<PAGE>
As filed with the Securities and Exchange Commission on April 27, 2000
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.
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Post-Effective Amendment No. 11 x
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REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 9 x
-- ---
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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.
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X on May 1, 2000 pursuant to paragraph (b) of Rule 485.
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60 days after filing pursuant to paragraph (a)(1) of Rule 485
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on ___________ pursuant to paragraph (a)(1) of Rule 485
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If appropriate, check the following box:
This post-effective amendment designates a new effective
---
date for a previously filed post-effective amendment.
<PAGE>
FIDELITY INCOME PLUS
Issued Through
FIDELITY VARIABLE ANNUITY ACCOUNT
by
PFL LIFE INSURANCE COMPANY
Prospectus
May 1, 2000
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, 2000. Please call us at (800) 634-4672 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.
Information about the separate account and the target account can be reviewed
and copied at the SEC's Public Reference Room in Washington, D.C. You may
obtain information about the operation of the public reference room by calling
the SEC at 1-800-SEC-0330. The SEC also 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.
This individual variable annuity contract has thirteen mutual fund portfolios
listed below. You can choose any combination of these investment choices.
Variable Insurance Products Fund
(VIP) -- Initial Class
Fidelity -- VIP Money Market Portfolio
Fidelity -- VIP High Income Portfolio
Fidelity -- VIP Equity-Income Portfolio
Fidelity -- VIP Growth Portfolio
Fidelity -- VIP Overseas Portfolio
Variable Insurance Products Fund II
(VIP II) -- Initial Class
Fidelity -- VIP II Investment Grade Bond Portfolio
Fidelity -- VIP II Asset Manager Portfolio
Fidelity -- VIP II Asset Manager: Growth Portfolio
Fidelity -- VIP II Index 500 Portfolio
Fidelity -- VIP II Contrafund(R) Portfolio
Variable Insurance Products Fund III
(VIP III) -- Initial Class
Fidelity -- VIP III Balanced Portfolio
Fidelity -- VIP III Growth & Income Portfolio
Fidelity -- VIP III Growth Opportunities Portfolio
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>
<S> <C>
TABLE OF CONTENTS Page
GLOSSARY OF TERMS......................................................... 3
QUESTIONS AND ANSWERS ABOUT THE CONTRACT.................................. 4
ANNUITY CONTRACT FEE TABLE................................................ 6
EXAMPLES.................................................................. 7
FINANCIAL STATEMENTS...................................................... 8
PFL LIFE INSURANCE COMPANY................................................ 8
THE FIDELITY VARIABLE ANNUITY ACCOUNT..................................... 8
THE VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II
AND VARIABLE INSURANCE PRODUCTS FUND III................................. 8
Performance.............................................................. 9
Additions, Deletions, Substitutions of Investments....................... 10
THE CONTRACTS............................................................. 10
Purchase of the Contracts................................................ 10
Allocation and Reallocation of Net Purchase Payments..................... 10
Value of Accumulation Units.............................................. 11
Surrenders............................................................... 12
Right to Return the Contract............................................. 12
CONTRACT CHARGES.......................................................... 12
Administrative Charge.................................................... 12
Charges for Mortality Risk............................................... 13
Deductions for Taxes..................................................... 13
The Variable Insurance Products Fund, Variable Insurance Products Fund
II, and Variable Insurance Product Fund III Expenses.................... 13
</TABLE>
<TABLE>
<S> <C>
BENEFITS UNDER THE CONTRACT................................................. 13
Death Benefit.............................................................. 13
IRS Required Distributions................................................. 13
ANNUITY PAYMENTS............................................................ 14
Annuity Commencement Date.................................................. 14
Election of Annuity Options................................................ 14
Annuity Options............................................................ 14
Determination of Annuity Payments.......................................... 15
Adjustment of Annuity Payments............................................. 16
FEDERAL TAX MATTERS......................................................... 16
Annuity Policies in General................................................ 16
Diversification and Distribution Requirements.............................. 16
Withdrawals -- Nonqualified Policies....................................... 16
Taxation of Death Benefit Proceeds......................................... 16
Annuity Payments........................................................... 17
Transfers, Assignments or Exchanges of Policies............................ 17
Possible Changes in Taxation............................................... 17
GENERAL PROVISIONS.......................................................... 17
Ownership of the Contract.................................................. 17
Assignment................................................................. 17
Beneficiary................................................................ 18
Amendments................................................................. 18
Suspension of Payment...................................................... 18
Non-Participating.......................................................... 18
Misstatement of Age or Sex................................................. 18
DISTRIBUTION OF CONTRACTS................................................... 18
VOTING RIGHTS AND REPORTS................................................... 18
IMSA........................................................................ 19
LEGAL PROCEEDINGS........................................................... 19
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................ 19
APPENDIX A.................................................................. 20
Condensed Financial Information............................................ 20
</TABLE>
2
<PAGE>
GLOSSARY OF 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 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 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.
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 -- ("You" or "Your") The person who may exercise all rights and
privileges under the contract. Before annuitization, the contract owner is the
person listed on the application if the annuitant is still living. After
annuitization, the contract owner is the annuitant. The beneficiary is the
contract owner if the annuitant dies.
Contract Value -- The sum of the value of all accumulation units credited to a
contract for any particular valuation period.
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.
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 paid 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.
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.
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.
3
<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.
"PFL," "we," "us" or "our" refers to PFL Life Insurance Company.
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"). 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
Fidelity -- VIP Money Market Portfolio -- Initial Class
Fidelity -- VIP High Income Portfolio -- Initial Class
Fidelity -- VIP Equity-Income Portfolio -- Initial Class
Fidelity -- VIP Growth Portfolio -- Initial Class
Fidelity -- VIP Overseas Portfolio -- Initial Class
VARIABLE INSURANCE PRODUCTS FUND II
Fidelity -- VIP II Investment Grade Bond Portfolio -- Initial Class
Fidelity -- VIP II Asset Manager Portfolio -- Initial Class
Fidelity -- VIP II Asset Manager: Growth Portfolio --Initial Class
Fidelity -- VIP II Index 500 Portfolio -- Initial Class
Fidelity -- VIP II Contrafund(R) Portfolio -- Initial Class
VARIABLE INSURANCE PRODUCTS FUND III
Fidelity -- VIP III Balanced Portfolio -- Initial Class
Fidelity -- VIP III Growth & Income Portfolio -- Initial Class
Fidelity -- VIP III Growth Opportunities Portfolio -- Initial Class
Each subaccount invests 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 no surrender charge. Withdrawals may be
taxable and subject to a 10% penalty tax.
4
<PAGE>
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. Charges for state and local premium taxes are deducted from purchase
payments or contract values depending upon when we incur them.
The contract values also reflect the fund's charges, fees and expenses. See the
"Annuity Contract Fee Table".
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 of 1986, as amended (the " Code") apply if the annuitant
is an owner.
10. What happens if you die before the Annuity Commencement Date?
If you 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 the annuitant, upon
your death, the value of the contract must be distributed pursuant to rules
prescribed by the Code, as amended.
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.
5
<PAGE>
ANNUITY CONTRACT FEE TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contract Owner Transaction Expenses
- ----------------------------------------
<S> <C>
Sales Load on Purchase
Payments 0
Deferred Sales Load 0
Surrender Fees 0
Annual Contract Fee $35 Per Contract
Transfer Fee 0
</TABLE>
<TABLE>
<CAPTION>
Variable Account Expenses
(as a percentage of average contract
value)
<S> <C>
Mortality and Expense Risk Fee 0.80%
Account Fees and Expenses 0
----
TOTAL VARIABLE ACCOUNT ANNUAL
EXPENSES 0.80%
</TABLE>
- --------------------------------------------------------------------------------
VIP, VIP II, and VIP III Funds Annual Expenses --
(as a percentage of average net assets and after expense reimbursements)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Fund
Management Other Annual
Fees Expenses Expenses
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity -- VIP Money Market -- Initial Class 0.18% 0.09% 0.27%
Fidelity -- VIP High Income -- Initial Class 0.58% 0.11% 0.69%
Fidelity -- VIP Equity-Income -- Initial
Class(/1/) 0.48% 0.09% 0.57%
Fidelity -- VIP Growth -- Initial Class(/1/) 0.58% 0.08% 0.66%
Fidelity -- VIP Overseas -- Initial
Class(/1/) 0.73% 0.18% 0.91%
Fidelity -- VIP II Investment Grade Bond --
Initial Class 0.43% 0.11% 0.54%
Fidelity -- VIP II Asset Manager -- Initial
Class(/1/) 0.53% 0.10% 0.63%
Fidelity -- VIP II Asset Manager: Growth --
Initial Class(/1/) 0.58% 0.13% 0.71%
Fidelity -- VIP II Contrafund(R) -- Initial
Class(/1/) 0.58% 0.09% 0.67%
Fidelity -- VIP II Index 500 -- Initial
Class(/2/) 0.24% 0.04% 0.28%
Fidelity -- VIP III Balanced -- Initial
Class(/1/) 0.43% 0.14% 0.57%
Fidelity -- VIP III Growth Opportunities --
Initial Class(/1/) 0.58% 0.11% 0.69%
Fidelity -- VIP III Growth & Income --
Initial Class(/1/) 0.48% 0.12% 0.60%
</TABLE>
(/1/A)portion of the brokerage (/2/Fidelity)Management & Research
commissions that certain funds Company agreed to reimburse a
pay was used to reduce fund portion of the Index 500 Portfolios
expenses. In addition, certain expenses during the period. The
funds, or Fidelity Management & expenses presented in the table are
Research Company on behalf of shown with this reimbursement.
certain funds, have entered into Without this reimbursement, the
arrangements with their Portfolios management fee, other
custodian, whereby credits expenses and total expenses would
realized as a result of have been: 0.24%, 0.10%, 0.34%,
uninvested cash balances were respectively.
used to reduce a portion of each
applicable fund's expenses. The
total operating expenses
presented in the table are shown
without these reductions. With
these reductions, the total
operating expenses presented in
the table would have been:
0.56% -- VIP Equity Income;
0.65% -- VIP Growth; 0.87% VIP
Overseas; 0.62% -- VIP II Asset
Manager; 0.70%-- VIP II Asset
Manager: Growth; 0.65% -- VIP II
Contrafund(R); 0.55% -- VIP III
Balanced; 0.68% -- VIP III
Growth Opportunities; and
0.59% -- VIP III Growth &
Income.
6
<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>
Fidelity -- VIP Money Market -- Initial
Class $11 $35 $60 $134
Fidelity -- VIP High Income -- Initial Class $15 $48 $83 $181
Fidelity -- VIP Equity-Income -- Initial
Class $14 $44 $76 $168
Fidelity -- VIP Growth -- Initial Class $15 $47 $81 $178
Fidelity -- VIP Overseas -- Initial Class $18 $55 $94 $205
Fidelity -- VIP II Investment Grade Bond --
Initial Class $14 $43 $75 $164
Fidelity -- VIP II Asset Manager -- Initial
Class $15 $46 $80 $174
Fidelity -- VIP II Asset Manager: Growth --
Initial Class $16 $49 $84 $183
Fidelity -- VIP II Contrafund(R) -- Initial
Class $15 $47 $82 $179
Fidelity -- VIP II Index 500 -- Initial
Class $11 $35 $61 $135
Fidelity -- VIP III Balanced -- Initial
Class $14 $44 $76 $168
Fidelity -- VIP III Growth Opportunities --
Initial Class $15 $48 $83 $181
Fidelity -- VIP III Growth & Income -- Ini-
tial Class $15 $45 $78 $171
</TABLE>
The above tables are intended to
help you understand the costs and In these examples, the $35 annual
expenses that you will bear, service charge is reflected as a charge
directly or indirectly. These of 0.026042% based on an average policy
include the expenses of the VIP, VIP value of $134,398.00 and is deducted on
II and VIP III Funds. In addition to each policy anniversary.
the expenses listed above, premium
taxes may be applicable.
Financial Information. Condensed
financial information for the
subaccounts is in Appendix A to this
prospectus.
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 1999 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.
7
<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 SAI.
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.
All obligations arising under the policies, including the promise to make
annuity payments, are general corporate obligations of PFL.
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
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 Income Fund (formerly 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.
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
8
<PAGE>
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)
Managed by Fidelity Management & Research Co.
Fidelity -- VIP Money Market Portfolio -- Initial Class
Fidelity -- VIP High Income Portfolio -- Initial Class
Fidelity -- VIP Equity-Income Portfolio -- Initial Class
Fidelity -- VIP Growth Portfolio -- Initial Class
Fidelity -- VIP Overseas Portfolio -- Initial Class
VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
Managed by Fidelity Management & Research Co.
Fidelity -- VIP II Investment Grade Bond Portfolio -- Initial Class
Fidelity -- VIP II Asset Manager Portfolio -- Initial Class
Fidelity -- VIP II Asset Manager: Growth Portfolio -- Initial Class
Fidelity -- VIP II Index 500 Portfolio -- Initial Class
Fidelity -- VIP II Contrafund(R) Portfolio -- Initial Class
VARIABLE INSURANCE PRODUCTS FUND III (VIP III)
Managed by Fidelity Management & Research Co.
Fidelity -- VIP III Balanced Portfolio -- Initial Class
Fidelity -- VIP III Growth & Income Portfolio -- Initial Class
Fidelity -- VIP III Growth Opportunities Portfolio -- Initial Class
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 shares of these fund's portfolios. 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 fund portfolios to be the same as those of other portfolios and mutual
funds.
PFL may receive expense reimbursement or other revenues from the funds or their
managers. The amount of these reimbursements or revenues, if any, may be based
on the amount of assets that PFL or the variable account invests in the fund
portfolios.
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 adjusted historical 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.
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The Fidelity -- VIP 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 SAI.
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.
New subaccounts may be established when, in PFL's sole discretion, 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 PFL's administrative and service office
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 you tell PFL to keep 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.
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.
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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 for some or all contracts and PFL may require written confirmation of a
transaction request.
The policy you are purchasing was not designed for professional market timing
organizations or other persons that use programmed, large, or frequent
transfers. The use of such transfers may be disruptive to an underlying fund
portfolio. We reserve the right to reject any premium payment or transfer
request from any person, if, in our judgment, an underlying fund portfolio
would be unable to invest effectively in accordance with its investment
objectives and policies or would otherwise be potentially adversely affected or
if an underlying portfolio would reject our purchase order.
When a reallocation is requested, the redemption of the requested amount from
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 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 PFL receives the request.
On the date of issue, the contract value equals the value of the net purchase
payment. The date of issue is the date the contract is issued, as shown on the
contract Schedule Page. 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
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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 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 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 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 Code provides
that a 10% penalty tax may be imposed on certain surrenders before age 59 1/2.
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.
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.
Charges for 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.
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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 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 0.80%. 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
Charges for 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.
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 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.
IRS Required Distributions
For contracts issued on or after January 19, 1985, federal tax law requires
that if you (the owner) or any joint contract owner dies before the annuity
commencement date, the
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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 SAI 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.
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; 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.
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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 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 at 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 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
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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
NOTE: PFL has prepared the following information on federal income taxes as a
general discussion of the subject. It is not intended as tax advice to any
individual. You should consult your own tax adviser about your own
circumstances. PFL has included an additional discussion regarding taxes in
the SAI.
Annuity Policies in General
Deferred annuity policies are a way of setting aside money for future needs
like retirement. Congress recognized how important saving for retirement is and
provided special rules in the Internal Revenue Code for annuities.
Simply stated, these rules provide that generally you will not be taxed on the
earnings, if any, on the money held in your annuity policy until you take the
money out. This is referred to as tax deferral. There are different rules as to
how you will be taxed depending on how you take the money out and the type of
policy -- qualified or nonqualified (discussed below).
You will generally not be taxed on increases in the value of your policy until
a distribution occurs -- either as a withdrawal or as annuity payments. 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.
Diversification and Distribution Requirements
The Internal Revenue Code provides that the underlying investments for a
variable annuity must satisfy certain diversification requirements in order to
be treated as an annuity. The annuity must also meet certain distribution
requirements at the death of an owner in order to be treated as an annuity
policy. These diversification and distribution requirements are discussed in
the SAI. PFL may modify the policy to attempt to maintain favorable tax
treatment.
Withdrawals -- Nonqualified Policies
If you make a withdrawal from your (nonqualified) policy before the annuity
commencement date, the Internal Revenue Code treats that withdrawal as first
coming from earnings and then from your premium payments. When you make a
withdrawal you are taxed on the amount of the withdrawal that is earnings. (The
excess interest adjustment resulting from the withdrawal may affect the amount
on which you are taxed.) Different rules apply for annuity payments. See
"Annuity Payments" below.
The Internal Revenue Code also provides that withdrawn earnings may be subject
to a penalty. The amount of the penalty is equal to 10% of the amount that is
includable in income. Some withdrawals will be exempt from the penalty. They
include any amounts:
. paid on or after the taxpayer reaches age 59 1/2;
. paid after an owner dies;
. paid if the taxpayer becomes totally disabled (as that term is defined in the
Internal Revenue Code);
. paid in a series of substantially equal payments made annually (or more
frequently) under a lifetime annuity;
. paid under an immediate annuity; or
. which come from premium payments made prior to August 14, 1982.
All deferred non-qualified annuity policies that are issued by PFL Life (or its
affiliates) to the same owner during any calendar year are treated as one
annuity for purposes of determining the amount includable in the owner's income
when a taxable distribution occurs.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the policy because of the death of an owner or
the annuitant. Generally, such amounts are includable in the income of the
recipient:
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. if distributed in a lump sum, these amounts are taxed in the same manner as a
full surrender; or
. if distributed under an annuity payment option, these amounts are taxed in
the same manner as annuity payments.
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
generally the total premium payments (less amounts received which were not
includable in gross income). The premium enhancement that we add to your policy
value is not included in the investment in the contract.
