<PAGE>
As filed with the Securities and Exchange Commission on February 10, 1999.
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. 9 x
--- ---
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 7 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
<PAGE>
Title of Securities Being Registered:
Fexible Premium Variable Annuity Policies
------------------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485.
- -----
on May 1, 1998 pursuant to paragraph (b) of Rule 485.
- -----
60 days after filing pursuant to paragraph (a)(i) of Rule 485
- -----
X on May 1, 1999 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
(c) Daily Calculation......... Value of Accumulation Units
(d) Underwriter............... Distribution of Contracts
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>
FIDELITY INCOME PLUS
Issued Through
FIDELITY VARIABLE
ANNUITY ACCOUNT
by
PFL LIFE INSURANCE COMPANY
PROSPECTUS
MAY 1, 1999
This prospectus and the mutual fund prospectuses give you important information
about the contracts and the mutual funds. Please read them carefully before you
invest and keep them for future reference.
If you would like more information about the Fidelity Income Plus Variable
Annuity Contract, you can obtain a free copy of the Statement of Additional
Information (SAI) dated May 1, 1999. Please call us at (800) 525-6205 or write
us at: PFL Life Insurance Company, Financial Markets Division, Variable Annuity
Department, 4333 Edgewood Road N.E., Cedar Rapids, IA, 52499-0001. A
registration statement, including the SAI, has been filed with the Securities
and Exchange Commission (SEC) and is incorporated herein by reference. The SEC
maintains a web site (http://www.sec.gov) that contains the prospectus, the SAI,
material incorporated by reference, and other information. The table of contents
of the SAI is included at the end of this prospectus.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES, OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The individual variable annuity contract has thirteen mutual fund portfolios
listed below. You can choose any combination of these investment choices.
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY:
VARIABLE INSURANCE PRODUCTS
FUND (VIP):
VIP Money Market
VIP High Income
VIP Equity-Income
VIP Growth
VIP Overseas
VARIABLE INSURANCE PRODUCTS FUND II (VIP II):
VIP II Investment Grade Bond
VIP II Asset Manager
VIP II Asset Manager: Growth
VIP II Index 500
VIP II Contrafund
VARIABLE INSURANCE PRODUCTS
FUND III (VIP III):
VIP III Balanced
VIP III Growth & Income
VIP III Growth Opportunities
PLEASE NOTE THAT THE POLICIES AND
THE MUTUAL FUNDS:
. ARE NOT BANK DEPOSITS
. ARE NOT FEDERALLY INSURED
. ARE NOT ENDORSED BY ANY BANK
OR GOVERNMENT AGENCY
. ARE NOT GUARANTEED TO ACHIEVE
THEIR GOAL
. ARE SUBJECT TO RISKS,
INCLUDING LOSS OF PREMIUM
<PAGE>
TABLE OF CONTENTS PAGE
QUESTIONS AND ANSWERS
ABOUT THE CONTRACT...................................................
ANNUITY CONTRACT FEE TABLE...........................................
EXAMPLES.............................................................
FINANCIAL STATEMENTS.................................................
PFL LIFE INSURANCE COMPANY...........................................
THE FIDELITY VARIABLE ANNUITY ACCOUNT................................
THE VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE
PRODUCTS FUND II AND VARIABLE INSURANCE PRODUCTS FUND III ...........
Performance........................................................
Additions, Deletions, Substitutions
of Investments....................................................
THE CONTRACTS .......................................................
Purchase of the Contracts..........................................
Allocation and Reallocation of
Net Purchase Payments.............................................
Value of Accumulation Units........................................
Surrenders.........................................................
Right to Return the Contract.......................................
CONTRACT CHARGES.....................................................
Administrative Charge..............................................
Charges for Mortality Risk.........................................
Deductions for Taxes...............................................
The Variable Insurance Products
Fund, Variable Insurance Products Fund II, and Variable
Insurance Product Fund III Expenses...............................
BENEFITS UNDER THE CONTRACT .........................................
Death Benefit......................................................
IRS Required Distributions.........................................
ANNUITY PAYMENTS ....................................................
Annuity Commencement Date..........................................
Election of Annuity Options........................................
Annuity Options....................................................
Determination of Annuity Payments..................................
Adjustment of Annuity Payments.....................................
FEDERAL TAX MATTERS .................................................
Introduction.......................................................
Taxation of Annuities in General...................................
Proposed Tax Legislation...........................................
GENERAL PROVISIONS ..................................................
Ownership of the Contract..........................................
Assignment.........................................................
Beneficiary........................................................
Amendments.........................................................
Suspension of Payment..............................................
Non-Participating..................................................
Misstatement of Age or Sex.........................................
DISTRIBUTION OF CONTRACTS............................................
VOTING RIGHTS AND REPORTS............................................
YEAR 2000 MATTERS....................................................
LEGAL PROCEEDINGS....................................................
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.........
APPENDIX A...........................................................
Condensed Financial Information....................................
APPENDIX B...........................................................
Glossary of Special Terms..........................................
2
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE CONTRACT
The following section contains brief questions and answers about the contract.
Please read the remainder of this prospectus for more detailed information.
"You" or "your" refers to the contract owner. "PFL," "we," "us" or "our" refers
to the company. Words printed in italics in this prospectus are defined in the
Glossary, found at Appendix B.
1. WHAT IS THE PURPOSE OF THE CONTRACT?
The contract lets you accumulate funds on a tax-deferred basis and to receive
annuity payments based on the investment experience of the assets 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. You can
allocate net purchase payments to one or more subaccounts of the Fidelity
Variable Annuity Account (the "variable account"). Each subaccount invests in a
corresponding portfolio of the Variable Insurance Products Fund, the Variable
Insurance Products Fund II and the Variable Insurance Products Fund III (the
"funds"). Because, You bear the entire investment risk under this contract
because variable annuity payments and contract values depend on the investment
experience of the subaccounts that you choose. You could lose the amount that
you invest.
2. WHAT IS AN ANNUITY?
An annuity provides for periodic annuity payments (from us to you) beginning on
the annuity commencement date. Fixed annuity payments remain the same throughout
the payment period. Variable annuity payments vary in accordance with the
investment experience of the subaccount that you select.
3. WHAT INVESTMENTS SUPPORT THE CONTRACTS?
Your purchase payments are invested through the variable account exclusively in
shares of the mutual fund portfolios advised by Fidelity Management & Research
Company ("FMR"). The following thirteen portfolios are currently available under
the contracts:
VARIABLE INSURANCE PRODUCTS FUND:
VIP Money Market
VIP High Income
VIP Equity-Income
VIP Growth
VIP Overseas
VARIABLE INSURANCE PRODUCTS FUND II:
VIP II Investment Grade Bond
VIP II Asset Manager
VIP II Asset Manager: Growth
VIP II Index 500
VIP II Contrafund
3
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND III:
VIP III Balanced
VIP III Growth & Income
VIP III Growth Opportunities
Each of the subaccounts invest in the corresponding portfolio of the funds. The
assets of each portfolio are held separately from other portfolios. Each
portfolio has distinct investment objectives and policies, which are described
in the funds' prospectuses that are attached to this prospectus.
4. HOW ARE PURCHASE PAYMENTS ALLOCATED?
You tell us how to allocate the net purchase payments. You must allocate
initial net purchase payments to the subaccounts in amounts of at least $1,000.
You may allocate additional net purchase payments in any manner, so long as any
allocation to a subaccount is at least $500. You may change allocations of
additional net purchase payments by sending written notice to the administrative
and service office, or by telephone, if you have previously authorized telephone
transactions. A net purchase payment is the amount you send us, less a premium
tax charge in certain states.
5. CAN I TRANSFER VALUES AMONG THE SUBACCOUNTS?
Yes, you may transfer your contract value allocated to a particular subaccount
to one or more other subaccounts at any time either in writing, or by telephone,
if you have previously authorized telephone transactions.
6. CAN I GET TO MY MONEY IF I NEED IT?
Yes, you can withdraw all or part of your contract value anytime before the
earlier of the annuitant's death or the annuity commencement date. We do not
charge for withdrawals, and there is not surrender charge. Withdrawals may be
taxable and subject to a 10% penalty tax.
7. WHAT ARE THE CHARGES AND DEDUCTIONS UNDER THE CONTRACT?
There is no sales charge under the contract. PFL deducts a daily charge equal to
a percentage of the value of the net assets in the variable account for the
mortality risks assumed by PFL. The effective annual rate of this charge is
0.8%. PFL GUARANTEES THAT THIS CHARGE WILL NOT BE INCREASED.
PFL 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. We can increase this charge in the
future.
Premium taxes are deducted from purchase payments or contract values depending
upon when we incur them.
4
<PAGE>
The contract values also reflect the fund's charges, fees and expenses. See the
"Annuity Contract Fee Table" on page 7.
