this Agreement.
ARTICLE VII - MIXED & SHARED FUNDING RELIEF
7.1 The Fund represents and warrants that it has received an order from the
Commission granting Participating Insurance Companies and variable annuity
separate accounts and variable life insurance separate accounts relief
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of 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 separate accounts and variable life insurance separate accounts of
both affiliated and unaffiliated Participating Insurance Companies and
qualified pension and retirement plans outside of the separate account
context (the "Mixed and Shared Funding Exemptive Order"). The parties to
this Agreement agree that the conditions or undertakings specified in the
Mixed and Shared Funding Exemptive Order and that may be imposed on the
Company, the Fund and/or the Adviser by virtue of the receipt of such
order by the Commission, will be incorporated herein by reference, and
such parties agree to comply with such conditions and undertakings to the
extent applicable to each such party.
7.2 The Fund Board will monitor the Fund for the existence of any
irreconcilable material conflict among 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, but not
limited to: (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 Participating Insurance Companies or by variable
annuity and variable life insurance Contract owners; or (f) a decision by
<PAGE>
an insurer to disregard the voting instructions of Contract owners. The
Fund Board will promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof. A
majority of the Fund Board will consist of persons who are not
"interested" persons of the Fund.
7.3 The Company will report any potential or existing conflicts of which it is
aware to the Fund Board. The Company agrees to assist the Fund Board in
carrying out its responsibilities, as delineated in the Mixed and Shared
Funding Exemptive Order, by providing the Fund Board with all information
reasonably necessary for the Fund Board to consider any issues raised.
This includes, but is not limited to, an obligation by the Company to
inform the Fund Board whenever Contract owner voting instructions are to
be disregarded. The Fund Board will record in its minutes, or other
appropriate records, all reports received by it and all action with regard
to a conflict.
7.4 If it is determined by a majority of the Fund Board, or a majority of its
disinterested directors, that an irreconcilable material conflict exists,
the Company and other Participating Insurance Companies will, at their
expense and to the extent reasonably practicable (as determined by a
majority of the disinterested directors), take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up
to and including: (a) withdrawing the assets allocable to some or all of
the Accounts from the Fund or any Portfolio and reinvesting such assets in
a different investment medium, including (but not limited to) another
Portfolio of the Fund, or submitting the question whether such segregation
should be submitted to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
variable annuity Contract owners or variable life insurance 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 (b) establishing a new registered
management investment company or managed separate account.
7.5 If a material irreconcilable conflict arises because of a decision by the
Company to disregard Contract owner voting instructions, and such
disregard of voting instructions could conflict with the majority of
Contract owner voting instructions, and the Company's judgment represents
a minority position or would preclude a majority vote, the Company may be
required, at the Fund's election, to withdraw the affected sub-account of
the Account's investment in the Fund and terminate this Agreement with
respect to such sub-account; provided, however, that such withdrawal and
termination will be limited to the extent required by the foregoing
irreconcilable material conflict as determined by a majority of the
disinterested directors of the Fund Board. No charge or penalty will be
imposed as a result of such withdrawal. Any such withdrawal and
termination must take place within six (6) months after the Fund gives
written notice to the Company that this provision is being implemented.
Until the end of such six-month period the Adviser and Fund will, to the
extent permitted by law and any exemptive relief previously granted to the
<PAGE>
Fund, continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.6 If an irreconcilable conflict arises because a particular state insurance
regulator's decision applicable to the Company conflicts with the majority
of other state insurance regulators, then the Company will withdraw the
affected sub-account of the Account's investment in the Fund and terminate
this Agreement with respect to such sub-account; provided, however, that
such withdrawal and termination will be limited to the extent required by
the foregoing irreconcilable material conflict as determined by a majority
of the disinterested directors of the Fund Board. No charge or penalty
will be imposed as a result of such withdrawal. Any such withdrawal and
termination must take place within six (6) months after the Fund gives
written notice to the Company that this provision is being implemented.
