<PAGE>
Fidelity Income Plus
The Fidelity Variable Annuity Account
Annual Report December 31, 1995
<PAGE>
DEAR FIDELITY INCOME PLUS OWNER:
Your annual reports are enclosed--both your Annuity Annual Report (Fidelity
Income Plus) and the Annual Reports for its underlying mutual funds (The
Variable Insurance Products Funds).
Many owners of Fidelity Income Plus make additional contributions to their
annuities after their initial purchase. By doing this, their annuity is even
better positioned to help assure an adequate income at retirement.
An easy way to make additions to your contract is to simply write a check for
your annuity each month as you write out your regular monthly checks. The nice
part of this method is that you're actually paying yourself. We are including a
postage-paid return envelope for your convenience if you would like to use this
method. Remember, unlike many annuities, with Fidelity Income Plus there are no
surrender charges.
We value the confidence you have placed in us and will work to make Fidelity
Income Plus your continued choice for retirement savings.
Sincerely,
/s/ William L. Busler
William L. Busler
President
PFL Life Insurance Company
2
<PAGE>
THE FIDELITY VARIABLE ANNUITY ACCOUNT
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND CONTRACT OWNERS OF
THE FIDELITY VARIABLE ANNUITY ACCOUNT,
PFL LIFE INSURANCE COMPANY:
We have audited the accompanying balance sheet of The Fidelity Variable
Annuity Account (comprising, respectively, the Money Market, High Income,
Equity Income, Growth, Overseas, Investment Grade Bond, Asset Manager, Asset
Manager Growth, Contrafund, Index 500, Fidelity Daily Income Trust, Fidelity
Capital and Income Fund, Fidelity Government Securities Fund, Ltd., and
Fidelity Cash Reserves subaccounts) as of December 31, 1995, and the related
statements of operations and changes in contract owners' equity for the
periods indicated therein. These financial statements are the responsibility
of the Variable Account's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of mutual fund shares owned as of December
31, 1995, by correspondence with the mutual funds' transfer agent. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting The Fidelity Variable Annuity Account at December 31,
1995, and the results of their operations and changes in their contract
owners' equity for the periods indicated therein in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Des Moines, Iowa
February 6, 1996
3
<PAGE>
THE FIDELITY VARIABLE ANNUITY ACCOUNT
- --------------------------------------------------------------------------------
BALANCE SHEET
December 31, 1995
<TABLE>
<CAPTION>
MONEY HIGH EQUITY
MARKET INCOME INCOME GROWTH
TOTAL SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash.................... $ 9,453 6,890 -- 324 238
Investments in mutual
funds, at current
market value:
Variable Insurance
Products Fund--Money
Market Portfolio
111,722,145.120
shares @ $1.00 (cost
$111,722,145)........ 111,722,145 111,722,145 -- -- --
Variable Insurance
Products Fund--High
Income Portfolio
4,699,636.088 shares
@ $12.05 (cost
$54,615,800)......... 56,630,615 -- 56,630,615 -- --
Variable Insurance
Products Fund--Equity
Income Portfolio
12,504,611.755 @
$19.27 shares (cost
$196,902,671)........ 240,963,869 -- -- 240,963,869 --
Variable Insurance
Products Fund--Growth
Portfolio
4,964,554.406 @
$29.20 shares (cost
$132,739,722)........ 144,964,989 -- -- -- 144,964,989
Variable Insurance
Products Fund--
Overseas Portfolio
1,877,228.415 shares
@ $17.05 (cost
$30,246,861)......... 32,006,744 -- -- -- --
Variable Insurance
Products Fund II--
Investment Grade Bond
Portfolio
1,340,473.420 shares
@ $12.48 (cost
$16,012,594)......... 16,729,108 -- -- -- --
Variable Insurance
Products Fund II--
Asset Manager
Portfolio
5,308,182.474 shares
@ $15.79 (cost
$78,482,788)......... 83,816,201 -- -- -- --
Variable Insurance
Products Fund II--
Asset Manager Growth
Portfolio 186,800.354
shares @ $11.78 (cost
$2,223,493).......... 2,200,508 -- -- -- --
Variable Insurance
Products Fund II--
Contrafund Portfolio
1,519,994.719 shares
@ $13.78 (cost
$20,913,115)......... 20,945,527 -- -- -- --
Variable Insurance
Products Fund II--
Index 500 Portfolio
122,168.638 shares @
$75.71 (cost
$9,015,173).......... 9,249,388 -- -- -- --
Fidelity Daily Income
Trust
405,052.072 shares @
$1.00 (cost
$405,052)............ 405,052 -- -- -- --
Fidelity Capital and
Income Fund
19,150.626 shares @
$9.16 (cost
$179,825)............ 175,420 -- -- -- --
Fidelity Government
Securities Fund, Ltd.