8. WHAT ANNUITY INCOME OPTIONS ARE AVAILABLE UNDER THE CONTRACT?
You can select annuity payments on a variable basis or a fixed basis. You have
flexibility in choosing the annuity commencement date. And you can choose among
these four annuity options:
. life annuity;
. joint and survivor annuity;
. life annuity with 120 or 240 monthly payments guaranteed; and
. 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 subaccount(s) you selected.
9. WHAT HAPPENS IF THE ANNUITANT DIES BEFORE THE ANNUITY COMMENCEMENT DATE?
If the annuitant dies prior to the annuity commencement date, we will pay a
death benefit after we receive:
. notice of death;
. due proof of death; and
. an election as to how the proceeds should be paid to the beneficiary.
You select the beneficiary. You can change the named beneficiary 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
surrender charge. The death benefit may be paid as either a lump sum cash
benefit or under an annuity option. Special distribution rules mandated by the
Internal Revenue Code apply if the annuitant is an owner.
10. WHAT HAPPENS IF YOU DIE BEFORE THE ANNUITY COMMENCEMENT DATE?
If you (the contract owner) are not the annuitant, and you die prior to the
annuity commencement date, your entire interest in the contract will be
distributed to the contingent contract owner if one is appointed, or to your
estate. You may appoint or change the contingent contract owner at any time
prior to the annuity commencement date. Regardless of whether you are not the
annuitant, upon your death, the value of the contract must be distributed
pursuant to rules prescribed by the Internal Revenue Code of 1986, as amended.
5
<PAGE>
11. CAN THE CONTRACT BE RETURNED AFTER IT IS DELIVERED?
You may cancel the contract by returning it to us, along with a written notice
of revocation, at our administrative and service office within 10 days after you
receive it. If you cancel, we will return all purchase 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?
Our administrative and service office will answer any question about procedures
of your contract. For service and account information, call toll free, 800-634-
4672. For information and assistance regarding sales information, please call,
toll free, 800-544-2442.
6
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================
ANNUITY CONTRACT FEE TABLE
=============================================================================================
VARIABLE ACCOUNT
CONTRACT OWNER TRANSACTION EXPENSES (AS A PERCENTAGE OF CONTRACT VALUE)
<S> <C>
Sales Load on Purchase Payments 0 Mortality and Expense Risk Fees 0.80%
Deferred Sales Load 0 Account Fees and Expenses 0
Surrender Fees 0 -
Annual Contract Fee $35 Per Contract TOTAL VARIABLE ACCOUNT
Transfer Fee 0 ANNUAL EXPENSES 0.80%
- ---------------------------------------------------------------------------------------------
VIP, VIP II, AND VIP III FUNDS ANNUAL EXPENSES
(as a percentage of average net assets)
- ---------------------------------------------------------------------------------------------
<CAPTION>
TOTAL FUND
MANAGEMENT OTHER ANNUAL
FEES EXPENSES EXPENSES
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VIP Money Market
VIP High Income (1)
VIP Equity-Income (1)
VIP Growth (1)
VIP Overseas (1)
VIP II Investment Grade Bond
VIP II Asset Manager (1)
VIP II Asset Manager: Growth (1)
VIP II Contrafund (1)
VIP II Index 500 (2)
VIP III Balanced (1)
VIP III Growth Opportunities (1)
VIP III Growth & Income
=============================================================================================
</TABLE>
(1) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, the total operating expenses presented in the table would
have been: ____% for VIP Equity-Income Portfolio, ____% for VIP Growth
Portfolio, ____% for VIP Overseas Portfolio, ____% for VIP II Asset Manager
Portfolio, ____% for VIP II Contrafund Portfolio, ____% for VIP II Asset
Manager Growth Portfolio, ____% for VIP III Growth Opportunities Portfolio,
____% for VIP III Balanced Portfolio, and ____% for VIP High Inco me
Portfolio.
(2) FMR agreed to reimburse a portion of VIP II Index 500 Portfolio's expenses
during the period. Without this reimbursement, the fund's management fee,
other expenses and total expenses would have been ____%, ____% and ____%
respectively.
7
<PAGE>
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
======================================================================================
SUBACCOUNTS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIP Money Market
VIP High Income
VIP Equity-Income
VIP Growth
VIP Overseas
VIP II Investment Grade Bond
VIP II Asset Manager
VIP II Asset Manager: Growth
VIP II Contrafund
VIP II Index 500
VIP III Balanced
VIP III Growth Opportunities
VIP III Growth & Income
======================================================================================
</TABLE>
The above tables are intended to help you understand the costs and expenses that
you will bear, directly or indirectly. These include the expenses of the VIP,
VIP II and VIP III Funds. In addition to the expenses listed above, premium
taxes may be applicable.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, 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 1998 and have been provided by FMR. PFL does not dispute these figures,
however PFL does not guarantee their accuracy. Examples for formerly eligible
subaccounts may be found in Appendix A to this prospectus.
In these examples, the $35 annual service charge is reflected as a charge of
______% based on an average policy value of $__________.
8
<PAGE>
FINANCIAL STATEMENTS
Condensed financial information for each subaccount is in Appendix A to this
prospectus. The financial statements of PFL and the variable account, and the
independent auditors' reports thereon, are in the Statement of Additional
Information.
PFL LIFE INSURANCE COMPANY
PFL is a stock life insurance company organized under the laws of the State of
Iowa on April 19, 1961. PFL's address is 4333 Edgewood Road N.E., Cedar Rapids,
Iowa, 52499. PFL offers a complete line of life insurance, annuities, and
accident and health insurance. We are currently authorized to sell variable
annuities in the District of Columbia and Guam, and in all states other than New
York. PFL is an indirect wholly owned subsidiary of AEGON USA, Inc. AEGON USA,
Inc. is an indirect wholly owned subsidiary of AEGON N.V., a holding company
organized under the laws of The Netherlands.
THE FIDELITY VARIABLE ANNUITY ACCOUNT
The Fidelity Variable Annuity Account was established by an affiliate (Pacific
Fidelity Life Insurance Company) under California insurance law on August 24,
1979. On March 31, 1991, PFL acquired the assets (and liabilities) of that
affiliate, including the variable account.
The variable account is registered with the Securities and Exchange Commission
as a unit investment trust pursuant to the provisions of the Investment Company
Act of 1940. Such registration does not involve supervision of the management of
the variable account or PFL by the Securities and Exchange Commission. The
separate account meets the definition of a separate account under federal
securities laws.
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 PFL. Although the assets
maintained in the variable account will not be charged with any liabilities
arising out of any other business conducted by PFL, all obligations arising
under the contracts, including the promise to make annuity payments, are general
corporate obligations of PFL.
Currently, PFL invests the assets of the variable account that support the
contracts in shares of one or more eligible funds that have been approved by
PFL'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 Insurance Products Fund II, and the Variable
9
<PAGE>
Insurance Products Fund III. Other mutual funds may be added or withdrawn as
permitted by law. The variable account currently offers thirteen subaccounts
that invest exclusively in corresponding portfolios of the funds. Additional
subaccounts may be established at PFL's discretion.
PFL does not guarantee the investment performance of the variable account. The
contract value and the amount of variable annuity payments depend on the
investment performance of the assets of the funds. Because you bear the full
investment risk associated with the variable account, there can be no assurance
concerning the amount of variable annuity payments under the contract.
Prior to September 25, 1981, the assets of certain subaccounts of the variable
account were invested in mutual funds (formerly eligible funds) other than the
funds. Contracts funded by these subaccounts, 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 correspond to these subaccounts
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 eligible funds can be found in the
formerly eligible funds' individual fund prospectuses. 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 subaccounts 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.
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 administrative services to the formerly eligible
funds for a fee similar to the ones applicable to the portfolios of the funds.
The subaccounts currently invest in the following funds' portfolios:
VARIABLE INSURANCE PRODUCTS FUND (VIP):
VIP Money Market
VIP High Income
VIP Equity-Income
VIP Growth
VIP Overseas
10
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND II (VIP II):
VIP II Investment Grade Bond
VIP II Asset Manager
VIP II Asset Manager: Growth
VIP II Index 500
VIP II Contrafund
VARIABLE INSURANCE PRODUCTS FUND III (VIP III):
VIP III Balanced
VIP III Growth & Income
VIP III Growth Opportunities
More detailed information, including an explanation of the portfolio's
investment objectives, may be found in the funds' current prospectuses, which
are attached to this prospectus.
The thirteen portfolios offered by the funds provide a range of investment
alternatives that vary according to their different investment objectives. The
assets of each portfolio are separate from the others, and each portfolio has
separate investment objectives and policies. As a result, each portfolio
operates as a separate investment fund, and the investment performance of one
portfolio has no effect on the investment performance of any other portfolio.
Each of the portfolios may not be available for investment in every state.
THERE IS NO ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS INVESTMENT 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
company. Since the portfolios of the funds are available to registered separate
accounts offering variable annuity products of PFL, as well as variable 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 participating 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.
The general public may not purchase these underlying funds. The investment
objectives and policies may be similar to other portfolios and mutual funds
managed by the same investment adviser or manager that are sold directly to the
public. You should not expect that the investment results of the other
portfolios and mutual funds will be comparable to those of the underlying funds.