Until the end of such six-month period the Advisor and Fund will, to the
extent permitted by law and any exemptive relief previously granted to the
Fund, continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.7 For purposes of Sections 7.4 through 7.7 of this Agreement, a majority of
the disinterested members of the Fund Board will determine whether any
proposed action adequately remedies any irreconcilable material conflict,
but in no event, other than as specified in Section 7.4, will the Fund be
required to establish a new funding medium for the Contracts. The Company
will not be required by Section 7.4 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 affected by the irreconcilable material conflict.
7.8 The Company will at least annually submit to the Fund Board such reports,
materials or data as the Fund Board may reasonably request so that the
Fund Board may fully carry out the duties imposed upon it as delineated in
the Mixed and Shared Funding Exemptive Order, and said reports, materials
and data will be submitted more frequently if deemed appropriate by the
Fund Board.
7.9 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, will 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 4.4, 4.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this
Agreement will 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.
<PAGE>
ARTICLE VIII - INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, the Distributor, and each person, if any, who controls or
is associated with the Fund, the Adviser, or the Distributor within
the meaning of such terms under the federal securities laws and any
director, trustee, officer, employee or agent of the foregoing
(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 the Company) or actions in respect thereof (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:
(1) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in the registration statement, prospectus or SAI for the
Contracts or contained in the Contracts or sales literature
or other promotional material 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 or necessary to make such statements not misleading in
light of the circumstances in which they were made;
provided that this agreement to indemnify will not apply as
to any Indemnified Party if such statement or omission of such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or
on behalf of the Fund, the Adviser, of the Distributor for use
in the registration statement, prospectus or SAI 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
(2) arise out of or as a result of statements or representations
by or on behalf of the Company (other than statements or
representations contained in the Fund registration statement,
prospectus, SAI or sales literature or other promotional
material of the Fund, or any amendment or supplement to the
foregoing, not supplied by the Company or persons under its
control) or wrongful conduct of the Company or persons under
its control, with respect to the sale or distribution of the
Contracts or Fund shares; or
<PAGE>
(3) arise out of untrue statement or alleged untrue statement of a
material fact contained in the Fund registration statement,
prospectus, SAI or sales literature or other promotional
material of the Fund (or amendment or supplement) or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make such
statements not misleading in light of the circumstances in
which they were made, if such a statement or omission was made
in reliance upon and in conformity with information furnished
to the Fund by or on behalf of the Company or persons under
its control; or
(4) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement; or
(5) arise out of 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 by the Company of
this Agreement;
except to the extent provided in Sections 8.1(b) and 8.4 hereof.
This indemnification will be in addition to any liability that the
Company otherwise may have.
(b) No party will be entitled to indemnification under Section 8.1(a) if
such loss, claim, damage, liability or action is due to the willful
misfeasance, bad faith, or gross negligence in the performance of
such party's duties under this Agreement, or by reason of such
party's reckless disregard of its obligations or duties under this
Agreement.
(c) The Indemnified Parties promptly will notify the Company of the
commencement of any litigation, proceedings, complaints or actions
by regulatory authorities 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 THE ADVISER & DISTRIBUTOR
(a) The Adviser and Distributor agree to indemnify and hold harmless the
Company and each person, if any, who controls or is associated with
the Company within the meaning of such terms under the federal
securities laws and any director, officer, employee or agent of the
foregoing (collectively, the "Indemnified Parties" for purposes of
this Section 8.2) against any and all losses, claims, expenses,
damages, liabilities (including amounts paid in settlement with the
written consent of the Adviser and Distributor) or actions in
respect thereof (including reasonable legal and other expenses) to
which the Indemnified Parties may become subject under any statute,
<PAGE>
regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements:
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus or SAI for the Fund or
sales literature or other promotional material of the Fund (or
any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated or
necessary to make such statements not misleading in light of
the circumstances in which they were made; provided that this
agreement to indemnify will not apply as to any Indemnified
Party if such statement or omission of such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Adviser or Fund by or on behalf
of the Company for use in the registration statement,
prospectus or SAI for the Fund or in sales literature of the
Fund (or any amendment or supplement thereto) or otherwise for
use in connection with the sale of the Contracts or Fund
shares; or
(2) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Contracts or in the Contract or Fund registration statements,
prospectuses or statements of additional information or sales
literature or other promotional material for the Contracts or
of the Fund, or any amendment or supplement to the foregoing,
not supplied by the Adviser or the Fund or persons under the
control of the Adviser or the Fund respectively) or wrongful
conduct of the Adviser or the Fund or persons under the
control of the Adviser or the Fund respectively, with respect
to the sale or distribution of the Contracts or Fund shares;
or
(3) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, SAI or sales literature or other promotional
material covering the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to
state therein a material fact required to be stated or
necessary to make such statement or statements not misleading
in light of the circumstances in which they were made, if such
statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on
behalf of the Adviser or the Fund or persons under the control
of the Adviser or the Fund; or
<PAGE>
(4) 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; or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser or the Fund
in this Agreement, or arise out of or result from any other
material breach of this Agreement by the Adviser or the Fund
(including a failure, whether intentional or in good faith or
otherwise, to comply with the requirements of Subchapter M of
the Code specified in Article III, Section 3.2 of this
Agreement and the diversification requirements specified in
Article III, Section 3.3 of this Agreement, as described more
fully in Section 8.5 below);
except to the extent provided in Sections 8.2(b) and 8.4 hereof.