3,608.504 shares @
$10.17 (cost
$34,652)............. 36,698 -- -- -- --
Fidelity Cash Reserves
71,989.190 shares @
$1.00 (cost
$71,989)............. 71,989 -- -- -- --
------------ ----------- ---------- ----------- -----------
Total Investments in
Mutual Funds......... 719,918,253 111,722,145 56,630,615 240,963,869 144,964,989
------------ ----------- ---------- ----------- -----------
Total Assets........... $719,927,706 111,729,035 56,630,615 240,964,193 144,965,227
============ =========== ========== =========== ===========
LIABILITIES AND CONTRACT
OWNERS' EQUITY
Liabilities:
Contract terminations
payable............... $ 251 -- 85 -- --
Accrued administrative
fee................... 310,485 48,899 21,912 102,603 62,771
------------ ----------- ---------- ----------- -----------
Total Liabilities...... 310,736 48,899 21,997 102,603 62,771
Contract Owners' Equity:
Deferred annuity
contracts terminable
by owners (Notes 2 and
5).................... 719,616,970 111,680,136 56,608,618 240,861,590 144,902,456
------------ ----------- ---------- ----------- -----------
$719,927,706 111,729,035 56,630,615 240,964,193 144,965,227
============ =========== ========== =========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
4
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
ASSET DAILY CAPITAL AND GOVERNMENT FIDELITY
INVESTMENT ASSET MANAGER INCOME INCOME SECURITIES CASH
OVERSEAS GRADE BOND MANAGER GROWTH CONTRAFUND INDEX 500 TRUST FUND FUND, LTD. RESERVES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
54 75 201 -- -- -- 857 27 600 187
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
32,006,744 -- -- -- -- -- -- -- -- --
-- 16,729,108 -- -- -- -- -- -- -- --
-- -- 83,816,201 -- -- -- -- -- -- --
-- -- -- 2,200,508 -- -- -- -- -- --
-- -- -- -- 20,945,527 -- -- -- -- --
-- -- -- -- -- 9,249,388 -- -- -- --
-- -- -- -- -- -- 405,052 -- -- --
-- -- -- -- -- -- -- 175,420 -- --
-- -- -- -- -- -- -- -- 36,698 --
-- -- -- -- -- -- -- -- -- 71,989
- ---------- ---------- ---------- --------- ---------- --------- ------- ------- ------ ------
32,006,744 16,729,108 83,816,201 2,200,508 20,945,527 9,249,388 405,052 175,420 36,698 71,989
- ---------- ---------- ---------- --------- ---------- --------- ------- ------- ------ ------
32,006,798 16,729,183 83,816,402 2,200,508 20,945,527 9,249,388 405,909 175,447 37,298 72,176
========== ========== ========== ========= ========== ========= ======= ======= ====== ======
-- -- -- 4 117 45 -- -- -- --
14,908 5,809 44,532 592 5,323 2,486 383 140 35 92
- ---------- ---------- ---------- --------- ---------- --------- ------- ------- ------ ------
14,908 5,809 44,532 596 5,440 2,531 383 140 35 92
31,991,890 16,723,374 83,771,870 2,199,912 20,940,087 9,246,857 405,526 175,307 37,263 72,084
- ---------- ---------- ---------- --------- ---------- --------- ------- ------- ------ ------
32,006,798 16,729,183 83,816,402 2,200,508 20,945,527 9,249,388 405,909 175,447 37,298 72,176
========== ========== ========== ========= ========== ========= ======= ======= ====== ======
</TABLE>
5
<PAGE>
THE FIDELITY VARIABLE ANNUITY ACCOUNT
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended December 31, 1995, Except as Noted
<TABLE>
<CAPTION>
MONEY HIGH EQUITY
MARKET INCOME INCOME GROWTH
TOTAL SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME
(LOSS)
Income:
Dividends................ $ 28,022,640 7,247,002 3,056,739 13,490,976 537,920
Expenses:
Administrative fee (Note
4)...................... 311,291 49,207 22,024 102,879 62,819
Mortality and expense