PFL may receive revenue or fees from the funds or the advisor. The amount of the
fees, if any, may be based on the
11
<PAGE>
amount of assets that PFL or the variable account invests in the portfolio.
PERFORMANCE
Performance information for the variable subaccounts may appear in reports and
advertising to you and prospective contract owners. The performance information
is based on historical investment experience of the subaccounts 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 portfolio
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
performance had been constant over the entire period. Because average annual
total returns tend to smooth out variations in a subaccount's returns, you
should recognize that they are not the same as actual year-by-year results.
The Money Market Subaccount may advertise its current and effective yield.
Current yield reflects the income generated by an investment in the subaccount
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.
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 PFL's management, further
investment in the eligible funds' shares should become inappropriate in view of
the purposes of the contract, then PFL may substitute shares of another fund for
shares already purchased, or to be purchased in the future, under the contract.
No substitution of securities in any subaccount 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 your interest in a subaccount will
not be made until you have been notified of the change and prior approval of the
Securities and Exchange Commission is obtained.
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New subaccounts may be established when, in the sole discretion of PFL,
marketing, tax, investment or other conditions so warrant. Any new subaccounts
will be made available to you on a basis to be determined by PFL. Each
additional subaccount will purchase shares in a portfolio of the fund or in
another mutual fund or investment vehicle. PFL may also eliminate one or more
subaccounts if, in its sole discretion, marketing, tax, investment or other
conditions so warrant.
In the event of any such substitution or change, PFL may, by appropriate
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
Investment Company Act of 1940 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
PFL, along with a check for the initial investment. Purchase payments are
payable at the administrative and service office of PFL designated on the cover
page. The initial purchase payment must be at least $5,000. Additional 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, you 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, PFL will notify you by phone
or mail to request the information necessary to complete the application. Once
the application is completed, you will receive a contract based on the price
next determined after the application was completed. If, after five days, the
application remains incomplete, PFL will return your initial purchase payment
unless it obtains your 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 you have surrendered the contract, purchase payments may be
made at any time during the life of the annuitant and before the annuity
commencement date.
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ALLOCATION AND REALLOCATION OF NET PURCHASE PAYMENTS
Net purchase payments are allocated among the subaccounts that you have
selected. 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 subaccount, net purchase payments are converted
into accumulation units of the subaccount. The number of accumulation units to
be credited is determined by dividing the dollar amount allocated to each
subaccount by the value of an accumulation unit for that subaccount 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.
You (or your designated account executive) can make transfers and/or change the
allocation of additional 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 writing. 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 telephone 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 equipment for your
protection. You may be required to provide your social security number and/or
other information for identification purposes when making telephone requests.
Telephone requests must be received at the administrative and service office no
later than 3:00 p.m. Central 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 transaction
request.
When a reallocation is requested, the redemption of the requested amount from
out of the subaccount and portfolio in which the amount had been invested will
always be effective as of the end of the valuation period in which the request
is received at our administrative and service office. That amount will generally
be credited to the new subaccount and portfolio at the same time.
However, IF:
. you are making a transfer to any portfolio that accrues dividends on a daily
basis; and
. the equity portfolio from which the transfer is being made is in an
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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 subaccount may be delayed
(for up to seven days) until the portfolio, from which the transfer is being
made, obtains liquidity through the earlier of the portfolio's receipt of
proceeds from sales of portfolio securities, new contributions by contract
owners, or otherwise.
During this period, the amount transferred will be uninvested.
In allocating the initial purchase payment among the subaccounts, you must
allocate a minimum contribution of $1,000 to each subaccount selected.
Additional net purchase payments may be allocated among the subaccounts in any
manner, so long as any contribution to a selected subaccount is at least $500.
You may subsequently reallocate the value of a designated number of accumulation
units of a subaccount then credited to a contract, into an equal value of
accumulation units of one or more other subaccounts. The reallocation shall be
based on the relative value of the accumulation units of the subaccounts at the
end of business on the day the request is received by PFL.
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
multiplying the number of accumulation units of each subaccount credited to the
contract by the current value of an accumulation unit for that subaccount. 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 subaccount are valued separately. The value of
accumulation units may change each valuation period according to the investment
performance of the shares purchased by each subaccount 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 subaccount for any valuation period
equals the value of the accumulation unit as of the immediately preceding
valuation period, multiplied by the net investment factor for that subaccount
for the valuation period for which the accumulation unit value is being
calculated. The net investment factor is
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a number representing the change in the value of subaccount 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, you may elect to surrender all or any portion of the contract value
in exchange for a cash withdrawal payment from PFL. Any such election shall be
in writing in such form as PFL may require and shall specify the amount of the
cash withdrawal payment. At your request, PFL will provide a form to request a
surrender and to notify PFL of your election whether to have federal income
taxes withheld. Such an election will be effective on the date that it is
received by PFL 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 effective, 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 contrary, PFL
will liquidate accumulation units of all subaccounts 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 days from the date the
surrender request becomes effective, except as PFL may be permitted to defer
such payment in accordance with the Investment Company Act of 1940. 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. PFL must by
law withhold federal income taxes from the taxable portion of any full or
partial surrender and remit that amount to the federal government if you have
not provided PFL with a written election not to have federal income taxes
withheld. Moreover, the Internal Revenue Code provides that a 10% penalty tax
may be imposed on certain early surrenders.
RIGHT TO RETURN THE CONTRACT
You may cancel the contract within ten days after it is delivered to you by
delivering or mailing the contract and a written notice of revocation to PFL at
its administrative and service office. In the event of cancellation, PFL will
return all purchase payments made under the contract within seven days after it
receives written notice of cancellation and the returned contract.
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CONTRACT CHARGES
No deduction for sales charges is made from purchase payments or upon surrender.
As described below, charges under the contracts are assessed:
. against the initial purchase payments and annually thereafter from the
contract value for administrative expenses; and
. 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 PFL. PFL reserves the right to make
deductions 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 PFL's general assets.
These assets may include proceeds from the mortality charge described below. PFL
incurs certain costs, including the obligation to pay certain insurance
commissions in connection with the distribution of the contracts.
ADMINISTRATIVE CHARGE
PFL performs the administrative services for the contracts and the variable
account. These services include issuance of the contracts, maintenance of
records concerning the contracts, and valuation services. An administrative
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 you make 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.
Thereafter, on the last day of each year, the annual charge for the next
calendar year will be deducted. No part of the annual 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 PFL arises from the contractual obligation 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 accordance
with the investment performance of the funds (or the formerly eligible funds),
they will not be affected by the mortality experience
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of persons receiving such payments or of the general population. This assures
each annuitant 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. PFL assumes this
mortality risk by virtue of annuity payment rates incorporated in the contract.
These rates cannot be changed.
For assuming this mortality risk, PFL deducts from the daily net asset 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 PFL. If the amount deducted proves more
than sufficient, the excess will be a profit to PFL. To the extent that this
charge results in a profit to PFL, such profit will be available for use by PFL
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 existence
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%.
PFL does not expect to incur any federal income tax liability attributable to
investment income or capital gains retained as part of the reserve under the
contracts. Based on these expectations, no charge is being made currently 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, PFL may review the need to make a charge for any taxes attributable
to the income of the variable account.
Under present laws, PFL 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, attributable 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 funds) shares and, therefore, the fees and
expenses paid by the funds (or the formerly eligible funds). A complete
description of the expenses and
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deductions from the portfolios are found in the funds' prospectuses.
BENEFITS UNDER THE CONTRACT
DEATH BENEFIT
In the event of the death of the annuitant prior to the annuity commencement
date, PFL, upon receipt of due proof of death of the annuitant, will pay a death
benefit to the beneficiary that you designated. 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.
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 PFL:
. 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 you did not make an election as to how the proceeds should be paid prior to
the annuitant's death, the beneficiary may elect one of the annuity options or a
lump sum cash payment within 90 days after PFL receives 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 becomes 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 you or any joint contract owner dies before the annuity commencement date,
the entire value of the contract must generally be distributed within five years
of the date of your death or the joint contract owner's death. Special rules may
apply to the spouse of the deceased owner. 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 that you select at the time
the contract is applied for. You may change the annuity commencement date from
time to time by written notice to PFL, provided that notice of each change is
received by PFL at its administrative and service office at least thirty days
prior to the then current annuity commencement date.
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Except as otherwise permitted by PFL, a new annuity commencement date must be a
date that is:
. at least thirty days after the date notice of the change is received by PFL;
. the first day of a month; and
. not later than the first day of the first month following the annuitant's
75th birthday.
Currently, PFL 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 election 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,
you may elect any one of the annuity options described in this prospectus. You
may also change an election at any time. Written notice of any election or
change of election must be received by PFL at its administrative and service
office at least thirty days prior to the annuity commencement date. If no
election is in effect on the thirtieth day prior to the annuity commencement
date, we will make payment according to "Annuity Option 3 - Life Annuity with
120 or 240 Monthly Payments Guaranteed" on a variable basis. At such time as one
of the annuity options under the contract may become operative, a supplementary
agreement will be issued by PFL setting forth the terms of the option elected.