This indemnification will be in addition to any liability that the
Adviser or Distributor otherwise may have.
(b) No party will be entitled to indemnification under Section 8.2(a) if
such loss, claim, damage, liability or action is due to the willful
misfeasance, bad faith, or gross negligence in the performance of
such party's duties under this Agreement, or by reason of such
party's reckless disregard or its obligations or duties under this
Agreement.
(c) The Indemnified Parties will promptly notify the Adviser and the
Fund of the commencement of any litigation, proceedings, complaints
or actions by regulatory authorities against them in connection with
the issuance or sale of the Contracts or the operation of the
Account.
8.3 INDEMNIFICATION BY THE FUND
(a) The Fund agrees to indemnify and hold harmless the Company and each
person, if any, who controls or is associated with the Company
within the meaning of such terms under the federal securities laws
and any director, officer, employee or agent of the foregoing
(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 Fund) or action in respect thereof (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 operations of the Fund and:
(1) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement; or
<PAGE>
(2) 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 (including a failure,
whether intentional or in good faith or otherwise, to comply
with the requirements of Subchapter M of the Code specified in
Article III, Section 3.2 of this Agreement and the
diversification requirements specified in Article III, Section
3.3 of this Agreement as described more fully in Section 8.5
below); or
(3) arise out of or result from the incorrect or untimely
calculation or reporting of daily net asset value per share or
dividend or capital gain distribution rate;
except to the extent provided in Sections 8.3(b) and 8.4 hereof.
This indemnification will be in addition to any liability that the
Fund otherwise may have.
(b) No party will be entitled to indemnification under Section 8.3(a) if
such loss, claim, damage, liability or action is due to the willful
misfeasance, bad faith, or gross negligence in the performance of
such party's duties under this Agreement, or by reason of such
party's reckless disregard of its obligations and duties under this
Agreement.
(c) The Indemnified Parties will promptly notify the Fund of the
commencement of any litigation, proceedings, complaints or actions
by regulatory authorities against them in connection with the
issuance or sale of the Contracts or the operation of the Account.
8.4 INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this Article VIII
("Indemnifying Party" for the purpose of this Section 8.4) will not be
liable under the indemnification provisions of this Article VIII with
respect to any claim made against a party entitled to indemnification
under this Article VIII ("Indemnified Party" for the purpose of this
Section 8.4) unless such Indemnified Party will have notified the
Indemnifying Party in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
will have been served upon such Indemnified Party (or after such party
will have received notice of such service on any designated agent), but
failure to notify the Indemnifying Party of any such claim will not
relieve the Indemnifying Party from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on
account of the indemnification provision of this Article VIII, except to
the extent that the failure to notify results in the failure of actual
notice to the Indemnifying Party and such Indemnifying Party is damaged
solely as a result of failure to give such notice. In case any such action
is brought against the Indemnified Party, the Indemnifying Party will be
<PAGE>
entitled to participate, at its own expense, in the defense thereof. The
Indemnifying Party also will be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice
from the Indemnifying Party to the Indemnified Party of the Indemnifying
Party's election to assume the defense thereof, the Indemnified Party will
bear the fees and expenses of any additional counsel retained by it, and
the Indemnifying Party 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, unless: (a) the Indemnifying Party and
the Indemnified Party will have mutually agreed to the retention of such
counsel; or (b) the named parties to any such proceeding (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
The Indemnifying Party will not be liable for any settlement of any
proceeding effected without its written consent but if settled with such
consent or if there is a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify the Indemnified Party from and
against any loss or liability by reason of such settlement or judgment. A
successor by law of the parties to this Agreement will be entitled to the
benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII will survive any
termination of this Agreement.