Annuity Payments
Although the tax consequences may vary depending on the annuity payment option
you select, in general, for nonqualified and certain qualified policies, only a
portion of the annuity payments you receive will be includable in your gross
income.
In general, the excludable portion of each annuity payment you receive will be
determined as follows:
. Fixed payments -- by dividing the "investment in the contract" on the annuity
commencement date by the total expected value of the annuity payments for the
term of the payments. This is the percentage of each annuity payment that is
excludable.
. Variable payments -- by dividing the "investment in the contract" on the
annuity commencement date by the total number of expected periodic payments.
This is the amount of each annuity payment that is excludable.
The remainder of each annuity payment is includable in gross income. Once the
"investment in the contract" has been fully recovered, the full amount of any
additional annuity payments is includable in gross income.
If you select more that one annuity payment option, special rules govern the
allocation of the policy's entire "investment in the contract" to each such
option, for purposes of determining the excludable amount of each payment
received under that option. We advise you to consult a competent tax adviser as
to the potential tax effects of allocating amounts to any particular annuity
payment option.
If, after the annuity commencement date, annuity payments stop because an
annuitant died, the excess (if any) of the "investment in the contract" as of
the annuity commencement date over the aggregate amount of annuity payments
received that was excluded from gross income is generally allowable as a
deduction for your last taxable year.
Transfers, Assignments or Exchanges of Policies
A transfer of ownership or assignment of a policy, the designation of an
annuitant, payee, or other beneficiary who is not also the owner, the selection
of certain annuity commencement dates, or a change of annuitant, may result in
certain income or gift tax consequences to the owner that are beyond the scope
of this discussion. An owner contemplating any such transfer, assignment,
selection, or change should contact a competent tax adviser with respect to the
potential tax effects of such a transaction.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is always
the possibility that the tax treatment of the policy could change by
legislation or otherwise. You should consult a tax adviser with respect to
legal 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 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.
17
<PAGE>
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.
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 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.
18
<PAGE>
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.
IMSA
PFL is a member of the Insurance Marketplace Standards Association (IMSA). IMSA
is an independent, voluntary organization of life insurance companies. It
promotes high ethical standards in the sales, advertising and servicing of
individual life insurance and annuity products. Companies must undergo a
rigorous self and independent assessment of their practices to become a member
of IMSA. The IMSA logo in our sales literature shows our ongoing commitment to
these standards.
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
<TABLE>
<S> <C>
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
</TABLE>
19
<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>
Fidelity -- VIP Money Market
Subaccount -- Initial Class
1999............................. $2.642832 $2.757628 38,572,043.676
1998............................. 2.525659 2.642832 43,337,060.933
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
- ------------------------------------------------------------------------------
Fidelity -- VIP High Income
Subaccount -- Initial Class
1999............................. $3.640420 $3.906058 8,762,248.667
1998............................. 3.835575 3.640420 12,247,818.239
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
- ------------------------------------------------------------------------------
Fidelity -- VIP Equity-Income
Subaccount -- Initial Class
1999............................. $4.709707 $4.968081 30,640,346.629
1998............................. 4.252876 4.709707 43,094,581.632
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
</TABLE>
20
<PAGE>
<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>
Fidelity -- VIP Growth
Subaccount -- Initial Class
1999............................. $6.425788 $8.761371 26,399,428.765
1998............................. 4.643463 6.425788 28,101,887.125
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
- -------------------------------------------------------------------------------
Fidelity -- VIP Overseas
Subaccount -- Initial Class
1999............................. $2.429523 3.437682 13.477,078.993
1998............................. 2.172007 2.429523 13,624,240.201
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
- -------------------------------------------------------------------------------
Fidelity -- VIP II Investment Grade
Bond Subaccount -- Initial Class
1999............................. $1.995998 $1.959374 6,366,884.959
1998............................. 1.848460 1.995998 11,759,114.123
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 1.571804 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
- -------------------------------------------------------------------------------
Fidelity -- VIP II Asset Manager
Subaccount -- Initial Class
1999............................. $2.832585 $3.121798 21,312,977.173
1998............................. 2.481731 2.832585 26,983,405.294
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(/1/)........................ 1.000000 1.041041 989,833.209
</TABLE>
21
<PAGE>
<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>
Fidelity -- VIP II Asset Manager:
Growth Subaccount --
Initial Class
1999............................ $1.738937 $1.988346 4,002,466.209
1998............................ 1.490886 1.738937 5,249,723.064
1997............................ 1.201587 1.490886 1,443,467.081
1996............................ 1.009935 1.201587 7,788,605.432
1995(/2/)....................... 1.000000 1.009935 2,178,270.748
- -----------------------------------------------------------------------------
Fidelity -- VIP II Contrafund(R)
Subaccount -- Initial Class
1999............................ $1.945361 $2.398013 19,417,678.889
1998............................ 1.508640 1.945361 26,840,603.665
1997............................ 1.224976 1.508640 33,372,392.534
1996............................ 1.017954 1.224976 42,901,139.435
1995(/3/)....................... 1.000000 1.017954 20,570,759.262
- -----------------------------------------------------------------------------
Fidelity -- VIP II Index 500
Subaccount -- Initial Class
1999............................ $2.239298 $2.677169 22,904,721.368
1998............................ 1.758955 2.239298 27,546,396.903
1997............................ 1.336134 1.758955 31,990,011.025
1996............................ 1.096624 1.336134 23,088,441.156
1995............................ 1.000000 1.096623 8,432,120.348
- -----------------------------------------------------------------------------
Fidelity -- VIP III Balanced
Subaccount -- Initial Class
1999............................ $1.342236 $1.392143 1,502,829.526
1998............................ 1.150095 1.342236 1,525,895.592
1997(/4/)....................... 1.000000 1.150095 1,126,357.174
- -----------------------------------------------------------------------------
Fidelity -- VIP III Growth
Opportunities Subaccount --
Initial Class
1999............................ $1.523888 $1.576374 3,380,721.428
1998............................ 1.232659 1.523888 6,147,873.836
1997(/4/)....................... 1.000000 1.232659 4,621,108.553
- -----------------------------------------------------------------------------
Fidelity -- VIP III Growth &
Income Subaccount --
Initial Class
1999............................ $1.595917 $1.728397 6,938,699.626
1998............................ 1.241360 1.595917 11,928,129.677
1997(/4/)....................... 1.000000 1.241360 6,281,887.718
</TABLE>
(/1/Period)from May 29, 1990 through December 31, 1990.
(/2/Period)from September 5, 1995 through December 31, 1995
(/3/Period)from September 1, 1995 through December 31, 1995
(/4/Period)from May 1, 1997 through December 31, 1997.
22
<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 of Units at End
of Year Year of Year
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity Daily Income Trust
Subaccount
1999............................... $3.603569 $ 3.785173 81,199.237
1998............................... 3.424415 3.603569 81,396.693
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
- ------------------------------------------------------------------------------
Fidelity Cash Reserves Subaccount
1999............................... $3.626195 $ 3.807436 23,087.419
1998............................... 3.443500 3.626195 23,111.706
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
- ------------------------------------------------------------------------------
Fidelity Government Income Fund
Subaccount $ N/A $ N/A 0.000
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
- ------------------------------------------------------------------------------
Fidelity Capital and Income Fund
Subaccount
1999............................... $8.793255 $10.145226 $14,738.751
1998............................... 8.623329 8.793255 15,972.996
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
</TABLE>
23
<PAGE>
FORMERLY ELIGIBLE FUNDS FEE TABLE
Formerly Eligible Funds Annual Expenses(/1/)(/2/)
(as a percentage of average net assets after
fee waiver and expense reimbursement)
<TABLE>
<CAPTION>
Total Fund
Management Other Annual
Subaccount Fees Expenses Expenses
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity Daily Income Trust.................... 0.31% 0.17% 0.48%
Fidelity Cash Reserves......................... 0.18% 0.26% 0.44%
Fidelity Government Income Fund(/3/)........... 0.43% 0.24% 0.67%
Fidelity Capital and Income Fund(/4/).......... 0.58% 0.25% 0.83%
</TABLE>
(/1/These)expenses are for the last fiscal year of each fund. Actual expenses
in the current year and in the future may be higher or lower.
(/2/The)fee information relating to the formerly eligible funds was provided to
PFL by the formerly eligible funds, and PFL has not independently verified
such information.
(/3/Fidelity)Government Income Fund has entered into arrangements with its
custodian and transfer agent whereby credits realized as a result of
uninvested cash balances are used to reduce custodian and transfer agent
expenses. Without these reductions, other expenses would have been 0.25%
and the total fund operating expenses would have been 0.68%.
(/4/Fidelity)Capital and Income Fund has entered into arrangements with its
custodian and transfer agent whereby credits realized as a result of
uninvested cash balances are used to reduce custodian and transfer agent
expenses. Without these reductions, other expenses would have been 0.26%
and the total fund operating expenses would have been 0.84%.
24
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FIDELITY INCOME PLUS
THE FIDELITY VARIABLE ANNUITY ACCOUNT
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, 2000, 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 of Additional
Information.
This Statement of Additional Information (SAI) is not a prospectus and should
be read only in conjunction with the prospectus for the policy and the
Fidelity Variable Annuity Account.
Dated: May 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PFL LIFE INSURANCE COMPANY................................................. 3
THE CONTRACTS.............................................................. 3
Reallocation of Contract Values After the Annuity Commencement Date...... 3
Accumulation Units....................................................... 3
Reinvestment of Fund Distributions....................................... 4
CONTRACT CHARGES........................................................... 5
Administrative Charge.................................................... 5
Charges for Mortality Risk............................................... 5
BENEFITS UNDER THE CONTRACT................................................ 5
Death Benefit............................................................ 5
IRS Required Distribution................................................ 5
ANNUITY PAYMENTS........................................................... 6
Annuity Unit Value....................................................... 6
Annuity Payment Rates.................................................... 6
Performance.............................................................. 7
Total Return............................................................. 8
Yields................................................................... 9
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 9
Tax Status of the Policy................................................. 9
DISTRIBUTION OF THE CONTRACTS.............................................. 10
CUSTODY OF ASSETS.......................................................... 10
STATE REGULATION........................................................... 10
RECORDS AND REPORTS........................................................ 11
INDEPENDENT AUDITORS....................................................... 11
OTHER INFORMATION.......................................................... 11
FINANCIAL STATEMENTS....................................................... 11
</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 units 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;
(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.
-3-
<PAGE>
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......................................... A = $11.57
-
B = The per share amount of any dividend or capital gains distribution
since the end of the immediately preceding valuation period.
Assume............................................... B = 0
-
C = The per share charge or credit for any taxes reserved for at the end
of the current valuation period.
Assume.............................................. C = 0
-
D = The Net Asset Value of an underlying fund share at the end of the
immediately preceding valuation period.
Assume......................................... D = $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...................................... A = $1.347125
-
B = The Net Investment Factor for the current valuation period.
Assume..................................... B = 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 0.80% 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.
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
-5-
<PAGE>
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
<TABLE>
<C> <S> <C>
Where: A = Annuity Unit Value for the immediately preceding valuation period.
Assume................................... A = $1.097696
B = Net Investment Factor for the valuation period for which the annuity
unit value is being calculated.
Assume.................................... B = 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
</TABLE>
Then, the annuity unit value is: $1.097696 * 1.005200 * 0.999906 = $1.103300
-6-
<PAGE>
Formula and Illustration for Determining Amount of
First Monthly Variable Annuity Payment
First Monthly Variable Annuity Payment = A * B
------
$1,000
<TABLE>
<C> <S> <C>
Where: A = The annuity purchase value as of the annuity commencement date.
Assume............................... A = $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.................................... B = $6.10
-
</TABLE>
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
<TABLE>
<C> <S> <C>
Where: A = The dollar amount of the first monthly variable annuity payment.
Assume..................................... A = $91.50
-
B = The annuity unit value for the valuation date on which the first
monthly payment is due.
Assume.................................. B = $1.103300
-
</TABLE>
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 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
12/31/99. 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.
-7-
<PAGE>
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, 1999. 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 12/31/99
<TABLE>
<CAPTION>
Subaccount
1 Year 3 Year 5 Year Life Inception Date
------ ------ ------ ---- --------------
<S> <C> <C> <C> <C> <C>
Fidelity--VIP Money
Market* 4.31% 4.51% 4.61% 4.40% ** 03/31/82
Fidelity--VIP High
Income 7.27% 5.90% 9.94% 11.47% ** 09/11/85
Fidelity--VIP Equity-
Income 5.46% 14.05% 17.63% 13.51% ** 10/08/86
Fidelity--VIP Growth 36.32% 32.19% 28.67% 18.91% ** 10/08/86
Fidelity--VIP Overseas 41.47% 20.51% 16.40% 10.48% ** 01/27/87
Fidelity--VIP II
Investment Grade Bond <1.86%> 4.64% 6.41% 6.28% ** 06/05/89
Fidelity--VIP II Asset
Manager 10.18% 14.58% 14.67% 12.54% 05/29/90
Fidelity--VIP II Index
500 19.52% 26.04% N/A 25.57% 09/01/95
Fidelity--VIP II Asset
Manager: Growth 14.31% 18.25% N/A 17.21% 09/05/95
Fidelity--VIP II
Contrafund 23.24% 25.06% N/A 22.41% 09/01/95
Fidelity--VIP III
Balanced 3.69% N/A N/A 13.16% 05/01/97
Fidelity--VIP III Growth
Opportunities 3.42% N/A N/A 18.55% 05/01/97
Fidelity--VIP III Growth
& Income 8.27% N/A N/A 22.71% 05/01/97
</TABLE>
* There can be no assurance that the Fidelity--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.
Total returns are historical and include change in unit price and the automatic
reinvestment of dividends and capital gains. Principal, investment returns
(except Fidelity--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.
-8-
<PAGE>
Yields
Yields quoted in advertising for the Fidelity--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
Fidelity--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 Fidelity--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
12/31/99 the Fidelity--VIP Money Market Subaccount had a current yield of
4.909% and an effective yield of 5.029%.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary does not constitute tax advice. It is a general
discussion of certain of the expected federal income tax consequences of
investment in and distributions with respect to a policy, based on the Code, as
amended, proposed and discusses only certain federal income tax consequences to
"United States Persons," and does not discuss state, local, or foreign tax
consequences. United States Persons means citizens or residents of the United
States, domestic corporations, domestic partnerships and trusts or estates that
are subject to United States federal income tax regardless of the source of
their income.
Tax Status of the Policy
The following discussion is based on the assumption that the policy qualifies
as an annuity contract for federal income tax purposes.
Diversification Requirements. Section 817(h) of the Code provides that in order
for a variable contract which is based on a segregated asset account to qualify
as an annuity contract under the Code, the investments made by such account
must be "adequately diversified" in accordance with Treasury regulations. The
Treasury regulations issued under Section 817(h) (Treas. Reg. (S)1.817-5) apply
a diversification requirement to each of the subaccounts. The separate account,
through its underlying funds and their portfolios, intends to comply with the
diversification requirements of the Treasury. PFL has entered into agreements
with each underlying fund company which requires the portfolios to be operated
in compliance with the Treasury regulations.
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 contact owner's gross income.
The ownership rights under the policies are similar to, but different in
certain respects, from those described by the IRS in rulings in which it was
determined that contractowners were not owners of separate account assets. For
example, the owner of a policy has the choice of one or more subaccounts in
which to allocate premiums and policy values, and may be able to transfer among
these accounts more frequently than in such rulings. These differences could
result in policyholders being treated as the owners of the assets of the
separate 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
policies as necessary to attempt to prevent the policyowners from being
considered the owners of a pro rata share of the assets of the separate
account.
-9-
<PAGE>
Distribution Requirements. The Code required that nonqualified policies contain
specific provisions for distribution of policy proceeds upon the death of any
owner. In order to be treated as an annuity contract for federal income tax
purposes, the Code required that such policies provide that if any owner dies
on or after the annuity commencement date and before the entire interest in the
policy 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 policy
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
"designated beneficiary" as defined in section 72(s) of the Code. However, if
upon such owner's death prior to the annuity commencement date, and such
owner's surviving souse becomes the sole new owner, then the policy maybe
continued with the surviving spouse as the new owner. Under the policy, the
beneficiary is the designated beneficiary of an owner/annuitant and the
successor owner is the designated beneficiary of an owner who is not the
annuitant. If any owner is not a natural person, then for purposes of these
distribution requirements, the primary annuitant shall be treated as an owner
and any death or change of such primary annuitant shall be treated as the death
of an owner. The nonqualified policies contain 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 policy satisfy all such Code
requirements. The provisions contained in the policy will be reviewed and
modified if necessary to assure that they comply with the Code requirements
when clarified by regulation or otherwise.
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 1999, the amount paid to Fidelity
Insurance Agency, Inc. for its services as a general insurance agency was
$4,457,858. Amounts paid for these services in 1998 and 1997 were $4,547.812
and $4,476,712, respectively.
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.
-10-
<PAGE>
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 statutory-basis financial statements and schedules of PFL Life Insurance
Company as of December 31, 1999 and 1998, and for each of three years in the
period ended December 31, 1999, and the financial statements of the subaccounts
of The Fidelity Variable Annuity Account, which are available for investment by
Fidelity Income Plus contract owners, as of December 31, 1999 and for each of
the two years in the period then ended, included in this SAI 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 SAI. Not all of the information set forth in the
Registration amendments and exhibits thereto has been included in this SAI.