risk charge (Note 4).... 5,358,215 1,005,334 426,846 1,634,492 1,028,201
------------ ----------- ---------- ---------- -----------
Net investment income
(loss)................ 22,353,134 6,192,461 2,607,869 11,753,605 (553,100)
------------ ----------- ---------- ---------- -----------
NET REALIZED & UNREALIZED
CAPITAL GAIN (LOSS) FROM
INVESTMENTS
Net realized capital gain
(loss) from sales of in-
vestments:
Proceeds from sales...... 582,209,080 201,362,192 78,935,709 56,297,818 105,005,173
Cost of investments
sold.................... 537,818,795 201,362,192 75,700,675 40,834,969 82,638,249
------------ ----------- ---------- ---------- -----------
Net realized capital gain
(loss) from sales of in-
vestments................ 44,390,285 -- 3,235,034 15,462,849 22,366,924
Net change in unrealized
appreciation/depreciation
of investments:
Beginning of the
period.................. 3,434,817 -- (1,595,528) 11,700,733 (330,152)
End of the period........ 66,352,373 -- 2,014,815 44,061,198 12,225,267
------------ ----------- ---------- ---------- -----------
Net change in unrealized
appreciation/depreciation
of investments........... 62,917,556 -- 3,610,343 32,360,465 12,555,419
------------ ----------- ---------- ---------- -----------
Net realized and
unrealized capital gain
(loss) from investments.. 107,307,841 -- 6,845,377 47,823,314 34,922,343
------------ ----------- ---------- ---------- -----------
INCREASE FROM OPERATIONS.. $129,660,975 6,192,461 9,453,246 59,576,919 34,369,243
============ =========== ========== ========== ===========
</TABLE>
/1/Period from September 5, 1995 (commencement of operations) to December 31,
1995.
/2/Period from September 1, 1995 (commencement of operations) to December 31,
1995.
See accompanying Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
ASSET DAILY CAPITAL AND GOVERNMENT FIDELITY
INVESTMENT ASSET MANAGER INCOME INCOME SECURITIES CASH
OVERSEAS GRADE BOND MANAGER GROWTH CONTRAFUND INDEX 500 TRUST FUND FUND, LTD. RESERVES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT/1/ SUBACCOUNT/2/ SUBACCOUNT/2/ SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------- ---------- ---------- ------------- ------------- ------------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
395,722 493,824 2,403,706 85,240 260,968 -- 26,295 17,814 2,289 4,145
14,968 5,823 44,520 592 5,323 2,486 383 140 35 92
328,429 119,802 777,356 2,840 25,283 9,632 -- -- -- --
- ---------- ---------- ---------- --------- ------- --------- ------- ------ ------ ------
52,325 368,199 1,581,830 81,808 230,362 (12,118) 25,912 17,674 2,254 4,053
- ---------- ---------- ---------- --------- ------- --------- ------- ------ ------ ------
60,191,038 19,043,543 57,258,094 1,375,578 327,719 2,155,846 177,883 62,425 1,834 14,228
60,561,615 18,402,386 54,258,487 1,398,419 331,129 2,090,615 177,883 46,128 1,820 14,228
- ---------- ---------- ---------- --------- ------- --------- ------- ------ ------ ------
(370,577) 641,157 2,999,607 (22,841) (3,410) 65,231 -- 16,297 14 --
(1,629,557) (514,722) (4,193,221) -- -- -- -- (1,375) (1,361) --
1,759,883 716,514 5,333,413 (22,985) 32,412 234,215 -- (4,405) 2,046 --
- ---------- ---------- ---------- --------- ------- --------- ------- ------ ------ ------
3,389,440 1,231,236 9,526,634 (22,985) 32,412 234,215 -- (3,030) 3,407 --
- ---------- ---------- ---------- --------- ------- --------- ------- ------ ------ ------
3,018,863 1,872,393 12,526,241 (45,826) 29,002 299,446 -- 13,267 3,421 --
- ---------- ---------- ---------- --------- ------- --------- ------- ------ ------ ------