8.5 INDEMNIFICATION FOR FAILURE TO COMPLY WITH DIVERSIFICATION REQUIREMENTS
The Fund and the Adviser acknowledge that any failure (whether intentional
or in good faith or otherwise) to comply with the diversification
requirements specified in Article III, Section 3.3 of this Agreement may
result in the Contracts not being treated as variable contracts for
federal income tax purposes, which would have adverse tax consequences for
Contract owners and could also adversely affect the Company's corporate
tax liability. Accordingly, without in any way limiting the effect of
Sections 8.2(a) and 8.3(a) hereof and without in any way limiting or
restricting any other remedies available to the Company, the Fund, the
Adviser and the Distributor will pay on a joint and several basis all
costs associated with or arising out of any failure, or any anticipated or
reasonably foreseeable failure, of the Fund or any Portfolio to comply
with Section 3.3 of this Agreement, including all costs associated with
correcting or responding 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 Fund or Portfolio (including but not limited to an order
pursuant to Section 26(b) of the 1940 Act); fees and expenses of legal
<PAGE>
counsel and other advisors to the Company and any federal income taxes or
tax penalties (or "toll charges" or exactments or amounts paid in
settlement) incurred by the Company in connection with any such failure or
anticipated or reasonably foreseeable failure. Such indemnification and
reimbursement obligation shall be in addition to any other indemnification
and reimbursement obligations of the Fund, the Adviser and/or the
Distributor under this Agreement.
ARTICLE IX - APPLICABLE LAW
9.1 This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Delaware.
9.2 This Agreement will be subject to the provisions of the 1933 Act, the 1934
Act and the 1940 Act, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the Commission may grant (including, but not limited to,
the Mixed and Shared Funding Exemptive Order) and the terms hereof will be
interpreted and construed in accordance therewith.
ARTICLE X - TERMINATION
10.1 This Agreement will terminate:
(a) at the option of any party, with or without cause, with respect to
one, some or all of the Portfolios, upon six (6) month's advance
written notice to the other parties or, if later, upon receipt of
any required exemptive relief or orders from the SEC, unless
otherwise agreed in a separate written agreement among the parties;
or
(b) at the option of the Company, upon written notice to the other
parties, with respect to any Portfolio if shares of the Portfolio
are not reasonably available to meet the requirements of the
Contracts as determined in good faith by the Company; or
(c) at the option of the Company, upon 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 Company; or
(d) at the option of the Fund, upon written notice to the other parties,
upon institution of formal proceedings against the Company by the
NASD, the Commission, the Insurance Commission of any state or any
other regulatory body regarding the Company's duties under this
<PAGE>
Agreement or related to the sale of the Contracts, the
administration of the Contracts, the operation of the Account, or
the purchase of the Fund shares, provided that the Fund determines
in its sole judgment, exercised in good faith, that any such
proceeding would have a material adverse effect on the Company's
ability to perform its obligations under this Agreement; or
(e) at the option of the Company, upon written notice to the other
parties, upon institution of formal proceedings against the Fund or
the Adviser by the NASD, the Commission or any state securities or
insurance department or any other regulatory body, provided that the
Company determines in its sole judgment, exercised in good faith,
that any such proceeding would have a material adverse effect on the
Fund's or the Adviser's ability to perform its obligations under
this Agreement; or
(f) at the option of the Company, upon written notice to the other
parties, if the Fund ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code, or under any successor or
similar provision, or if the Company reasonably and in good faith
believes that the Fund may fail to so qualify; or
(g) at the option of the Company, upon written notice to the other
parties, with respect to any Portfolio if the Fund fails to meet the
diversification requirements specified in Section 3.3 hereof or if
the Company reasonably and in good faith believes the Fund may fail
to meet such requirements; or
(h) at the option of any party to this Agreement, upon written notice to
the other parties, upon another party's material breach of any
provision of this Agreement; or