During the lifetime of the annuitant, you may elect that all or any part of the
death benefit be applied under any one of the annuity options listed in the
contract or in any other manner agreeable to PFL. If you have not made an
annuity option election 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 PFL. You, or the beneficiary after the
annuitant's death, will select whether annuity payments will be made on a fixed
basis or a variable basis. 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 option is selected:
. the contract value will be transferred to the general account of PFL; and
. the annuity payments will be fixed in amount and duration by the fixed
annuity provisions selected and the age and sex of the annuitant.
For further information, contact PFL at its administrative and service office.
The contract provides four annuity options that are described below;
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however, you 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 payment, 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 options 1 and 2
the contract value may not be returned.
Annuity Option 1 -- Life Annuity: This option provides monthly payments during
- ---------------------------------
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 annuitant 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 person
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
option, the contract provides that any guaranteed monthly payments will be paid
to the beneficiary during the remaining months of the term selected. 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.
Upon the death of a beneficiary receiving annuity benefits under this option,
the present value of the guaranteed number of payments remaining after PFL
receives notice of the beneficiary's death, computed at the applicable assumed
interest rate shall be paid in a lump sum to the estate of the beneficiary. Such
present value is computed as of the valuation period during which notice of the
beneficiary's death is received by PFL 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 of the annuitant. An additional payment will be
made to the beneficiary. For a variable annuity, the
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payment will equal the annuity unit value as of the date that notice of death of
the annuitant in writing is received by PFL 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 represented 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 commencement
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 PFL at the annuity
commencement date. The assumed interest rate may be changed upon PFL's
discretion; however, the minimum guaranteed interest rate is 3.5%. If, at the
time the annuity payments begin, you have not provided PFL with a written
election not to have federal income taxes withheld, PFL 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
flexibility 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 PFL at the annuity commencement date. PFL currently 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. Therefore, 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 subaccount
did not
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exceed the higher assumed rate of interest.
All variable annuity payments other than the first are calculated using annuity
units that are credited to the contract. The number of annuity units to be
credited in respect of a particular subaccount is determined by dividing the
portion of the first variable annuity payment attributable to that subaccount by
the annuity unit value of that subaccount for the valuation period which ends
immediately preceding the annuity commencement date. The number of annuity units
of each particular subaccount credited to the contract then remains fixed.
The dollar amount of each variable annuity payment after the first may increase,
decrease or remain constant. It is equal to the sum of the amounts determined
by multiplying the number of annuity units of each particular subaccount
credited to the contract by the annuity unit value for the particular subaccount
for the valuation period which ends immediately preceding the due date of each
additional payment. Furthermore, after the annuity commencement date, you may
reallocate all or part of the values held in one subaccount to one or more other
subaccounts.
ADJUSTMENT OF ANNUITY PAYMENTS
If the contract value on the annuity commencement date is less than $5,000, PFL
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, PFL may change, at its discretion, the frequency of
payments so that payments will be 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 for retirement planning. They
are not designed for use with plans qualified for special tax treatment 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 benefit to the contract owner, annuitant or
beneficiary depends on the tax status of both PFL 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 consider any applicable state or other tax laws. The discussion
contained herein reflects PFL's understanding of current federal income tax laws
applicable to PFL and to variable annuity contracts used in connection with
retirement plans which are not qualified plans under the code.
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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 eligible funds which is different from the treatment discussed herein.
No representation is made regarding the likelihood of continuation of current
federal income tax laws or the current interpretations by the Internal Revenue
Service.
PFL DOES NOT MAKE ANY GUARANTEE REGARDING ANY TAX STATUS, FEDERAL, STATE OR
LOCAL, OF ANY CONTRACT OR ANY TRANSACTION INVOLVING THE CONTRACTS.
TAXATION OF ANNUITIES IN GENERAL
THE FOLLOWING DISCUSSION ASSUMES THAT THE CONTRACTS WILL QUALIFY AS AN ANNUITY
CONTRACT FOR FEDERAL INCOME TAX PURPOSES. THE STATEMENT OF ADDITIONAL
INFORMATION DISCUSSES SUCH QUALIFICATIONS.
You generally are not taxed on increases in the value of a contract until
distribution occurs, either in the form of a cash payment received by
withdrawing all or part of the cash value or as annuity payments under 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. However, 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 taxable year, even if
no distribution occurs. There are, however, exceptions to this rule that you may
wish to discuss with your tax counsel. The following discussion applies to
contracts owned by natural persons.
In the case of a partial withdrawal under a contract, amounts received are
generally 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. Upon a
full surrender of the contract, amounts received in excess of the "investment in
the contract" 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
individual's gross income.
Although the tax consequences may vary depending on the form of annuity selected
under the contract, the recipient of an annuity payment under a contract
generally is taxed on the portion of such payment that exceeds the "investment
in the contract."
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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 payments.
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 taxable. Any annuity
payments received after the investment in the contract has been recovered
generally will be fully taxable.
A penalty tax may be imposed 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:
. distributions received on or after owner's age 59 1/2, death of the owner, or
disability of the owner;
. distributions received in substantially equal installments as a life annuity
(subject to special "recapture" rules if the series of payments is
subsequently modified); and
. distributions allocable to the "investment in the contract" and attributable
earnings thereon before August 14, 1982.
Amounts may be distributed from a contract because of your death or the death of
an annuitant. Generally, such amounts are includable in the income of the
recipient as follows:
. if distributed in a lump sum, they are taxed in the same manner as a full
withdrawal, as described above; or
. if distributed under an annuity option, they are taxed in the same manner as
annuity payments, as described above.
For these purposes, the investment in the contract is not affected by the
owner's or annuitant's death. That is, the investment in the contract remains
the amount of any purchase payments paid which were not excluded from gross
income.
PFL will withhold and remit to the U.S. Government a part of the taxable portion
of each distribution made under a contract unless you or the annuitant notifies
PFL at or before the time of the distribution that he or she chooses not to have
any amounts withheld.
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. In addition, the Treasury Department has specific
authority to issue regulations that prevent the avoidance of section 72(e)
through the
25
<PAGE>
serial purchase of annuity contracts or otherwise. Congress has also indicated
that the Treasury Department may have authority to treat the combination
purchase of an immediate annuity contract and separate deferred annuity
contracts as a single annuity contract under its general authority to prescribe
rules as may be necessary to enforce the income tax laws.
A transfer of ownership of a contract, the designation of an annuitant, payee or
other beneficiary who is not also an owner, the selection of certain annuity
dates, or the exchange of a contract may result in certain tax consequences that
are not discussed herein. Anyone contemplating any such designation, transfer,
assignment, selection, or exchange should contact a competent tax adviser with
respect to the potential tax effects of such a transaction. The foregoing
comments about the federal income tax consequences under contracts issued by PFL
are not exhaustive, and special rules apply in other situations not discussed in
this prospectus. The discussion herein also reflects PFL's understanding of
current law. No assurance can be given that the present deferred tax treatment
of variable annuity contracts will remain unaffected by future actions of
Congress. Accordingly, a prospective purchaser should consult a qualified tax
adviser.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change in uncertain, there is always the
possibility that the tax treatment of the policies could change by legislation
or other means. It is also possible that any change could be retroactive (that
is, effective prior to the date of the change). A tax adviser should be
consulted with respect to legislative developments and their effect on the
policy.
GENERAL PROVISIONS
OWNERSHIP OF THE CONTRACT
Once we issue the contract, it shall belong to you. We will issue the contract
after you complete an application and deliver the initial purchase payment to
us. Prior to the annuity commencement date, you shall be the person so
designated in the application. You may appoint a contingent contract owner to
succeed ownership of the contract in the event of your death prior to the
annuity commencement date. You 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 you 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
26
<PAGE>
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, you may assign any rights or benefits
provided by the contract. An assignment will not be binding on PFL until a copy
has been filed at its administrative and service office. Your rights and
benefits, and those of the beneficiary, are subject 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 effect
until changed. The interest of any beneficiary is subject to the particular
beneficiary surviving the annuitant. You may change or revoke the designation of
a beneficiary at any time while the annuitant is living by filing with PFL a
written beneficiary designation or revocation in such form as PFL may require.
The change or revocation will not be effective and binding upon PFL until it is
received by PFL at its administrative and service office. The annuitant named in
the contract, however, may not be changed.
AMENDMENTS
PFL reserves the right to amend the contracts to meet the requirements of the
Investment Company Act of 1940 or other applicable federal or state laws or
regulations. No contract may be modified by PFL without your consent except as
may be required by applicable law.
SUSPENSION OF PAYMENT
PFL reserves the right to suspend or postpone the date of any payment of death
benefits or cash withdrawals:
. 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;
. 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 reasonably practicable to fairly determine the
value of such assets; or
. for such other periods as the Securities and Exchange Commission may by
order permit for the protection of security holders or as may be permitted
under the Investment Company Act of 1940.
