As filed with the SEC on August 29, 1997
Registration No. 33-24400
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 12 [x]
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 19 [x]
FIDELITY INVESTMENTS VARIABLE ANNUITY ACCOUNT I
(Exact name of registrant)
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(Name of depositor)
82 Devonshire Street
Boston, Massachusetts 02109
(Address of depositor's principal executive offices)
Depositor's telephone number: (800) 544-8888
_________________________________________________
RODNEY R. ROHDA
Chairman
Fidelity Investments Life Insurance Company
82 Devonshire Street
Boston, Massachusetts 02109
(Name and address of agent for service)
___________________________________________________________
Copy to:
MICHAEL BERENSON
Jorden Burt Berenson & Johnson LLP
1025 Thomas Jefferson Street, Suite 400 East
Washington, D.C. 20007
___________________________________________________________
Individual Variable Annuity Contracts -- The Registrant has registered an
indefinite amount of securities pursuant to Rule 24f-2 of the Investment
Company Act of 1940. The Rule 24f-2 Notice for the fiscal year ending
December 31, 1996, was filed on February 26, 1997.
It is proposed that this filing will become effective (check appropriate
space):
immediately upon filing pursuant to paragraph (b) of rule 485
x on August 29, 1997, pursuant to paragraph (b) (1) (v) of rule 485
60 days after filing pursuant to paragraph (a) (1) of rule 485
on , pursuant to paragraph (a) (1) of rule 485
75 days after filing pursuant to paragraph (a) (2) of rule 485
on , pursuant to paragraph (a) (2) of rule 485 Page _ of _
Exhibit Index Appears on Page __
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-4
Part A
Item N-4 Item Heading in Prospectus
Item 1. Cover Page Cover Page
Item 2. Definitions Glossary
Item 3. Synopsis or Highlights Summary of the Contract
Item 4. Condensed Financial Information Accumulation Unit Values
Item 5. General Description of Facts About Fidelity
Registrant, Depositor, and Investments Life, The
Portfolio Companies Variable Account, and
the Funds
a) Depositor Fidelity Investments
Life
b) Registrant The Variable Account;
The Fixed Account
c) Portfolio Company The Funds
d) Prospectus The Funds
e) Voting Voting Rights
f) Administrator Charges
Item 6. Deductions and Expenses Charges
a) Deductions Charges; Premium Taxes
b) Sales load Withdrawal Charge
c) Special purchase plans Special Provisions
Applicable to Sales
under Sponsored
Arrangements; Automatic
Deduction Plan; Dollar
Cost Averaging
d) Commissions Selling the Contracts
e) Portfolio company deductions
and expenses Charges
f) Registrant's expenses Charges
Item 7. General Description of Variable
Annuity Contracts
a) Rights Summary of the Contract;
Investment Allocation of
Your Purchase Payments;
Withdrawals; Death
Benefit; Selection of
Annuity Income Options;
Reports to Owners;
Voting Rights; Other
Contract Provisions
b) Provisions and limitations Investment Allocation of
Your Purchase Payments
c) Changes in contracts or Changes in Investment
operations Options
d) Contract owner inquiries Cover Page
Item 8. Annuity Period
a) Level of benefits Fixed, Variable or
Combination Annuity
Income Options; Types of
Annuity Income Options
b) Annuity commencement date Annuity Date
c) Annuity payments Types of Annuity Income
Options
d) Assumed investment return Fixed, Variable or
Combination Annuity
Income Options
e) Minimums Types of Annuity Income Options
f) Rights to change options or Investment Allocation of
transfer contract value Your Purchase Payments
Item 9. Death Benefit
a) Death benefit calculation Death Benefit
b) Forms of benefits Death Benefit; Types of
Annuity Income Options
Item 10. Purchases and Contract Values
a) Procedures for purchases Purchase of a Contract
b) Accumulation unit value Accumulation Units
c) Calculation of accumulation Accumulation Units
unit value
d) Principal underwriter Selling the Contracts
Item 11. Redemptions
a) Redemption procedures Withdrawals
b) Texas Optional Retirement Not Applicable
Program
c) Delay Postponement of
Payment
d) Lapse Not Applicable
e) Revocation rights Free Look Privilege
Item 12. Taxes
a) Tax Consequences Tax Considerations; Contract Values
and Proceeds; Required Distributions
Upon Death
b) Qualified plans Purchase of A Contract;
Tax Considerations
c) Impact of taxes Tax Considerations
Item 13. Legal Proceedings Litigation
Item 14. Table of Contents for Table of Contents for
Statement of Additional Statement of Additional
Information Information
Part B Heading in Statement of
Form N-4 Item Additional Information
Item 15. Cover Page Cover Page
Item 16. Table of Contents Table of Contents
Item 17. General Information and
History
a) Name change Fidelity Investments Life
(Prospectus)
b) Attribution of Assets Not Applicable
c) Control of Depositor Fidelity Investments Life
(Prospectus)
Item 18. Services
a) Fees, expenses and costs Charges (Prospectus)
b) Management - related Not Applicable
c) Custodian and independent Independent Accountants
public accountant
d) Other custodianship Safekeeping of Account
Assets
e) Administrative servicing Fidelity Investments Life
agent (Prospectus); The Variable Account
(Prospectus)
f) Depositor as principal Not Applicable
underwriter
Item 19. Purchase of Securities Being
Offered
a) Manner of Offering Distribution of the Contracts; Selling the
Contracts (Prospectus)
b) Sales load Withdrawal Charge (Prospectus)
Item 20. Underwriters
a) Depositor or affiliate as Selling the Contracts
principal underwriter (Prospectus)
b) Continuous offering Distribution of Contracts
c) Underwriting commissions Not Applicable
d) Payments to underwriter Not Applicable
Item 21. Calculation of Performance Data Performance
Item 22. Annuity Payments Fixed Annuity Income
Payments; Variable
Annuity Income Payments;
Unavailability of
Annuity Income Payments
in Certain Circumstances
Item 23. Financial Statements
a) Registrant Financial Statements
b) Depositor Financial Statements
PART B
INFORMATION REQUIRED IN A STATEMENT
OF ADDITIONAL INFORMATION
EXHIBIT INDEX
Exhibit
(9) Opinion and consent of David J. Pearlman, as to the legality of
securities being issued.
(10) Written consent of Coopers & Lybrand L.L.P.
(10a) Written consent of Jorden Burt Berenson & Johnson LLP
- -10
PROSPECTUS
1.FIDELITY RETIREMENT RESERVES
This prospectus describes a variable annuity contract (the "Contract")
offered by Fidelity Investments Life Insurance Company ("Fidelity
Investments Life", "We" or "Us"), the life insurance company that is part
of the group of financial service companies known as Fidelity Investments.
The Contract is designed for individual investors who desire to accumulate
capital on a tax-deferred basis for retirement or other long-term purposes.
It may be purchased on a non-qualified basis. It may also be purchased on
a qualified basis as an individual retirement annuity ("IRA") under Section
408(b) of the Internal Revenue Code of 1986, as amended, in connection with
a "rollover" of contributions from other qualified plans, tax sheltered
annuities or IRAs. You may choose to have amounts paid out in a single
payment or as a series of annuity payments, including payments guaranteed
for your lifetime.
You may purchase a Non-qualified Contract by making a payment of at least
$2,500. You may make additional payments to a Non-qualified Contract as
long as each payment is at least $250 (unless the payment is part of an
automatic deduction plan). You may purchase a Qualified Contract by making
a payment of at least $10,000. You may make additional payments to a
Qualified Contract as long as each payment is at least $2,500 unless your
Contract provides for a lower minimum. Your payments will be invested as
you direct in one or more of the twenty-eight Subaccounts of the Fidelity
Investments Variable Annuity Account I (the "Variable Account") and/or
allocated to a fixed-rate investment option funded through Fidelity
Investments Life's general account (the "Fixed Account"). The Fixed
Account may also be referred to as the "Guaranteed Account". YOUR INITIAL
PAYMENT ALLOCATED TO THE VARIABLE ACCOUNT WILL BE INVESTED INITIALLY IN THE
MONEY MARKET SUBACCOUNT FOR THE PERIOD WE ESTIMATE OR CALCULATE YOUR FREE
LOOK RIGHT TO BE IN EXISTENCE. The variable Subaccounts invest in the
mutual fund portfolios of the Variable Insurance Products Fund, the
Variable Ins urance Products Fund II, and the Variable Insurance Products
Fund III (the "Fidelity Funds"). The Fidelity Funds are each managed by
Fidelity Management & Research Company. Also The variable Subaccounts also
invest in the mutual fund portfolios of corresponding portfolios of other
eligible funds (the "Other Funds") All mutual fund portfolios available in
this prospectus are collectively known as ("The Funds"). Additional
Subaccounts and portfolios may be added in the future. Fidelity
Investments Life credits interest on amounts allocated to the Fixed Account
at specified interest rates that vary from time to time.
You may select a date on which annuity income payments may commence. Prior
to that Annuity Date, you may withdraw all or part of the Cash Surrender
Value of your Contract. The value allocated to the Variable Account will
vary with the investment performance of the Subaccounts you select, and the
value allocated to the Fixed Account will increase as interest is credited.
In certain circumstances, withdrawals are subject to a contingent deferred
sales charge and a tax penalty.
Annuity income payments may be fixed, variable, or a combination of both.
If you elect to receive fixed income, the value of your Contract on the
Annuity Date will be applied to provide fixed annuity payments. If you
elect variable income, the amount of your annuity income payments will
increase or decrease according to the investment performance of the
Subaccounts you select. If you elect a combination of fixed and variable
income, a portion of your payment will be fixed and a portion will vary
according to investment performance. This prospectus provides information
that a prospective investor should know before investing. Additional
information about the Contract and the Variable Account has been filed with
the Securities and Exchange Commission in a Statement of Additional
Information dated August 29, 1997. The Statement of Additional Information
is incorporated by reference in this prospectus and is available without
charge by calling Fidelity Investments Life at 800-544-2442. The table of
contents of the Statement of Additional Information appears on page .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS NOT
VALID UNLESS ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR THE MONEY MARKET
OR ANY OTHER FUNDS AVAILABLE IN THE CONTRACT.
FOR FURTHER INFORMATION CALL FIDELITY INVESTMENTS:
Nationally 800-544-2442
Date: August 29, 1997
PROSPECTUS CONTENTS
Glossary iv
Summary of the Contract
FACTS ABOUT FILI, THE VARIABLE ACCOUNT AND THE FUNDS
Fidelity Investments Life
The Variable Account
The Funds 2
FACTS ABOUT THE CONTRACT
Purchase of a Contract
Free Look Privilege
Investment Allocation of Your Purchase Payments
Withdrawals
Signature Guarantee
Charges
Death Benefit
Required Distributions Upon Death
Annuity Date
Selection of Annuity Income Options
Fixed, Variable, or Combination Annuity Income Options
Types of Annuity Income Options
Reports to Owners
THE FIXED ACCOUNT
The Fixed Account
MORE ABOUT THE CONTRACT
Tax Considerations
Other Contract Provisions
Selling the Contracts
Automatic Deduction Plan
Special Provisions For Sponsored Arrangements
Dollar Cost Averaging
Postponement of Payment
MORE ABOUT THE VARIABLE ACCOUNT AND THE FUNDS
Changes in Investment Options
Net Rate of Return for a Subaccount
Voting Rights
Resolving Material Conflicts
Performance
Litigation
Appendix I: Accumulation Units
Table of Contents of the Statement of Additional Information
THE CONTRACT IS NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS.
2.GLOSSARY
ACCUMULATION UNIT - A unit of measure used prior to the Annuity Date to
calculate the value of your Contract in the Subaccounts.
ANNUITANT - The person designated by the Contract Owner, upon whose life
annuity payments are based.
ANNUITY CONTRACT OR CONTRACT - A Contract designed to provide an Annuitant
with an income, which may be a lifetime income, beginning on the Annuity
Date.
ANNUITY DATE - The date when annuity payments begin.
ANNUITY UNIT - A unit of measure used after the Annuity Date to calculate
the amount of variable annuity payments.
BENEFICIARY OR BENEFICIARIES- The person or persons who receive the
proceeds in the event of the death of all the Owners or the Annuitant.
CASH SURRENDER VALUE - The amount payable to you upon surrender of the
Contract prior to the Annuity Date during the Annuitant's lifetime, before
the deduction of any taxes.
CODE - The Internal Revenue Code of 1986, as amended.
CONTRACT ANNIVERSARY - The same day and month as the Contract Date in each
later year.
CONTRACT DATE - The date your Contract becomes effective. It will be
stated in your Contract.
CONTRACT OWNER(S) OR YOU - The person or persons who have the ownership
rights and privileges of the Contract. Two people may purchase a Contract
only if they are spouses.
CONTRACT VALUE - The total amount attributable to your Contract at any time
prior to the Annuity Date, representing amounts in the Subaccounts and the
Fixed Account.
CONTRACT YEAR - A year that starts on the Contract Date or on a Contract
Anniversary.
DEATH BENEFIT - Amount payable to the Beneficiary or Beneficiaries upon the
death of the Annuitant before the Annuity Date.
FIXED ACCOUNT - A fixed-rate investment option funded through Fidelity
Investments Life's general account. Fidelity Investments Life credits
interest to the amount allocated to the Fixed Account at a rate declared
periodically in advance. The Fixed Account may also be referred to as the
"Guaranteed Account".
INVESTMENT OPTIONS - The Subaccounts and the Fixed Account.
IRA - Refers generally to both an individual retirement account and an
individual retirement annuity as defined in Sections 408(a) and (b),
respectively, of the Code. When used to refer to a Qualified Contract
described herein, it means a Contract that qualifies as an individual
retirement annuity as defined in Section 408(b) of the Code.
NET RATE OF RETURN - An index used to measure the investment performance of
a Subaccount from one Valuation Period to the next.
NON-QUALIFIED CONTRACT - A Contract other than a Qualified Contract.
QUALIFIED CONTRACT - A Contract that qualifies as an individual retirement
annuity under Section 408(b) of the Code.
SUBACCOUNT - A division of the Variable Account, the assets of which are
invested in the shares of the corresponding portfolio of the Funds
available in this prospectus.
VALUATION PERIOD - The period of time from one determination of
Accumulation Unit Values and Annuity Unit Values to the next determination
of such values. Such determinations are made as of the close of business
(normally 4:00 p.m. Eastern Time) each day the New York Stock Exchange is
open for trading.
VARIABLE ACCOUNT - Fidelity Investments Variable Annuity Account I.
THIS PAGE INTENTIONALLY LEFT BLANK
3.SUMMARY OF THE CONTRACT
The purpose of this variable annuity contract is to allow you, the
Owner(s), to accumulate funds on a tax-deferred basis by investing in one
or more investment portfolios managed by Fidelity Management & Research
Company ("FMR"), Morgan Stanley Asset Management Inc., ("Morgan Stanley"),
Pilgrim Baxter & Associates, Ltd. or Newbold's Asset Management, Inc.,
("PBHG"), Strong Capital Management, Inc. ("Strong") and Warburg, Pincus
Counsellors, Inc. ("Warburg Pincus") and to permit the Annuitant (who may
or may not be an Owner) to receive annuity income payments commencing on
the Annuity Date. There is no assurance that values invested in the
Subaccounts will increase. As the Contract Owner(s), you bear the
investment risk with respect to those values. The Contract also allows you
to allocate funds to a fixed-rate investment option funded through Fidelity
Investments Life's general account (the "Fixed Account"). (The Fixed
Account may also be referred to as the "Guaranteed Account".) We guarantee
that amounts allocated to the Fixed Account will earn interest at declared
rates.
The Contract is designed to provide income for retirement or to meet other
long-term investment goals. It may be purchased on a non-qualified basis
or, if you so choose, it may be purchased on a qualified basis as an
individual retirement annuity ("IRA") under Section 408(b) of the Code in
connection with the "rollover" of contributions from other qualified plans,
tax sheltered annuities or IRAs. It may also be purchased by exchanging
Fidelity Variable Annuity (another annuity contract issued by Fidelity
Investments Life). The minimum initial payment required to purchase a
Non-qualified Contract is $2,500. You may also make additional payments to
a Non-qualified Contract prior to the Annuity Date as long as each payment
is not less than $250 and the Annuitant is living. These minimum payments
may be reduced for individuals under certain sponsored arrangements or if
the payment is part of an automatic deduction plan. You may purchase a
Qualified Contract by making a payment of at least $10,000. You may make
additional payments to a Qualified Contract as long as each payment is at
least $2,500 unless your Contract provides for a lower minimum. Your
purchase payments will be invested as you direct in the Fixed Account and
in the Subaccounts of the Variable Account, except that the portion of your
first payment allocated to the Variable Account must be invested initially
in the Money Market Subaccount for the period we estimate or calculate your
free look right to be in existence, which is generally fifteen days after
the Contract Date. See INVESTMENT ALLOCATION OF YOUR PURCHASE PAYMENTS on
page . There are currently twenty-eight variable Subaccounts. Five
Subaccounts invest in the shares of one of the mutual fund portfolios of
Variable Insurance Products Fund. The Variable Insurance Products Fund
currently offers a Money Market Portfolio, High Income Portfolio,
Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio. Five
Subaccounts invest exclusively in shares of one of the mutual fund
portfolios of Variable Insurance Products Fund II. The Variable Insurance
Products Fund II currently offers an Investment Grade Bond Portfolio, Asset
Manager Portfolio, Index 500 Portfolio, Asset Manager: Growth Portfolio and
Contrafund Portfolio. Three Subaccounts invest exclusively in shares of one
of the mutual fund portfolios of Variable Insurance Products Fund III. The
Variable Insurance Products Fund III currently offers a Growth & Income
Portfolio, Balanced Portfolio, and Growth Opportunities Portfolio. The
remaining subaccounts invest in shares of one of the mutual fund portfolios
of Morgan Stanley, PBHG, Strong or Warburg Pincus . Fidelity Investments
Life credits interest on amounts allocated to the Fixed Account at interest
rates that vary from time to time.
Prior to the Annuity Date, you may withdraw all or part of the Cash
Surrender Value of your Contract. During the first five Contract Years, the
withdrawal may be subject to a contingent deferred sales charge. This
charge is a maximum of 5% of the amount of purchase payments withdrawn in
the first Contract Year and decreases 1% per year until it disappears after
five Contract Years. However, in each of the first five Contract years you
may withdraw up to 10% of your purchase payments without incurring such a
charge. In certain circumstances, Fidelity Investments Life may waive the
contingent deferred sales charge. See WITHDRAWAL CHARGE on page . The
maximum partial withdrawal is one that, along with any applicable
withdrawal charge, would reduce your Contract Value to $2,500. Certain
withdrawals may be subject to a Federal penalty tax as well as to Federal
income tax. See TAX CONSIDERATIONS on page .
You may select from a number of annuity income options, including annuity
income payments for the life of the Annuitant, with or without a guaranteed
number of payments. See TYPES OF ANNUITY INCOME OPTIONS on page . You may
choose any of these annuity income options to be paid on a fixed basis, a
variable basis, or a combination of both. See FIXED, VARIABLE, OR
COMBINATION ANNUITY INCOME OPTIONS on page . If you elect a fixed income,
your Contract's participation in the investment experience of the Variable
Account will cease with the commencement of the annuity income payments. If
you elect a variable income, annuity income payments will vary in
accordance with the investment experience of the Subaccounts you select
during the payout period. If you elect a combination of fixed and variable
income, a portion of your income payment will be fixed, and a portion will
vary according to investment performance of the selected Subaccounts. On
the Annuity Date the Annuitant becomes the Owner of the Contract.
In the event that the Annuitant dies prior to the Annuity Date, we will pay
a Death Benefit to the Beneficiary you select. See DEATH BENEFIT on page .
In the event that any Owner dies before the entire value of the Contract is
distributed, the remaining value of the Contract must be distributed
according to certain specified rules in order for the Contract to qualify
as an annuity for tax purposes. See REQUIRED DISTRIBUTIONS UPON DEATH on
page .
In addition to the contingent deferred sales charge applicable to
withdrawals within the first five Contract Years (other than withdrawals in
each year of up to 10% of your purchase payments), we assess an annual
maintenance charge currently set at $30 per year and guaranteed not to
exceed $50 per year. Prior to the Annuity Date this charge is deducted from
your Contract Value, and after the Annuity Date it is deducted from each
annuity income payment on a pro rata basis. We currently waive this annual
charge if total purchase payments less any withdrawals equal at least
$25,000. In addition, we will waive this charge for Contracts purchased
after May 1, 1990 by exchanging Fidelity Variable Annuity (another annuity
contract issued by Fidelity Investments Life). We also make a daily charge
(equivalent to an effective annual rate of .05%) against the assets of each
variable Subaccount for administrative expenses and a daily asset charge
(equivalent to an effective annual rate of not more than 0.75%) for
mortality and expense risks. These daily asset charges are not assessed
against amounts allocated to the Fixed Account. Our current practice is
generally to deduct any applicable premium taxes from your Contract Value
on the Annuity Date or upon payment of proceeds. However, we may make a
deduction for taxes required by any state upon receipt of your payments for
Contracts issued for delivery in that jurisdiction. We reserve the right to
deduct premium taxes when we incur such taxes. See CHARGES on page .
Further, the portfolios in the Funds pay monthly management fees and other
expenses. See the prospectuses for the Funds for discussions of expenses.
You may return your Contract for a refund within 10 days after you receive
the Contract. When you are replacing an existing insurance product with the
Contract, the free look period will be extended to at least 20 days. We
will refund your purchase payment or, if greater, your Contract Value plus
any amount deducted from your payment prior to allocation to the variable
Subaccounts or the Fixed Account. This provision may vary by state. See
FREE LOOK PRIVILEGE on page .
This summary is intended to provide only an overview of the more
significant aspects of the Contract. More detailed information is provided
in the subsequent sections of this prospectus and in your Contract. The
Contract constitutes the entire agreement between you and us and should be
retained.
The Following page contains the various investment options available to you
under the Contract.
FIDELITY RETIREMENT RESERVES
Guaranteed Account Company Variable Account
Guaranteed Interest FIDELITY Asset Manager Portfolio
Money Market Portfolio
Investment Grade Bond Portfolio
Equity-Income Portfolio
Growth Portfolio
High Income Portfolio
Overseas Portfolio
Index 500 Portfolio
Asset Manager: Growth Portfolio
Contrafund Portfolio
Growth Opportunities Portfolio
Balanced Portfolio
Growth & Income Portfolio
MORGAN STANLEY Emerging Markets Debt Portfolio
Emerging Markets Equity Portfolio
Global Equity Portfolio
International Magnum Portfolio
PBHG Select 20 Portfolio
Growth II Portfolio
Large Cap Value Portfolio
Small Cap Value Portfolio
Technology & Communications Portfolio
STRONG Discovery Fund II Portfolio
Growth Fund II Portfolio
Opportunity Fund II Portfolio
WARBURG PINCUS International Equity Portfolio
Post-Venture Capital Portfolio
Small Company Growth Portfolio
4.FEE TABLE
This information is intended to assist you in understanding the various
costs and expenses that a Contract Owner will bear directly or indirectly.