(i) at the option of the Company, if the Company determines in its sole
judgment exercised in good faith that either the Fund or the Adviser
has suffered a material adverse change in its business, operations
or financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the
Company, such termination to be effective sixty (60) days' after
receipt by the other parties of written notice of the election to
terminate; or
(j) at the option of the Fund or the Adviser, if the Fund or Adviser
respectively, determines in its sole judgment exercised in good
faith that the Company has suffered a material adverse change in its
business, operations or financial condition since the date of this
Agreement or is the subject of material adverse publicity which is
likely to have a material adverse impact upon the business and
operations of the Fund or the Adviser, such termination to be
effective sixty (60) days' after receipt by the other parties of
written notice of the election to terminate; or
<PAGE>
(k) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the Contract
owners having an interest in the Account (or any sub-account) to
substitute the shares of another investment company for the
corresponding Portfolio's shares of the Fund in accordance with the
terms of the Contracts for which those Portfolio shares had been
selected to serve as the underlying portfolio. The Company will
give sixty (60) days' prior written notice to the Fund of the date
of any proposed vote or other action taken to replace the Fund's
shares or of the filing of any required regulatory approval(s); or
(1) at the option of the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of the disinterested Fund
Board members, that an irreconcilable material conflict exists among
the interests of: (1) all Contract owners of variable insurance
products of all separate accounts; or (2) the interests of the
Participating Insurance Companies investing in the Fund as set forth
in Article VII of this Agreement; or
(m) at the option of the Fund in the event any of the Contracts are not
issued or sold in accordance with applicable federal and/or state
law. Termination will be effective immediately upon such occurrence
without notice.
10.2 NOTICE REQUIREMENT
(a) No termination of this Agreement, except a termination under Section
10.1 (m) of this Agreement, will be effective unless and until the
party terminating this Agreement gives prior written notice to all
other parties of its intent to terminate, which notice will set
forth the basis for the termination.
(b) In the event that any termination of this Agreement is based upon
the provisions of Article VII, such prior written notice will be
given in advance of the effective date of termination as required by
such provisions.
10.3 EFFECT OF TERMINATION
Notwithstanding any termination of this Agreement, the Fund, the Adviser
and the Distributor will, at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and
conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts will be permitted to reallocate investments in the
Designated Portfolios (as in effect on such date), 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 will not apply to any
terminations under Article VII and the effect of such Article VII
terminations will be governed by Article VII of this Agreement.
<PAGE>
10.4 SURVIVING PROVISIONS
Notwithstanding any termination of this Agreement, each party's
obligations under Article VIII to indemnify other parties will survive and
not be affected by any termination of this Agreement. In addition, with
respect to Existing Contracts, all provisions of this Agreement also will
survive and not be affected by any termination of this Agreement.
ARTICLE XI - NOTICES
Any notice will be deemed duly 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
parties.
If to the Company:
-----------------
Western Reserve Life Assurance Co. of Ohio
c/o Extraordinary Markets Divisions
4333 Edgewood Road NE
Cedar Rapids IA 52499
If to the Fund:
--------------
INVESCO Variable Investment Funds, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: Glen A. Payne - Senior Vice President
If to the Adviser:
-----------------
INVESCO Funds Group, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: Glen A. Payne - Senior Vice President
If to the Distributor:
---------------------
INVESCO Distributors, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: Glen A. Payne - Senior Vice President
ARTICLE XII - MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the property of the
Fund for the enforcement of any claims against the Fund as neither the
directors, officers, agents or shareholders assume any personal liability
for obligations entered into on behalf of the Fund.
