FIDELITY VARIABLE ANNUITY ACCOUNT /IA/, 485BPOS, 1997-04-29

FIDELITY VARIABLE ANNUITY ACCOUNT /IA/
485BPOS, 1997-04-29

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As filed with the Securities and Exchange Commission on April 29, 1997.

Registration No. 33-37498
811-2954

----------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

----------------------------------------------------

FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.
--- ---

Post-Effective Amendment No. 7 x
--- ---

REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940

Amendment No. 5 x
-- ---

-----------------------------------------------------

THE FIDELITY VARIABLE ANNUITY ACCOUNT
(Exact Name of Registrant)

PFL LIFE INSURANCE COMPANY
(Name of Depositor)

4333 Edgewood Road N.E.
Cedar Rapids, Iowa 52499

Depositor's Telephone Number: (319) 297-8121

Frank A. Camp, Esquire
PFL Life Insurance Company
4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499
(Name and Address of Agent for Service)

Copy to:

Frederick R. Bellamy, Esquire

Sutherland, Asbill & Brennan L.L.P.
1275 Pennsylvania Avenue N.W.
Washington, D.C. 20004-2404

Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of the Registration Statement.
<PAGE>

DECLARATION PURSUANT TO RULE 24F-2

Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant declares that a notice pursuant to Rule 24f-2 for the year ended
December 31, 1996, was filed on February 18, 1997.

------------------------------

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b) of Rule 485.
- -----

X on May 1, 1997 pursuant to paragraph (b) of Rule 485.
- -----

60 days after filing pursuant to paragraph (a)(i) of Rule 485
- -----

on pursuant to paragraph (a)(i) of Rule 485
- ----- -------------------

75 days after filing pursuant to paragraph (a)(ii)
- -----

on pursuant to paragraph (a)(ii) 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>

CROSS REFERENCE SHEET
Pursuant to Rule 495

Showing Location in Part A (Prospectus) and
Part B (Statement of Additional Information)
of Registration Statement of Information Required by Form N-4
-------------------------------------------------------------

<TABLE>
<CAPTION>
PART A
------

Item of Form N-4 Prospectus Caption
- ---------------- ------------------
<S> <C>

1. Cover Page.................... Cover Page

2. Definitions................... Definitions

3. Synopsis...................... Summary; Historical Performance
Data

4. Condensed Financial Information Financial Statements

5. General
(a) Depositor................. PFL Life Insurance Company
(b) Registrant................ The Variable Account
(c) Portfolio Company......... Variable Insurance
Products Fund and
Variable Insurance
Products Fund II
(d) Fund Prospectus........... Variable Insurance
Products Fund and
Variable Insurance
Products Fund II
(e) Voting Rights............. Voting Rights

6. Deductions and Expenses
(a) General................... Contract Charges
(b) Sales Load %.............. N/A
(c) Special Purchase Plan..... N/A
(d) Commissions............... Distribution of Contracts
(e) Expenses - Registrant..... N/A
(f) Fund Expenses............. Variable Insurance Products
Fund and Variable Insurance
Products Fund II
(g) Organizational Expenses... N/A

7. Policies
(a) Persons with Rights....... The Policy; Election of Annuity
Option; Determination of Annuity
Payments; Annuity Commencement
Date; Ownership of the Policy
Voting Rights
(b) (i) Allocation of Premium
Payments............ Allocation and Reallocation of Net
Purchase Payments
(ii) Transfers........... Allocation and Reallocation of Net
Purchase Payments
(iii) Exchanges........... Exchange Privilege
(c) Changes................... Addition, Deletion or
Substitution of Investments;
Election of Annuity Option;
Annuity Commencement Date;
Beneficiary; Ownership of the
Policy
</TABLE>

3
<PAGE>

<TABLE>
<S> <C>
(d) Inquiries................. Summary

8. Annuity Period................ Election of Annuity Options

9. Death Benefit................. Death Benefit

10. Purchase and Policy Values
(a) Purchases................. Purchase of the Contracts

(b) Valuation................. Value of Accumulation Units

1 Redemptions
(a) By Owners................. Surrenders
By Annuitant.............. N/A
(b) Texas ORP................. N/A

(c) Check Delay............... Surrenders
(d) Lapse..................... N/A
(e) Free Look................. Right to Return Contract

12. Taxes.......................... Federal Tax Matters

13. Legal Proceedings.............. Legal Proceedings

14. Table of Contents for the
Statement of Statement of Additional
Additional Information Information

<CAPTION>
PART B
------

Item of Form N-4 Statement of Additional
- ---------------- Information Caption
-------------------
<S> <C>
15. Cover Page..................... Cover Page

16 Table of Contents.............. Table of Contents

17. General Information
and History.................... (Prospectus) PFL Life Insurance
Company

18. Services.......................
(a) Fees and Expenses
of Registrant............. N/A
(b) Management Policies....... N/A
(c) Custodian................. Custody of Assets
Independent
Auditors.................. Independent Auditors
(d) Assets of Registrant...... Custody of Assets
</TABLE>

4
<PAGE>

<TABLE>
<S> <C>
(e) Affiliated Person......... N/A
(f) Principal Underwriter..... Distribution of Contracts

19. Purchase of Securities
Being Offered.................. Distribution of Contracts
Offering Sales Load............ N/A

20. Underwriters................... Distribution of the Contracts;
(Prospectus) Distributor of the
Contracts

21. Calculation of Performance
Data........................... Calculation of Yields and Total
Returns; Other Performance Data

22. Annuity Payments............... (Prospectus) Election of Annuity Option;
(Prospectus) Determination of Annuity
Payments

23. Financial Statements........... Financial Statements

<CAPTION>
PART C -- OTHER INFORMATION
---------------------------

Item of Form N-4 Part C Caption
- ---------------- --------------
<S> <C>
24. Financial Statements
and Exhibits.................. Financial Statements and Exhibits
(a) Financial Statements..... Financial Statements
(b) Exhibits................. Exhibits

25. Directors and Officers of Directors and Officers of the
the Depositor Depositor

26. Persons Controlled By or Under Persons Controlled By or Under
Common Control with the Common Control with the
Depositor or Registrant....... Depositor or Registrant

27. Number of Policyowners........ Number of Policyowners

28. Indemnification............... Indemnification

29. Principal Underwriters........ Principal Underwriters

30. Location of Accounts..........
and Records................... Location of Accounts and Records

31. Management Services........... Management Services

32. Undertakings.................. Undertakings

Signature Page................ Signatures
</TABLE>

______________________________

5
<PAGE>

PROSPECTUS MAY 1, 1997

FIDELITY INCOME PLUS

THE FIDELITY VARIABLE ANNUITY ACCOUNT
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
ISSUED BY
PFL LIFE INSURANCE COMPANY
ADMINISTRATIVE AND SERVICE OFFICE:
FINANCIAL MARKETS DIVISION - VARIABLE ANNUITY DEPT.
4333 EDGEWOOD ROAD, N.E.
CEDAR RAPIDS, IA 52499

The individual variable annuity contracts (the "Contracts") described in this
Prospectus are offered under the name "Fidelity Income Plus" by PFL Life In-
surance Company (the "Company") to individuals who desire to accumulate capi-
tal on a long-term tax-deferred basis for retirement or other long-term pur-
poses. The Contracts may only be purchased on a non-tax qualified basis. The
Contracts provide for monthly annuity payments on a variable or fixed basis,
commencing at a future date selected by the owner of the Contract. The Con-
tract may be purchased with a minimum initial Purchase Payment of $5,000.

After the deduction of applicable charges, payments made to purchase the Con-
tracts ("Purchase Payments") become assets of the Fidelity Variable Annuity
Account (the "Variable Account"), a segregated investment account of the Com-
pany. Net Purchase Payments may be allocated to one or more of thirteen sub-
accounts of the Variable Account (the "Sub-accounts"). The assets of the Sub-
accounts are currently invested in shares of the Variable Insurance Products
Fund (VIP), the Variable Insurance Products Fund II (VIP II), and the Variable
Insurance Products Fund III (VIP III) (the "Funds"). VIP currently offers five
Portfolios: Money Market, High Income, Equity-Income, Growth, and Overseas.
VIP II currently offers five Portfolios: Investment Grade Bond, Asset Manager,
Asset Manager Growth, Contrafund and Index 500. VIP III currently offers three
Portfolios: Balanced, Growth Opportunities and Growth & Income. The value of
each Contract prior to the date upon which the first annuity payment is to be
made (the "Annuity Commencement Date") and the amount of Variable Annuity Pay-
ments thereafter will depend upon the investment performance of the assets of
the Variable Account.
Following the date selected by the Contract Owner, Annuity Payments may com-
mence under one of the Annuity Options provided in the Contracts. Prior to the
Annuity Commencement Date, the Contracts are redeemable, in whole or in part,
at their then current value.

This Prospectus sets forth the information about the Variable Account that a
prospective investor should know before investing. Additional information
about the Variable Account has been filed with the Securities and Exchange
Commission in a Statement of Additional Information dated May 1, 1997, which
information is incorporated by reference, and is available without charge by
calling Fidelity Investments at 1-800-544-2442. The table of contents of the
Statement of Additional Information appears on page 26 of this Prospectus.

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For further information please call Fidelity Investments.
For Sales Information
Nationwide (toll-free): 800-544-2442
For Service and Account Information
Nationwide (toll-free): 800-634-4672

This Prospectus Must Be Accompanied Or Preceded By A Current Prospectus For
the Variable Insurance Products Fund, the Variable Insurance Products Fund II,

and the Variable Insurance Products Fund III.
THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK OR DEPOSITORY INSTITUTION, AND THE CONTRACT IS NOT FEDERALLY INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY. THE CONTRACT
INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVEST-
ED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR STATE SECURITIES COMMISSION PASSED UPON THE ACCU-
RACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.

The date of this Prospectus is May 1, 1997
This Contract is not available in all States
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNEC-
TION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON.

DEFINITIONS
ACCUMULATION UNIT -- An accounting unit of measure used in calculating the
Contract Value.
ADMINISTRATIVE AND SERVICE OFFICE -- Financial Markets Division - Variable An-
nuity Dept., 4333 Edgewood Road N.E., Cedar Rapids, Iowa 52499-0001.
ANNUITANT -- The person entitled to receive Annuity Payments after the Annuity
Commencement Date and during whose life any Annuity Payments involving life
contingencies will continue.
ANNUITY COMMENCEMENT DATE -- The date, which can only be the first day of a
calendar month, upon which Annuity Payments are to commence.
ANNUITY OPTION -- A method of receiving a stream of Annuity Payments.
ANNUITY PURCHASE VALUE -- An amount equal to the Contract Value for the Valua-
tion Period which ends immediately preceding the Annuity Commencement Date,
reduced by any applicable premium or similar taxes.
ANNUITY UNIT -- An accounting unit of measure used in the calculation of the
amount of the second and each subsequent Variable Annuity Payment.
BENEFICIARY -- The person who has the right to the death benefit set forth in
the Contract.
CODE -- The Internal Revenue Code of 1986, as amended.

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COMPANY -- PFL Life Insurance Company.
CONTINGENT CONTRACT OWNER -- A person appointed by the Contract Owner to suc-
ceed to ownership of the Contract in the event of the death of the Contract
Owner before the Annuity Commencement Date.
CONTRACT -- One of the variable annuity contracts offered by this Prospectus.
CONTRACT OWNER -- The person who may exercise all rights and privileges under
the Contract. The Contract Owner during the lifetime of the Annuitant and
prior to the Annuity Commencement Date is the person designated as the Con-
tract Owner in the application or a Contingent Contract Owner; the Contract
Owner on and after the Annuity Commencement Date is the Annuitant; and the
Contract Owner after the death of the Annuitant is the Beneficiary.
CONTRACT VALUE -- The sum of the value of all Accumulation Units credited to a
Contract for any particular Valuation Period.
DATE OF ISSUE -- The date the Contract is issued, as shown on the Contract
Schedule Page.
DUE PROOF OF DEATH -- A certified copy of a death certificate, a certified
copy of a decree of a court of competent jurisdiction as to the finding of
death, or a written statement by the attending physician or any other proof
satisfactory to the Company will constitute Due Proof of Death.
ELIGIBLE FUNDS -- Mutual funds, shares of which currently may be purchased for
the Variable Account.
FMR -- Fidelity Management & Research Company, the investment advisor to the
Funds.
FIDELITY INSURANCE -- Fidelity Insurance Agency, Inc., through which the Con-
tracts are distributed.
FIDELITY BROKERAGE -- Fidelity Brokerage Services, Inc., which is the princi-
pal underwriter for the contracts, and through which the Contracts are dis-
tributed.
FIXED ANNUITY PAYMENTS -- Payments made pursuant to an Annuity Option which do
not fluctuate in amount.
FORMERLY ELIGIBLE FUNDS -- Mutual funds, shares of which were purchased for
the Variable Account prior to September 25, 1981.
NET INVESTMENT FACTOR -- An index applied to measure the investment perfor-
mance of a Sub-account from one Valuation Period to the next.
NET PURCHASE PAYMENT -- A Purchase Payment less any applicable charges, such
as the initial administrative charge and any premium taxes.
PURCHASE PAYMENT -- An amount paid to the Company by the Contract Owner or on
the Contract Owner's behalf as consideration for the benefits provided by the
Contract.
SUB-ACCOUNT -- A segregated account within the Variable Account which invests
in a portfolio of an Eligible Fund.
VALUATION PERIOD -- The period of time from one determination of Accumulation
Unit and Annuity Unit values to the next subsequent determination of values.
Such determination shall be made as of the close of trading on the New York
Stock Exchange on each day that the Exchange is open for trading.
VARIABLE ACCOUNT -- Fidelity Variable Annuity Account, a separate account es-
tablished by the Company and registered as a unit investment trust under the
Investment Company Act of 1940 to which Net Purchase Payments under the Con-
tracts are allocated.
VARIABLE ANNUITY -- An annuity with Variable Annuity Payments which vary as to
dollar amount in relation to the investment performance of specified Sub-ac-
counts within the Variable Account.
VARIABLE ANNUITY PAYMENTS -- Payments made pursuant to an Annuity Option which
fluctuate based on the investment performance of selected Sub-accounts.

INC-3
<PAGE>

QUESTIONS AND ANSWERS ABOUT THE CONTRACT
Note: The following section contains brief questions and answers about the
Contract. Reference should be made to the body of this Prospectus for more de-
tailed information. "You" or "your" refers to the Contract Owner, "we," "us"
or "our" refers to the Company.

1. WHAT IS THE PURPOSE OF THE CONTRACT?

The Contract seeks to allow you to accumulate funds on a tax-deferred basis
and to receive Annuity Payments based on the investment experience of the as-
sets underlying the Contract. The Contract may only be purchased on a non-tax
qualified basis for use with retirement plans and other long-term investment
objectives. The Contract Owner can allocate Net Purchase Payments to one or
more Sub-accounts of the Fidelity Variable Annuity Account (the "Variable Ac-
count"), each of which will invest in a corresponding portfolio of the Vari-
able Insurance Products Fund, the Variable Insurance Products Fund II and the
Variable Insurance Products Fund III ("VIP," "VIP II," "VIP III" or the
"Funds"). Because Variable Annuity Payments and Contract Values depend on the
investment experience of the selected Sub-accounts, the Contract Owner bears
the entire investment risk under this Contract.

2. WHAT IS AN ANNUITY?

An annuity provides for a stream of Annuity Payments beginning on the Annuity
Commencement Date. The Contract Owner may select from a number of Annuity Op-
tions, including Annuity Payments for the life of an Annuitant (or an Annui-
tant and another person, the "Joint Annuitant") with or without a guaranteed
number of Annuity Payments. Annuity Payments which remain the same throughout
the payment period are referred to in this Prospectus as "Fixed Annuity Pay-
ments." Annuity Payments which vary in accordance with the investment experi-
ence of the Sub-account selected by the Contract Owner are referred to in this
Prospectus as "Variable Annuity Payments." (See "Annuity Options," p. 22.)

3. WHAT INVESTMENTS SUPPORT THE CONTRACTS?

Currently, Purchase Payments made under the Contracts will be invested
through the Variable Account exclusively in shares of the Funds, which are mu-
tual funds advised by Fidelity Management & Research Company ("FMR"). The
Funds currently have thirteen Portfolios that are available under the Con-
tracts. VIP currently offers five Portfolios: Money Market, High Income, Equi-
ty-Income, Growth, and Overseas. VIP II currently offers five Portfolios: In-
vestment Grade Bond, Asset Manager, Asset Manager Growth, Contrafund and Index
500. VIP III currently offers three Portfolios: Balanced, Growth Opportunities
and Growth & Income. Each of the thirteen Sub-accounts of the Variable Account
invests in the corresponding Portfolio of the Funds. The assets of each Port-
folio are held separately from other Portfolios and each has distinct invest-
ment objectives and policies (see "The Variable Insurance Products Fund, the
Variable Insurance Products Fund II, and the Variable Insurance Products Fund
III," p. 13) which are described in the accompanying Prospectuses for the
Funds.

4. HOW ARE PURCHASE PAYMENTS ALLOCATED?
Net Purchase Payments are allocated in accordance with the Contract Owner's
instructions. Any allocation of the initial Net Purchase Payment must be of at
least $1,000 to each Sub-account selected. Allocations of subsequent Net Pur-
chase Payments may be made in any manner, so long as any contribution to a
Sub-account is at least $500. Allocations of subsequent Net Purchase Payments
may be changed by sending written notice to the Administrative and Service Of-
fice or if

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you have previously authorized it, by telephone. (See "Allocation and Reallo-
cation of Net Purchase Payments," p. 17.)

5. CAN I TRANSFER VALUES AMONG THE SUB-ACCOUNTS?

A Contract Owner may reallocate the Contract Value allocated to a particular
Sub-account to one or more other Sub-accounts at any time either in writing
or, if you have previously authorized it, by telephone. (See "Allocation and
Reallocation of Net Purchase Payments," p. 17.)

6. HOW CAN I GET TO MY MONEY IF I NEED IT?

All or part of the Contract Value under the Contract may be withdrawn before
the earlier of the Annuitant's death or the Annuity Commencement Date. The
amount of the cash withdrawal payment will be equal to the Contract Value at
the end of the Valuation Period during which the election becomes effective,
or the lesser amount requested. None of the amount surrendered will be subject
to a surrender charge. (See "Surrenders," p. 18.) Withdrawals may be taxable
and subject to a 10% penalty tax. (See "Surrenders," p. 18 and "Federal Tax
Matters," p. 24.)

7. WHAT ARE THE CHARGES AND DEDUCTIONS UNDER THE CONTRACT?

There is no sales charge under the Contract. We deduct a daily charge equal
to a percentage of the value of the net assets in the Variable Account for the
mortality risks assumed by us. The effective annual rate of this charge is
0.8%. (See "Charges for Mortality Risk," p. 19.) WE GUARANTEE THAT THIS CHARGE
WILL NOT BE INCREASED.

The Company also deducts an annual administrative charge from the Contract
Value of each Contract to cover the costs of administering the Contract. The
annual administrative charge currently is $35. (See "Administrative Charge,"
p. 19.) This charge could increase in the future.

Premium taxes are deducted from Purchase Payments or Contract Values depend-
ing upon when they are incurred by the Company. (See "Deductions for Taxes" p.
20.)

The Contract Values also reflect the charges, fees and expenses of the Fund.
(See "The Variable Insurance Products Fund, the Variable Insurance Products
Fund II and the Variable Insurance Products Fund III Expenses," p. 20.) See
also the Expense Data Summary on page 7.

8. WHAT ANNUITY INCOME OPTIONS ARE AVAILABLE UNDER THE CONTRACT?
The Contract Owner, or the person selected by the Contract Owner (the Annui-
tant), may receive Annuity Payments on a variable basis or a fixed basis. The
Contract Owner has flexibility in choosing the Annuity Commencement Date.
Four Annuity Options are included in the Contract: (1) life annuity; (2)
joint and survivor annuity; (3) life annuity with 120 or 240 monthly payments
guaranteed; and (4) cash or unit refund life annuity. All of these are offered
as either "Fixed Annuity Options" or "Variable Annuity Options."

Fixed Annuity Payments will always be for the same specified amount. However,
the amount of Variable Annuity Payments will increase or decrease according to
the investment experience of the particular Sub-account(s) selected. (See "An-
nuity Options," p. 22.)

9. WHAT HAPPENS IF THE ANNUITANT DIES BEFORE THE ANNUITY COMMENCEMENT DATE?
In the event that the Annuitant dies prior to the Annuity Commencement Date,
the Death Benefit is calculated and is payable, upon receipt of notice of
death, Due Proof of Death, and an election as to how the proceeds should be
paid, to the Beneficiary selected by the Contract Owner. The named Beneficiary
may be changed at any time before the Annuitant's death; the Annuitant named
in the Contract, however, may not be changed. The Death Benefit is not reduced
by the application of any

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surrender charge. The Death Benefit may be paid as either a lump sum cash ben-
efit or under an Annuity Option (See "Death Benefit," p. 20.)

10. WHAT HAPPENS IF THE CONTRACT OWNER DIES BEFORE THE ANNUITY COMMENCEMENT
DATE?

If the Contract Owner is a different person than the Annuitant, in the event
that the Contract Owner dies prior to the Annuity Commencement Date, his en-
tire interest in the Contract will be distributed to the Contingent Contract
Owner if one is appointed, or to the estate of the Contract Owner. The Con-
tract Owner may appoint or change the Contingent Contract Owner at any time
prior to the Annuity Commencement Date. Regardless of whether the Contract
Owner is a different person than the Annuitant, upon the death of the Contract
Owner, the value of the Contract must be distributed pursuant to rules pre-
scribed by the Internal Revenue Code of 1986, as amended. Special rules apply
where the beneficiary of the Contract Owner's estate is the surviving spouse
of the deceased Contract Owner. (See "IRS Required Distributions," p. 21.)

11. CAN THE CONTRACT BE RETURNED AFTER IT IS DELIVERED?
The Contract contains a provision for a Right to Return the Contract, which
permits cancellation by returning the Contract to us, along with a written no-
tice of revocation, at our Administrative and Service Office within 10 days of
receipt of the Contract. In the event of cancellation, we will return all Pur-
chase Payments made under the Contract within ten days after we receive notice
of cancellation.

12. WHO DO I CALL IF I HAVE ANY QUESTIONS ABOUT MY CONTRACT?
Any question about procedures of your Contract will be answered by our Admin-
istrative and Service Office. For service and account information, call toll
free, 800-634-4672. For information and assistance regarding sales informa-
tion, please call, toll free, 800-544-2442.

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FIDELITY VARIABLE ANNUITY ACCOUNT

The charges and deductions under the Contracts, including the Portfolios'
fees and expenses, are summarized in the following table.

FEE TABLE

<TABLE>
<CAPTION>
EXPENSE DATA VIP VIP VIP VIP II VIP II
CONTRACT OWNER MONEY HIGH EQUITY- VIP VIP INVESTMENT ASSET
TRANSACTION EXPENSES MARKET INCOME INCOME GROWTH OVERSEAS GRADE BOND MANAGER
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Load on Purchase
Payments 0 0 0 0 0 0 0
Deferred Sales Load 0 0 0 0 0 0 0
Surrender Fees 0 0 0 0 0 0 0
Annual Contract Fee __________________ $35 Per Contract ________________________________
Transfer Fee 0 0 0 0 0 0 0
VARIABLE ACCOUNT
(as a percentage of
contract value)
Mortality and Expense
Risk Fees 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
Account Fees and
Expenses 0 0 0 0 0 0 0
---- ---- ---- ---- ---- ---- ----
Total Variable Account
Annual Expenses 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
==== ==== ==== ==== ==== ==== ====
VIP, VIP II AND VIP III
FUNDS
ANNUAL EXPENSES
(as a percentage of
average net assets)
Management Fee 0.21% 0.59% 0.51% 0.61% 0.76% 0.45% 0.64%
Other Expenses 0.09% 0.12% 0.07% 0.08% 0.17% 0.13% 0.10%
---- ---- ---- ---- ---- ---- ----
Total Fund Annual
Expenses 0.30% 0.71% 0.58%* 0.69%* 0.93%* 0.58% 0.74%*
==== ==== ==== ==== ==== ==== ====
<CAPTION>
VIP II
EXPENSE DATA ASSET VIP II VIP III VIP III
CONTRACT OWNER MANAGER VIP II INDEX VIP III GROWTH GROWTH &
TRANSACTION EXPENSES GROWTH CONTRAFUND 500 BALANCED OPPORTUNITIES INCOME
<S> <C> <C> <C> <C> <C> <C>
Sales Load on Purchase
Payments 0 0 0 0 0 0
Deferred Sales Load 0 0 0 0 0 0
Surrender Fees 0 0 0 0 0 0
Annual Contract Fee __________________ $35 Per Contract _______________________
Transfer Fee 0 0 0 0 0 0
VARIABLE ACCOUNT
(as a percentage of
contract value)
Mortality and Expense
Risk Fees 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
Account Fees and
Expenses 0 0 0 0 0 0
---- ---- ---- ---- ---- ----
Total Variable Account
Annual Expenses 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
==== ==== ==== ==== ==== ====
VIP, VIP II AND VIP III
FUNDS
ANNUAL EXPENSES
(as a percentage of
average net assets)
Management Fee 0.65% 0.61% 0.13% 0.48% 0.61% 0.50%
Other Expenses 0.22% 0.13% 0.15% 0.24% 0.16% 0.20%
---- ---- ---- ---- ---- ----
Total Fund Annual
Expenses 0.87%* 0.74%* 0.28%** 0.72%* 0.77%* 0.70%
==== ==== ==== ==== ==== ====
</TABLE>
- -----------

* A portion of the brokerage commissions that the funds pay is used to reduce
fund expenses. In addition, Balanced and Growth Opportunities have entered
into arrangements with their custodians whereby interest earned on
uninvested cash balances is used to reduce custodian expense. Including
these reductions, the total operating expenses presented in the table would
have been .56% for Equity-Income Portfolio, .67% for Growth Portfolio, .92%
for Overseas Portfolio, .73% for Asset Manager Portfolio, .71% for
Contrafund Portfolio, .85% for Asset Manager Growth Portfolio, .76% for
Growth Opportunities Portfolio, and .71% for Balanced Portfolio.

** FMR agreed to reimburse a portion of Index 500 Portfolio's expenses during
the period. Without this reimbursement, the fund's management fee, other
expenses and total expenses would have been .28%, .15% and .43% respec-
tively.

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<PAGE>

EXAMPLES

An Owner would pay the following expenses on a $1,000 investment, assuming a
5% annual return on assets:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
VIP Money Market Subaccount $12 $36 $ 63 $139
VIP High Income Subaccount $16 $49 $ 84 $185
VIP Equity-Income Subaccount $14 $45 $ 78 $170
VIP Growth Subaccount $16 $48 $ 83 $182
VIP Overseas Subaccount $18 $56 $ 96 $208
VIP II Investment Grade Bond Subaccount $14 $45 $ 78 $170
VIP II Asset Manager Subaccount $16 $50 $ 86 $188
VIP II Asset Manager Growth Subaccount $17 $54 $ 93 $202
VIP II Contrafund Subaccount $16 $50 $ 86 $188
VIP II Index 500 Subaccount $11 $36 $ 62 $136
VIP III Balanced Subaccount $16 $49 $ 85 $186
VIP III Growth Opportunities Subaccount $16 $51 $ 88 $191
VIP III Growth & Income Subaccount $19 $58 $100 $216
</TABLE>

The above tables are intended to assist the Owner in understanding the costs
and expenses that will be borne, directly or indirectly. These include the ex-
penses of the VIP, VIP II and VIP III Funds. See "Charges and Deductions," p.
5 and the VIP, VIP II, and VIP III prospectuses. In addition to the expenses
listed above, premium taxes may be applicable.

THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EX-
PENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The
figures and data for the VIP, VIP II, and VIP III Funds Annual Expenses are
for 1996 and have been provided by FMR, and while the Company does not dispute
these figures, the Company does not guarantee their accuracy. Examples for
formerly eligible Sub-accounts may be found in Appendix A to this Prospectus.

In these examples, the $35 Annual Service Charge is reflected as a charge of
0.039% based on an average Policy Value of $88,935.