It reflects expenses of the Separate Account as well as the Portfolios. The
tables below do not reflect any deductions for premium taxes or Federal
income tax expenses that are determined solely from the amount of premiums
received. We generally deduct any applicable premium taxes from your
Contract Value on the Annuity Date or when proceeds are paid. We do not
currently deduct any Federal income tax expense. See CHARGES on page of
the prospectus for additional information.
CONTRACT OWNER EXPENSES (as a percentage of purchase payments)
Sales Charge Imposed on Purchases 0.00%
Maximum Contingent Deferred Sales Charge (1) 5.00%
Surrender Charge 0.00%
Exchange Fee 0.00%
ANNUAL MAINTENANCE CHARGE (2) $30.00
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge 0.75%
Account Fees and Expenses:
Administrative Charge 0.05%
Total Separate Account Annual Expenses 0.80%
(1) The Maximum Contingent Deferred Sales Charge decreases 1% each year so
there is no charge after 5 years. Each year up to 10% of total purchase
payments may be withdrawn without a contingent deferred sales charge. The
contingent deferred sales charge is based solely on the Contract Year -
additional purchase payments do not cause the contingent deferred sales
charge percentages to start over. The contingent deferred sales charge may
be reduced or waived for Contracts issued under certain sponsored
arrangements.
(2) The annual maintenance charge is a single $30 charge on a Contract. It
is deducted proportionally from the investment options in use at the time
of the charge. The annual maintenance charge is currently waived for
Contracts with at least $25,000 of accumulated purchase payments less any
withdrawals. This charge may be reduced or waived for Contracts issued
under certain sponsored arrangements. In the Examples, the annual
maintenance charge is approximated as a 0.02% annual asset charge based on
the experience of the Contracts.
PORTFOLIO ANNUAL EXPENSES
(as a percentage of Portfolio average net assets)
MANAGEMENT OTHER TOTAL ANNUAL
FEES EXPENSES EXPENSES
FIDELITY
ASSET MANAGER 0.64% 0.10% 0.74%1
MONEY MARKET 0.21% 0.09% 0.30%
INVESTMENT GRADE BOND 0.45% 0.13% 0.58%
HIGH INCOME 0.59% 0.12% 0.71%
EQUITY-INCOME 0.51% 0.07% 0.58%1
INDEX 500 0.13% 0.15% 0.28%2
GROWTH 0.61% 0.08% 0.69%1
OVERSEAS 0.76% 0.17% 0.93%1
ASSET MANAGER: GROWTH 0.65% 0.22% 0.87%1
CONTRAFUND 0.61% 0.13% 0.74%1
GROWTH OPPORTUNITIES 0.61% 0.16% 0.77%1
BALANCED 0.48% 0.24% 0.72%1
GROWTH & INCOME 0.64% 0.10% 0.74%1
MORGAN STANLEY
EMERGING MARKETS DEBT 0.80% 0.50% 1.30%3
EMERGING MARKETS EQUITY 1.25% 0.50% 1.75%3
GLOBAL EQUITY 0.80% 0.35% 1.15%3
INTERNATIONAL MAGNUM 0.80% 0.35% 1.15%3
PBHG
SELECT 20 0.61% 0.59% 1.20%4
GROWTH II 0.85% 0.30% 1.15%4
LARGE CAP VALUE 0.41% 0.59% 1.00%4
SMALL CAP VALUE 0.77% 0.43% 1.20%4
TECHNOLOGY &
COMMUNICATIONS 0.61% 0.59% 1.20%4
STRONG
DISCOVERY FUND II 1.00% 0.21% 1.21%
GROWTH FUND II 1.00% 0.20% 1.20%5
OPPORTUNITY FUND II 1.00% 0.20% 1.20%
WARBURG PINCUS
INTERNATIONAL EQUITY 0.96% 0.40% 1.36%6
POST-VENTURE CAPITAL 0.62% 0.78% 1.40%7
SMALL COMPANY GROWTH 0.90% 0.26% 1.16%6
1) A portion of the brokerage commissions that certain Funds pay was used
to reduce Funds expenses. In addition, certain Funds have entered into
arrangements with their custodian and transfer agent whereby interest
earned on uninvested cash balances was used to reduce custodian and
transfer agent expenses. Including these reductions, the total operating
expenses presented in the table would have been .56% for Equity-Income
Portfolio, .67% for Growth Portfolio, .92% for Overseas Portfolio, .73% for
Asset Manager Portfolio, .71% for Contrafund Portfolio, .85% for Asset
Manager: Growth Portfolio, .76% for Growth Opportunities Portfolio, and
.71% for Balanced Portfolio.
2) FMR agreed to reimburse a portion of Index 500 Portfolio's expenses
during the period. Without this reimbursement, the Fund's management fee,
other expenses and total expenses would have been .28%, .15% and .43%,
respectively.
3) Morgan Stanley Asset Management Inc. with respect to the Portfolios, has
voluntarily agreed to waive receipt of its management fees and agreed to
reimburse the Portfolio, if necessary, if such fees would cause the total
annual operating expenses of the Portfolio to exceed the respective
percentage of average daily net assets. Such waiversand reimbursements may
be modified or terminated at any time by Morgan Stanley Asset Management
Inc.
4) Pilgrim Baxter & Associates, Ltd. (the "Adviser") has voluntarily agreed
to waive or limit its Advisory Fees or assume Other Expenses in an amount
that operates to limit Total Operating Expenses of the Portfolios to not
more than of the 1.20% of the average daily net assets of the Growth II,
Small Cap Value, Technology & Communications and Select 20 Portfolios and
to not more than 1.00% of the average daily net assets of the Large Cap
Value Portfolio, through December 31, 1997. Total Operating Expenses
include, but are not limited to, expenses such as investment advisory fees,
transfer agent fees and legal fees. Such waivers of Advisory fees and
possible assumptions of Other Expenses by the Adviser is subject to a
possible reimbursement by the Portfolios in future years if such
reimbursement can be achieved within foregoing annual expense limits. Such
fee waiver/expense reimbursement arrangements may be modified or terminated
at any time after December 31, 1997. Absent such fee waivers/expense
reimbursements. the Advisory Fees and estimated Total Operating Expenses
for the Small Cap Value, Large Cap Value, Technology & Communications and
Select 20 Portfolios would be 1.00% and 1.43%;.65% and 1.24%; .85% and
1.44%; and .85% and 1.44%, respectively. Given the projected asset size of
the Growth II Portfolio, it is not anticipated that a fee waiver or expense
reimbursement will be necessary with respect to that Portfolio.
5 Strong Capital Management, Inc., the investment Adviser, has voluntarily
agreed to cap the Fund's total operating expenses at 1.20%. The Adviser
has no current intention to, but may in the future, discontinue or modify
any waiver of fees or absorption of expenses at its discretion with
appropriate notification to its shareholders.
6) Management Fees, Other Expenses and Total Annual Expenses for the
International Equity and Small Company Growth Portfolios are based on
actual expenses for the fiscal year ended December 31, 1996, net any fee
waivers or expense reimbursements. Without such waivers or reimbursements,
Management Fees would have equaled 1.00% and 0.90%, Other Expenses would
have equalled 0.40% and 0.27% and Total Annual Expenses would have equalled
1.40% and 1.17% for the International Equity and Small Company Growth
Portfolios, respectively. The Portfolios' investment adviser and
co-administrator have undertaken to limit each Portfolio's Total Annual
Expenses to the limits shown in the table above through December 31, 1997.
7) Absent the waiver of fees by the Post-Venture Capital Portfolio's
investment adviser and co-administrator, Management Fees for the
Post-Venture Capital Portfolio would equal 1.25%; Other Expenses would
equal 0.82%; and Total Annual Expenses would equal 2.07%. Other Expenses
for the Post-Venture Capital Portfolio are based on annualized estimates of
expenses for the fiscal year ending December 31, 1997, net of any fee
waivers or expense reimbursements. The Portfolio's investment adviser and
co-administrator have undertaken to limit the Portfolio's Expenses to the
limits shown in the table above through December 31, 1997.
EXAMPLES
If you assume that Contract Owner expenses are as shown above, and that
each Portfolio's annual return is 5% annually and its operating expenses
are just as described above, then for every $1,000 of purchase payments,
here's how much you would have paid in total expenses if you surrendered
your Contract after the number of years indicated, or if you annuitize your
contract during the first year.
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
FIDELITY
ASSET MANAGER $63 $79 $95 $186
MONEY MARKET 58 66 72 136
INVESTMENT GRADE BOND 61 74 87 168
HIGH INCOME 62 78 93 182
EQUITY-INCOME 61 74 87 168
GROWTH 62 78 92 180
OVERSEAS 64 85 105 206
INDEX 500 58 65 71 134
ASSET MANAGER: GROWTH 64 83 102 200
CONTRAFUND 63 79 95 186
GROWTH OPPORTUNITIES 63 80 97 189
BALANCED 62 79 94 183
GROWTH & INCOME 62 78 93 181
MORGAN STANLEY
EMERGING MARKETS DEBT 68 96 124 245
EMERGING MARKETS EQUITY 72 109 147 290
GLOBAL EQUITY 67 92 116 230
INTERNATIONAL MAGNUM 67 92 116 230
PBHG
SELECT 20 67 93 119 235
GROWTH II 67 92 116 230
LARGE CAP VALUE 65 87 109 214
SMALL CAP VALUE 67 93 119 235
TECHNOLOGY &
COMMUNICATIONS 67 93 119 235
STRONG
DISCOVERY FUND II 67 93 119 236
GROWTH FUND II 67 93 110 235
OPPORTUNITY FUND II 67 93 119 235
WARBURG PINCUS
INTERNATIONAL EQUITY 69 98 127 251
POST-VENTURE CAPITAL 69 99 129 255
SMALL COMPANY GROWTH 67 92 117 231
If you do not surrender your Contract or if you annuitize after the first
contract year, here is what your total expenses would be on a $1,000
investment, assuming a 5% annual return on your assets:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
FIDELITY
ASSET MANAGER $16 $49 $85 $186
MONEY MARKET 11 36 62 136
INVESTMENT GRADE BOND 14 44 77 168
HIGH INCOME 16 48 83 182
EQUITY-INCOME 14 44 77 168
GROWTH 15 48 82 180
OVERSEAS 18 55 95 206
INDEX 500 11 35 61 134
ASSET MANAGER: GROWTH 17 53 92 200
CONTRAFUND 16 49 85 186
GROWTH OPPORTUNITIES 16 50 87 189
BALANCED 16 49 84 183
GROWTH & INCOME 15 48 83 181
MORGAN STANLEY
EMERGING MARKETS DEBT 22 66 114 245
EMERGING MARKETS EQUITY 26 80 137 290
GLOBAL EQUITY 20 62 106 260
INTERNATIONAL MAGNUM 20 62 106 260
PBHG
GROWTH II 20 62 106 260
LARGE CAP VALUE 18 57 99 214
SELECT 20 21 63 109 235
SMALL CAP VALUE 21 63 109 235
TECHNOLOGY &
COMMUNICATIONS 21 63 109 235
STRONG
DISCOVERY FUND II 21 64 109 236
GROWTH FUND II 21 63 109 235
OPPORTUNITY FUND II 21 63 109 235
WARBURG PINCUS
INTERNATIONAL EQUITY 22 68 117 251
POST-VENTURE CAPITAL 23 69 119 255
SMALL COMPANY GROWTH 20 62 107 231
THESE FIGURES ILLUSTRATE THE COMBINED EFFECT OF ALL CURRENT CHARGES. THE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE OTHER FUNDS ANNUAL EXPENSES AND THESE EXAMPLES ARE BASED ON DATA
PROVIDED BY THE OTHER FUNDS. THE COMPANY HAS NO REASON TO DOUBT THE
ACCURACY OR COMPLETENESS OF THAT DATA, BUT THE COMPANY HAS NOT VERIFIED THE
OTHER FUNDS' FIGURES. IN PREPARING THE OTHER FUNDS' EXPENSE TABLE AND
EXAMPLES ABOVE, THE COMPANY HAS RELIED ON THE FIGURES PROVIDED BY THE OTHER
FUNDS.
5.FACTS ABOUT FIDELITY INVESTMENTS LIFE, THE VARIABLE ACCOUNT,
AND THE FUNDS
FIDELITY INVESTMENTS LIFE
Fidelity Investments Life is a stock life insurance company organized under
the laws of the State of Utah. Fidelity Investments Life was organized in
1981 under the laws of the Commonwealth of Pennsylvania and changed its
home state to Utah in 1992. Fidelity Investments Life is part of Fidelity
Investments, a group of companies that provides a variety of financial
services and products. Fidelity Investments Life is a wholly-owned
subsidiary of FMR Corp., the parent company of the Fidelity companies.
Through ownership of voting common stock, Edward C. Johnson 3d and various
trusts for the benefit of Johnson family members form a controlling group
with respect to FMR Corp. FMR Corp. acquired Fidelity Investments Life on
December 30, 1986. Immediately before the acquisition Fidelity Investments
Life (which was known by a different name) had no outstanding assets or
liabilities relating to annuity or insurance contracts. Fidelity
Investments Life's financial statements appear in the Statement of
Additional Information. Fidelity Investments Life's principal executive
offices are located at 82 Devonshire Street, Boston, Massachusetts 02109.
THE VARIABLE ACCOUNT
Fidelity Investments Variable Annuity Account I is a separate investment
account of Fidelity Investments Life established on July 22, 1987. It is
used to support the variable annuity contracts described herein and another
form of variable annuity contracts issued by Fidelity Investments Life, and
for other purposes permitted by law.
The Variable Account is registered with the Securities and Exchange
Commission ("SEC") as a unit investment trust under the Investment Company
Act of 1940 ("1940 Act"). The Variable Account's financial statements
appear in the Statement of Additional Information.
We are the legal owner of the assets in the Variable Account. As required
by law, however, the assets of the Variable Account are kept separate from
our general account assets and from any other separate accounts we may have
and may not be charged with liabilities from any other business we conduct.
The assets in the Variable Account will always be at least equal to the
reserves and other liabilities of the Variable Account. If the assets
exceed the required reserves and other liabilities, we may transfer the
excess to our general account. We are obligated to pay all benefits
provided under the Contracts. There are currently twenty-eight Subaccounts
in the Variable Account. Five Subaccounts invest exclusively in shares of a
specific portfolio of the Variable Insurance Products Fund. Five
Subaccounts invest exclusively in shares of a specific portfolio of the
Variable Insurance Products Fund II. Three portfolios invest exclusively in
shares of a specific portfolio of the Variable Insurance Products Fund III.
There are currently 15 other investment options offered by four different
mutual fund investment Advisers.
THE FUNDS
FIDELITY
The Variable Insurance Products Fund, the Variable Insurance Products Fund
II, and the Variable Insurance Products Fund III, each is an open-end,
diversified management investment company organized by Fidelity Management
& Research Company. Each is the type of investment company commonly known
as a series mutual fund.
The investment objectives of the Funds are described below. There is, of
course, no assurance that any portfolio will meet its investment objective.
VARIABLE INSURANCE PRODUCTS FUND
MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as
is consistent with preserving capital and providing liquidity. It invests
only in high-quality money market instruments. The fund may be appropriate
for investors who would like to earn income at current money market rates
while preserving the value of their investment. The Fund is managed to keep
its share price stable at $1.00. The rate of income will vary from day to
day, generally reflecting short-term interest rates.
HIGH INCOME PORTFOLIO seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated, fixed-income securities.
In choosing these securities growth of capital will also be considered. A
Fund's level of risk and potential reward depend on the quality and
maturity of its investments. The Fund is for long-term, aggressive
investors who understand the potential risks and rewards of investing in
lower-quality debt, including defaulted securities. Investors must be
willing to accept the Fund's greater price movements and credit risks.
EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities the
portfolio will also consider the potential for capital appreciation. The
portfolio's goal is to achieve a yield which exceeds the composite yield on
the securities comprising the Standard & Poor's 500 Composite Stock Price
Index. The Fund may be appropriate for investors who are willing to ride
out stock market fluctuations in pursuit of potentially high long-term
returns. The Fund is designed for those who want some income from equity
and bond investments, but also want to be invested in the stock market for
its long-term growth potential.
GROWTH PORTFOLIO seeks to achieve capital appreciation normally through the
purchase of common stocks (although the portfolio's investments are not
restricted to any one type of security). Capital appreciation may also be
found in other types of securities, including bonds and preferred stocks.
The Fund may be appropriate for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns. The
Fund is designed for those who want to pursue growth wherever it may arise,
and who understand that this strategy often leads to investments in
smaller, less well-known companies. The Fund invests for growth and does
not pursue an income strategy.
OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through
investments in foreign securities. Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies
and economies outside of the United States. The Fund may be appropriate for
investors who want to pursue their investment goals in markets outside of
the United States. By including international investments in your
portfolio, you can achieve additional diversification and participate in
growth opportunities around the world. However, it is important to note
that investments in foreign securities involve risks in addition to those
of U.S. investments.In addition to general risks, international investing
involves different or increased risks. The performance of international
funds depends upon currency values, the political and regulatory
environment, and overall economic factors in the countries in which the
Fund invests.
VARIABLE INSURANCE PRODUCTS FUND II
ASSET MANAGER PORTFOLIO seeks high total return with reduced risk over the
long-term by allocating its assets among domestic and foreign stocks, bonds
and short-term, fixed income instruments. The Fund may be appropriate for
investors who want to diversify among domestic and foreign stocks, bonds,
short-term instruments and other types of securities, the Fund spreads its
assets among all three asset classes moderating both its risk and return
potential. Because the Fund owns different types of investments, the
performance is affected by a variety of factors. The value of each Fund's
investments and the income generated will vary from day to day, and
generally reflect interest rates, market conditions, and other company,
political and economic news. Performance also depends on FMR's skills in
allocating assets.
INVESTMENT GRADE BOND PORTFOLIO seeks as high a level of current income as
is consistent with the preservation of capital by investing in a broad
range of investment-grade fixed-income securities. The Fund may be
appropriate for investors who want high current income from a portfolio of
investment-grade debt securities. A Fund's level of risk and potential
reward depend on the quality and maturity of its investments. With its
focus on medium- to high-quality investments, the Fund has a moderate risk
level and yield potential.
INDEX 500 PORTFOLIO seeks to provide investment results that correspond to
the total return (i.e. the combination of capital changes and income) of
common stocks publicly traded in the United States. In seeking this
objective, the portfolio attempts to duplicate the composition and total
return of the Standard & Poor's 500 Composite Stock Price Index. The Fund
may be appropriate for investors who are willing to ride out stock market
fluctuations in pursuit of potentially high long-term returns. The Fund is
designed for those who want to pursue growth of capital and current income
through a portfolio of securities that broadly represents the U.S. stock
market, as measured by the S&P 500. The Fund seeks to keep expenses low as
it attempts to match the return of the S&P 500. Because the Fund seeks to
track, rather than beat, the performance of the S&P 500, it is not managed
in the same manner as other funds.
ASSET MANAGER: GROWTH PORTFOLIO seeks maximum total return over the
long-term by allocating its assets among an aggressive mix of domestic and
foreign stocks, bonds and short-term fixed income instruments. The Fund may
be appropriate for investors who want to diversify among domestic and
foreign stocks, bonds, short-term instruments and other types of
securities, in one fund. The Fund, while spreading its assets among all
three asset classes, uses a more aggressive approach by focusing on stocks
for a higher potential return. Because the Fund owns different types of
investments, their performance is affected by a variety of factors. The
value of each Fund's investments and the income they generate will vary
from day to day, and generally reflect interest rates, market conditions,
and other company, political and economic news. Performance also depends on
FMR's skills in allocating assets.
CONTRAFUND PORTFOLIO seeks long-term capital appreciation by investing in
equity securities of companies considered undervalued or out-of-favor by
the Fund's Adviser. The Fund may be appropriate for investors who are
willing to ride out stock market fluctuations in pursuit of potentially
high long-term returns. The Fund is designed for those who are looking for
an investment approach that follows a contrarian philosophy.
VARIABLE INSURANCE PRODUCTS FUND III
GROWTH & INCOME PORTFOLIO seeks high total return through a combination of
current income and capital appreciation by investing mainly in equity
securities. The Fund may also invest in equity securities that are not
paying dividends, but offer the potential for capital appreciation of
future income. The Fund may be appropriate for investors who are willing to
ride out stock market fluctuations in pursuit of potentially high long-term
returns. The Fund is designed for those who seek a combination of growth
and income from equity and some bond investment.
GROWTH OPPORTUNITIES PORTFOLIO seeks capital growth by investing in a wide
range of common domestic and foreign stocks, and securities convertible
into common stocks. Although the Fund invests primarily in common stock, it
has the ability to purchase securities, such as preferred stock and bonds
that may produce capital growth. The value of the Fund's investments and,
as applicable, the income they generate will vary from day to day, and
generally reflect changes in market conditions, interest rates, and other
company, political, or economic news. In the short-term, stock prices can
fluctuate dramatically in response to these factors.
BALANCED PORTFOLIO seeks both income and growth of capital by investing in
a broad selection of stocks, bonds, and convertible securities. When FMR's
outlook is neutral, it will invest approximately 60% of the Fund's assets
in equity securities and will always invest at least 25% of the Fund's
assets in fixed income securities. The value of the Fund's investments and,
as applicable, the income they generate will vary from day to day, and
generally reflect changes in market conditions, interest rates, and other
company, political, or economic news. In the short-term, stock prices can
fluctuate dramatically in response to these factors.
MORGAN STANLEY ASSET MANAGEMENT INC.
EMERGING MARKETS DEBT PORTFOLIO seeks high total return by investing
primarily in Fixed Income Securities of government and government-related
issuers located in emerging market countries, which securities provide a
high level of current income, while at the same time holding the potential
for capital appreciation if the perceived credit worthiness of the issuer
improves due to improving economic, financial, political, social or other
conditions in the country in which the issuer is located. Under normal
market conditions, the Portfolio will invest a large portion of its total
assets in Government Fixed Income Securities, including Loan Participations
and Assignments between governments and financial institutions, securities
issued by government owned, controlled or sponsored entities and
securities of entities organized to restructure outstanding debt of such
issuers. In selecting Emerging Market Country Fixed Income Securities for
the Portfolio, Morgan Stanley Asset Management Inc. ("MSAM") will apply a
market risk analysis contemplating assessment of factors such as liquidity,
volatility, tax implications, interest rate sensitivity, counterparty risks
and technical market considerations. As opportunities to invest in debt
securities in other countries develop, the Portfolio expects to expand and
further diversify the universe of emerging market countries in which it
invests. The Portfolio maybe appropriate for those who seek a high level of
current income from Emerging Market Country Securities that are Fixed
Income Securities, while holding the potential for capital appreciation.