3,071,188 2,240,592 14,108,071 35,982 259,364 287,328 25,912 30,941 5,675 4,053
========== ========== ========== ========= ======= ========= ======= ====== ====== ======
</TABLE>
7
<PAGE>
THE FIDELITY VARIABLE ANNUITY ACCOUNT
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
Years Ended December 31, 1995 and 1994, Except as Noted
<TABLE>
<CAPTION>
MONEY
MARKET
TOTAL SUBACCOUNT
------------------------- ------------------------
1995 1994 1995 1994
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income
(loss)..................... $ 22,353,134 31,025,106 6,192,461 4,234,133
Net realized capital gain
(loss)..................... 44,390,285 21,836,783 -- --
Net change in unrealized
appreciation/depreciation.. 62,917,556 (53,761,588) -- --
------------ ----------- ----------- -----------
Increase (decrease) from
operations................. 129,660,975 (899,699) 6,192,461 4,234,133
------------ ----------- ----------- -----------
CONTRACT TRANSACTIONS
Net contract purchase
payments (Note 5).......... 22,440,308 62,285,269 3,470,040 9,120,437
Transfers between funds..... -- -- (20,233,350) 67,470,241
Contract terminations,
withdrawals, and other
deductions................. (69,092,044) (41,145,719) (22,492,993) (18,186,396)
------------ ----------- ----------- -----------
Increase (decrease) from
contract transactions...... (46,651,736) 21,139,550 (39,256,303) 58,404,282
------------ ----------- ----------- -----------
Net increase (decrease) in
contract owners' equity.... 83,009,239 20,239,851 (33,063,842) 62,638,415
------------ ----------- ----------- -----------
CONTRACT OWNERS' EQUITY
Beginning of period......... 636,607,731 616,367,880 144,743,978 82,105,563
------------ ----------- ----------- -----------
End of period............... $719,616,970 636,607,731 111,680,136 144,743,978
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ASSET
ASSET MANAGER
MANAGER GROWTH CONTRAFUND
SUBACCOUNT SUBACCOUNT /1/ SUBACCOUNT /2/
------------------------- -------------- --------------
1995 1994 1995 1995
------------ ----------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income
(loss).................... $ 1,581,830 6,621,770 81,808 230,362
Net realized capital gain
(loss).................... 2,999,607 4,947,994 (22,841) (3,410)
Net change in unrealized
appreciation/depreciation.. 9,526,634 (22,504,562) (22,985) 32,412
------------ ----------- --------- ----------
Increase (decrease) from
operations................ 14,108,071 (10,934,798) 35,982 259,364
------------ ----------- --------- ----------
CONTRACT TRANSACTIONS
Net contract purchase
payments (Note 5)......... 1,020,855 19,629,724 45,270 2,487,239
Transfers between funds.... (37,185,580) (32,141,231) 2,120,226 18,198,510
Contract terminations,
withdrawals, and other
deductions................ (15,130,539) (8,048,389) (1,566) (5,026)
------------ ----------- --------- ----------
Increase (decrease) from
contract transactions..... (51,295,264) (20,559,896) 2,163,930 20,680,723
------------ ----------- --------- ----------
Net increase (decrease) in
contract owners' equity... (37,187,193) (31,494,694) 2,199,912 20,940,087
------------ ----------- --------- ----------
CONTRACT OWNERS' EQUITY
Beginning of period........ 120,959,063 152,453,757 -- --
------------ ----------- --------- ----------
End of period.............. $ 83,771,870 120,959,063 2,199,912 20,940,087
============ =========== ========= ==========
</TABLE>
/1/Period from September 5, 1995 (commencement of operations) to December 31,
1995.
/2/Period from September 1, 1995 (commencement of operations) to December 31,
1995.