27
<PAGE>
NON-PARTICIPATING
The contracts are non-participating. No dividends are payable and the contracts
will not share in the profits or surplus earnings of PFL.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the annuitant or designated annuitant has been misstated,
PFL will change the annuity benefit payable to that which the purchase payments
would have purchased for the correct age or sex. The dollar amount of any
underpayment made by PFL shall be paid in full with the next payment due such
person or the beneficiary. The dollar amount of any overpayment made by PFL 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 PFL.
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
representatives of broker-dealers registered under the Securities Exchange Act
of 1934, and members of the National Association of Securities Dealers, Inc. The
contracts will be distributed through Fidelity Brokerage Services, Inc.
(Fidelity 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 Dealers,
Inc.
Fidelity Distributors Corporation ("Fidelity Distributors"), an affiliate 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 Distributors is 82
Devonshire Street, Boston, Massachusetts 02109.
PFL 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 variable
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, PFL 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
28
<PAGE>
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 PFL determines
that it is permitted to vote such shares in its own right, it may elect to do
so.
Prior to the annuity commencement date, you exercise the voting rights under the
contract. After the annuity commencement date, the person having the voting
interest shall be the person then entitled to receive variable annuity payments.
Prior to the annuity commencement date, the number of votes that a person has
the right to cast will be determined by applying such person's percentage
interest in a subaccount to the total number of votes attributable to the
subaccount. 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 subaccount. After the annuity commencement date the votes
attributable to a contract decrease as such percentage interest decreases.
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 subaccount as to which
no timely instructions are received or as to which you do not have an interest
will be voted by PFL in proportion to the voting instructions which are received
with respect to all contracts participating in that subaccount. 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 subaccount will receive proxy material, reports and other material
relating to the funds and the formerly eligible 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. PFL will also send such statements reflecting
transactions involving the contract as may be required by applicable laws, rules
and regulations.
YEAR 2000 MATTERS
In October, 1996, PFL adopted and presently has in place a Year 2000 Assessment
and Planning Project (the "Plan") to review and analyze existing hardware and
software systems, as well as voice and data communications systems, to determine
if they are Year 2000 compatible. The Plan provides for a management process,
which ensures that when a particular system, or software application, is
determined to be "non-compliant" the proper steps are in place to either remedy
the "non-compliance" or cease using the particular system or software. The Plan
also provides that the Chief Information
29
<PAGE>
Officer report to the Board of Directors as to the status of the efforts under
the Plan on a regular and routine basis. PFL has engaged the services of a
third-party provider that specializes in Year 2000 issues to work on the
project.
The Plan has four specific objectives:
. develop an inventory of all applications;
. evaluate all applications to determine the most prudent manner to move them
to Year 2000 compliance, if required;
. estimate budgets, resources and schedules for the migration of the
"affected" applications to Year 2000 compliance; and
. define testing and deployment requirements to successfully manage
validation and re-deployment of any changed code.
It is believed that all mission critical systems are Year 2000 compliant as of
December 31, 1998, with validation testing to continue through and including
June 1999.
As of the date of this prospectus, PFL has identified and made available what it
believes are the appropriate resources of hardware, people, and dollars,
including the engagement of outside third parties, to ensure that the Plan will
be completed.
The Year 2000 computer problem, and its resolution, is complex and multifaceted,
and the success of a response plan cannot be conclusively known until the Year
2000 is reached (or an earlier date to the extent that the systems or equipment
addresses Year 2000 data prior to the Year 2000). Even with appropriate and
diligent pursuit of a well-conceived response plan, including testing
procedures, there is no certainty that any company will achieve complete
success. Further, notwithstanding its efforts or results, PFL's ability to
function unaffected to and through the Year 2000 may be adversely affected by
actions (or failure to act) of third parties beyond its knowledge or control.
LEGAL PROCEEDINGS
No material legal proceedings are pending against the variable account, PFL, its
subsidiaries or Fidelity Brokerage.
TABLE OF CONTENTS
OF THE STATEMENT OF
ADDITIONAL INFORMATION
PFL Life Insurance Company
The Contracts
Contract Charges
Benefits Under the Contract
Annuity Payments
Federal Tax Matters
Distribution of the Contracts
Custody of Assets
State Regulation
Records and Reports
Independent Auditors
Other Information
Financial Statements
30
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
The accumulation unit values and the number of accumulation units outstanding
for each subaccount from the date of inception are shown in the following
tables.
<TABLE>
<CAPTION>
========================================================================================
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE UNIT VALUE ACCUMULATION
AT BEGINNING AT END OF UNITS AT END
OF YEAR YEAR OF YEAR
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
VIP Money Market Subaccount
1998............................ $ $
1997............................ 2.413358 2.525659 43,319,514.745
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
- ----------------------------------------------------------------------------------------
VIP High Income Subaccount
1998............................ $ $
1997............................ 3.285775 3.835575 17,495,330.353
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
- ----------------------------------------------------------------------------------------
VIP Equity-Income Subaccount
1998............................ $ $
1997............................ 3.346303 4.252876 57,352,295.075
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
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------
VIP Growth Subaccount
1998............................ $ $
1997............................ 3.790532 4.643463 30,726,907.924
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
- --------------------------------------------------------------------------------------
VIP Overseas Subaccount
1998............................ $ $
1997............................ 1.962599 2.172007 15,101,589.750
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
- --------------------------------------------------------------------------------------
VIP II Investment Grade
Bond Subaccount
1998............................ $ $
1997............................ 1.708442 1.848460 10,859,598.713
1996............................ 1.669036 1.708442 9,681,784.561
1995............................ 1.571804 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)/....................... 1.000000 1.059709 1,710,458.331
- --------------------------------------------------------------------------------------
VIP II Asset Manager Subaccount
1998............................ $ $
1997............................ 2.073401 2.481731 33,046,715.565
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/(2)/....................... 1.000000 1.041041 989,833.209
- --------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------
VIP II Asset Manager:
Growth Subaccount
1998........................... $ $
1997........................... 1.201587 1.490886 1,443,467.081
1996........................... 1.009935 1.201587 7,788,605.432
1995/(3)/...................... 1.000000 1.009935 2,178,270.748
- --------------------------------------------------------------------------------------
VIP II Contrafund
1998........................... $ $
1997........................... 1.224976 1.508640 33,372,392.534
1996........................... 1.017954 1.224976 42,901,139.435
1995/(4)/...................... 1.000000 1.017954 20,570,759.262
- --------------------------------------------------------------------------------------
VIP II Index 500 Subaccount
1998........................... $ $
1997........................... 1.336134 1.758955 31,990,011.025
1996........................... ?? 1.336134 ??
1995/(3)/...................... 1.000000 1.096623 8,432,120.348
- --------------------------------------------------------------------------------------
VIP III Balanced Subaccount
1998........................... $ $
1997/(5)/...................... 1.000000 1.150095 1,126,357.174
- --------------------------------------------------------------------------------------
VIP III Growth
Opportunities Subaccount
1998........................... $ $
1997/(5)/...................... 1.000000 1.232659 4,621,108.553
- --------------------------------------------------------------------------------------
VIP III Growth
& Income Subaccount
1998........................... $ $
1997/(5)/...................... 1.000000 1.241360 6,281,887.718
======================================================================================
</TABLE>
/(1)/ Period from June 5, 1989 through December 31, 1989.
/(2)/ Period from May 29, 1990 through December 31, 1990.
/(3)/ Period from September 5, 1995 through December 31, 1995
/(4)/ Period from September 1, 1995 through December 31, 1995
/(5)/ Period from May 1, 1997 through December 31, 1997.
32
<PAGE>
FORMERLY ELIGIBLE SUB-ACCOUNTS
(THESE SUBACCOUNTS ARE NO LONGER AVAILABLE FOR INVESTMENT.)
<TABLE>
<CAPTION>
Accumulation ACCUMULATION NUMBER OF
Unit Value UNIT VALUE ACCUMULATION
AT BEGINNING AT END UNITS AT
OF YEAR OF YEAR END OF YEAR
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity Daily Income
Trust Subaccount
1998 $ $
1997 3.252838 3.424415 86,061.186
1996 3.094122 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
- ----------------------------------------------------------------------------------------
Fidelity Cash
Reserves Subaccount
1998 $ $
1997 3.268738 3.443500 23,137.187
1996 3.108117 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
- ----------------------------------------------------------------------------------------
Fidelity Government Securities
Fund, Ltd. Subaccount
1996 4.618027 $ 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
- ----------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Fidelity Capital and
Income Fund Subaccount
1998 $ $
1997 7.515932 8.623329 15,980.956
1996 6.744302 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
========================================================================================
</TABLE>
34
<PAGE>
APPENDIX B
GLOSSARY OF SPECIAL TERMS
Accumulation Unit -- An accounting unit of measure used in calculating the
contract value.