EMERGING MARKETS EQUITY PORTFOLIO seeks long-term capital
appreciation by investing primarily in Equity Securities of emerging market
country issuers with a focus on those in which MSAM believes the economies
are developing strongly and in which the markets are becoming more
sophisticated. The Portfolio may be appropriate for those who seek to
achieve long-term capital appreciation by investing in Emerging Market
Country Securities. By including emerging market country investments in
their portfolio, investors can achieve additional diversification and
participate in growth opportunities in emerging market countries. Under
normal market conditions, a large percentage of the total assets of the
Portfolio will be invested in Emerging Market Country Equity Securities.
There are currently over 130 countries which, in the opinion of MSAM, are
generally considered to be emerging or developing countries by the
international financial community, approximately 40 of which currently have
stock markets. As markeys in other countries develop, the Portfolio
expects to expand and further diversify the emerging market countries in
which it invests. In selecting industries and particular issuers, MSAM
will evaluate costs of labor and raw materials, access to technology,
export of products and government regulation. Although the Portfolio seeks
to invest in larger companies, it may invest in small-and medium size
companies that, in MSAM's view, have potential for growth.
GLOBAL EQUITY PORTFOLIO seeks long-term capital appreciation by
investing primarily in Equity Securities of issuers throughout the world,
including U.S. issuers and issuers in emerging market countries, using an
approach that is oriented to the selection of individual stocks that MSAM
believes are undervalued. The Portfolio may be appropriate for investors
who seek to pursue their investment goals in markets throughout the world,
including the United States. By including international investments in
their portfolio, investors can achieve additional diversification and
participate in growth opportunities around the world. Under normal
circumstances, a substantial amount of the total assets of the Portfolio
will be invested in Equity Securities, and a lesser percentage of the
Portfolio's assets will be invested in Common Stocks of U.S. issuers and
the remaining equity position will be invested in at least three countries
other than the United States. MSAM's approach is oriented to individual
stock selection and is value driven. In selecting stocks for the Portfolio,
MSAM initially identifies those stocks that it believes to be undervalued
in relation to the issuers assets, cash flow, earnings and revenues, and
then evaluates the future value of such stocks by running the results of an
in-depth study of the issuer through a dividend discount model. In
selecting investments, MSAM utilizes the research of a number of sources,
including Morgan Stanley Capital International, an affiliate of MSAM
located in Geneva, Switzerland.
INTERNATIONAL MAGNUM PORTFOLIO seeks long-term capital appreciation
by investing primarily in Equity Securities of non U.S. issuers domiciled
in EAFE countries, pursuant to weightings determined by MSAM. The Portfolio
may be appropriate for investors who seek to pursue their investment goals
in markets outside of the United States. By including international
investments in their portfolio, investors can achieve additional
diversification and participate in growth opportunities around the world.
The countries in which the Portfolio will invest are those comprising the
Morgan Stanley Capital International EAFE Index, which includes Australia,
Japan, New Zealand, most nations located in Western Europe and certain
developed countries in Asia, such as Hong Kong and Singapore (each an "EAFE
country", and collectively the "EAFE countries"). Under normal market
conditions, a large percentage of the total assets of the Portfolio will be
invested in Equity Securities of issuers in at least three different EAFE
countries.
PBHG
SELECT 20 PORTFOLIO seeks long-term growth of capital and income. The
Portfolio will normally be substantially invested in equity securities
(including ADRs and foreign equity securities). The equity securities in
which the Portfolio will invest are common stocks, warrants and rights to
purchase common stocks, and debt securities and preferred stocks that are
convertible into common stocks. Under normal market conditions, the
Portfolio will invest at least 65%of its total assets in equity securities
of a limited number (i.e., no more than 20 stocks) of large capitalization
companies that, in Pilgrim Baxter & Associates, Ltd.'s (the "Adviser")
opinion, have a strong earnings growth outlook and potential for capital
appreciation. Such large companies have market capitalization in excess of
$1 billion. Because the Portfolio focuses on equity securities of a small
number of companies, the impact of a change in value of a single stock
holding may be magnified.
GROWTH II PORTFOLIO seeks capital appreciation and will normally be
as fully invested as practicable in common stocks and securities
convertible into common stocks. Under normal market conditions, the
Portfolio will invest at least 65%of its total assets in common stocks and
convertible securities of small and medium sized growth companies (market
capitalization or annual revenues up to $4 billion). The Portfolio will
seek to achieve its objective by investing in companies believed by the
Adviser to have an outlook for strong earnings growth and the potential for
significant capital appreciation. The Securities will be sold when the
Adviser believes that anticipated appreciation is no longer probable,
alternative investments offer superior appreciation prospects, or the risk
of a decline in market price is too great. The Portfolio will likely have
somewhat greater volatility than the stock market in general. Because the
investment techniques employed by the Adviser are responsive to near-term
earnings trends of the companies whose securities are owned by the
Portfolio, the Portfolio turnover can be expected to be fairly high.
LARGE CAP VALUE PORTFOLIO seeks long-term growth of capital and
income. Current income is a secondary objective. Under normal market
conditions, the Portfolio will invest a majority percentage of its total
assets in a diversified Portfolio of equity securities of large
capitalization companies which, in the opinion of the Adviser and Newbold's
Asset Management, Inc. (the "Sub-Adviser"), are undervalued or overlooked
by the market. In selecting investments for the Portfolio, the Adviser and
Sub-Adviser emphasize fundamental investment value and consider the
following factors, among others, in identifying and analyzing a security's
fundamental value: the relationship of a company's potential earnings
power to its current stock price; current dividend income and potential for
current dividends, strong balance sheet with with low financial leverage;
low price/earnings ratio relative to other similar companies; and potential
for favorable business developments.
SMALL CAP VALUE PORTFOLIO seeks to achieve above-average total
return over a market cycle of three to five years, consistent with
reasonable risk, by investing primarily in a diversified Portfolio of
common stocks of small companies with market capitalizations in the range
of companies represented in the Russell 2000 Index which are considered to
be relatively undervalued based on certain proprietary measures of value.
In selecting investments for the Portfolio, the Adviser and Sub-Adviser
emphasize fundamental investment value and consider the following factors,
among others, in identifying and analyzing a security's fundamental value:
the relationship of a company's potential earnings power to its current
stock price; current dividend income and potential for current dividends;
low price/earnings ratio relative to other similar companies; strong
competitive advantages, including a recognized brand or trade name or niche
market position; sufficient resources for expansion; capability of
management; and favorable overall business prospects.
TECHNOLOGY & COMMUNICATIONS PORTFOLIO seeks long-term growth of
capital. Current income is incidental to the Portfolio's objective. Under
normal market conditions, the Portfolio will invest at least 65% of its
total assets in common stocks of companies which rely extensively on
technology or communications in their product development or operations, or
which are expected to benefit from technological advances and improvements,
and that may be experiencing exceptional growth in sales and earnings
driven by technology- or communication-related products and services. Such
technology and communications companies may be in different industries or
fields, including computer software and hardware, electronic components and
systems, network and cable broadcasting, telecommunications, mobile
communications, satellite communications, defense and aerospace,
transportation systems, data storage and retrieval, biotechnology and
medical, and environmental. As a result of this focus, the Portfolio
offers investors the significant growth potential of companies that may be
responsible for breakthrough products or technologies or that are
positioned to take advantage of cutting-edge developments. The Portfolios
stock holdings can range from small companies developing new technologies
or pursuing scientific breakthroughs to large, blue chip firms with
established track records in developing and marketing such scientific
advances.
STRONG
DISCOVERY FUND II PORTFOLIO seeks capital growth. The Fund invests
in securities that the Adviser believes represent attractive growth
opportunities. The Fund normally emphasizes equity securities, although it
has the flexibility to invest in any type of security that the Adviser
believes has the potential for capital appreciation. The Fund may invest
up to 100% of its total assets in equity securities, including common
stocks, preferred stocks, and securities that are convertible into common
or preferred stocks, such as warrants and convertible bonds. The Fund may
also invest up to 100% of its assets in debt obligations, including
intermediate-to-long term corporate or U.S. government debt securities.
When the Adviser determines that market conditions warrant a temporary
defensive position, the Fund may invest without limitation in cash and
short-term fixed-income securities. Although the debt obligations in which
it invests will be primarily investment-grade, the Fund may invest up to 5%
of its net assets in non-investment grade debt obligations. The Fund may
also invest up to 25% of its net assets in foreign securities, including
both direct investments and investments made through depository receipts.
The Adviser attempts to identify companies that are poised for accelerated
earnings growth due to innovative products or services, new management, or
favorable economic or market cycles. These companies may be small,
unseasoned firms in early stages of development, or they may be mature
organizations.
GROWTH FUND II PORTFOLIO seeks capital growth. The Fund invests
primarily in equity securities that the Adviser believes have above-average
growth prospects. Under normal market conditions, the Fund will invest at
least 65% of its total assets in equity securities, including common
stocks, preferred stocks, and securities that are convertible into common
or preferred stocks, such as warrants and convertible bonds. While the
emphasis of the Fund is clearly on equity securities, the Fund may invest a
limited portion of its assets in debt obligations when the Adviser
perceives that they are more attractive than stocks on a long-term basis.
The Fund may invest up to 35% of its total assets in debt obligations,
including intermediate-to-long term corporate or U.S. government debt
securities. When the Adviser determines that market conditions warrant a
temporary defensive position, the Fund may invest without limitation in
cash and short-term fixed-income securities. Although the debt obligations
in which it invests will be primarily investment grade, the Fund may invest
up to 5% of its net assets in non-investment grade debt obligations. The
Fund may invest up to 25% of its assets in foreign securities, including
both direct investments and investments made through depository receipts.
The Fund generally will invest in companies whose earnings are believed to
be in a relatively strong growth trend, and, to a lesser extent, in
companies in which significant further growth is not anticipated but whose
market value is thought to be undervalued. In identifying companies with
favorable growth prospects, the Adviser ordinarily looks to certain other
characteristics, such as prospects for above-average sales and earnings
growth; high return on invested capital; overall financial strength,
including sound financial and accounting policies and a strong balance
sheet; competitive advantages, including innovative products and service;
effective research, product development and marketing; and stable, capable
management.
OPPORTUNITY FUND II PORTFOLIO seeks capital growth. The Fund
invests primarily in equity securities and currently emphasizes investments
in medium-sized companies the Adviser believes are under researched and
attractively valued. The Fund will invest at least 70% of its total assets
in equity securities, including common stocks, preferred stocks, and
securities that are convertible into common or preferred stocks, such as
warrants and convertible bonds. Under normal market conditions, the Fund
expects to be fully invested in equities. The Fund may, however, invest
up to 30% of its net assets in debt obligations, including intermediate-to
long-term corporate or U.S. government debt securities, and when the
Adviser determines that market conditions warrant a temporary defensive
position, it may use that allowance to invest up to 30% of its net assets
in cash and short-term fixed-income securities. Although the debt
obligations in which it invests will be primarily investment grade, the
Fund may invest up to 5% of its net assets in non-investment grade debt
obligations. The Fund may also invest up to 25% of its assets in foreign
securities, including both direct investments and investments made through
depository receipts. In selecting its equity investments, the Adviser seeks
to identify attractive investment opportunities that have not become widely
recognized by other stock analysts or the financial press. Through
first-hand research that often includes on-site visits with the leaders of
companies, the Advisers looks for companies with fundamental value or
growth potential that is not yet reflected in their current market prices.
In many cases, companies in the small- and medium-capitalization markets
are under-followed and, as a result, less efficiently priced than their
larger, better-known counterparts. The Fund's investments are therefore
likely to consist, in part, of securities in small- and medium-sized
companies. Many of these companies may have successfully emerged from the
start-up phase and have potential for future growth. Because of their
longer track records and more seasoned management, they generally pose less
investment uncertainty than do the smallest companies. In general,
smaller-capitalization companies often involve greater risks than
investments in established companies.
WARBURG PINCUS
INTERNATIONAL EQUITY P ORTFOLIO seeks long-term capital appreciation
by investing in equity securities of non-U.S. issuers. The Portfolio
pursues its investment objective by investing primarily in a broadly
diversified portfolio of equity securities of companies, wherever
organized, that in the judgement of the Adviser, have their principal
business activities and interests outside of the United States. The
Portfolio will ordinarily invest substantially all of its assets in common
stocks, warrants and securities convertible into or exchangeable for common
stocks, and will generally invest in at least three countries other than
the United States. The Portfolio intends to be widely diversified across
securities of many corporations located in a number of foreign countries.
The Adviser anticipates, however, that the Portfolio from time to time
invest a significant portion of its assets in a single country such as
Japan, which may involve special risks. In appropriate circumstances,
such as when a direct investment by the Portfolio in the securities of a
particular country cannot be made or when the securities of an investment
company are more liquid than the underlying portfolio securities, the
Portfolio may invest in the securities of closed-end investment companies
that invest in foreign securities. The Portfolio intends to invest
principally in the securities of financially strong companies with
opportunities for growth within growing international economies and markets
through increased earning power and improved utilization or recognition of
assets. International investment entails special risk considerations,
including currency fluctuations, lower liquidity, economic instability,
political uncertainty and differences in accounting methods.
POST-VENTURE CAPITAL P ORTFOLIO seeks long-term growth of capital.
The Portfolio pursues an aggressive investment strategy by investing
primarily in equity securities of companies considered by the Adviser to be
in their post-venture capital stage of development. Although the Portfolio
may invest up to 10% of its assets in venture capital and other investment
Funds, the Portfolio is not designed primarily to provide venture capital
financing. Rather, under normal market conditions, the Portfolio will
invest up to at least 65% of its total assets in equity securities of
"post-venture capital companies." A post-venture capital company is a
company that has received venture capital financing either (a) during the
early stages of the company's existence or the early stages of the
development of a new product or service or (b) as part of a restructuring
or recapitalization of the company. The investment of venture capital
financing, distribution of such company's securities to venture capital
investors, or initial public offering ("IPO"), whichever is later, will
have been made within ten years prior to the Portfolio's purchase of the
company's securities. The Adviser believes that venture capital
participation in a company's capital structure can lead to revenue/earnings
growth rates above those of older, public companies such as those in the
Dow Jones Industrial Average or the Fortune 500. Up to 10% of the
Portfolio's assets may be invested in United States or foreign private
limited partnerships or other investment Funds ("Private Funds") that
themselves invest in equity or debt securities of (a) companies in the
venture capital or post-venture capital stages of development or (b)
companies engaged in special situations or changes in corporate control,
including buyouts. Because of the nature of the Portfolio's investments
and certain strategies it may use, such as investing in Private Funds, an
investment in the Portfolio should be considered only for the aggressive
portion of an investor's portfolio and may not be appropriate for all
investors.
SMALL COMPANY GROWTH P ORTFOLIO seeks capital growth by investing
primarily in equity securities of small sized domestic companies (i.e.,
companies having stock market capitalizations of between $25 million and $1
billion at the time of purchase) that represent attractive opportunities
for capital growth. It is anticipated that the Portfolio will invest
primarily in companies whose securities are traded on domestic stock
exchanges or in the over-the -counter market. Small companies may still be
in the development stage, may be older companies that appear to be entering
a new stage of growth progress owing to factors such as management changes
or development of new technology, products or markets or may be companies
providing products or services with a high unit volume growth rate. The
Portfolio's investments will be made on the basis of their equity
characteristics and securities ratings generally will not be a factor in
the selection process. The Portfolio may also invest in securities of
emerging growth companies, which can be either small- or medium-sized
companies that have passed their start up phase and that show positive
earnings and prospects of achieving significant profit and gain in a
relatively short period of time. Emerging growth companies generally stand
to benefit from new products or services, technological developments or
changes in management and other factors and include smaller companies
experiencing unusual developments affecting their market value.
Shares of the Fidelity Funds may also be sold to a variable life separate
account of Fidelity Investments Life and to variable annuity and variable
life separate accounts of other insurance companies. For a discussion of
the possible consequences associated with having the Fidelity Funds
available to such other separate accounts, see RESOLVING MATERIAL CONFLICTS
on page .
The investment adviser for the Fidelity Funds is Fidelity Management &
Research Company, a registered adviser under the Investment Advisers Act of
1940. Fidelity Management & Research Company is the original Fidelity
company and was founded in 1946. It provides a number of mutual funds and
other clients with investment research and portfolio management services.
It maintains a large staff of experienced investment personnel and a full
complement of related support facilities. As of December 31, 1996, it
advised funds having more than 29 million shareholder accounts with a total
value of more than $432 billion. The portfolios of the Fidelity Funds, as
part of their operating expenses, pay an investment management fee to
Fidelity Management & Research Company. These fees are part of the Funds'
expenses. See the prospectuses for the Funds for discussions of the Funds'
expenses.
The investment adviser for the Morgan Stanley Universal Funds is Morgan
Stanley Asset ManagementInc., a wholly-owned subsidiary of Morgan Stanley,
Dean Witter, Discover & Co. ("MSDWD"), which is a publicly owned financial
services corporation listed on the New York stock exchange. MSAM, a
registered Investment Adviser under the Investment Advisers Act of 1940, as
amended, serves as investment adviser to numerous open-end and closed-end
investment companies, as well as many institutions, pension plans and
individuals. MSAM's principal business office is located at 1221 Avenue of
the Americas, New York, New York 10020.
The investment adviser for the PBHG Insurance Series Fund, Inc is Pilgrim
Baxter & Associates, Ltd. (the "Adviser"), a professional investment
management firm and registered investment adviser that, along with its
predecessors, has been in business since 1982. The controlling shareholder
of the Adviser is United Asset Management Corporation ("UAM"), a New York
stock exchange listed holding company principally engaged through
affiliated firms, in providing institutional investments management
services and acquiring institutional investment management firms. UAM's
headquarters are located at One International Place, Boston, Massachusetts
02110. The principal business address of the Adviser is 1255 Drummers
Lane, Suite 300, Wayne, Pennsylvania 19087. Newbold's Asset Management,
Inc., the Sub-Adviser, 950 Haverford Road, Bryn Mawr, Pennsylvania 19010,
is a registered investment adviser that was formed in 1940. As with the
Adviser, the controlling shareholder of the Sub-Adviser is UAM.
The investment adviser for the Strong Funds is Strong Capital Management,
Inc. The Adviser began conducting business in 1974. Since then, its
principal business has been providing continuous investment supervision for
individuals and institutional accounts, such as pension funds and
profit-sharing plans, as well as mutual funds, several of which are funding
vehicles for variable insurance products. The Adviser's principal mailing
address is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Richard S.
Strong, the Chairman of the Board of the Fund, is the controlling
shareholder of the Adviser.
The investment adviser for the Warburg Pincus Funds is Warburg Pincus.
Incorporated in 1970, Warburg Pincus is indirectly controlled by Warburg,
Pincus & Co.("WP&Co."), Warburg G.P has no business other than being a
holding company of Warburg Pincus and its affiliates. Lionel I. Pincus, the
managing partner of WP&Co., may be deemed to control both WP&Co. and
Warburg Pincus. Warburg Pincus' address is 466 Lexington Avenue, New York,
New York 10017-3147.
You will find more complete information about the Funds, including the
risks associated with each portfolio, in their respective prospectuses. You
should read them in conjunction with this prospectus.
6.FACTS ABOUT THE CONTRACT
PURCHASE OF A CONTRACT
We offer the Contracts only in states in which we have obtained the
necessary approval. The Contracts are available on a non-qualified basis
("Non-qualified Contracts") and as individual retirement annuities ("IRAs")
that qualify for special Federal income tax treatment ("Qualified
Contracts").
Generally, Qualified Contracts may be purchased only in connection with a
"rollover" of funds from another qualified plan, tax sheltered annuity or
IRA and contain certain other restrictive provisions limiting the timing
and amount of payments to and distributions from the Qualified Contract.
See TAX CONSIDERATIONS on page .
To purchase a Non-qualified Contract you must make a purchase payment of at
least $2,500 and complete an application form. To purchase a Qualified
Contract you must make a purchase payment of at least $10,000 and complete
an application form. For a Non-qualified Contract, the proposed Annuitant
must be no older than 80 years old. If your application and initial
purchase payment can be accepted in the form received, the payment will be
applied to the purchase of a Contract within two business days after
receipt at the Annuity Service Center. The date that the payment is
credited and your Contract issued is called the Contract Date. If an
incomplete application is received, we will request the information
necessary to complete the application. Once the completed application is
received, the initial payment will be applied to the purchase of a Contract
within two business days. If the application remains incomplete for five
business days, we will return your payment unless we obtain your specific
permission to retain the payment pending completion of the application.
A Non-qualified Contract may also be purchased by exchanging Fidelity
Variable Annuity (another annuity contract issued by Fidelity Investments
Life). In such an exchange, the original contract will be exchanged for a
new contract with a purchase price equal to the contract value of the
original contract on the date of the exchange. In addition, a Contract
purchased through such an exchange will be subject to certain special
provisions, which are described throughout the prospectus. For example, the
withdrawal charge is subject to special rules. See WITHDRAWAL CHARGE on
page .
You may make additional payments to a Non-qualified Contract during the
life of the Annuitant and before the Annuity Date. The smallest such
payment we will accept is $250. You may, however, elect to make regular
monthly payments of a minimum of $100 by authorizing regular transfers from
a checking account. See AUTOMATIC DEDUCTION PLAN on page . Furthermore, we
may offer Contracts with lower minimum payment requirements to individuals
under certain sponsored arrangements that meet our eligibility
requirements. See SPECIAL PROVISIONS APPLICABLE TO SALES UNDER SPONSORED
ARRANGEMENTS on page . You may make additional payments to a Qualified
Contract of additional rollover contributions from another qualified plan,
tax sheltered annuity or IRA. See TAX CONSIDERATIONS on page . The smallest
such payment we will accept is $2,500 unless your Contract provides for a
lower minimum. After the free look period, additional payments allocated to
the variable Subaccounts will be credited to your Contract based on the
next computed value of an Accumulation Unit following receipt of your
payment at the Annuity Service Center. See ACCUMULATION UNITS on page .
Payments allocated to the Fixed Account will be credited under your
Contract as of the date the payment is received at our Annuity Service
Center. See THE FIXED ACCOUNT on page . We may limit the maximum amount of
initial or subsequent payments that we will accept.
FREE LOOK PRIVILEGE
You may return your Contract for a refund within 10 days (or longer where
required by applicable state insurance law), after you receive it (the
"free look period"). When you are replacing an existing insurance product
with the Contract, the free look period will be extended to at least 20
days (or longer where required by applicable state insurance law). The
entire portion of any net purchase payment allocated to the Variable
Account will be invested in the Money Market Subaccount for the period we
estimate or calculate your free look right to be in existence, which is
generally 15 days after the Contract Date (25 days if you are replacing an
existing insurance product). The Contract value in the Money Market
Subaccount will then be transferred to the Subaccounts you chose on the
application or in any later instructions to us. For Contracts with large
initial payments, we will calculate the exact date your free look right
expires based on the actual date you receive the Contract.