See accompanying Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH EQUITY
INCOME INCOME GROWTH OVERSEAS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------- -------------------------- ------------------------- -------------------------
1995 1994 1995 1994 1995 1994 1995 1994
- ----------- ------------ ------------ ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
2,607,869 5,779,376 11,753,605 9,804,931 (553,100) 4,830,061 52,325 (226,079)
3,235,034 43,715 15,462,849 7,411,887 22,366,924 4,473,798 (370,577) 5,355,067
3,610,343 (6,772,747) 32,360,465 (8,604,317) 12,555,419 (10,510,469) 3,389,440 (5,078,416)
- ----------- ------------ ------------ ------------ ----------- ------------ ------------ -----------
9,453,246 (949,656) 59,576,919 8,612,501 34,369,243 (1,206,610) 3,071,188 50,572
- ----------- ------------ ------------ ------------ ----------- ------------ ------------ -----------
2,541,623 3,369,795 6,476,010 12,038,431 5,014,275 6,686,141 758,971 9,930,629
5,665,599 (22,995,715) 26,450,043 3,244,268 18,973,304 (1,233,845) (26,175,338) (9,356,057)
(3,140,180) (2,241,305) (15,872,839) (5,994,171) (7,508,950) (3,645,699) (3,072,733) (1,920,604)
- ----------- ------------ ------------ ------------ ----------- ------------ ------------ -----------
5,067,042 (21,867,225) 17,053,214 9,288,528 16,478,629 1,806,597 (28,489,100) (1,346,032)
- ----------- ------------ ------------ ------------ ----------- ------------ ------------ -----------
14,520,288 (22,816,881) 76,630,133 17,901,029 50,847,872 599,987 (25,417,912) (1,295,460)
- ----------- ------------ ------------ ------------ ----------- ------------ ------------ -----------
42,088,330 64,905,211 164,231,457 146,330,428 94,054,584 93,454,597 57,409,802 58,705,262
- ----------- ------------ ------------ ------------ ----------- ------------ ------------ -----------
56,608,618 42,088,330 240,861,590 164,231,457 144,902,456 94,054,584 31,991,890 57,409,802
=========== ============ ============ ============ =========== ============ ============ ===========
<CAPTION>
INVESTMENT
GRADE BOND
SUBACCOUNT
- ----------- -----------
1995 1994
- ----------- -----------
<C> <C>
368,199 (72,108)
641,157 (427,352)
1,231,236 (210,086)
- ----------- ------------
2,240,592 (709,546)
- ----------- ------------
265,588 1,399,181
3,592,936 (4,916,111)
(1,620,546) (1,077,700)
- ----------- ------------
2,237,978 (4,594,630)
- ----------- ------------
4,478,570 (5,304,176)
- ----------- ------------
12,244,804 17,548,980
- ----------- ------------
16,723,374 12,244,804
=========== ============
</TABLE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY FIDELITY
INVESTMENT DAILY CAPITAL AND GOVERNMENT FIDELITY
GRADE BOND INCOME INCOME SECURITIES CASH
INDEX 500 FUND TRUST FUND FUND, LTD. RESERVES
SUBACCOUNT /2/ SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------- ------------ ----------------- ---------------- ------------- ---------------
1995 1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
- -------------- ---- ------- -------- ------- ------- ------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(12,118) -- 2,669 25,912 19,918 17,674 25,163 2,254 2,256 4,053 3,016
65,231 -- 846 -- -- 16,297 30,595 14 233 -- --
234,215 -- (5,504) -- -- (3,030) (72,046) 3,407 (3,441) -- --
--------- --- ------- -------- ------- ------- ------- ------ ------ ------- ------
287,328 -- (1,989) 25,912 19,918 30,941 (16,288) 5,675 (952) 4,053 3,016
--------- --- ------- -------- ------- ------- ------- ------ ------ ------- ------
360,437 -- -- -- 110,931 -- -- -- -- -- --
8,651,679 -- (40,730) -- (10,000) (58,029) (20,820) -- -- -- --
(52,587) -- (32) (177,363) (9,000) (3,420) (17,743) -- 121 (13,302) (4,801)
--------- --- ------- -------- ------- ------- ------- ------ ------ ------- ------
8,959,529 -- (40,762) (177,363) 91,931 (61,449) (38,563) -- 121 (13,302) (4,801)
--------- --- ------- -------- ------- ------- ------- ------ ------ ------- ------
9,246,857 -- (42,751) (151,451) 111,849 (30,508) (54,851) 5,675 (831) (9,249) (1,785)
--------- --- ------- -------- ------- ------- ------- ------ ------ ------- ------
-- -- 42,751 556,977 445,128 205,815 260,666 31,588 32,419 81,333 83,118
--------- --- ------- -------- ------- ------- ------- ------ ------ ------- ------
9,246,857 -- -- 405,526 556,977 175,307 205,815 37,263 31,588 72,084 81,333
========= === ======= ======== ======= ======= ======= ====== ====== ======= ======
</TABLE>
9
<PAGE>
THE FIDELITY VARIABLE ANNUITY ACCOUNT
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- The Fidelity Variable Annuity Account ("Variable Account") is a
segregated investment account of PFL Life Insurance Company ("PFL Life"), an
indirect, wholly owned subsidiary of AEGON USA, Inc. ("AUSA"), a holding
company. AUSA is an indirect, wholly owned subsidiary of AEGON nv, a holding
company organized under the laws of The Netherlands.