Statements contained in this SAI 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
statutory-basis financial statements and schedules 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>
Financial Statements--Statutory Basis
PFL Life Insurance Company
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
<PAGE>
PFL Life Insurance Company
Financial Statements--Statutory Basis
Years ended December 31, 1999, 1998 and 1997
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Balance Sheets--Statutory Basis........................................... 3
Statements of Operations--Statutory Basis................................. 5
Statements of Changes in Capital and Surplus--Statutory Basis............. 6
Statements of Cash Flows--Statutory Basis................................. 7
Notes to Financial Statements--Statutory Basis............................ 9
Statutory-Basis Financial Statement Schedules
Summary of Investments--Other Than Investments in Related Parties......... 28
Supplementary Insurance Information....................................... 29
Reinsurance............................................................... 31
</TABLE>
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
The Board of Directors
PFL Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of PFL Life
Insurance Company, an indirect wholly-owned subsidiary of AEGON N.V., as of
December 31, 1999 and 1998, and the related statutory-basis statements of
operations, changes in capital and surplus, and cash flows for each of the
three years in the period ended December 31, 1999. Our audits also included
the accompanying statutory-basis financial statement schedules required by
Article 7 of Regulation S-X. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from accounting principles generally accepted in
the United States. The variances between such practices and accounting
principles generally accepted in the United States also are described in Note
1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effect of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly,
in conformity with accounting principles generally accepted in the United
States, the financial position of PFL Life Insurance Company at December 31,
1999 and 1998, or the results of its operations or its cash flows for each of
the three years in the period ended December 31, 1999.
1
<PAGE>
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PFL Life Insurance
Company at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting practices prescribed or permitted by the
Insurance Division, Department of Commerce, of the State of Iowa. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic statutory-basis financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Des Moines, Iowa
February 18, 2000
2
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Admitted Assets
Cash and invested assets:
Cash and short-term investments........................ $ 53,695 $ 83,289
Bonds.................................................. 4,892,156 4,822,442
Stocks:
Preferred............................................ 17,074 14,754
Common (cost: 1999--$61,813; 1998--$34,731).......... 71,658 49,448
Affiliated entities (cost: 1999--$10,318; 1998--
$8,060)............................................. 6,764 5,613
Mortgage loans on real estate.......................... 1,339,202 1,012,433
Real estate, at cost less accumulated depreciation
($10,891 in 1999; $9,500 in 1998):
Home office properties............................... 7,829 8,056
Properties acquired in satisfaction of debt.......... 16,336 11,778
Investment properties................................ 33,707 44,325
Policy loans........................................... 59,871 60,058
Other invested assets.................................. 123,722 76,482
----------- ----------
Total cash and invested assets..................... 6,622,014 6,188,678
Premiums deferred and uncollected....................... 14,656 15,318
Accrued investment income............................... 65,364 65,308
Receivable from affiliate............................... -- 643
Federal income taxes recoverable........................ 1,335 639
Transfers from separate accounts due or accrued......... 92,309 70,866
Other assets............................................ 30,119 29,511
Separate account assets................................. 4,905,374 3,348,611
----------- ----------
Total admitted assets................................... $11,731,171 $9,719,574
=========== ==========
</TABLE>
3
<PAGE>
PFL Life Insurance Company
Balance Sheets--Statutory Basis
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31
1999 1998
----------- ----------
<S> <C> <C>
Liabilities and Capital and Surplus
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 1,552,781 $1,357,175
Annuity.............................................. 4,036,751 3,925,293
Accident and health.................................. 254,571 205,736
Policy and contract claim reserves:
Life................................................. 8,681 9,101
Accident and health.................................. 37,466 48,906
Other policyholders' funds............................. 172,774 162,266
Remittances and items not allocated.................... 33,020 19,690
Asset valuation reserve................................ 103,193 91,588
Interest maintenance reserve........................... 36,120 50,575
Short-term notes payable to affiliates................. 144,500 9,421
Other liabilities...................................... 70,717 76,766
Payable for securities................................. 15,136 57,645
Payable to affiliates.................................. 11,517 --
Separate account liabilities........................... 4,899,289 3,342,884
----------- ----------
Total liabilities....................................... 11,376,516 9,357,046
Commitments and contingencies (Note 10)
Capital and surplus:
Common stock, $10 par value, 500,000 shares autho-
rized, 266,000 issued and outstanding................. 2,660 2,660
Paid-in surplus........................................ 154,282 154,282
Unassigned surplus..................................... 197,713 205,586
----------- ----------
Total capital and surplus............................... 354,655 362,528
----------- ----------
Total liabilities and capital and surplus............... $11,731,171 $9,719,574
=========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
PFL Life Insurance Company
Statements of Operations--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life.................................... $ 227,510 $ 516,111 $ 202,435
Annuity................................. 1,413,049 667,920 657,695
Accident and health..................... 160,570 178,593 207,982
Net investment income..................... 437,549 446,984 446,424
Amortization of interest maintenance re-
serve.................................... 7,588 8,656 3,645
Commissions and expense allowances on
reinsurance ceded........................ 24,741 32,781 49,859
Separate account fee income............... 49,826 37,137 --
---------- ---------- ----------
2,320,833 1,888,182 1,568,040
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits... 115,621 135,184 146,583
Surrender benefits...................... 1,046,611 732,796 658,071
Other benefits.......................... 169,479 152,209 126,495
Increase (decrease) in aggregate
reserves for policies and contracts:
Life.................................... 195,606 473,158 149,575
Annuity................................. 111,427 (278,665) (203,139)
Accident and health..................... 48,835 36,407 30,059
Other................................... 10,480 17,550 16,998
---------- ---------- ----------
1,698,059 1,268,639 924,642
Insurance expenses:
Commissions............................... 167,146 136,569 157,300
General insurance expenses................ 54,191 48,018 57,571
Taxes, licenses and fees.................. 12,382 19,166 8,715
Net transfers to separate accounts........ 309,307 302,839 297,480
Other expenses............................ 229 1,016 119
---------- ---------- ----------
543,255 507,608 521,185
---------- ---------- ----------
2,241,314 1,776,247 1,445,827
---------- ---------- ----------
Gain from operations before federal income
tax expense and net realized capital gains
on investments............................. 79,519 111,935 122,213
Federal income tax expense.................. 25,316 49,835 43,381
---------- ---------- ----------
Gain from operations before net realized
capital gains on investments............... 54,203 62,100 78,832
Net realized capital gains on investments
(net of related federal income taxes and
amounts transferred to interest maintenance
reserve)................................... 6,365 3,398 7,159
---------- ---------- ----------
Net income.................................. $ 60,568 $ 65,498 $ 85,991
========== ========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
PFL Life Insurance Company
Statements of Changes in Capital and Surplus--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Total
Capital
Common Paid-in Unassigned and
Stock Surplus Surplus Surplus
------ -------- ---------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $2,660 $154,129 $261,558 $418,347
Capital contribution.................... -- 153 -- 153
Net income.............................. -- -- 85,991 85,991
Change in net unrealized capital gains.. -- -- 3,592 3,592
Change in non-admitted assets........... -- -- (481) (481)
Change in asset valuation reserve....... -- -- (14,974) (14,974)
Dividend to stockholder................. -- -- (62,000) (62,000)
Surplus effect of sale of a division.... -- -- (161) (161)
Surplus effect of ceding commissions
associated with the sale of a
division............................... -- -- 5 5
Amendment of reinsurance agreement...... -- -- 389 389
Surplus effect of reinsurance
agreement.............................. -- -- 402 402
Change in liability for reinsurance in
unauthorized companies................. -- -- (1,901) (1,901)
------ -------- -------- --------
Balance at December 31, 1997 2,660 154,282 272,420 429,362
Net income.............................. -- -- 65,498 65,498
Change in net unrealized capital gains.. -- -- 4,504 4,504
Change in non-admitted assets........... -- -- (260) (260)
Change in asset valuation reserve....... -- -- (21,763) (21,763)
Dividend to stockholder................. -- -- (120,000) (120,000)
Increase in liability for reinsurance in
unauthorized companies................. -- -- 2,036 2,036
Tax benefit on stock options exercised.. -- -- 2,476 2,476
Change in surplus in separate accounts.. -- -- 675 675
------ -------- -------- --------
Balance at December 31, 1998 2,660 154,282 205,586 362,528
Net income.............................. -- -- 60,568 60,568
Change in net unrealized capital gains.. -- -- (20,217) (20,217)
Change in non-admitted assets........... -- -- (980) (980)
Change in asset valuation reserve....... -- -- (11,605) (11,605)
Dividend to stockholder................. -- -- (40,000) (40,000)
Tax benefit on stock options exercised.. -- -- 1,305 1,305
Change in surplus in separate accounts.. -- -- 245 245
Settlement of prior period tax returns
and other tax-related adjustments...... -- -- 2,811 2,811
------ -------- -------- --------
Balance at December 31, 1999.............. $2,660 $154,282 $197,713 $354,655
====== ======== ======== ========
</TABLE>
See accompanying notes.
6
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Premiums and other considerations, net
of reinsurance......................... $ 1,830,365 $ 1,396,428 $ 1,119,936
Net investment income................... 441,737 469,246 452,091
Life and accident and health claims..... (124,178) (138,249) (154,383)
Surrender benefits and other fund
withdrawals............................ (1,046,611) (732,796) (658,071)
Other benefits to policyholders......... (169,476) (152,167) (126,462)
Commissions, other expenses and other
taxes.................................. (238,192) (197,135) (225,042)
Net transfers to separate accounts...... (280,923) (276,375) (319,146)
Federal income taxes.................... (24,709) (72,176) (47,909)
Cash paid in conjunction with an
amendment of a reinsurance agreement... -- -- (4,826)
Cash received in connection with a
reinsurance agreement.................. -- -- 1,477
Other, net.............................. (23,047) (93,095) 89,693
----------- ----------- -----------
Net cash provided by operating
activities............................. 364,966 203,681 127,358
Investing activities
Proceeds from investments sold, matured
or repaid:
Bonds and preferred stocks............ 3,283,038 3,347,174 3,284,095
Common stocks......................... 60,293 34,564 34,004
Mortgage loans on real estate......... 158,739 192,210 138,162
Real estate........................... 13,367 5,624 6,897
Policy loans.......................... 186 -- --
Cash received from ceding commissions
associated with the sale of a
division............................. -- -- 8
Other................................. 6,133 7,210 57,683
----------- ----------- -----------
3,521,756 3,586,782 3,520,849
Cost of investments acquired:
Bonds and preferred stocks............ (3,398,158) (3,251,822) (3,411,442)
Common stocks......................... (76,200) (36,379) (37,339)
Mortgage loans on real estate......... (480,750) (257,039) (159,577)
Real estate........................... (7,568) (11,458) (2,013)
Policy loans.......................... -- (2,922) (2,922)
Cash paid in association with the sale
of a division........................ -- -- (591)
Other................................. (48,719) (44,514) (15,674)
----------- ----------- -----------
(4,011,395) (3,604,134) (3,629,558)
----------- ----------- -----------
Net cash used in investing activities... (489,639) (17,352) (108,709)
</TABLE>
7
<PAGE>
PFL Life Insurance Company
Statements of Cash Flows--Statutory Basis
(Dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Financing activities
Issuance (repayment) of short-term intercompany
notes payable................................... $135,079 $ (6,979) $16,400
Capital contribution............................. -- -- 153
Dividends to stockholder......................... (40,000) (120,000) (62,000)
-------- -------- -------
Net cash provided by (used in) financing
activities...................................... 95,079 (126,979) (45,447)
-------- -------- -------
Increase (decrease) in cash and short-term
investments..................................... (29,594) 59,350 (26,798)
Cash and short-term investments at beginning of
year............................................ 83,289 23,939 50,737
-------- -------- -------
Cash and short-term investments at end of year... $ 53,695 $ 83,289 $23,939
======== ======== =======
</TABLE>
See accompanying notes.
8
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis
(Dollars in thousands)
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
PFL Life Insurance Company ("the Company") is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is an indirect wholly-owned subsidiary of AEGON N.V., a
holding company organized under the laws of The Netherlands.
Nature of Business
The Company sells individual non-participating whole life, endowment and term
contracts, as well as a broad line of single fixed and flexible premium
annuity products. In addition, the Company offers group life, universal life,
and individual and specialty health coverages. The Company is licensed in 49
states and the District of Columbia and Guam. Sales of the Company's products
are primarily through the Company's agents and financial institutions.
Basis of Presentation
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and
assumptions utilized which could have a material impact on the financial
statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa ("Insurance Department"), which
practices differ in some respects from generally accepted accounting
principles. The more significant of these differences are as follows: (a)
bonds are generally reported at amortized cost rather than segregating the
portfolio into held-to-maturity (reported at amortized cost), available-for-
sale (reported at fair value), and trading (reported at fair value)
classifications; (b) acquisition costs of acquiring new business are charged
to current operations as incurred rather than deferred and amortized over the
life of the policies; (c) policy reserves on traditional life products
9
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
are based on statutory mortality rates and interest which may differ from
reserves based on reasonable assumptions of expected mortality, interest, and
withdrawals which include a provision for possible unfavorable deviation from
such assumptions; (d) policy reserves on certain investment products use
discounting methodologies based on statutory interest rates rather than full
account values; (e) reinsurance amounts are netted against the corresponding
asset or liability rather than shown as gross amounts on the balance sheet;
(f) deferred income taxes are not provided for the difference between the
financial statement and income tax bases of assets and liabilities; (g) net
realized gains or losses attributed to changes in the level of interest rates
in the market are deferred and amortized over the remaining life of the bond
or mortgage loan, rather than recognized as gains or losses in the statement
of operations when the sale is completed; (h) potential declines in the
estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (reported
as a liability), changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (i) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (j) revenues for universal life and investment
products consist of premiums received rather than policy charges for the cost
of insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as
amounts are paid; (l) stock options settled in cash are recorded as expense of
the Company's indirect parent rather than charged to current operations; (m)
adjustments to federal income taxes of prior years are charged or credited
directly to unassigned surplus, rather than reported as a component of expense
in the statement of operations; (n) gains or losses on dispositions of
business are charged or credited directly to unassigned surplus rather than
being reported in the statement of operations; and (o) a liability is
established for "unauthorized reinsurers" and changes in this liability are
charged or credited directly to unassigned surplus. The effects of these
variances have not been determined by the Company but are presumed to be
material.
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
codified statutory accounting principles ("Codification") effective January 1,
2001. Codification will likely change, to some extent, prescribed statutory
accounting practices and may result in changes to the accounting practices
that the Company uses to prepare its statutory-basis financial statements.
Codification will require adoption by the various states before it becomes the
prescribed statutory basis of accounting for insurance companies domesticated
within those states. Accordingly, before Codification becomes effective for
the Company, the State of Iowa must adopt Codification as the prescribed basis
of accounting on which domestic insurers must report their statutory-basis
results to the Insurance Department. At this time, it is anticipated that the
State of Iowa will adopt Codification. However, based on current guidance,
management believes that the impact of Codification will not be material to
the Company's statutory-basis financial statements.
10
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
Cash and Short-Term Investments
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with remaining maturity of one year or less when purchased
to be short-term investments.
Investments
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accrual of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the investment. The Company reviews its
prepayment assumptions on mortgage and other asset-backed securities at
regular intervals and adjusts amortization rates retrospectively when such
assumptions are changed due to experience and/or expected future patterns.
Investments in preferred stocks in good standing are reported at cost.
Investments in preferred stocks not in good standing are reported at the lower
of cost or market. Common stocks of unaffiliated and affiliated companies,
which includes shares of mutual funds and real estate investment trusts, are
carried at market value. Real estate is reported at cost less allowances for
depreciation. Depreciation is computed principally by the straight-line
method. Policy loans are reported at unpaid principal. Other invested assets
consist principally of investments in various joint ventures and are recorded
at equity in underlying net assets. Other "admitted assets" are valued,
principally at cost, as required or permitted by Iowa Insurance Laws.
Net realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve ("AVR") is established by the Company to provide for
potential losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC
and are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses. Under a formula
prescribed by the NAIC, the Company defers, in the Interest Maintenance
Reserve ("IMR"), the portion of realized gains and losses on sales of fixed
income investments, principally bonds and mortgage loans, attributable to
changes in the general level of interest rates and amortizes those deferrals
over the remaining period to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or on real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. During 1999, 1998 and 1997, the Company
excluded investment income due and accrued of $530, $102 and $177,
respectively, with respect to such practices.
11
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
The Company uses interest rate swaps and caps as part of its overall interest
rate risk management strategy for certain life insurance and annuity products.
The Company entered into several interest rate swap contracts to modify the
interest rate characteristics of the underlying liabilities. The net interest
effect of such swap transactions is reported as an adjustment of interest
income from the hedged items as incurred.
The Company has entered into an interest rate cap agreement to hedge the
exposure of changing interest rates. The cash flows from the interest rate cap
will help offset losses that might occur from changes in interest rates. The
cost of such agreement is included in interest expense ratably during the life
of the agreement. Income received as a result of the cap agreement will be
recognized in investment income as earned. Unamortized cost of the agreement
is included in other invested assets.
Aggregate Policy Reserves
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables based on
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary
Mortality and American Experience Mortality Tables. The reserves are
calculated using interest rates ranging from 2.00 to 6.00 percent and are
computed principally on the Net Level Premium Valuation and the Commissioners'
Reserve Valuation Methods. Reserves for universal life policies are based on
account balances adjusted for the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 2.50 to 11.25 percent and mortality rates, where appropriate, from a
variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
12
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
1. Organization and Summary of Significant Accounting Policies (continued)
Policy and Contract Claim Reserves
Claim reserves represent the estimated accrued liability for claims reported
to the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
Separate Accounts
Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate accounts are valued at
market. Income and gains and losses with respect to the assets in the separate
accounts accrue to the benefit of the contract owners and, accordingly, the
operations of the separate accounts are not included in the accompanying
financial statements. The separate accounts do not have any minimum guarantees
and the investment risks associated with market value changes are borne
entirely by the contract owners. The Company received variable contract
premiums of $486,282, $345,319 and $281,095 in 1999, 1998 and 1997,
respectively. All variable account contracts are subject to discretionary
withdrawal by the contract owner at the market value of the underlying assets
less the current surrender charge.
Stock Option Plan
AEGON N.V. sponsors a stock option plan for eligible employees of the Company.