12.2 The Fund and the Adviser acknowledge that the identities of the customers
of the Company or any of its affiliates (collectively the "Protected
Parties" for purposes of this Section 12.2), information maintained
<PAGE>
regarding those customers, and all computer programs and procedures
developed by the Protected Parties or any of their employees or agents in
connection with the Company's performance of its duties under this
Agreement are the valuable property of the Protected Parties. The Fund and
the Adviser agree that if they come into possession of any list or
compilation of the identities of or other information about the Protected
Parties' customers, or any other property of the Protected Parties, other
than such information as may be independently developed or compiled by the
Fund or the Adviser from information supplied to them by the Protected
Parties' customers who also maintain accounts directly with the Fund or
the Adviser, the Fund and the Adviser will hold such information or
property in confidence and refrain from using, disclosing or distributing
any of such information or other property except: (a) with the Company' s
prior written consent; or (b) as required by law or judicial process. The
Fund and the Adviser acknowledge that any breach of the agreements in this
Section 12.2 would result in immediate and irreparable harm to the
Protected Parties for which there would be no adequate remedy at law and
agree that in the event of such a breach, the Protected Parties will be
entitled to equitable relief by way of temporary and permanent
injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
12.3 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.
12.4 This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
12.5 If any provision of this Agreement will be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement will
not be affected thereby.
12.6 This Agreement will not be assigned by any party hereto without the prior
written consent of all the parties.
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 law.
12.8 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect.
12.9 Each party to this Agreement will cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and will permit each
other and 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.
<PAGE>
12.10 Each party represents that the execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or board action, as applicable,
by such party and when so executed and delivered this Agreement will be
the valid and binding obligation of such party enforceable in accordance
with its terms.
12.11 The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts, the
Accounts or the Portfolios of the Fund or other applicable terms of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the date specified below.
WESTERN RESERVE LIFE ASSURANCE COMPANY OF OHIO
By: /s/ Paul Reaburn
Paul Reaburn
Vice President
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By: /s/ Mark H. Williamson
Mark H. Williamson
President
INVESCO FUNDS GROUP, INC.
By: /s/ Mark H. Williamson
Mark H. Williamson
Chairman and Chief Executive Officer
INVESCO DISTRIBUTORS, INC.
By: /s/ Mark H. Williamson
Mark H. Williamson
Chairman and Chief Executive Officer
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE A
The following Separate Accounts and Associated Contracts of Western Reserve Life
Assurance Company of Ohio are permitted in accordance with the provisions of
this Agreement to invest in Portfolios of the Fund shown in Schedule B:
CONTRACTS FUNDED BY SEPARATE ACCOUNT NAME OF SEPARATE ACCOUNT
- ------------------------------------ ------------------------
Advantage IV WRL Series Life Corporate Account
WL 694 136 82 598 (may vary by state)
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE B
The Separate Account(s) shown on Schedule A may invest in the following
Portfolios of the Fund.
INVESCO VIF - Blue Chip Growth Fund
INVESCO VIF - Dynamics Fund
INVESCO VIF - Equity Income Fund
INVESCO VIF - Financial Services Fund
INVESCO VIF - Health Sciences Fund
INVESCO VIF - High Yield Fund
INVESCO VIF - Market Neutral Fund
INVESCO VIF - Realty Fund
INVESCO VIF - Small Company Growth Fund
INVESCO VIF - Technology Fund
INVESCO VIF - Telecommunications Fund
INVESCO VIF - Total Return Fund
INVESCO VIF - Utilities Fund
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as possible
before the date set by the Fund for the shareholder meeting to enable the
Company to consider and prepare for the solicitation of voting instructions
from owners of the Contracts and to facilitate the establishment of
tabulation procedures. At this time the Fund will inform the 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 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 as of
the Record Date.