The Asset Manager Growth subaccount commenced operations on September 5, 1995.
The Contrafund and Index 500 subaccounts commenced operations on September 1,
1995.
The Variable Account is registered with the Securities and Exchange Commission
as a Unit Investment Trust pursuant to provisions of the Investment Company Act
of 1940.
Investments -- Net purchase payments received by the Variable Account are
invested in the portfolios of the eligible mutual funds, Variable Insurance
Products Fund and Variable Insurance Products Fund II ("VIPF II"), as selected
by the contract owner. Variable Insurance Products Fund, formerly known as
Fidelity Cash Reserves II, was established on April 1, 1982 to comply with the
Internal Revenue Service guidelines for tax-deferred variable annuity
contracts. Transfers into the portfolios of the eligible Funds are permitted
from the formerly eligible funds. Transfers into the formerly eligible funds
are permitted only on deposits made prior to 1981. Investments are stated at
the closing net asset values per share as of December 31, 1995.
Realized capital gains and losses from sale of shares in the mutual funds are
determined on the first-in, first-out basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date. Unrealized gains or losses
from investments in the mutual funds are credited or charged to contract
owners' equity.
Dividend Income -- Dividends received from the mutual fund investments are
reinvested to purchase additional mutual fund shares.
Reclassifications -- Certain amounts in the 1994 financial statements have been
reclassified to conform to the 1995 presentation.
2. CONTRACT OWNERS' EQUITY
At December 31, 1995 and 1994, contract owners' equity included an amount of $0
and $271,006, respectively, substantially all of which is related to the Money
Market subaccount, which represented the current value of PFL Life's initial
capital contribution. PFL Life redeemed its capital contribution in June 1995.
A summary of deferred annuity contracts terminable by owners at December 31,
1995, follows:
<TABLE>
<CAPTION>
ACCUMULATION
ACCUMULATION UNIT TOTAL
SUB-ACCOUNT UNITS OWNED VALUE CONTRACT VALUE
----------- -------------- ------------ --------------
<S> <C> <C> <C>
Variable Insurance Products Fund--
Money Market...................... 48,392,069.066 $2.307819 $111,680,136
Variable Insurance Products Fund--
High Income....................... 19,488,862.806 2.904665 56,608,618
Variable Insurance Products Fund--
Equity Income..................... 81,601,359.509 2.951686 240,861,590
Variable Insurance Products Fund--
Growth............................ 43,498,210.261 3.331228 144,902,456
Variable Insurance Products Fund--
Overseas.......................... 18,307,714.844 1.747454 31,991,890
Variable Insurance Products Fund
II--Investment Grade Bond......... 10,019,780.574 1.669036 16,723,374
Variable Insurance Products Fund
II--Asset Manager................. 45,933,251.411 1.823774 83,771,870
Variable Insurance Products Fund
II--Asset Manager Growth.......... 2,178,270.748 1.009935 2,199,912
Variable Insurance Products Fund
II--Contrafund.................... 20,570,759.262 1.017954 20,940,087
Variable Insurance Products Fund
II--Index 500..................... 8,432,120.348 1.096623 9,246,857
Fidelity Daily Income Trust........ 131,063.459 3.094122 405,526
Fidelity Capital and Income Fund... 25,993.308 6.744302 175,307
Fidelity Government Securities
Fund, Ltd......................... 8,068.949 4.618027 37,263
Fidelity Cash Reserves............. 23,192.241 3.108117 72,084
------------
$719,616,970
============
</TABLE>
10
<PAGE>
THE FIDELITY VARIABLE ANNUITY ACCOUNT