Under this plan, certain employees have indicated a preference to immediately
sell shares received as a result of their exercise of the stock options; in
these situations, AEGON N.V. has settled such options in cash rather than
issuing stock to these employees. These cash settlements are paid by the
Company, and AEGON N.V. subsequently reimburses the Company for such payments.
Under statutory accounting principles, the Company does not record any expense
related to this plan, as the expense is recognized by AEGON N.V. However, the
Company is allowed to record a deduction in the consolidated tax return filed
by the Company and certain affiliates. The tax benefit of this deduction has
been credited directly to surplus.
Reclassifications
Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform to the 1999 presentation.
13
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments
Statement of Financial Accounting Standard ("SFAS") No. 107, Disclosures about
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments, requires additional disclosure about
derivatives. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparisons to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 and No. 119 exclude
certain financial instruments and all nonfinancial instruments from their
disclosure requirements and allow companies to forego the disclosures when
those estimates can only be made at excessive cost. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the
Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
Investment securities: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values
are estimated using values obtained from independent pricing services or,
in the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
credit quality, and maturity of the investments. The fair values for equity
securities, including affiliated mutual funds and real estate investment
trusts, are based on quoted market prices.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans is assumed to equal their carrying
amount.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest rates currently being offered for
similar contracts with maturities consistent with those remaining for the
contracts being valued.
14
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
2. Fair Values of Financial Instruments (continued)
Interest rate cap and interest rate swaps: Estimated fair value of the
interest rate cap is based upon the latest quoted market price. Estimated
fair value of interest rate swaps are based upon the pricing differential
for similar swap agreements.
Short-term notes payable to affiliates: The fair values for short-term
notes payable to affiliates are assumed to equal their carrying amount.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying amounts
of the Company's financial instruments subject to the provisions of SFAS No.
107 and No. 119:
<TABLE>
<CAPTION>
December 31
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Admitted assets
Cash and short-term investments... $ 53,695 $ 53,695 $ 83,289 $ 83,289
Bonds............................. 4,892,156 4,757,325 4,822,442 4,900,516
Preferred stocks.................. 17,074 15,437 14,754 14,738
Common stocks..................... 71,658 71,658 49,448 49,448
Affiliated common stock........... 6,764 6,764 5,613 5,613
Mortgage loans on real estate..... 1,339,202 1,299,160 1,012,433 1,089,315
Policy loans...................... 59,871 59,871 60,058 60,058
Interest rate cap................. 4,959 1,784 4,445 725
Interest rate swaps............... 8,134 10,609 1,916 6,667
Separate account assets........... 4,905,374 4,905,374 3,348,611 3,348,611
Liabilities
Investment contract liabilities... 4,207,369 4,059,842 4,084,683 4,017,509
Separate account liabilities...... 4,377,676 4,212,615 3,271,005 3,213,251
Short-term notes payable to
affiliates....................... 144,500 144,500 9,421 9,421
</TABLE>
15
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments
The carrying amounts and estimated fair values of investments in debt
securities were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Fair
Amount Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1999
Bonds:
United States Government and
agencies........................ $ 141,390 $ 142 $ 4,520 $ 137,012
State, municipal and other
government...................... 137,745 5,168 1,627 141,286
Public utilities................. 219,791 1,148 6,777 214,162
Industrial and miscellaneous..... 2,078,145 20,042 84,919 2,013,268
Mortgage and other asset-backed
securities...................... 2,315,085 24,214 87,702 2,251,597
---------- -------- -------- ----------
4,892,156 50,714 185,545 4,757,325
Preferred stocks................... 17,074 2 1,639 15,437
---------- -------- -------- ----------
$4,909,230 $ 50,716 $187,184 $4,772,762
========== ======== ======== ==========
December 31, 1998
Bonds:
United States Government and
agencies........................ $ 150,085 $ 2,841 $ 321 $ 152,605
State, municipal and other
government...................... 62,948 918 1,651 62,215
Public utilities................. 139,732 5,053 2,555 142,230
Industrial and miscellaneous..... 2,068,086 78,141 34,493 2,111,734
Mortgage and other asset-backed
securities...................... 2,401,591 45,185 15,044 2,431,732
---------- -------- -------- ----------
4,822,442 132,138 54,064 4,900,516
Preferred stocks................... 14,754 75 91 14,738
---------- -------- -------- ----------
$4,837,196 $132,213 $ 54,155 $4,915,254
========== ======== ======== ==========
</TABLE>
The carrying amounts and estimated fair values of bonds at December 31, 1999,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
---------- ----------
<S> <C> <C>
Due in one year or less............................... $ 194,654 $ 192,453
Due after one year through five years................. 1,151,170 1,121,353
Due after five years through ten years................ 908,926 873,402
Due after ten years................................... 322,321 318,520
---------- ----------
2,577,071 2,505,728
Mortgage and other asset-backed securities............ 2,315,085 2,251,597
---------- ----------
$4,892,156 $4,757,325
========== ==========
</TABLE>
16
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and preferred stock............... $347,639 $374,478 $373,496
Dividends on equity investments..................... 734 1,357 1,460
Interest on mortgage loans.......................... 92,325 77,960 80,266
Rental income on real estate........................ 7,322 6,553 7,501
Interest on policy loans............................ 4,141 4,080 3,400
Other investment income............................. 7,978 2,576 613
-------- -------- --------
Gross investment income............................. 460,139 467,004 466,736
Less investment expenses............................ 22,590 20,020 20,312
-------- -------- --------
Net investment income............................... $437,549 $446,984 $446,424
======== ======== ========
</TABLE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds.................................... $3,283,038 $3,347,174 $3,284,095
========== ========== ==========
Gross realized gains........................ $ 21,171 $ 48,760 $ 30,094
Gross realized losses....................... (32,259) (8,072) (17,265)
---------- ---------- ----------
Net realized gains (losses)................. $ (11,088) $ 40,688 $ 12,829
========== ========== ==========
</TABLE>
At December 31, 1999, investments with an aggregate carrying value of
$6,346,831 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.
17
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:
<TABLE>
<CAPTION>
Realized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Debt securities......... $(11,088) $ 40,688 $ 12,829
Equity securities....... 11,433 (879) 6,972
Mortgage loans on real
estate................. 4,661 12,637 2,252
Real estate............. 900 3,176 4,252
Short-term investments.. (1,407) 1,533 (19)
Other invested assets... 534 (2,523) 1,632
-------- -------- --------
5,033 54,632 27,918
Tax effect.............. (5,535) (22,290) (10,572)
Transfer from (to)
interest maintenance
reserve................ 6,867 (28,944) (10,187)
-------- -------- --------
Net realized gains...... $ 6,365 $ 3,398 $ 7,159
======== ======== ========
<CAPTION>
Change in Unrealized
----------------------------
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Bonds................... $(12,711) $ (836) $ 2,498
Preferred stocks........ (2,753) -- --
Common stocks........... (3,980) 3,751 1,097
Mortgage loans.......... (147) (150) --
Other invested assets... (626) 1,739 (3)
-------- -------- --------
Change in unrealized.... $(20,217) $ 4,504 $ 3,592
======== ======== ========
Gross unrealized gains and gross unrealized losses on equity securities are as
follows:
<CAPTION>
December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Unrealized gains........ $ 11,369 $ 15,980 $ 10,356
Unrealized losses....... (5,078) (3,710) (3,836)
-------- -------- --------
Net unrealized gains.... $ 6,291 $ 12,270 $ 6,520
======== ======== ========
</TABLE>
18
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
During 1999, the Company issued mortgage loans with interest rates ranging
from 6.42% to 8.67%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 84%. Mortgage loans
with a carrying value of $248 were non-income producing for the previous
twelve months. Accrued interest of $95 related to these mortgage loans was
excluded from investment income. The Company requires all mortgaged properties
to carry fire insurance equal to the value of the underlying property.
At December 31, 1999 and 1998, the Company held a mortgage loan loss reserve
in the asset valuation reserve of $15,173 and $16,104, respectively. The
mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
Geographic Distribution
<TABLE>
<CAPTION>
December 31
1999 1998
----- -----
<S> <C> <C>
South Atlantic.......... 27% 32%
Pacific................. 18 15
E. North Central........ 17 16
Middle Atlantic......... 15 10
Mountain................ 9 10
W. South Central........ 6 6
W. North Central........ 4 5
E. South Central........ 3 3
New England............. 1 3
</TABLE>
<TABLE>
<CAPTION>
Property Type Distribution
December 31
1999 1998
----- -----
<S> <C> <C>
Office.................. 39% 30%
Retail.................. 28 35
Industrial.............. 18 21
Apartment............... 11 12
Other................... 4 2
</TABLE>
At December 31, 1999, the Company had no investments (excluding U. S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve,
collectively.
19
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
3. Investments (continued)
The Company utilizes a variety of off-balance sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of
its investment portfolio attributable to changes in general interest rate
levels and to manage duration mismatch of assets and liabilities. These
instruments include interest rate swaps and caps. All involve elements of
credit and market risks in excess of the amounts recognized in the
accompanying financial statements at a given point in time. The contract or
notional amounts of those instruments reflect the extent of involvement in the
various types of financial instruments.
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. That exposure
includes settlement risk (i.e., the risk that the counterparty defaults after
the Company has delivered funds or securities under terms of the contract)
that would result in an accounting loss and replacement cost risk (i.e., the
cost to replace the contract at current market rates should the counterparty
default prior to settlement date). Credit loss exposure resulting from
nonperformance by a counterparty for commitments to extend credit is
represented by the contractual amounts of the instruments.
At December 31, 1999 and 1998, the Company's outstanding financial instruments
with on and off-balance sheet risks, shown in notional amounts, are summarized
as follows:
<TABLE>
<CAPTION>
Notional Amount
1999 1998
-------- --------
<S> <C> <C>
Derivative securities:
Interest rate swaps:
Receive fixed--pay floating............................... $115,000 $100,000
Receive floating--pay fixed............................... 64,017 --
Receive floating (uncapped)--pay floating (capped)........ 41,617 53,011
Receive floating (LIBOR--pay floating (S&P)............... 60,000 60,000
Interest rate cap agreements................................ 500,000 500,000
</TABLE>
4. Reinsurance
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
20
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
4. Reinsurance (continued)
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and
ceded amounts:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,942,716 $1,533,822 $1,312,446
Reinsurance assumed...................... 2,723 2,366 2,038
Reinsurance ceded........................ (144,310) (173,564) (246,372)
---------- ---------- ----------
Net premiums earned...................... $1,801,129 $1,362,624 $1,068,112
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $139,138,
$173,297 and $183,638 during 1999, 1998 and 1997, respectively. At December
31, 1999 and 1998, estimated amounts recoverable from reinsurers that have
been deducted from policy and contract claim reserves totaled $35,511 and
$47,956, respectively. The aggregate reserves for policies and contracts were
reduced for reserve credits for reinsurance ceded at December 31, 1999 and
1998 of $1,870,190 and $2,163,905, respectively.
At December 31, 1999, amounts recoverable from unauthorized reinsurers of
$39,996 (1998--$55,379) and reserve credits for reinsurance ceded of $48,297
(1998--$49,835) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $85,431 at December 31, 1999, that can be drawn on
for amounts that remain unpaid for more than 120 days.
5. Income Taxes
For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a tax-
sharing agreement between the Company and its affiliates, the Company computes
federal income tax expense as if it were filing a separate income tax return,
except that tax credits and net operating loss carryforwards are determined on
the basis of the consolidated group. Additionally, the alternative minimum tax
is computed for the consolidated group and the resulting tax, if any, is
allocated back to the separate companies on the basis of the separate
companies' alternative minimum taxable income.
21
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
5. Income Taxes (continued)
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before federal
income tax expense and net realized capital gains (losses) on investments for
the following reasons:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)..... $27,832 $39,177 $42,775
IMR amortization................................. (2,656) (3,030) (1,276)
Tax reserve adjustment........................... 1,390 607 2,004
Excess tax depreciation.......................... (219) (223) (392)
Deferred acquisition costs-- tax basis........... 5,979 11,827 4,308
Prior year under (over) accrual ................. (3,492) 1,750 (1,016)
Dividend received deduction...................... (1,666) (1,053) (941)
Charitable contributions......................... -- -- (848)
Other items--net................................. (1,852) 780 (1,233)
------- ------- -------
Federal income tax expense....................... $25,316 $49,835 $43,381
======= ======= =======
</TABLE>
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to realized gains (losses) due to the
differences in book and tax asset bases at the time certain investments are
sold.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($20,387 at December 31, 1999). To the extent dividends are
paid from the amount accumulated in the policyholders' surplus account, net
earnings would be reduced by the amount of tax required to be paid. Should the
entire amount in the policyholders' surplus account become taxable, the tax
thereon computed at current rates would amount to approximately $7,135.
In 1999, the Company reached a final settlement with the Internal Revenue
Service for 1990 and 1991, resulting in a tax refund of $904 and interest
received of $548. These amounts were credited directly to unassigned surplus.
The Company also corrected an error in 1999 which related to the 1997 tax-
sharing agreement between the Company and various affiliates. This resulted in
a credit to unassigned surplus of $1,359.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1992.
An examination is underway for years 1993 through 1997.
22
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relate to liabilities established on
a variety of the Company's annuity and deposit fund products. There may be
certain restrictions placed upon the amount of funds that can be withdrawn
without penalty. The amount of reserves on these products, by withdrawal
characteristics, are summarized as follows:
<TABLE>
<CAPTION>
December 31
1999 1998
------------------- ------------------
Percent Percent
of of
Amount Total Amount Total
----------- ------- ---------- -------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal with
market value adjustment................ $ 114,544 1% $ 82,048 1%
Subject to discretionary withdrawal at
book value less surrender charge....... 828,490 8 515,778 5
Subject to discretionary withdrawal at
market value........................... 4,313,445 41 3,211,896 34
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments)........................... 5,021,762 48 5,519,265 58
Not subject to discretionary withdrawal
provision.............................. 248,444 2 228,030 2
----------- --- ---------- ---
10,526,685 100% 9,557,017 100%
Less reinsurance ceded.................. 1,863,810 2,124,769
----------- ----------
Total policy reserves on annuities and
deposit fund liabilities............... $ 8,662,875 $7,432,248
=========== ==========
</TABLE>
A reconciliation of the amounts transferred to and from the separate accounts
is presented below:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Transfers as reported in the summary of
operations of the separate accounts statement:..
Transfers to separate accounts................. $486,282 $345,319 $281,095
Transfers from separate accounts............... (175,822) (42,671) (9,819)
-------- -------- --------
Net transfers to separate accounts............... 310,460 302,648 271,276
Reconciling adjustments--change in miscellaneous
income.......................................... (1,153) 191 26,204
-------- -------- --------
Transfers as reported in the summary of
operations of the life, accident and health
annual statement................................ $309,307 $302,839 $297,480
======== ======== ========
</TABLE>
23
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
6. Policy and Contract Attributes (continued)
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1999 and 1998, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
Gross Loading Net
------- ------- -------
<S> <C> <C> <C>
December 31, 1999
Life and annuity:
Ordinary direct first year business................ $ 2,823 $2,085 $ 738
Ordinary direct renewal business................... 20,950 6,289 14,661
Group life direct business......................... 638 243 395
Reinsurance ceded.................................. (1,269) (16) (1,253)
------- ------ -------
23,142 8,601 14,541
Accident and health:
Direct............................................. 138 -- 138
Reinsurance ceded.................................. (23) -- (23)
------- ------ -------
Total accident and health............................ 115 -- 115
------- ------ -------
$23,257 $8,601 $14,656
======= ====== =======
December 31, 1998
Life and annuity:
Ordinary direct first year business................ $ 3,346 $2,500 $ 846
Ordinary direct renewal business................... 21,435 6,365 15,070
Group life direct business......................... 1,171 536 635
Reinsurance ceded.................................. (1,367) (44) (1,323)
------- ------ -------
24,585 9,357 15,228
Accident and health:
Direct............................................. 108 -- 108
Reinsurance ceded.................................. (18) -- (18)
------- ------ -------
Total accident and health............................ 90 -- 90
------- ------ -------
$24,675 $9,357 $15,318
======= ====== =======
</TABLE>
At December 31, 1999 and 1998, the Company had insurance in force aggregating
$41,720 and $44,233, respectively, in which the gross premiums are less than
the net premiums required by the standard valuation standards established by
the Insurance Division, Department of Commerce, of the State of Iowa. The
Company established policy reserves of $871 and $998 to cover these
deficiencies at December 31, 1999 and 1998, respectively.
24
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
7. Dividend Restrictions
The Company is subject to limitations, imposed by the State of Iowa, on the
payment of dividends to its parent company. Generally, dividends during any
twelve-month period may not be paid, without prior regulatory approval, in
excess of the greater of (a) 10 percent of statutory capital and surplus as of
the preceding December 31, or (b) statutory gain from operations before net
realized capital gains (losses) on investments for the preceding year. Subject
to the availability of unassigned surplus at the time of such dividend, the
maximum payment which may be made in 2000, without the prior approval of
insurance regulatory authorities, is $54,203.
The Company paid dividends to its parent of $40,000, $120,000 and $62,000 in
1999, 1998 and 1997, respectively.
8. Retirement and Compensation Plans
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
SFAS No. 87 expense as a percent of salaries. The benefits are based on years
of service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $408, $380 and $422 for the
years ended December 31, 1999, 1998 and 1997, respectively. The plan is
subject to the reporting and disclosure requirements of the Employee
Retirement and Income Security Act of 1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k)
of the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements, are participants of the plan. Participants may elect
to contribute up to fifteen percent of their salary to the plan. The Company
will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Expense related to this plan was $267, $233 and $226 for
the years ended December 31, 1999, 1998 and 1997, respectively.
25
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
8. Retirement and Compensation Plans (continued)
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory, and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been
accrued or funded as deemed appropriate by management of AEGON and the
Company.