INC-8
<PAGE>

CONDENSED FINANCIAL INFORMATION

The Accumulation Unit Values and the number of Accumulation Units outstanding
for each Sub-account:

<TABLE>
<CAPTION>
VIP MONEY MARKET SUB-ACCOUNT
----------------------------------------------------------------------
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
<S> <C> <C> <C>
1996 $2.307819 $2.413358 51,936,943.182
1995 2.196945 2.307819 48,392,069.066
1994 2.124046 2.196945 65,884,206.476
1993 2.073920 2.124046 38,531,933.669
1992 2.011998 2.073920 46,920,555.357
1991 1.911406 2.011998 52,846,585.564
1990 1.783014 1.911406 61,584,581.853
1989 1.646165 1.783014 49,315,212.043
1988 1.545254 1.646165 46,119,586.661
1987 1.463177 1.545254 44,988,833.709
</TABLE>

<TABLE>
<CAPTION>
VIP HIGH INCOME SUB-ACCOUNT
----------------------------------------------------------------------
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
<S> <C> <C> <C>
1996 $2.904665 $3.285775 18,704,131.149
1995 2.427652 2.904665 19,488,862.806
1994 2.485444 2.427652 17,337,052.330
1993 2.078934 2.485444 26,114,121.248
1992 1.703009 2.078934 20,668,821.606
1991 1.269032 1.703009 9,450,159.190
1990 1.310687 1.269032 6,894,970.437
1989 1.380187 1.310687 10,504,655.711
1988 1.244613 1.380187 12,374,735.048
1987 1.239420 1.244613 10,524,351.054
</TABLE>

<TABLE>
<CAPTION>
VIP EQUITY-INCOME SUB-ACCOUNT
----------------------------------------------------------------------
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
<S> <C> <C> <C>
1996 $2.951686 $3.346303 68,119,423.617
1995 2.202346 2.951686 81,601,359.509
1994 2.073414 2.202346 74,571,142.757
1993 1.768091 2.073414 70,574,621.050
1992 1.523641 1.768091 49,654,509.443
1991 1.168338 1.523641 22,551,293.495
1990 1.390307 1.168338 15,320,204.431
1989 1.194265 1.390307 17,192,667.422
1988 0.978927 1.194265 12,203,910.523
1987 1.001137 0.978927 11,135,126.597
</TABLE>

INC-9
<PAGE>

<TABLE>
<CAPTION>
VIP GROWTH SUB-ACCOUNT
----------------------------------------------------------------------
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
<S> <C> <C> <C>
1996 $3.331228 $3.790532 38,326,955.306
1995 2.480539 3.331228 43,498,210.261
1994 2.500812 2.480539 37,916,994.644
1993 2.111765 2.500812 37,369,691.127
1992 1.947218 2.111765 37,625,493.719
1991 1.348850 1.947218 24,177,587.154
1990 1.540465 1.348850 15,340,498.596
1989 1.181690 1.540465 9,534,230.020
1988 1.028662 1.181690 6,262,868.956
1987 1.001140 1.028662 6,695,752.199
</TABLE>

<TABLE>
<CAPTION>
VIP OVERSEAS SUB-ACCOUNT
----------------------------------------------------------------------
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
<S> <C> <C> <C>
1996 $1.747454 $1.962599 18,498,493.052
1995 1.605980 1.747454 18,307,714.844
1994 1.591344 1.605980 35,747,520.597
1993 1.168866 1.591344 36,890,355.495
1992 1.319600 1.168866 4,705,928.756
1991 1.229709 1.319600 4,170,995.265
1990 1.261608 1.229709 4,324,803.282
1989 1.007020 1.261608 2,450,169.365
1988 0.938767 1.007020 1,829,968.620
1987* 1.000000 0.938767 1,908,059.653
</TABLE>
*Operations commenced January 27, 1987

<TABLE>
<CAPTION>
VIP II INVESTMENT GRADE BOND SUB-ACCOUNT
----------------------------------------------------------------------
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
<S> <C> <C> <C>
1996 $1.669036 $1.708442 9,681,784.561
1995 1.433937 1.669036 10,019,780.574
1994 1.501802 1.433937 8,539,290.351
1993 1.364252 1.501802 11,685,281.879
1992 1.289396 1.364252 7,725,407.154
1991 1.115679 1.289396 8,683,076.207
1990 1.059709 1.115679 3,887,531.807
1989* 1.000000 1.059709 1,710,458.331
</TABLE>
*Operations commenced June 5, 1989

INC-10
<PAGE>

<TABLE>
<CAPTION>
VIP II ASSET MANAGER SUB-ACCOUNT
----------------------------------------------------------------------
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
<S> <C> <C> <C>
1996 $1.823774 $2.073401 37,212,616.412
1995 1.571804 1.823774 45,933,251.411
1994 1.687107 1.571804 76,955,562.944
1993 1.404870 1.687107 90,364,012.115
1992 1.265768 1.404870 27,180,037.717
1991 1.041041 1.265768 12,676,645.581
1990* 1.000000 1.041041 989,833.209
</TABLE>
*Operations Commenced May 29, 1990

<TABLE>
<CAPTION>
VIP II ASSET MANAGER GROWTH SUB-ACCOUNT
----------------------------------------------------------------------
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
<S> <C> <C> <C>
1996 $1.009935 $1.201587 7,788,605.432
1995* 1.000000 1.009935 2,178,270.748
</TABLE>
*Period from September 5, 1995 through December 31, 1995

<TABLE>
<CAPTION>
VIP II CONTRAFUND SUB-ACCOUNT
----------------------------------------------------------------------
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
<S> <C> <C> <C>
1996 1.017954 $1.224976 42,901,139.435
1995* 1.000000 1.017954 20,570,759.262
</TABLE>
*Period from September 1, 1995 through December 31, 1995

<TABLE>
<CAPTION>
VIP II INDEX 500 SUB-ACCOUNT
----------------------------------------------------------------------
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
<S> <C> <C> <C>
1996 $1.096624 $1.336134 23,088,441.156
1995* 1.000000 1.096623 8,432,120.348
</TABLE>
*Period from September 5, 1995 through December 31, 1995

<TABLE>
<CAPTION>
VIP III BALANCED SUB-ACCOUNT*
----------------------------------------------------------------------
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
<S> <C> <C> <C>
</TABLE>
*Had not commenced operations as of December 31, 1996.

<TABLE>
<CAPTION>
VIP III GROWTH OPPORTUNITIES SUB-ACCOUNT*
----------------------------------------------------------------------
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
<S> <C> <C> <C>
</TABLE>
*Had not commenced operations as of December 31, 1996.

<TABLE>
<CAPTION>
VIP III GROWTH & INCOME SUB-ACCOUNT*
----------------------------------------------------------------------
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
<S> <C> <C> <C>
</TABLE>
*Had not commenced operations as of December 31, 1996.

INC-11
<PAGE>

FINANCIAL STATEMENTS

The financial statements of the Variable Account and the Company and the in-
dependent auditors' reports thereon are in the Statement of Additional Infor-
mation.

PFL LIFE INSURANCE COMPANY AND THE FIDELITY
VARIABLE ANNUITY ACCOUNT

THE COMPANY
PFL Life Insurance Company (the "Company") is a stock life insurance company
organized under the laws of the State of Iowa on April 19, 1961. The Company
offers a complete line of life insurance, annuities, and accident and health
insurance. It is currently authorized to sell variable annuities in the Dis-
trict of Columbia and Guam and in all states other than New York. The Company
is an indirect wholly-owned subsidiary of AEGON USA, Inc., 4333 Edgewood Road
N.E., Cedar Rapids, Iowa 52499, which is, in turn, an indirect wholly-owned
subsidiary of AEGON N.V., Mariahoeveplein 50, P.O. Box 202, 2501 CE The Hague,
The Netherlands, a holding company organized under the laws of The Nether-
lands.

THE VARIABLE ACCOUNT

The Fidelity Variable Annuity Account (the "Variable Account") was estab-
lished by an affiliate (Pacific Fidelity Life Insurance Company) under Cali-
fornia insurance law on August 24, 1979. On March 31, 1991, the Company ac-
quired the assets (and liabilities) of that affiliate, including the Variable
Account. As of December 31, 1996 the Company had assets of approximately $7.9
billion.
The Variable Account is registered with the Securities and Exchange Commis-
sion (the "Commission") as a unit investment trust pursuant to the provisions
of the Investment Company Act of 1940 and meets the definition of a separate
account under federal securities laws. Such registration does not involve su-
pervision of the management of the Variable Account or the Company by the Com-
mission.
Under Iowa insurance law, the income, gains or losses of the Variable Account
are credited to or charged against the assets of the Variable Account without
regard to the other income, gains or losses of the Company. Although the as-
sets maintained in the Variable Account will not be charged with any liabili-
ties arising out of any other business conducted by the Company, all obliga-
tions arising under the Contracts, including the promise to make annuity pay-
ments, are general corporate obligations of the Company.

Currently, the Company invests the assets of the Variable Account that sup-
port the Contracts in shares of one or more mutual funds (the "Eligible
Funds") that have been approved by the Company's Board of Directors. Shares of
the Eligible Funds will be purchased at net asset value. Currently, the only
Eligible Funds are the Variable Insurance Products Fund, the Variable Insur-
ance Products Fund II, and the Variable Insurance Products Fund III (the
"Funds"), but other mutual funds may be added or withdrawn as permitted by
law. The Variable Account currently offers thirteen sub-accounts that invest
exclusively in corresponding portfolios of the Funds: VIP currently offers
five Portfolios: Money Market, High Income, Equity-Income, Growth, and Over-
seas; VIP II currently offers five Portfolios: Investment Grade Bond, Asset
Manager, Asset Manager Growth, Contrafund, and Index 500, and VIP III cur-
rently offers three Portfolios: Balanced, Growth Opportunities and Growth &
Income (the "Sub-accounts"). Additional sub-accounts may be established at the
Company's discretion.

INC-12
<PAGE>

The Company does not guarantee the investment performance of the Variable Ac-
count. The Contract Value and the amount of Variable Annuity Payments depend
on the investment performance of the assets of the Funds. Because each Con-
tract Owner bears the full investment risk associated with the Variable Ac-
count, there can be no assurance concerning the amount of Variable Annuity
Payments under the Contract.

Prior to September 25, 1981, the assets of certain sub-accounts of the Vari-
able Account were invested in mutual funds (the "Formerly Eligible Funds")
other than the Funds. Contracts funded by these sub-accounts, which invest in
the Formerly Eligible Funds, are no longer offered, and no additional assets
of the Variable Account will be invested in shares of the Formerly Eligible
Funds. The following is a list of the Formerly Eligible Funds, which corre-
spond to these sub-accounts of the Variable Account: Fidelity Daily Income
Trust; Fidelity Cash Reserves; Fidelity Government Securities Fund, Ltd.; and
Fidelity Capital and Income Fund. Further information about the Formerly Eli-
gible Funds can be found in the Formerly Eligible Funds' individual fund pro-
spectuses. The remaining assets of the Variable Account are currently invested
exclusively in shares of the Funds.

THE VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II, AND
VARIABLE INSURANCE PRODUCTS FUND III

The available Sub-accounts of the Variable Account invest exclusively in
shares of the Funds. The Funds are diversified, open-end management investment
companies organized as Massachusetts Business Trusts. The Variable Insurance
Product Fund was established on November 13, 1981, and was formerly known as
Fidelity Cash Reserves II. The Variable Insurance Products Fund II was estab-
lished on March 21, 1988. The Variable Insurance Products Fund III was estab-
lished on July 14, 1994, and prior to December 30, 1996 was known as the Fi-
delity Advisor Annuity Fund.
Certain information concerning the Funds is set forth below. More detailed
information may be found in the Funds' current prospectuses which accompany or
precede this Prospectus and the Funds' current Statements of Additional Infor-
mation. The following description is qualified in its entirety by reference to
each Fund's prospectus and Statement of Additional Information wherein more
detailed information may be found.

Fidelity Management & Research Company ("FMR") provides investment advice and
administrative services to the Funds pursuant to an agreement under which each
Portfolio pays FMR a monthly fee. FMR also provides investment advice and ad-
ministrative services to the Formerly Eligible Funds for a fee similar to the
ones applicable to the Portfolios of the Funds. The Variable Insurance Prod-
ucts Fund currently offers five Portfolios: Money Market Portfolio; High In-
come Portfolio; Equity-Income Portfolio; Growth Portfolio; and Overseas Port-
folio. The Variable Insurance Products Fund II currently offers five portfo-
lios that are available under the Contracts: the Investment Grade Bond Portfo-
lio (formerly known as the Short-Term Portfolio), Asset Manager Portfolio, As-
set Manager Growth, Contrafund, and Index 500. The Variable Insurance Products
Fund III currently offers three Portfolios: Balanced, Growth Opportunities and
Growth & Income. The thirteen Portfolios offered by the Funds provide a range
of investment alternatives that vary according to the different investment ob-
jectives described in the Funds' prospectuses and summarized below. The assets
of each Portfolio are separate from the others, and each Portfolio has sepa-
rate investment objectives and policies. As a result, each Portfolio operates
as a separate investment fund, and the

INC-13
<PAGE>

investment performance of one Portfolio has no effect on the investment per-
formance of any other Portfolio. Each of the Portfolios may not be available
for investment in every state.

VIP MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income
as is consistent with preserving capital and liquidity. The Portfolio will in-
vest only in high-quality U.S. dollar dominated money market instruments of
domestic and foreign insurers. The Portfolio seeks to maintain a constant net
asset value of $1.00 per share although no assurances can be given that such
constant net asset value will be maintained. The Portfolio's shares are nei-
ther insured nor guaranteed by the U.S. Government.

VIP HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by
investing primarily in high-yielding, lower rated, fixed-income securities. In
choosing these securities, growth of capital also will be considered. The
Portfolio may invest without limitation in lower-quality debt securities,
sometimes called "junk bonds" which carry greater risk than other debt securi-
ties. See the Funds' prospectus for a description of these risks.

VIP EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the Portfo-
lio will also consider the potential for capital appreciation. The Portfolio's
goal is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's Composite Index of 500 Stocks.

VIP GROWTH PORTFOLIO seeks to achieve capital appreciation through the pur-
chase of common stocks, although the Portfolio's investments are not re-
stricted to any one type of security. Capital appreciation may also be found
in other types of securities, including bonds and preferred stocks.

VIP OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through
investments in foreign securities. The Portfolio seeks to achieve its invest-
ment objective by investing at least 65% of the Portfolio's assets in securi-
ties of companies from at least three different countries outside of North
America. The Overseas Portfolio expects to invest most of its assets in secu-
rities of companies located in developed countries in these general areas: The
Americas (other than the United States), the Far East and Pacific Basin, Scan-
dinavia and Western Europe. Generally, the investment in securities of foreign
companies will involve greater risks than are present in domestic investments.

VIP II INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current in-
come as is consistent with the preservation of capital by investing in invest-
ment-grade fixed income securities. Its dollar weighted average maturity will
be ten years or less. The Portfolio will not invest in securities rated below
Baa by Moody's Investor's Service, Inc. or rated below BBB by Standard &
Poor's Corporation and unrated securities judged by FMR to be of equivalent
quality.

VIP II ASSET MANAGER PORTFOLIO seeks high total return with reduced risk over
the long term by allocating its assets among domestic and foreign stocks,
bonds and short-term fixed income instruments.

VIP II ASSET MANAGER: GROWTH PORTFOLIO seeks maximum total return over the
long term by allocating its assets among an aggressive mix of domestic and
foreign stocks, bonds and short-term fixed income instruments.

VIP II CONTRAFUND PORTFOLIO seeks long-term capital appreciation by investing
in equity securities of companies considered undervalued or out-of-favor by
the Fund's advisor.

VIP II INDEX 500 PORTFOLIO seeks to provide investment results that corre-
spond to the total return (i.e. the combination of capital changes and income)
of common stocks publicly traded in the United States. In seeking this objec-
tive, the portfolio attempts to duplicate the composition and total return of
the Standard & Poor's 500 Composite Stock Price Index.

INC-14
<PAGE>

VIP III BALANCED PORTFOLIO seeks both income and growth of capital by invest-
ing in a broad selection of stocks, bonds, and convertible securities. When
FMR's outlook is neutral, it will invest approximately 60% of the fund's as-
sets in equity securities, and will always invest at least 25% of the fund's
assets in fixed-income securities.

VIP III GROWTH OPPORTUNITIES PORTFOLIO seeks capital growth by investing in a
wide range of common stocks, convertible and foreign securities and bonds that
may offer long-term growth potential.

VIP III GROWTH & INCOME PORTFOLIO seeks high total return through a combina-
tion of current income and capital appreciation by investing mainly in equity
securities. The fund may also invest in equity securities that are not paying
current dividends, but offer potential for capital appreciation of future in-
come.

THERE IS NO ASSURANCE THAT ANY OF THE FUNDS' PORTFOLIOS WILL ACHIEVE ITS IN-
VESTMENT OBJECTIVE.
The Funds' prospectuses should be read carefully before any decision is made
concerning the allocation of Purchase Payments to a particular Portfolio. The
Funds are not limited to selling their shares to the Variable Account and are
permitted to accept investments from any separate account of an insurance com-
pany. Since the Portfolios of the Funds are available to registered separate
accounts offering variable annuity products of the Company, as well as vari-
able annuity and variable life products of other insurance companies, there is
a possibility that a material conflict may arise between the interests of the
Variable Account and one or more of the separate accounts of another partici-
pating insurance company. In the event of a material conflict, the affected
insurance companies agree to take any necessary steps, including removing
their separate accounts from the Funds, to resolve the matter. See the Funds'
prospectuses for further details.

PERFORMANCE
Performance information for the variable Sub-accounts may appear in reports
and advertising to current and prospective Contract Owners. The performance
information is based on historical investment experience of the Sub-accounts
and the Portfolios and does not indicate or represent future performance.
Total returns are based on the overall dollar or percentage change in value
of a hypothetical investment. Total return quotations reflect changes in Port-
folio share price, the automatic reinvestment by the separate account of all
distributions and the deduction of applicable administrative and mortality
charges.
An average annual total return reflects the hypothetical annually compounded
return that would have produced the same cumulative total return if the per-
formance had been constant over the entire period. Because average annual to-
tal returns tend to smooth out variations in Sub-account's returns, you should
recognize that they are not the same as actual year-by-year results.
The Money Market Sub-account may advertise its current and effective yield.
Current yield reflects the income generated by an investment in the Sub-ac-
count over a 7-day period. Effective yield is calculated in a similar manner
except that income earned is assumed to be reinvested. This income is
annualized and shown as a percentage. Yields do not take into account capital
gains or losses. The standard quotations of yield reflect the administrative
and mortality charges.
Additional information regarding yields and total returns calculated using
the standard formats briefly summarized above is contained in the Statement of
Additional Information, a copy of which may be obtained from PFL.

INC-15
<PAGE>

ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
If the shares of the Funds or the Formerly Eligible Funds should no longer be
available for investment or, if in the judgment of the Company's management,
further investment in the Eligible Funds' share should become inappropriate in
view of the purposes of the Contract, then the Company may substitute shares
of another fund for shares already purchased, or to be purchased in the fu-
ture, under the Contract. No substitution of securities in any sub-account may
take place except to the extent permitted by law. To the extent required by
the Investment Company Act of 1940, substitutions of shares attributable to a
Contract Owner's interest in a sub-account will not be made until the Contract
Owner has been notified of the change and prior approval of the Securities and
Exchange Commission is obtained.
New sub-accounts may be established when, in the sole discretion of the Com-
pany, marketing, tax, investment or other conditions so warrant. Any new sub-
accounts will be made available to existing Contract Owners on a basis to be
determined by the Company. Each additional sub-account will purchase shares in
a Portfolio of the fund or in another mutual fund or investment vehicle. The
Company may also eliminate one or more sub-accounts if, in its sole discre-
tion, marketing, tax, investment or other conditions so warrant.
In the event of any such substitution or change, the Company may, by appro-
priate endorsement, make such changes in the Contracts as may be necessary or
appropriate to reflect such substitutions or change. Furthermore, if deemed to
be in the best interests of persons having voting rights under the Contracts,
the Variable Account may be operated as a management company under the 1940
Act or any other form permitted by law, or it may be deregistered under such
Act in the event such registration is no longer required.

THE CONTRACTS

PURCHASE OF THE CONTRACTS
The Contracts may be purchased by mailing in a completed, signed application
to the Company, along with a check for the initial investment. Purchase Pay-
ments are payable at the Administrative and Service Office of the Company des-
ignated on the cover page. The initial Purchase Payment must be at least
$5,000. Subsequent Purchase Payments must be at least $500. Except for these
limitations, there are no restrictions on the amount or frequency of Purchase
Payments under a Contract.
If an application is complete upon receipt, the Contract Owner will receive a
Contract based on the price next determined after the application and initial
Purchase Payment are received. If an incomplete application is received, the
Company will notify the applicant by phone or mail to request the information
necessary to complete the application. Once the application is completed, the
Contract Owner will receive a Contract based on the price next determined af-
ter the application was made complete. If, after five days, the application
remains incomplete, the Company will return the applicant's initial Purchase
Payment unless it obtains the applicant's permission to retain the initial
Purchase Payment pending completion of the application.
A Contract shall automatically be continued in full force during the lifetime
of the Annuitant until the Annuity Commencement Date or until the Contract is
surrendered. Unless the Contract Owner has surrendered the Contract, Purchase
Payments may be made at any time during the life of the Annuitant and before
the Annuity Commencement Date.

INC-16
<PAGE>

ALLOCATION AND REALLOCATION OF NET PURCHASE PAYMENTS
Net Purchase Payments are allocated among the Sub-accounts of the Variable
Account that have been selected by the Contract Owner. The Purchase Payment,
less the administrative charge deducted upon payment, and less any deduction
for premium taxes, equals the Net Purchase Payment. Upon allocation to a Sub-
account, Net Purchase Payments are converted into Accumulation Units of the
Sub-account. The number of Accumulation Units to be credited is determined by
dividing the dollar amount allocated to each Sub-account by the value of a Ac-
cumulation Unit for that Sub-account as next determined after the Purchase
Payment is received at the Administrative and Service Office, or in the case
of the initial Purchase Payment, when the Contract application is completed,
whichever is later.
Contract Owners (or their designated account executive) can make transfers
and/or change the allocation of subsequent premium payments by telephone if
the "Telephone Transfer/Reallocation Authorization" box in the application has
been checked or telephone transfers have been subsequently authorized in writ-
ing. PFL and/or the Administrative and Service Office will not be liable for
following instructions communicated by telephone that it reasonably believes
to be genuine. However, PFL and/or the Administrative and Service Office will
employ reasonable procedures to confirm that instructions communicated by tel-
ephone are genuine. If PFL and/or the Administrative and Service Office fails
to do so, it may be liable for any losses due to unauthorized or fraudulent
instructions. All telephone requests will be recorded on voice recorder equip-
ment for the protection of the Contract Owner. A Contract Owner, when making
telephone requests may be required to provide their social security number
and/or other information for identification purposes.
Telephone requests must be received at the Administrative and Service Office
no later than 3:00 p.m. Central Standard time in order to assure same day
pricing of the transaction.
The telephone transaction privilege may be discontinued at any time as to
some or all Contracts and PFL may require written confirmation of a transac-
tion request.
When a reallocation is requested, the redemption of the requested amount from
out of the Sub-account and Portfolio in which the amount had been invested
will always be effected as of the end of the Valuation Period in which the re-
quest is received at our Administrative and Service Office. That amount will
generally be credited to the new Sub-account and Portfolio at the same time.
However, when (1) you are making a transfer to any Portfolio that accrues div-
idends on a daily basis and (2) the equity portfolio from which the transfer
is being made is in an illiquid position due to substantial redemptions or
transfers that require it to sell portfolio securities in order to make funds
available, then the crediting of the amount transferred to the new Sub-account
may be delayed until the Portfolio from which the transfer is being made ob-
tains liquidity through the earlier of the Portfolio's receipt of proceeds
from sales of Portfolio securities, new contributions by contract Owners, or
otherwise, but no longer than seven days. During this period, the amount
transferred will be uninvested.

There are currently thirteen Sub-accounts, each corresponding to one of the
thirteen Portfolios of the Funds, each representing a different investment al-
ternative. (See "The Variable Insurance Products Fund, Variable Insurance
Products Fund II, and Variable Insurance Products Fund III" p. 13.) In allo-
cating the initial Purchase Payment among the Sub-accounts, the Contract Owner
must allocate a minimum contribution of $1,000 to each Sub-account selected.
Subsequent Net Purchase Payments may be allocated among the Sub-accounts in
any manner, so long as any contribution to a selected Sub-account is at least
$500. A Contract Owner may subsequently reallocate the value of a designated
number of Accumulation Units of a Sub-account then credited

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to a Contract, into an equal value of Accumulation Units of one or more other
Sub-accounts. The reallocation shall be based on the relative value of the Ac-
cumulation Units of the Sub-accounts at the end of business on the day the re-
quest is received by the Company.
On the Date of Issue of the Contract, the Contract Value equals the value of
the Net Purchase Payment. Thereafter, the Contract Value is determined by mul-
tiplying the number of Accumulation Units of each Sub-account credited to the
Contract by the current value of an Accumulation Unit for that Sub-account.
The number of Accumulation Units is increased by any Net Purchase Payments and
decreased by the annual administrative charge, any premium taxes deducted and
any full or partial surrenders.

VALUE OF ACCUMULATION UNITS
The Accumulation Units of each Sub-account of the Variable Account are valued
separately. The value of Accumulation Units may change each Valuation Period
according to the investment performance of the shares purchased by each Sub-
account and the deduction of certain charges.
A Valuation Period is the period beginning at the close of trading on the New
York Stock Exchange on each Valuation Date and ends at the close of trading on
the next succeeding Valuation Date. A Valuation Date is each day that the New
York Stock Exchange is open for business.
The value of an Accumulation Unit in a Sub-account for any Valuation Period
equals the value of the Accumulation Unit as of the immediately preceding Val-
uation Period, multiplied by the Net Investment Factor for that Sub-account
for the Valuation Period for which the Accumulation Unit value is being calcu-
lated. The Net Investment Factor is a number representing the change in the
value of Sub-account assets on successive Valuation Dates due to investment
income, realized or unrealized capital gains or losses, deductions for taxes,
if any, and deductions for the Mortality Risk Charge.

SURRENDERS
At any time before the Annuity Commencement Date and during the lifetime of
the Annuitant, the Contract Owner may elect to surrender all or any portion of
the Contract Value in exchange for a cash withdrawal payment from the Company.
Any such election shall be in writing in such form as the Company may require
and shall specify the amount of the cash withdrawal payment. At the Contract
Owner's request, the Company will provide a form to request a surrender and to
notify the Company of the Contract Owner's election whether to have federal
income taxes withheld. Such an election will be effective on the date that it
is received by the Company at its Administrative and Service Office.
The amount of the cash withdrawal payment will be equal to the Contract Value
at the end of the Valuation Period during which the election becomes effec-
tive, or the lesser amount requested. The cash withdrawal payment will result
in the liquidation of Accumulation Units with an aggregated value equal to the
dollar amount of the cash withdrawal payment. Unless instructed to the con-
trary, the Company will liquidate Accumulation Units of all Sub-accounts
within the Variable Account in the same proportion that the cash withdrawal
payment bears to the Contract Value.

Any cash withdrawal payment will be paid within seven (7) days from the date
the surrender request becomes effective, except as the Company may be permit-
ted to defer such payment in accordance with the Investment Company Act of
1940. (See "Suspension of Payment," p. 27.) Payments under the Contract of any
amounts derived from Purchase Payments made by check, may be delayed until
such time as the check has cleared your bank. If at the time that the Contract
Owner makes a partial or full surrender request, he or she has not provided
the Company with a

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<PAGE>

written election not to have federal income taxes withheld, the Company must
by law withhold such taxes from the taxable portion of any full or partial
surrender and remit that amount to the federal government. Moreover, the In-
ternal Revenue Code provides that a 10% penalty tax may be imposed on certain
early surrenders. (See "Federal Tax Matters," p. 24.)

RIGHT TO RETURN THE CONTRACT

The Contract Owner may cancel the Contract within ten (10) days after it is
delivered to the Contract Owner by delivering or mailing the Contract and a
written notice of revocation to the Company at its Administrative and Service
Office. In the event of cancellation, the Company will return all Purchase
Payments made under the Contract within seven (7) days after it receives writ-
ten notice of cancellation and the returned Contract.