- --------------------------------------------------------------------------------
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
MONEY HIGH EQUITY INVESTMENT ASSET
MARKET INCOME INCOME GROWTH OVERSEAS GRADE BOND MANAGER
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ----------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Units outstanding at
1/1/94................. 38,655,266 26,114,131 70,574,631 37,369,701 36,890,366 11,685,282 90,364,012
Units purchased......... 4,152,571 1,393,573 5,628,529 2,701,508 6,073,666 940,153 11,630,547
Units redeemed and
transferred............ 23,076,369 (10,170,652) (1,632,017) (2,154,214) (7,216,511) (4,086,145) (25,038,996)
----------- ----------- ---------- ---------- ----------- ---------- -----------
Units outstanding at
12/31/94............... 65,884,206 17,337,052 74,571,143 37,916,995 35,747,521 8,539,290 76,955,563
Units purchased......... 1,537,905 960,123 2,496,416 1,617,667 465,886 169,450 616,917
Units redeemed and
transferred............ (19,030,042) 1,191,688 4,533,801 3,963,548 (17,905,692) 1,311,041 (31,639,229)
----------- ----------- ---------- ---------- ----------- ---------- -----------
Units outstanding at
12/31/95............... 48,392,069 19,488,863 81,601,360 43,498,210 18,307,715 10,019,781 45,933,251
=========== =========== ========== ========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY FIDELITY
ASSET INVESTMENT DAILY CAPITAL AND GOVERNMENT FIDELITY
MANAGER GRADE BOND INCOME INCOME SECURITIES CASH
GROWTH CONTRAFUND INDEX 500 FUND TRUST FUND FUND, LTD. RESERVES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Units outstanding at
1/1/94................. -- -- -- 10,102 158,276 43,009 8,085 29,444
Units purchased......... -- -- -- -- 39,217 -- -- --
Units redeemed and
transferred............ -- -- -- (10,102) (6,825) (7,387) (8) (1,723)
--------- ---------- --------- ------- ------- ------ ----- ------
Units outstanding at
12/31/94............... -- -- -- -- 190,668 35,622 8,077 27,721
Units purchased......... 45,783 2,482,288 341,061 -- -- -- -- --
Units redeemed and
transferred............ 2,132,488 18,088,471 8,091,059 -- (59,605) (9,629) (8) (4,529)
--------- ---------- --------- ------- ------- ------ ----- ------
Units outstanding at
12/31/95............... 2,178,271 20,570,759 8,432,120 -- 131,063 25,993 8,069 23,192
========= ========== ========= ======= ======= ====== ===== ======
</TABLE>
11
<PAGE>
THE FIDELITY VARIABLE ANNUITY ACCOUNT
- --------------------------------------------------------------------------------
3. TAXES
Operations of the Variable Account form a part of PFL Life, which is taxed as a
life insurance company under Subchapter L of the Internal Revenue Code of 1986,
as amended (the "Code"). The operations of the Variable Account are accounted
for separately from other operations of PFL Life for purposes of federal income
taxation. The Variable Account is not separately taxable as a regulated
investment company under Subchapter M of the Code and is not otherwise taxable
as an entity separate from PFL Life. Under existing federal income tax laws,
the income of the Variable Account, to the extent applied to increase reserves
under the variable annuity contracts, is not taxable to PFL Life.
4. ADMINISTRATIVE AND MORTALITY RISK CHARGE
Administrative charges include an annual charge of $35 per contract. Charges
for administrative fees to the variable annuity contracts are an expense of the
Variable Account.
PFL Life deducts a daily charge equal to an annual rate of 0.8% of the value of
the contract owners' individual account of the eligible funds as a charge for
assuming the mortality risk.