In addition to pension benefits, the Company participates in plans sponsored
by AEGON that provide postretirement medical, dental and life insurance
benefits to employees meeting certain eligibility requirements. Portions of
the medical and dental plans are contributory. The expenses of the
postretirement plans are charged to affiliates in accordance with an
intercompany cost sharing arrangement. The Company expensed $28, $62 and $62
for the years ended December 31, 1999, 1998 and 1997, respectively.
9. Related Party Transactions
The Company shares certain offices, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1999,
1998 and 1997, the Company paid $19,983, $18,706 and $18,705, respectively,
for these services, which approximates their costs to the affiliates.
Payables to affiliates bear interest at the thirty-day commercial paper rate
of 5.7% at December 31, 1999. During 1999, 1998 and 1997, the Company paid net
interest of $1,994, $1,491 and $1,188, respectively, to affiliates.
During 1997, the Company received a capital contribution of $153 in cash from
its parent.
At December 31, 1999 and 1998, the Company has short-term notes payable to an
affiliate of $144,500 and $9,421, respectively. Interest on these notes
accrues at rates ranging from 4.85% to 5.90% at December 31, 1999 and 5.13% to
5.52% at December 31, 1998.
26
<PAGE>
PFL Life Insurance Company
Notes to Financial Statements--Statutory Basis--(continued)
(Dollars in thousands)
9. Related Party Transactions (continued)
During 1998, the Company issued life insurance policies to certain affiliated
companies, covering the lives of certain employees of those affiliates.
Premiums of $174,000 related to these policies were recognized during the
year, and aggregate reserves for policies and contracts are $190,299 and
$181,720 at December 31, 1999 and 1998, respectively.
10. Commitments and Contingencies
The Company has issued Trust (synthetic) GIC contracts to plan sponsors
totaling $374,124 at December 31, 1999, pursuant to terms under which the plan
sponsor retains ownership of the assets related to these contracts. The
Company guarantees benefit responsiveness in the event that plan benefit
requests and other contractual commitments exceed plan cash flows. The plan
sponsor agrees to reimburse the Company for such benefit payments with
interest, either at a fixed or floating rate, from future plan and asset cash
flows. In return for this guarantee, the Company receives a premium which
varies based on such elements as benefit responsive exposure and contract
size. The Company underwrites the plans for the possibility of having to make
benefit payments and also must agree to the investment guidelines to ensure
appropriate credit quality and cash flow matching. The assets relating to such
contracts are not recognized in the Company's statutory-basis financial
statements.
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in addition to contract liability, it is
management's opinion, after consultation with counsel and a review of
available facts, that damages arising from such demands will not be material
to the Company's financial position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as
an asset on the Company's balance sheet. Potential future obligations for
unknown insolvencies are not determinable by the Company. The future
obligation has been based on the most recent information available from the
National Organization of Life and Health Insurance Guaranty Associations. The
Company has established a reserve of $19,662 and $17,901 and an offsetting
premium tax benefit of $7,429 and $7,631 at December 31, 1999 and 1998,
respectively, for its estimated share of future guaranty fund assessments
related to several major insurer insolvencies. The guaranty fund expense
(benefit) was $1,994, $1,985 and $(975) for the years ended December 31, 1999,
1998 and 1997, respectively.
27
<PAGE>
PFL Life Insurance Company
Summary of Investments--Other than
Investments in Related Parties
(Dollars in thousands)
December 31, 1999
SCHEDULE I
<TABLE>
<CAPTION>
Amount at Which
Market Shown in the
Type of Investment Cost(1) Value Balance Sheet
------------------ ---------- --------- ---------------
<S> <C> <C> <C>
Fixed maturities
Bonds:
United States Government and government
agencies and authorities............... $ 195,119 $ 189,752 $ 195,119
States, municipalities and political
subdivisions........................... 545,562 535,945 545,562
Foreign governments..................... 134,584 138,767 134,584
Public utilities........................ 219,791 214,162 219,791
All other corporate bonds............... 3,797,100 3,678,699 3,797,100
Redeemable preferred stock................ 17,074 15,437 17,074
---------- --------- ----------
Total fixed maturities.................... 4,909,230 4,772,762 4,909,230
Equity securities
Common stocks:
Banks, trust and insurance.............. 2,676 2,809 2,809
Industrial, miscellaneous and all
other.................................. 59,137 68,849 68,849
---------- --------- ----------
Total equity securities................... 61,813 71,658 71,658
Mortgage loans on real estate............. 1,339,202 1,339,202
Real estate............................... 41,536 41,536
Real estate acquired in satisfaction of
debt..................................... 16,336 16,336
Policy loans.............................. 59,871 59,871
Other long-term investments............... 123,722 123,722
Cash and short-term investments........... 53,695 53,695
---------- ----------
Total investments......................... $6,605,405 $6,615,250
========== ==========
</TABLE>
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
28
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Future
Policy Policy
Benefits and
and Unearned Contract
Expenses Premiums Liabilities
---------- -------- -----------
<S> <C> <C> <C>
Year ended December 31, 1999
Individual life................................. $1,550,188 $ -- $ 8,607
Individual health............................... 133,214 10,311 10,452
Group life and health........................... 105,035 8,604 27,088
Annuity......................................... 4,036,751 -- --
---------- ------- -------
$5,825,188 $18,915 $46,147
========== ======= =======
Year ended December 31, 1998
Individual life................................. $1,355,283 $ -- $ 8,976
Individual health............................... 94,294 9,631 12,123
Group life and health........................... 93,405 10,298 36,908
Annuity......................................... 3,925,293 -- --
---------- ------- -------
$5,468,275 $19,929 $58,007
========== ======= =======
Year ended December 31, 1997
Individual life................................. $ 882,003 $ -- $ 8,550
Individual health............................... 62,033 9,207 12,821
Group life and health........................... 88,211 11,892 44,977
Annuity......................................... 4,204,125 -- --
---------- ------- -------
$5,236,372 $21,099 $66,348
========== ======= =======
</TABLE>
29
<PAGE>
PFL Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
<TABLE>
<CAPTION>
Benefits,
Claims
Net Losses and Other
Premium Investment Settlement Operating Premiums
Revenue Income* Expenses Expenses* Written
---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Individual life........... $ 226,456 $104,029 $ 274,730 $141,030 $ --
Individual health......... 77,985 10,036 58,649 35,329 77,716
Group life and health..... 83,639 10,422 61,143 38,075 81,918
Annuity................... 1,413,049 313,062 1,303,537 278,995 --
---------- -------- ---------- --------
$1,801,129 $437,549 $1,698,059 $493,429
========== ======== ========== ========
Year ended December 31,
1998
Individual life........... $ 514,194 $ 85,258 $ 545,720 $ 87,455 $ --
Individual health......... 68,963 8,004 48,144 30,442 68,745
Group life and health..... 111,547 11,426 82,690 54,352 108,769
Annuity................... 667,920 342,296 592,085 298,222 --
---------- -------- ---------- --------
$1,362,624 $446,984 $1,268,639 $470,471
========== ======== ========== ========
Year ended December 31,
1997
Individual life........... $ 200,175 $ 75,914 $ 211,921 $ 36,185 $ --
Individual health......... 63,548 5,934 37,706 29,216 63,383
Group life and health..... 146,694 11,888 103,581 91,568 143,580
Annuity................... 657,695 352,688 571,434 364,216 --
---------- -------- ---------- --------
$1,068,112 $446,424 $ 924,642 $521,185
========== ======== ========== ========
</TABLE>
- -------------------------
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
30
<PAGE>
PFL Life Insurance Company
Reinsurance
(Dollars in thousands)
SCHEDULE IV
<TABLE>
<CAPTION>
Assumed Percentage
Ceded to From of Amount
Gross Other Other Net Assumed
Amount Companies Companies Amount to Net
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999
Life insurance in
force.................. $6,538,901 $(500,192) $415,910 $6,454,619 6.4%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 227,363 $ 3,967 $ 2,723 $ 226,119 1.2%
Individual health..... 83,489 5,504 -- 77,985 --
Group life and
health............... 205,752 122,113 -- 83,639 --
Annuity............... 1,426,112 12,726 -- 1,413,386 --
---------- --------- -------- ---------- ---
$1,942,716 $ 144,310 $ 2,723 $1,801,129 0.2%
========== ========= ======== ========== ===
Year ended December 31,
1998
Life insurance in
force.................. $6,384,095 $ 438,590 $ 39,116 $5,984,621 .6%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 515,164 $ 3,692 $ 2,366 $ 513,838 .5%
Individual health..... 76,438 7,475 -- 68,963 --
Group life and
health............... 255,848 144,301 -- 111,547 --
Annuity............... 686,372 18,096 -- 668,276 --
---------- --------- -------- ---------- ---
$1,533,822 $ 173,564 $ 2,366 $1,362,624 .2%
========== ========= ======== ========== ===
Year ended December 31,
1997
Life insurance in
force.................. $5,025,027 $ 420,519 $ 35,486 $4,639,994 .8%
========== ========= ======== ========== ===
Premiums:
Individual life....... $ 201,691 $ 3,554 $ 2,038 $ 200,175 1.0%
Individual health..... 73,593 10,045 -- 63,548 --
Group life and
health............... 339,269 192,575 -- 146,694 --
Annuity............... 697,893 40,198 -- 657,695 --
---------- --------- -------- ---------- ---
$1,312,446 $ 246,372 $ 2,038 $1,068,112 .2%
========== ========= ======== ========== ===
</TABLE>
31
<PAGE>
Financial Statements
The Fidelity Variable Annuity Account -
Fidelity Income Plus
Year ended December 31, 1999
with Report of Independent Auditors
<PAGE>
The Fidelity Variable Annuity Account -
Fidelity Income Plus
Financial Statements
Year ended December 31, 1999
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Financial Statements
Balance Sheets.............................................................. 2
Statements of Operations.................................................... 6
Statements of Changes in Contract Owners' Equity............................ 10
Notes to Financial Statements............................................... 15
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Contract Owners
of Fidelity Income Plus,
PFL Life Insurance Company
We have audited the accompanying balance sheets of The Fidelity Variable Annuity
Account (comprised of the Money Market, High Income, Equity Income, Growth,
Overseas, Investment Grade Bond, Asset Manager, Asset Manager Growth,
Contrafund, Index 500, Growth Opportunities, Growth & Income, Balanced, Fidelity
Daily Income Trust, Fidelity Capital and Income Fund, and Fidelity Cash Reserves
subaccounts), which are available for investment by contract owners of Fidelity
Income Plus, as of December 31, 1999, and the related statements of operations
for the year then ended and changes in contract owners' equity for each of the
two years in the period then ended. These financial statements are the
responsibility of the Separate Account's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of mutual fund shares owned as of December 31,
1999, by correspondence with the mutual funds' transfer agents. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts of The Fidelity Variable Annuity Account which are available for
investment by contract owners of Fidelity Income Plus at December 31, 1999, and
the results of their operations for the year then ended and changes in their
contract owners' equity for each of the two years in the period then ended in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Des Moines, Iowa
January 28, 2000
1
<PAGE>
The Fidelity Variable Annuity Account -
Fidelity Income Plus
Balance Sheets
December 31, 1999
<TABLE>
<CAPTION>
Money
Market Subaccount
-------------------
<S> <C>
Assets
Cash $ 349
Investments in mutual funds, at current market value:
Variable Insurance Products Fund:
Money Market Portfolio 106,366,999
High Income Portfolio -
Equity Income Portfolio -
Growth Portfolio -
Overseas Portfolio -
Variable Insurance Products Fund II:
Investment Grade Bond Portfolio -
Asset Manager Portfolio -
Asset Manager Growth Portfolio -
Contrafund Portfolio -
Index 500 Portfolio -
Variable Insurance Products Fund III:
Growth Opportunities Portfolio -
Growth & Income Portfolio -
Balanced Portfolio -
Fidelity Daily Income Trust -
Fidelity Capital and Income Fund -
Fidelity Cash Reserves Portfolio -
------------
Total investments in mutual funds 106,366,999
------------
Total assets $106,367,348
============
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ -
------------
-
Contract owners' equity:
Deferred annuity contracts terminable by owners 106,367,348
------------
Total liabilities and contract owners' equity $106,367,348
============
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
Equity Investment Asset
High Income Income Growth Overseas Grade Bond Manager
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 9 $ 28 $ - $ 6 $ 3 $ -
- - - - - -
34,225,843 - - - - -
- 152,223,696 - - - -
- - 231,295,199 - - -
- - - 46,329,906 - -
- - - - 12,475,106 -
- - - - - 66,534,814
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- ---------------------------------------------------------------------------------------------------
34,225,843 152,223,696 231,295,199 46,329,906 12,475,106 66,534,814
- ---------------------------------------------------------------------------------------------------
$34,225,852 $152,223,724 $231,295,199 $46,329,912 $12,475,109 $66,534,814
===================================================================================================
$ - $ - $ 9 $ - $ - $ 4
- ----------------------------------------------------------------------------------------------------
- - 9 - - 4
34,225,852 152,223,724 231,295,190 46,329,912 12,475,109 66,534,810
- ---------------------------------------------------------------------------------------------------
$34,225,852 $152,223,724 $231,295,199 $46,329,912 $12,475,109 $66,534,814
===================================================================================================
</TABLE>
3
<PAGE>
The Fidelity Variable Annuity Account -
Fidelity Income Plus
Balance Sheets (continued)
<TABLE>
<CAPTION>
Asset Manager
Growth Contrafund
Subaccount Subaccount
---------------------------------
<S> <C> <C>
Assets
Cash $ 4 $ -
Investments in mutual funds, at current market value:
Variable Insurance Products Fund:
Money Market Portfolio - -
High Income Portfolio - -
Equity Income Portfolio - -
Growth Portfolio - -
Overseas Portfolio - -
Variable Insurance Products Fund II:
Investment Grade Bond Portfolio - -
Asset Manager Portfolio - -
Asset Manager Growth Portfolio 7,958,284
Contrafund Portfolio 46,563,849
Index 500 Portfolio - -
Variable Insurance Products Fund III:
Growth Opportunities Portfolio - -
Growth & Income Portfolio - -
Balanced Portfolio - -
Fidelity Daily Income Trust - -
Fidelity Capital and Income Fund - -
Fidelity Cash Reserves - -
---------------------------
Total investments in mutual funds 7,958,284 46,563,849
---------------------------
Total assets $7,958,288 $46,563,849
===========================
Liabilities and contract owners' equity
Liabilities:
Contract terminations payable $ - $ 3
---------------------------
- 3
Contract owners' equity:
Deferred annuity contracts terminable by owners 7,958,288 46,563,846
---------------------------
Total liabilities and contract owners' equity $7,958,288 $46,563,849
===========================
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
Fidelity Fidelity
Growth Growth & Fidelity Daily Capital and Cash
Index 500 Opportunities Income Balanced Income Trust Income Fund Reserves
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ - $ - $ - $ 1 $ - $ - $ -
-
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - -
-
- - - - - - -
- - - - - - -
- - - - - - -
- - - - - -
61,319,819 - - - - - -
- 5,329,285 - - - - -
- - 11,992,832 - - - -
- - - 2,092,153 - - -
- - - - 307,503 - -
- - - - - 149,705 -
- - - - - - 88,067
- -----------------------------------------------------------------------------------------------------------
61,319,819 5,329,285 11,992,832 2,092,153 307,503 149,705 88,067
- -----------------------------------------------------------------------------------------------------------
$61,319,819 $5,329,285 $11,992,832 $2,092,154 $307,503 $149,705 $88,067
===========================================================================================================
$ 9 $ 4 $ 4 $ - $ 150 $ 177 $ 163
- -----------------------------------------------------------------------------------------------------------
9 4 4 - 150 177 163
61,319,810 5,329,281 11,992,828 2,092,154 307,353 149,528 87,904
- -----------------------------------------------------------------------------------------------------------
$61,319,819 $5,329,285 $11,992,832 $2,092,154 $307,503 $149,705 $88,067
===========================================================================================================
</TABLE>
5
<PAGE>
The Fidelity Variable Annuity Account -
Fidelity Income Plus
Statements of Operations
Year ended December 31, 1999
<TABLE>
<CAPTION>
Money
Market
Subaccount
--------------
<S> <C>
Net investment income
Income:
Dividends $ 6,300,400
Expenses:
Administrative, mortality and expense risk charge 1,031,903
------------
Net investment income 5,268,497
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain (loss) from sales of investments:
Proceeds from sales 338,368,447
Cost of investments sold 338,368,447
------------
Net realized capital gain (loss) from sales of investments -
Net change in unrealized appreciation/depreciation of investments:
Beginning of period -
End of period -
------------
Net change in unrealized appreciation/depreciation of investments -
------------
Net realized and unrealized capital gain (loss) from investments -
------------
Increase (decrease) from operations $ 5,268,497
============
</TABLE>
See accompanying notes.