CONTRACT CHARGES

No deduction for sales charges is made from Purchase Payments or upon surren-
der. As more fully described below, charges under the contracts are assessed
(1) against the initial Purchase Payments and annually thereafter from the
Contract Value for administrative expenses, and (2) against the assets of the
Variable Account for the assumption of mortality risk. Premium taxes, if any,
are deducted from the Purchase Payment or the Contract Value at the time they
are incurred by the Company and the Company reserves the right to make deduc-
tions from the Variable Account for income tax liabilities resulting from the
operation of the Variable Account.
Costs of distributing the Contracts will be paid from the Company's general
assets. These assets may include proceeds from the mortality charge described
below. The Company incurs certain costs, including the obligation to pay cer-
tain insurance commissions in connection with the distribution of the Con-
tracts.

ADMINISTRATIVE CHARGE
The Company performs the administrative services for the Contracts and the
Variable Account. These services include issuance of the Contracts, mainte-
nance of records concerning the Contracts, and valuation services. An adminis-
trative charge to cover these expenses is deducted from the initial Purchase
Payment and annually thereafter from the Contract Value. The current annual
administrative charge is $35.00.
When the Contract Owner makes the initial investment in the Contract, a pro
rata portion of the annual charge for the current year will be deducted from
the Purchase Payments. Annually thereafter, on the last day of each year, the
annual charge for the next calendar year will be deducted. No part of the an-
nual charge will be refunded upon termination of a Contract. In the states of
Pennsylvania and South Carolina the annual charge will never exceed $35.00 for
Contracts issued in connection with the delivery of this Prospectus.

PRIOR TO THE ANNUITY COMMENCEMENT DATE, THE ADMINISTRATIVE CHARGE IS NOT
GUARANTEED AND, SUBJECT TO LIMITS IMPOSED BY STATE LAW, MAY CHANGE OVER THE
YEARS THE CONTRACT IS IN FORCE.

CHARGES FOR MORTALITY RISK
The mortality risk assumed by the Company arises from the contractual obliga-
tion to continue to make annuity payments to each Annuitant regardless of how
long the Annuitant lives and regardless of how long all Annuitants as a group
live. Although Variable Annuity Payments made to Annuitants will vary in ac-
cordance with the investment performance of the Funds (or the Formerly Eligi-
ble

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<PAGE>

Funds), they will not be affected by the mortality experience of persons re-
ceiving such payments or of the general population. This assures each Annui-
tant that neither the longevity of fellow Annuitants nor an improvement in
life expectancy generally will have an adverse effect on the Variable Annuity
Payments received under the Contracts. The Company assumes this mortality risk
by virtue of annuity payment rates incorporated in the Contract. These rates
cannot be changed. (See "Statement of Additional Information -- Annuity Pay-
ment Rates," p. 6.)
For assuming this mortality risk, the Company deducts from the daily net as-
set value of the Variable Account an amount, computed on a daily basis, which
is equal to an effective annual rate of 0.8%. If this amount is insufficient
to cover the actual costs, the loss will be borne by the Company; conversely,
if the amount deducted proves more than sufficient, the excess will be a
profit to the Company. To the extent that this charge results in a profit to
the Company, such profit will be available for use by the Company for, among
other things, the payment of distribution, sales and other expenses. The level
of this charge is guaranteed and will not change. A mortality risk charge is
assessed during the annuity phase for all options including those that do not
carry a life contingency.

DEDUCTIONS FOR TAXES
Any premium taxes or other similar taxes (herein collectively referred to as
"premium taxes") levied by any governmental entity as a result of the exist-
ence of the Contracts will be deducted from Contract Values when incurred.
Premium taxes are generally levied at the Annuity Commencement Date. As of the
date of this prospectus, the current range of state premium taxes is from 0.0%
to 3.5%.
The Company does not expect to incur any federal income tax liability attrib-
utable to investment income or capital gains retained as part of the reserve
under the Contracts. Based on these expectations, no charge is being made cur-
rently to the Variable Account for corporate federal income taxes which may be
attributable to Variable Account. However, if the tax laws change such that
there is tax liability, the Company may review from time to time the need to
make a charge for any taxes attributable to the income of the Variable Ac-
count.
Under present laws, the Company does not incur state or local taxes (other
than premium taxes), and therefore, does not charge for these taxes. If there
is a change in state or local tax laws, charges for such taxes, if any, at-
tributable to the Variable Account may be made.

THE VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II AND
VARIABLE INSURANCE PRODUCTS FUND III EXPENSES
The value of the assets in the Variable Account will reflect the value of the
Funds' (or the Formerly Eligible Fund) shares and, therefore, the fees and ex-
penses paid by the Funds (or the Formerly Eligible Fund). A complete descrip-
tion of the expenses and deductions from the portfolios are found in the indi-
vidual Fund prospectuses.

BENEFITS UNDER THE CONTRACT

DEATH BENEFIT
In the event of the death of the Annuitant prior to the Annuity Commencement
Date, the Company, upon receipt of Due Proof of Death of the Annuitant, will
pay a death benefit to the Beneficiary designated by the Contract Owner. If
the death of the Annuitant occurs on or after the Annuity Commencement Date,
no death benefit will be payable under the Contract except as may be provided
under the Annuity Option elected.

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<PAGE>

The death benefit payable in the event of the death of the Annuitant prior to
the Annuity Commencement Date is equal to the Contract Value. The Accumulation
Unit values used in determining the amount of death benefit will be the values
for the next subsequent Valuation Period following the date all of the items
listed below have been received by the Company: written notice of death of the
Annuitant; Due Proof of Death of the Annuitant; and an election to pay the
proceeds as a single cash payment or under an Annuity Option.
If no election as to how the proceeds should be paid was made by the Contract
Owner prior to the Annuitant's death, the Beneficiary may elect one of the An-
nuity Options or a lump sum cash payment within 90 days after the Company re-
ceives notification of death. To comply with federal tax law, however, the
Beneficiary must choose an Annuity Option within 60 days after the lump sum
first became payable in order to receive favorable tax treatment.

IRS REQUIRED DISTRIBUTIONS
For Contracts issued on or after January 19, 1985, federal tax law requires
that if the Contract Owner or any Joint Contract Owner dies before the Annuity
Commencement Date, the entire value of the Contract must generally be distrib-
uted within five (5) years of the date of death of the Contract Owner or the
Joint Contract Owner. Special rules may apply to spouses of the deceased own-
er. See the Statement of Additional Information for a detailed description of
these rules.

ANNUITY PAYMENTS

ANNUITY COMMENCEMENT DATE
Unless the Annuity Commencement Date is changed, Annuity Payments under a
Contract will begin on the Annuity Commencement Date which is selected by the
Contract Owner at the time the Contract is applied for. The Annuity Commence-
ment Date may be changed from time to time by the Contract Owner by written
notice to the Company, provided that notice of each change is received by the
Company at its Administrative and Service Office at least thirty (30) days
prior to the then current Annuity Commencement Date. Except as otherwise per-
mitted by the Company, a new Annuity Commencement Date must be a date which
is: (1) at least thirty (30) days after the date notice of the change is re-
ceived by the Company; (2) the first day of a month; and (3) not later than
the first day of the first month following the Annuitant's 75th birthday. Cur-
rently, the Company permits the new Annuity Commencement Date to begin as late
as the first day of the first month following the Annuitant's 85th birthday.
The Annuity Commencement Date may also be changed by the Beneficiary's elec-
tion of the Annuity Option after the Annuitant's death.

ELECTION OF ANNUITY OPTIONS
During the lifetime of the Annuitant and prior to the Annuity Commencement
Date, the Contract Owner may elect any one of the Annuity Options described in
this Prospectus. The Contract Owner may also change any election, but written
notice of any election or change of election must be received by the Company
at its Administrative and Service Office at least thirty (30) days prior to
the Annuity Commencement Date. If no election is in effect on the thirtieth
day prior to the Annuity Commencement Date, Annuity Option 3 for a life annu-
ity with 120 monthly payments guaranteed will be deemed to have been elected
on a variable basis. At such time as one of the Annuity Options under the Con-
tract may become operative, a supplementary agreement will be issued by the
Company setting forth the terms of the option elected.
During the lifetime of the Annuitant, the Contract Owner may elect that all
or any part of the Death Benefit be applied under any one of the Annuity Op-
tions listed in the Contract or in any other

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manner agreeable to the Company. If no election as to the Annuity Option has
been selected by the Contract Owner at the time of death of the Annuitant,
such an election may be made by the Beneficiary.

ANNUITY OPTIONS
Annuity payments may be made under any one of the Annuity Options described
below or in any other manner agreeable to the Company. Annuity payments will
be made on either a fixed basis or a variable basis as selected by the Con-
tract Owner (or the Beneficiary, after the Annuitant's death). The effect of
choosing a Fixed Annuity Option is that the amount of each payment will be set
on the Annuity Commencement Date and will not change. If a Fixed Annuity Op-
tion is selected, the Contract Value will be transferred to the general ac-
count of the Company, and the annuity payments will be fixed in amount and du-
ration by the fixed annuity provisions selected and the age and sex of the An-
nuitant. For further information, contact the Company at its Administrative
and Service Office.
The Contract provides four Annuity Options which are described below; howev-
er, the Contract Owner may not select more than one. All of these are offered
as either "Fixed Annuity Options" or "Variable Annuity Options." Under Annuity
Options 1 and 2, it would be possible for only one annuity payment to be made
if the Annuitant(s) were to die before the due date of the second annuity pay-
ment, only two annuity payments if the Annuitant(s) were to die before the due
date of the third annuity payment, and so forth. Therefore, under Annuity Op-
tions 1 and 2 the Contract Value may not be returned.
ANNUITY OPTION 1 -- Life Annuity: This option provides monthly payments dur-
ing the lifetime of the Annuitant ceasing with the last payment due prior to
the death of the Annuitant. This option offers the highest level of monthly
payments because no further payments are payable after the death of the Annui-
tant and there is no provision for a death benefit payable to a Beneficiary.
ANNUITY OPTION 2 -- Joint and Survivor Annuity: This option provides monthly
payments during the joint lifetime of the Annuitant and designated second per-
son and during the lifetime of the survivor. As in the case of Annuity Option
1, there is no guaranteed number of payments and there is no provision for a
death benefit payable to a Beneficiary under this option.

ANNUITY OPTION 3 -- LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED:
This option provides monthly payments during the lifetime of the Annuitant and
in any event for one hundred twenty (120) or two hundred forty (240) months
certain as elected. In the event of the death of the Annuitant under this op-
tion, the Contract provides that any guaranteed monthly payments will be paid
to the Beneficiary during the remaining months of the term selected, provided
that the Beneficiary may, at any time, elect to receive the discounted value
of the remaining payments, if any, in one sum. The discounted value for Fixed
or Variable Annuity Payments will be based on interest compounded annually at
the applicable assumed interest rate used in determining the first annuity
payment. (See "Determination of Annuity Payments," p. 23.) Upon the death of a
Beneficiary receiving annuity benefits under this option, the present value of
the guaranteed number of payments remaining after the Company receives notice
of the death of the Beneficiary, computed at the applicable assumed interest
rate shall be paid in a lump sum to the estate of the Beneficiary. Such pres-
ent value is computed as of the Valuation Period during which notice of the
death of the Beneficiary is received by the Company at its Administrative and
Service Office.
ANNUITY OPTION 4 -- Cash or Unit Refund Life Annuity: This option provides
monthly payments during the lifetime of the Annuitant terminating with the
last payment due prior to the death

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of the Annuitant. An additional payment will be made to the Beneficiary which
for a Variable Annuity will equal the Annuity Unit value as of the date that
notice of death of the Annuitant in writing is received by the Company at its
Administrative and Service Office, multiplied by the excess, if any, of (a)
over (b) where (a) is the Contract Value applied at the Annuity Commencement
Date under this option, divided by the Annuity Unit Value as of the Annuity
Commencement Date, and (b) is the product of the number of Annuity Units rep-
resented by each Variable Annuity Payment paid to the Annuitant and the number
of Variable Annuity Payments made. For Fixed Annuity Payments, the Annuity
Unit Value shall be $1. Therefore, (a) is the Contract Value as of the Annuity
Commencement Date, while (b) is the sum of all Fixed Annuity Payments made.

DETERMINATION OF ANNUITY PAYMENTS
On the Annuity Commencement Date the Contract's Annuity Purchase Value will
be applied to provide for Annuity Payments under the selected annuity option
as specified. The Annuity Purchase Value will be equal to the Contract Value
for the Valuation Period which ends immediately preceding the Annuity Com-
mencement Date, reduced by an applicable premium or similar taxes.
Fixed Annuity Payments are determined by the Annuity Payment rates based on
the current assumed rate of interest as determined by the Company at the Annu-
ity Commencement Date. The assumed interest rate may be changed upon the
Company's discretion; however, the minimum guaranteed interest rate is 3.5%.
If, at the time the annuity payments begin, the Contract Owner has not pro-
vided the Company with a written election not to have federal income taxes
withheld, the Company must by law withhold such taxes from the taxable portion
of such annuity payments and remit that amount to the federal government.
The dollar amount of the first Variable Annuity Payment will be determined in
accordance with the annuity payment rates based on the assumed interest rate
selected by the Annuitant. Under the Contract, the Annuitant has some flexi-
bility in choosing the assumed rate of interest to be used in connection with
the Variable Annuity Payments. The Annuitant may choose among interest rates
offered by the Company at the Annuity Commencement Date. Currently, the Com-
pany offers assumed interest rates of 3.5% and 7.5%.
If the Annuitant chooses a higher assumed interest rate, as compared to
choosing the lowest rate offered, Variable Annuity Payments would start at a
higher level but would increase more slowly and decrease more rapidly. There-
fore, election of a higher assumed rate of interest would result in a higher
first monthly Variable Annuity Payment, but would increase the possibility of
reduced future payments during the periods when net investment performance of
the Sub-account did not exceed the higher assumed rate of interest.
All Variable Annuity Payments other than the first are calculated using Annu-
ity Units which are credited to the Contract. The number of Annuity Units to
be credited in respect of a particular Sub-account is determined by dividing
that portion of the first Variable Annuity Payment attributable to that Sub-
account by the Annuity Unit value of that Sub-account for the Valuation Period
which ends immediately preceding the Annuity Commencement Date. The number of
Annuity Units of each particular Sub-account credited to the Contract then re-
mains fixed. The dollar amount of each Variable Annuity Payment after the
first may increase, decrease or remain constant, and is equal to the sum of
the amounts determined by multiplying the number of Annuity Units of each par-
ticular Sub-account credited to the Contract by the Annuity Unit value for the
particular Sub-account for the Valuation Period which ends immediately preced-
ing the due date of each subsequent payment. Furthermore, after the Annuity
Commencement Date, the Contract Owner may reallocate all or part

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of the values held in one Sub-account to one or more other Sub-accounts. (See
Statement of Additional Information -- "Reallocation of Contract Values after
the Annuity Commencement Date", p. 5.)

ADJUSTMENT OF ANNUITY PAYMENTS
If the Contract Value on the Annuity Commencement Date is less than $5,000,
the Company may pay such value in one sum in lieu of the payments otherwise
provided for. If the Contract Value is not less than $5,000, but the payments
provided for would be or become less than $50, the Company may change, at its
discretion, the frequency of payments to such intervals as will result in pay-
ments of at least $50.

FEDERAL TAX MATTERS

INTRODUCTION
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE.
The Contracts are designed for use by individuals in retirement plans which
will not be qualified plans under the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"). The ultimate effect of federal income taxes
on the Contract Value, on Variable Annuity Payments and on the economic bene-
fit to the Contract Owner, Annuitant or Beneficiary depends on the tax status
of both the Company and the individual concerned. The discussion contained
herein is general in nature and is not intended as tax advice. Each person
concerned should consult a competent tax adviser. No attempt is made to con-
sider any applicable state or other tax laws. The discussion contained herein
reflects the Company's understanding of current federal income tax laws appli-
cable to the Company and to variable annuity contracts used in connection with
retirement plans which are not qualified plans under the Code. Moreover, the
discussion herein is limited to a consideration of the taxation of variable
annuity contracts funded by investments in shares of the Funds. The discussion
contained herein does not attempt to discuss the tax treatment applicable to
variable annuity contracts funded by investments in shares of the Formerly El-
igible Funds which is different from the treatment discussed herein. No repre-
sentation is made regarding the likelihood of continuation of current federal
income tax laws or the current interpretations by the Internal Revenue Serv-
ice. THE COMPANY DOES NOT MAKE ANY GUARANTEE REGARDING ANY TAX STATUS, FEDER-
AL, STATE OR LOCAL, OF ANY CONTRACT OR ANY TRANSACTION INVOLVING THE CON-
TRACTS.

TAXATION OF ANNUITIES IN GENERAL
THE FOLLOWING DISCUSSION ASSUMES THAT THE CONTRACTS WILL QUALIFY AS AN ANNU-
ITY CONTRACT FOR FEDERAL INCOME TAX PURPOSES. THE STATEMENT OF ADDITIONAL IN-
FORMATION DISCUSSES SUCH QUALIFICATIONS.

An annuity Contract Owner generally is not taxed on increases in the value of
a Contract until distribution occurs, either in the form of a cash payment re-
ceived by withdrawing all or part of the cash value or as annuity payments un-
der the annuity option elected. For this purpose, the assignment or pledge of,
or the agreement to assign or pledge, any portion of the value of a Contract
will be treated as a distribution. The taxed portion of a distribution (in the
form of a lump sum payment or an annuity) is taxed as ordinary income. Howev-
er, for purchase payments made after February 28, 1986, an owner of a Contract
who is not a natural person (subject to limited exceptions) generally will be
taxed on any increase in the Contract's Contract value during the

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taxable year, even if no distribution occurs. There are, however, exceptions
to this rule which you may wish to discuss with your tax counsel. The follow-
ing discussion applies to Contracts owned by natural persons.
Except as provided below, in the case of a partial withdrawal under a Con-
tract, amounts received are first treated as taxable income to the extent that
the Contract Value of the Contract immediately before the withdrawal exceeds
the "investment in the contract" at that time. Any additional amount withdrawn
is not taxable. However, in the case of a withdrawal under a Contract issued
before August 14, 1982, and allocable to an "investment in the contract" made
before that date, amounts received are treated as taxable income only to the
extent that they exceed the "investment in the contract." Upon a full surren-
der of the Contract, amounts received in excess of the "investment in the con-
tract" will be treated as taxable income. The "investment in the contract"
generally equals the portion, if any, of any Purchase Payment paid by or on
behalf of an individual under a Contract which is not excluded from the indi-
vidual's gross income.
Although the tax consequences may vary depending on the form of annuity se-
lected under the Contract, the recipient of an Annuity Payment under a Con-
tract generally is taxed on the portion of such payment that exceeds the "in-
vestment in the contract." For Variable Annuity Payments, the taxable portion
is determined by a formula that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
"investment in the contract" by the total number of expected periodic pay-
ments. For Fixed Annuity Payments, in general, there is no tax on the amount
of each payment which represents the same ratio that the "investment in the
contract" bears to the total expected value of the Annuity Payment for the
term of the payment; however, the remainder of each Annuity Payment is tax-
able. For individuals whose Annuity Commencement Date is after December 31,
1986, any distribution received subsequent to the investment in the Contract
being recovered will be fully taxable.

There may be imposed a penalty tax on distributions equal to ten percent
(10%) of the amount treated as taxable income. The penalty tax is not imposed
in certain circumstances, which generally include: (1) distributions received
on or after owner's age 59 1/2, death of the owner, or disability of the own-
er; (2) distributions received in substantially equal installments as a life
annuity (subject to special "recapture" rules if the series of payments is
subsequently modified), and (3) distributions allocable to the "investment in
the contract" and attributable earnings thereon before August 14, 1982.

DEATH BENEFIT.

Amounts may be distributed from a Contract because of the death of an Annui-
tant or Contract Owner. Generally, such amounts are includable in the income
of the recipient as follows: (i) if distributed in a lump sum, they are taxed
in the same manner as a full withdrawal, as described above, or (ii) if dis-
tributed under an annuity option, they are taxed in the same manner as annuity
payments, as described above. For these purposes, the investment in the Con-
tract is not affected by the Owner's or Annuitant's death. That is, the in-
vestment in the Contract remains the amount of any Purchase Payments paid
which were not excluded from gross income.
The Company will withhold and remit to the U.S. Government a part of the tax-
able portion of each distribution made under a Contract unless the Contract
Owner or Annuitant notifies the Company at or before the time of the distribu-
tion that he or she chooses not to have any amounts withheld.

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<PAGE>

All non-qualified, deferred annuity contracts issued by the same company (or
an affiliated company) to the same owner during any calendar year shall be
treated as one annuity contract, and "aggregated" for purposes of determining
the amount includable in gross income.
The foregoing comments about the federal income tax consequences under Con-
tracts issued by the Company are not exhaustive, and special rules apply in
other situations not discussed in this Prospectus. The discussion herein also
reflects the Company's understanding of current law. No assurance can be given
that the present deferred tax treatment of variable annuity contracts will re-
main unaffected by future actions of Congress. Accordingly, a prospective pur-
chaser should consult a qualified tax adviser.

PROPOSED TAX LEGISLATION
In past years, legislation has been proposed in the U.S. Congress that would
have adversely modified the federal taxation of certain annuities. For exam-
ple, one such proposal would have changed the tax treatment of non-qualified
annuities that did not have "substantial life contingencies" by taxing income
as it is credited to the annuity. Although as of the date of this Prospectus
Congress was not actively considering any legislation regarding the taxation
of annuities, there is always the possibility that the tax treatment of annui-
ties could change by legislation or other means (such as IRS regulations, rev-
enue rulings, judicial decisions, etc.). Moreover, it is also possible that
any change could be retroactive (that is, effective prior to the date of the
change).

GENERAL PROVISIONS

OWNERSHIP OF THE CONTRACT
The Contract shall belong to the Contract Owner upon issuance of the Contract
after completion of an application and delivery of the initial Purchase Pay-
ment. Prior to the Annuity Commencement Date, the Contract Owner shall be the
person so designated in the application. A Contract Owner may appoint another
person (the "Contingent Contract Owner") to succeed to ownership of the Con-
tract in the event of the death of the Contract Owner prior to the Annuity
Commencement Date. The Contract Owner may appoint or change the Contingent
Contract Owner or Beneficiary at any time prior to the Annuity Commencement
Date. All Contract rights and privileges may be exercised by the Contract
Owner without the consent of the Beneficiary or any other person. Such rights
and privileges may be exercised only during the lifetime of the Annuitant and
prior to the Annuity Commencement Date, except as otherwise provided in the
Contract. The Annuitant becomes the Contract Owner on and after the Annuity
Commencement Date. The Beneficiary becomes the Contract Owner on the death of
the Annuitant.

ASSIGNMENT
During the lifetime of the Annuitant, the Contract Owner may assign any
rights or benefits provided by the Contract. An assignment will not be binding
on the Company until a copy has been filed at its Administrative and Service
Office. The rights and benefits of the Contract Owner and Beneficiary are sub-
ject to the rights of the assignee. The Beneficiary may not assign any payment
under the Contract before the payment becomes due.

BENEFICIARY
The Beneficiary designation contained in the application will remain in ef-
fect until changed. The interest of any Beneficiary is subject to the particu-
lar Beneficiary surviving the Annuitant. The Contract Owner may change or re-
voke the designation of a Beneficiary at any time while the

INC-26
<PAGE>

Annuitant is living by filing with the Company a written beneficiary designa-
tion or revocation in such form as the Company may require. The change or rev-
ocation will not be effective and binding upon the Company until it is re-
ceived by the company at its Administrative and Service Office. The Annuitant
named in the Contract, however, may not be changed.

AMENDMENTS
The Company reserves the right to amend the Contracts to meet the require-
ments of the Investment Company Act of 1940 or other applicable federal or
state laws or regulations. No contract may be modified by the Company without
the consent of the Contract Owner except as may be required by applicable law.

SUSPENSION OF PAYMENT
The Company reserves the right to suspend or postpone the date of any payment
of death benefits or cash withdrawals (1) for any period during which the New
York Stock Exchange is closed (other than customary week-end and holiday
closings) or during which trading on the New York Stock Exchange is restricted
as determined by the Securities and Exchange Commission; (2) for any period
during which an emergency exists as a result of which disposal of securities
held in any separate account is not reasonably practicable, or it is not rea-
sonably practicable to fairly determine the value of such assets; or (3) for
such other periods as the Securities and Exchange Commission may by order per-
mit for the protection of security holders or as may be permitted under the
Investment Company Act of 1940.

NON-PARTICIPATING
The Contracts are non-participating. No dividends are payable and the Con-
tracts will not share in the profits or surplus earnings of the Company.

MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant or Designated Annuitant has been misstat-
ed, the Company will change the annuity benefit payable to that which the Pur-
chase Payments would have purchased for the correct age or sex. The dollar
amount of any underpayment made by the Company shall be paid in full with the
next payment due such person or the Beneficiary. The dollar amount of any
overpayment made by the Company due to any misstatement shall be deducted from
payments subsequently accruing to such person or the Beneficiary. The age of
the Annuitant or Designated Annuitant may be established at any time by the
submission of proof satisfactory to the Company.

DISTRIBUTION OF CONTRACTS

The Contracts will be sold by licensed insurance agents in those states where
the Contracts may be lawfully sold. Such agents will be registered representa-
tives of broker-dealers registered under the Securities Exchange Act of 1934
which are members of the National Association of Securities Dealers, Inc. The
Contracts will be distributed through Fidelity Brokerage Services, Inc. ("Fi-
delity Brokerage") and Fidelity Insurance Agency, Inc. ("Fidelity Insurance"),
which are affiliated with FMR. Fidelity Brokerage, the principal underwriter
of the Contracts, is a member of the National Association of Securities Deal-
ers, Inc. Fidelity Distributors Corporation ("Fidelity Distributors"), an af-
filiate of FMR, was incorporated under the laws of Massachusetts on July 18,
1960, is also the distributor of funds in the Fidelity Family of Funds and
other funds advised by FMR and funds advised by other companies. The principal
business address of Fidelity Brokerage, Fidelity Insurance and Fidelity Dis-
tributors is 82 Devonshire Street, Boston, Massachusetts 02109.

INC-27
<PAGE>

The Company has agreed to pay insurance commissions to Fidelity Insurance for
its services as an insurance general agent in distributing the Contracts which
will equal 0.55% on an annual basis of the daily net asset value of the Vari-
able Account. Fidelity Insurance may appoint subagents to whom it will pay a
portion of its commissions.

VOTING RIGHTS AND REPORTS

In accordance with its view of present applicable law, the Company will vote
the Funds' shares and the Formerly Eligible Fund shares held in the Variable
Account at regular and special meetings of shareholders of the Funds and the
Formerly Eligible Funds in accordance with instructions received from persons
having a voting interest in the Variable Account. However, if the Investment
Company Act of 1940 or any regulation thereunder should be amended or if the
present interpretation thereof should change, and as a result the Company de-
termines that it is permitted to vote such shares in its own right, it may
elect to do so.
Prior to the Annuity Commencement Date, the Contract Owner exercises the vot-
ing rights under the Contract. After the Annuity Commencement Date, the person
having the voting interest shall be the person then entitled to receive Vari-
able Annuity Payments. Prior to the Annuity Commencement Date, the number of
votes which a person has the right to cast will be determined by applying such
person's percentage interest in a Sub-account to the total number of votes at-
tributable to the Sub-account. After the Annuity Commencement Date, the number
of votes attributable to a Contract is determined by applying the percentage
interest reflected by the reserve for such Contract by the total number of
votes attributable to the Sub-account. After the Annuity Commencement Date the
votes attributable to a Contract decrease as such percentage interest de-
creases. Voting instructions will be solicited by written communications prior
to the date of the meeting at which votes are to be cast.
Shares of the Funds and Formerly Eligible Funds held in a Sub-account as to
which no timely instructions are received or as to which Contract Owners do
not have an interest will be voted by the Company in proportion to the voting
instructions which are received with respect to all Contracts participating in
that Sub-account. Voting instructions to abstain on any item to be voted upon
will be applied on a pro rata basis to reduce the votes eligible to be cast.
Each person having a voting interest in a Sub-account will receive proxy mate-
rial, reports and other material relating to the Funds and the Formerly Eligi-
ble Funds. In addition, every person having voting rights will receive such
reports or prospectuses concerning the Variable Accounts as may be required by
the Investment Company Act of 1940 and the Securities Act of 1933. The Company
will also send such statements reflecting transactions involving the Contract
as may be required by applicable laws, rules and regulations.