NOTE: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call in
the number of Customers to the Fund , as soon as possible, but no later than
two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company either
before or together with the Customers' receipt of voting, instruction
solicitation material. The Fund will provide the last Annual Report to the
Company pursuant to the terms of Section 6.2 of the Agreement to which this
Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate 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:
o name (legal name as found on account registration)
o address
o Fund or account number
o coding to state number of units
o individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
<PAGE>
5. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices and
statements will be sent to Company for insertion into envelopes (envelopes
and return envelopes are provided and paid for by the Company). Contents of
envelope sent to Customers by the Company will include:
o Voting Instruction Card(s)
o one proxy notice and statement (one document)
o return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
o "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 Fund.)
o cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the 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 and has not been
required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card. NOTE: For Example, if the account registration is
under "John A. Smith, Trustee," then that is the exact legal name to be
printed on the Card and is the signature needed on the Card.
10.If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a new
Card and return envelope. The mutilated or illegible Card is disregarded and
considered to be NOT RECEIVED for purposes of vote tabulation. Any Cards that
have been "kicked out" (e.g. mutilated, illegible) of the procedure are "hand
verified," i.e., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
11.There are various control procedures used to ensure proper tabulation of
votes and accuracy of that 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.
12.The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of SHARES.) The Fund must review and
approve tabulation format.
<PAGE>
13.Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The Fund
may request an earlier deadline if reasonable and if required to calculate
the vote in time for the meeting.
14.A Certification of Mailing and Authorization to Vote Shares will be required
from the Company as well as an original copy of the final vote. The Fund will
provide a standard form for each Certification.
15.The 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, the Fund will be permitted
reasonable access to such Cards.
16.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 this Registration
Statement on Form N-1A of our reports dated February 3, 2000, relating to the
financial statements and financial highlights which appear in the December 31,
1999 Annual Report to Shareholders of INVESCO Variable Investment Funds, Inc.,
which are also incorporated by reference into the Registration Statement. We
also consent to the references to us under the headings "Financial Highlights",
"Independent Accountants" and "Financial Statements" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Denver, Colorado
April 17, 2000
POWER OF ATTORNEY
The person executing this Power of Attorney hereby appoints Edward F.
O'Keefe and Glen A. Payne, or either of them, as his attorney-in-fact to execute
and to file such Registration Statements under federal and state securities laws
and such Post-Effective Amendments to such Registration Statements of the
hereinafter described entities as such attorney-in-fact, or either of them, may
deem appropriate:
INVESCO Bond Funds, Inc.
INVESCO Combination Stock & Bond Funds, Inc.
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc.
INVESCO Stock Funds, Inc.
INVESCO Treasurer's Series Funds, Inc.
INVESCO Variable Investment Funds, Inc.
This Power of Attorney, which shall not be affected by the disability of
the undersigned, is executed and effective as of the 22nd day of February, 2000.
/s/ James T. Bunch
------------------
James T. Bunch
STATE OF COLORADO )
)
COUNTY OF )
SUBSCRIBED, SWORN TO AND ACKNOWLEDGED before me by James T. Bunch, as a
director of each of the above-described entities, this 22nd day of February,
2000.
/s/ Marcia Jean Rynsh
------------------------
Notary Public
My Commission Expires: January 30, 2001
POWER OF ATTORNEY
The person executing this Power of Attorney hereby appoints Edward F.
O'Keefe and Glen A. Payne, or either of them, as his attorney-in-fact to execute
and to file such Registration Statements under federal and state securities laws
and such Post-Effective Amendments to such Registration Statements of the
hereinafter described entities as such attorney-in-fact, or either of them, may
deem appropriate:
INVESCO Bond Funds, Inc.
INVESCO Combination Stock & Bond Funds, Inc.
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc.
INVESCO Stock Funds, Inc.
INVESCO Treasurer's Series Funds, Inc.
INVESCO Variable Investment Funds, Inc.
This Power of Attorney, which shall not be affected by the disability of
the undersigned, is executed and effective as of the 16th day of February, 2000.
/s/ Gerald J. Lewis
-------------------
Gerald J. Lewis
STATE OF COLORADO )
)
COUNTY OF )
SUBSCRIBED, SWORN TO AND ACKNOWLEDGED before me by Gerald J. Lewis, as a
director of each of the above-described entities, this 16th day of February,
2000.
/s/ Madine A. Hylander
----------------------
Notary Public
My Commission Expires: 09/16/2000