6
<PAGE>
<TABLE>
<CAPTION>
Equity Investment Asset
High Income Income Growth Overseas Grade Bond Manager
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4,104,262 $ 9,376,609 $ 20,128,857 $ 1,283,677 $ 1,191,266 $ 5,641,853
313,992 1,507,669 1,588,564 270,877 145,801 588,212
- ----------------------------------------------------------------------------------------------------------------
3,790,270 7,868,940 18,540,293 1,012,800 1,045,465 5,053,641
51,129,521 101,319,115 190,266,225 130,328,056 16,040,389 18,702,589
53,658,871 76,049,295 159,054,076 121,247,856 16,612,127 15,415,422
- ----------------------------------------------------------------------------------------------------------------
(2,529,350) 25,269,820 31,212,149 9,080,200 (571,738) 3,287,167
(1,207,346) 39,156,656 32,381,667 2,463,805 329,062 10,030,204
547,268 15,658,647 43,892,590 5,169,110 (516,540) 8,348,330
- ----------------------------------------------------------------------------------------------------------------
1,754,614 (23,498,009) 11,510,923 2,705,305 (845,602) (1,681,874)
- ----------------------------------------------------------------------------------------------------------------
(774,736) 1,771,811 42,723,072 11,785,505 (1,417,340) 1,605,293
- ----------------------------------------------------------------------------------------------------------------
$ 3,015,534 $ 9,640,751 $ 61,263,365 $ 12,798,305 $ (371,875) $ 6,658,934
================================================================================================================
</TABLE>
7
<PAGE>
The Fidelity Variable Annuity Account -
Fidelity Income Plus
Statements of Operations (continued)
<TABLE>
<CAPTION>
Asset
Manager
Growth Contrafund
Subaccount Subaccount
------------------------------------
<S> <C> <C>
Net investment income
Income:
Dividends $ 576,042 $ 2,164,201
Expenses:
Administrative, mortality and expense risk charge 65,590 412,957
------------------------------------
Net investment income 510,452 1,751,244
Net realized and unrealized capital gain (loss) from investments
Net realized capital gain (loss) from sales of investments:
Proceeds from sales 5,543,691 51,169,480
Cost of investments sold 5,056,616 42,777,972
------------------------------------
Net realized capital gain (loss) from sales of investments 487,075 8,391,508
Net change in unrealized appreciation/depreciation of investments:
Beginning of period 796,634 6,663,617
End of period 885,833 6,635,157
------------------------------------
Net change in unrealized appreciation/depreciation of investments 89,199 (28,460)
------------------------------------
Net realized and unrealized capital gain (loss) from investments 576,274 8,363,048
------------------------------------
Increase (decrease) from operations $1,086,726 $10,114,292
====================================
</TABLE>
See accompanying notes.
8
<PAGE>
<TABLE>
<CAPTION>
Fidelity Fidelity
Growth Growth & Fidelity Daily Capital and Cash
Index 500 Opportunities Income Balanced Income Trust Income Fund Reserves
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,032,543 $ 275,036 $ 345,182 $ 118,034 $14,410 $ 17,002 $4,181
515,451 64,315 140,322 20,238 246 70 92
- --------------------------------------------------------------------------------------------------------------------------------
517,092 210,721 204,860 97,796 14,164 16,932 4,089
61,098,493 7,162,045 15,126,758 1,788,173 746 109,383 2,093
51,528,548 6,340,086 12,873,436 1,777,605 746 111,036 2,093
- --------------------------------------------------------------------------------------------------------------------------------
9,569,945 821,959 2,253,322 10,568 - (1,653) -
6,193,304 1,013,113 2,078,928 63,206 - (5,906) -
6,881,749 175,204 851,343 20,123 - (4,972) -
- --------------------------------------------------------------------------------------------------------------------------------
688,445 (837,909) (1,227,585) (43,083) - 934 -
- --------------------------------------------------------------------------------------------------------------------------------
10,258,390 (15,950) 1,025,737 (32,515) - (719) -
- --------------------------------------------------------------------------------------------------------------------------------
$ 10,775,482 $ 194,771 $ 1,230,597 $ 65,281 $14,164 $ 16,213 $4,089
================================================================================================================================
</TABLE>
9
<PAGE>
The Fidelity Variable Annuity Account -
Fidelity Income Plus
Statements of Changes in Contract Owners' Equity
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Money Market Subaccount High Income Subaccount
--------------------------------------- -----------------------------------------
1999 1998 1999 1998
--------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 5,268,497 $ 5,422,925 $ 3,790,270 $ 7,439,565
Net realized capital gain (loss) - - (2,529,350) (6,393,844)
Net change in unrealized
appreciation/depreciation of investments - - 1,754,614 (2,558,579)
--------------------------------------- -----------------------------------------
Increase (decrease) from operations 5,268,497 5,422,925 3,015,534 (1,512,858)
Contract transactions:
Net contract purchase payments 1,157,236 1,010,818 144,071 428,091
Transfer payments from (to) other
subaccounts or general account 28,529,319 28,783,991 (6,722,437) (13,329,175)
Contract terminations, withdrawals, and
other deductions (43,120,275) (30,095,485) (6,798,518) (8,103,508)
--------------------------------------- -----------------------------------------
Increase (decrease) from contract
transactions (13,433,720) (300,676) (13,376,884) (21,004,592)
--------------------------------------- -----------------------------------------
Net increase (decrease) in contract
owners' equity (8,165,223) 5,122,249 (10,361,350) (22,517,450)
Contract owners' equity:
Beginning of period 114,532,571 109,410,322 44,587,202 67,104,652
--------------------------------------- -----------------------------------------
End of period $106,367,348 $114,532,571 $ 34,225,852 $ 44,587,202
======================================= =========================================
</TABLE>
See accompanying notes.
10
<PAGE>
<TABLE>
<CAPTION>
Investment Grade
Equity Income Subaccount Growth Subaccount Overseas Subaccount Bond Subaccount
- --------------------------- -------------------------- --------------------------- --------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- --------------------------- -------------------------- --------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 7,868,940 $ 13,433,500 $ 18,540,293 $ 18,188,473 $ 1,012,800 $ 2,403,219 $ 1,045,465 $ 923,091
25,269,820 22,300,779 31,212,149 16,312,003 9,080,200 (1,574,573) (571,738) 1,141,239
(23,498,009) (13,185,659) 11,510,923 15,244,547 2,705,305 3,080,754 (845,602) (464,176)
- --------------------------- -------------------------- --------------------------- --------------------------
9,640,751 22,548,620 61,263,365 49,745,023 12,798,305 3,909,400 (371,875) 1,600,154
400,863 912,352 591,261 513,014 112,510 85,443 39,013 28,192
(27,218,404) (30,691,127) 20,863,622 4,734,341 5,408,067 (605,656) (5,679,914) 6,691,497
(33,562,339) (33,719,191) (31,999,827) (17,094,869) (5,089,375) (3,089,541) (4,983,283) (4,922,209)
- --------------------------- -------------------------- --------------------------- --------------------------
(60,379,880) (63,497,966) (10,544,944) (11,847,514) 431,202 (3,609,754) (10,624,184) 1,797,480
- --------------------------- -------------------------- --------------------------- --------------------------
(50,739,129) (40,949,346) 50,718,421 37,897,509 13,229,507 299,646 (10,996,059) 3,397,634
202,962,853 243,912,199 180,576,769 142,679,260 33,100,405 32,800,759 23,471,168 20,073,534
- --------------------------- -------------------------- --------------------------- --------------------------
$ 152,223,724 $202,962,853 $231,295,190 $180,576,769 $46,329,912 $33,100,405 $12,475,109 $ 23,471,168
=========================== ========================== =========================== ==========================
</TABLE>
11
<PAGE>
The Fidelity Variable Annuity Account -
Fidelity Income Plus
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Asset Manager Growth
Asset Manager Subaccount Subaccount Contrafund Subaccount
--------------------------- ----------------------------- ----------------------------
1999 1998 1999 1998 1999 1998
------------ ------------ ------------ ------------- ------------ ------------
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 5,053,641 $ 9,681,001 $ 510,452 $ 1,496,298 $ 1,751,244 $ 2,327,252
Net realized capital gain (loss) 3,287,167 3,047,308 487,075 11,488 8,391,508 6,184,575
Net change in unrealized
appreciation/depreciation of
investments (1,681,874) (2,330,331) 89,199 189,191 (28,460) 2,911,597
------------ ------------ ------------ ------------- ------------ ------------
Increase (decrease) from operations 6,658,934 10,397,978 1,086,726 1,696,977 10,114,292 11,423,424
Contract transactions:
Net contract purchase payments 86,092 307,454 33,298 108,948 341,328 317,412
Transfer payments from (to)
other subaccounts or general
account (3,708,652) (5,374,403) (853,288) (7,001,916) (4,936,735) (2,822,321)
Contract terminations,
withdrawals, and other
deductions (12,934,353) (10,911,298) (1,437,386) (2,735,976) (11,169,703) (7,050,777)
------------ ------------ ------------ ------------- ------------ ------------
Increase (decrease) from contract
transactions (16,556,913) (15,978,247) (2,257,376) (9,628,944) (15,765,110) (9,555,686)
------------ ------------ ------------ ------------- ------------ ------------
Net increase (decrease) in
contract owners' equity (9,897,979) (5,580,269) (1,170,650) (7,931,967) (5,650,818) 1,867,738
Contract owners' equity:
Beginning of period 76,432,789 82,013,058 9,128,938 17,060,905 52,214,664 50,346,926
------------ ------------ ------------ ------------- ------------ ------------
End of period $ 66,534,810 $ 76,432,789 $ 7,958,288 $ 9,128,938 $ 46,563,846 $ 52,214,664
============ ============ ============ ============= ============ ============
</TABLE>
See accompanying notes.
12
<PAGE>
<TABLE>
<CAPTION>
Growth Growth & Income
Index 500 Subaccount Opportunities Subaccount Subaccount Balanced Subaccount
- ------------------------------ ------------------------- ---------------------------- --------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------ ------------------------- ---------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 517,092 $ 1,666,678 $ 210,721 $ 350,549 $ 204,860 $ (59,932) $ 97,796 $ 82,208
9,569,945 8,281,301 821,959 519,248 2,253,322 1,325,308 10,568 162,962
688,445 3,803,220 (837,909) 855,238 (1,227,585) 2,028,190 (43,083) 47,183
- ------------------------------ ------------------------- ---------------------------- -------------------------
10,775,482 13,751,199 194,771 1,725,035 1,230,597 3,293,566 65,281 292,353
335,497 552,120 34,845 77,700 149,352 196,602 12,101 20,000
383,889 4,844,053 (2,532,155) 3,310,955 (5,168,815) 10,536,974 398,829 699,990
(11,859,649) (13,731,771) (1,736,851) (1,441,270) (3,254,611) (2,788,921) (432,169) (259,649)
- ------------------------------ ------------------------- ---------------------------- -------------------------
(11,140,263) (8,335,598) (4,234,161) 1,947,385 (8,274,074) 7,944,655 (21,239) 460,341
- ------------------------------ ------------------------- ---------------------------- -------------------------
(364,781) 5,415,601 (4,039,390) 3,672,420 (7,043,477) 11,238,221 44,042 752,694
61,684,591 56,268,990 9,368,671 5,696,251 19,036,305 7,798,084 2,048,112 1,295,418
- ------------------------------ ------------------------- ---------------------------- -------------------------
$ 61,319,810 $ 61,684,591 $ 5,329,281 $ 9,368,671 $ 11,992,828 $19,036,305 $ 2,092,154 $2,048,112
============================== ========================= ============================ =========================
</TABLE>
13
<PAGE>
The Fidelity Variable Annuity Account -
Fidelity Income Plus
Statements of Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
Fidelity Daily Income Fidelity Capital and Fidelity Cash
Trust Subaccount Income Fund Subaccount Reserves Subaccount
------------------------- --------------------------- ------------------------
1999 1998 1999 1998 1999 1998
------------------------- --------------------------- ------------------------
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 14,164 $ 14,527 $ 16,932 $ 13,499 $ 4,089 $ 4,126
Net realized capital gain (loss) - - (1,653) (1) - -
Net change in unrealized
appreciation/depreciation of
investments - - 934 (10,866) - -
------------------------- --------------------------- ------------------------
Increase (decrease) from operations 14,164 14,527 16,213 2,632 4,089 4,126
Contract transactions:
Net contract purchase payments (1) - - 1 - -
Transfer payments from (to)
other subaccounts or general
account 371 27 4,240 13 7 9
Contract terminations,
withdrawals, and other
deductions (500) (15,944) (11,380) - - -
------------------------- --------------------------- ------------------------
Increase (decrease) from contract
transactions (130) (15,917) (7,140) 14 7 9
------------------------- --------------------------- ------------------------
Net increase (decrease) in
contract owners' equity 14,034 (1,390) 9,073 2,646 4,096 4,135
Contract owners' equity:
Beginning of period 293,319 294,709 140,455 137,809 83,808 79,673
------------------------- --------------------------- ------------------------
End of period $ 307,353 $ 293,319 $ 149,528 $ 140,455 $ 87,904 $83,808
========================= =========================== ========================
</TABLE>
See accompanying notes.
14
<PAGE>
The Fidelity Variable Annuity Account -
Fidelity Income Plus
Notes to Financial Statements
December 31, 1999
1. Organization and Summary of Significant Accounting Policies
Organization
The Fidelity Variable Annuity Account (the "Mutual Fund Account") is a
segregated investment account of PFL Life Insurance Company ("PFL Life"), an
indirect wholly-owned subsidiary of AEGON N.V., a holding company organized
under the laws of The Netherlands.
The Mutual Fund Account is registered with the Securities Exchange Commission as
a Unit Investment Trust pursuant to provisions of the Investment Company Act of
1940. The Mutual Fund Account consists of sixteen investment subaccounts,
thirteen of which are invested in specified portfolios of Variable Insurance
Products Fund, Variable Insurance Products Fund II and Variable Insurance
Products Fund III, and the remaining three invested in the Fidelity Daily Income
Trust, the Fidelity Capital and Income Fund, and the Fidelity Cash Reserves
Portfolio. Activity in these sixteen investment subaccounts is available to
contract owners of Fidelity Income Plus. Prior to September 25, 1981, the
Fidelity Daily Income Trust, the Fidelity Capital and Income Fund, and the
Fidelity Cash Reserves Portfolio were available for investment by contract
owners of the Fidelity Income Plus. Contracts funded by these subaccounts are no
longer offered, and no additional assets of the Mutual Fund Account will be
invested in shares of these funds.
Investments
Net purchase payments received by the Mutual Fund Account for Fidelity Income
Plus are invested in the portfolios of the Variable Insurance Products Fund,
Variable Insurance Products Fund II and Variable Insurance Products Fund III
(collectively, the "Series Funds"), as selected by the contract owner.
Investments are stated at the closing net asset values per share on December 31,
1999.
Realized capital gains and losses from sale of shares in the Series Funds are
determined on the first-in, first-out basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed) and
dividend income is recorded on the ex-dividend date. Unrealized gains or losses
from investments in the Series Funds are credited or charged to contract owners'
equity.
Dividend Income
Dividends received from the Series Fund investments are reinvested to purchase
additional mutual fund shares.