Administrative and Service Office -- Financial Markets Division - Variable
Annuity 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 upon which annuity payments are to
commence. This date can only be the first day of a calendar month.
Annuity Option -- A method of receiving a stream of annuity payments.
Annuity Purchase Value -- An amount equal to the contract value for the
valuation 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 additional 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.
Company -- PFL Life Insurance Company.
Contingent Contract Owner -- A person appointed by you to succeed to ownership
of the contract in the event of your death 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 contract 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.
35
<PAGE>
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 PFL 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
contracts are distributed.
Fidelity Brokerage -- Fidelity Brokerage Services, Inc., which is the principal
underwriter for the contracts, and through which the contracts are distributed.
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 performance
of a subaccount 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 you pay to PFL or on your behalf as consideration
for the benefits provided by the contract.
Subaccount -- 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
established by PFL and registered as a unit investment trust under the
Investment Company Act of 1940 to which net purchase payments under the
contracts are allocated.
36
<PAGE>
Variable Annuity -- An annuity with variable annuity payments that vary as to
dollar amount in relation to the investment performance of specified subaccounts
within the variable account.
Variable Annuity Payments -- Payments made pursuant to an annuity option which
fluctuate based on the investment performance of selected subaccounts.
37
<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, 1999, 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, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PFL LIFE INSURANCE COMPANY.......................................................................
THE CONTRACTS....................................................................................
Reallocation of Contract Values After the Annuity Commencement Date............................
Accumulation Units.............................................................................
Reinvestment of Fund Distributions.............................................................
CONTRACT CHARGES ................................................................................
Administrative Charge..........................................................................
Charges for Mortality Risk.....................................................................
BENEFITS UNDER THE CONTRACT......................................................................
Death Benefit..................................................................................
IRS Required Distribution......................................................................
ANNUITY PAYMENTS.................................................................................
Annuity Unit Value.............................................................................
Annuity Payment Rates..........................................................................
Performance....................................................................................
Total Return...................................................................................
Yields.........................................................................................
FEDERAL TAX MATTERS..............................................................................
Tax Treatment of PFL...........................................................................
Diversification Requirements...................................................................
Owner Control..................................................................................
Distribution Requirements......................................................................
DISTRIBUTION OF THE CONTRACTS....................................................................
CUSTODY OF ASSETS................................................................................
STATE REGULATION.................................................................................
RECORDS AND REPORTS..............................................................................
INDEPENDENT AUDITORS.............................................................................
OTHER INFORMATION................................................................................
FINANCIAL STATEMENTS.............................................................................
</TABLE>
2
<PAGE>
PFL LIFE INSURANCE COMPANY
PFL Life Insurance Company ("PFL") 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 PFL 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 Subaccount, then credited to a
Contract, into an equal value of Annuity Units of one or more other Subaccounts.
The reallocation shall be based on the relative value of the Annuity Units of
the Subaccounts 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. PFL 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 Subaccount, Net Purchase Payments are converted
into Accumulation Units of the Subaccount. The number of Accumulation Units to
be credited is determined by dividing the dollar amount allocated to each
Subaccount by the value of an Accumulation Unit for that Subaccount 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
Subaccount. 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 Subaccount 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 Subaccount and deduction of certain charges affect
the Accumulation Unit Value.
The Net Investment Factor for any Subaccount 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 Subaccount
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 Subaccount if the ex-dividend date
occurs during the current Valuation Period, plus or minus
(3) a per share credit or charge for any taxes determined by PFL to have
resulted from the investment operations of the Subaccount and for which it
has created a reserve;
3
<PAGE>
(b) is the net asset value per share of the shares held in the Subaccount
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 Subaccount.
ILLUSTRATION OF ACCUMULATION UNIT VALUE CALCULATIONS
FORMULA AND ILLUSTRATION FOR DETERMINING THE NET INVESTMENT FACTOR
Net Investment Factor = A + B - C - E
-------------
D
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
E = The daily deduction for mortality risk, which totals 0.8% on an
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 * B
Where: A = The Accumulation Unit Value for the immediately preceding 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 * 1.01489045 = $1.367184
* = multiplication
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
PFL 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
PFL of notification of the death of the Annuitant. Either election described
above may be made by filing with PFL a written election in such form as PFL 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 PFL 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 PFL 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 PFL. If an election by the Beneficiary is not received
by PFL within ninety (90) days following the date notification of the death of
the Annuitant is received by PFL 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 PFL. Payment will be made in accordance with
any applicable laws and regulations governing payment of death benefits.
Notwithstanding the foregoing, PFL 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.
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.
5
<PAGE>
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 Subaccount
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 Subaccount is less than the assumed rate.
The Annuity Unit Value of each Subaccount is arbitrarily established at $1.00
for the first Valuation Period of the particular Subaccount. The Annuity Unit
Value for the particular Subaccount for any Valuation Period is determined by
multiplying the Annuity Unit Value for the particular Subaccount for the
immediately preceding Valuation Period by the Net Investment Factor for the
particular Subaccount 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 * B * 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 3.5% built into
the Annuity Tables used. Daily factor equals............. = 0.999906
Then, the Annuity Unit Value is: $1.097696 * 1.005200 * 0.999906 =
$1.103300
FORMULA AND ILLUSTRATION FOR DETERMINING AMOUNT OF
FIRST MONTHLY VARIABLE ANNUITY PAYMENT
First Monthly Variable Annuity Payment = A * 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 * $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 Subaccount 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 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 Subaccount 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
7
<PAGE>
on overall performance or other criteria, and (ii) the effect of tax deferred
compounding on a Subaccount'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 Subaccount through
12/31/98. The performance information is based on the historical investment
experience of the Subaccounts and of the Portfolios. It does not indicate or
represent future performance.
TOTAL RETURN
Total returns quoted in advertising reflect all aspects of a Subaccount's
return, including the automatic reinvestment by the separate account of all
distributions and any change in the Subaccount'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 Subaccount 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 Subaccount'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
Subaccount.
The following Table shows the average annual total return on a hypothetical
investment in the Subaccounts 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, 1998. 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 the following Table 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.
Average Annual Total Return for Period Ending on 12/31/98
<TABLE>
<CAPTION>
SUBACCOUNT
1 YEAR 3 YEAR 5 YEAR LIFE INCEPTION DATE
--------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
VIP Money Market* 03/31/82
VIP HIGH INCOME 09/11/85
VIP EQUITY INCOME 10/08/86
VIP GROWTH 10/08/86
VIP OVERSEAS 01/27/87
VIP II INVESTMENT GRADE BOND 06/05/89
VIP II ASSET MANAGER 05/29/90
VIP II INDEX 500 09/01/95
VIP II ASSET MANAGER GROWTH 09/05/95
VIP II CONTRAFUND 09/01/95
VIP III BALANCED 05/01/97
VIP III GROWTH OPPORTUNITIES 05/01/97
VIP III GROWTH & INCOME 05/01/97
</TABLE>
* There can be no assurance that the VIP Money Market portfolio will maintain a
stable $1.00 share price. None of the portfolios are insured or guaranteed by
the U.S. Government.
** Figure is for 10 years.
8
<PAGE>
Total returns are historical and include change in unit price and the automatic
reinvestment of dividends and capital gains. Principal, investment returns
(except VIP 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
______% based on an average Policy Value of $_______.
YIELDS
Yields quoted in advertising for the VIP Money Market Subaccount reflect the
change in value of a hypothetical investment in the Subaccount 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 VIP Money Market
Subaccount reflects the income generated by a Subaccount over a 7-day period.
Current yield is calculated by determining the net change, (exclusive of capital
changes and income other than investment income), 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 VIP Money
Market Subaccount 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 12/31/98 the VIP Money
Market Subaccount had a current yield of _____% and an effective yield of
_____%.
FEDERAL TAX MATTERS
TAX TREATMENT OF PFL
PFL is taxed as a life insurance company under Subchapter L of the Code. Since
the Variable Account is not an entity separate from PFL and its operations form
a part of PFL, 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, PFL believes
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 the contract will not be
treated as an annuity for tax purposes 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 PFL 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.
9
<PAGE>
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. 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 REQUIREMENTS
The Code also requires that the Contracts contain specific provisions for
distribution of Contract proceeds upon the death of any Owner. In order to be
treated as an annuity contract for federal income tax purposes, the Code
requires that the Contracts provide that if any Owner dies on or after the
Annuity Commencement Date and before the entire interest in the Contract has
been distributed, the remaining portion must be distributed at least as rapidly
as under the method in effect on such Owner's death. If any Owner dies before
the Annuity Commencement Date, the entire interest in the Contract must
generally be distributed within 5 years after such Owner's date of death or be
used to purchase an immediate annuity under which payments will begin within one
year of such Owner's death and will be made for the life of the Beneficiary or
for a period not extending beyond the life expectancy of the Beneficiary.