LEGAL PROCEEDINGS

No material legal proceedings are pending against the Variable Account, the
Company, its subsidiaries or Fidelity Brokerage.

INC-28
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
PFL Life Insurance Company................................................ 3
The Contracts............................................................. 3
Reallocation of Contract Values After the Annuity Commencement Date...... 3
Accumulation Units....................................................... 3
Illustration of Accumulation Unit Value Calculations..................... 4
Reinvestment of Fund Distributions....................................... 4
Contract Charges.......................................................... 5
Administrative Charge.................................................... 5
Charges for Mortality Risk............................................... 5
Benefits Under the Contract............................................... 5
Death Benefit............................................................ 5
IRS Required Distribution................................................ 6
Annuity Payments.......................................................... 6
Annuity Unit Value....................................................... 6
Annuity Payment Rates.................................................... 6
Illustration of Calculations for Annuity Unit Value and Variable Annuity
Payments............................................................... 6
Performance.............................................................. 7
Total Return............................................................. 8
Yields................................................................... 9
Federal Tax Matters....................................................... 9
Tax Treatment of the Company............................................. 9
Diversification Requirements............................................. 10
Owner Control............................................................ 10
Distribution of the Contracts............................................. 10
Custody of Assets......................................................... 11
State Regulation.......................................................... 11
Records and Reports....................................................... 11
Independent Auditors...................................................... 11
Other Information......................................................... 11
Financial Statements...................................................... 12
</TABLE>

INC-29
<PAGE>

APPENDIX A

FORMERLY ELIGIBLE SUB-ACCOUNTS -- THESE SUB-ACCOUNTS ARE NO LONGER AVAILABLE
FOR INVESTMENT

<TABLE>
<CAPTION>
FIDELITY DAILY INCOME TRUST SUB-ACCOUNT
----------------------------------------------------------------------
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
<S> <C> <C> <C>
1996 $ 3.09412 $3.252838 114,662.042
1995 2.921185 3.094122 131,063.459
1994 2.812357 2.921185 190,668.116
1993 2.736044 2.812357 158,275.684
1992 2.641072 2.736044 243,997.001
1991 2.495176 2.641072 268,694.048
1990 2.313482 2.495176 339,345.456
1989 2.120570 2.313482 323,342.240
1988 1.977108 2.120570 351,832.648
1987 1.860549 1.977108 411,855.441
</TABLE>

<TABLE>
<CAPTION>
FIDELITY CASH RESERVES SUB-ACCOUNT
----------------------------------------------------------------------
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
<S> <C> <C> <C>
1996 $ 3.10811 $3.268738 23,164.006
1995 2.934039 3.108117 23,192.241
1994 2.822897 2.934039 27,720.506
1993 2.742508 2.822897 29,444.337
1992 2.643311 2.742508 47,677.285
1991 2.493319 2.643311 60,818.839
1990 2.312283 2.493319 88,660.193
1989 2.122897 2.312283 102,882.970
1988 1.979215 2.122897 108,627.416
1987 1.859726 1.979215 171,381.094
</TABLE>

<TABLE>
<CAPTION>
FIDELITY GOVERNMENT SECURITIES FUND, LTD. SUB-ACCOUNT
----------------------------------------------------------------------
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
<S> <C> <C> <C>
1996 $ 4.61802 $ N/A 0.000
1995 3.911039 4.618027 8,068.949
1994 4.009576 3.911039 8,076.564
1993 3.676253 4.009576 8,085.472
1992 3.404732 3.676253 8,094.201
1991 2.934545 3.404732 8,103.722
1990 2.678442 2.934545 8,114.001
1989 2.376907 2.678442 8,125.927
1988 2.236112 2.376907 8,138.994
1987 2.213017 2.236112 24,310.778
</TABLE>

INC-30
<PAGE>

<TABLE>
<CAPTION>
FIDELITY CAPITAL AND INCOME FUND SUB-ACCOUNT
----------------------------------------------------------------------
Accumulation Unit Value Accumulation Unit Value Number of Accumulation
at Beginning of Year at End of Year Units at End of Year
<S> <C> <C> <C>
1996 $6.74430 $7.515932 21,049.298
1995 5.777672 6.744302 25,993.308
1994 6.060768 5.777672 35,622.255
1993 4.850494 6.060768 43,008.701
1992 3.785099 4.850494 70,510.002
1991 2.912437 3.785099 94,291.263
1990 3.029998 2.912437 112,223.477
1989 3.130904 3.029998 140,750.477
1988 2.782925 3.130904 175,640.223
1987 2.748078 2.782925 184,937.624
</TABLE>

INC-31
<PAGE>

<TABLE>
<S> <C>
TABLE OF CONTENTS PAGE
DEFINITIONS............................................................... 2
QUESTIONS AND ANSWERS ABOUT THE CONTRACT.................................. 4
EXPENSE DATA SUMMARY...................................................... 7
CONDENSED FINANCIAL INFORMATION........................................... 9
FINANCIAL STATEMENTS...................................................... 12
PFL LIFE INSURANCE COMPANY AND THE FIDELITY VARIABLE ANNUITY ACCOUNT...... 12
The Company.............................................................. 12
The Variable Account..................................................... 12
THE VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND
II....................................................................... 13
Additions, Deletions or Substitutions of Investments..................... 16
THE CONTRACTS............................................................. 16
Purchase of the Contracts................................................ 16
Allocation and Reallocation of Net Purchase Payments..................... 17
Value of Accumulation Units.............................................. 18
Surrenders............................................................... 18
Right to Return the Contract............................................. 19
CONTRACT CHARGES.......................................................... 19
Administrative Charge.................................................... 19
Charges for Mortality Risk............................................... 19
Deductions for Taxes..................................................... 20
The Variable Insurance Products Fund, Variable Insurance Products Fund II
and Variable Insurance Products Fund III Expenses....................... 20
BENEFITS UNDER THE CONTRACT............................................... 20
Death Benefit............................................................ 20
IRS Required Distributions............................................... 21
ANNUITY PAYMENTS.......................................................... 21
Annuity Commencement Date................................................ 21
Election of Annuity Options.............................................. 21
Annuity Options.......................................................... 22
Determination of Annuity Payments........................................ 23
Adjustment of Annuity Payments........................................... 24
FEDERAL TAX MATTERS....................................................... 24
Introduction............................................................. 24
Taxation of Annuities in General......................................... 24
Death Benefit............................................................ 25
Proposed Tax Legislation................................................. 26
GENERAL PROVISIONS........................................................ 26
Ownership of the Contract................................................ 26
Assignment............................................................... 26
Beneficiary.............................................................. 26
Amendments............................................................... 27
Suspension of Payment.................................................... 27
Non-Participating........................................................ 27
Misstatement of Age or Sex............................................... 27
DISTRIBUTION OF CONTRACTS................................................. 27
VOTING RIGHTS AND REPORTS................................................. 28
LEGAL PROCEEDINGS......................................................... 28
STATEMENT OF ADDITIONAL INFORMATION....................................... 29
</TABLE>
FIDELITY
INCOME
PLUS

PROSPECTUS

MAY 1, 1997

INC-32
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

FIDELITY INCOME PLUS

THE FIDELITY VARIABLE ANNUITY ACCOUNT

STATEMENT OF ADDITIONAL INFORMATION FOR THE
INDIVIDUAL VARIABLE ANNUITY CONTRACT

Offered by

PFL LIFE INSURANCE COMPANY

4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001

This Statement of Additional Information supplements the information found
in the current Prospectus for the Individual Variable Annuity Contracts
("Contract") offered by PFL Life Insurance Company. You may obtain a copy of
the Prospectus dated May 1, 1997, without charge by calling Fidelity
Investments; for Sales information call toll free 800-544-2442; for Service
and Account information call toll free 800-634-4672. Terms used in the current
Prospectus for the Contract are incorporated in this Statement.

Dated May 1, 1997
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PROSPECTUS
PAGE PAGE
---- ----------
<S> <C> <C>
PFL Life Insurance Company..................................... 3 12
The Contracts.................................................. 3 16
Reallocation of Contract Values After the Annuity Commence-
ment Date................................................... 3
Accumulation Units........................................... 3 18
Illustration of Accumulation Unit Value Calculations......... 4
Reinvestment of Fund Distributions........................... 4
Contract Charges............................................... 5 19
Administrative Charge........................................ 5 19
Charges for Mortality Risk................................... 5 19
Benefits Under the Contract.................................... 5 20
Death Benefit................................................ 5 20
IRS Required Distribution.................................... 6 21
Annuity Payments............................................... 6 21
Annuity Unit Value........................................... 6
Annuity Payment Rates........................................ 6
Illustration of Calculations for Annuity Unit Value and
Variable Annuity Payments................................... 6
Performance.................................................. 7
Total Return................................................. 8
Yields....................................................... 9
Federal Tax Matters............................................ 9 24
Tax Treatment of the Company................................. 9
Diversification Requirements................................. 10
Owner Control................................................ 10
Distribution of the Contracts.................................. 10 27
Custody of Assets.............................................. 11
State Regulation............................................... 11
Records and Reports............................................ 11
Independent Auditors........................................... 11
Other Information.............................................. 11
Financial Statements........................................... 12
</TABLE>

2
<PAGE>

PFL LIFE INSURANCE COMPANY

PFL Life Insurance Company ("Company") is a stock life insurance company
incorporated under the laws of the State of Iowa on April 19, 1961 under the
name "NN Investors Life Insurance Company, Inc." On January 1, 1991, the name
was changed from NN Investors Life Insurance Company, Inc. to PFL Life
Insurance Company. All of its products, including life insurance, annuities,
and accident and health insurance, have been approved by the various states
where offered.

All of the stock of the Company is indirectly owned by AEGON USA, Inc., an
insurance holding company, which is a wholly-owned indirect subsidiary of
AEGON, N.V., a holding company organized under the laws of The Netherlands and
engaged, through subsidiaries and associated companies, mainly in the
insurance and financial services industries.

THE CONTRACTS

REALLOCATION OF CONTRACT VALUES AFTER THE ANNUITY COMMENCEMENT DATE

After the Annuity Commencement Date, the Contract Owner may reallocate the
value of a designated number of Annuity Units of a Sub-account, then credited
to a Contract, into an equal value of Annuity Units of one or more other Sub-
accounts. The reallocation shall be based on the relative value of the Annuity
Units of the Sub-accounts at the end of the Valuation Date on the next payment
date. The request must be in writing to our Administrative and Service Office.
There is no charge assessed in connection with such reallocation. The Company
reserves the right to limit the number of times a reallocation of Contract
Value may be made in any given calendar year.

ACCUMULATION UNITS

Upon allocation to the selected Sub-account, Net Purchase Payments are
converted into Accumulation Units of the Sub-account. The number of
Accumulation Units to be credited is determined by dividing the dollar amount
allocated to each Sub-account by the value of an Accumulation Unit for that
Sub-account as next determined after the Purchase Payment is received at the
Administrative and Service Office or, in the case of the initial Purchase
Payment, when the Contract application is completed, whichever is later. The
value of an Accumulation Unit was arbitrarily established at $1 at the
inception of each Sub-account. Thereafter, the value of Accumulation Unit is
determined as of the close of trading on each day the New York Stock Exchange
is open for business.

An index (the "Net Investment Factor") which measures the investment
performance of a Sub-account during a Valuation Period is used to determine
the value of an Accumulation Unit for the next subsequent Valuation Period.
The Net Investment Factor may be greater or less than or equal to one;
therefore, the value of an Accumulation Unit may increase, decrease or remain
the same from one Valuation Period to the next. The Contract Owner bears this
investment risk. The Net Investment Performance of a Sub-account and deduction
of certain charges affect the Accumulation Unit Value.

The Net Investment Factor for any Sub-account for any Valuation Period is
determined by dividing (a) by (b) and subtracting (c) from the result. For
purposes of this calculation:

(a) is the net result of:

(1) the net asset value per share of the shares held in the Sub-
account determined at the end of the current Valuation Period, plus

(2) the per share amount of any dividend or capital gain distribution
made with respect to the shares held in the Sub-account if the ex-
dividend date occurs during the current Valuation Period, plus or minus

3
<PAGE>

(3) a per share credit or charge for any taxes determined by the
Company to have resulted from the investment operations of the Sub-
account and for which it has created a reserve;

(b) is the net asset value per share of the shares held in the Sub-
account determined as of the end of the immediately preceding Valuation
Period.

(c) is the charge for mortality risk during the Valuation Period equal on
an annual basis to 0.8% of the daily net asset value of the Sub-account.

ILLUSTRATION OF ACCUMULATION UNIT VALUE CALCULATIONS

FORMULA AND ILLUSTRATION FOR DETERMINING THE NET INVESTMENT FACTOR

Net Investment Factor = A + B - C - E

Where: A = The Net Asset Value of an Underlying Fund share as of the end of
the current Valuation Period.
Assume........................................... = $11.57

B = The per share amount of any dividend or capital gains distribution
since the end of the immediately preceding Valuation Period.
Assume................................................ = 0

C = The per share charge or credit for any taxes reserved for at the
end of the current Valuation Period.
Assume................................................ = 0

D = The Net Asset Value of an Underlying Fund share at the end of the
immediately preceding Valuation Period.
Assume........................................... = $11.40

The daily deduction for mortality risk, which totals 0.8% on an
E = annual basis.
On a daily basis............................. = 0.00002183

Then, the Net Investment Factor = 11.57 + 0 - 0 - 0.00002183 = 1.01489045
-------------
11.40

FORMULA AND ILLUSTRATION FOR DETERMINING ACCUMULATION UNIT VALUE

Accumulation Unit Value = A X B

Where: The Accumulation Unit Value for the immediately preceding
A = Valuation Period.
Assume........................................ = $1.347125

B = The Net Investment Factor for the current Valuation Period.
Assume....................................... = 1.01489045

Then, the Accumulation Unit Value = $1.347125 X 1.01489045
---------
= $1.367184

REINVESTMENT OF FUND DISTRIBUTIONS

The Funds and the Formerly Eligible Funds have as a policy the current
distribution of income and capital gains. However, under the Contracts, there
is an automatic reinvestment of such distributions in the Funds.

4
<PAGE>

CONTRACT CHARGES

ADMINISTRATIVE CHARGE

The Company performs the administrative services for the Contracts. These
services include issuance of the Contracts, maintenance of records concerning
the Contracts, and certain valuation services.

CHARGES FOR MORTALITY RISK

A mortality risk charge equal to an annual charge of 0.8% of the daily net
asset value of the Variable Account is deducted daily.

BENEFITS UNDER THE CONTRACT

DEATH BENEFIT

During the lifetime of the Annuitant and prior to the Annuity Commencement
Date, the Contract Owner may elect to have the Contract Value applied under
any one of the Annuity Options. If no election of a method of settlement of
the death benefit by the Contract Owner is in effect on the date of death of
the Annuitant, the Beneficiary may elect (a) to receive the death benefit in
the form of a cash payment; or (b) to have the Contract Value applied under
one of the Annuity Options subject to the distribution after death rules
described below in the case of Contracts issued after January 18, 1985; or (c)
continue the Contract as the new Contract Owner/Annuitant if the contract was
issued after January 18, 1985, and the Beneficiary was the surviving spouse of
the Annuitant at the time of death. If settlement of the death benefit under
an Annuity Option is elected, the Annuity Commencement Date shall be the date
specified in the election but no later than ninety (90) days after receipt by
the Company of notification of the death of the Annuitant. Either election
described above may be made by filing with the Company a written election in
such form as the Company may require. Any election of a method of settlement
of the death benefit by the Contract Owner will become effective on the date
it is received by the Company at its Administrative and Service Office. Any
election of a method of settlement of the death benefit by the Beneficiary
will become effective on the later of: (a) the date the election is received
by the Company at its Administrative and Service Office: and (b) the date
notification of death and due proof of the death of the Annuitant is received
by the Company. If an election by the Beneficiary is not received by the
Company within ninety (90) days following the date notification of the death
of the Annuitant is received by the Company at its Administrative and Service
Office, the Beneficiary will be deemed to have elected a cash payment as of
the last day of the ninety (90) day period.

If the death benefit is to be paid in cash to the Beneficiary, payment will
be made within seven (7) days of the date the election is deemed to become
effective. If the death benefit is to be paid to the Contract Owner or the
Contract Owner's estate, payment will be made within seven (7) days of the
date Due Proof of Death is received by the Company. Payment will be made in
accordance with any applicable laws and regulations governing payment of death
benefits. Notwithstanding the foregoing, the Company may be permitted to defer
such payment in accordance with the Investment Company Act of 1940.

The taxable portion of a lump sum payment of the death benefit is subject to
tax at ordinary income rates. If the Beneficiary elects to receive the death
benefit under an Annuity Option within sixty (60) days after the death benefit
becomes payable in a lump sum, the Beneficiary will recognize such ordinary
income as payments are received. However, if the election is not made within
sixty (60) days after the lump sum first became payable, the entire death
benefit will be subject to tax in the current tax year, irrespective of
whether the death benefit is actually received as a lump sum or as a series of
payments under an Annuity Option elected.

5
<PAGE>

IRS REQUIRED DISTRIBUTION

If the Contract Owner or any Joint Contract Owner of the Contract dies
before the entire interest in the Contract is distributed, the value of the
Contract must be distributed to the designated beneficiary as described in
this section so that the Contracts qualify as annuities under the Internal
Revenue Code.

For Contracts issued after January 18, 1985, if the death occurs on or after
the Annuity Commencement Date, the remaining portion of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of death. If the death occurs before the Annuity Commencement
Date, the Contract Value generally must be paid out to the beneficiary within
five years after the death. However, if an Annuity Option is elected by the
beneficiary, the Contract Value may be distributed as an annuity over the
lifetime of the beneficiary, as long as the distribution does not extend
beyond the life expectancy of the beneficiary and the distribution begins
within one year after the Contract Owner's (or Joint Contract Owner's) death.
If any portion of the Contract Owner's interest is payable to (or for the
benefit of) the surviving spouse of the Contract Owner, the Contract may be
continued with the surviving spouse as the new Contract Owner. For Contracts
issued before January 19, 1985, the Contract Value will be paid out in
accordance with the Annuity Option elected by the beneficiary.

ANNUITY PAYMENTS

ANNUITY UNIT VALUE

The amount of Variable Annuity Payments will vary with Annuity Unit Values.
Annuity Unit Values rise if the net investment performance of the Sub-account
exceeds the assumed interest rate, which is selected by the Annuitant upon the
Annuity Commencement Date. Conversely, Annuity Unit Values fall if the net
investment performance of the Sub-account is less than the assumed rate.

The Annuity Unit Value of each Sub-account is arbitrarily established at
$1.00 for the first Valuation Period of the particular Sub-account. The
Annuity Unit Value for the particular Sub-account for any Valuation Period is
determined by multiplying the Annuity Unit Value for the particular Sub-
account for the immediately preceding Valuation Period by the Net Investment
Factor for the particular Sub-account for the current Valuation Period, and
then multiplying that product by a factor to neutralize the assumed interest
rate used to establish the annuity payment rate found in the Contract.

ANNUITY PAYMENT RATES

The Contract contains Annuity Payment Rates for each Annuity Option
described in the Prospectus. The rates show, for each $1,000 applied, the
dollar amount of the first monthly Variable Annuity Payment when this payment
is based on the minimum guaranteed interest rate of 3.5% per year. The dollar
amount of subsequent Variable Annuity Payments will depend upon changes in
applicable Annuity Unit Values.

The Annuity Payment Rates vary according to the Annuity Option elected and
the sex and adjusted age of the Annuitant at the Annuity Commencement Date.
The Contract also contains a table for determining the adjusted age of the
Annuitant.

ILLUSTRATION OF CALCULATIONS FOR ANNUITY UNIT VALUE
AND VARIABLE ANNUITY PAYMENTS

FORMULA AND ILLUSTRATION FOR DETERMINING ANNUITY UNIT VALUE

Annuity Unit Value = A x B x C

Where:
A =
Annuity Unit Value for the immediately preceding Valuation Period.
Assume........................................ = $1.097696

6
<PAGE>

B = Net Investment Factor for the Valuation Period for which the
Annuity Unit Value is being calculated.
Assume......................................... = 1.005200

C = A factor to neutralize the assumed interest rate of 3% built into
the Annuity Tables used.
Daily factor equals............................ = 0.999906

Then, the Annuity Unit Value is: $1.097696 x 1.005200 x 0.999906 = $1.103300

FORMULA AND ILLUSTRATION FOR DETERMINING AMOUNT OF
FIRST MONTHLY VARIABLE ANNUITY PAYMENT

First Monthly Variable Annuity Payment = A x B
------
$1,000

Where:
A = The Annuity Purchase Value as of the Annuity Commencement Date.
Assume....................................... = $15,000.00

B = The Annuity purchase rate per $1,000 based upon the option
selected, the sex and adjusted age of the Annuitant according to
the tables contained in the Contract.
Assume............................................ = $6.10

Then, the first Monthly Variable Annuity Payment = $15,000 x $6.10 = $91.50
-------
$ 1,000

FORMULA AND ILLUSTRATION FOR DETERMINING THE NUMBER OF ANNUITY
UNITS REPRESENTED BY EACH MONTHLY VARIABLE ANNUITY PAYMENT

Number of Annuity Units = A
---
B

Where:
A = The dollar amount of the first monthly Variable Annuity Payment.
Assume........................................... = $91.50

B = The Annuity Unit Value for the Valuation Date on which the first
monthly payment is due.
Assume........................................ = $1.103300

Then, the number of Annuity Units = $91.50 = 82.933019
---------
$1.103300

PERFORMANCE

Performance information for any Sub-account may be compared, in reports and
advertising to: (1) the Standard & Poor's Composite Index of 500 Stocks ("S &
P 500"), Dow Jones Industrial Average ("DJIA"), Donoghue's Money Market
Institutional Averages; (2) other variable annuity separate accounts or other
investment products tracked by Lipper Analytical Services, Morningstar, or the
Variable Annuity Research and Data Service, widely used independent research
firms which rank mutual funds and other investment companies by overall
performance, investment objectives, and assets; and (3) the Consumer Price
Index (measure for inflation) to assess the real rate of return from an
investment in a Contract. Unmanaged indices may assume the

7
<PAGE>

reinvestment of dividends but generally do not reflect deductions for annuity
charges and investment management costs.

Performance information may be quoted numerically or in a table, graph, or
similar illustration. Reports and advertising may also contain other
information including (i) the ranking of any Sub-account derived from rankings
of variable annuity separate accounts or other investment products tracked by
Lipper Analytical Services or by rating services, companies, publications or
other persons who rank separate accounts or other investment products on
overall performance or other criteria, and (ii) the effect of tax deferred
compounding on a Sub-account's investment returns, or returns in general,
which may be illustrated by graphs, charts, or otherwise, and which may
include a comparison, at various points in time, of the return from an
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.

The table below provides performance results for each Sub-account through
12/31/96. The performance information is based on the historical investment
experience of the Sub-accounts and of the Portfolios. It does not indicate or
represent future performance.

TOTAL RETURN

Total returns quoted in advertising reflect all aspects of a Sub-account's
return, including the automatic reinvestment by the separate account of all
distributions and any change in the Sub-account's value over the period.
Average annual returns are calculated by determining the growth or decline in
value of a hypothetical historical investment in the Sub-account over a stated
period, and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline in value
had been constant over the period. For example, a cumulative return of 100%
over ten years would produce an average annual return of 7.18%, which is the
steady rate that would equal 100% growth on a compounded basis in ten years.
While average annual returns are a convenient means of comparing investment
alternatives, investors should realize that the Sub-account's performance is
not constant over time, but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of a Sub-account.

Table 1 shows the average annual total return on a hypothetical investment
in the Sub-accounts for the last year, three years, five years, and from the
date that the Portfolios began operations, assuming that the Contract was
surrendered December 31, 1996. For any Portfolio in existence ten years or
more, figures are shown for a ten year period rather than for the life of the
Portfolio. The average annual total returns shown in Table 1 are computed by
finding the average annual compounded rates of return over the periods shown
that would equate the initial amount invested to the withdrawal value, in
accordance with the following formula: P(1+T) = ERV where P is a hypothetical
investment payment of $1,000, T is the average annual total return, n is the
number of years, and ERV is the withdrawal value at the end of the periods
shown. The returns reflect the mortality charge (.80% on an annual basis) and
the administrative charge.

8
<PAGE>

Table 1: Average Annual Total Return for Period Ending on 12/31/96

<TABLE>
<CAPTION>
SUB-ACCOUNT
1 YEAR 3 YEAR 5 YEAR LIFE INCEPTION DATE
------ ------ ------ ------ --------------
<S> <C> <C> <C> <C> <C>
VIP MONEY MARKET* 4.52% 4.30% 3.64% 5.05%** 03/31/82
VIP HIGH INCOME 12.73% 9.59% 13.89% 10.12%** 09/11/85
VIP EQUITY INCOME 13.33% 17.25% 16.95% 12.73%** 10/08/86
VIP GROWTH 13.75% 14.82% 14.16% 14.15%** 10/08/86
VIP OVERSEAS 12.27% 7.19% 8.19% 6.95% 01/27/87
VIP II INVESTMENT GRADE BOND 2.86% 4.34% 5.72% 7.25% 06/05/89
VIP II ASSET MANAGER 13.64% 7.06% 10.30% 11.62% 05/29/90
VIP II INDEX 500 28.74% N/A N/A 24.30% 09/01/95
VIP II ASSET MANAGER GROWTH 18.94% N/A N/A 14.88% 09/05/95
VIP II CONTRAFUND 20.30% N/A N/A 16.44% 09/01/95
VIP III BALANCED N/A N/A N/A N/A N/A
VIP III GROWTH OPPORTUNITIES N/A N/A N/A N/A N/A
VIP III GROWTH & INCOME N/A N/A N/A N/A N/A
</TABLE>

Total returns are historical and include change in unit price and the
automatic reinvestment of dividends and capital gains. Principal, investment
returns (except Money Market Portfolio) and yields will fluctuate and there is
no guarantee you will receive back your original principal. Average Annual
Total Returns and Yield include all insurance contract charges: 0.8% annuity
mortality risk charge and $35 annual administrative charge.

In these examples, the $35 Annual Service Charge is reflected as a charge of
0.039% based on an average Policy Value of $88,935.

* The underlying Money Market Portfolio seeks to maintain a stable $1.00 share
price, however, there is no assurance that it will be able to do so. An
investment in the Portfolio is not insured by the U.S. government.

** Figure is for 10 years.

YIELDS

Yields quoted in advertising for the Money Market Sub-account reflect the
change in value of a hypothetical investment in the Sub-account over a stated
period of time, not taking into account capital gains or losses. Yields are
annualized and stated as a percentage. Current yield for the Money Market Sub-
account reflects the income generated by a Sub-account over a 7-day period.
Current yield is calculated by determining the net change, exclusive of
capital changes, in the value of a hypothetical account having one
Accumulation Unit at the beginning of the period adjusting for the
administrative charge, and dividing the difference by the value of the account
at the beginning of the base period to obtain the base period return, and
multiplying the base period return by (365/7). The resulting yield figure is
carried to the nearest hundredth of a percent. Effective yield for the Money
Market Sub-account is calculated in a similar manner to current yield except
that investment income is assumed to be reinvested throughout the year at the
7-day rate. Effective yield is obtained by taking the base period returns as
computed above, and then compounding the base period return by adding 1,
raising the sum to a power equal to (365/7) and subtracting one from the
result, according the formula Effective Yield = [(Base Period Return + 1)]-1.
Since the reinvestment of income is assumed in the calculation of effective
yield, it will generally be higher than current yield. For the 7-day period
ending on 12/31/96 the Money Market Sub-account had a current yield of 4.46%
and an effective yield of 4.55%.