5. NET ASSETS
At December 31, 1995 contract owners' equity was comprised of:
<TABLE>
<CAPTION>
MONEY HIGH EQUITY INVESTMENT ASSET SUBTOTAL
MARKET INCOME INCOME GROWTH OVERSEAS GRADE BOND MANAGER FROM
TOTAL SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT BELOW
------------ ----------- ---------- ----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit
transactions,
accumulated net
investment
income and
realized
capital gains.. $653,264,597 111,680,136 54,593,803 196,800,392 132,677,189 30,232,007 16,006,860 78,438,457 32,835,753
Adjustment for
appreciation
(depreciation)
to market
value.......... 66,352,373 -- 2,014,815 44,061,198 12,225,267 1,759,883 716,514 5,333,413 241,283
------------ ----------- ---------- ----------- ----------- ---------- ---------- ---------- ----------
Total Contract
Owners'
Equity......... $719,616,970 111,680,136 56,608,618 240,861,590 144,902,456 31,991,890 16,723,374 83,771,870 33,077,036
============ =========== ========== =========== =========== ========== ========== ========== ==========
<CAPTION>
FIDELITY FIDELITY FIDELITY
ASSET DAILY CAPITAL AND GOVERNMENT FIDELITY
MANAGER INCOME INCOME SECURITIES CASH
GROWTH CONTRAFUND INDEX 500 TRUST FUND FUND, LTD. RESERVES
SUBTOTAL SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ----------- ---------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unit
transactions,
accumulated net
investment
income and
realized
capital gains.. $ 32,835,753 2,222,897 20,907,675 9,012,642 405,526 179,712 35,217 72,084
Adjustment for
appreciation
(depreciation)
to market
value.......... 241,283 (22,985) 32,412 234,215 -- (4,405) 2,046 --
------------ ----------- ---------- ----------- ----------- ---------- ---------- ----------
Total Contract
Owners'
Equity......... $ 33,077,036 2,199,912 20,940,087 9,246,857 405,526 175,307 37,263 72,084
============ =========== ========== =========== =========== ========== ========== ==========
</TABLE>
12
<PAGE>
THE FIDELITY VARIABLE ANNUITY ACCOUNT
- --------------------------------------------------------------------------------
6. PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 OR
COMMENCEMENT OF OPERATIONS TO DECEMBER 31
---------------------------------------------------
1995 1994
------------------------- -------------------------
PURCHASES SALES PURCHASES SALES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Variable Insurance
Products Fund--Money
Market................... $167,884,679 $201,362,192 $184,706,003 $121,670,069
Variable Insurance
Products Fund--High
Income................... 86,733,867 78,935,709 43,563,970 59,788,039
Variable Insurance
Products Fund--Equity
Income................... 85,311,732 56,297,818 53,686,271 34,789,414
Variable Insurance
Products Fund--Growth.... 121,271,064 105,005,173 67,390,261 61,114,116
Variable Insurance
Products Fund--Overseas.. 31,688,306 60,191,038 62,112,924 63,649,976
Variable Insurance
Products Fund II--
Investment Grade Bond.... 21,723,224 19,043,543 7,045,524 11,795,007
Variable Insurance
Products Fund II--Asset
Manager.................. 7,514,659 57,258,094 36,879,077 50,830,885
Variable Insurance
Products Fund II--Asset
Manager Growth........... 3,621,912 1,375,578 n/a n/a
Variable Insurance
Products Fund II--
Contrafund............... 21,244,244 327,719 n/a n/a
Variable Insurance
Products Fund II--Index
500...................... 11,105,788 2,155,846 n/a n/a
Fidelity Investment Grade
Bond Fund................ -- -- 2,484 40,738
Fidelity Daily Income
Trust.................... 25,599 177,883 189,204 77,643
Fidelity Capital and
Income Fund.............. 19,272 62,425 96,801 110,968
Fidelity Government
Securities Fund, Ltd..... 4,677 1,834 202,290 199,516
Fidelity Cash Reserves.... 4,371 14,228 3,143 4,943
------------ ------------ ------------ ------------
$558,153,394 $582,209,080 $455,877,952 $404,071,314
============ ============ ============ ============
</TABLE>
13
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
14
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
15
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
N.INC/296 A