However, if such Owner's death occurs prior to the Annuity Commencement Date,
such Owner's surviving spouse is named the beneficiary, then the Contract may be
continued with the surviving spouse as the new Owner. If any Owner is not a
natural person, then for purposes of these distribution requirements, the
primary Annuitant shall be treated as the Owner and any death or change of such
primary Annuitant shall be treated as the death of the Owner. The Contract
contains provisions intended to comply with these requirements of the Code. No
regulations interpreting these requirements of the Code have yet been issued and
thus no assurance can be given that the provisions contained in the Contracts
satisfy all such Code requirements.
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 PFL does not anticipate discontinuing the offering of the
Contracts. However, PFL reserves the right to discontinue the offering of the
Contracts.
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 1998, the amount paid to Fidelity
Insurance Agency, Inc. for its services as a general insurance agency was
$__________. Amounts paid for these services in 1997 and 1996 were $4,476,712
and $4,136,279, respectively.
10
<PAGE>
CUSTODY OF ASSETS
The assets of each of the Subaccounts are held by PFL. The assets of the
Variable Account and each of the Subaccounts thereunder are kept physically
segregated and held separate and apart from the general account assets of PFL.
PFL maintains records of all purchases and redemptions of shares of the Fund
held by each of the Subaccounts. Additional protection for the assets of the
Variable Account is afforded by PFL's fidelity bond presently in the amount of
$5 million covering the acts of officers and employees of PFL.
STATE REGULATION
PFL 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 PFL 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 PFL's contract liabilities and reserves so that the
Division of Insurance may certify the items are correct. PFL'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, PFL 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
PFL. As presently required by the Investment Company Act of 1940 and regulations
promulgated thereunder, PFL 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.
PFL 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, 1998 and
1997, and for each of three years in the period ended December 31, 1998, and the
financial statements of The Fidelity Variable Annuity Account at December 31,
1998 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. 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 Subaccount(s). The
financial statements of PFL as contained herein should be considered only as
bearing upon PFL'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 Subaccounts.
11
<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.
(iv) Participation Agreement between Variable Insurance
Products Fund III, Fidelity Distributions
Corporation (Underwriter), and PFL Life Insurance
Company (Depositor). Note 10.
(v) Termination Notice of Administrative Services
Agreement by and between PFL Life Insurance Company
and Vantage Computer Systems, Inc.
(vi) Participation Agreement between Variable Insurance
Products Funds I and II, Fidelity Distributors
Corporation and PFL Life Insurance Company, and
Addendums thereto. Note 11.
(vii) Addendum to Participation Agreement between Variable
Insurance Product Funds, Fidelity Distribution
Corporation and PFL Life Insurance Company. Note 11.
(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) Consent of Independent Auditors. Note 12.
(10)(ii) Opinion and Consent of Actuary. Note 11.
(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 Filed with 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), and filed herewith.
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), and filed herewith.
Note 4 Filed with Post-Effective Amendment No. 9, Registration
No. 2-65365, Exhibit 4 to Form N-4, filed on April 27,
1987.
Note 5 Filed with Pre-Effective Amendment No. 4 to Form S-6,
File No. 2-65365 filed on August 14, 1980.
Note 6 Filed with Post-Effective Amendment No. 1 to Form N-4,
Registration No. 33-37498, filed March 29, 1991.
Note 7 Filed with Post-Effective Amendment No. 2 to Form N-4,
Registration No. 33-37498, filed April 29, 1992.
Note 8 Filed with Post-Effective Amendment No. 5 to Form N-4,
Registration No. 33-37478, filed April 24, 1995.
Note 9 Filed with Post-Effective Amendment No. 6 to Form N-4,
Registration No. 33-37478, filed April 19, 1996.
Note 10 Filed with Post-Effective Amendment No. 7 to Form N-4,
Registration No. 33-37498 on April 29, 1997.
Note 11 Filed with Post Effective Amendment No. 8 to Form N-4,
Registration No. 33-37498 on April 29, 1998.
Note 12 To be filed by future Amendment.
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 Operating
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>
<CAPTION>
Jurisdication of Percent of Voting
Name Incorporation Securities Owned Business
- --------------------------------- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C>
AEGON N.V. Netherlands 53.63% of Vereniging Holding company
Corporation AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Netherland N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Nevak Holding B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON International N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
Voting Trust Delaware Voting Trust
Trustees:
K.J. Storm
Donald J. Shepard
H.B. Van Wijk
Dennis Hersch
AEGON U.S. Holding Delaware 100% of Voting Trust Holding company
Corporation
Short Hills Management New Jersey 100% of AEGON U.S. Holding company
Company Holding Corporation
CORPA Reinsurance New York 100% of AEGON U.S. Holding company
Company Holding Corporation
AEGON Management Indiana 100% of AEGON U.S. Holding company
Company Holding Corporation
RCC North America Inc. Delaware 100% of AEGON U.S. Holding company
Holding Corporation
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
AUSA Holding Company Maryland 100% AEGON USA, Inc. Holding company
Monumental General Insurance Maryland 100% AUSA Holding Co. Holding company
Group, Inc.
Trip Mate Insurance Agency, Inc. Kansas 100% Monumental General Sale/admin. of travel
Insurance Group, Inc. insurance
Monumental General Maryland 100% Monumental General Provides management srvcs.
Administrators, Inc. Insurance Group, Inc. to unaffiliated third party
administrator
Executive Management and Maryland 100% Monumental General Provides actuarial consulting
Consultant Services, Inc. Administrators, Inc. services
Monumental General Mass Maryland 100% Monumental General Marketing arm for sale of
Marketing, Inc. Insurance Group, Inc. mass marketed insurance
coverages
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment advisor
Advisors, Inc.
Diversified Investors Securities Delaware 100% Diversified Investment Broker-Dealer
Corp. Advsiors, Inc.
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer
Supplemental Ins. Division, Inc. Tennessee 100% AUSA Holding Co. Insurance
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Resources, Inc. Insurance agency
Canadian Dealer Network Inc.
AEGON USA Investment Iowa 100% AUSA Holding Co. Investment advisor
Management, Inc.
AEGON USA Realty Iowa 100% AUSA Holding Co. Provides real estate
Advisors, Inc. administrative and real
estate investment services
Quantra Corporation Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and sales
Quantra Software Corporation Delaware 100% Quantra Corporation Manufacture and sell
mortgage loan and security
management software
Landauer Realty Advisors, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Realty Information Systems, Inc. Iowa 100% AEGON USA Realty Information Systems for
Advisors, Inc. real estate investment
management
AEGON USA Realty Iowa 100% AEGON USA Real estate management
Management, Inc Realty Advisors, Inc.
USP Real Estate Investment Trust Iowa 21.89% First AUSA Life Ins. Co. Real estate investment trust
13.11% PFL Life Ins. Co.
4.86% Bankers United Life
Assurance Co.
RCC Properties Limited Iowa AEGON USA Realty Advisors, Limited Partnership
Partnership Inc. is General Partner and 5%
owner.
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Endeavor Investment Advisors California 49.9% AUSA Financial General Partnership
Markets, Inc.
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator
Investors Warranty of Iowa 100% AUSA Holding Co. Provider of automobile
America, Inc. extended maintenance
contracts
Massachusetts Fidelity Trust Co. Iowa 100% AUSA Holding Co. Trust company
Money Services, Inc. Delaware 100% AUSA Holding Co. Provides financial counseling
for employees and agents of
affiliated companies
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company, Inc. Insurance agency
AEGON Asset Management Delaware 100% AUSA Holding Co. Registered investment advisor
Services, Inc.
Intersecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
ISI Insurance Agency, Inc. California 100% Western Reserve Life Insurance agency
Assurance Co. of Ohio
ISI Insurance Agency Ohio 100% ISI Insurance Agency, Inc. Insurance agency
of Ohio, Inc.
ISI Insurance Agency Texas 100% ISI Insurance Agency, Inc. Insurance agency
of Texas, Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Agency Inc. Insurance Agency
of Massachusetts, Inc.
Associated Mariner Financial Michigan 100% Intersecurities, Inc. Holding co./management
Group, Inc. services
Mariner Financial Services, Inc. Michigan 100% Associated Mariner Broker/Dealer
Financial Group, Inc.
Mariner Planning Corporation Michigan 100% Mariner Financial Financial planning
Services, Inc.
Associated Mariner Agency, Inc. Michigan 100% Associated Mariner Insurance agency
Financial Group, Inc.
Associated Mariner Agency Hawaii 100% Associated Mariner Insurance agency
of Hawaii, Inc. Agency, Inc.
Associated Mariner Ins. Agency Massachusetts 100% Associated Mariner Insurance agency
of Massachusetts, Inc. Agency, Inc.
Associated Mariner Agency Ohio 100% Associated Mariner Insurance agency
Ohio, Inc. Agency, Inc.
Associated Mariner Agency Texas 100% Associated Mariner Insurance agency
Texas, Inc. Agency, Inc.
Associated Mariner Agency New Mexico 100% Associated Mariner Insurance agency
New Mexico, Inc. Agency, Inc.