FEDERAL TAX MATTERS

TAX TREATMENT OF THE COMPANY

The Company is taxed as a life insurance company under Subchapter L of the
Code. Since the Variable Account is not an entity separate from the Company
and its operations form a part of the Company, it will not be taxed separately
as a "regulated investment company" under Subchapter M of the Code. Investment
income and realized net capital gains on the assets of the Variable Account
are reinvested and are taken into account in determining Contract Values. As a
result, such investment income and realized net capital gains are
automatically retained as part of the reserves under the Contract. Under
existing federal income tax law, the Company believes

9
<PAGE>

that Variable Account investment income and realized net capital gains should
not be taxed, to the extent that such income and gains are retained as part of
the reserves under the Contracts.

DIVERSIFICATION REQUIREMENTS

Section 817(h) of the Code provides in substance that Section 72 of the Code
will not apply and the Company will not be treated as the owner of the assets
of the Company's segregated account unless the investments made by the
segregated account are "adequately diversified" in accordance with regulations
prescribed by the Treasury. If the segregated account is not "adequately
diversified," any increase in the value of a variable annuity contract will be
taxed to the contract owner currently.

The Variable Account, through the Funds, intends to comply with the
diversification requirements under Section 817(h) as prescribed by the
Treasury. Although the Company does not control the Funds, it believes that
FMR, as the manager of the investments of each of the Funds' Portfolios, will
comply with the diversification rules set forth in the Regulations.
Accordingly, the Company believes that it will be treated as the owner of the
segregated account assets invested in shares of the Funds and the Contracts
issued by the Company will be taxed as annuities under Section 72 of the Code.

OWNER CONTROL

In certain circumstances, owners of variable annuity contracts may be
considered the owners for Federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable annuity contractowner's gross income. The IRS has stated in published
ruling that a variable contractowner will be considered the owner of separate
account assets if the contractowner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets.
The Treasury Department has also announced, in connection with the issuance of
regulations concerning investment diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor, rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way
of regulations or rulings on the "extent to which policyholders may direct
their investments to particular subaccounts without being treated as owners of
the underlying assets."

The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the Service in rulings in which it
was determined that contractowners were not owners of separate account assets.
For example, the Contract Owner has the choice of one or more Subaccounts in
which to allocate premiums and Contract values, and may be able to transfer
among Subaccounts more frequently than in such rulings, or if a Subaccount is
too narrow in its investment strategy (e.g., a fund that invests only in gold
or stock of gold mining companies), or if Contract Owners have too many
subaccount options to select. These differences could result in the Contract
Owner being treated as the owner of the assets of the Variable Account. In
addition, PFL does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. PFL therefore reserves the right to modify the Contract as necessary to
attempt to prevent the Contract Owner from being considered the owner of a pro
rata share of assets of Variable Account.

DISTRIBUTION OF THE CONTRACTS

The Contracts are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The offering of the
Contracts is continuous and the Company does not anticipate discontinuing the
offering of the Contracts. However, the Company reserves the right to
discontinue the offering of the Contracts.

10
<PAGE>

The Contracts will be distributed through Fidelity Brokerage Services, Inc.,
the principal underwriter of the Contracts, and Fidelity Insurance Agency,
Inc., which are affiliated with FMR. During 1996, the amount paid to Fidelity
Insurance Agency, Inc. for its services as a general insurance agency was
$4,136,279. Amounts paid for these services in 1995 and 1994 were $3,398,244
and $3,511,300, respectively.

CUSTODY OF ASSETS

The assets of each of the Sub-accounts are held by the Company. The assets
of the Variable Account and each of the Sub-accounts thereunder are kept
physically segregated and held separate and apart from the general account
assets of the Company. The Company maintains records of all purchases and
redemptions of shares of the Fund held by each of the Sub-accounts. Additional
protection for the assets of the Variable Account is afforded by the Company's
fidelity bond presently in the amount of $5 million covering the acts of
officers and employees of the Company.

STATE REGULATION

The Company is subject to the laws of Iowa governing insurance companies and
to regulation by the Iowa Division of Insurance. An annual statement in a
prescribed form is filed with the Division of Insurance each year covering the
operation of the Company for the preceding year and its financial condition as
of the end of such year. Regulation by the Division of Insurance includes
periodic examination to determine the Company's contract liabilities and
reserves so that the Division of Insurance may certify the items are correct.
The Company's books and accounts are subject to review by the Division of
Insurance at all times and a full examination of its operations is conducted
periodically by the National Association of Insurance Commissioners. In
addition, the Company is subject to regulation under the insurance laws of
other jurisdictions in which it may operate.

RECORDS AND REPORTS

All records and accounts relating to the Variable Account will be maintained
by the Company. As presently required by the Investment Company Act of 1940
and regulations promulgated thereunder, the Company will mail to all Contract
Owners at their last known address of record, at least semi-annually, reports
containing such information as may be required under that Act or by any other
applicable law or regulation. The Company will also mail to Contract Owners
confirmation of each financial transaction and semi-annual Account Statements
reflecting the Contract Value of a particular Contract.

INDEPENDENT AUDITORS

The financial statements of PFL Life Insurance Company at December 31, 1996
and 1995, and for each of three years in the period ended December 31, 1996,
and the financial statements of The Fidelity Variable Annuity Account at
December 31, 1996 and for each of the two years in the period then ended,
included in this Statement of Additional Information have been audited by
Ernst & Young LLP, Independent Auditors, 801 Grand Avenue, Suite 3400, Des
Moines, Iowa, 50309-2764.

OTHER INFORMATION

A Registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Contracts discussed in this Statement of Additional Information.

11
<PAGE>

Not all of the information set forth in the Registration amendments and
exhibits thereto has been included in this Statement of Additional
Information. Statements contained in this Statement of Additional Information
concerning the content of the Contracts and other legal instruments are
intended to be summaries. For a complete statement of the terms of the
documents, reference should be made to the instruments filed with the
Securities and Exchange Commission.

FINANCIAL STATEMENTS

The values of the interest of Contract Owners in the Variable Account will
be affected solely by the investment results of the selected Sub-account(s).
The financial statements of the Company as contained herein should be
considered only as bearing upon the Company's ability to meet its obligations
to Contract Owners under the Contracts, and they should not be considered as
bearing on the investment performance of the Sub-accounts.

12
<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
Government Securities Fund, Ltd., Fidelity Capital and Income Fund, and
Fidelity Cash Reserves subaccounts) as of December 31, 1996, 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, 1996, 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,
1996, 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
January 31, 1997

13
<PAGE>

THE FIDELITY VARIABLE ANNUITY ACCOUNT
- --------------------------------------------------------------------------------

BALANCE SHEET (AMOUNTS IN THOUSANDS)
December 31, 1996
<TABLE>
<CAPTION>
MONEY HIGH EQUITY
MARKET INCOME INCOME GROWTH
TOTAL SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash..................... $ 26 24 -- -- 1
Investments in mutual
funds, at current market
value (Note 2):
Variable Insurance
Products Fund--Money
Market Portfolio...... 125,318 125,318 -- -- --
Variable Insurance
Products Fund--High
Income Portfolio...... 61,458 -- 61,458 -- --
Variable Insurance
Products Fund--Equity
Income Portfolio...... 227,948 -- -- 227,948 --
Variable Insurance
Products Fund--Growth
Portfolio............. 145,279 -- -- -- 145,279
Variable Insurance
Products Fund--
Overseas Portfolio.... 36,305 -- -- -- --
Variable Insurance
Products Fund II--
Investment Grade Bond
Portfolio............. 16,541 -- -- -- --
Variable Insurance
Products Fund II--
Asset Manager
Portfolio............. 77,157 -- -- -- --
Variable Insurance
Products Fund II--
Asset Manager Growth
Portfolio............. 9,359 -- -- -- --
Variable Insurance
Products Fund II--
Contrafund Portfolio.. 52,553 -- -- -- --
Variable Insurance
Products Fund II--
Index 500 Portfolio... 30,849 -- -- -- --
Fidelity Daily Income
Trust................. 372 -- -- -- --
Fidelity Capital and
Income Fund........... 158 -- -- -- --
Fidelity Cash
Reserves.............. 76 -- -- -- --
-------- ------- ------ ------- -------
Total Investments in
Mutual Funds.......... 783,373 125,318 61,458 227,948 145,279
-------- ------- ------ ------- -------
Total Assets............ $783,399 125,342 61,458 227,948 145,280
======== ======= ====== ======= =======
LIABILITIES AND CONTRACT
OWNERS' EQUITY
Liabilities:
Contract terminations
payable................ 1 -- -- -- --
-------- ------- ------ ------- -------
Total Liabilities....... 1 -- -- -- --
Contract Owners' Equity:
Deferred annuity
contracts terminable by
owners (Notes 3 and 6).. 783,398 125,342 61,458 227,948 145,280
-------- ------- ------ ------- -------
Total Liabilities and
Contract Owners'
Equity................. $783,399 125,342 61,458 227,948 145,280
======== ======= ====== ======= =======
</TABLE>

See accompanying Notes to Financial Statements.

14
<PAGE>

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FIDELITY FIDELITY
ASSET DAILY CAPITAL AND FIDELITY
INVESTMENT ASSET MANAGER INCOME INCOME CASH
OVERSEAS GRADE BOND MANAGER GROWTH CONTRAFUND INDEX 500 TRUST FUND RESERVES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- -- -- -- -- 1 -- --
-- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- --
36,305 -- -- -- -- -- -- -- --
-- 16,541 -- -- -- -- -- -- --
-- -- 77,157 -- -- -- -- -- --
-- -- -- 9,359 -- -- -- -- --
-- -- -- -- 52,553 -- -- -- --
-- -- -- -- -- 30,849 -- -- --
-- -- -- -- -- -- 372 -- --
-- -- -- -- -- -- -- 158 --
-- -- -- -- -- -- -- -- 76
------ ------ ------ ----- ------ ------ --- --- ---
36,305 16,541 77,157 9,359 52,553 30,849 372 158 76
------ ------ ------ ----- ------ ------ --- --- ---
36,305 16,541 77,157 9,359 52,553 30,849 373 158 76
====== ====== ====== ===== ====== ====== === === ===
-- 1 -- -- -- -- -- -- --
------ ------ ------ ----- ------ ------ --- --- ---
-- 1 -- -- -- -- -- -- --
36,305 16,540 77,157 9,359 52,553 30,849 373 158 76
------ ------ ------ ----- ------ ------ --- --- ---
36,305 16,541 77,157 9,359 52,553 30,849 373 158 76
====== ====== ====== ===== ====== ====== === === ===
</TABLE>

15
<PAGE>

THE FIDELITY VARIABLE ANNUITY ACCOUNT
- --------------------------------------------------------------------------------

STATEMENT OF OPERATIONS (AMOUNTS IN THOUSANDS)
Year Ended December 31, 1996
<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................. $ 41,026 6,128 5,172 11,005 10,237
Expenses (Note 5):
Administrative fee........ 296 49 22 89 57
Mortality and expense
risk charge.............. 6,017 933 466 1,889 1,210
-------- ------- ------- ------ -------
Net investment income
(loss)................. 34,713 5,146 4,684 9,027 8,970
-------- ------- ------- ------ -------
NET REALIZED & UNREALIZED
CAPITAL GAIN (LOSS) FROM
INVESTMENTS
Net realized capital gain
from sales of investments:
Proceeds from sales....... 751,141 240,470 113,076 98,353 145,038
Cost of investments
sold..................... 702,357 240,470 111,308 74,116 130,990
-------- ------- ------- ------ -------
Net realized capital gain
from sales of
investments............... 48,784 -- 1,768 24,237 14,048
-------- ------- ------- ------ -------
Net change in unrealized
appreciation/depreciation
of investments:
Beginning of the period... 66,352 -- 2,015 44,061 12,225
End of the period......... 66,967 -- 2,581 39,562 7,486
-------- ------- ------- ------ -------
Net change in unrealized
appreciation/depreciation
of investments............ 615 -- 566 (4,499) (4,739)
-------- ------- ------- ------ -------
Net realized and unrealized
capital gain (loss) from
investments............... 49,399 -- 2,334 19,738 9,309
-------- ------- ------- ------ -------
INCREASE (DECREASE) FROM
OPERATIONS................ $ 84,112 5,146 7,018 28,765 18,279
======== ======= ======= ====== =======
</TABLE>

See accompanying Notes to Financial Statements.

16
<PAGE>

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FIDELITY FIDELITY
ASSET DAILY GOVERNMENT FIDELITY FIDELITY
INVESTMENT ASSET MANAGER INCOME SECURITIES CAPITAL AND CASH
OVERSEAS GRADE BOND MANAGER GROWTH CONTRAFUND INDEX 500 TRUST FUND, LTD. INCOME FUND RESERVES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
920 896 5,429 465 253 484 20 -- 13 4
14 5 37 3 13 7 -- -- -- --
301 133 630 38 286 131 -- -- -- --
------ ------ ------ ----- ------ ------ --- --- --- ---
605 758 4,762 424 (46) 346 20 -- 13 4
------ ------ ------ ----- ------ ------ --- --- --- ---
49,100 10,166 23,100 9,763 29,493 32,431 81 36 34 --
45,839 10,128 21,596 9,429 27,232 31,103 81 35 30 --
------ ------ ------ ----- ------ ------ --- --- --- ---
3,261 38 1,504 334 2,261 1,328 -- 1 4 --
------ ------ ------ ----- ------ ------ --- --- --- ---
1,760 717 5,333 (23) 32 234 -- 2 (4) --
2,111 234 9,001 48 4,494 1,454 -- -- (4) --
------ ------ ------ ----- ------ ------ --- --- --- ---
351 (483) 3,668 71 4,462 1,220 -- (2) -- --
------ ------ ------ ----- ------ ------ --- --- --- ---
3,612 (445) 5,172 405 6,723 2,548 -- (1) 4 --
------ ------ ------ ----- ------ ------ --- --- --- ---
4,217 313 9,934 829 6,677 2,894 20 (1) 17 4
====== ====== ====== ===== ====== ====== === === === ===
</TABLE>

17
<PAGE>

THE FIDELITY VARIABLE ANNUITY ACCOUNT
- --------------------------------------------------------------------------------

STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY (AMOUNTS IN THOUSANDS)
Years Ended December 31, 1996 and 1995, Except as Noted

<TABLE>
<CAPTION>
MONEY
MARKET
TOTAL SUBACCOUNT
----------------- ----------------
1996 1995 1996 1995
-------- ------- ------- -------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss)............ $ 34,713 22,353 5,146 6,192
Net realized capital gain (loss)........ 48,784 44,390 -- --
Net change in unrealized
appreciation/depreciation.............. 615 62,917 -- --
-------- ------- ------- -------
Increase (decrease) from operations..... 84,112 129,660 5,146 6,192
-------- ------- ------- -------
CONTRACT TRANSACTIONS
Net contract purchase payments.......... 19,236 22,440 3,536 3,470
Transfers between funds................. -- -- 17,795 (20,233)
Contract terminations, withdrawals, and
other deductions....................... (39,567) (69,091) (12,815) (22,493)
-------- ------- ------- -------
Increase (decrease) from contract
transactions........................... (20,331) (46,651) 8,516 (39,256)
-------- ------- ------- -------
Net increase (decrease) in contract
owners' equity......................... 63,781 83,009 13,662 (33,064)
-------- ------- ------- -------
CONTRACT OWNERS' EQUITY
Beginning of period..................... 719,617 636,608 111,680 144,744
-------- ------- ------- -------
End of period........................... $783,398 719,617 125,342 111,680
======== ======= ======= =======
<CAPTION>
ASSET
ASSET MANAGER
MANAGER GROWTH
SUBACCOUNT SUBACCOUNT
----------------- ----------------
1995
1996 1995 1996 /1/
-------- ------- ------- -------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss)............ $ 4,762 1,582 424 82
Net realized capital gain (loss)........ 1,504 3,000 334 (23)
Net change in unrealized
appreciation/depreciation.............. 3,668 9,527 71 (23)
-------- ------- ------- -------
Increase (decrease) from operations..... 9,934 14,109 829 36
-------- ------- ------- -------
CONTRACT TRANSACTIONS
Net contract purchase payments.......... 928 1,021 525 45
Transfers between funds................. (12,356) (37,186) 5,971 2,120
Contract terminations, withdrawals, and
other deductions....................... (5,121) (15,131) (166) (1)
-------- ------- ------- -------
Increase (decrease) from contract
transactions........................... (16,549) (51,296) 6,330 2,164
-------- ------- ------- -------
Net increase (decrease) in contract
owners' equity......................... (6,615) (37,187) 7,159 2,200
-------- ------- ------- -------
CONTRACT OWNERS' EQUITY
Beginning of period..................... 83,772 120,959 2,200 --
-------- ------- ------- -------
End of period........................... $ 77,157 83,772 9,359 2,200
======== ======= ======= =======
</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.

18
<PAGE>

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
HIGH EQUITY INVESTMENT
INCOME INCOME GROWTH OVERSEAS GRADE BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------- ---------------- ---------------- --------------- --------------
1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
- ------ ------ ------- ------- ------- ------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4,684 2,608 9,027 11,754 8,970 (553) 605 52 758 368
1,768 3,235 24,237 15,463 14,048 22,367 3,261 (371) 38 641
566 3,610 (4,499) 32,361 (4,739) 12,555 351 3,390 (483) 1,231
- ------ ------ ------- ------- ------- ------- ------ ------- ------ ------
7,018 9,453 28,765 59,578 18,279 34,369 4,217 3,071 313 2,240
- ------ ------ ------- ------- ------- ------- ------ ------- ------ ------
1,146 2,542 4,151 6,476 3,338 5,014 813 759 335 266
(565) 5,666 (36,951) 26,450 (15,213) 18,973 647 (26,175) 188 3,593
(2,750) (3,140) (8,879) (15,873) (6,026) (7,509) (1,364) (3,073) (1,019) (1,621)
- ------ ------ ------- ------- ------- ------- ------ ------- ------ ------
(2,169) 5,068 (41,679) 17,053 (17,901) 16,478 96 (28,489) (496) 2,238
- ------ ------ ------- ------- ------- ------- ------ ------- ------ ------
4,849 14,521 (12,914) 76,631 378 50,847 4,313 (25,418) (183) 4,478
- ------ ------ ------- ------- ------- ------- ------ ------- ------ ------
56,609 42,088 240,862 164,231 144,902 94,055 31,992 57,410 16,723 12,245
- ------ ------ ------- ------- ------- ------- ------ ------- ------ ------
61,458 56,609 227,948 240,862 145,280 144,902 36,305 31,992 16,540 16,723
====== ====== ======= ======= ======= ======= ====== ======= ====== ======
</TABLE>

<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
DAILY GOVERNMENT CAPITAL AND FIDELITY
INCOME SECURITIES INCOME CASH
CONTRAFUND INDEX 500 TRUST FUND, LTD. FUND RESERVES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------- -------------- ------------ ------------- ------------- ------------
1995 1995
1996 /2/ 1996 /2/ 1996 1995 1996 1995 1996 1995 1996 1995
- ------ ------ ------ ------ ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(46) 230 346 (12) 20 26 -- 2 13 18 4 4
2,261 (3) 1,328 65 -- -- 1 -- 4 16 -- --
4,462 32 1,220 234 -- -- (2) 3 -- (3) -- --
- ------ ------ ------ ------ ---- ----- ----- ----- ----- ----- ----- -----
6,677 259 2,894 287 20 26 (1) 5 17 31 4 4
- ------ ------ ------ ------ ---- ----- ----- ----- ----- ----- ----- -----
3,121 2,487 1,343 360 -- -- -- -- -- -- -- --
22,391 18,199 18,103 8,652 (10) -- -- -- -- (59) -- --
(576) (5) (738) (52) (43) (177) (36) -- (34) (3) -- (13)
- ------ ------ ------ ------ ---- ----- ----- ----- ----- ----- ----- -----
24,936 20,681 18,708 8,960 (53) (177) (36) -- (34) (62) -- (13)
- ------ ------ ------ ------ ---- ----- ----- ----- ----- ----- ----- -----
31,613 20,940 21,602 9,247 (33) (151) (37) 5 (17) (31) 4 (9)
- ------ ------ ------ ------ ---- ----- ----- ----- ----- ----- ----- -----
20,940 -- 9,247 -- 406 557 37 32 175 206 72 81
- ------ ------ ------ ------ ---- ----- ----- ----- ----- ----- ----- -----
52,553 20,940 30,849 9,247 373 406 -- 37 158 175 76 72
====== ====== ====== ====== ==== ===== ===== ===== ===== ===== ===== =====
</TABLE>

19
<PAGE>

THE FIDELITY VARIABLE ANNUITY ACCOUNT
- --------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS, EXCEPT WHERE NOTED)
December 31, 1996

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. Transfers into the subaccounts of the eligible Funds are
permitted from the formerly eligible funds. Investments are stated at the
closing net asset values per share as of December 31, 1996. 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.

2. INVESTMENTS

A summary of the mutual fund investment at December 31, 1996 follows:

<TABLE>
<CAPTION>
NET ASSET
NUMBER VALUE
OF SHARES PER SHARE MARKET
HELD (IN DOLLARS) VALUE COST
--------- ------------ -------- --------
<S> <C> <C> <C> <C>
Variable Insurance Products Fund--
Money Market........................ 125,318 $ 1.00 $125,318 $125,318
Variable Insurance Products Fund--
High Income......................... 4,909 12.52 61,458 58,877
Variable Insurance Products Fund--Eq-
uity Income......................... 10,839 21.03 227,948 188,386
Variable Insurance Products Fund--
Growth.............................. 4,665 31.14 145,279 137,793
Variable Insurance Products Fund--
Overseas............................ 1,927 18.84 36,305 34,194
Variable Insurance Products Fund II--
Investment Grade Bond............... 1,351 12.24 16,541 16,307
Variable Insurance Products Fund II--
Asset Manager....................... 4,557 16.93 77,157 68,156
Variable Insurance Products Fund II--
Asset Manager Growth................ 714 13.10 9,359 9,311
Variable Insurance Products Fund II--
Contrafund.......................... 3,174 16.56 52,553 48,059
Variable Insurance Products Fund II--
Index 500........................... 346 89.13 30,849 29,395
Fidelity Daily Income Trust.......... 372 1.00 372 372
Fidelity Capital and Income Fund..... 17 9.36 158 162
Fidelity Cash Reserves............... 76 1.00 76 76
-------- --------
$783,373 $716,406
======== ========
</TABLE>

20
<PAGE>

THE FIDELITY VARIABLE ANNUITY ACCOUNT
- --------------------------------------------------------------------------------

3. CONTRACT OWNERS' EQUITY
A summary of deferred annuity contracts terminable by owners at December 31,
1996 follows:

<TABLE>
<CAPTION>
ACCUMULATION
UNIT
ACCUMULATION VALUE TOTAL
SUBACCOUNT UNITS OWNED (IN DOLLARS) CONTRACT VALUE
---------- ------------ ------------ --------------
<S> <C> <C> <C>
Variable Insurance Products Fund--
Money Market........................ 51,937 $2.413358 $125,342
Variable Insurance Products Fund--
High Income......................... 18,704 3.285775 61,458
Variable Insurance Products Fund--Eq-
uity Income......................... 68,119 3.346303 227,948
Variable Insurance Products Fund--
Growth.............................. 38,327 3.790532 145,280
Variable Insurance Products Fund--
Overseas............................ 18,498 1.962599 36,305
Variable Insurance Products Fund II--
Investment Grade Bond............... 9,682 1.708442 16,540
Variable Insurance Products Fund II--
Asset Manager....................... 37,213 2.073401 77,157
Variable Insurance Products Fund II--
Asset Manager Growth................ 7,789 1.201587 9,359
Variable Insurance Products Fund II--
Contrafund.......................... 42,901 1.224976 52,553
Variable Insurance Products Fund II--
Index 500........................... 23,088 1.336134 30,849
Fidelity Daily Income Trust.......... 115 3.252838 373
Fidelity Capital and Income Fund..... 21 7.515932 158
Fidelity Cash Reserves............... 23 3.268738 76
--------
$783,398
========
</TABLE>

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
1/1/95................. 65,884 17,337 74,571 37,917 35,748 8,539 76,955
Units purchased......... 1,538 960 2,496 1,618 466 170 617
Units redeemed and
transferred............ (19,030) 1,192 4,534 3,963 (17,906) 1,311 (31,639)
------- ------ ------- ------ ------- ------ -------
Units outstanding at
12/31/95............... 48,392 19,489 81,601 43,498 18,308 10,020 45,933
Units purchased......... 1,502 370 1,349 940 443 200 485
Units redeemed and
transferred............ 2,043 (1,155) (14,831) (6,111) (253) (538) (9,205)
------- ------ ------- ------ ------- ------ -------
Units outstanding at
12/31/96............... 51,937 18,704 68,119 38,327 18,498 9,682 37,213
======= ====== ======= ====== ======= ====== =======
<CAPTION>
FIDELITY FIDELITY FIDELITY
ASSET DAILY GOVERNMENT CAPITAL AND FIDELITY
MANAGER INCOME SECURITIES INCOME CASH
GROWTH CONTRAFUND INDEX 500 TRUST FUND, LTD. FUND RESERVES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Units outstanding at
1/1/95................. -- -- -- 191 8 36 28
Units purchased......... 46 2,482 341 -- -- -- --
Units redeemed and
transferred............ 2,132 18,089 8,091 (60) -- (10) (5)
------- ------ ------- ------ ------- ------ -------
Units outstanding at
12/31/95............... 2,178 20,571 8,432 131 8 26 23
Units purchased......... 480 2,899 1,094 -- -- -- --
Units redeemed and
transferred............ 5,131 19,431 13,562 (16) (8) (5) --
------- ------ ------- ------ ------- ------ -------
Units outstanding at
12/31/96............... 7,789 42,901 23,088 115 -- 21 23
======= ====== ======= ====== ======= ====== =======
</TABLE>

21
<PAGE>

THE FIDELITY VARIABLE ANNUITY ACCOUNT
- --------------------------------------------------------------------------------

4. 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.

5. 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 0.80% of the value
of the contract owners' individual account of the eligible funds as a charge
for assuming the mortality risk.

6. NET ASSETS
At December 31, 1996 contract owners' equity was comprised of:

<TABLE>
<CAPTION>
MONEY HIGH EQUITY INVESTMENT ASSET
MARKET INCOME INCOME GROWTH OVERSEAS GRADE BOND MANAGER
TOTAL 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.................. $716,431 125,342 58,877 188,386 137,794 34,194 16,306 68,156
Adjustment for
appreciation
(depreciation) to
market value........... 66,967 -- 2,581 39,562 7,486 2,111 234 9,001
-------- ------- ------ ------- ------- ------ ------ ------
Total Contract Owners'
Equity................. $783,398 125,342 61,458 227,948 145,280 36,305 16,540 77,157
======== ======= ====== ======= ======= ====== ====== ======
<CAPTION>
FIDELITY FIDELITY
ASSET DAILY CAPITAL AND FIDELITY
MANAGER INCOME INCOME CASH
GROWTH CONTRAFUND INDEX 500 TRUST FUND RESERVES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Unit transactions,
accumulated net
investment income and
realized capital
gains.................. 9,311 48,059 29,395 373 162 76
Adjustment for
appreciation
(depreciation) to
market value........... 48 4,494 1,454 -- (4) --
-------- ------- ------ ------- ------- ------
Total Contract Owners'
Equity................. 9,359 52,553 30,849 373 158 76
======== ======= ====== ======= ======= ======
</TABLE>

22
<PAGE>

THE FIDELITY VARIABLE ANNUITY ACCOUNT
- --------------------------------------------------------------------------------

7. 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
---------------------------------------------
1996 1995
---------------------- ----------------------
PURCHASES SALES PURCHASES SALES
---------------------- ----------------------
<S> <C> <C> <C> <C>
Variable Insurance Products
Fund--Money Market............. $ 254,066 $ 240,470 $ 167,885 $ 201,362
Variable Insurance Products
Fund--High Income.............. 115,569 113,076 86,734 78,936
Variable Insurance Products
Fund--Equity Income............ 65,599 98,353 85,312 56,298
Variable Insurance Products
Fund--Growth................... 136,043 145,038 121,271 105,005
Variable Insurance Products
Fund--Overseas................. 49,786 49,100 31,688 60,191
Variable Insurance Products Fund
II--Investment Grade Bond...... 10,423 10,166 21,723 19,043
Variable Insurance Products Fund
II--Asset Manager.............. 11,269 23,100 7,515 57,258
Variable Insurance Products Fund
II--Asset Manager Growth....... 16,517 9,763 3,622 1,376
Variable Insurance Products Fund
II--Contrafund................. 54,378 29,493 21,244 328
Variable Insurance Products Fund
II--Index 500.................. 51,483 32,431 11,106 2,156
Fidelity Daily Income Trust..... 48 81 25 178
Fidelity Government Securities
Fund, Ltd...................... -- 36 5 2
Fidelity Capital and Income
Fund........................... 12 34 19 62
Fidelity Cash Reserves.......... 4 -- 4 14
---------- ---------- ---------- ----------
$ 765,197 $ 751,141 $ 558,153 $ 582,209
========== ========== ========== ==========
</TABLE>

23
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
PFL Life Insurance Company

We have audited the accompanying statutory-basis balance sheets of PFL Life
Insurance Company as of December 31, 1996 and 1995, and the related statutory-
basis statements of operations, changes in capital and surplus, and cash flows
for each of the three years in the period ended December 31, 1996. Our audits
also included the accompanying statutory-basis financial statement schedules
required by Article 7 of Regulation S-X. These financial statements and
schedules are the responsibility of the Company'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 audit 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. 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.