If you choose not to retain your Contract, return it to our Annuity Service
Center within the free look period. Upon written instruction, the Contract
will be canceled and we will refund promptly the greater of (1) your
purchase payment without interest, and (2) your Contract Value plus any
amount deducted from your payment prior to allocation to the variable
Subaccounts or the Fixed Account. This provision does not apply to
contracts purchased by exchanging Fidelity Variable Annuity (another
annuity contract issued by Fidelity Investments Life) and may vary by state
where required by applicable state insurance law.
INVESTMENT ALLOCATION OF YOUR PURCHASE PAYMENTS
At the end of the Valuation Period in which your free look period expires
(by our estimation or calculation), your Contract Value in the Money Market
Subaccount will be allocated among the variable Subaccounts according to
the instructions on your application or your later instructions to us,
based on the respective Accumulation Unit Values of the Subaccounts at that
time. The portion of your initial payment allocated to the Fixed Account
will be credited directly to the Fixed Account. Payments after the free
look period are allocated directly to the selected investment options. All
percentage allocations must be in whole numbers. Prior to the Annuity Date,
you generally may not allocate more than $100,000 (including transfers) to
the Fixed Account during any one Contract Year.
You may currently transfer amounts among variable Subaccounts before the
Annuity Date as often as you wish without charge. However, excessive
trading activity can disrupt portfolio management strategy and increase
portfolio expenses, which are borne by all Contract Owners participating in
the portfolio regardless of their transfer activity. Therefore, we reserve
the right to limit the number of transfers permitted, but not to fewer than
five per Contract Year. For certain contracts issued after May 1, 1997,
FILI also reserves the right to charge for transfers in excess of 12 per
calendar year. The request may be in terms of dollars, such as a request to
transfer $5,000 from one Subaccount to another, or may be in terms of a
percentage reallocation among Subaccounts. In the latter case, the
percentages must be in whole numbers. The minimum amount you may transfer
is $250 or, if less, the entire portion of your Contract Value allocated to
a particular Subaccount. You may transfer amounts or change your investment
allocation with respect to future payments by sending a letter or calling
the Annuity Service Center.
Fidelity Investments Life and the Funds reserve the right to revise or
terminate the telephone exchange provisions, limit the amount of or reject
any exchange, as deemed necessary, at any time. Telephone exchange
authorizations will be limited to eighteen per calendar year. Fidelity
Investments Life will not accept exchange requests via fax.
Fidelity Investments Life will not be responsible for any losses resulting
from unauthorized telephone reallocations if it follows reasonable
procedures designed to verify the identity of the caller. Fidelity
Investments Life will request your Personal Identification Number and may
also record calls. You should verify the accuracy of your confirmation
statements immediately after you receive them.
In some cases, contracts may be sold to individuals who independently
utilize the services of a firm or individual engaged in market timing.
Generally, market timing services obtain authorization from Contract
Owner(s) to make transfers and exchanges among the sub-accounts on the
basis of perceived market trends. Because the large transfers of assets
associated with market timing services may disrupt the management of the
portfolios of the Funds, such transactions may become a detriment to
Contract Owners not utilizing the market timing service.
The right to exchange contract values among subaccounts may be subject to
modification if such rights are executed by a market timing firm or similar
third party authorized to initiate transfers or exchange transactions on
behalf of a Contract Owner(s). In modifying such rights, the Company may,
among other things, decline to accept (1) the transfer or exchange
instructions of any agent acting under a power of attorney on behalf of
more than one Contract Owner, or (2) the transfer or exchange instructions
of individual Contract Owners who have executed pre-authorized transfer or
exchange forms which are submitted by market timing firms or other third
parties on behalf of more than one Contract Owner at the same time. The
Company will impose such restrictions only if it believes that doing so
will prevent harm to other Contract Owners.
When a transfer between variable Subaccounts is requested, the redemption
of the requested amount from the Subaccount will always be effected as of
the end of the Valuation Period in which the request is received at our
Annuity Service Center. That amount will generally be credited to the new
Subaccount at the same time. However, when (1) you are making a transfer to
a Subaccount which invests in a portfolio that accrues dividends on a daily
basis and requires Federal funds before accepting a purchase order and (2)
the Subaccount from which the transfer is being made is investing in an
equity portfolio 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 until the Subaccount from which the transfer is
being made obtains liquidity through the earliest of the portfolio's
receipt of proceeds from sales of portfolio securities, new contributions
by Contract Owners, or otherwise, but no longer than seven days. During
this period, the amount transferred will be uninvested.
Transfers to and from the Fixed Account may be made only with our consent.
For certain contracts issued May 1, 1997 or later, we may discontinue the
availability of the Fixed Account for transfers from the Variable Account
or for purchase payments at any time. You may currently transfer amounts
from the variable Subaccounts to the Fixed Account before the Annuity Date
as often as you wish (with one exception described below) without charge.
The minimum dollar amount you may transfer is $250 from any Subaccount or,
if less, the entire portion of your Contract Value allocated to a
particular Subaccount. If you request a percentage reallocation among the
investment options, the percentages must be in whole numbers. Transfers
from the Fixed Account before the Annuity Date are currently subject to the
following limitations. The maximum amount that currently may be transferred
out of the Fixed Account is 25% of the amount invested in the Fixed Account
or, if larger, the amount that you transferred from the Fixed Account in
the prior Contract Year. The 25% limitation will be reviewed monthly and
may be updated but will not be reduced below 25%. When this maximum amount
is less than $1,000 we permit a transfer of up to $1,000. You may make one
transfer out of the Fixed Account during each Contract Year. A transfer
into the Fixed Account is not permitted during the 12 months following a
transfer out of the Fixed Account. When amounts are withdrawn from or
transferred out of the Fixed Account, the amounts that have been credited
to the Fixed Account for the shortest time are withdrawn first. These
limits are subject to change in the future. See THE FIXED ACCOUNT on page .
The portion of your Contract Value allocated to the variable Subaccounts
will change with the investment performance of the selected Subaccounts.
You should periodically review your allocation of Contract Value in light
of market conditions and your financial objectives. Transfers after the
Annuity Date are subject to different limitations. See FIXED, VARIABLE, OR
COMBINATION ANNUITY INCOME OPTIONS on page .
ACCUMULATION UNITS
When your purchase payments are allocated to a selected variable
Subaccount, they result in a particular number of Accumulation Units being
credited to your Contract. The number of Accumulation Units credited is
determined by dividing the dollar amount allocated to each Subaccount by
the value of an Accumulation Unit for that Subaccount as of the end of the
Valuation Period in which the payment is received at the Annuity Service
Center. The value of each Subaccount's Accumulation Units varies each
Valuation Period (i.e., each day that there is trading on the New York
Stock Exchange) with the Net Rate of Return of the Subaccount. The Net Rate
of Return reflects the investment performance of the Subaccount for the
Valuation Period and is net of the asset charges to the Subaccount. See NET
RATE OF RETURN FOR A SUBACCOUNT on page .
WITHDRAWALS
You may at any time prior to the Annuity Date surrender your Contract for
its Cash Surrender Value. You may also make partial withdrawals of $500 or
more. Certain withdrawals, however, are subject to a penalty tax. See TAX
CONSIDERATIONS on page . You may not make a partial withdrawal that,
including the appropriate withdrawal charge, would reduce your Contract
Value to less than $2,500. Unless you provide other instructions, partial
withdrawals (plus any applicable withdrawal charge) will be taken from all
of your selected investment options in proportion to your Contract Value in
each investment option at the time of the withdrawal. We will pay you the
amount of any surrender or partial withdrawal, less any required tax
withholding, within seven days after we receive a properly completed
withdrawal request. We may defer payment from the Variable Account under
certain limited circumstances for a longer period, and we reserve the right
to defer payment from the Fixed Account under any circumstances for not
more than six months. See POSTPONEMENT OF PAYMENT on page .
SIGNATURE GUARANTEE
A signature guarantee is designed to protect you and Fidelity Investments
Life from fraud. Disbursement or free look requests must include a
signature guarantee if any of the following situations apply:
1. Your account registration has changed within the last 30 days.
2. The requested amount is more than $25,000.
3. The check is being mailed to a different address than the one on your
account (record address).
4. The check is made payable to someone other than the Owner.
5. In other circumstances where we deem it necessary for the protection of
you, the customer (e.g. the signature does not resemble the signature we
have on file).
You should be able to obtain a signature guarantee from a bank, broker
dealer (including Fidelity Investor Centers), credit union (if authorized
under state law), securities exchange or association, clearing agency, or
savings association. A notary public cannot provide a signature guarantee.
1CHARGES
The following are all the charges we make under your Contract.
1. PREMIUM TAXES. In general, we do not currently deduct any amount from
your payments for premium taxes. The entire amount of your purchase
payments will be allocated to the investment options you select. Several
states assess a premium tax upon the commencement of annuity income
payments. If you live in a jurisdiction which imposes such a tax and if
annuity income payments commence under your Contract, we will deduct a
charge from your Contract Value for the tax we incur at the Annuity Date. A
few states may require us to pay premium taxes upon receipt of your
payment. Wyoming and South Dakota currently requires us to pay a premium
tax upon receipt of your purchase payment on non-qualified contracts.
Currently, there is no tax imposed on qualified premiums. However, we may
make a deduction for taxes required by any state upon receipt of your
payments for Contracts issued for delivery in that jurisdiction. We reserve
the right to make the deduction in any jurisdiction when we incur these
taxes. As of the date of this prospectus, the current range of state
premium taxes is from 0% to 3.5%.
2. ADMINISTRATIVE CHARGES. Administrative charges compensate us for the
expenses we incur in administering the Contracts. These expenses include
the cost of issuing the Contract, maintaining necessary systems and
records, and providing reports. We seek to cover these expenses by two
types of administrative charges: an annual maintenance charge and daily
administrative charge.
Currently, on each Contract Anniversary before the Annuity Date an annual
maintenance charge of $30 is deducted from your Contract Value. We
currently waive this annual charge prior to the Annuity Date if your total
purchase payments, less any withdrawals, equal at least $25,000. In
addition, we waive this annual maintenance charge for Contracts purchased
after May 1, 1990 by exchanging Fidelity Variable Annuity (another annuity
contract issued by Fidelity Investments Life). Although we do not now
intend to charge more than $30 per year, we reserve the right to increase
this annual charge to up to $50 if warranted by the expenses we incur.
We also reserve the right to assess this charge against all Contracts
(except for those Contracts issued after May 1, 1990 by exchanging Fidelity
Variable Annuity). The annual maintenance charge will be deducted from each
investment option in proportion to the amount of your total Contract Value
invested in that option on the date of deduction. We will deduct a pro rata
portion of the charge on the Annuity Date or the date the Contract is
surrendered. After the Annuity Date, we will deduct this charge on a pro
rata basis from each annuity income payment. The charge assessed after the
Annuity Date will never be greater than the charge that was in effect just
prior to the Annuity Date.
Each day, we also deduct from the assets of the Subaccounts a percentage of
those assets equivalent to an effective annual rate of 0.05%. As a charge
against the Subaccounts, this administrative charge is not assessed against
your Contract Value allocated to the Fixed Account. This charge is
guaranteed never to be increased above an effective annual rate of 0.25%.
3. MORTALITY AND EXPENSE RISK CHARGE. We deduct a daily asset charge for
our assumption of mortality and expense risks. This charge is made by
deducting daily from the assets of each Subaccount a percentage of those
assets equal to an effective annual rate of not more than 0.75%. As with
the daily administrative charge, this charge is not assessed against your
Contract Value allocated to the Fixed Account. We guarantee never to
increase this charge above an effective annual rate of 0.75%. For Contract
Owners effecting a life annuity, the mortality risk we bear is that of
making the annuity income payments for the life of the Annuitant (or the
life of the Annuitant and the life of a second person in the case of a
joint and survivor annuity) no matter how long that might be. We also bear
a mortality risk under the Contracts, regardless of whether an annuity
income payment option is actually effected, in that we make guaranteed
purchase rates available. In addition, we bear a mortality risk by
guaranteeing a Death Benefit if the Annuitant dies prior to the Annuity
Date and prior to age 70. This Death Benefit may be greater than the
Contract Value. See DEATH BENEFIT on page . The expense risk we assume is
the risk that the costs of issuing and administering the Contracts will be
greater than we expected when setting the administrative charges. Of this
0.75% charge, it is estimated that 0.66% is for assuming mortality risks
and it is estimated that 0.10% is for assuming expense risks. We will
realize a gain from the charge for these risks to the extent that it is not
needed to provide for benefits and expenses under the Contracts.
4. WITHDRAWAL CHARGE. We do not assess any sales charge if you keep your
Contract in force for more than five years. If you surrender your Contract
within the first five Contract Years, we will reduce the amount payable to
you by a withdrawal charge (i.e., a contingent deferred sales charge) to
compensate us for the expenses of selling and distributing the Contracts.
In addition, we will impose a withdrawal charge for sales expenses on
certain partial withdrawals during the first five Contract Years. We do not
assess any withdrawal charge on the death of the Owner or Annuitant. We
currently assess a withdrawal charge upon annuitization if the Contract has
been in existence for less than one year. Bearing this in mind, the
Contract should be viewed as a long-term investment and insurance product.
You may surrender the Contract without any withdrawal charges for thirty
days after notification is mailed to you of any of the following events:
(1) the renewal interest rate on any portion of your Contract Value
allocated to the Fixed Account decreased by more than 1% from the expiring
interest rate; (2) the maintenance charge is increased above the amount
shown in the Contract at issue; or (3) the maintenance charge is imposed on
your Contract as a result of a change in practice.
There is no withdrawal charge if you withdraw the value of your Contract in
whole or in part after five Contract Years. In addition, during the first
five Contract Years, no withdrawal charge is assessed against total
withdrawals in each Contract Year of an amount up to 10% of your total
purchase payments as of the date of withdrawal. For this purpose, "total
purchase payments" refers to all purchase payments made less any amounts
previously withdrawn that were subject to a withdrawal charge.
When a partial or full withdrawal is made within the first five Contract
Years, the amount of purchase payments withdrawn from your Contract Value
(less any amount entitled to the 10% exception) will be subject to a
withdrawal charge for sales expenses as follows:
Withdrawal Charge
As Percentage of Amount of
Contract Year Purchase Payments Withdrawn
1 5%
2 4%
3 3%
4 2%
5 1%
6 and later 0%
For purposes of determining this withdrawal charge, any amount you withdraw
in excess of amounts entitled to the 10% exception will be considered as a
withdrawal of purchase payments until you have withdrawn an amount equal to
all your payments. Amounts withdrawn after an amount equal to your
aggregate purchase payments has been withdrawn are considered to be
withdrawals of investment earnings and are not subject to any withdrawal
charge.
Additional purchase payments during the first five Contract Years will
increase the dollar amount of the potential withdrawal charge by increasing
the amount of payments that may be withdrawn while the withdrawal charge is
in effect. Additional payments do not, however, cause the schedule of
possible withdrawal charges to start over again. For example, if an
additional payment is made during the fifth Contract Year and withdrawn
later during that same year, it and all payments withdrawn that year will
be subject to a 1% withdrawal charge. Additional payments after the fifth
Contract Year will not be subject to any possible withdrawal charge.
Free withdrawals are not cumulative. For example, let us assume that you
(1) make an initial purchase payment of $10,000; (2) make no withdrawals
during the first Contract Year; (3) make no additional purchase payments;
and (4) make a withdrawal of $1,500 in the second Contract Year. Given this
example, $1,000 would be free from a withdrawal charge, but $500 would be
subject to a withdrawal charge.
We will waive the withdrawal charge during the free look period if (a) you
purchased your contract (1) by exchanging another annuity contract or life
insurance policy, or (2) by trustee to trustee transfer or direct rollover
from an IRA or other qualified plan, and (b) (1) you are exchanging the
Contract for another annuity contract, or (2) you are making a trustee to
trustee transfer or direct rollover of the money in a Qualified Contract to
another IRA or a qualified plan.
In connection with a Contract purchased after May 1, 1990 by exchanging
Fidelity Variable Annuity (another annuity contract issued by Fidelity
Investments Life), we will determine the withdrawal charge as if (1) the
new contract had been purchased on the date the original contract was
purchased, and (2) any additional purchase payments made under the original
contract had been made under the new contract on the same date they were
actually made under the original contract.
Since the Contract is intended to be long-term, we expect that the
withdrawal charge will not be sufficient to cover our expenses in selling
the Contracts. To the extent that the withdrawal charges are not
sufficient, we will pay these expenses from our general assets. These
assets may include proceeds from the mortality and expense risk charge
described above.
5. TRANSFER CHARGE. On certain contracts issued after May 1, 1997 we
reserve the right to charge for transfers in excess of 12 per calendar
year.
6. FUNDS' EXPENSES. The expenses and charges incurred by the Funds are
described in their respective prospectuses.
7. OTHER TAXES. We reserve the right to charge for certain taxes (other
than premium taxes) that we may have to pay. See FIDELITY INVESTMENTS
LIFE'S TAXES on page .
DEATH BENEFIT
If the Annuitant dies prior to the Annuity Date, we will, upon receipt of
proof of death at the Annuity Service Center, pay a Death Benefit to the
Beneficiary you have designated. If the Annuitant dies on or before his or
her 70th birthday, the Death Benefit will equal the greater of: (1) the
purchase payments paid, less any partial withdrawals and charges thereon;
and (2) the Contract Value as of the end of the Valuation Period in which
proof of death is received at our Annuity Service Center. If the Annuitant
dies after his or her 70th birthday, the Death Benefit will equal the
Contract Value as of the end of the Valuation Period in which proof of
death is received at our Annuity Service Center. However, for Contracts
purchased after May 1, 1990 by exchanging Fidelity Variable Annuity
(another annuity contract issued by Fidelity Investments Life), the Death
Benefit will be the greater of: (1) the purchase payments paid, less any
partial withdrawals and charges thereon; and (2) the Contract Value as of
the end of the Valuation Period in which proof of death is received. No
withdrawal charge is made in connection with the payment of a Death
Benefit. The Death Benefit may be paid in a single sum or applied under a
fixed, variable or combination annuity.
During the lifetime of the Annuitant, you may elect that the Death Benefit
be applied under any one of the annuity income options listed in the
Contract or under any other income option acceptable to us. If you have not
selected an annuity income option and the Annuitant dies prior to the
Annuity Date, the Beneficiary may choose an income option for the Death
Benefit.
REQUIRED DISTRIBUTIONS UPON DEATH
Federal tax law requires that if any Owner dies before the Annuity Date,
the entire interest in the Contract must be distributed within five years
after the Owner's death, unless: the Beneficiary's or second Owner's entire
interest is payable over the Beneficiary's or second Owner's lifetime (or a
period not extending beyond the life expectancy of the Beneficiary or
second Owner) with distributions beginning within one year of the date of
death, or the Beneficiary is the surviving spouse of the deceased Owner, in
which case the spouse may elect to continue the Contract as the Owner.
If the Contract is Jointly Owned and if either Owner dies before the
Annuity Date, the entire interest will be distributed to the surviving
Owner unless the deceased Owner was the Annuitant. In that case, the
Beneficiary will receive the distribution.
If the Owner is a corporation or other non-individual and the Annuitant
dies before the Annuity Date, the Beneficiary's entire interest in the
Contract must be distributed in the same manner as if the contract were
owned by one individual who was also the Annuitant and that individual had
died prior to the Annuity Date.
The rules regarding required distributions upon the Owner's death are
described in the Statement of Additional Information. We intend to
administer the Contracts to comply with Federal tax law.
ANNUITY DATE
When your Contract is issued, it will generally provide for the latest
permissible Annuity Date. The latest permissible date is the first day of
the calendar month following the Annuitant's 85th birthday or, if later,
the first day of the calendar month following the Contract's fifth Contract
Anniversary. You may change the Annuity Date by written notice received at
the Annuity Service Center at least 30 days prior to the current Annuity
Date then in effect. The Annuity Date must be the first day of a month. The
earliest permissible Annuity Date is the first day of the calendar month
following the expiration of the free look period.
SELECTION OF ANNUITY INCOME OPTIONS
While the Annuitant is living and at least 30 days prior to the Annuity
Date, you may elect any one of the annuity income options described in the
Contract. You may also change your election to a different annuity income
option by notifying us in writing at least 30 days prior to the Annuity
Date. Once annuity payments begin, depending on the annuity payment option
chosen, it may not be possible to change later to a different form of
payment, or to make any withdrawals.
In the case of a Qualified Contract, you must elect an option before we
make any annuity income payments. If, under a Non-qualified Contract, you
have not elected an annuity income option at least 30 days prior to the
Annuity Date, the automatic annuity income option will be a combination
annuity for life, with 120 monthly payments guaranteed. The Contract Value
allocated to the Fixed Account, less any maintenance charge and premium
taxes, will be applied to the purchase of the fixed portion of the annuity
and the Contract Value allocated to the Variable Account, less any
maintenance charge and premium taxes, will be applied to the purchase of
the variable portion of the annuity. See Annuity Income Option No. 3 under
TYPES OF ANNUITY INCOME OPTIONS on page .
FIXED, VARIABLE, OR COMBINATION ANNUITY INCOME OPTIONS
You may elect to have annuity income payments made on a fixed basis, a
variable basis, or a combination of both. If you choose a fixed annuity,
the amount of each payment will be set and will not change. Upon selection
of a fixed annuity, your Contract Value will be transferred to the Fixed
Account. The annuity income payments will be fixed in amount and duration
by the fixed annuity provisions selected, the adjusted age and sex of the
Annuitant (except Contracts utilizing unisex purchase rates), and the then
current guaranteed interest rate used to determine fixed annuity income
payments. In no event will the guaranteed interest rate be less than 3.5%
(3.0% for certain Contracts issued May 1, 1997 or later).
If you select a variable annuity, your Contract Value will be transferred
to the Variable Account. The dollar amount of the first variable annuity
income payment will be determined in accordance with the applicable annuity
payment rates, the age and sex of the Annuitant (except Contracts utilizing
unisex purchase rates), and an assumed annual interest rate of 3.5% unless
we also offer an alternative assumed interest rate on the Annuity Date and
you select that alternative. All subsequent variable annuity income
payments are calculated based on the Subaccount Annuity Units credited to
the Contract. Annuity Units are similar to Accumulation Units except that
built into the calculation of Annuity Unit Values is the assumption that
the Net Rate of Return of a Subaccount will equal the assumed interest
rate. Thus, with a 3.5% assumed interest rate, the Subaccount Annuity Unit
Value will not change if the daily Net Rate of Return of the Subaccount is
equivalent to an annual rate of return of 3.5%. If the Net Rate of Return
is greater than the assumed interest rate, the Subaccount Annuity Unit
Value will increase; if the Net Rate of Return is less than the assumed
interest rate, the Subaccount Annuity Unit Value will decrease.