Mariner Mortgage Corp. Michigan 100% Associated Mariner Mortgage origination
Financial Group, Inc.
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 50% AUSA Holding Co. Investment advisor
50% Janus Capital Corp.
IDEX II Series Fund Massachusetts Various Mutual fund
IDEX Fund Massachusetts Various Mutual fund
IDEX Fund 3 Massachusetts Various Mutual fund
First AUSA Life Insurance Maryland 100% AEGON USA, Inc. Insurance holding company
Company
AUSA Life Insurance New York 100% First AUSA Life Insurance
Company, Inc. Insurance Company
Life Investors Insurance Iowa 100% First AUSA Life Ins. Co. Insurance
Company of America
Life Investors Delaware 100% LIICA Purchase, own, and
Alliance, LLC hold the equity
interest of other
entities
Bankers United Life Iowa 100% Life Investors Ins. Insurance
Assurance Company Company of America
Life Investors Agency Iowa 100% Life Investors Ins. Marketing
Group, Inc. Company of America
PFL Life Insurance Company Iowa 100% First AUSA Life Ins. Co. Insurance
AEGON Financial Services Minnesota 100% PFL Life Insurance Co. Marketing
Group, Inc.
AEGON Assignment Corporation Kentucky 100% AEGON Financial Administrator of structured
of Kentucky Services Group, Inc. settlements
AEGON Assignment Illinois 100% AEGON Financial Administrator of structured
Corporation Services Group, Inc. settlements
Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Iowa Fidelity Life Insurance Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Western Reserve Life Assurance Ohio 100% First AUSA Life Ins. Co. Insurance
Co. of Ohio
WRL Series Fund, Inc. Maryland Various Mutual fund
WRL Investment Services, Inc. Florida 100% Western Reserve Life Provides administration for
Assurance Co. of Ohio affiliated mutual fund
WRL Investment Florida 100% Western Reserve Life Registered investment advisor
Management, Inc. Assurance Co. of Ohio
AEGON Equity Florida 100% Western Reserve Life Insurance Agency
Group, Inc. Assurance Co. of Ohio
Monumental Life Insurance Co. Maryland 100% First AUSA Life Ins. Co. Insurance
AEGON Special Markets Maryland 100% Monumental Life Ins. Co. Marketing
Group, Inc.
Monumental General Casualty Co. Maryland 100% First AUSA Life Ins. Co. Insurance
United Financial Services, Inc. Maryland 100% First AUSA Life Ins. Co. General agency
Bankers Financial Life Ins. Co. Arizona 100% First AUSA Life Ins. Co. Insurance
The Whitestone Corporation Maryland 100% First AUSA Life Ins. Co. Insurance agency
Cadet Holding Corp. Iowa 100% First AUSA Life Holding company
Insurance Company
Commonwealth General Delaware 100% AEGON USA Holding company
Corporation ("CGC")
PB Series Trust Massachusetts N/A Mutual fund
Monumental Agency Group, Inc. Kentucky 100% CGC Provider of srvcs. to ins. cos.
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security Life
Insurance Company
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
Commonwealth General. Kentucky 100% CGC Administrator of structured
Assignment Corporation settlements
AFSG Securities Corporation Pennsylvania 100% CGC Broker-Dealer
PB Investment Advisors, Inc. Delaware 100% CGC Registered investment advisor
Diversified Financial Products Delaware 100% CGC Provider of investment,
Inc. marketing and admin.
services to ins. cos.
AEGON USA Real Estate Delaware 100% Diversified Financial Real estate and mortgage
Services, Inc. Products Inc. holding company
Capital Real Estate Delaware 100% CGC Furniture and equiment lessor
Development Corporation
Capital General Development Delaware 100% CGC Holding company
Corporation
Ammest Realty Corporation Texas 100% Peoples Security Life Special purpose subsidiary
Insurance Company
JMH Operating Company, Inc. Mississippi 100% Peoples Security Life Real estate holdings
Insurance Company
Independence Automobile Florida 100% Capital Security Automobile Club
Association, Inc. Life Insurance Company
Independence Automobile Georgia 100% Capital Security Automobile Club
Club, Inc. Life Insurance Company
Capital 200 Block Corporation Delaware 100% CGC Real estate holdings
Capital Broadway Corporation Kentucky 100% CGC Real estate holdings
Southlife, Inc. Tennessee 100% CGC Investment subsidiary
Ampac Insurance Agency, Inc. Pennsylvania 100% CGC Provider of management
(EIN 23-1720755) support services
National Home Life Corporation Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Compass Rose Development Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Frazer Association Illinois 100% Ampac Insurance TPA license-holder
Consultants, Inc. Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Ampac Insurance Furniture & equipment lessor
Agency, Inc.
Veterans Benefits Plans, Inc. Pennsylvania 100% Ampac Insurance Administator of group
Agency, Inc. insurance programs
Veterans Insurance Services, Inc. Delaware 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Financial Planning Services, Inc. Dist. Columbia 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Academy Insurance Group, Inc. Delaware 100% CGC Holding company
Academy Life Insurance Co. Missouri 100% Academy Insurance Insurance company
Group, Inc.
Pension Life Insurance New Jersey 100% Academy Insurance Insurance company
Company of America Group, Inc.
Academy Services, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Development Corp. Inc. Kansas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Insurance Agency, Inc. California 100% Academy Insurance General agent
Group, Inc.
Ammest Massachusetts Massachusetts 100% Academy Insurance Special-purpose subsidiary
Insurance Agency, Inc. Group, Inc.
Ammest Realty, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ampac, Inc. Texas 100% Academy Insurance Managing general agent
Group, Inc.
Ampac Insurance Agency, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
(EIN 23-2364438) Group, Inc.
Data/Mark Services, Inc. Delaware 100% Academy Insurance Provider of mgmt. services
Group, Inc.
Force Financial Group, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Force Financial Services, Inc. Massachusetts 100% Force Fin. Group, Inc. Special-purpose subsidiary
Military Associates, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
Group, Inc.
NCOAA Management Company Texas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Unicom Administrative Pennsylvania 100% Academy Insurance Provider of admin. services
Services, Inc. Group, Inc.
Unicom Administrative Germany 100% Unicom Administrative Provider of admin. servcies
Services, GmbH Services, Inc.
Providian Fire Insurance Co. Kentucky 100% Providian Property Insurance company
and Casualty Insurance Co.
Capital Liberty, L.P. Delaware 79.2% Commonwealth Life Holding Company
Insurance Company
19.8% Peoples Security Life
Insurance Company
1% CGC
Commonwealth General LLC Turks & 100% CGC Special-purpose subsidiary
Caicos Islands
Peoples Benefit Life Missouri 3.7% CGC Insurance company
Insurance Company 20% Capital Liberty, L.P.
76.3% Monumental Life
Ins. Co.
Veterans Life Insurance Co. Illinois 100% Peoples Benefit Life Insurance company
Insurance Company
Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary
</TABLE>
2/11/98
C - 3
<PAGE>
ITEM 27. NUMBER OF CONTRACTOWNERS
------------------------
The number of Contractowners of Registrant as of December 31,
1998, was 7,080.
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 - 4
<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)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address* With Underwriter
---------------------------------------------------
<S> <C>
Roger T. Servison Director
Rodney R. Rohda Director
Robert P. Mazzarella Director and President
J. Peter Benzie Executive Vice President
Edward L. McCartney Executive Vice President
Thomas G. McNichols Vice President
Bruce MacAlpine Vice President
Kenneth Klipper Vice President and Chief
Financial Officer
Lawerence G. Smith Vice President
Jeffrey R. Larsen Legal Counsel and Clerk
Jay Freedman Assistant Clerk
Kenneth Klipper Treasurer
Gary Greenstein Assistant Treasurer
Linda Capps Holland Compliance Officer
Richard Blades Compliance Registered Options
Principal
*82 Devonshire Street, Boston, MA 02109.
</TABLE>
(c) Commission and other compensation received by principal
underwriter.
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
$4,565,268 in commissions from the Registrant during the
last fiscal year. No other
C - 5
<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 - 6
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Registration Statement to be signed on its
behalf, in the City of Cedar Rapids and State of Iowa, on this 9th day of
February, 1999.
FIDELITY VARIABLE
ANNUITY ACCOUNT
PFL LIFE INSURANCE COMPANY
Depositor
___________________________________ *
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.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
______________________________________ * Director February ____, 1999
Patrick S. Baird
/s/ Craig D. Vermie Director February 9, 1999
- --------------------------------------
Craig D. Vermie
______________________________________ * Director February ____, 1999
William L. Busler (Principal Executive Officer)
______________________________________ * Director February ____, 1999
Patrick E. Falconio
______________________________________ * Director February ____, 1999
Douglas C. Kolsrud
______________________________________ * Vice President and February ____, 1999
Robert J. Kontz Corporate Controller
______________________________________ * Treasurer February ____, 1999
Brenda K. Clancy
</TABLE>
* By: Craig D. Vermie, attorney in-fact.