As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from generally accepted accounting principles.
The variances between such practices and generally accepted accounting
principles also are described in Note 1. The effects on the financial
statements of these variances are not reasonably determinable but are presumed
to be material.

In our opinion, because of the effects of the matters described in the
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of PFL Life Insurance Company at December 31, 1996 and
1995, or the results of its operations or its cash flows for each of the three
years in the period ended December 31, 1996.

Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996 in conformity with accounting practices prescribed or permitted by the
Insurance Division, Department of Commerce, of the State of Iowa. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic statutory-basis financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

Des Moines, Iowa Ernst & Young, LLP

February 21, 1997

24
<PAGE>

PFL LIFE INSURANCE COMPANY

STATEMENTS OF OPERATIONS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net
of reinsurance:
Life.................................. $ 204,872 $ 114,704 $ 148,954
Annuity............................... 725,966 921,452 1,067,406
Accident and health................... 227,862 232,738 230,889
Net investment income................... 428,337 392,685 343,880
Amortization of interest maintenance re-
serve.................................. 2,434 4,341 2,871
Commissions and expense allowances on
reinsurance ceded...................... 73,931 77,071 94,635
---------- ---------- ----------
1,663,402 1,742,991 1,888,635
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health bene-
fits................................. 147,024 146,346 141,632
Surrender benefits.................... 512,810 498,626 392,064
Other benefits........................ 101,288 88,607 73,306
Increase in aggregate reserves for
policies and contracts:
Life................................ 140,126 50,071 82,062
Annuity............................. 188,002 528,330 569,341
Accident and health................. 26,790 17,694 22,144
Other............................... 19,969 16,017 11,223
---------- ---------- ----------
1,136,009 1,345,691 1,291,772
Insurance expenses:
Commissions........................... 177,466 200,706 215,635
General insurance expenses............ 57,282 57,623 52,166
Taxes, licenses and fees.............. 13,889 15,700 15,368
Transfer to separate account.......... 171,785 42,981 243,806
Other expenses........................ 526 760 1,014
---------- ---------- ----------
420,948 317,770 527,989
---------- ---------- ----------
1,556,957 1,663,461 1,819,761
---------- ---------- ----------
Gain from operations before federal income
taxes and net realized capital losses on
investments.............................. 106,445 79,530 68,874
Federal income tax expense................ 41,177 33,335 23,858
---------- ---------- ----------
Gain from operations before net realized
capital losses on investments............ 65,268 46,195 45,016
Net realized capital losses on investments
(net of related federal income taxes and
amounts transferred to interest mainte-
nance reserve)........................... (3,503) (18,096) (3,624)
---------- ---------- ----------
Net income................................ $ 61,765 $ 28,099 $ 41,392
========== ========== ==========
</TABLE>

See accompanying notes.

25
<PAGE>

PFL LIFE INSURANCE COMPANY

BALANCE SHEETS--STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1995
---------- ----------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments........................ $ 50,737 $ 79,852
Bonds.................................................. 4,773,433 4,613,334
Stocks:
Preferred............................................ 3,097 9,336
Common (cost: 1996--$23,212; 1995--$19,061).......... 32,038 24,866
Affiliated entities (cost: 1996--$14,893; 1995--
$14,661)............................................ 6,934 6,794
Mortgage loans on real estate.......................... 911,705 680,414
Real estate, at cost less accumulated depreciation
($11,338 in 1996; $12,493 in 1995):
Home office properties............................... 10,372 20,403
Properties acquired in satisfaction of debt.......... 12,260 2,648
Investment properties................................ 35,922 40,453
Policy loans........................................... 54,214 52,675
Other invested assets.................................. 16,343 13,557
---------- ----------
Total cash and invested assets......................... 5,907,055 5,544,332
Premiums deferred and uncollected........................ 16,345 17,026
Accrued investment income................................ 70,401 68,065
Receivable from affiliates............................... 53,900 79,913
Federal income taxes recoverable......................... 4,018 9,776
Transfers from separate accounts......................... 38,528 --
Other assets............................................. 31,215 32,803
Separate account assets.................................. 1,844,515 1,418,157
---------- ----------
Total admitted assets.................................. $7,965,977 $7,170,072
========== ==========
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 736,100 $ 596,039
Annuity.............................................. 4,408,419 4,220,274
Accident and health.................................. 139,269 114,884
Policy and contract claim reserves:
Life................................................. 7,369 6,225
Accident and health.................................. 66,988 70,517
Other policyholders' funds............................. 126,672 105,371
Remittances and items not allocated.................... 64,064 123,710
Asset valuation reserve................................ 54,851 43,921
Interest maintenance reserve........................... 23,745 26,376
Other liabilities...................................... 70,663 67,070
Payable to affiliates.................................. 4,975 --
Separate account liabilities........................... 1,844,515 1,418,157
---------- ----------
Total liabilities...................................... 7,547,630 6,792,544
Commitments and contingencies
Capital and surplus:
Common stock, $10 par value, 500 shares authorized, 266
issued and outstanding................................ 2,660 2,660
Paid-in surplus........................................ 154,129 154,129
Unassigned surplus..................................... 261,558 220,739
---------- ----------
Total capital and surplus.............................. 418,347 377,528
---------- ----------
Total liabilities and capital and surplus.............. $7,965,977 $7,170,072
========== ==========
</TABLE>

See accompanying notes.

26
<PAGE>

PFL LIFE INSURANCE COMPANY

STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK SURPLUS SURPLUS SURPLUS
------ -------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1994.............. $2,660 $ 99,129 $212,982 $314,771
Capital contribution.................. -- 15,000 -- 15,000
Net income for 1994................... -- -- 41,392 41,392
Net unrealized capital losses......... -- -- (25,350) (25,350)
Increase in non-admitted assets....... -- -- (248) (248)
Decrease in asset valuation reserve... -- -- 6,040 6,040
Dividend to stockholder............... -- -- (20,900) (20,900)
Surplus effect of ceding commissions
associated with the sale of a divi-
sion................................. -- -- 184 184
Amendment of reinsurance agreement.... -- -- 391 391
Decrease in liability for reinsurance
in unauthorized companies............ -- -- 505 505
Prior period adjustment............... -- -- (3,444) (3,444)
------ -------- -------- --------
Balance at December 31, 1994............ 2,660 114,129 211,552 328,341
Capital contribution.................. -- 40,000 -- 40,000
Net income for 1995................... -- -- 28,099 28,099
Net unrealized capital losses......... -- -- (7,574) (7,574)
Decrease in non-admitted assets....... -- -- 50 50
Increase in asset valuation reserve... -- -- (5,946) (5,946)
Surplus effect of ceding commissions
associated with the sale of a divi-
sion................................. -- -- 35 35
Cancellation of reinsurance agree-
ment................................. -- -- 585 585
Amendment of reinsurance agreement.... -- -- 419 419
Transfer of subsidiary investment to
stockholder.......................... -- -- (3,250) (3,250)
Change in reserve valuation methodolo-
gy................................... -- -- (501) (501)
Increase in liability for reinsurance
in unauthorized companies............ -- -- (2,730) (2,730)
------ -------- -------- --------
Balance at December 31, 1995............ 2,660 154,129 220,739 377,528
Net income for 1996................... -- -- 61,765 61,765
Net unrealized capital gains.......... -- -- 2,351 2,351
Increase in non-admitted assets....... -- -- (148) (148)
Increase in asset valuation reserve... -- -- (10,930) (10,930)
Dividend to stockholder............... -- -- (20,000) (20,000)
Prior period adjustment............... -- -- 5,025 5,025
Surplus effect of sale of a division.. -- -- (384) (384)
Surplus effect of ceding commissions
associated with the sale of a divi-
sion................................. -- -- 29 29
Amendment of reinsurance agreement.... -- -- 421 421
Decrease in liability for reinsurance
in unauthorized companies............ -- -- 2,690 2,690
------ -------- -------- --------
Balance at December 31, 1996............ $2,660 $154,129 $261,558 $418,347
====== ======== ======== ========
</TABLE>

See accompanying notes.

27
<PAGE>

PFL LIFE INSURANCE COMPANY

STATEMENTS OF CASH FLOWS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
SOURCES OF CASH
Premiums and other considerations, net of
reinsurance.............................. $1,240,748 $1,353,407 $1,548,030
Net investment income..................... 431,456 398,051 339,856
---------- ---------- ----------
1,672,204 1,751,458 1,887,886
Life and accident and health claims....... (147,556) (140,798) (137,602)
Surrender benefits and other fund
withdrawals.............................. (512,810) (498,626) (392,064)
Other benefits to policyholders........... (101,254) (88,519) (73,237)
Commissions, other expenses and other
taxes.................................... (248,321) (278,241) (288,384)
Net transfers to separate accounts........ (210,312) (42,981) (243,806)
Dividends to policyholders................ (844) (940) (1,155)
Federal income taxes, excluding tax on
capital gains and IRS settlements........ (35,551) (32,905) (39,864)
---------- ---------- ----------
Net cash provided by operations........... 415,556 668,448 711,774
Proceeds from investments sold, matured or
repaid:
Bonds and preferred stocks.............. 2,112,831 1,757,229 1,430,339
Common stocks........................... 27,214 20,338 12,941
Mortgage loans on real estate........... 74,351 36,550 43,495
Real estate............................. 18,077 23,203 9,536
Other proceeds.......................... 22,567 381 189
---------- ---------- ----------
Total cash from investments............... 2,255,040 1,837,701 1,496,500
Capital contribution...................... -- 40,000 15,000
Dividend from subsidiary.................. -- -- 10,000
Cash received from ceding commissions
associated with the sale of a division... 45 55 284
Increase in remittances and items not
allocated................................ -- 88,295 16,177
Other sources............................. 19,381 12,758 24,855
---------- ---------- ----------
Total sources of cash..................... 2,690,022 2,647,257 2,274,590
APPLICATIONS OF CASH
Cost of investments acquired:
Bonds and preferred stocks.............. $2,270,105 $2,294,195 $2,043,615
Common stocks........................... 29,799 23,284 11,228
Mortgage loans on real estate........... 324,381 192,292 160,068
Net increase in policy loans............ 1,539 877 3,202
Real estate............................. 222 10,188 14,801
Other invested assets................... 5,169 2,670 664
---------- ---------- ----------
Total investments acquired................ 2,631,215 2,523,506 2,233,578
Dividends to stockholder.................. 20,000 -- 20,900
Cash paid associated with the sale of a
division................................. 539 -- --
Repayment of intercompany notes and
receivables, net......................... -- 48,070 365
Cash paid in conjunction with an amendment
of a reinsurance agreement............... 5,812 -- --
Decrease in remittances and items not
allocated................................ 59,646 -- --
Cash paid in conjunction with sales of a
division................................. 123 -- --
Other applications, net................... 1,802 29,887 3,820
---------- ---------- ----------
Total applications of cash................ 2,719,137 2,601,463 2,258,663
---------- ---------- ----------
Net change in cash and short-term
investments.............................. (29,115) 45,790 15,927
Cash and short-term investments at
beginning of year........................ 79,852 34,062 18,135
---------- ---------- ----------
Cash and short-term investments at end of
year..................................... $ 50,737 $ 79,852 $ 34,062
========== ========== ==========
</TABLE>

See accompanying notes.

28
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

PFL Life Insurance Company ("the Company") is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON nv, a holding company
organized under the laws of The Netherlands. Effective June 1, 1995, the
Company transferred the common stock of its wholly-owned subsidiary, Equity
National Life Insurance Company ("Equity National"), to its stockholder, First
AUSA. Equity National was then merged with Life Investors Insurance Company of
America, a subsidiary of First AUSA. The financial statements presented herein
are prepared on the statutory accounting principles basis for the Company
only; as such, the accounts of the Company's subsidiary, Equity National, are
not consolidated with those of the Company.

In connection with the sale of certain affiliated companies, the Company has
assumed various blocks of business from these former affiliates through
mergers. In addition, the Company has canceled or entered into several
coinsurance and reinsurance agreements with affiliates and non-affiliates. The
following is a description of those transactions:

During 1996, the Company sold its North Richland Hills, Texas health
administrative operations known as The Insurance Center. The transaction
resulted in the transfer of substantially all employees and office
facilities to United Insurance Companies, Inc. ("UICI"). All inforce
business will continue to be shared by UICI and the Company and its
affiliates through the existing coinsurance agreements. After a short
transition period, all new business produced by United Group Association,
an independent insurance agency, will be written by the insurance
subsidiaries of UICI and will not be shared with the Company and its
affiliates through coinsurance arrangements. As a result of the sale, the
Company transferred $123 in assets, substantially all of which was cash,
and $70 of liabilities. The difference between the assets and liabilities
of $(53) plus a tax credit of $19 was charged directly to unassigned
surplus.

Effective December 31, 1995, the Company canceled a coinsurance agreement
with its parent, First AUSA. As a result of the cancellation, the Company
transferred $825 of assets and $1,712 of liabilities. The difference
between the assets and liabilities, net of a tax effect of $302 was
credited directly to unassigned surplus.

On January 1, 1994, the Company entered into an agreement with a non-
affiliate reinsurer to increase the reinsurance ceded by 2 1/2% each year
(primarily group health business). As a result, the Company transferred
$3,881 in assets and $4,080 in liabilities during 1994. The difference
between the assets and liabilities of $199, plus a tax credit of $192, was
credited directly to unassigned surplus. During 1995, the Company
transferred $4,303 in assets and liabilities of $4,467. The difference
between the assets and liabilities of $164, plus a tax credit of $255, was
credited directly to unassigned surplus. During 1996, the Company
transferred $5,991 in assets, including $5,812 of cash and short-term
investments and liabilities of $6,146. The difference between the assets
and liabilities of $155, plus a tax credit of $266 was credited directly to
unassigned surplus.

During 1993, the Company sold the Oakbrook Division (primarily group
health business). The initial transfer of risk occurred through an
indemnity reinsurance agreement. The policies will then be assumed by the
reinsurer by novation as state regulatory and policyholder approvals are
received. In addition, the Company will receive from the third party
administrator a ceding commission of one percent of the premiums collected
between January 1, 1994 and December 31, 1996. As a result of the sale, in
1994, the Company received $284 for ceding commissions; the commissions net
of the related tax effect of $100 was

29
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

credited directly to unassigned surplus. During 1995, the Company received
$55 for ceding commissions; the commissions net of the related tax effect
of $20 was credited directly to unassigned surplus. During 1996, the
Company received $45 for ceding commissions; the commissions net of the
related tax effect of $(16) was charged directly to unassigned surplus.
During 1996, the Company paid $539 in association with this sale; the
proceeds, net of a tax credit of $189, were charged directly to unassigned
surplus.

Nature of Business

The Company sells individual non-participating whole life, endowment and term
contracts, as well as a broad line of single fixed and flexible premium annuity
products. In addition, the Company offers group life, universal life, and
individual and specialty health coverages. The Company is licensed in 49 states
and the District of Columbia. Sales of the Company's products are primarily
through an independent insurance agency of The Insurance Center, the Company's
agents, and financial institutions.

Basis of Presentation

The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.

Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and assumptions
utilized which could have a material impact on the financial statements.

The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa, which practices differ in some
respects from generally accepted accounting principles. The more significant of
these differences are as follows: (a) bonds are generally reported at amortized
cost rather than segregating the portfolio into held-to-maturity (reported at
amortized cost), available-for-sale (reported at fair value), and trading
(reported at fair value) classifications; (b) acquisition costs of acquiring
new business are charged to current operations as incurred rather than deferred
and amortized over the life of the policies; (c) policy reserves on traditional
life products are based on statutory mortality rates and interest which may
differ from reserves based on reasonable assumptions of expected mortality,
interest, and withdrawals which include a provision for possible unfavorable
deviation from such assumptions; (d) policy reserves on certain investment
products use discounting methodologies utilizing statutory interest rates
rather than full account values; (e) reinsurance amounts are netted against the
corresponding asset or liability rather than shown as gross amounts on the
balance sheet; (f) deferred income taxes are not provided for the difference
between the financial statement and income tax bases of assets and liabilities;
(g) net realized gains or losses attributed to changes in the level of interest
rates in the market are deferred and amortized over the remaining life of the
bond or mortgage loan, rather than recognized as gains or losses in the
statement of operations when the sale is completed; (h) declines in the
estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (carried as
a liability) changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (i) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (j) revenues for universal life and investment
products consist of premiums received rather than policy charges for the cost
of insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as amounts
are paid; (l) adjustments to federal

30
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

income taxes of prior years are charged or credited directly to unassigned
surplus, rather than reported as a component of expense in the statement of
operations; (m) gains or losses on dispositions of business are charged or
credited directly to unassigned surplus rather than being reported in the
statement of operations; and (n) a liability is established for "unauthorized
reinsurers" and changes in this liability are charged or credited directly to
unassigned surplus. The effects of these variances have not been determined by
the Company.

The National Association of Insurance Commissioners (NAIC) currently is in
the process of recodifying statutory accounting practices, the result of which
is expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in
1997, will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the
Company uses to prepare its statutory-basis financial statements.

Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company considers all
highly liquid investments with remaining maturity of one year or less when
purchased to be cash equivalents.

Investments

Investments in bonds (except those to which the Securities Valuation Office
of the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the security. The Company reviews its
prepayment assumptions on mortgage and other asset backed securities at regular
intervals and adjusts amortization rates prospectively when such assumptions
are changed due to experience and/or expected future patterns. Investments in
preferred stocks in good standing are reported at cost. Investments in
preferred stocks not in good standing are reported at the lower of cost or
market. Common stocks of affiliated and unaffiliated companies, which may
include shares of mutual funds (money market and other), are carried at market.
Real estate is reported at cost less allowances for depreciation. Depreciation
is computed principally by the straight-line method. Policy loans are reported
at unpaid principal. Other invested assets consist principally of investments
in various joint ventures and are recorded at equity in underlying net assets.
Other "admitted assets" are valued, principally at cost, as required or
permitted by Iowa Insurance Laws.

Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for
anticipated losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC and
are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses, net of amounts
attributed to changes in the general level of interest rates. Under a formula
prescribed by the NAIC, the Company defers, in the Interest Maintenance Reserve
(IMR), the portion of realized gains and losses on sales of fixed income
investments, principally bonds and mortgage loans, attributable to changes in
the general level of interest rates and amortizes those deferrals over the
remaining period to maturity of the security.

Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or which are delinquent more than twelve months, or real
estate where rent is in arrears for more than three months. Further, income is
not accrued when collection is uncertain. At December 31, 1996, 1995 and 1994,
the Company excluded investment income due and accrued of $1,541, $2,272 and
$4,622, respectively, with respect to such practices.

31
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

The Company entered into an interest-rate cap agreement on Five Year Constant
Maturities Treasury futures to hedge the exposure of increasing interest rates.
The cash flows from the interest rate cap will help offset losses that might
occur from disintermediation resulting from a rise in interest rates. The
Company paid a one-time premium to receive the difference between the reference
rate and the strike rate after a two-year delay. The cost is included in
interest expense ratably during the life of the agreement. Income received as a
result of the cap agreement will be recognized in investment income as earned.
Unamortized cost of the agreements is included in other assets.

Aggregate Policy Reserves

Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.

The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality and American Experience Mortality Tables. The reserves are calculated
using interest rates ranging from 2.00 to 6.00 percent and are computed
principally on the Net Level Premium Valuation and the Commissioners' Reserve
Valuation Methods. Reserves for universal life policies are based on account
balances adjusted for the Commissioners' Reserve Valuation Method.

Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with and without life
contingencies are equal to the present value of future payments assuming
interest rates ranging from 2.50 to 11.25 percent and mortality rates, where
appropriate, from a variety of tables.

Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.

Policy and Contract Claim Reserves

Claim reserves represent the estimated accrued liability for claims reported
to the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.

Separate Account

Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate account are valued at market.
Income and gains and losses with respect to the assets in the separate account
accrue to the benefit of the policyholders. The Company received variable
contract premiums of $227,864, $133,386 and $308,305 in 1996, 1995 and 1994,
respectively. All variable account contracts are subject to discretionary
withdrawal by the policyholder at the market value of the underlying assets
less the current surrender charge.

Reclassifications

Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.

32
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

2. FAIR VALUES OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the statutory-basis
balance sheet, for which it is practicable to estimate that value. SFAS No.
119, Disclosures about Derivative Financial Instruments and Fair Value of
Financial Instruments, requires additional disclosure about derivatives. In
cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. In that regard, the derived fair
value estimates cannot be substantiated by comparisons to independent markets
and, in many cases, could not be realized in immediate settlement of the
instrument. Statement of Financial Accounting Standards No. 107 and No. 119
exclude certain financial instruments and all nonfinancial instruments from
their disclosure requirements and allow companies to forego the disclosures
when those estimates can only be made at excessive cost. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of the Company.

The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:

Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.

Investment securities: Fair values for fixed maturity securities
(including redeemable preferred stocks) are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing
services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
The fair values for equity securities other than insurance subsidiaries are
based on quoted market prices. Fair value for the Company's insurance
subsidiary is the statutory net book value of that subsidiary.

Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans are assumed to equal their carrying
value.

Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.

Interest rate cap: Estimated fair value of the interest rate cap is based
upon the latest quoted market price.

Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.

33
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

The following sets forth a comparison of the fair values and carrying values
of the Company's financial instruments subject to the provisions of Statement
of Financial Accounting Standards No. 107 and No. 119:

<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------
1996 1995
--------------------- ---------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds.......................... $4,773,433 $4,867,770 $4,613,334 $4,824,635
Preferred stocks............... 3,097 7,133 9,336 12,275
Common stocks.................. 32,038 32,038 24,866 24,866
Affiliated common and preferred
stock......................... 6,934 6,934 6,794 6,794
Mortgage loans on real estate.. 911,705 922,010 680,414 714,399
Policy loans................... 54,214 54,214 52,675 52,675
Cash and short-term invest-
ments......................... 50,737 50,737 79,852 79,852
Interest rate cap.............. 6,797 6,975 7,971 7,250
Separate account assets........ 1,844,515 1,844,515 1,418,157 1,418,157
LIABILITIES
Investment contract liabili-
ties.......................... 4,532,568 4,398,630 4,323,188 4,310,505
Separate account annuities..... 1,803,057 1,803,057 1,417,842 1,417,842
</TABLE>

3. INVESTMENTS

The carrying value and estimated fair value of investments in debt securities
were as follows:

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Bonds:
United States Government and
agencies.................... $ 136,450 $ 3,301 $ 180 $ 139,571
State, municipal and other
government.................. 59,644 1,906 177 61,373
Public utilities............. 147,918 5,616 1,020 152,514
Industrial and miscellane-
ous......................... 1,958,681 64,710 8,105 2,015,286
Mortgage-backed securities... 2,470,740 43,896 15,610 2,499,026
---------- -------- ------- ----------
4,773,433 119,429 25,092 4,867,770
Preferred stocks............... 3,097 4,036 -- 7,133
---------- -------- ------- ----------
$4,776,530 $123,465 $25,092 $4,874,903
========== ======== ======= ==========
DECEMBER 31, 1995
Bonds:
United States Government and
agencies.................... $ 117,054 $ 5,808 $ 135 $ 122,727
State, municipal and other
government.................. 46,236 3,109 2 49,343
Public utilities............. 156,342 9,578 1,092 164,828
Industrial and miscellane-
ous......................... 1,781,149 112,074 7,146 1,886,077
Mortgage-backed securities... 2,512,553 93,420 4,313 2,601,660
---------- -------- ------- ----------
4,613,334 223,989 12,688 4,824,635
Preferred stocks............... 9,336 3,348 409 12,275
---------- -------- ------- ----------
$4,622,670 $227,337 $13,097 $4,836,910
========== ======== ======= ==========
</TABLE>

34
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

The carrying value and estimated fair value of bonds at December 31, 1996,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
CARRYING ESTIMATED FAIR
VALUE VALUE
---------- --------------
<S> <C> <C>
Due in one year or less............................ $ 202,775 $ 204,980
Due after one year through five years.............. 896,912 921,711
Due after five years through ten years............. 954,555 977,421
Due after ten years................................ 248,451 264,632
---------- ----------
2,302,693 2,368,744
Mortgage and other asset-backed securities......... 2,470,740 2,499,026
---------- ----------
$4,773,433 $4,867,770
========== ==========
</TABLE>

A detail of net investment income is presented below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and notes...................... $364,356 $342,182 $294,145
Dividends on equity investments.................. 1,436 1,822 12,091
Interest on mortgage loans....................... 69,418 52,702 42,385
Rental income on real estate..................... 9,526 10,443 9,360
Interest on policy loans......................... 3,273 3,112 3,182
Other investment income.......................... 1,799 1,803 282
-------- -------- --------
Gross investment income.......................... 449,808 412,064 361,445
Investment expenses.............................. 21,471 19,379 17,565
-------- -------- --------
Net investment income............................ $428,337 $392,685 $343,880
======== ======== ========
</TABLE>

Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds................................ $2,112,831 $1,757,229 $1,430,339
========== ========== ==========
Gross realized gains.................... $ 19,876 $ 19,721 $ 15,411
Gross realized losses................... (19,634) (34,399) (33,044)
---------- ---------- ----------
Net realized gains (losses)............. $ 242 $ (14,678) $ (17,633)
========== ========== ==========
</TABLE>

At December 31, 1996, investments with an aggregate carrying value of
$5,825,802 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.

35
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:

<TABLE>
<CAPTION>
REALIZED
------------------------------
YEAR ENDED DECEMBER 31
------------------------------
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Debt securities............................ $ 242 $(14,678) $ (17,633)
Short-term investments..................... (197) 24 (309)
Equity securities.......................... 1,798 504 1,322
Mortgage loans on real estate.............. (5,530) (1,053) (2,186)
Real estate................................ 1,210 (1,908) (2,858)
Other invested assets...................... 12 (970) 14
--------- -------- ---------
(2,465) (18,081) (21,650)
Tax effect................................. (1,235) 7,878 7,236
Transfer to interest maintenance reserve... 197 (7,891) 10,790
--------- -------- ---------
Net realized losses........................ $ (3,503) $(18,096) $ (3,624)
========= ======== =========
<CAPTION>
CHANGE IN UNREALIZED
------------------------------
YEAR ENDED DECEMBER 31
------------------------------
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Debt securities............................ $(115,867) $355,560 $(322,346)
Equity securities.......................... 2,929 (16,379) (23,202)
--------- -------- ---------
Change in unrealized appreciation (depreci-
ation).................................... $(112,938) $339,181 $(345,548)
========= ======== =========
</TABLE>

Gross unrealized gains and gross unrealized losses on equity securities were
as follows:

<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Unrealized gains.................................. $ 9,590 $ 6,833 $20,244
Unrealized losses................................. (8,723) (8,895) (5,927)
------- ------- -------
Net unrealized gains (losses)..................... $ 867 $(2,062) $14,317
======= ======= =======
</TABLE>

During 1996, the Company issued mortgage loans with interest rates ranging
from 6.83% to 8.75%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 85%. Mortgage loans
with a carrying value of $4,027 were non-income producing for the previous
twelve months. Accrued interest of $852 related to these mortgage loans was
excluded from investment income. The Company requires all mortgage loans to
carry fire insurance equal to the value of the underlying property.