When variable annuity income payments commence, the number of Annuity Units
credited to the Contract in a particular Subaccount is determined by
dividing that portion of the first variable income annuity payment
attributable to that Subaccount by the Annuity Unit Value of that
Subaccount for the Valuation Period in which the Annuity Date occurs. The
number of Annuity Units of each Subaccount credited to the Contract then
remains fixed unless there is a subsequent transfer involving the
Subaccount. The dollar amount of each variable annuity income payment after
the first may increase, decrease or remain constant. The income payment is
equal to the sum of the amounts determined by multiplying the number of
Annuity Units of each Subaccount credited to the Contract by the Annuity
Unit Value for the particular Subaccount for the Valuation Period in which
each subsequent annuity income payment is due.
If you select a combination annuity, your Contract Value will be split
between the Fixed Account and the Variable Account in accordance with your
instructions. Your annuity income payments will be the sum of the income
payment attributable to your fixed portion and the income payment
attributable to your variable portion.
After the Annuity Date, transfers between the Variable Account and the
Fixed Account are not permitted. Transfers among the variable Subaccounts,
however, are permitted subject to some limitations. See TRANSFERS AMONG
SUBACCOUNTS AFTER THE ANNUITY DATE in the Statement of Additional
Information.
TYPES OF ANNUITY INCOME OPTIONS
The Contract provides for three types of annuity income options. All are
available on a fixed, variable or combination basis. You may not select
more than one option. If your Contract Value on the Annuity Date would not
provide an initial monthly payment of at least $20, we may pay the proceeds
in a single sum rather than pursuant to the selected option.
1. LIFE ANNUITY. Income payments will be made monthly during the
Annuitant's lifetime ceasing with the last payment due prior to the
Annuitant's death. No income payments are payable after the death of the
Annuitant. Thus, it is quite possible that income payments will be made
that are less than the value of the Contract. Indeed, if the Annuitant were
to die within one month after the Annuity Date, only one monthly income
payment would have been made. Because of this risk, this option offers the
highest level of monthly payments.
2. JOINT AND SURVIVOR ANNUITY. This option provides monthly income payments
during the joint lifetimes of the Annuitant and a designated second person
and during the lifetime of the survivor. There are some limitations on the
use of this option in qualified annuities. As in the case of the life
annuity described above, there is no guaranteed number of income payments
and no income payments are payable after the death of the Annuitant and the
designated second person.
3. LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS GUARANTEED. This option
provides monthly income 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 case of a Qualified Contract, the guarantee
period may not exceed the life expectancy of the Annuitant. In the event of
the death of the Annuitant under this option, the Contract provides that
any guaranteed monthly income payments will be paid to the Beneficiary or
Beneficiaries during the remaining months of the term selected. However, a
Beneficiary may, at any time, elect to receive the discounted value of his
or her remaining income payments in a single sum. In such event, the
discounted value for fixed or variable annuity income payments will be
based on interest compounded annually at the applicable interest rate used
in determining the first annuity income payment. Upon the death of a
Beneficiary receiving annuity benefits under this option, the present value
of the guaranteed benefits remaining after we receive notice of the death
of the Beneficiary, computed at the applicable interest rate, shall be paid
in a single sum to the estate of the Beneficiary. The present value is
computed as of the Valuation Period during which notice of the death of the
Beneficiary is received at the Annuity Service Center.
You may choose to have income payments made on a monthly basis or at
another frequency such as quarterly, semi-annually or annually. In addition
to the Annuity Income Options provided for in the Contracts, other Annuity
Income Options may be made available by the Company.
REPORTS TO OWNERS
During the Accumulation period, four times each Contract Year you will
receive a statement of your Contract Value, including a summary of all
transactions since the preceding quarterly statement.
In addition, you will receive semiannual reports containing financial
statements for the Variable Account and a list of portfolio securities of
the Funds, as required by the Investment Company Act of 1940.
7.THE FIXED ACCOUNT
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED
ACCOUNT OPTION UNDER THE CONTRACTS HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND THE GENERAL ACCOUNT HAS NOT BEEN REGISTERED AS
AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940.
ACCORDINGLY, INTERESTS IN THE FIXED ACCOUNT OPTION ARE NOT SUBJECT TO THE
PROVISIONS OF THOSE ACTS, AND FIDELITY INVESTMENTS LIFE HAS BEEN ADVISED
THAT THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED
THE DISCLOSURES IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT OPTION.
DISCLOSURES REGARDING THE GENERAL ACCOUNT MAY, HOWEVER, BE SUBJECT TO
CERTAIN GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS
RELATING TO THE ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN
PROSPECTUSES.
As noted earlier, you may allocate purchase payments or transfer all or a
part of your Contract Value to a fixed-rate investment option funded
through Fidelity Investments Life's general account (the "Fixed Account").
The Fixed Account may also be referred to as the "Guaranteed Account".
Funds allocated or transferred to the Fixed Account do not fluctuate with
the investment experience of Fidelity Investments Life's general account.
We guarantee that the portion of your Contract Value that is held in the
Fixed Account will accrue interest daily at an annual rate that will never
be less than 3.5% (3.0% for certain contacts issued May 1, 1997 or later).
When a purchase payment is received or an amount is transferred into the
Fixed Account, an interest rate will be assigned to that amount. That rate
will be guaranteed for a certain period of time depending on when the
amount was allocated to the Fixed Account. When this initial period
expires, a new interest rate will be assigned to that amount which will be
guaranteed for a period of at least a year. Thereafter, interest rates
credited to that amount will be similarly guaranteed for successive periods
of at least one year. Therefore, different interest rates may apply to
different amounts in the Fixed Account depending on when the amount was
initially allocated. Furthermore, the interest rate applicable to any
particular amount may vary from time to time.
For certain contracts issued May 1, 1997 or later, we may discontinue the
availability of the Fixed Account for transfers from the Variable Account
or for purchase payments at any time.
The amount of your Contract Value in the Fixed Account and the amount of
interest credited will be included in the quarterly statements we send to
you. See REPORTS TO OWNERS on page .
8.MORE ABOUT THE CONTRACT
TAX CONSIDERATIONS
The following discussion is not intended as tax advice. For tax advice you
should consult a tax Adviser. Although the following discussion is based on
our understanding of Federal income tax laws as currently interpreted,
there is no guarantee that those laws or interpretations will not change.
The following discussion does not take into account state or local income
tax or other considerations which may be involved in the purchase of a
Contract or the exercise of options under the Contracts. In addition, the
following discussion assumes that the Contract is owned by an individual,
and we do not intend to offer the Contracts to "non natural" persons such
as corporations, unless the Contract is held by such person as a nominee
for an individual. (If the Contract is not owned by or held for a natural
person, the contract will generally not be treated as an annuity for tax
purposes.)
The following discussion assumes that the Contract will be treated as an
annuity for Federal income tax purposes. Section 817(h) of the Code
provides that the investments of a separate account underlying a variable
annuity contract (or the investments of a mutual fund, the shares of which
are owned by the variable annuity separate account) must be "adequately
diversified" in order for the Contract to be treated as an annuity for tax
purposes. The Treasury Department has issued regulations prescribing such
diversification requirements. The Variable Account, through each of the
portfolios of the Funds, intends to comply with these requirements. We have
entered into agreements with the Funds that require the Funds to operate in
compliance with the Treasury Department's requirements. In connection with
the issuance of prior regulations relating to diversification requirements,
the Treasury Department announced that such regulations do not provide
guidance concerning the extent to which owners may direct their investments
to particular divisions of a separate account. Additional guidance relating
to this subject is expected in the near future. It is not clear what this
guidance will provide or whether it will be prospective only. It is
possible that when this guidance is issued the Contract may need to be
modified to comply with it.
In addition, to qualify as an annuity for Federal tax purposes, the
Contract must satisfy certain requirements for distributions in the event
of the death of the Owner of the Contract. The Contract contains such
required distribution provisions. For further information on these
requirements see the Statement of Additional Information.
The individual situation of each Owner or Beneficiary will determine the
Federal estate taxes and the state and local estate, inheritance and other
taxes due if an Owner or the Annuitant dies.
QUALIFIED CONTRACTS
The Contract may be used as a qualified individual retirement annuity.
Under Section 408(b) of the Code, eligible individuals may contribute to an
individual retirement annuity ("IRA"). The Code permits certain "rollover"
contributions to be made to an IRA. In particular, certain qualifying
distributions from another qualified plan, tax sheltered annuity or IRA may
be received tax-free if rolled over to an IRA within 60 days of receipt.
Because the Contract's minimum initial payment of $10,000 is greater than
the maximum annual contribution permitted to an IRA, a Qualified Contract
may be purchased only in connection with a "rollover" of the proceeds from
another qualified plan, tax sheltered annuity or IRA. IN ADDITION,
QUALIFIED CONTRACTS WILL NOT ACCEPT ANY SUBSEQUENT CONTRIBUTIONS OTHER THAN
ADDITIONAL ROLLOVER CONTRIBUTIONS FROM ANOTHER QUALIFIED PLAN, TAX
SHELTERED ANNUITY OR IRA. In order to qualify as an IRA under Section
408(b) of the Code, a Contract must contain certain provisions: (1) the
Owner of the Contract must be the Annuitant and, except for certain
transfers incident to a divorce decree, the Owner cannot be changed and the
Contract cannot be transferable; (2) the Owner's interest in the Contract
cannot be forfeitable; and (3) annuity and death benefit payments must
satisfy certain minimum distribution requirements. Contracts issued on a
qualified basis will conform to the requirements for an IRA and will be
amended to conform to any future changes in the requirements for an IRA.
CONTRACT VALUES AND PROCEEDS
Under current law, you will not be taxed on increases in the value of your
Contract until a distribution occurs. A distribution may occur in the form
of a withdrawal, death benefit payment, or payments under an Annuity Income
Option. An amount received as a loan under, or the assignment or pledge of
any portion of the value of, a Contract may also be treated as a
distribution. In the case of a Qualified Contract, you may not receive or
make any such loan or pledge. Any such loan or pledge will result in
disqualification of the Contract and inclusion of the value of the entire
Contract in income. Additionally, a transfer of a Non-qualified Contract
for less than full and adequate consideration will result in a deemed
distribution, unless the transfer is to your spouse (or to a former spouse
pursuant to a divorce decree). The taxable portion of a distribution is
generally taxed as ordinary income.
If you fully surrender your Contract before annuity income payments
commence, you will be taxed on the portion of the distribution that exceeds
your cost basis in your Contract. For Non-qualified Contracts, the cost
basis is generally the amount of your payments, and the taxable portion of
the proceeds is taxed as ordinary income. For Qualified Contracts, the cost
basis is generally zero, and the entire amount of the surrender payment is
generally taxed as ordinary income. In addition, for both Qualified and
Non-qualified Contracts, amounts received as the result of the death of the
Owner or Annuitant that are in excess of your cost basis will also be
taxed.
Partial withdrawals under a Non-qualified Contract are treated for tax
purposes as first being taxable withdrawals of investment income, rather
than as return of purchase payments, until all investment income earned by
your Contract has been withdrawn. You will be taxed on the amount withdrawn
to the extent that your Contract Value at that time, unreduced by the
withdrawal charge, exceeds your payments. Partial withdrawals under a
Qualified Contract are prorated between taxable income and non-taxable
return of investment. Generally, the cost basis of a Qualified Contract is
zero, and the partial withdrawal will be fully taxed.
All annuity contracts issued by the same company (or an affiliated company)
to the same contract owner during any calendar year are treated as one
annuity contract for purposes of determining the amount includible in
income of any distribution that is not received as an annuity payment. In
the case of a Qualified Contract, the tax law requires for all post-1986
contributions and distributions that all individual retirement accounts and
annuities be treated as one contract.
Although the tax consequences may vary depending on the form of annuity
selected under the Contract, the recipient of an annuity income payment
under the Contract generally is taxed on the portion of such income payment
that exceeds the cost basis in the Contract. For variable annuity income
payments, the taxable portion is determined by a formula that establishes a
specific dollar amount that is not taxed. This dollar amount is determined
by dividing the Contract's cost basis by the total number of expected
periodic income payments. However, the entire distribution will be fully
taxable once the recipient is deemed to have recovered the dollar amount of
the investment in the Contract. For Qualified Contracts, the cost basis is
generally zero and each annuity income payment is fully taxed.
A penalty tax equal to 10% of the amount treated as taxable income may be
imposed on distributions. The penalty tax applies to early withdrawals or
distributions. The penalty tax is not imposed on: (1) distributions made to
persons on or after age 59 1/2; (2) distributions made after death of the
Owner; (3) distributions to a recipient who has become disabled; (4)
distributions in substantially equal installments made for the life of the
taxpayer or the lives of the taxpayer and a designated second person; and
(5) in the case of Qualified Contracts, distributions received from the
rollover of the Contract into another qualified contract or IRA. In the
case of a Contract held in custody for a minor under the Uniform Gifts to
Minors Act or the Uniform Transfers to Minors Act, a distribution under the
Contract ordinarily is taxable to the minor. Whether the penalty tax
applies to such a distribution ordinarily is determined by the circumstance
or characteristics of the minor, not the custodian. Thus, for example, a
distribution taxable to a minor will not qualify for the exception to the
penalty tax for distributions made on or after age 59 1/2, even if the
custodian is 59 1/2 or older. In addition, in the case of a Qualified
Contract, a 50% excise tax is imposed on the amount by which minimum
required annuity or death benefit distributions exceed actual
distributions. Penalty taxes also are imposed on aggregate distributions
from specified retirement programs (including IRAs) in excess of a
specified amount annually and in certain other circumstances.
We will withhold and remit to the U.S. Government a part of the taxable
portion of each distribution made under the Contract, unless the Owner,
Annuitant or Beneficiary files a written election prior to the distribution
stating that he or she chooses not to have any amounts withheld.
FIDELITY INVESTMENTS LIFE'S TAXES
The earnings of the Variable Account are taxed as part of the operations of
Fidelity Investments Life. Under the current provisions of the Code, we do
not expect to incur Federal income taxes on earnings of the Variable
Account to the extent the earnings are credited under the Contracts. Based
on this, no charge is being made currently to the Variable Account for our
Federal income taxes. We will periodically review the need for a charge to
the Variable Account for company Federal income taxes. Such a charge may be
made in future years for any Federal income taxes that would be
attributable to the Contracts.
Under current laws we may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not
significant and are not charged against the Contracts or the Variable
Account. If the amount of these taxes changes substantially, we may make
charges for such taxes against the Variable Account.
OTHER CONTRACT PROVISIONS
You should also be aware of the following important provisions of your
Contract.
1. OWNER. As an Owner named in the application, you have the rights and
privileges specified in the Contract. If there are two Owners they must be
spouses. Owners own the Contract in accordance with its terms. Because they
are inconsistent with the operation of the Contract, we will not accept
applications with additional legal terms such as "tenancy by the entirety,"
"joint tenants in common" or "joint ownership by husband and wife".
Prior to the Annuity Date and during the lifetime of the Annuitant, you may
change an Owner or Beneficiary (but not the Annuitant) by notifying us in
writing. You may not, however, change the Owner of a Qualified Contract. A
change in the Owner of a Non-qualified Contract will take effect on the
date the request was signed, but it will not apply to any payments made by
us before the request was received and recorded at the Annuity Service
Center. If there are two Owners, any written authorizations must come from
both Owners.
2. BENEFICIARY. The Beneficiary(ies) is (are) named on the application
unless later changed. The proceeds will be paid to the Beneficiary or
Beneficiaries if all the Owners or the Annuitant dies before the Annuity
Date. No Beneficiary has rights in the contract until all the Owners or the
Annuitant has died. If no Beneficiary survives the deceased Annuitant or
the last deceased Owner, the proceeds will be paid to the surviving
Owner(s) or to the estate or estates of the deceased Owner(s). All
Beneficiaries must be identified by name. A Beneficiary may be a "Primary
Beneficiary" or a "Contingent Beneficiary". No Contingent Beneficiary has
the right to proceeds unless all of the Primary Beneficiaries die before
proceeds are determined.
3. MISSTATEMENT OF AGE OR SEX. If the age or sex of the Annuitant has been
misstated, we will change the benefits to those which the proceeds would
have purchased had the correct age and sex been stated.
If the misstatement is not discovered until after annuity income payments
have started, we will take the following action: (1) if we made any
overpayments, we may add interest at the rate of 6% per year compounded
annually and charge them against income payments to be made in the future;
(2) if we made any underpayments, the balance plus interest at the rate of
6% per year compounded annually will be paid in a single sum.
4. ASSIGNMENT. You may assign a Non-qualified Contract at any time during
the lifetime of the Annuitant and before the Annuity Date. See TAX
CONSIDERATIONS on page . No assignment will be binding on us unless it is
written in a form acceptable to us and received at our Annuity Service
Center. Your rights and the rights of any Beneficiary will be affected by
an assignment. We will not be responsible for the validity of any
assignment. No assignment may be made of a Qualified Contract.
5. DIVIDENDS. Our variable annuity Contracts are "non-participating". This
means that they do not provide for dividends. Investment results under the
Contracts are reflected in benefits.
SELLING THE CONTRACTS
The Contracts will be distributed through Fidelity Brokerage Services, Inc.
and Fidelity Insurance Agency, Inc., both of which are affiliated with FMR
Corp., the parent company of Fidelity Investments Life. Fidelity Brokerage
Services, Inc. is the principal underwriter (distributor) of the Contracts.
Fidelity Distributors Corporation is the distributor of the Fidelity family
of funds, including the Fidelity Funds. The principal business address of
Fidelity Brokerage Services, Inc. and Fidelity Distributors Corporation is
82 Devonshire Street, Boston, Massachusetts 02109. We pay Fidelity
Insurance Agency, Inc. first year sales compensation of not more than 2% of
payments received in the first Contract Year as well as renewal sales
compensation in later years based on persistency of Contracts and the size
of Contract Values. Our renewal sales compensation payments will be
approximately equal to 0.10% of the Contract Value as of the end of each
Contract Year.
AUTOMATIC DEDUCTION PLAN
Under the automatic deduction plan you can make regular payments by
pre-authorized transfers from a checking account. Your checking account
must be at a banking institution which is a member of ACH (Automatic
Clearing House). The minimum regular payment is $100. This minimum may be
reduced for Contracts issued under certain sponsored arrangements.
Transactions pursuant to an automatic deduction plan will be confirmed in
your quarterly statement. We reserve the right to restrict your
participation in the automatic deduction plan if your checking account has
insufficient funds to cover the transfer.
SPECIAL PROVISIONS APPLICABLE TO SALES UNDER SPONSORED ARRANGEMENTS
We may reduce the annual maintenance charge and/or the withdrawal charge on
Contracts offered to individuals under a sponsored arrangement. See CHARGES
on page . We determine the eligibility of groups for such reduced charges,
and the amount of such reductions for particular groups, by considering the
following factors: (1) the size of the group; (2) the total amount of
purchase payments expected to be received from the group; (3) the nature of
the group and the persistency expected in that group; (4) the purpose for
which the Contracts are purchased and whether that purpose makes it likely
that expenses will be reduced; and (5) any other circumstances which we
believe to be relevant in determining whether reduced sales or
administrative expenses may be expected. Some of the reductions in charges
for these sales may be contractually guaranteed; other reductions may be
withdrawn or modified on a uniform basis. Our reductions in charges for
sponsored sales will not be unfairly discriminatory to the interests of any
Contract Owners.
Contracts issued under a sponsored arrangement generally utilize unisex
annuity purchase rates.
We may also reduce minimum purchase payment requirements on Contracts
issued under these arrangements. Because of these reductions, we include a
provision in such Contracts that allows us to cancel smaller, inactive
Contracts. If we cancel your Contract under this provision, we will pay you
your Contract Value in a single sum payment. Specifically, we may, at our
option, cancel such a Contract prior to the Annuity Date if all of the
following conditions exist at the same time: (1) no purchase payments have
been made during the previous 24 months; (2) the total purchase payments
credited to the Contract are less than $2,000; and (3) the Contract Value
is less than $2,000.
DOLLAR COST AVERAGING
Dollar cost averaging allows you to make automatic monthly dollar amount
transfers from the Money Market Subaccount to any of the other variable
Subaccounts. Dollar cost averaging transfers are not permitted to the Fixed
Account.
These monthly transfers will take effect on the same day each month. You
may select any date between the 1st and 28th as the date of your dollar
cost averaging transfers (the "Transfer Date"). If the Transfer Date occurs
on a day the New York Stock Exchange is closed (i.e., weekend or holiday),
the dollar cost averaging transfer will take effect as of the next business
day which the New York Stock Exchange is open. Your transfers will continue
until the balance in the Money Market Subaccount is exhausted or you notify
us of cancellation of dollar cost averaging for your Contract.
The minimum monthly transfer allowed to any variable Subaccount is $250.
Dollar cost averaging is currently available at no charge to the Contract
Owner. Fidelity Investments Life reserves the right to modify or terminate
the dollar cost averaging feature.
POSTPONEMENT OF PAYMENT
In general, we will ordinarily pay any partial or full cash withdrawal
within seven days after we receive your written request at our Annuity
Service Center. We will usually pay any Death Benefit within seven days
after we receive proof of the Annuitant's death. However, we may delay
payment if (1) the disposal or valuation of the Variable Account's assets
is not reasonably practicable because the New York Stock Exchange is closed
for other than a regular holiday or weekend, trading is restricted by the
SEC, or the SEC declares that an emergency exists; or (2) the SEC by order
permits postponement of payment to protect our Contract Owners. In
addition, we reserve the right to delay payment of any partial or full cash
withdrawal from the Fixed Account for not more than six months. If payment
from the Fixed Account is delayed for more than 30 days, it will be
credited with interest from the date of withdrawal at a rate not less than
3.5% per year compounded annually (3.0% per year for certain contracts
issued May 1, 1997 or later) or, if greater, the rate required by law.
9.MORE ABOUT THE VARIABLE ACCOUNT AND THE FUNDS
CHANGES IN INVESTMENT OPTIONS
We may from time to time make additional Subaccounts available to you.
These Subaccounts will invest in investment portfolios that we find
suitable for the Contracts.
We also have the right to eliminate Subaccounts from the Variable Account,
to combine two or more Subaccounts, or to substitute a new portfolio or
fund for the portfolio in which a Subaccount invests. A substitution may
become necessary if, in our judgment, a portfolio or Fund no longer suits
the purposes of the Contracts. This may happen due to a change in laws or
regulations, or a change in a portfolio's investment objectives or
restrictions, or because the portfolio is no longer available for
investment, or for some other reason. We would obtain prior approval from
the SEC and any other required approvals before making such a substitution.
We also reserve the right to operate the Variable Account as a management
investment company under the 1940 Act or any other form permitted by law or
to deregister the Variable Account under such Act in the event such
registration is no longer required.