15
<PAGE>
The Fidelity Variable Annuity Account -
Fidelity Income Plus
Notes to Financial Statements (continued)
2. Investments
A summary of the mutual fund investments at December 31, 1999 follows:
<TABLE>
<CAPTION>
Number of Net Asset Value Market
Shares Held Per Share Value Cost
----------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C>
Variable Insurance Products Fund:
Money Market Portfolio 106,366,999.230 $ 1.00 $106,366,999 $106,366,999
High Income Portfolio 3,026,157.620 11.31 34,225,843 33,678,575
Equity Income Portfolio 5,920,797.197 25.71 152,223,696 136,565,049
Growth Portfolio 4,210,726.365 54.93 231,295,199 187,402,609
Overseas Portfolio 1,688,407.656 27.44 46,329,906 41,160,796
Variable Insurance Products Fund II:
Investment Grade Bond Portfolio 1,025,913.356 12.16 12,475,106 12,991,646
Asset Manager Portfolio 3,563,728.663 18.67 66,534,814 58,186,484
Asset Manager Growth Portfolio 432,986.090 18.38 7,958,284 7,072,451
Contrafund Portfolio 1,597,387.600 29.15 46,563,849 39,928,692
Index 500 Portfolio 366,285.281 167.41 61,319,819 54,438,070
Variable Insurance Products Fund III:
Growth Opportunities Portfolio 230,206.714 23.15 5,329,285 5,154,081
Growth & Income Portfolio 693,227.308 17.30 11,992,832 11,141,489
Balanced Portfolio 130,759.591 16.00 2,092,153 2,072,030
Fidelity Daily Income Trust 307,503.162 1.00 307,503 307,503
Fidelity Capital and Income Fund 16,114.668 9.29 149,705 154,677
Fidelity Cash Reserves 88,067.110 1.00 88,067 88,067
</TABLE>
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
Period ended December 31
1999 1998
-------------------------------- -------------------------------
Purchases Sales Purchases Sales
--------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Variable Insurance Products Fund:
Money Market Portfolio $330,203,128 $338,368,447 $315,671,845 $310,549,009
High Income Portfolio 41,542,882 51,129,521 79,316,285 92,881,309
Equity Income Portfolio 48,808,148 101,319,115 27,702,062 77,766,554
Growth Portfolio 198,261,572 190,266,225 113,326,205 106,985,233
Overseas Portfolio 131,772,061 130,328,056 106,455,945 107,662,487
Variable Insurance Products Fund II:
Investment Grade Bond Portfolio 6,461,674 16,040,389 38,799,140 36,078,574
Asset Manager Portfolio 7,199,312 18,702,589 17,186,279 23,483,503
Asset Manager Growth Portfolio 3,796,765 5,543,691 9,571,044 17,703,702
Contrafund Portfolio 37,155,635 51,169,480 60,577,460 67,805,956
Index 500 Portfolio 50,475,325 61,098,493 103,103,712 109,772,631
</TABLE>
16
<PAGE>
The Fidelity Variable Annuity Account -
Fidelity Income Plus
Notes to Financial Statements (continued)
2. Investments (continued)
<TABLE>
<CAPTION>
Period ended December 31
1999 1998
-------------------------------- -------------------------------
Purchases Sales Purchases Sales
--------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Variable Insurance Products Fund
III:
Growth Opportunities Portfolio $ 3,138,604 $ 7,162,045 $ 15,985,096 $ 13,687,157
Growth & Income Portfolio 7,057,544 15,126,758 36,403,946 28,519,218
Balanced Portfolio 1,864,729 1,788,173 9,132,692 8,590,142
Fidelity Daily Income Trust 14,685 746 14,803 16,211
Fidelity Capital and Income Fund 119,287 109,383 13,582 70
Fidelity Cash Reserves Portfolio 6,260 2,093 4,227 92
</TABLE>
3. Contract Owners' Equity
A summary of deferred annuity contracts terminable by owners at December 31,
1999 are as follows:
<TABLE>
<CAPTION>
Accumulation Accumulation Total Contract
Subaccount Units Owned Unit Value Value
- ------------------------------------------------------ ----------------- --------------- ------------------
<S> <C> <C> <C>
Money Market 38,572,043.676 $ 2.757628 $106,367,348
High Income 8,762,248.667 3.906058 34,225,852
Equity Income 30,640,346.629 4.968081 152,223,724
Growth 26,399,428.765 8.761371 231,295,190
Overseas 13,477,078.993 3.437682 46,329,912
Investment Grade Bond 6,366,884.959 1.959374 12,475,109
Asset Manager 21,312,977.173 3.121798 66,534,810
Asset Manager Growth 4,002,466.209 1.988346 7,958,288
Contrafund 19,417,678.889 2.398013 46,563,846
Index 500 22,904,721.368 2.677169 61,319,810
Growth Opportunities 3,380,721.428 1.576374 5,329,281
Growth & Income 6,938,699.626 1.728397 11,992,828
Balanced 1,502,829.526 1.392143 2,092,154
Fidelity Daily Income Trust 81,199.237 3.785173 307,353
Fidelity Capital and Income Fund 14,738.751 10.145226 149,528
Fidelity Cash Reserves 23,087.419 3.807436 87,904
</TABLE>
17
<PAGE>
The Fidelity Variable Annuity Account -
Fidelity Income Plus
Notes to Financial Statements (continued)
3. Contract Owners' Equity (continued)
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
Money High Equity Investment
Market Income Income Growth Overseas Grade Bond
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at January 1, 1998 43,319,515 17,495,330 57,352,295 30,726,908 15,101,590 10,859,599
Units purchased 438,238 114,684 219,505 103,271 42,283 14,771
Units redeemed and transferred (420,692) (5,362,196) (14,477,218) (2,728,292) (1,519,633) 884,744
---------------------------------------------------------------------------------------
Units outstanding at December 31, 1998 43,337,061 12,247,818 43,094,582 28,101,887 13,624,240 11,759,114
Units purchased 444,714 107,084 122,609 122,634 68,620 22,225
Units redeemed and transferred (5,209,731) (3,592,653) (12,576,844) (1,825,092) (215,781) (5,414,454)
---------------------------------------------------------------------------------------
Units outstanding at December 31, 1999 38,572,044 8,762,249 30,640,347 26,399,429 13,477,079 6,366,885
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
Asset
Asset Manager Growth Growth &
Manager Growth Contrafund Index 500 Opportunities Income
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at January 1, 1998 33,046,716 11,443,467 33,372,393 31,990,011 4,621,109 6,281,888
Units purchased 126,715 68,639 188,835 281,202 58,750 144,065
Units redeemed and transferred (6,190,026) (6,262,383) (6,720,624) (4,724,816) 1,468,015 5,502,177
---------------------------------------------------------------------------------------
Units outstanding at December 31, 1998 26,983,405 5,249,723 26,840,604 27,546,397 6,147,874 11,928,130
Units purchased 37,300 20,975 177,705 202,186 22,835 103,509
Units redeemed and transferred (5,707,728) (1,268,232) (7,600,630) (4,843,862) (2,789,988) (5,092,939)
---------------------------------------------------------------------------------------
Units outstanding at December 31, 1999 21,312,977 4,002,466 19,417,679 22,904,721 3,380,721 6,938,700
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
Fidelity Fidelity
Fidelity Daily Capital and Cash
Balanced Income Trust Income Fund Reserves
Subaccount Subaccount Subaccount Subaccount
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Units outstanding at January 1, 1998 1,126,357 86,061 15,981 23,137
Units purchased 15,807 - - -
Units redeemed and transferred 383,732 (4,664) (8) (25)
--------------------------------------------------------------
Units outstanding at December 31, 1998 1,525,896 81,397 15,973 23,112
Units purchased 8,852 (1) - (1)
Units redeemed and transferred (31,918) (197) (1,234) (24)
--------------------------------------------------------------
Units outstanding at December 31, 1999 1,502,830 81,199 14,739 23,087
==============================================================
</TABLE>
18
<PAGE>
The Fidelity Variable Annuity Account -
Fidelity Income Plus
Notes to Financial Statements (continued)
4. Administrative, Mortality and Expense Risk Charge
An annual charge is deducted from the unit values of the subaccounts of the
Mutual Fund Account for PFL Life's assumption of certain mortality and expense
risks incurred in connection with the contract. It is assessed daily based on
the net asset value of the Mutual Fund Account. The effective annual rate for
this charge is 0.80%.
Administrative charges include an annual policy fee of $35 per contract. The
annual policy fee is deducted proportionately from the subaccount's accumulated
value. These deductions represent reimbursement for the costs expected to be
incurred over the life of the contract for issuing and maintaining each contract
and the Mutual Fund Account.
5. Taxes
Operations of the Mutual Fund Account form a part of PFL Life, which is taxed as
a life insurance company under Subchapter L of the Internal Revenue Code of
1986, as amended (the "Code"). The operations of the Mutual Fund Account are
accounted for separately from other operations of PFL Life for purposes of
federal income taxation. The Mutual Fund Account is not separately taxable as a
regulated investment company under Subchapter M of the Code and is not otherwise
taxable as an entity separate from PFL Life. Under existing federal income tax
laws, the income of the Mutual Fund Account, to the extent applied to increase
reserves under the variable annuity contracts, is not taxable to PFL Life.
19
<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.
(viii) Addendums to Participation Agreements between
Variable Insurance Products Fund, Variable Insurance
Products Funds II and Variable Insurance Products
Funds III, PFL Life Insurance Company and Fidelity
Distributions. Note 12.
(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 13.
(10)(ii) Opinion and Consent of Actuary. Note 11.
(11) Not applicable.
(12) Not applicable.
(13) Performance Data Calulations. Note 12.
(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. (Larry N. Norman) Note 12.
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 Filed with Post-Effective Amendment No. 10 to Form N-4,
Registration No. 33-37498 on April 28, 1999.
Note 13 Filed herewith.
C - 2
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
---------------------------------------
Principal Positions
Name and and Offices with
Business Address Depositor
- ---------------- ---------
Craig D. Vermie Director, Vice President,
1111 North Charles Street Secretary and General
Baltimore, MD 21201 Counsel
William L. Busler Director, Chairman of the
4333 Edgewood Road N.E. Board and President
Cedar Rapids, IA 52499
Larry N. Norman Director and Executive Vice
4333 Edgewood Road N.E. President
Cedar Rapids, IA 52499
Robert J. Kontz Vice President and Corporate
4333 Edgewood Road N.E. Controller
Cedar Rapids, IA 52499
Brenda K. Clancy Vice President,
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, Senior Vice President,
4333 Edgewood Road N.E. Chief Investment Officer
Cedar Rapids, IA 52499 and Corporate Actuary
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
WITH THE DEPOSITOR OR REGISTRANT
--------------------------------
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
- ---- ------------- ---------------- --------
<S> <C> <C> <C>
AEGON N.V. Netherlands 51.16% of Vereniging Holding company
AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% AEGON N.V. Holding company
AEGON Netherland N.V. Netherlands 100% AEGON N.V. Holding company
AEGON Nevak Holding B.V. Netherlands 100% AEGON N.V. Holding company
AEGON International N.V. Netherlands 100% AEGON N.V. Holding company
Voting Trust Trustees: Delaware Voting Trust
K.J. Storm
Donald J. Shepard H.B.
Van Wijk Dennis Hersch
AEGON U.S. Holding Corporation Delaware 100% Voting Trust Holding company
Short Hills Management Company New Jersey 100% AEGON U.S. Holding company
Holding Corporation
CORPA Reinsurance Company New York 100% AEGON U.S. Holding company
Holding Corporation
AEGON Management Company Indiana 100% AEGON U.S. Holding company
Holding Corporation
RCC North America Inc. Delaware 100% AEGON U.S. Holding company
Holding Corporation
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
Transamerica Holding Company Delaware 100% AEGON USA, Inc. Holding Company
AEGON Funding Corp. Delaware 100% Transamerica Issue debt securities-net
Holding Company proceeds used to make
loans to affiliates
First AUSA Life Insurance Maryland 100% AEGON USA, Inc. Insurance holding company
Company
AUSA Life Insurance New York 82.33% First AUSA Life Insurance
Company, Inc. Insurance Company
17.67% Veterans Life
Insurance Company
Life Investors Insurance Iowa 100% First AUSA Life Ins. Co. Insurance
Company of America
Life Investors Alliance, LLC Delaware 100% LIICA Purchase, own, and hold the
equity interest of other entities
Great American Insurance Iowa 100% LIICA Marketing
Agency, Inc.
Bankers United Life Iowa 100% Life Investors Ins. Insurance
Assurance Company 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 Corporation Illinois 100% AEGON Financial Administrator of structured
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
ISI Insurance Agency, Inc. California 100% Western Reserve Life Insurance agency
And Subsidiaries Assurance Co. of Ohio
ISI Insurance Agency Alabama 100% ISI Insurance Agency, Inc. Insurance Agency
of Alabama, Inc.
ISI Insurance Agency Ohio 100% ISI Insurance Agency, Inc. Insurance agency
of Ohio, Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Agency Inc. Insurance Agency
of Massachusetts, Inc.
ISI Insurance Agency Texas 100% ISI Insurance Agency, Inc. Insurance agency
of Texas, Inc.
</TABLE>
C - 3
<PAGE>
<TABLE>
<S> <C> <C> <C>
ISI Insurance Agency Hawaii 100% ISI Insurance Insurance agency
of Hawaii, Inc. Agency, Inc.
ISI Insurance Agency New Mexico 100% ISI Insurance Insurance agency
New Mexico, Inc. Agency, Inc.
AEGON Equity Group, Inc. Florida 100% Western Reserve Life Insurance Agency
Assurance Co. of Ohio
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
Monumental General Life Puerto Rico 51% First AUSA Life Insurance
Insurance Company of Insurance Company
Puerto Rico 49% Baldrich & Associates
of Puerto Rico
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
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Transamerica Capital, Inc. California 100% AUSA Holding Co. Broker/Dealer
Endeavor Management Company California 100% AUSA Holding Co. Investment Management
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
ADB Corporation Delaware 100% Money Services, Inc. Special purpose limited
Liability company
ORBA Insurance Services, Inc. California 10.56% Money Services, Inc. Insurance agency
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company, Inc. Insurance agency
Zahorik Texas, Inc. Texas 100% Zahorik Company, Inc. Insurance agency
Long, Miller & Associates, L.L.C. California 33-1/3% AUSA Holding Co. Insurance agency
AEGON Asset Management Delaware 100% AUSA Holding Co. Registered investment advisor
Services, Inc.
InterSecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
Associated Mariner Financial Michigan 100% InterSecurities, Inc. Holding co./management
Group, Inc. services
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.
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 100% AUSA Holding Co. Investment advisor
IDEX Mutual Funds Massachusetts Various Mutual fund
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment advisor
Advisors, Inc.
Diversified Investors Securities Delaware 100% Diversified Investment Broker-Dealer
Corp. Advisors, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
George Beram & Company, Inc. Massachusetts 100% Diversified Investment Employee benefit and
Advisors, Inc. actuarial consulting
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer (De-registered)
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Resources, Inc. Insurance agency
Canadian Dealer Network Inc.
Weiner Agency, Inc. Maryland 100% Creditor Resources, Inc. Insurance agency
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
AEGON USA Real Estate Delaware 100% AEGON USA Realty Real estate and mortgage
Services, Inc. Advisors, Inc. holding company
QSC Holding, Inc. Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and sales
LRA, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Realty Associates, Inc. Texas 100% Landauer Associates, Inc. Real estate counseling
Realty Information Systems, Inc. Iowa 100% AEGON USA Realty Information Systems for
Advisors, Inc. real estate investment
management
USP Real Estate Investment Trust Iowa 12.89% 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.
Commonwealth General Delaware 100% AEGON USA, Inc. Holding company
Corporation ("CGC")
AFSG Securities Corporation Pennsylvania 100% CGC Broker-Dealer
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security Life
Insurance Company
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
Capital 200 Block Corporation Delaware 100% CGC Real estate holdings
Capital Real Estate Delaware 100% CGC Furniture and equipment
Development Corporation lessor
Commonwealth General. Kentucky 100% CGC Administrator of structured
Assignment Corporation settlements
Diversified Financial Products Inc. Delaware 100% CGC Provider of investment,
marketing and admin. services
to ins. cos.
Monumental Agency Group, Inc. Kentucky 100% CGC Provider of srvcs. to ins. cos.
PB Investment Advisors, Inc. Delaware 100% CGC Registered investment advisor
(de-registered)
Southlife, Inc. Tennessee 100% CGC Investment subsidiary
Commonwealth General LLC Turks & 100% CGC Special-purpose subsidiary
Caicos Islands
Ampac Insurance Agency, Inc. Pennsylvania 100% CGC Provider of management
(EIN 23-1720755) support services
Compass Rose Development Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Financial Planning Services, Inc. Dist. Columbia 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Frazer Association Illinois 100% Ampac Insurance TPA license-holder
Consultants, Inc. Agency, Inc.
National Home Life Corporation Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Ampac Insurance Furniture & equipment lessor
Agency, Inc.
Veterans Benefits Plans, Inc. Pennsylvania 100% Ampac Insurance Administrator of group
Agency, Inc. insurance programs
Veterans Insurance Services, Inc. Delaware 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
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 Life Insurance company
Company of America Insurance Company
FED Financial, 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.
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.
NCOAA Management Company Texas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
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. services
Services, GmbH Services, Inc.
Capital General Development Delaware 100% CGC Holding company
Corporation
Monumental Life Maryland 73.23% Capital General Insurance company
Insurance Company Development Company
26.77% First AUSA Life
Insurance Company
AEGON Special Markets Maryland 100% Monumental Life Marketing company
Group, Inc. Insurance Company
Peoples Benefit Life Missouri 3.7% CGC Insurance company
Insurance Company 20.0% Capital Liberty, L.P.
76.3% Monumental Life
Insurance Company
Veterans Life Insurance Co. Illinois 100% Peoples Benefit Insurance company
Life Insurance Company
Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary
Coverna Direct Insurance Maryland 100% Peoples Benefit Insurance agency
Insurance Services, Inc. Life Insurance Company
Ammest Realty Corporation Texas 100% Monumental Life Special purpose subsidiary
Insurance Company
JMH Operating Company, Inc. Mississippi 100% Monumental Life Real estate holdings
Insurance Company
Capital Liberty, L.P. Delaware 99.0% Monumental Life Holding Company
Insurance Company
1.0% CGC
Transamerica Corporation Delaware 100% AEGON NV Major interest in insurance
and finance
Transamerica Pacific Insurance Hawaii 100% Transamerica Corp. Life insurance
Company, Ltd.
TREIC Enterprises, Inc. Delaware 100% Transamerica Corp. Investments
ARC Reinsurance Corporation Hawaii 100% Transamerica Corp. Property & Casualty Ins.
Transamerica Management, Inc. Delaware 100% ARC Reinsurance Corp. Asset management
Inter-America Corporation California 100% Transamerica Corp. Insurance Broker
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Pyramid Insurance Company, Ltd. Hawaii 100% Transamerica Corp. Property & Casualty Ins.
Pacific Cable Ltd. Bmda. 100% Pyramid Ins. Co., Ltd. Sold 25% of TC Cable, Inc.
stock in 1998
Transamerica Business Tech Corp. Delaware 100% Transamerica Corp. Telecommunications and
data processing
Transamerica CBO I, Inc. Delaware 100% Transamerica Corp. Owns and manages a pool of
high-yield bonds
Transamerica Corporation (Oregon) Oregon 100% Transamerica Corp. Name holding only-Inactive
Transamerica Finance Corp. Delaware 100% Transamerica Corp. Commercial & Consumer
Lending & equip. leasing
TA Leasing Holding Co., Inc. Delaware 100% Transamerica Fin. Corp. Holding company
Trans Ocean Ltd. Delaware 100% TA Leasing Hldg Co. Inc. Holding company
Trans Ocean Container Corp. Delaware 100% Trans Ocean Ltd. Intermodal Leasing
("TOCC")
SpaceWise Inc. Delaware 100% TOCC Intermodal leasing
Trans Ocean Container
Finance Corp. Delaware 100% TOCC Intermodal leasing
Trans Ocean Leasing
Deutschland GmbH Germany 100% TOCC Intermodal leasing
Trans Ocean Leasing PTY Ltd. Austria 100% TOCC Intermodal leasing
Trans Ocean Management S.A. Switzerland 100% TOCC Intermodal leasing
Trans Ocean Regional
Corporate Holdings California 100% TOCC Holding company
Trans Ocean Tank Services Corp. Delaware 100% TOCC Intermodal leasing
Transamerica Leasing Inc. Delaware 100% TA Leasing Holding Co. Leases & Services intermodal
equipment
Transamerica Leasing Holdings Delaware 100% Transamerica Leasing Inc. Holding Company
Inc. ("TLHI")
Greybox Logistics Services Inc. Delaware 100% TLHI Intermodal Leasing
Greybox L.L.C. Delaware 100% TLHI Intermodal freight container
interchange facilitation
service
Transamerica Trailer France 100% Greybox L.L.C. Leasing
Leasing S.N.C.
Greybox Services Limited U.K. 100% TLHI Intermodal Leasing
Intermodal Equipment, Inc. Delaware 100% TLHI Intermodal leasing
Transamerica Leasing N.V. Belg. 100% Intermodal Equipment Inc. Leasing
Transamerica Leasing SRL Italy 100% Intermodal Equipment Inc. Leasing
Transamerica Distribution Delaware 100% TLHI Provided door-to-door
Services, Inc. services for the domestic
transportation of temperature-
sensitive products
Transamerica Leasing Belg. 100% TLHI Leasing
Coordination Center
Transamerica Leasing do Braz. 100% TLHI Container Leasing
Brasil Ltda.