36
<PAGE>
PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

During 1996, 1995 and 1994, mortgage loans of $13,163, $1,644 and $799,
respectively, were foreclosed and transferred to real estate. At December 31,
1996 and 1995, the Company held a mortgage loan loss reserve in the asset
valuation reserve of $5,432 and $6,168, respectively. The mortgage loan
portfolio is diversified by geographic region and specific collateral property
type as follows:

<TABLE>
<CAPTION>
GEOGRAPHIC
DISTRIBUTION
-------------
DECEMBER 31
-------------
1996 1995
----- -----
<S> <C> <C>
South Atlantic.......... 26% 26%
Mountain................ 10 12
W. South Central........ 12 14
Pacific................. 13 17
E. North Central........ 15 13
E. South Central........ 9 5
W. North Central........ 6 6
Middle Atlantic......... 6 3
New England............. 3 4
</TABLE>

<TABLE>
<CAPTION>
PROPERTY TYPE
DISTRIBUTION
--------------
DECEMBER 31
--------------
1996 1995
----- -----
<S> <C> <C>
Retail.................. 37% 31%
Apartment............... 14 20
Office.................. 34 29
Industrial.............. 3 4
Other................... 12 16
</TABLE>

At December 31, 1996, the Company had the following investments (excluding
U. S. Government guaranteed or insured issues) which individually represented
more than ten percent of capital and surplus and the asset valuation reserve:

<TABLE>
<CAPTION>
DESCRIPTION OF SECURITY OR ISSUER CARRYING VALUE
--------------------------------- --------------
<S> <C>
Bonds:
Citibank.................................................... 70,661
</TABLE>

4. REINSURANCE

The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.

Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and
ceded amounts:

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,457,450 $1,591,531 $1,857,446
Reinsurance assumed...................... 1,796 2,356 1,832
Reinsurance ceded........................ (300,546) (324,993) (412,029)
---------- ---------- ----------
Net premiums earned...................... $1,158,700 $1,268,894 $1,447,249
========== ========== ==========
</TABLE>

The Company received reinsurance recoveries in the amount of $168,155,
$167,287 and $148,414 during 1996, 1995 and 1994, respectively. At December
31, 1996 and 1995, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $63,226 and
$65,503, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1996 and
1995 of $2,737,441 and $2,920,034, respectively.

37
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

At December 31, 1996, amounts recoverable from unauthorized reinsurers of
$73,434 (1995--$70,516) and reserve credits for reinsurance ceded of $55,035
(1995--$48,992) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $120,477 at December 31, 1996 that can be drawn on
for amounts that remain unpaid for more than 120 days.

5. INCOME TAXES

For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a tax-
sharing agreement between the Company and its affiliates, the Company computes
federal income tax expense as if it were filing a separate income tax return,
except that tax credits and net operating loss carryforwards are determined on
the basis of the consolidated group. Additionally, the alternative minimum tax
is computed for the consolidated group and the resulting tax, if any, is
allocated back to the separate companies on the basis of the separate
companies' alternative minimum taxable income.

Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before taxes and
realized capital losses for the following reasons:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)..... $37,256 $27,835 $24,106
Tax reserve adjustment........................... 2,211 2,405 1,150
Excess tax depreciation.......................... (384) (365) (406)
Deferred acquisition costs--tax basis............ 5,583 4,581 7,378
Prior year over accrual.......................... (499) (306) (644)
Dividend received deduction...................... (454) (56) (3,513)
Charitable contribution.......................... -- -- (3,935)
Other items--net................................. (2,536) (759) (278)
------- ------- -------
Federal income tax expense....................... $41,177 $33,335 $23,858
======= ======= =======
</TABLE>

Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($20,387 at December 31, 1996). To the extent dividends are
paid from the amount accumulated in the policyholders' surplus account, net
earnings would be reduced by the amount of tax required to be paid. Should the
entire amount in the policyholders' surplus account become taxable, the tax
thereon computed at current rates would amount to approximately $7,135.

The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1987.
During 1996, there was a $5,025 prior period adjustment to the tax accrual.
This included a $2,100 writeoff of an intangible asset for tax purposes, and a
federal income tax refund of $1,829 for tax years 1984-1986 and related
interest of $1,686, net of a tax effect of $590. An examination is underway
for years 1988 through 1995.

6. POLICY AND CONTRACT ATTRIBUTES

Participating life insurance policies are issued by the Company which
entitle policyholders to a share in the earnings of the participating
policies, provided that a dividend distribution, which is determined annually
based

38
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

on mortality and persistency experience of the participating policies, is
authorized by the Company. Participating insurance constituted approximately
1.0% and 1.2% of ordinary life insurance in force at December 31, 1996 and
1995, respectively.

A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relate to liabilities established on
a variety of the Company's products that are not subject to significant
mortality or morbidity risk; however, there may be certain restrictions placed
upon the amount of funds that can be withdrawn without penalty. The amount of
reserves on these products, by withdrawal characteristics are summarized as
follows:

<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------
1996 1995
------------------- -------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment...... $ 20,800 0% $ 699 --%
Subject to discretionary withdrawal
at book value less surrender
charge............................ 794,881 9 733,796 8%
Subject to discretionary withdrawal
at market value................... 1,803,057 20 1,390,156 16%
Subject to discretionary withdrawal
at book value (minimal or no
charges or adjustments)........... 6,284,876 69 6,395,719 74%
Not subject to discretionary with-
drawal provision.................. 174,416 2 139,330 2%
---------- --- ---------- ---
9,078,030 100 8,659,700 100%
Less reinsurance ceded............. 2,677,432 2,866,160
---------- ----------
Total policy reserves on annuities
and deposit fund liabilities...... $6,400,598 $5,793,540
========== ==========
</TABLE>

A reconciliation of the amounts transferred to and from the separate
accounts is presented below:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of opera-
tions of the separate accounts statement:
Transfers to separate accounts................. $227,864 $133,386 $308,305
Transfers from separate accounts............... 75,172 104,219 76,133
-------- -------- --------
Net transfers to separate accounts............... 152,692 29,167 232,172
Reconciling adjustments--charges for investment
management, administration fees and contract
guarantees...................................... 19,093 13,814 11,634
-------- -------- --------
Transfers as reported in the summary of opera-
tions of the life, accident and health annual
statement....................................... $171,785 $ 42,981 $243,806
======== ======== ========
</TABLE>

39
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1996 and 1995, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:

<TABLE>
<CAPTION>
GROSS LOADING NET
------- ------- -------
<S> <C> <C> <C>
DECEMBER 31, 1996
Life and annuity:
Ordinary direct first year business............. $ 2,657 $ 1,865 $ 792
Ordinary direct renewal business................ 23,307 7,180 16,127
Group life direct business...................... 1,788 1,195 593
Reinsurance ceded............................... (1,706) (438) (1,268)
------- ------- -------
26,046 9,802 16,244
Accident and health:
Direct.......................................... 104 -- 104
Reinsurance ceded............................... (3) -- (3)
------- ------- -------
Total accident and health......................... 101 -- 101
------- ------- -------
$26,147 $ 9,802 $16,345
======= ======= =======
DECEMBER 31, 1995
Life and annuity:
Ordinary direct first year business............. $ 3,151 $ 2,223 $ 928
Ordinary direct renewal business................ 24,250 7,792 16,458
Group life direct business...................... 1,537 779 758
Reinsurance ceded............................... (1,362) (141) (1,221)
------- ------- -------
27,576 10,653 16,923
Accident and health:
Direct.......................................... 1,296 -- 1,296
Reinsurance ceded............................... (1,193) -- (1,193)
------- ------- -------
Total accident and health......................... 103 -- 103
------- ------- -------
$27,679 $10,653 $17,026
======= ======= =======
</TABLE>

At December 31, 1996 and 1995, the Company had insurance in force
aggregating $69,251 and $87,010, respectively, in which the gross premiums are
less than the net premiums required by the standard valuation standards
established by the Insurance Division, Department of Commerce, of the State of
Iowa. The Company established policy reserves of $1,252 and $1,417 to cover
these deficiencies at December 31, 1996 and 1995, respectively.

In 1994, the NAIC enacted a guideline to clarify reserving methodologies for
contracts that require immediate payment of claims upon proof of death of the
insured. Companies were allowed to grade the effects of the change in
reserving methodologies over five years. A direct charge to surplus of $501
was made for the year ended December 31, 1995, related to the change in
reserve methodology.

40
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

7. DIVIDEND RESTRICTIONS

Generally, an insurance company's ability to pay dividends is limited to the
amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities.

The Company paid dividends to its parent of $20,000 and $20,900 in 1996 and
1994, respectively. No dividends were paid in 1995.

8. RETIREMENT AND COMPENSATION PLANS

The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
FASB No. 87 expense as a percent of salaries. The benefits are based on years
of service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $1,056, $942 and $966 for the
years ended December 31, 1996, 1995 and 1994, respectively. The plan is
subject to the reporting and disclosure requirements of the Employee
Retirement and Income Security Act of 1974.

The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k)
of the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements, are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Expense related to this plan was $297, $465 and $411 for
the years ended December 31, 1996, 1995 and 1994, respectively.

AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been
accrued or funded as deemed appropriate by management of AEGON and the
Company.

In addition to pension benefits, the Company participates in plans sponsored
by AEGON that provide postretirement medical, dental and life insurance
benefits to employees meeting certain eligibility requirements. Portions of
the medical and dental plans are contributory. The expenses of the
postretirement plans calculated on the pay-as-you-go basis are charged to
affiliates in accordance with an intercompany cost sharing arrangement. The
Company expensed $184, $164 and $169 for the years ended December 31, 1996,
1995 and 1994, respectively.

9. RELATED PARTY TRANSACTIONS

The Company shares certain offices, employees and general expenses with
affiliated companies.

41
<PAGE>

PFL LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS (CONTINUED)
(DOLLARS IN THOUSANDS)

The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1996,
1995 and 1994, the Company paid $17,028, $14,214 and $11,820, respectively,
for these services, which approximates their costs to the affiliates.

Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 5.5% at December 31, 1996. During 1996,
1995 and 1994, the Company paid net interest of $174, $71 and $23,
respectively, to affiliates.

During 1995 and 1994, the Company received capital contributions of $40,000
and $15,000, respectively, in cash from its parent and during 1994 received a
dividend of $10,000 from its subsidiary, Equity National, which was included
in net investment income.

During 1995, the Company sold real estate with a book value of approximately
$13,270 to an affiliated entity in exchange for a short-term note receivable.
No gain was recognized on this sale. This note accrued interest at 5.65% and
matured during 1996.

During the year ended December 31, 1995, the Company restructured demand
notes and accrued interest of $13,250 and $745, respectively, related to an
affiliate. The Company received 9,750 shares of preferred stock from the
affiliate for satisfaction of debt. The Company realized a loss of $8,695
related to this transaction. At December 31, 1996 and 1995, the preferred
stock related to this affiliate was deemed to have no value and an unrealized
loss of $4,555 was recognized in 1995.

10. COMMITMENTS AND CONTINGENCIES

The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of
available facts, that damages arising from such demands will not be material
to the Company's financial position.

The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as
an asset on the Company's balance sheet. Potential future obligations for
unknown insolvencies are not determinable by the Company. The future
obligation has been based on the most recent information available from the
National Organization of Life and Health Insurance Guaranty Associations
(NOLHGA). The Company has established a reserve of $21,774 and $21,747 and an
offsetting premium tax benefit of $8,752 and $9,457 at December 31, 1996 and
1995, respectively, for its estimated share of future guaranty fund
assessments related to several major insurer insolvencies. During 1994, $3,444
was charged to surplus as prior period adjustments to provide for this net
reserve plus certain assessments paid that related to several major insurer
insolvencies prior to 1992. The guaranty fund expense was $2,617, $5,859 and
$4,054 for December 31, 1996, 1995 and 1994, respectively.

42
<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

43
<PAGE>

SCHEDULE I

PFL LIFE INSURANCE COMPANY

SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
AMOUNT AT WHICH
MARKET SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET (2)
------------------ ---------- ---------- -----------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and govern-
ment agencies and authorities....... $1,533,581 $1,554,339 $1,533,510
States, municipalities and political
subdivisions........................ 4,918 5,360 4,919
Foreign governments.................. 55,633 56,013 54,725
Public utilities..................... 150,346 152,514 147,918
All other corporate bonds............ 3,046,090 3,099,544 3,032,361
Redeemable preferred stock............. 3,097 7,133 3,097
---------- ---------- ----------
Total fixed maturities................. 4,793,665 4,874,903 4,776,530
EQUITY SECURITIES
Common stocks:
Banks, trust and insurance........... 7,120 9,777 9,777
Industrial, miscellaneous and all
other............................... 16,092 22,261 22,261
---------- ---------- ----------
Total equity securities................ 23,212 32,038 32,038
Mortgage loans on real estate.......... 911,705 911,705
Real estate............................ 46,294 46,294
Real estate acquired in satisfaction of
debt.................................. 12,260 12,260
Policy loans........................... 54,214 54,214
Other long-term investments............ 9,546 9,546
Cash and short-term investments........ 50,737 50,737
---------- ----------
Total investments...................... $5,901,633 $5,893,324
========== ==========
</TABLE>
- --------
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments.
(2) Amount differs from cost as certain bonds have been adjusted to reflect
other than temporary decline in value charged to surplus, as prescribed by
the NAIC.

44
<PAGE>

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------

a) All required financial statements are included in Part B of this
Registration Statement.

b) Exhibits:
(1) Resolution of the Board of Directors of PFL Life
Insurance Company establishing the Fidelity Variable
Annuity Account. Note 1.

(2) Not applicable.

(3) (i) Distribution Agreement between Fidelity
Distributiors Corporation (Underwriter) and
PFL Life Insurance Company (Depositor). Note 2.

(ii) Specimen selling group agreement. Note 3.

(4) Form for the Fidelity Variable Annuity Account Contract.
Note 6 .

(5) Application for the Fidelity Variable Annuity Account
Contract. Note 1.

(6) (i) Articles of Incoproration of PFL Life Insurance
Company. Note 6.

(7) Not applicable

(8) (i) Administrative Service Agreement. Note 5.

(ii) Amendment and Assignment of Administrative Services
Agreement. Note 6.

(iii) Second Amendment to Administrative Service
Agreement. Note 7.

(8) (iv) Participation Agreement between Variable Insurance
Products Fund III, Fidelity Distributions
Corporation (Underwriter), and PFL Life Insurance
Company (Depositor). Note 10.

(9) (i) Opinion of counsel as to the legality of the
securities being registered. Note 1.

(ii) Consent of counsel to use its opinion. Note 1.

C - 1

<PAGE>

(10)(i) Written consent of Independent Auditors. Note
10.

(10)(ii) Opinion and Consent of Actuary Note. 10

(11) Not applicable.

(12) Not applicable.

(13) Not applicable.

(14) Powers of Attorney (P.S. Baird, W.L. Busler,
P.E. Falconio, D.C. Kolsrud, R.J. Kontz) (Note
8). (Craig D. Vermie) Note 9. (Brenda K.
Clancy) Note 10.

Note 1 Incorporated by reference to the Exhibits to the Post-
Effective Amendment No. 8 to Form N-4, File No. 2-65365
filed on March 2, 1987.

Note 2 Incorporated by reference to Exhibit 3(a) to Form N-8B-2,
File No. 811-2954 filed April 27, 1984, on behalf of the
Fidelity Variable Annuity Account (formerly the PFL
Variable Separate Account).

Note 3 Incorporated by reference to Exhibit 3(b) to Form N-8B-2,
File No. 811-2954 filed April 27, 1984, on behalf of the
Fidelity Variable Annuity Account (formerly the PFL
Variable Separate Account).

Note 4 Incorporated by reference to Post-Effective Amendment No.
9, Registration No. 2-65365, Exhibit 4 to Form N-4, filed
on April 27, 1987.

Note 5 Incorporated by reference to Exhibit 2(c) to Pre-
Effective Amendment No. 4 to Form S-6, File No. 2-65365
filed on August 14, 1980.

Note 6 Incorporated by reference to the Exhibits to Post-
Effective Amendment No. 1 to Form N-4, Registration No.
33-37498, filed March 29, 1991.

Note 7 Incorporated by reference to the Exhibits to Post-
Effective Amendment No. 2 to Form N-4, Registration No.
33-37498, filed April 29, 1992.

Note 8 Incorporated by reference to the Exhibits to Post-
Effective Amendment No. 5 to Form N-4, Registration No.
33-37478, filed April 24, 1995.

Note 9 Incorporated by reference to the Exhibits to Post-
Effective Amendment No. 6 to Form N-4, Registration No.
33-37478, filed April 19, 1996.

Note 10 Filed herewith.

C - 2
<PAGE>

ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
---------------------------------------

Principal Positions
Name and and Offices with
Business Address Depositor
- ---------------- ---------

Craig D. Vermie Director, Vice President,
1111 North Charles Street Secretary and Corporate
Baltimore, MD 21201 Counsel

William L. Busler Director, Chairman of the
4333 Edgewood Road N.E. Board and President
Cedar Rapids, IA 52499

Patrick E. Falconio Director, Senior Vice
4333 Edgewood Road N.E. President and Chief
Cedar Rapids, IA 52499 Investment Officer

Robert J. Kontz Vice President and
4333 Edgewood Road N.E. Controller
Cedar Rapids, IA 52499

Brenda K. Clancy Vice President and
4333 Edgewood Road N.E. Treasurer and Chief Financial Officer
Cedar Rapids, IA 52499

Patrick S. Baird Director, Senior Vice President
4333 Edgewood Road N.E. and Chief Financial
Cedar Rapids, IA 52499 Officer

Douglas C. Kolsrud Director, Vice President
4333 Edgewood Road N.E. and Corporate Actuary
Cedar Rapids, IA 52499

ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
WITH THE DEPOSITOR OR REGISTRANT
--------------------------------
<TABLE>

---------------------------
VERENIGING AEGON
NETHERLANDS MEMBERSHIP
ASSOCIATION
---------------------------
+
53.00%
---------------------------
AEGON N.V.
NETHERLANDS CORPORATION
----------------------------
+
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ + + +
100% 100% 100% 100%
---------------------- ------------------------ ------------------------ -----------------------------
AEGON Netherland N.V. AEGON INTERNATIONAL N.V. AEGON NEWAK HOLDING S.V. GRONINGER FINANCIERINGEN B.V.
Netherlands Corporation Netherlands Corporation Netherlands Corporation Netherlands Corporation
---------------------- ------------------------ ------------------------ -----------------------------
+
DE
-------------------
VOTING TRUST
Trustees: K.J. Storm
Donald J. Sheperd
H.B. Van Wild
Dennis Hersch
-------------------
+
DE 100%
-------------------
AEGON U.S. HOLDING
CORPORATION
-------------------
+ +
++++++++++++++++++++++++++++++++++++ +
+ IA 100%(1)
+ -------------------
+ AEGON USA, INC.
+ -------------------
+ +
+ +++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ + +
+ MD 100% MD
+ ----------------- ------------
+ FIRST AUSA LIFE AUSA HOLDING
+ INSURANCE COMPANY COMPANY
+ ----------------- ------------
+ + +
+ + ++++++++++++++++++++++++++++++++++++++++++++++
+ + + ++
+ + MD 100% IA 100% DE
+ + -------------------- ------------- ++ ----------------------
+ + MONUMENTAL GENERAL AUSA FINACIAL +++ DIVERSIFIED INVESTMENT
+ + INSURANCE GROUP, INC ++ MARKETS, INC. ++ ADVISORS, INC.
+ + -------------------- + ------------- ++ ----------------------
NJ 100% + NY + MD 100% + ++
- ----------------- + ------------------- + ----------------- + ++
SHORT HILLS + AUSA LIFE INSURANCE +++ MONUMENTAL LIFE + IA 100% ++ DE 100%
MANAGEMENT COMPANY+ COMPANY, INC + INSURANCE COMPANY++ MD 100% + ----------- ++ ---------------------
- ----------------- + ------------------- + ----------------- + ------------------- + UNIVERSAL ++ DIVERSIFIED INVESTORS
+ + + MONUMENTAL GENERAL + BENEFITS +++++++ SECURITIES CORP.
+ + + ADMINISTRATORS, INC.+ CORPORATION ++ --------------------
+ + MD 100% + ------------------- + ++
NY + ----------------- + ----------------- + + ----------- ++
- ---------------- + LIFE INVESTORS + MONUMENTAL GENERAL+ + + ++ IA 100%
CORPA REINSURANCE + INSURANCE COMPANY + CASUALTY COMPANY + + IA 100% ++ ----------------
COMPANY ++ ++ OF AMERICA ++ ----------------- + MD 100% + ---------- ++++++++ AEGON USA
- ---------------- ++ ----------------- + MD 100% + ----------------- + INVESTORS ++ +++ SECURITIES, INC.
++ + --------------- + EXECUTIVE MANAGE- + WARRANTY ++ + ----------------
IN 100% ++ ------------------- + UNITED FINACIAL + MENT AND CONSULT- + OF AMERICA, ++ +
- ---------------- +++BANKERS UNITED LIFE + SERVICES, INC. +++ ANT SERVICES, INC.+ + INC. ++ +
AEGON MANAGEMENT ++ ASSURANCE COMPANY +++ --------------- + ----------------- + ---------- ++ + MD
COMPANY + ------------------- + + MD 100% + IA 100% ++ + -----------------
- ---------------- + + AZ (*) + ------------------ + ------------- ++ +++ AEGON USA MANAGED
+ ----------------- + ---------------- + MONUMENTAL GENERAL+ + MASSACHUSETTS ++ PORTFOLIOS INC.
DE 100% + PFL LIFE ++++ BANKERS FINACIAL + MASS MARKETING INC. FIDELTY TRUST +++ -----------------
- ----------------- + INSURANCE COMPANY + LIFE INSURANCE +++ ------------------- COMPANY ++
RCC NORTH AMERICA + ----------------- + COMPANY + ------------ ++
INC. ++ AZ 100% VOTING + ---------------- + DE 100% ++ IA 100%
- ----------------- + CHAIRMAN MD 100% + ------------------ ++ ------------------
---------------------+ -------------- + MONEY SERVICES, INC.++++ AMERICAN FORUM FOR
SOUTHWEST EQUITY LIFE+ THE WHITESTONE + ------------------- ++ FISCAL FITNESS, INC.
INSURANCE COMPANY+++ CORPORATION +++++ CA 100% -------------------
---------------------+ -------------- ------------------- ++ IN 100%
AZ 100% Voting Chairman (2) + IA 100% ZAHORIK COMPANY INC+++ --------------
----------------------- + ------------------ --------------------++ SUPPLEMENTAL
IOWA FIDELITY LIFE +++ CADET HOLDING CORP + ++ INSURANCE
INSURANCE COMPANY + ------------------ AL 100% ++ DIVISION INC.
----------------------- + ---------- +++++++ --------------
OH 100% + ZCI, INC. ++ MI 100%
--------------------- --------- +++++++ ------------------
WESTERN RESERVE LIFE + +++++++++++++++++++++++++++++++++++++ CREDITOR RESOURCES
++++ ASSURANCE CO. OF OHIO+++ DE + ++ INC.
+ --------------------- --------------- + ++ ------------------
+ --------------- INTERSECURITIES+++++++++++++ ++ +
++++++++ WRL SERIES FUND ++++++ INC. +++++ + ++ CN 100%
INC. + --------------- + + ++ -------------------
--------------- + + + ++ CRC CREDITOR
MA + CA 100% + + MN 100% RESOURCES CANADIAN
--------- + ---------------- + + ------------------------ ++ DEALER NETWORK, INC.
IDEX FUND++++++ ISI INSURANCE + + AUSA INSTITUTIONAL ++++++++++ -------------------
--------- + AGENCY INC. AND+++++ + MARKETING PARTNERS, INC. ++
+ ITS SUBSIDIARIES + + ------------------------ ++ IA 100%
MA + ---------------- + + MN 100% ++ --------------------
----------- + MN 100% + + ---------------- ++++ AEGON USA INVEST-
IDEX II +++++++ ------------------- + + COLORADO ANNUITY+++++++++++++++ MENT MANAGEMENT, INC.
SERIES FUND + ASSOCIATED MARINER ++ + AGENCY INC. + ---------------------
----------- + FINANCIAL GROUP, INC.+++ + ---------------- + IA 100%(12)
MA + ------------------- + + + -----------------
----------- + MI 100% + +++++ AEGON USA REALTY
IDEX FUND 3 +++++ ----------------- + + ++++ ADVISORS, INC.
----------- + MARINER FINANCIAL+++++ + + -----------------
+ SERVICES, INC. + + + DE 100%
+ ----------------- + + + -----------
+ + + +++++++ QUANTRA
+ MI 100% + + + CORPORATION
+ ------------------ + + + -----------
+ MARINER'S PLANNING + + + +
+ CORPORATION + + + DE 100%
+ ------------------ + + + ----------------
+ + + + QUANTRA SOFTWARE
+ MI 100%(10) + + + CORPORATION
+ ------------------- + + + ----------------
+ ASSOCIATED MARINER + + + IA 100%
+ AGENCY INC. AND ITS++++ + + ---------------
+ SUBSIDIARIES + + ++++LANDAUER REALTY
+ ------------------- + + + ADVISORS, INC.
+ MI 100% + + + ---------------
+ ---------------- + + + DE 100%
+ MARINER MORTGAGE + + + ----------------
+ CORP. ++++++ + ++++++ LANDAUER
+ ---------------- + + ASSOCIATES, INC.
+ + + ----------------
+ FL 100% + + IA 100%
+ -------------- + + ----------------
+ IDEX INVESTOR +++++++++++++ ++++++ AEGON USA REALTY
+++++SERVICES, INC. + + MANAGEMENT, INC
+ -------------- + + ----------------
+ DE 50%(7) + + IA 100%(11)
+ --------------- + + ------------------
+ IDEX MANAGEMENT,+++++++++++ +++++ REALTY INFORMATION
++++ INC. SYSTEMS, INC.
--------------- ------------------
IA (4)
----------------
USP REAL ESTATE++++
INVESTMENT TRUST +
---------------- +
(5) +
----------------- +
CEDAR INCOME FUND+++
LTD.
-----------------
</TABLE>

See Footnotes Page 2

Effective January 1, 1997

Page 2

Footnotes

(1) 150,000 shares of Class B Non-Voting Common Stock owned by Ennia
Reinsurance Antilles N.V.

(2) Ordinary common stock is allowed 60% of total cumulative vote.
Participating common stock is allowed 40% of total cumulative vote.

(3) Denotes relationships as advisor, administrator, sponsor, underwriter or
general partner.

(4) First AUSA Life Insurance Company owns 12.89%. PFL Life Insurance Company
owns 13.11%. Bankers United Life Assurance Company owns 4.86%.

(5) PFL Life Insurance Company owns 16.73%. Bankers United Life Assurance
Company owns 3.77%. Life Investors Insurance Company of America owns
3.38%. AEGON USA Realty Advisors, Inc. owns 1.97%. First AUSA Life
Insurance Company owns .18%.

(6) Class B Common stock is allocated 75% of total cumulative vote. Class A
Common stock is allocated 25% of total cumulative vote.

(7) 50% of Idex Management, Inc. is owned by Janus Capital Corporation, a
Colorado corporation.