NET RATE OF RETURN FOR A SUBACCOUNT
A Subaccount's Net Rate of Return depends on how the investments of the
Subaccount perform. We determine the Net Rate of Return of a Subaccount at
the end of each Valuation Period. Such determinations are made as of the
close of business each day the New York Stock Exchange is open for
business. The Net Rate of Return reflects the investment performance of the
Subaccount for the Valuation Period and is net of the asset charges to the
Subaccounts.
Shares of the Funds are valued at net asset value. Any dividends or capital
gains distributions of a portfolio of the Funds are reinvested in shares of
that portfolio.
VOTING RIGHTS
We will vote shares of the Funds owned by the Variable Account according to
your instructions. However, if the Investment Company Act of 1940 or any
related regulations or interpretations should change, and we decide that we
are permitted to vote the shares of the Funds in our own right, we may
decide to do so.
Before the Annuity Date, we calculate the number of shares that you may
instruct us to vote by dividing your Contract Value in a Subaccount by the
net asset value of one share of the corresponding portfolio. If variable
annuity income payments have commenced, we calculate the number of shares
that the payee may instruct us to vote by dividing the reserve maintained
in each Subaccount to meet the obligations under the Contract by the net
asset value of one share of the corresponding portfolio. Fractional votes
will be counted. We reserve the right to modify the manner in which we
calculate the weight to be given to your voting instructions where such a
change is necessary to comply with then current Federal regulations or
interpretations of those regulations.
We will determine the number of shares you can instruct us to vote 90 days
or less before the applicable Fund shareholder meeting. At least 14 days
before the meeting, we will send you material by mail for providing us with
your voting instructions.
If your voting instructions are not received in time, we will vote the
shares in the same proportion as the instructions received from other
Contract Owners. We will also vote shares we hold in the Variable Account
that are not attributable to Contract Owners in the same proportionate
manner. Under certain circumstances, we may be required by state regulatory
authorities to disregard voting instructions. This may happen if following
such instructions would change the sub-classification or investment
objectives of the portfolios, or result in the approval or disapproval of
an investment Advisery contract.
Under Federal regulations, we may also disregard instructions to vote for
Contract Owner-initiated changes in investment policies or the investment
adviser if we disapprove of the proposed changes. We would disapprove a
proposed change only if it were contrary to state law, prohibited by state
regulatory authorities, or if we decided that the change would result in
overly speculative or unsound investments. If we ever disregard voting
instructions, we will include a summary of our actions in the next
semiannual report.
RESOLVING MATERIAL CONFLICTS
The investment portfolios of the Funds are available to registered separate
accounts offering variable annuity and variable life products of other
participating insurance companies, as well as to the Variable Account and
other separate accounts we establish.
Although we do not anticipate any disadvantages to this, there is a
possibility that a material conflict may arise between the interest of the
Variable Account and one or more of the other separate accounts
participating in the Funds. A conflict may occur due to a change in law
affecting the operations of variable life and variable annuity separate
accounts, differences in the voting instructions of our Contract Owners and
those of other companies, or some other reason. In the event of a conflict,
we will take any steps necessary to protect our Contract Owners and
variable annuity payees.
PERFORMANCE
Performance information for the variable Subaccounts may appear in reports
and advertising to current and prospective Contract Owners. The performance
information is based on historical investment experience of the Subaccounts
and the Funds 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
Fund share price, the automatic reinvestment by the separate account of all
distributions and the deduction of applicable annuity charges (including
any contingent deferred sales charges that would apply if a Contract Owner
surrendered the Contract at the end of the period indicated). Quotations of
total return may also be shown that do not take into account certain
contractual charges such as a maintenance charge or a contingent deferred
sales load. The total return percentage will be higher under this method
than under the standard method described above.
A cumulative total return reflects performance over a stated period of
time. An average annual total return reflects the hypothetical annually
compounded return that would have produced the same cumulative total return
if the performance had been constant over the entire period. Because
average annual total returns tend to smooth out variations in a
Subaccount's returns, you should recognize that they are not the same as
actual year-by-year results.
Some Subaccounts may also advertise yield. These measures reflect the
income generated by an investment in the Subaccount over a specified period
of time. This income is annualized and shown as a percentage. Yields do not
take into account capital gains or losses or the contingent deferred sales
load. The standard quotations of yield reflect the maintenance charge.
Quotations of yield may also be shown that do not reflect the maintenance
charge. The yield calculation will be higher under this method than under
the standard method.
The Money Market Subaccount may advertise its current and effective yield.
Current yield reflects the income generated by an investment in the
Subaccount over a 7 day period. Effective yield is calculated in a similar
manner except that income earned is assumed to be reinvested. The
Investment Grade Bond, High Income and Emerging Markets Debt Subaccounts
may advertise a 30 day yield which reflects the income generated by an
investment in the Subaccount over a 30 day period.
LITIGATION
No litigation is pending that would have a material effect on us or the
Variable Account.
APPENDIX I
Accumulation Unit Values
Fidelity Investments Variable Annuity Account 1
Condensed Financial Information
Money Market Subaccount
Accumulation Accumulation Percentage Increase Number of
Unit Value at Unit Value at or (Decrease) Accumulation
Beginning of Period End of Period During Period Units at End of Period
1996 14.66 15.30 4.34% 33,393,564
1995 13.99 14.66 4.82% 26,268,846
1994 13.55 13.99 3.21% 24,546,739
1993 13.26 13.55 2.20% 10,961,418
1992 12.89 13.26 2.86% 8,273,590
1991 12.27 12.89 5.03% 6,461,782
1990 11.48 12.27 6.95% 5,020,276
1989 10.62 11.48 8.06% 1,449,116
1988* 10.00 10.62 6.21% 204,424
* Period from 1/05/88 to 12/31/88
High Income Subaccount
Accumulation Accumulation Percentage Increase Number of
Unit Value at Unit Value at or (Decrease) Accumulation
Beginning of Period End of Period During Period Units at End of Period
1996 22.05 24.89 12.88% 9,856,952
1995 18.47 22.05 19.40% 7,797,315
1994 18.94 18.47 (2.53)% 5,106,950
1993 15.88 18.94 19.31% 5,122,946
1992 13.03 15.88 21.82% 2,624,011
1991 9.73 13.03 33.92% 859,030
1990 10.07 9.73 (3.35)% 356,960
1989 10.63 10.07 (5.23)% 273,152
1988* 10.00 10.63 6.26 % 69,632
* Period from 2/10/88 to 12/31/88
Equity-Income Subaccount
Accumulation Accumulation Percentage Increase Number of
Unit Value at Unit Value at or (Decrease) Accumulation
Beginning of Period End of Period During Period Units at End of Period
1996 27.44 31.05 13.13% 43,073,117
1995 20.52 27.44 33.75% 41,937,122
1994 19.36 20.52 6.00% 30,415,281
1993 16.54 19.36 17.02% 19,318,902
1992 14.28 16.54 15.81% 8,648,323
1991 10.98 14.28 30.14% 3,225,101
1990 13.09 10.98 (16.14)% 1,391,751
1989 11.27 13.09 16.17% 714,730
1988* 10.00 11.27 12.67% 90,240
* Period from 2/10/88 to 12/31/88
Growth Subaccount
Accumulation Accumulation Percentage Increase Number of
Unit Value at Unit Value at or (Decrease) Accumulation
Beginning of Period End of Period During Period Units at End of Period
1996 30.80 34.97 13.55% 26,772,269
1995 22.98 30.80 34.02% 23,019,869
1994 23.22 22.98 (1.02)% 17,470,386
1993 19.64 23.22 18.18% 12,073,224
1992 18.15 19.64 8.23% 8,401,957
1991 12.60 18.15 44.06% 4,162,470
1990 14.42 12.60 (12.62)% 1,654,455
1989 11.08 14.42 30.09% 434,747
1988* 10.00 11.08 10.84% 47,640
* Period from 2/10/88 to 12/31/88
Overseas Subaccount
Accumulation Accumulation Percentage Increase Number of
Unit Value at Unit Value at or (Decrease) Accumulation
Beginning of Period End of Period During Period Units at End of Period
1996 19.00 21.30 12.08% 11,419,855
1995 17.50 19.00 8.58% 9,560,376
1994 17.37 17.50 0.71% 14,336,196
1993 12.79 17.37 35.86% 8,857,429
1992 14.47 12.79 (11.61)% 1,983,970
1991 13.51 14.47 7.09% 1,413,997
1990 13.89 13.51 (2.73)% 1,086,588
1989 11.11 13.89 25.02% 160,830
1988* 10.00 11.11 11.08% 13,527
* Period from 2/10/88 to 12/31/88
Investment Grade Bond Subaccount
Accumulation Accumulation Percentage Increase Number of
Unit Value at Unit Value at or (Decrease) Accumulation
Beginning of Period End of Period During Period Units at End of Period
1996 16.99 17.36 2.15% 4,615,384
1995 14.63 16.99 16.15% 3,993,107
1994 15.35 14.63 (4.72)% 3,151,087
1993 13.98 15.35 9.85% 3,714,356
1992 13.24 13.98 5.59% 2,651,021
1991 11.48 13.24 15.33% 1,860,441
1990 10.93 11.48 5.04% 486,509
1989 10.01 10.93 9.19% 106,584
1988* 10.00 10.01 0.06% 270
* Period from 12/27/88 to 12/31/88
Asset Manager Subaccount
Accumulation Accumulation Percentage Increase Number of
Unit Value at Unit Value at or (Decrease) Accumulation
Beginning of Period End of Period During Period Units at End of Period
1996 18.29 20.76 13.45% 33,062,627
1995 15.80 18.29 15.79% 39,821,641
1994 16.99 15.80 (7.03)% 56,621,559
1993 14.18 16.99 19.84% 48,441,225
1992 12.80 14.18 10.76% 22,395,511
1991 10.55 12.80 21.33% 6,736,284
1990 9.98 10.55 5.75% 1,376,582
1989* 10.00 9.98 (0.23)% 223,855
* Period from 10/04/89 to 12/31/89
Index 500 Subaccount
Accumulation Accumulation Percentage Increase Number of
Unit Value at Unit Value at or (Decrease) Accumulation
Beginning of Period End of Period During Period Units at End of Period
1996 15.54 18.90 21.59% 18,160,844
1995 11.44 15.54 35.82% 7,333,800
1994 11.44 11.44 0.03% 2,102,667
1993 10.53 11.44 8.64% 1,509,615
1992* 10.00 10.53 5.26% 637,942
* Period from 9/1/92 to 12/31/92.
Asset Manager: Growth Subaccount
Accumulation Accumulation Percentage Increase Number of
Unit Value at Unit Value at or (Decrease) Accumulation
Beginning of Period End of Period During Period Units at End of Period
1996 12.20 14.50 18.73% 12,261,937
1995* 10.00 12.20 22.06% 4,035,434
* Period from 1/3/95 (commencement of operations) to 12/31/95
Contrafund Subaccount
Accumulation Accumulation Percentage Increase Number of
Unit Value at Unit Value at or (Decrease) Accumulation
Beginning of Period End of Period During Period Units at End of Period
1996 13.87 16.66 20.09% 53,010,249
1995* 10.00 13.87 38.68% 32,421,946
* Period from 1/3/95 (commencement of operations) to 12/31/95
Accumulation Unit Values shown above are rounded to two decimal places.
Percentage changes in Accumulation Unit Values were calculated using exact
Accumulation Unit Values (six decimal places). The percentage changes shown
are therefore more precise than the figures that would be obtained using
the rounded Accumulation Unit values shown for the beginning and end of
each period.
Certain contracts in this prospectus have been offered only as of December
7, 1988, and others only as of May 1, 1997. The financial information in
the above table includes periods prior to December 7, 1988 because an
earlier class of variable annuity contracts is also being funded through
the Variable Account. Financial information reflects all classes of
contracts. Because the three classes of contracts funded through the
Variable Account have the same total asset-based charges, Accumulation Unit
Values will be the same for all classes of contracts.
The financial statements of the Variable Account appear in the Statement of
Additional Information.
10.TABLE OF CONTENTS
OF THE STATEMENT OF ADDITIONAL INFORMATION
Accumulation Units
Fixed Annuity Income Payments
Variable Annuity Income Payments
Hypothetical Illustrations of Annuity Income Payouts
General Information
Performance
Transfers Among Subaccounts After the Annuity Date
Unavailability of Annuity Income Options in Certain Circumstances
IRS Required Distributions
Safekeeping of Variable Account Assets
Distribution of the Contracts
State Regulation
Legal Matters
Registration Statement
Independent Accountants
Financial Statements
THIS PAGE INTENTIONALLY LEFT BLANK
INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
1. Internal Revenue Service Regulations require you be given this
Disclosure Statement to make certain that you fully understand the nature
of an Individual Retirement Account (IRA). For this reason, it is important
that you read this statement carefully.
REVOCATION
2. You are allowed to revoke or cancel your IRA within ten (10) days of the
later of (1) the date of the application for the IRA; or (2) the date you
receive the IRA contract. A revocation treats an IRA as if it never
existed, and entitles you to a full refund of your entire contribution.
FILI will refund the greater of: (1) your Purchase Payment in full, neither
crediting your account for earnings, nor charging it with any
administrative expenses, or (2) your contract value at the time of
revocation plus any amount deducted from your contribution prior to such
time.
You may revoke your IRA by mailing or delivering a notice of revocation to:
Fidelity Investments Life Insurance Company
Annuity Service Center
P.O. Box 1306
Boston, MA 02104-9907
Any question regarding this procedure may be directed to a Fidelity
Insurance Specialist at 1-800-544-2442.
CONTRIBUTIONS
3. You may establish an IRA for the purpose of rolling over all or a
portion of your distribution from a qualified plan, tax sheltered annuity
or other IRA. If you retire, terminate your employment prior to retirement
age, or become disabled, and you are entitled to a single sum distribution,
all or a portion of the distribution may be transferred to a qualifying IRA
tax-free if done within 60 days of receipt of the single sum distribution.
The amount of your rollover IRA contribution will not be included in your
taxable income for the year in which you receive the qualified plan
distribution.
4. Subsequent contributions, other than additional rollover contributions
from another qualified plan, tax sheltered annuity or IRA, will not be
accepted.
5. No deduction is allowed for a rollover contribution which is not treated
as income to the individual.
INVESTMENTS
6 The assets in your IRA are nonforfeitable, subject to the surrender
charges specified in the IRA contract.
7. The assets in your IRA cannot be commingled with other property except
in a common trust fund or common investment fund.
8. No part of the IRA may be invested in life insurance or endowment
contracts.
DISTRIBUTIONS
9. Distributions from your IRA will be included in your gross income for
federal income tax purposes for the year in which you receive them.
10. To the extent they are included in taxable income, distribution from
your IRA made before age 59 1/2 will be subject to a 10% non-deductible
penalty tax (in addition to being taxable as ordinary income) unless the
distribution is rolled over to another qualified plan, tax sheltered
annuity or IRA, or the distribution is made on account of your death or
disability, or the distribution is one of a scheduled series of payments
over your life or life expectancy or the joint life expectancies of
yourself and the second person designated by you.
11. You must begin receiving distributions of the assets in your IRAs by
April 1 of the calendar year following the calendar year in which you reach
70 1/2. Subsequent distributions must be made by December 31 of each year.
12. You may select one of the following methods of distribution for the
assets of this IRA:
(a) Distribution over your life or your life and the life of a second
person designated by you;
(b) Distribution over a period certain not to exceed your life expectancy
or your life expectancy and that of a second person designated by you;
(c) Single sum payment; or
(d) Partial withdrawals that, together with withdrawals from your other
IRAs, satisfy the minimum distribution requirements discussed below.
(See Contract and Endorsement for a full description of these distribution
methods.)
13. Once distributions are required to begin, they must not be less than
the amount each year (determined by actuarial tables) which would exhaust
the value of all your IRAs over the required distribution period, which is
generally your life expectancy or the joint life and last survivor
expectancy of you and your spouse. You will be subject to a 50% excise tax
on the amount by which the distribution you actually received in any year
falls short of the minimum distribution required for the year.
14. If you die after distribution of the IRA has commenced, the remaining
balance must continue to be distributed under the same or a more rapid
method of distribution.
15. If you die before distribution of the IRA commences, the entire balance
must be distributed to the beneficiary within five (5) years unless:
(a) The beneficiary is your surviving spouse and the beneficiary either
treats the IRA as his or her own IRA or elects within a five (5) year
period to receive payments over his or her own life expectancy commencing
at any date prior to the date you would have reached age 70 1/2; or
(b) The beneficiary is not your surviving spouse and the beneficiary elects
to have the IRA distributed over his or her life expectancy commencing
within one (1) year of your death.
16. There is a 15% excise tax assessed against annual distribution from
tax-favored retirement plans, including IRAs, which exceed the greater of
(a) $150,000; and (b) $112,500 adjusted after 1988 to reflect
cost-of-living increases. To determine whether you have distributions in
excess of this limit you must aggregate the amounts of all distributions
received by you during the calendar year from all retirement plans,
including IRAs. Please consult with your tax advisor for more complete
information including favorable elections.
17. You may rollover all or a portion of your IRA into another IRA or
individual retirement annuity and maintain the tax-deferred status of these
assets. Tax-free rollovers between IRAs may be made no more than once every
twelve months.
OTHER TAX CONSIDERATIONS
18. Distributions are taxed as ordinary income under federal income tax
laws.
19. The tax treatment of single sum distributions under Section 402(e) of
the Code is not applicable to distributions from IRAs.
20. Reporting to the IRS will be required by you in the event that special
taxes or penalties described herein are due. You must file Treasury Form
5329 with the IRS for each taxable year in which a premature distribution
takes place or less than the required minimum amount is distributed from
your IRA. The Tax Reform Act of 1986 also requires you to report the amount
of all distributions you received from your IRA and the aggregate balance
of all IRAs as of the end of the calendar year.
PROHIBITED TRANSACTIONS
21. If any of the events prohibited by Section 4975 of the Code (such as
any sale, exchange or leasing of any property between you and your IRA)
occurs during the existence of your IRA, your account will be disqualified
and the entire balance in your account will be treated as if distributed to
you, as of the first day of the year in which the prohibited event occurs.
This "distribution" would be subject to ordinary income tax and, if you
were under age 59 1/2 at the time, to the 10% penalty tax on premature
distributions.
22. If you or your beneficiary borrow any money under, or by use of, all or
a portion of your IRA, then the portion pledged will be treated as if
distributed to you, and will be taxable to you as ordinary income and
subject to the 10% penalty during the year in which you make such a pledge.
FINANCIAL INFORMATION
23. The value of your investment will depend on how you allocate funds
between the Fixed Account and the subaccounts of the Variable Account. The
Company guarantees that the portion of your contract value that is held in
the Fixed Account will accrue interest daily at specified interest rates
that vary from time to time. With respect to funds allocated to the
Variable Account, the value will depend upon the actual investment
performance of the subaccounts that you choose; no minimum value is
guaranteed. See your prospectus for a more detailed description.
24. As further described in the prospectus, the following are all the
charges that the Company currently makes:
(a) ADMINISTRATIVE CHARGE
The Company currently deducts an annual maintenance charge of $30 on each
contract anniversary. This charge is currently waived if total payments,
less any withdrawals, equal at least $25,000.
The Company also deducts a daily charge from the assets of the subaccounts
equivalent to an effective annual rate of 0.25%. This charge is not made
against the Fixed Account.
(b) MORTALITY AND EXPENSE RISK CHARGE
The Company deducts a daily charge from the assets of the subaccounts
equivalent to an effective annual rate of 0.75%. This charge is not made
against the Guaranteed Account.
(c) WITHDRAWAL CHARGE
During the first five contract years the Company assesses a charge upon
the surrender of the contract or the withdrawal of more than the Exempt
Withdrawal Amount. This charge in the first year is 5% of the purchase
payments withdrawn. The factor decreases by 1% per year so that no
withdrawal charge is made after the fifth contract year.
(d) PORTFOLIO EXPENSES
The portfolios associated with the Variable Account incur operating
expenses and pay monthly management fees to Fidelity Management & Research
Company. The level of expenses vary by portfolio. This charge is not made
against the Fixed Account.
FIDELITY RETIREMENT RESERVES
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 29, 1997
This Statement of Additional Information supplements the information found
in the current Prospectus for the variable annuity contracts ("Contracts")
offered by Fidelity Investments Life Insurance Company through its Fidelity
Investments Variable Annuity Account I (the "Variable Account"). You may
obtain a copy of the Prospectus dated August 29, 1997, without charge by
calling 800-544-2442.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ TOGETHER WITH THE PROSPECTUS FOR THE CONTRACT.
TABLE OF CONTENTS PAGE
Participation Agreements
Accumulation Units
Fixed Annuity Income Payments
Variable Annuity Income Payments
Hypothetical Illustrations of Annuity Income Payouts
General Information
Performance
Transfers Among Subaccounts After the Annuity Date
Unavailability of Annuity Income Options in Certain Circumstances
IRS Required Distributions
Safekeeping of Variable Account Assets
Distribution of the Contracts
State Regulation
Legal Matters
Registration Statement
Independent Accountants
Financial Statements
PARTICIPATION AGREEMENTS
A participation agreement has been entered into between Fidelity
Investments Life Insurance Company and the following companies for their
management services: Strong Variable Insurance Funds, Inc., ("Funds"),
Strong Opportunity Fund II, Inc., and Strong Capital Management, Inc. (the
"Adviser"). PBHG Insurance Series Fund, Inc. ("Fund"), and Pilgrim
Baxter & Associates, LTD. ("Adviser"). Morgan Stanley Universal Funds, Inc.
(the "Fund"), and Morgan Stanley Asset Management Inc. and Miller Anderson
& Sherrerd, LLP (the "Advisers"). Warburg, Pincus Trust, (the "Fund");
Warburg, Pincus Counsellors, Inc. (the "Adviser"); and Counsellors
Securities Inc.
ACCUMULATION UNITS
We credit your payments allocated to the variable Subaccounts in the form
of Accumulation Units. The number of Accumulation Units credited to each
Subaccount is determined by dividing the net payment allocated to that
Subaccount by the Accumulation Unit Value for that Subaccount for the
Valuation Period during which the payment is received. In the case of the
initial payment, we credit Accumulation Units as explained in the
prospectus. Accumulation Units are adjusted for any transfers into or out
of a Subaccount.
For each variable Subaccount the Accumulation Unit Value for the first
Valuation Period of the Subaccount was set at $10.00. The Accumulation Unit
Value for each subsequent Valuation Period is the Net Investment Factor for
that period, multiplied by the Accumulation Unit Value for the immediately
preceding Valuation Period. The Accumulation Unit Value may increase or
decrease from one Valuation Period to the next.