Transamerica Leasing GmbH Germany 100% TLHI Leasing
Transamerica Leasing Limited U.K. 100% TLHI Leasing
ICS Terminals (UK) Limited U.K. 100% Transamerica. Leasing
Leasing Limited
Transamerica Leasing Pty. Ltd. Australia 100% TLHI Leasing
Transamerica Leasing (Canada) Inc. Canada 100% TLHI Leasing
Transamerica Leasing (HK) Ltd. H.K. 100% TLHI Leasing
Transamerica Leasing S. Africa 100% TLHI Intermodal leasing
(Proprietary) Limited
Transamerica Tank Container Australia 100% TLHI The Australian (domestic)
Leasing Pty. Limited leasing of tank containers
Transamerica Trailer Holdings I Inc. Delaware 100% TLHI Holding company
Transamerica Trailer Holdings II, Inc. Delaware 100% TLHI Holding company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Trailer Holdings III, Inc. Delaware 100% TLHI Holding company
Transamerica Trailer Leasing AB Swed. 100% TLHI Leasing
Transamerica Trailer Leasing AG Swetzerland 100% TLHI Leasing
Transamerica Trailer Leasing A/S Denmark 100% TLHI Leasing
Transamerica Trailer Leasing GmbH Germany 100% TLHI Leasing
Transamerica Trailer Leasing Belgium 100% TLHI Leasing
(Belgium) N.V.
Transamerica Trailer Leasing Netherlands 100% TLHI Leasing
(Netherlands) B.V.
Transamerica Trailer Spain S.A. Spain 100% TLHI Leasing
Transamerica Transport Inc. New Jersey 100% TLHI Dormant
Transamerica Commercial Delaware 100% Transamerica Fin. Corp. Holding company for
Finance Corporation, I ("TCFCI") Commercial/consumer
finance subsidiaries
Transamerica Equipment Financial Delaware 100% TCFCI
Services Corporation
BWAC Credit Corporation Delaware 100% TCFCI
BWAC International Corporation Delaware 100% TCFCI
BWAC Twelve, Inc. Delaware 100% TCFCI Holding company for
premium finance subsidiaries
TIFCO Lending Corporation Illinois 100% BWAC Twelve, Inc. General financing & other
services in the US &
elsewhere
Transamerica Insurance Finance Maryland 100% BWAC Twelve, Inc. Provides insurance premium
Corporation ("TIFC") financing in the US with the
exception of CA and HI
Transamerica Insurance Finance Maryland 100% TIFC Provides Insurance premium
Company (Europe) financing in California
Transamerica Insurance Finance California 100% TIFC Disability ins. & holding co.
Corporation, California for various insurance
subsidiaries of Transamerica
Corporation
Transamerica Insurance Finance ON 100% TIFC Provides ins. premium
Corporation, Canada financing in Canada
Transamerica Business Credit Delaware 100% TCFCI Provides asset based lending
Corporation ("TBCC") leasing & equip. financing
Transamerica Mezzanine Delaware 100% TBCC Holds investments in several
Financing, Inc. joint ventures/partnerships
Transamerica Business Advisory Grp. Delaware 100% TBCC
Bay Capital Corporation Delaware 100% TBCC Special purpose company for
the purchase of real estate tax
liens
Coast Funding Corporation Delaware 100% TBCC Special purpose company for
the purchase of real estate tax
liens
Transamerica Small Business Delaware 100% TBCC
Capital, Inc. ("TSBC")
Emergent Business Capital Delaware 100% TSBC
Holdings, Inc.
Gulf Capital Corporation Delaware 100% TBCC Special purpose company for
the purchase of real estate tax
liens
Direct Capital Equity Investment, Inc. Delaware 100% TBCC Small business loans
TA Air East, Corp Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air I, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air II, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air III, Corp. Delaware 100% TBCC special purpose corp. which
hold an ownership interest
or leases aircraft
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
TA Air IV, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air V, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air VI, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air VII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases aircraft
TA Air VIII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases aircraft
TA Air IX, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air X, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XI, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XIII, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XIV, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Air XV, Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest
or leases aircraft
TA Marine I Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases barges or ships
TA Marine II Corp. Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases barges or ships
TBC I, Inc. Delaware 100% TBCC Special purpose corp.
TBC II, Inc. Delaware 100% TBCC Special purpose corp.
TBC III, Inc. Delaware 100% TBCC Special purpose corp.
TBC IV, Inc. Delaware 100% TBCC Special purpose corp.
TBC V, Inc. Delaware 100% TBCC Special purpose corp.
TBC VI, Inc. Delaware 100% TBCC Special purpose corp.
TBC Tax I, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax II, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax III, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax IV, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax V, Inc. Delaware 100% TBCC Special purpose co. for the
purchase or real estate tax lien
TBC Tax VI, Inc. Delaware 100% TBCC Special purpose co. for the
purchase or real estate tax lien
TBC Tax VII, Inc. Delaware 100% TBCC Special purpose co. for the
purchase or real estate tax lien
TBC Tax VIII, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
TBC Tax IX, Inc. Delaware 100% TBCC Special purpose co. for the
purchase of real estate tax lien
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
The Plain Company Delaware 100% TBCC Special purpose corp. which
hold an ownership interest or
leases aircraft.
Transamerica Distribution Delaware 100% TCFCI Holding corp. for inventory,
Finance Corporation ("TDFC") comm. Leasing, retail finance
comm. Recovery service and
accounts
Transamerica Accounts Holding Corp. Delaware 100% TDFC
Transamerica Commercial Delaware 100% TDFC Wholesale floor plan for
Finance Corporation ("TCFC") appliances, electronics,
computers, office equip. and
marine equipment.
Transamerica Acquisition Canada 100% TCFC Holding company
Corporation, Canada
Transamerica Distribution Finance Delaware 100% TCFC
Corporation - Overseas, Inc.
("TDFCO")
TDF Mauritius Limited Mauritius 100% TDFCO Mauritius holding company
of our Indian Joint Venture
Inventory Funding Trust Delaware 100% TCFC
Inventory Funding Company, LLC Delaware 100% Inventory Funding Trust
TCF Asset Management Corporation Colorado 100% TCFC A depository for foreclosed
real and personal property
Transamerica Joint Ventures, Inc. Delaware 100% TCFC To enter into general partner-
ships for the ownership of
comm. & finance business
Transamerica Inventory Delaware 100% TDFC Holding co. for inventory
Finance Corporation ("TIFC") finance subsidiaries
Transamerica GmbH, Inc. Delaware 100% TIFC Commercial lending in
Germany
Transamerica Fincieringsmaatschappij
B.V. Netherlands 100% Trans. GmbH, Inc. Commercial lending in
Europe
BWAC Seventeen, Inc. Delaware 100% TIFC Holding co. for principal
Canadian operation, Trans-
America Comm. Finance
Corp, Canada
Transamerica Commercial ON 100% BWAC Seventeen, Inc. Shell corp.- Dormant
Finance Canada, Limited
Transamerica Commercial Canada 100% BWAC Seventeen, Inc. Commercial finance
Finance Corporation, Canada
BWAC Twenty-One, Inc. Delaware 100% TIFC Holding co. for United
Kingdom operation, Trans-
America Comm. Finance
Limited
Transamerica Commercial U.K. 100% BWAC Twenty-One Inc. Commercial lending in the
Finance Limited ("TCFL") United Kingdom.
Whirlpool Financial Corporation 100% TCFL Inactive commercial finance
Polska Spzoo Company in Poland
Transamerica Commercial U.K. 100% BWAC Twenty-One Inc. Holding Company
Holdings Limited
Transamerica Commercial Finance U.K. 100% Trans. Commercial
Limited Holdings Limited
Transamerica Commercial Finance France 100% BWAC Twenty-One Inc. Carries out factoring trans-
France S.A. actions in France & abroad
Transamerica GmbH Inc. Delaware 100% BWAC Twenty-One Inc. Holding co. for Transamerica
Financieringsmaatschappij
B.V.
Transamerica Retail Financial Delaware 100% TIFC Provides retail financing
Services Corporation ("TRFSC")
Transamerica Bank, NA Delaware 100% TRFSC Bank (Credit Cards)
Transamerica Consumer Finance Delaware 100% TRFSC Consumer finance holding
Holding Company ("TCFHC") company
Transamerica Mortgage Company Delaware 100% TCFHC Consumer mortgages
Transamerica Consumer Mortgage Delaware 100% TCFHC Securitization company
Receivables Company
Metropolitan Mortgage Company Florida 100% TCFHC Consumer mortgages
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Easy Yes Mortgage, Inc. Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Easy Yes Mortgage, Inc. Georgia 100% Metropolitan Mtg. Co. No active business/Name
holding only
First Florida Appraisal Services, Inc. Georgia 100% Metropolitan Mtg. Co. Appraisal and inspection
services
First Georgia Appraisal Services, Inc. Georgia 100% First FL App. Srvc, Inc. Appraisal services
Freedom Tax Services, Inc. Florida 100% Metropolitan Mtg. Co. Property tax information
services
J.J. & W. Advertising, Inc. Florida 100% Metropolitan Mtg. Co. Advertising and marketing
services
J.J. & W. Realty Corporation Florida 100% Metropolitan Mtg. Co. To hold problem REO
properties
Liberty Mortgage Company of Florida 100% Metropolitan Mtg. Co. No active business/Name
Ft. Myers, Inc. holding only
Metropolis Mortgage Company Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Perfect Mortgage Company Florida 100% Metropolitan Mtg. Co. No active business/Name
holding only
Transamerica Vendor Financial Srvc. Delaware 100% TDFC Provides commercial lease
Transamerica Distribution Finance 100% TCFCI
Corporation de Mexico ("TDFCM")
TDF de Mexico Mexico 100% TDFCM
Transamerica Corporate Services 100% TDFCM
De Mexico
Transamerica Home Loan California 100% TFC Consumer mortgages
Transamerica Lending Company Delaware 100% TFC Consumer lending
Transamerica Financial Products, Inc. California 100% Transamerica Corp. Service investments
Transamerica Insurance Corporation California 100% Transamerica Corp. Provides insurance premium
of California ("TICC") financing in California
Arbor Life Insurance Company Arizona 100% TICC Life insurance, disability
insurance
Plaza Insurance Sales Inc. California 100% TICC Casualty insurance placement
Transamerica Advisors, Inc. California 100% TICC Retail sale of investment
advisory services
Transamerica Annuity Services Corp. New Mexico 100% TICC Performs services required for
structured settlements
Transamerica Financial Resources, Inc. Delaware 100% TICC Retail sale of securities
products
Financial Resources Insurance Texas 100% Transamerica Fin. Res. Retail sale of securities
Agency of Texas products
TBK Insurance Agency of Ohio, Inc. Ohio 100% Transamerica Fin. Res. Variable insurance contract
sales in state of Ohio
Transamerica Financial Resources Alabama 100% Transamerica Fin. Res. Insurance agent & broker
Agency of Alabama, Inc.
Transamerica Financial Resources Ins. Massachusetts 100% Transamerica Fin. Res. Insurance agent & broker
Agency of Massachusetts, Inc.
Transamerica International Insurance Delaware 100% TICC Holding & administering
Services, Inc. ("TIIS") foreign operations
Home Loans and Finance Ltd. U.K. 100% TIIS Inactive
Transamerica Occidental Life California 100% TICC Licensed in all forms of life
Insurance Company ("TOLIC") insurance, accident and
sickness insurance
NEF Investment Company California 100% TOLIC Real estate development
Transamerica Life Insurance and N. Carolina 100% TOLIC Writes life and pension ins.
Annuity Company ("TLIAC") originally incorporated in CA
April 14, 1966
Transamerica Assurance Company Missouri 100% TLIAC Life and disability insurance
Gemini Investments, Inc. Delaware 100% TLIAC Investment subsidiary
Transamerica Life Insurance Company Canada 100% TOLIC Sells individual life insurance
of Canada & investment products in all
provinces and territories of
Canada
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Transamerica Life Insurance Company New York 100% TOLIC Licensed in NY to market life
of New York insurance, annuities and
health
insurance
Transamerica South Park Delaware 100% TOLIC Provide market analysis of
Resources, Inc. certain undeveloped land
holdings held by TOLIC
Transamerica Variable Insurance Maryland 100% TOLIC Mutual Fund
Fund, Inc.
USA Administration Services, Inc. Kansas 100% TOLIC Third party administrator
Transamerica Products. Inc. California 100% TICC Parent co. of various
subsidiary corp. which are
formed to be co-general
partners of proprietary limited
Transamerica Securities Sales Corp. Maryland 100% Transamerica Prod. Inc. Retail sale of the variable life
ins. and variable annuity
products of the Transamerica
life companies
Transamerica Service Company Delaware 100% Transamerica Prod. Inc. Passive loss tax service for
Lloyd's U.S. names
Transamerica Intellitech, Inc. Delaware 100% TICC Real estate information and
technology services
Transamerica International Delaware 100% TICC Investments
Holdings, Inc.
Transamerica Investment Services, Inc. Delaware 100% TICC Investment adviser
Transamerica Income Shares, Inc. Maryland 100% Trans. Invest. Srvc. Inc. Transamerica investment
services
Transamerica LP Holdings Corp. Delaware 100% TICC Limited partnership
Investment (initial limited
partner of Transamerica
Delaware, L.P.)
Transamerica Real Estate Tax Service N/A 100% TICC Real estate tax reporting and
(A Division of Transamerica Corp) processing services
Transamerica Realty Services, Inc. Delaware 100% TICC Responsible for real estate
investments for Transamerica
Bankers Mortgage Company of CA California 100% Transamerica Realty Srv. Holds bank account and owns
certain residual investments in
certain French real estate
projects which are managed
special purpose company for
the purchase of real estate tax
liens.
Pyramid Investment Corporation Delaware 100% Transamerica Realty Srv. Owns office buildings in San
Francisco and other properties
The Gilwell Company California 100% Transamerica Realty Srv. Ground lessee of 517
Washington Street,
San Francisco
Transamerica Affordable Housing, Inc. California 100% Transamerica Realty Srv. Owns general partnership
interests in low-income
housing tax credit
partnerships
Transamerica Minerals Company California 100% Transamerica Realty Srv. Owner and lessor of oil and
gas properties
Transamerica Oakmont Corporation California 100% Transamerica Realty Srv. General partner in
Transamerica/Oakmont
Retirement Associates
Transamerica Senior Properties, Inc. Delaware 100% TICC Owns congregate care and
assisted living retirement
Properties
Transamerica Senior Living, Inc. Delaware 100% Trans. Sr. Prop. Inc. Manages congregate care and
assisted living retirement
properties.
</TABLE>
<PAGE>
ITEM 27. NUMBER OF CONTRACTOWNERS
------------------------
The number of Contractowners of Registrant as of December 31,
1999, was 6,356.
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 - 13
<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>
J. Gary Burkhead Director
Rodney R. Rohda Director
Robert P. Mazzarella Director, Chief Operating Officer
and President
J. Peter Benzie Executive Vice President
Edward L. McCartney Executive Vice President
Leonard Stecklow Executive Vice President
Bruce MacAlpine Vice President
Jeffrey R. Larsen Chief Legal Counsel and Clerk
Jay Freedman Assistant Clerk
Richelle S. Kennedy Assistant Clerk
Gary Greenstein Assistant Treasurer
Joseph T. Castro Chief 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
$4,457,858 in commissions from the Registrant during the
last fiscal year. No other
C - 14
<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 - 15
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant hereby certifies that this Amendment to the Registration
Statement meets the requirements for effectiveness pursuant to paragraph (b) of
Rule 485 and has caused this Registration Statement to be signed on its behalf,
in the City of Cedar Rapids and State of Iowa, on this 26th day of April, 2000.
FIDELITY VARIABLE
ANNUITY ACCOUNT
PFL LIFE INSURANCE COMPANY
Depositor
/s/ William L. Busler
--------------------------
William L. Busler
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the duties indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signatures Title Date
- ---------- ----- ----
/s/ Patrick S. Baird Director April 26, 2000
- --------------------------------------------
Patrick S. Baird
/s/ Craig D. Vermie Director April 26, 2000
- --------------------------------------------
Craig D. Vermie
/s/ William L. Busler Director April 26, 2000
- -------------------------------------------- (Principal Executive Officer)
William L. Busler
/s/ Larry N. Norman Director April 26, 2000
- --------------------------------------------
Larry N. Norman
/s/ Douglas C. Kolsrud Director April 26, 2000
- --------------------------------------------
Douglas C. Kolsrud
/s/ Robert J. Kontz Vice President and April 26, 2000
- -------------------------------------------- Corporate Controller
Robert J. Kontz
/s/ Brenda K. Clancy Treasurer April 26, 2000
- --------------------------------------------
Brenda K. Clancy
</TABLE>
<PAGE>
Registration No.
33-37498
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
EXHIBITS
TO
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
FIDELITY VARIABLE ANNUITY ACCOUNT
---------------
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description of Exhibit Page No.*
- ----------- ---------------------- ---------
(10)(i) Consent of Independent Auditors
- ----------------------------
* Page numbers included only in manually executed original.
<PAGE>
EXHIBIT (10)(i)
CONSENT OF INDEPENDENT AUDITORS
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Financial Statements"
in the Prospectus and "Independent Auditors" in the Statement of Additional
Information and to the use of our reports (1) dated January 28, 2000 with
respect to the financial statements of the subaccounts of The Fidelity Variable
Annuity Account, which are available for investment by the contract owners of
Fidelity Income Plus, and (2) dated February 28, 2000 with respect to the
statutory-basis financial statements and schedules of PFL Life Insurance
Company, included in Post-Effective Amendment No. 11 to the Registration
Statement (Form N-4 No. 33-37498) and related Prospectus of Fidelity Income
Plus.
/s/ Ernst & Young
Des Moines, Iowa
April 24, 2000