(8) RCC Group: FGH Realty Credit Corp., FGH USA, Inc., RCC North America,
Inc., FGH USA Realty, Inc., FGH Eastern Region, Inc., FGH Appraisal
Services, Inc., FGH Western Region, Inc., ALH Properties, Inc., First FGP,
Inc., Second FGP, Inc., Third FGP, Inc., Fourth FGP, Inc., Fifth FGP, Inc.,
Sixth FGP, Inc., Seventh FGP, Inc., FGP Midwood, Inc., FGP Parsippany,
Inc., ALH Properties Two, Inc., ALH Properties Three, Inc., ALH Properties
Four, Inc., ALH Properties Five, Inc., ALH Properties Six, Inc., ALH
Properties Seven, Inc., ALH Properties Eight, Inc., ALH Properties Nine,
Inc., ALH Properties Ten, Inc., ALH Properties Eleven, Inc., ALH Properties
Twelve, Inc., ALH Properties Thirteen, Inc., ALH Properties Fourteen, Inc.,
ALH Properties Fifteen, Inc., ALH Properties Sixteen, Inc., ALH Properties
Seventeen, Inc., FGP Keene, Inc., FGP Broadway, Inc., FGP West Street,
Inc., FGP West Street Two, Inc., FGP 90 West Street, Inc., FGP Branford,
Inc., FGP Franklin, Inc., FGP Bala, Inc., FGP Twenty-One, Inc., FGP Twenty-
Two, Inc., FGP Twenty-Five, Inc., FGP Schenectady, Inc., FGP Country
Estates, Inc., FGP Eleventh Street, Inc., FGP 109th Street, Inc., FGP
Seventy-Second Street, Inc., FGP Gaithersburg, Inc., FGP West 32nd Street,
Inc., FGP Beekman, Inc., Dutch Hotel Management, Inc., FGP Landmark, Inc.,
FGP Islandia, Inc., FGP Bridgeport, Inc., FGP Varick, Inc., The RCC Group,
Inc., FGP Union Gardens, Inc., FGP Burkewood, Inc., FGP Stamford, Inc., FGP
Meadow Lane, Inc., FGP Main Street, Inc., FGP Property Services, Inc., FGP
Merrick, Inc., FGP West 14th Street, Inc., FGP 106 Fulton, Inc., FGP Bush
Terminal, Inc., FGP Northern Boulevard, Inc., FGP Seventh Avenue, Inc., FGP
Parsons, Inc., FGP City Hall, Inc., FGP West 88th Street, Inc., FGP
Lincoln, Inc., FGP Emerson, Inc., FGP Brooke, Inc., FGP 86th Street, Inc.,
FGP Edison, Inc., FGP Rider Avenue, Inc., FGP Remsen, Inc., FGP Rockbeach,
Inc., FGP Carter Drive, Inc., FGP Centereach, Inc., FGP Colonial Plaza,
Inc., FGP Coram, Inc., FGP Herald Center, Inc., Eighty Six Yorkville, Inc.

(9) Subsidiaries of ISI Insurance Agency, Inc. are: ISI Insurance Agency of
Ohio, Inc., ISI Insurance Agency of Massachusetts, Inc., and ISI Insurance
Agency of Texas, Inc.

(10) Subsidiaries of Associated Mariner Agency, Inc. are Associated Mariner
Agency of Hawaii, Inc., Associated Mariner Insurance Agency of
Massachusetts, Inc., Associated Mariner Agency Ohio, Inc., Associated
Mariner Agency Texas, Inc., and Associated Mariner Agency New Mexico, Inc.

(11) Owns 50% interest in DJA Partners (a.k.a. "Teleres"), a Delaware general
partnership. Also owns 10% interest in Datalytics, Inc., an Ohio
corporation.

(12) Owns 49% of Quantra Consulting, Inc., a Delaware corporation.

AEGON USA, Inc. - Holding company
Life Investors Insurance Company of America - Insurance
International Life Investors Insurance Company - Insurance
Transunion Casualty Company - Insurance
Investors Warranty of America, Inc. - Provider of automobile extended
maintenance contracts
Supplemental Insurance Division, Inc. - Insurance
Creditor Resources, Inc. - Credit insurance
AEGON USA Investment Management, Inc. - Investment advisor
AEGON USA Realty Advisors, Inc. - Provides real estate administrative and real
estate investment services

C - 3
<PAGE>

AEGON USA Realty Management, Inc. - Real estate management
AEGON USA Securities, Inc. - Broker-dealer
AEGON USA Managed Portfolios, Inc. - Mutual fund
USP Real Estate Investment Trust - Real estate investment trust
Cedar Income Fund, Ltd. - Real estate investment trust

First AUSA Life Insurance Company - Insurance holding company
Bankers United Life Assurance Company - Insurance
PFL Life Insurance Company - Insurance
Universal Benefits Corporation - Third party administrator
Massachusetts Fidelity Trust Company - Trust company
Money Services, Inc. - Provides financial counseling for employees and agents of
affiliated companies
Zahorik Company, Inc. - Broker-dealer

Cadet Holding Corp. - Holding company
ISI Insurance Agency, Inc. - Broker-dealer
Southwest Equity Life Insurance Company - Insurance
Iowa Fidelity Life Insurance Company - Insurance
The Whitestone Corporation - Insurance agency
Monumental Life Insurance Company - Insurance
United Financial Services, Inc. - General agency

Monumental General Insurance Group, Inc. - Holding company
Monumental General Administrators, Inc. - Provides management services to
unaffiliated third party administrator
Executive Management and Consultant Services, Inc. - Provides actuarial
consulting services
Monumental General Mass Marketing, Inc. - Marketing arm for sale of mass
marketed insurance coverages

Bankers Financial Life Insurance Company - Insurance
Monumental General Casualty Company - Insurance
AUSA Holding Company - Holding company
JLW Financial Management Systems, Inc. - Provides management expertise and
administrative services for credit unions
ZCI, Inc. - Insurance agency
AUSA Financial Markets, Inc. - Marketing
CRC Creditor Resources Canadian Dealer Network Inc. - Insurance agency
American Forum For Fiscal Fitness, Inc. - Marketing
Western Reserve Life Assurance Co. of Ohio - Insurance
Landauer Realty Advisors, Inc. - Real estate counseling
Landauer Associates, Inc. - Real estate counseling

C - 4
<PAGE>

IDEX Total Income Trust - Mutual fund
IDEX Fund - Mutual fund

IDEX II Series Fund - Mutual fund
IDEX Fund 3 - Mutual fund
Intersecurities, Inc. - Broker-dealer
Idex Management, Inc. - Investment advisor
IDEX Investor Services, Inc. - Shareholder services
WRL Series Fund, Inc. - Mutual fund
AUSA Life Insurance Company, Inc. - Insurance
Diversified Investors Advisors, Inc. - Registered investment advisor
Diversified Investors Securities Corp. - Broker-dealer
Associated Mariner Financial Group, Inc. - Holding company management services
Mariner Financial Services, Inc. - Broker/Dealer

Mariner/ISI Planning Corporation - Financial planning
Associated Mariner Agency, Inc. - insurance agency
Mariner Mortgage Corp. - Mortgage origination

AUSA Institutional Marketing Group, Inc. - Insurance agency
Colorado Annuity Agency, Inc. - Insurance agency
Realty Information Systems, Inc. - Information Systems for real estate
investment management

Melson and Associates, Inc. - Real estate financial management consulting

ITEM 27. NUMBER OF CONTRACTOWNERS
------------------------

The number of Contractowners of Registrant as of December 31,
1996, was 8,463.

ITEM 28. INDEMNIFICATION
---------------

The Iowa Code (Sections 490.850 et. seq.) provides for permissive
--------
indemnification in certain situations, mandatory indemnification
in certain situations. The Code also specifies procedures for
determining when indemnification payments can be made.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Depositor pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director,
officer or controlling person in connection with the securities
being registered), the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such
issue.
C - 5
<PAGE>

ITEM 29. PRINCIPAL UNDERWRITERS
----------------------

(a) Fidelity Brokerage Services, Inc. and its affiliate, Fidelity
Insurance Agency, Inc. act as distributor of the contracts.
Fidelity Brokerage Services, Inc. acts as distributor for other
variable annuity and variable life contracts registered by
separate accounts of Fidelity Investments Life Insurance Company
and Empire Fidelity Investments Life Insurance Company.

(b)

Name and Principal Positions and Offices
Business Address* With Underwriter
---------------------------------------------------
<S> <C>
David Joseph Plucinski Director

Roger T. Servison Director

Rodney Rhoda Director

Steven Akin Director

Robert Mazzarella President

John Peter Benzie Executive Vice President

Charles B. Milligan Executive Vice President

Edward L. McCartney Executive Vice President

Thomas E. Lewis Executive Vice President

Bruce MacAlpine Vice President

Jeffrey Larsen Counsel and Clerk

Jay Freedman Assistant Clerk

Shaugn S. Stanley Treasurer

Gary Greenstein Assistant Treasurer

Linda Holland Compliance Officer

Thomas P. Lescoe Compliance Registered Options
Principal

*82 Devonshire Street, Boston, MA 02109.

</TABLE>

Fidelity Insurance Agency, Inc. receives insurance
commissions for its services as an insurance general agent in
distributing the Contracts. Fidelity Insurance Agency, Inc.
is an affiliate of the principal underwriter of the
Contracts, Fidelity Brokerage Services, Inc., a registered
broker-dealer. Fidelity Insurance Agency, Inc. received
$ 4,107,592 in commissions from the Registrant during the
last fiscal year. No other

C - 6
<PAGE>

commission or compensation was received by the principal
underwriter, directly or indirectly, from the Registrant
during the fiscal year.

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------

The records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated
thereunder, are maintained by PFL Life Insurance Company at 4333
Edgewood Road N.E., Cedar Rapids, IA 52499.

ITEM 31. MANAGEMENT SERVICES
-------------------

Not applicable.

ITEM 32. UNDERTAKINGS
------------

(a) Registrant undertakes that it will file a post-effective
amendment to this registration statement as frequently as necessary to ensure
that the audited financial statements in the registration statement are never
more than 16 months old for so long as Premiums under the Policy may be
accepted.

(b) Registrant undertakes that it will include either (i) a postcard
or similar written communication affixed to or included in the Prospectus that
the applicant can remove to send for a Statement of Additional Information or
(ii) a space in the Policy application that an applicant can check to request a
Statement of Additional Information.

(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request at the address or phone number
listed in the Prospectus.

(d) PFL Life Insurance Company hereby represents that the fees and
charges deducted under the policies, in the aggregate, are
reasonable in relation to the services rendered, the expenses to
be incurred, and the risks assumed by PFL Life Insurance
Company.

PARTC
C - 7
<PAGE>

SIGNATURES

As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant hereby certifies that this Amendment to the Registration
Statement meets the requirements for effectiveness pursuant to paragraph (b) of
Rule 485 and has caused this Registration Statement to be signed on its behalf,
in the City of Cedar Rapids and State of Iowa, on this 28th day of April, 1997.

FIDELITY VARIABLE
ANNUITY ACCOUNT

PFL LIFE INSURANCE COMPANY
Depositor

/s/ William L. Busler
---------------------------
William L. Busler
President

As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the duties indicated.

Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Patrick S. Baird Director
- ----------------------- April 28, 1997
Patrick S. Baird

/s/ Craig D. Vermie Director April 28, 1997
- -----------------------
Craig D. Vermie

/s/ William L. Busler Director April 28, 1997
- -----------------------
William L. Busler (Principal Executive Officer)

/s/ Patrick E. Falconio Director April 28, 1997
- -----------------------
Patrick E. Falconio

/s/ Douglas C. Kolsrud Director April 28, 1997
- -----------------------
Douglas C. Kolsrud

/s/ Robert J. Kontz Vice President and April 28, 1997
- ----------------------- Corporate Controller
Robert J. Kontz

/s/ Brenda K. Clancy Treasurer April 28, 1997
- -----------------------
Brenda K. Clancy

</TABLE>

<PAGE>

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
(8)(iv) Participation Agreement between
Variable Insurance Products Fund III,
Fidelity Distributors Corporation
(Underwriter), and PFL Life Insurance
Company. (Depositor)..................

(10)(i) Written Consent of Independent
Auditors..............................

(10)(ii) Opinion and Consent of Actuary........

(14) Powers of Attorney....................

</TABLE>

<PAGE>

Registration No.
33-37498

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

---------------

EXHIBITS

FORM N-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

FOR

FIDELITY VARIABLE ANNUITY ACCOUNT

---------------

<PAGE>

EXHIBIT (8)(iv)
----------------

PARTICIPATION AGREEMENT BETWEEN VARIABLE INSURANCE
PRODUCTS FUND III, FIDELITY DISTRIBUTORS CORPORATION
(UNDERWRITER), AND PFL LIFE INSURANCE COMPANY (DEPOSITOR).
<PAGE>

PARTICIPATION AGREEMENT

Among

VARIABLE INSURANCE PRODUCTS FUND III,

FIDELITY DISTRIBUTORS CORPORATION

and

PFL LIFE INSURANCE COMPANY

THIS AGREEMENT, made and entered into as of the 11th day of April, 1997 by
and among PFL LIFE INSURANCE COMPANY, (hereinafter the "Company"), an Iowa
corporation, on its own behalf and on behalf of each segregated asset account of
the Company set forth on Schedule A hereto as may be amended from time to time
(each such account hereinafter referred to as the "Account"), and the VARIABLE
INSURANCE PRODUCTS FUND III, an unincorporated business trust organized under
the laws of the Commonwealth of Massachusetts (hereinafter the "Fund") and
FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.

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 variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and the
Underwriter (hereinafter "Participating Insurance Companies"); and

WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each representing the interest in a particular managed portfolio of
securities and other assets, any one or more of which may be made available
under this Agreement, as may be amended from time to time by mutual agreement of
the parties hereto (each such series hereinafter referred to as a "Portfolio");
and

WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated September 19, 1986 (File No. 812-6422), 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 both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and

WHEREAS, the Fund 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, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
<PAGE>

WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts under the 1933 Act; and

WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and

WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and

WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and

WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;

NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:

ARTICLE I. Sale of Fund Shares

1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee shall constitute receipt by the Fund; provided that
the Fund receives notice of such order by 9:309:00 a.m. Boston 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 Securities and Exchange Commission.

1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees 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 and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.

2
<PAGE>

1.4. The Fund and the Underwriter 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, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.

1.5. The Fund agrees to redeem for cash, on 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 by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.

1.6. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available under the variable annuity contracts with the form number(s) which are
listed on Schedule A attached hereto and incorporated herein by this reference,
as such Schedule A may be amended from time to time hereafter by mutual written
agreement of all the parties hereto, (the "Contracts") shall be invested in the
Fund, in such other Funds advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Fund if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund; or (b) the Company
gives the Fund and the Underwriter 45 days written notice of its intention to
make such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available as a funding
vehicle for the Contracts prior to the date of this Agreement and the Company so
informs the Fund and Underwriter prior to their signing this Agreement (a list
of such funds appearing on Schedule C to this Agreement); or (d) the Fund or
Underwriter consents to the use of such other investment company.

1.7. The Company shall pay for Fund shares 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. For
purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Fund.

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 any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.

1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends

3
<PAGE>

and capital gain distributions in cash. The Fund shall notify the Company 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 Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Boston time)
and shall use its best efforts to make such net asset value per share available
by 7 p.m. Boston time.

ARTICLE II. Representations and Warranties

2.1. The 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
state insurance suitability requirements. 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 prior to any issuance or sale thereof as a segregated asset account
under Section 508A.1 of the Iowa Insurance Code and has registered
or, prior to any issuance or sale of the Contracts, will register each 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 Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Iowa and
all applicable federal and state securities laws 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. The Fund
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 Fund or the
Underwriter.

2.3. The Fund 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 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.

2.4. The Company represents that the Contracts are currently treated as
endowment or annuity 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 Fund and the Underwriter 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 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 may make such payments in the future. The Fund has adopted a "no
fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of
trustees, a

4
<PAGE>

majority of whom are not interested persons of the Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.

2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Iowa and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Iowa to the extent required to perform this
Agreement.

2.7. The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Iowa and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.

2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.

2.9. The Underwriter represents and warrants that the Adviser is and shall
remain duly registered in all material respects under all applicable federal and
state securities laws and that the Adviser shall perform its obligations for the
Fund in compliance in all material respects with the laws of the State of
Iowa and any applicable state and federal securities laws.

2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/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 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
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.

2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.

ARTICLE III. Prospectuses and Proxy Statements; Voting

3.1. The Underwriter shall provide the Company with as many printed copies
of the Fund's current prospectus and Statement of Additional Information as the
Company may reasonably request. If requested by the Company in lieu thereof,
the Fund shall provide camera-ready film containing the Fund's prospectus and
Statement of Additional Information, and such

5
<PAGE>

other assistance as is reasonably necessary in order for the Company once each
year (or more frequently if the prospectus and/or Statement of Additional
Information for the Fund is amended during the year) to have the prospectus for
the Contracts and the Fund's prospectus printed together in one document, and to
have the Statement of Additional Information for the Fund and the Statement of
Additional Information for the Contracts printed together in one document.
Alternatively, the Company may print the Fund's prospectus and/or its Statement
of Additional Information in combination with other fund companies' prospectuses
and statements of additional information. Except as provided in the following
three sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure annually as
required by the 1933 Act and/or the 1940 Act, the cost of printing shall be
borne by the Fund. If the Company chooses to receive camera-ready film in lieu
of receiving printed copies of the Fund's prospectus, the Fund will reimburse
the Company in an amount equal to the product of A and B where A is the number
of such prospectuses distributed to owners of the Contracts, and B is the Fund's
per unit cost of typesetting and printing the Fund's prospectus. The same
procedures shall be followed with respect to the Fund's Statement of Additional
Information.

The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.

3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or the Company (or in
the Fund's discretion, the Prospectus shall state that such Statement is
available from the Fund).

3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications (except
for prospectuses and Statements of Additional Information, which are covered in
Section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.

3.4. If and to the extent required by law the Company 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 a particular separate account in the same proportion as Fund shares
of such portfolio for which instructions have been received in that separate
account,

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. 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. Participating Insurance Companies 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 B attached hereto and

6
<PAGE>

incorporated herein by this reference, which standards will also be provided to
the other Participating Insurance Companies.

3.5. 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 or 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 Securities and Exchange Commission's interpretation of
the requirements of Section 16(a) with respect to periodic elections of trustees
and with whatever rules the Commission may promulgate with respect thereto.

ARTICLE IV. Sales Material and Information

4.1. The Company 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 or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.

4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.

4.3. The Fund, Underwriter, or its designee 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 and/or its separate
account(s), is named at least fifteen Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within fifteen Business Days after receipt of such material.

4.4. The Fund and the Underwriter shall not give any information or make
any representations 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 or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.

4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.

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<PAGE>

4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.

4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any 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.

ARTICLE V. Fees and Expenses

5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund.

5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund 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 Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials and
reports, 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 Fund's shares.

5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.

ARTICLE VI. Diversification

6.1. The Fund 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. Without limiting the
scope of the foregoing, the Fund will at all times comply with Section 817(h) of
the Code and Treasury Regulation 1.817-5, relating to the diversification

8
<PAGE>

requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance within the grace period afforded by Regulation
1.817-5.

ARTICLE VII. Potential Conflicts

7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.

7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.

7.3. If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.

7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with

9
<PAGE>

respect to such 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 disinterested members of the Board.
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 Underwriter and Fund shall continue
to accept and implement orders by the Company 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 the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company 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 Underwriter and Fund shall
continue to accept and implement orders by the Company 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. The 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 Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company 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
disinterested members of the Board.

7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 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 such Sections are contained in such Rule(s) as so amended or
adopted.

ARTICLE VIII. Indemnification

8.1. Indemnification By The Company

10
<PAGE>

8.1(a). The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund 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 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 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 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 to the Company by or on behalf
of the 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 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

(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 to
the Fund 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; or

(v) 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 8.1(b)
and 8.1(c) hereof.

8.1(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 as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of

11
<PAGE>

such Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Fund, whichever is applicable.

8.1(c). The Company 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 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 such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure 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 shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company'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
Company 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 the Company 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 Underwriter

8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors 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 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) 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 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 sales literature of the Fund (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Underwriter or Fund by
or on behalf of the Company for use in the Registration Statement or prospectus
for the Fund or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund shares;
or

12
<PAGE>

(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of the Fund,
Adviser or Underwriter or persons under their control, with respect to the sale
or distribution of the Contracts or Fund shares; or

(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus, or sales
literature covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Fund; or

(iv) 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 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 Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Underwriter; as limited by and in accordance with the provisions of Sections
8.2(b) and 8.2(c) hereof.

8.2(b). The Underwriter 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 gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.

8.2(c). The Underwriter 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 Underwriter 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 Underwriter of
any such claim shall not relieve the Underwriter 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 Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter'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 Underwriter 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.

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<PAGE>

8.2(d). The Company agrees promptly to notify the Underwriter 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 each Account.

8.3. Indemnification By the Fund

8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors 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 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may 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 result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:

(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement (including
a failure to comply with the diversification 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, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Fund, the Underwriter or each Account, whichever is applicable.

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 the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall 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.

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<PAGE>

8.3(d). The Company and the Underwriter agree promptly to notify the Fund
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, with respect to the operation of either 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 Commonwealth of
Massachusetts.

9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.

ARTICLE X. Termination

10.1. This Agreement shall continue in full force and effect until the
first to occur of:

(a) termination by any party for any reason by sixty (60) days
advance written notice delivered to the other parties; or

(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably available to meet
the requirements of the Contracts; or

(c) termination by the Company by written notice to the Fund and
the Underwriter 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
the Company; or

(d) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event that such Portfolio
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
believes that the Fund may fail to so qualify; or

(e) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event that such Portfolio
fails to meet the diversification requirements specified in Article VI hereof;
or

(f) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in good faith,
that the Company and/or its affiliated companies has suffered a material adverse
change in its business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse publicity; or

(g) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole judgment exercised
in good faith, that either the Fund or the Underwriter has suffered a material
adverse change in its business,

15
<PAGE>

operations, financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or

(h) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter the written
notice specified in Section 1.6(b) hereof and at the time such 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(h) shall be
effective forty five (45) days after the notice specified in Section 1.6(b) was
given.

10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall 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 shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 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.

10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund and the Underwriter
the opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.

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:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer

16
<PAGE>

If to the Company:
PFL Life Insurance Company
4333 Edgewood Road, NE
Cedar Rapids, Iowa 52499
Attention: Financial Markets Division, Law Department
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer

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 Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.

12.2 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 until such time as it may come into
the public domain without the express written consent of the affected party.

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 shall constitute one and the same
instrument.

12.5 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.

12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.

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.

17
<PAGE>

12.8. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.
The Company shall promptly notify the Fund and the Underwriter of any change in
control of the Company.

12.9. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee copies of the following reports:

(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in any event
within 90 days after the end of each fiscal year;

(b) the Company's quarterly statements (statutory) (and GAAP, if
any), as soon as practical and in any event within 45 days after the end of each
quarterly period:

(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as practical after
the delivery thereof to stockholders;

(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange Commission or any
state insurance regulator, as soon as practical after the filing thereof;

(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special audit made by them
of the books of the Company, as soon as practical after the receipt thereof.

18
<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.

Company:

SEAL PFL LIFE INSURANCE COMPANY
By its authorized officer,

By: /s/ William L. Busler
William L. Busler
Title: President
Date: April 11, 1997

Fund:

SEAL VARIABLE INSURANCE PRODUCTS FUND III
By its authorized officer,

By: /s/ J. Gary Burkhead
J. Gary Burkhead
Title: Senior Vice President
Date:

Underwriter:

SEAL FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,

By: /s/ Paul J. Hondros
Paul J. Hondros
Title: President
Date:

19
<PAGE>

Schedule A
----------

Separate Accounts and Associated Contracts
------------------------------------------

Name of Separate Account and Policy Form Numbers of Contracts Funded
Date Established by Board of Directors By Separate Accounts
- -------------------------------------- --------------------

PFL Retirement Builder Variable AV289 101 95 796 - KS
Annuity Account AV319 101 95 796 - MD
(March 29, 1996) AV318 101 95 796 - MA
AV294 101 95 796 - MN
AV317 101 95 796 - NC
AV300 101 95 796 - TX

Fidelity Variable Annuity Account 80-0-009 (580) (V-CR)
(February 29, 1980) and previous versions

20
<PAGE>

SCHEDULE B
PROXY VOTING PROCEDURE
----------------------

The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. 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 Insurance Company to perform the steps
delineated below.

1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter 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 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 as of the Record Date.

Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call
in the number of Customers to Fidelity, as soon as possible, but no
later than two weeks after the Record Date.

3. The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 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 Legal Department
of the Underwriter or its affiliate ("Fidelity 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 Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)

21
<PAGE>

5. During this time, Fidelity Legal will develop, produce, and the Fund
will 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 Insurance Company). Contents of envelope sent to Customers
by Company will include:

a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the 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 Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.

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 Fidelity Legal.

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 Fidelity 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 "Bertram C. Jones,
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,
a new Card and return envelope. The

22
<PAGE>

mutilated or illegible Card is disregarded and considered to be not
received for purposes of vote tabulation. Any Cards that have "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.) Fidelity Legal
must review and approve tabulation format.

13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline 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.
Fidelity Legal 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, Fidelity Legal
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.

23
<PAGE>

SCHEDULE C

Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:

Variable Insurance Products Fund
Variable Insurance Products Fund II

<PAGE>

EXHIBIT (10)(i)
---------------

CONSENT OF INDEPENDENT AUDITORS
<PAGE>

[LETTERHEAD OF ERNST & YOUNG LLP]

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Statements" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information and to the use of our report dated January 31, 1997 with
respect to the financial statements of The Fidelity Variable Annuity Account,
and to the use of our report dated February 21, 1997 with respect to the
statutory-basis financial statements and schedules of PFL Life Insurance
Company, included in Post-Effective Amendment No. 7 to the Registration
Statement (Form N-4 No. 33-37498) and related Prospectus of the Fidelity
Variable Annuity Account.

/s/ Ernst & Young LLP

Ernst & Young LLP

Des Moines, Iowa
April 25, 1997

<PAGE>

EXHIBIT (10)(ii)
----------------

OPINION AND CONSENT OF ACTUARY
<PAGE>

April 10, 1997

PFL Life Insurance Company
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499-0001

Re: Fidelity Variable Annuity Account Registration on Form N-4
SEC File No. 33-37498

Dear Sir/Madam:

With regard to the above registration statement, I have examined such documents
and made such inquiries as I have deemed necessary and appropriate, and on the
basis of such examination, have the following opinions:

Fees and charges deducted under the Fidelity Variable Annuity policies are those
deemed necessary to appropriately reflect:

(1) the expenses incurred in the acquisition and distribution of the Policies,

(2) the expenses associated with the development and servicing of the
policies,

(3) the assumption of certain risks arising from the operation and management
of the Policies and that provides for a reasonable margin of profit.

Fees and charges assessed against the policy values in the Variable Account
include:

(i) Service Charge and Administrative Charge

(ii) Mortality and Expense Risk Fee (M&E)

(iii) Taxes (including Premium and other Taxes if applicable)

The magnitude of each of the individual charges listed above in (i) through
(iii) is established in the pricing of the Fidelity Variable Annuity, to achieve
a reasonable Return on Investment (ROI), which is within the range of industry
practice with respect to comparable variable annuity products.

In the process of determining the reasonable ROI, each individual charge is also
established within the reasonable range of industry practice. For example, in
conjunction with the pricing process the company has analyzed publicly available
information pertaining to similar industry products, taking into consideration
such factors as current charge levels, the existence of charge level guarantees,
guaranteed death benefits, and guaranteed annuity rates. The methodology and
<PAGE>

PFL Life Insurance Company
April 10, 1997
Page 2

results of the comparative surveys included in this analysis are maintained at
the company's administrative offices.

Except by coincidence, it is not expected that actual charges assessed in a
given year would exactly offset actual expenses incurred. Acquisition expenses
(as well as major product and/or systems development expenses) are incurred "up
front" and recovered, with a reasonable profit margin, through future years'
charges. In addition, the company cannot increase certain charges under the
Policies in the pricing process.

Therefore, in my opinion, the fees and charges deducted under the Policies, in
the aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the company.

I hereby consent to the use of this opinion, which is included as an Exhibit to
the Registration Statement.

/s/ Calvin R. Birkey
- ---------------------------
Calvin R. Birkey, FSA, MAAA
Managing Actuary
PFL Life Insurance Company

<PAGE>

EXHIBIT (14)
------------

POWERS OF ATTORNEY
<PAGE>

POWER OF ATTORNEY
WITH RESPECT TO
FIDELITY VARIABLE ANNUITY

Know all men by these presents that Brenda K. Clancy, whose signature appears
below, constitutes and appoints Brenda K. Clancy and Craig D. Vermie, and each
of them, her attorneys-in-fact, each with the power of substitution, for her in
any and all capacities, to sign any registration statements and amendments
thereto for the Fidelity Variable Annuity, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute, may do or cause to be done by virtue
hereof.

/s/ Brenda K. Clancy
-----------------------------------
Brenda K. Clancy
Treasurer
PFL Life Insurance Company

April 28, 1997
- ---------------------------------
Date