Each variable Subaccount has a Net Investment Factor (also referred to as
the "Net Rate of Return"). The Net Investment Factor is an index that
measures the investment performance of a Subaccount from one Valuation
Period to the next. The Net Investment Factor for each Subaccount for a
Valuation Period is determined by adding (a) and (b), subtracting (c) and
then dividing the result by (a) where:
(a) Is the value of the assets at the end of the preceding Valuation
Period;
(b) Is the investment income and capital gains, realized or unrealized,
credited during the current valuation period;
(c) Is the sum of:
(1) The capital losses, realized or unrealized, charged during the current
valuation period plus any amount charged or set aside for taxes during the
current Valuation Period; plus
(2) The deduction from the Subaccount during the current Valuation Period
representing a daily charge equivalent to an effective annual rate of 1%,
(0.80% effective November 1, 1997)
The Net Investment Factor may be greater than or less than one. If it is
greater than one, the Accumulation Unit Value will increase; if less than
one, the Accumulation Unit Value will decrease.
FIXED ANNUITY INCOME PAYMENTS
The amount of monthly annuity income payments for a selected fixed annuity
income option or the fixed portion of a selected combination annuity income
option is calculated by applying the proceeds payable to the income payment
rates for the option selected. Annuity income payments will be the larger
of:
(a) The income based on the rates shown in the contract's Annuity Tables
for the option chosen; and
(b) The income calculated by applying the proceeds as a single premium to
our single premium annuity rates in effect on the date of the first income
payment for the same plan.
Annuity income payments under a fixed annuity or fixed portion of a
combination annuity will not vary in dollar amount and will not be affected
by the investment performance of the Variable Account. Amounts used to
purchase a fixed annuity may not be later transferred to a variable
annuity.
VARIABLE ANNUITY INCOME PAYMENTS
If a variable annuity is selected, annuity income payments will vary in
amount in accordance with the investment performance of the elected
Subaccounts of the Variable Account. If a combination annuity is selected,
annuity income payments attributable to the variable portion of the annuity
will likewise vary. On the Annuity Date, the amount of the first annuity
income payment is calculated by applying the proceeds payable to the
annuity table shown in the Contract (or any more favorable annuity rates we
may offer on the Annuity Date) for the option chosen.
The dollar amount of the first annuity income payment attributable to each
variable Subaccount is then divided by each Subaccount's then current
Annuity Unit Value (Annuity Units are explained in the prospectus) to
establish the total number of Annuity Units that will be the basis for
determining later annuity income payments. Annuity income payments after
the first will be equal to the sum of the number of Annuity Units
determined in this manner for each Subaccount multiplied by the then
current Annuity Unit Value for each Subaccount, which (as explained in the
prospectus) depends upon the Net Investment Factor for the subaccount
adjusted by a factor to neutralize the assumed rate of return used in the
calculation of annuity income payments. The number of Annuity Units remains
fixed for all annuity income payments, unless a transfer is made. The
dollar amount of the annuity income payments may change from payment to
payment. We guarantee that the dollar amount of each annuity income payment
after the first will not be affected by variations in mortality experience
from the mortality assumptions used to determine the first annuity income
payment.
To illustrate the above description of how annuity income payments are
determined, consider the following example. A male age 65 applies $50,000
to purchase a lifetime income for himself with payments to be made for at
least 10 years (even if the Annuitant dies shortly after payments have
begun). Annuity income payments are to be made on a monthly basis with the
first annuity income payment to be made immediately. The variable pay-out
option is chosen with the amount of each income payment dependent on the
actual investment performance of the subaccounts that are selected. Using
an Assumed Investment Rate of 3.5%, the initial monthly income amount is
$283.77. The investment selection is 50% in Portfolio A and 50% in
Portfolio B.
At Annuitization Portfolio A Portfolio B
(a) Initial Monthly Annuity Income Payment $ 141.89 $ 141.89
(b) Annuity Unit Value 1.23456 1.32465
(c) Income in Units 114.928 107.111
The monthly annuity income payment allocated to each Subaccount is
translated into Annuity Units using the Annuity Unit Value at the time of
annuitization. Since each Subaccount is likely to have a different Annuity
Unit Value, the total number of Annuity Units is not informative - rather
you need to look at:
# Annuity X Annuity = Annuity
Units Unit Value Income
Payment
Portfolio A 114.928 1.23456 141.89
Portfolio B 107.111 1.32465 141.89
$ 283.77
Assume that during the next month, the investment results for each
subaccount are:
Portfolio A Portfolio B
(d) Actual Net Investment Results .4074% .1652%
(e) Assumed Investment Results .2871% .2871%
(f) Relative Performance Factor 1.00120 .99878
Line (d) shows the net investment result after the charge for assuming
mortality and expense risks and the administrative charge (1% on an annual
basis) and the charge for investment advisory fees and fund expenses. Line
(e) shows the investment results that were assumed in the calculation of
the initial monthly annuity income payment, 3.5% on an annual basis. Line
(f) represents how much $1 invested at the start of the month in each of
the subaccounts would have grown relative to $1 earning 3.5%. (The formula
for calculating the Relative Performance Factor is 1+ (d) divided by 1 +
(e)).
Note that since line (f) is more than 1 for Portfolio A and less than 1 for
Portfolio B, the Portfolio A subaccount has earned more than 3.5% on an
annual basis while the Portfolio B subaccount has earned less than 3.5% on
an annual basis.
The Annuity Unit Value grows with the actual investment performance
relative to the assumption of 3.5%. If a Subaccount earns more than 3.5% on
an annual basis, then the Annuity Unit Value will increase. Conversely, if
less than 3.5% is earned, the Annuity Unit Value will decrease. The Annuity
Unit Value at the time of the second monthly income payment is the Annuity
Unit Value for the prior month (line b) multiplied by the Relative
Performance Factor (line f).
Portfolio A Portfolio B
(b) Annuity Unit Value (prior) 1.23456 1.32465
(f) Relative Performance Factor 1.00120 .99878
(g) Annuity Unit Value (current) 1.23604 1.32303
Except for exchanges between Subaccounts, the number of Annuity Units
remains fixed throughout the lifetime of the Annuitant. The value of each
annuity income payment, however, varies because the Annuity Unit Value is
usually changing as a result of investment experience. The second monthly
payment is calculated by multiplying the number of payment units by the
current Annuity Unit Value.
Portfolio A Portfolio B
(c) Monthly Income in Units 114.928 107.111
(g) Annuity Unit Value (current) 1.23604 1.32303
(h) Monthly Income (in dollars) $ 142.06 $ 141.71
Note that the Annuity Unit Value and the Monthly Income for the Portfolio A
portion of the payment has increased whereas the opposite is true for the
Portfolio B portion. The second monthly annuity income payment would be the
sum for each Subaccount, or $283.77.
To illustrate the possible volatility of the annuity income payments,
assume that during the following month, the investment results for each
Subaccount are:
Portfolio A Portfolio B
(i) Actual Net Investment Results 15.50% -13.00%
(e) Assumed Investment Results .2871% .2871%
(j) Relative Performance Factor 1.15169 .86751
The Annuity Unit Value at the time of the third monthly annuity income
payment is the Annuity Unit Value for the prior month (line g) multiplied
by the Relative Performance Factor (line j):
Portfolio A Portfolio B
(g) Annuity Unit Value (prior) 1.23604 1.32303
(j) Relative Performance Factor 1.15169 .86751
(k) Annuity Unit Value (current) 1.42353 1.14774
The third monthly annuity income amount is calculated by multiplying the
number of payment units by the current Annuity Unit Value:
Portfolio A Portfolio B
(c) Income in Units 114.928 107.111
(k) Annuity Unit Value (current) 1.42353 1.14774
(h) Monthly Income (in dollars) $ 163.60 $ 122.94
Note that the Annuity Unit Value and the Monthly Income for Portfolio A
portion of the income amount have again increased but to a much greater
extent than before whereas the opposite is true for the Portfolio B
portion. The third monthly annuity income payment would be the sum for each
subaccount, or $286.54.
An illustration of annuity income payments under various rates appears in
the tables on pages 6 and 7. The monthly equivalents of the annual net
returns of -1.45%, 3.50%, 4.46%, 6.43%, 8.40% and 10.37% shown in the
tables are - 0.14%, 0.29%, 0.35%, 0.50%, 0.66% and 0.81%.
HYPOTHETICAL ILLUSTRATIONS OF ANNUITY INCOME PAYOUTS
The following tables have been prepared to show how variable annuity income
payments under the Contract change with investment performance over an
extended period of time. The tables illustrate how monthly annuity income
payments would vary over time if the return on the assets in the selected
portfolios were a uniform gross annual rate of 0%, 5.03%, 6%, 8%, 10% and
12%. The values would be different from those shown if the returns averaged
0%, 5.03%, 6%, 8%, 10% or 12% but fluctuated over and under those averages
throughout the years.
The tables reflect the fact that the Net Investment Return on the assets
held in the Subaccounts is lower than the gross return of the selected
portfolios. The tables reflect the daily charge to the Subaccounts for
assuming mortality and expense risks, which is equivalent to an effective
annual charge of 0.75% and the daily administrative charge which is
equivalent to an effective annual charge of 0.05%. The amounts shown in the
tables also take into account the portfolios' management fees and operating
expenses which are assumed to be at an annual rate of 0.66% of the average
daily net assets of the selected portfolios. This 0.66% figure consists of
assumed management fees of 0.52% and assumed operating expenses of 0.17%,
figures based on the average of current management fees and operating
expenses. Actual fees and expenses of the portfolios associated with your
Contract may be more or less than 0.66%, will vary from year to year, and
will depend on how you allocate your investment base. See the current
prospectuses for the Funds for more complete information. The monthly
annuity income payments illustrated are on a pre-tax basis. The Federal
income tax treatment of annuity income payments is generally described in
the section of your current prospectus entitled "Tax Considerations."
The tables show both the gross rate and the net rate. The difference
between gross and net rates represent the 0.80% risk and administrative
charges and the assumed 0.66% for investment management and operating
expenses. Since these charges are deducted daily from assets, the
difference between the gross and net rate is not exactly 1.46%.
Two tables follow. The first table assumes 100% of the Contract Value is
allocated to a variable annuity income option; the second table assumes 50%
of the Contract Value is placed under a fixed annuity income option, using
the fixed crediting rate Fidelity Investments Life offered on the fixed
annuity income option at the date of the illustration. Both illustrations
assume that the final value of the accumulation account is $50,000 and is
applied at age 65 to purchase a life annuity for a guaranteed period of 10
years certain and life thereafter. When part of the Contract Value has been
allocated to the fixed annuity income option, the guaranteed minimum
annuity income payment resulting from this allocation is also shown. The
illustrated variable annuity income payments are determined through the use
of standard mortality tables and the assumption that the net investment
return will be 3.5% per year. Thus, actual performance greater than a net
return of 3.5% will result in increasing annuity income payments and
performance less than 3.5% per year will result in decreasing annuity
income payments. We may offer alternative Assumed Investment Returns from
which you may select. Fixed annuity income payments remain constant.
Initial monthly annuity income payments under a fixed annuity income payout
are generally higher than initial payments under a variable income payout
option.
These tables show the monthly income payments for several hypothetical
constant rates of return. Of course, actual investment performance will not
be constant and may be volatile. Actual monthly income amounts would differ
from those shown if the actual rate of return averaged the rate shown over
a period of years, but also fluctuated above or below those averages for
individual contract years. Upon request and when you are considering an
annuity income option, we will furnish a comparable illustration based on
your individual circumstances.
ANNUITY PAY-OUT ILLUSTRATION
(100% VARIABLE PAYOUT)
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT VALUE APPLIED: $50,000
DATE OF BIRTH: 3/1/32 STATE PREMIUM TAX: 0%
SEX: Male DATE OF ILLUSTRATION: 3/1/97
ANNUITY OPTION SELECTED: Lifetime Income with annuity income payments
guaranteed for 10 years(1)
FREQUENCY OF ANNUITY
INCOME PAYMENTS: Monthly payments with first payment the first of
the month after annuitization
FIXED MONTHLY ANNUITY INCOME PAYMENT AVAILABLE ON THE DATE OF THE
ILLUSTRATION IF 100% FIXED ANNUITY OPTION SELECTED: $312.73.
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 100% OF THE CONTRACT VALUE IS
ALLOCATED TO THE VARIABLE PAYOUT
NET RETURN AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN CONSTANT: 3.50%
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE, NO MINIMUM
DOLLAR AMOUNT IS GUARANTEED
AMOUNT OF FIRST MONTHLY ANNUITY INCOME
PAYMENT IN YEAR SHOWN ASSUMING A CONSTANT
ANNUAL INVESTMENT RETURN OF:
Gross 0% 5.03% 6% 8% 10% 12%
:
PAYME CALEND AG Net(2) -1.45 3.50% 4.46 6.43 8.40 10.37
NT AR E : % % % % %
YEAR YEAR
1 1997 65 284 284 284 284 284 284
2 1998 66 270 284 286 292 297 303
3 1999 67 257 284 289 300 311 323
4 2000 68 245 284 292 309 326 344
5 2001 69 233 284 294 317 341 367
10 2006 74 183 284 308 365 430 506
15 2011 79 143 284 323 419 542 698
20 2016 84 112 284 338 482 683 962
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE VARIOUS RATES
OF RETURN OF THE PORTFOLIOS SELECTED. THE AMOUNT OF THE INCOME PAYMENT
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN
AVERAGED THE RATES SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. SINCE IT IS
HIGHLY LIKELY THAT INVESTMENT RETURNS WILL FLUCTUATE FROM MONTH TO MONTH,
MONTHLY INCOME (TO THE EXTENT THAT IS BASED ON THE VARIABLE ACCOUNT) WILL
ALSO FLUCTUATE. NO REPRESENTATION CAN BE MADE BY FIDELITY INVESTMENTS LIFE
OR THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
(1) Monthly annuity income payments cease upon the death of the Annuitant
if the Annuitant dies after the 10 year Guarantee Period. If the Annuitant
dies during the Guarantee period, annuity income payments will continue
until the end of the Period. The cumulative amount of annuity income
payments received under the annuity depends on how long the Annuitant lives
after the Guarantee Period. An annuity pools the mortality experience of
annuitants. Annuitants who die earlier, in effect, subsidize the payments
for those who live longer.
(2) The illustrated net return reflects the deduction of average fund
expenses and the 0.80% risk/administrative charge from the gross return.
ANNUITY PAY-OUT ILLUSTRATION
(50% VARIABLE - 50% FIXED PAYOUT)
ANNUITANT: John Doe GROSS AMOUNT OF CONTRACT VALUE APPLIED: $50,000
DATE OF BIRTH: 3/1/32 STATE PREMIUM TAX: 0%
SEX: Male DATE OF ILLUSTRATION: 3/1/97
ANNUITY OPTION SELECTED: Lifetime Income with annuity income payment
guaranteed for 10 years(1)
FREQUENCY OF ANNUITY Monthly payments with first payment the first of
INCOME PAYMENTS: the month after annuitization
FIXED MONTHLY ANNUITY INCOME PAYMENT AVAILABLE ON THE DATE OF THE
ILLUSTRATION IF 100% FIXED ANNUITY OPTION SELECTED: $312.73.
ILLUSTRATIVE AMOUNTS BELOW ASSUME THAT 50% OF THE CONTRACT VALUE IS
ALLOCATED TO THE VARIABLE PAYOUT AND 50% TO THE FIXED PAYOUT
NET RETURN AT WHICH MONTHLY VARIABLE PAYMENTS REMAIN CONSTANT: 3.50%
MONTHLY INCOME PAYMENTS WILL VARY WITH INVESTMENT PERFORMANCE, BUT WILL
NEVER BE LESS THAN $156.37. THE MONTHLY GUARANTEED PAYMENT OF $312.73 IS
BEING PROVIDED BY THE $25,000 APPLIED UNDER THE FIXED ANNUITY OPTION.
AMOUNT OF FIRST MONTHLY ANNUITY INCOME PAYMENT IN YEAR SHOWN ASSUMING A
CONSTANT ANNUAL INVESTMENT RETURN OF:
Gross 0% 5.03% 6% 8% 10% 12%
:
PAYME CALEND AG Net(2) -1.45 3.50% 4.46 6.43 8.40 10.37
NT AR E : % % % % %
YEAR YEAR
1 1997 65 298 298 298 298 298 298
2 1998 66 291 298 300 302 305 308
3 1999 67 285 298 301 306 312 318
4 2000 68 279 298 302 311 319 328
5 2001 69 273 298 304 315 327 340
10 2006 74 248 298 311 339 372 409
15 2011 79 228 298 318 366 428 505
20 2016 84 212 298 325 398 498 638
IT IS EMPHASIZED THAT THE HYPOTHETICAL IVESTMENT RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE VARIOUS RATES
OF RETURN OF THE PORTFOLIOS SELECTED. THE AMOUNT OF THE INCOME PAYMENT
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN
AVERAGED THE RATES SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. SINCE IT IS
HIGHLY LIKELY THAT INVESTMENT RETURNS WILL FLUCTUATE FROM MONTH TO MONTH,
MONTHLY INCOME (TO THE EXTENT THAT IS BASED ON THE VARIABLE ACCOUNT) WILL
ALSO FLUCTUATE. NO REPRESENTATION CAN BE MADE BY FIDELITY INVESTMENTS LIFE
OR THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR
ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
(1) Monthly annuity income payments cease upon the death of the Annuitant
if the Annuitant dies after the 10 year Guarantee Period. If the Annuitant
dies during the Guarantee period, annuity income payments will continue
until the end of the Period. The cumulative amount of annuity income
payments received under the annuity depends on how long the Annuitant lives
after the Guarantee Period. An annuity pools the mortality experience of
annuitants. Annuitants who die earlier, in effect, subsidize the payments
for those who live longer.
(2) The illustrated net return reflects the deduction of average fund
expenses and the 0.80% risk/administrative charge from the gross return.
GENERAL INFORMATION
We may advertise quotes of Contract Owners discussing Fidelity Retirement
Reserves or services provided by Fidelity Investments Life. We may also
advertise examples of the effects of periodic investment plans, including
the principle of dollar cost averaging. In such a plan, a policyowner
invests a fixed dollar amount in a Subaccount thereby purchasing fewer
units when prices are high and more units when prices are low. While such a
strategy does not assume a profit nor guard against a loss in a declining
market, the Contract Owner's average cost per unit can be lower than if
fixed numbers of units had been purchased at those intervals. In evaluating
such a plan, Contract Owners should consider their ability to continue
purchasing units through periods of low price levels. In addition, we may
from time to time use statistics in advertising to support the growth of
annuity sales. Information to support these statistics may be obtained from
the Life Insurance Marketing Research Association, A.M. Best, American
Council of Life Insurance or the Variable Annuity Research and Data
Service.
From time to time, we may reprint and use as advertising and sales
literature, articles or quotes from financial or business publications and
periodicals. In addition, we may reference or discuss the products and
services of other affiliated companies, which may include: Fidelity funds;
retirement investing; brokerage products and services; saving for college;
charitable giving; and the Fidelity credit card.
We may also provide information to help individuals understand their
investment goals and explore various financial strategies. In communicating
these strategies, we may:
(solid bullet) compare the differences between tax deferred and taxable
investments;
(solid bullet) discuss factors to consider when purchasing the contract;
(solid bullet) discuss the effects of probate when transferring the
contract to heirs;
(solid bullet) discuss traditional sources of retirement income and
products which may be used to supplement that income;
(solid bullet) discuss effects of inflation on fixed-income sources and how
the variable investment options may be used as a potential hedge against
inflation during the deferral and income periods;
(solid bullet) illustrate and compare the effects additional payments have
on a contract;
(solid bullet) discuss strategies of reducing risk through diversification
of purchase payments and providing hypothetical investment mixes;
(solid bullet) discuss past returns of different classes of investments
based on data supplied through various sources such as Ibbotson Associates
of Chicago, Illinois; and
(solid bullet) assist policyholders with inquiries regarding their annuity.
This information may be obtained from various sources such as The U.S.
Department of the Treasury, U.S. Department of Labor, Statistical Abstract
of the U.S. and Individual Annuitant Mortality Table. We may present this
information through various methods such as charts, graphs, illustrations,
and tables.
You may purchase the contract with proceeds from various sources such as
transactions qualifying for a tax-free exchange under Section 1035 of the
Internal Revenue Code.
PERFORMANCE
Performance information for any Subaccount may be compared, in reports and
advertising to: (1) the Standard & Poor's 500 Composite Stock Price Index
("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.
Total returns, yields and other 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 Series 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 following tables below provide performance results for each Subaccount
through 12/31/96, (or June 30, 1997 where indicated). The performance
information is based on the historical investment experience of the
Subaccounts and of the Portfolios. It does not indicate or represent future
performance.
Total Return
Total returns quoted in advertising reflect all aspects of a Subaccount's
return, including the automatic reinvestment by the separate account of all
distributions and any change in the Subaccount's value over the period.
Average annual returns are calculated by determining the growth or decline
in value of a hypothetical historical investment in the Subaccount over a
stated period, and then calculating the annually compounded percentage rate
that would have produced the same result if the rate of growth or decline
in value had been constant over the period. For example, a cumulative
return of 100% over ten years would produce an average annual return of
7.18%, which is the steady rate that would equal 100% growth on a
compounded basis in ten years. While average annual returns are a
convenient means of comparing investment alternatives, investors should
realize that the subaccount's performance is not constant over time, but
changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of a
subaccount.
Table 1 shows the average annual total return on a hypothetical investment
in the Subaccounts for the last year, from the date that the Portfolios
began operations, and, for Portfolios in existence for five years or more,
for five years, assuming that the Contract was surrendered December 31,
1996 (or June 30, 1997 where indicated). For any Portfolio in existence ten
years or more, figures are shown for a ten year period rather than for the
life of the Portfolio. The average annual total returns shown in Table 1
are computed by finding the average annual compounded rates of return over
the periods shown that would equate the initial amount invested to the
withdrawal value, in accordance with the following formula: P(1 +T)n = 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 risk and
administrative charge (1% on an annual basis. Effective November 1, 1997
this charge will be 0.80%) and the maintenance charge. Since the Contract
is intended as a long-term product, the table also shows the average annual
total return assuming that no money was withdrawn from the Contract. The
average annual total return is also shown for Contracts with at least
$25,000 of premium and assuming no money is withdrawn from the Contract.
The average annual total return would be larger for these Contracts because
there is currently no maintenance charge on these larger Contracts. The
first column shows the average annual total return if you surrender the
contract at the end of the period, the second column shows the average
annual total return if you do not surrender the Contract and the third
column shows the average annual total return if you do not surrender the
Contract and no maintenance charge is applied to the Contract.
Table 1: Average Annual Total Return for Period Ending on 12/31/96
(a) One Year Average Annual Total Return For Contracts Issued on December
31, 1995
Return Return Return
If Contract If Contract If Contract
Surrendered Continued Continued
and and
Maintenance Maintenance
Charge Charge Not
Applied Applicable
Fidelity
Asset Manager 8.43% 13.43% 13.45%
Money Market (0.39)% 4.32% 4.34%
Investment Grade Bond (2.48)% 2.13% 2.15%
Equity-Income 8.11% 13.11% 13.13%
Growth 8.53% 13.53% 13.55%
High Income 7.86% 12.86% 12.88%
Overseas 7.06% 12.06% 12.08%
Index 500 16.57% 21.57% 21.59%
Asset Manager: Growth 13.71% 18.71% 18.73%
Contrafund 15.07% 20.07% 20.09%
Strong
Discovery Fund II 1.38% 6.19% 6.22%
Opportunity Fund II 15.90% 20.90% 20.93%
Warburg Pincus
International Equity 8.83% 13.83% 13.86%
Small Company Growth (3.22)% 1.34% 1.36%
(b) Average Annual Total Return If Contract Issued at Commencement of
Portfolio
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Subaccount Portfolio's Return Return Return
Start If Contract If Contract If Contract
Date Surrendere Continued Continued
d and and
Maintenance Maintenance
Charge Charge Not
Applied Applicable
Fidelity
Asset Manager 9/6/89 10.54% 10.54% 10.58%
Investment Grade 12/5/88 7.07% 7.07% 7.12%
Bond
Overseas 1/28/87 6.74% 6.74% 6.81%
Index 500 8/27/92 15.76% 15.76% 15.93%
Asset Manager: 1/3/95 18.68% 20.36% 20.38%
Growth
Contrafund 1/3/95 27.35% 28.92% 28.95%
Strong
Discovery II 5/8/92 10.72% 10.72% 10.75%
Opportunity II 5/8/92 18.09% 18.09% 18.12%
Warburg Pincus
International l Equity 6/30/95 13.52% 15.27% 15.29%
Small Company 6/30/95
Growth 17.97% 19.65% 19.68%
</TABLE>
(c) Five Year Average Annual Total Return If Contract Issued on December
31, 1991
If Contract Return Return
Surrendered If Contract If Contract
Continued Continued
and and
Maintenance Maintenance
Charge Charge Not
Applied Applicable
Fidelity
Asset Manager 9.98% 10.11% 10.13%
Money Market 3.28% 3.45% 3.48%
Investment Grade Bond 5.38% 5.54% 5.56%
Equity-Income 16.66% 16.75% 16.78%
Growth 13.87% 13.97% 14.00%
High Income 13.66% 13.77% 13.79%
Overseas 7.86% 8.00% 8.03%
Strong
Discovery Fund II 11.90% 12.03% 12.06%
Opportunity Fund II 19.90% 19.99% 20.03%
(d) Ten Year Average Annual Total For Contracts Issued on December 31, 1986
If Contract Return Return
Surrendered If Contract If Contract
Continued Continued
and and
Maintenance Maintenance
Charge Charge Not
Applied Applicable
Money Market 4.83% 4.83% 4.89%
High Income 9.93% 9.93% 10.01%
Equity-Income 12.52% 12.52% 12.59%
Growth 13.92% 13.92% 13.99%
In addition to average annual returns, the Subaccounts may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Table 2 shows the cumulative total return
on a hypothetical investment in the Subaccounts for from the date the
Portfolios began operations, and assuming that the Contract was surrendered
December 31, 1996 (or June 30, 1997 where indicated). For any Portfolio in
existence five years or more, five year figures are also shown. 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 returns reflect the
risk and administrative charge (1% on an annual basis. Effective November
1, 1997 this charge will be 0.80%) and the maintenance charge. Since the
Contract is intended as a long-term product, the table also shows the
cumulative total return assuming that no money was withdrawn from the
Contract. The cumulative total return is also shown for Contracts with at
least $25,000 of premium and assuming no money is withdrawn from the
Contract. The cumulative total return for these Contracts would be larger
because there is currently no maintenance charge on these larger Contracts.
The first column shows the cumulative total return if you surrender the
Contract at the end of the period, the second column shows the cumulative
total return if you do not surrender the Contract and the third column
shows the cumulative total return if you do not surrender the Contract and
no maintenance charge is applied to the Contract.
Table 2: (a) Cumulative Total Return For Periods Beginning at Commencement
of Portfolios and Ending on 12/31/96
Subaccount Portfolio' Return Return Return
s If Contract If Contract If Contract
Start Surrendere Continued Continued
Date d and and
Maintenance Maintenance
Charge Charge Not
Applied Applicable
Fidelity
Asset Manager 9/6/89 108.26% 108.26% 108.83%
Investment Grade 12/5/88 73.65% 73.65% 74.25%
Bond
High Income 9/19/85 218.33% 218.33% 220.97%
Overseas 1/28/87 91.07% 91.07% 92.32%
Index 500 8/27/92 88.94% 89.94% 90.14%
Fidelity (Cont)
Growth 1/3/95 49.60% 53.60% 53.64%
Opportunities
Balanced 1/3/95 18.78% 22.78% 22.82%
Table 2: (b) Cumulative Total Return For Periods Beginning at Commencement
of Portfolios and Ending on 6/30/97
Morgan Stanley
Emerging Markets 6/16/97 (4.58%) (0.08%) (0.08%)
Debt
Emerging Markets 10/1/96 14.49% 19.49% 19.51%
Equity
Global Equity 1/2/97 9.33% 14.33% 14.34%
Intenational Magnum 1/2/97 11.12% 16.12% 16.13%
PBHG
Growth II 5/1/97 (0.39%) 4.32% 4.33%
Technology & 5/1/97 (1.63%) 3.02% 3.02%
Communications
Strong
Discovery Fund II 5/8/92 68.96% 68.96% 69.21%
Growth Fund II 12/31/9 8.13% 13.13% 13.14%
6
Opportunity Fund II 5/8/92 135.47% 135.47% 135.81%
Warburg Pincus
International Equity 6/30/95 28.92% 32.92% 32.98%
Post-Venture Capital 9/30/96 (4.37%) 0.13% 0.15%
Small Company 6/30/95 39.23% 43.23% 43.30%
Growth
(c) Cumulative Total Return For Five Year Period From 12/31/91 Through
12/31/96
Subaccount Return Return Return
If Contract If Contract If Contract
Surrendered Continued Continued
and and
Maintenance Maintenance
Charge Charge Not
Applied Applicable
Asset Manager 60.91% 61.91% 62.12%
Money Market 17.50% 18.50% 18.66%
Investment Grade Bond 29.96% 30.96% 31.13%
Equity-Income 116.11% 117.11% 117.36%
Growth 91.42% 92.42% 92.65%
High Income 89.72% 90.72% 90.95%
Overseas 46.00% 47.00% 47.19%
Asset Manager 60.91% 61.91% 62.12%
Money Market 17.50% 18.50% 18.66%
Investment Grade Bond 29.96% 30.96% 31.13%
Equity-Income 116.11% 117.11% 117.36%
Growth 91.42% 92.42% 92.65%
High Income 89.72% 90.72% 90.95%
Overseas 46.00% 47.00% 47.19%
(d) Cumulative Total Return For Five Year Period ending 6/30/97
Strong
Discovery Fund II 11.90% 12.03% 12.06%
Opportunity Fund II 19.90% 19.99% 20.03%
(e) Cumulative Total Return For Ten Year Period From 12/31/86 Through
12/31/96
Return Return Return
If Contract If Contract If Contract
Surrendered Continued Continued
and and
Maintenance Maintenance
Charge Charge Not
Applied Applicable
Money Market 60.28% 60.28% 61.33%
High Income 158.02% 158.02% 159.71%
Equity-Income 225.65% 225.65% 227.72%
Growth 268.54% 268.54% 270.84%
Yields
Some Subaccounts may also advertise yields. Yields quoted in advertising
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. Yields do not
reflect the impact of any contingent deferred sales load. Yields quoted in
advertising may be based on historical seven day periods.
Current yield for 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, in the value of a
hypothetical account having one Accumulation Unit at the beginning of the
period adjusting for the maintenance charge, and dividing the difference by
the value of the account at the beginning of the base period to obtain the
base period return, and multiplying the base period return by (365/7). The
resulting yield figure is carried to the nearest hundredth of a percent.
Effective yield for the Money Market 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) 365/7] - 1. Since the
reinvestment of income is assumed in the calculation of effective yield, it
will generally be higher than current yield. For the 7 day period ending on
12/31/96, the Money Market Subaccount had a current yield of 4.22% and an
effective yield of 4.31%. For Contracts on which there is currently no
maintenance charge, the current yield would be 4.24% and the effective
yield would be 4.33%.
A 30 day yield for bond subaccounts reflects the income generated by a
Subaccount over a 30 day period. Yield will be computed by dividing the net
investment income per Accumulation Unit earned during the period by the
maximum offering price per Accumulation Unit on the last day of the period,
according to the following formula: Yield = 2[(a-b/cd + 1)6 - 1] where a=
net investment income earned by the applicable portfolio, b = expenses for
the period including expenses charged to the contract owner accounts, c =
the average daily number of Accumulation Units outstanding during the
period, and d = the maximum offering price per Accumulation Unit on the
last day of the period. The 30 day yield for the period ending on 12/29/96
was 4.98% for the Investment Grade Bond Subaccount and 6.25% for the High
Income Subaccount. For Contracts on which there is no maintenance charge,
the 30 day yield would be 5.00% for the Investment Grade Bond Subaccount
and 6.27% for the High Income Subaccount. The 30 day yield for the period
ending on 6/30/97 was 6.14% for the Emerging Markets Debt Subaccount.and
for Contracts on which there is no maintenance charge, the 30 day yield
would be 6.16% for the Emerging Markets Debt Subaccount.
TRANSFERS AMONG SUBACCOUNTS AFTER THE ANNUITY DATE
After the Annuity Date, you may instruct us to reallocate the value of some
or all of the Annuity Units of a variable Subaccount then credited to your
Contract into an equal value of Annuity Units of one or more other
Subaccounts. The transfer shall be based on the relative value of the
Subaccount Annuity Units at the end of the Valuation Period in which the
request is received and will affect income payments determined after that
Valuation Period. To make such a transfer, you must contact the Annuity
Service Center. The value of the Annuity Units exchanged must provide at
least a $50 annuity income payment at the time of the exchange, unless all
of the Annuity Units of a Subaccount are being exchanged.
UNAVAILABILITY OF ANNUITY INCOME OPTIONS IN CERTAIN CIRCUMSTANCES
We do not offer annuity income options to any corporate beneficiary,
partnership or trustee; any assignee, unless that assignee is a
beneficiary; or the executors or administrators of the Annuitant's estate.
IRS REQUIRED DISTRIBUTIONS
If the Owner of the Contract dies (or either Joint Owner if the Contract is
owned jointly) 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 Contract qualifies as an annuity
under the Internal Revenue Code.
If the death occurs on or after the Annuity Date, the remaining portion of
the interest in the Contract must 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 Date, the entire interest in the Contract
must be distributed within five years after the date of death, unless the
following conditions are met.
If an annuity income option is selected by the designated beneficiary and
if annuity income payments begin within one year of the Owner's death, the
value of the Contract may be distributed over the beneficiary's life or a
period not exceeding the beneficiary's life expectancy. However, for
Qualified Contracts where the owner's spouse is the beneficiary, annuity
income payments need not begin within one year after the Owner's death,
rather they need only begin on or before April 1 of the calendar year
following the calendar year in which the Owner would have attained age 70
1/2. The Owner's designated beneficiary is the person to whom proceeds of
the Contract pass by reason of the death of the Owner.
If the Contract Owner is a trust or other "non-natural person," and the
Annuitant dies before the Annuity Date, the required distribution upon
death rules will apply.
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
The assets of the Variable Account are held by Fidelity Investments Life.
The assets of the Variable Account are held apart from our general account
assets and any other separate accounts we may establish. We maintain
records of all purchases and redemptions of the shares of the Funds held by
the variable Subaccounts. We maintain fidelity bond coverage for the acts
of our officers and employees.
DISTRIBUTION OF THE CONTRACTS
As explained in the Prospectus, the Contracts are distributed through
Fidelity Brokerage Services, Inc. and Fidelity Insurance Agency, Inc.,
which are affiliated with FMR Corp. and Fidelity Investments Life. The
offering of the contracts is continuous, and we do not anticipate
discontinuing offering the Contracts. However, we reserve the right to
discontinue offering the contracts.
STATE REGULATION
Fidelity Investments Life is subject to regulation by the Department of
Insurance of the State of Utah, which periodically examines our financial
condition and operations. We are also subject to the insurance laws and
regulations of all jurisdictions where we do business. The Contract
described in the Prospectus and Statement of Additional Information has
been filed with and, where required, approved by, insurance officials in
those jurisdictions where it is sold.
We are required to submit annual statements of our operations, including
financial statements, to the insurance departments of the various
jurisdictions where we do business to determine solvency and compliance
with applicable insurance laws and regulations.
LEGAL MATTERS
The legal validity of the Contracts described in the Prospectus and
Statement of Additional Information has been passed on by David J.
Pearlman, Senior Legal Counsel of FILI Jorden Burt Berenson & Johnson LLP
of Washington, D.C. has passed on matters relating to Federal securities
laws.
REGISTRATION STATEMENT
We have filed a Registration Statement under the Securities Act of 1933
with the SEC relating to the Contracts. The Prospectus and Statement of
Additional Information do not include all the information in the
Registration Statement. We have omitted certain portions pursuant to SEC
rules. You may obtain the omitted information from the SEC's main office in
Washington, D.C. by paying the SEC's prescribed fees.
INDEPENDENT ACCOUNTANTS
The consolidated statements of financial condition of Fidelity Investments
Life Insurance Company as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 1996, and the
statement of assets and liabilities of the Fidelity Investments Variable
Annuity Account I as of December 31, 1996, and the related statements of
operations and changes in net assets for the years ended December 31, 1996
and 1995 included in this registration statement have been included herein
in reliance on the reports of Coopers & Lybrand L.L.P., independent
accountants, on the authority of that firm as experts in accounting and
auditing.
FINANCIAL STATEMENTS
The financial statements of Fidelity Investments Life included herein
should be distinguished from the financial statements of the Variable
Account and should be considered only as bearing upon our ability to meet
our obligations under the Contracts.
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(A Wholly-Owned Subsidiary of FMR Corp.)
CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
Page(s)
Report of Independent Accountants 1
Consolidated Statements of Financial Condition 2
Consolidated Statements of Income 3
Consolidated Statements of Stockholder's Equity 4
Consolidated Statements of Cash Flows 5
Notes to the Consolidated Financial Statements 6-13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Fidelity Investments Life Insurance Company:
We have audited the accompanying consolidated statements of financial
condition of Fidelity Investments Life Insurance Company (a wholly-owned
subsidiary of FMR Corp.) as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial condition of Fidelity
Investments Life Insurance Company as of December 31, 1996 and 1995, and
the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 29, 1997
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(A Wholly-Owned Subsidiary of FMR Corp.)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1996 and 1995
ASSETS 1996 1995
Debt securities available for
sale $167,973,832 $159,755,595
Common stocks 3,576,373 -
Policy loans 127,948 114,595
Total investments 171,678,153 159,870,190
Cash and cash equivalents 2,886,300 2,298,255
Accrued investment income 2,728,843 2,604,761
Deferred policy acquisition costs 16,865,993 13,240,829
Goodwill, net of accumulated
amortization of $1,271,328 in
1996 and $1,157,808 in 1995 3,515,380 3,628,900
Other assets 1,039,517 608,621
Deferred tax asset 13,109,839 7,940,026
Separate account assets 6,165,792,850 4,485,145,409
Total assets $6,377,616,875 $4,675,336,991
LIABILITIES
Future contract and policy
benefits 66,268,392 71,535,637
Payable to affiliates 1,684,839 2,894,161
Other liabilities and accrued
expenses 3,007,930 3,420,811
Federal income taxes payable 109,000 527,311
Separate account liabilities 6,164,194,468 4,480,757,963
Total liabilities 6,235,264,629 4,559,135,883
Commitments and contingencies (Note 7)
STOCKHOLDER'S EQUITY
Common stock, par value $10
per share - authorized,
1,000,000 shares; issued
and outstanding, 300,000
shares 3,000,000 3,000,000
Additional paid-in capital 68,048,088 68,048,088
Unrealized gain on securities
available for sale, net of tax 716,604 2,364,688
Retained earnings 70,587,554 42,788,332
Total stockholder's equity 142,352,246 116,201,108
Total liabilities and
stockholder's equity $6,377,616,875 $4,675,336,991
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(A Wholly-Owned Subsidiary of FMR Corp.)
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Revenues:
Fees charged to
contractholders $56,600,909 $39,171,360 $28,423,041
Net investment
income 11,056,173 10,687,327 6,052,171
Realized gains
(losses), net (37,755) (14,021) (176,109)
67,619,327 49,844,666 34,299,103
Benefits and expenses:
Return credited to
contractholders
and other
benefits 3,630,146 4,179,438 2,100,679
Underwriting,
acquisition and
insurance
expenses (1) 21,332,521 16,859,410 11,958,754
Amortization of
goodwill 113,520 113,520 113,520
25,076,187 21,152,368 14,172,953
Income before
provision for
income taxes 42,543,140 28,692,298 20,126,150
Provision for income
taxes 14,743,918 10,344,880 7,016,062
Net income $27,799,222 $18,347,418 $13,110,088
(1) Includes affiliated party transaction (Note 5)
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(A Wholly-Owned Subsidiary of FMR Corp.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C>
Unrealized
Gain (Loss)
Additional on Securities Total
Common Paid-In Available for Retained Stockholder's
Stock Capital Sale Earnings Equity
Balance at
January 1,
1994 $3,000,000 $60,048,088 $ - $11,330,826 $74,378,914
Adjustment to
beginning balance
for change in
accounting principle,
net of tax benefit
of $533,602 (990,956) (990,956)
Capital contribution
from parent 8,000,000 8,000,000
Net income 13,110,088 13,110,088
Change in unrealized
gain (loss), net of
tax benefit of
$594,591 (1,698,831) (1,698,831)
Balance at
December 31,
1994 3,000,000 68,048,088 (2,689,787) 24,440,914 92,799,215
Net income 18,347,418 18,347,418
Change in unrealized
gain (loss), net of
tax benefit of
$2,721,642 5,054,475 5,054,475
Balance at
December 31,
1995 3,000,000 68,048,088 2,364,688 42,788,332 116,201,108
Net income 27,799,222 27,799,222
Change in unrealized
gain (loss), net of tax
benefit of $887,431 (1,648,084) (1,648,084)
Balance at
December 31,
1996 $3,000,000 $68,048,088 $716,604 $70,587,554 $142,352,246
</TABLE>
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(A Wholly-Owned Subsidiary of FMR Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C>
1996 1995 1994
Cash flows from operating activities:
Net income $27,799,222 $18,347,418 $13,110,088
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of bond discount
and premium 1,133,278 1,111,542 1,242,771
Realized loss on investments 37,755 14,021 176,109
Amortization of goodwill 113,520 113,520 113,520
Depreciation and amortization 1,240,837 870,009 763,483
Deferred taxes on earnings (4,282,382) (3,163,423)
(2,090,239)
Increase in future contract
and policy benefits 3,296,023 1,875,338 1,930,775
Addition to deferred policy
acquisition costs (4,406,980) (3,380,870)
(3,578,600)
Changes in assets and liabilities:
Accrued investment income (124,082) (522,944)
(798,721)
Amounts due (from) to separate
accounts 2,789,064 (1,585,709) 389,538
Payable to parent and affiliates, net (1,209,322) 2,052,095 593,236
Other assets and liabilities (914,883) 2,054,180 1,308,402
Net cash provided by operating
activities 25,472,050 17,785,177 13,160,362
Cash flows from investing activities:
Purchase of investments (83,411,193) (54,337,078)
(136,809,754)
Proceeds from disposal of investments 67,910,035 23,220,971 89,827,943
Additions to fixed assets (819,579) (570,316)
(213,267)
Additions to separate accounts (1,007,857,631) (785,157,232)
(868,356,472)
Net cash used in investing
activities (1,024,178,368) (816,843,655)
(915,551,550)
Cash flows from financing activities:
Considerations and deposits on
variable annuity products 1,153,249,988 908,482,198 952,425,197
Payments to contractholders (153,955,625) (109,796,924)
(60,291,338)
Capital contribution from parent - - 8,000,000
Net cash provided by
financing activities 999,294,363 798,685,274 900,133,859
Net (decrease) increase in cash
and cash equivalents 588,045 (373,204)
(2,257,329)
Cash and cash equivalents:
Beginning of year 2,298,255 2,671,459 4,928,788
End of year $2,886,300 $2,298,255 $2,671,459
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(A Wholly-Owned Subsidiary of FMR Corp.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Organization
The consolidated financial statements include the accounts of Fidelity
Investments Life Insurance Company (FILI), a Utah domiciled insurance
company, and Empire Fidelity Investments Life Insurance Company (EFILI), a
wholly-owned insurance company operating exclusively in the State of New
York collectively, the "Company"). All intercompany accounts have been
eliminated in consolidation.
The Company issues variable deferred and immediate annuity contracts and
is licensed in all states. Amounts invested in the fixed option of the
contracts are allocated to the General Account of the Company. Amounts
invested in the variable option of the contracts are allocated to the
Variable Annuity Accounts, separate accounts of the Company. Amounts
invested in the variable life policies are allocated to the Variable Life
Account I, also a separate account of the Company. The assets of the
Variable Accounts are invested in the portfolios of the Variable Insurance
Products Fund and the Variable Insurance Products Fund II, which are
reported at the net asset value of such portfolios. During 1996, the
Company began offering a term life insurance product with level premium
paying periods of one, five, ten, fifteen and twenty years.
Basis of Presentation
The accompanying consolidated financial statements of the Company have
been prepared on the basis of generally accepted accounting principles
("GAAP"), which vary in certain respects from reporting practices
prescribed by state insurance regulatory authorities (Note 4).
Investments
Investments in debt securities available-for-sale and common stocks are
reported at fair value. Fair values are derived from external market
quotations. Unrealized gains or losses on debt securities and common stock
are excluded from earnings and reported as a separate component of
stockholder's equity, net of taxes, until realized. The discount or
premium on debt securities is amortized using the interest method.
Loan-backed and structured securities are amortized including anticipated
prepayments at the date of purchase. Policy loans are carried at
outstanding principal balances, not in excess of policy cash surrender
value. These loans are an integral part of the insurance products and have
no maturity dates. Consequently, it is impracticable to determine the
market value of policy loans.
Investment income is recognized on the accrual basis. Realized gains or
losses on investments sold are determined on the basis of the specific
identification method. Unrealized gains or losses on the Company's funds
retained in the separate accounts are reflected in income.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
an original maturity date of three months or less to be cash equivalents.
Cash equivalents are stated at cost which approximates fair value.
Separate Accounts
Separate account assets represent funds held for the exclusive benefit
of variable annuity and variable life insurance contractholders and are
reported at fair value. Since the contractholders receive the full benefit
and bear the full risk of the separate account investments, the income and
realized and unrealized gains and losses from such investments are offset
by an increase in the amount of liabilities related to the separate
account. The excess of separate account assets over separate account
liabilities represents funds of the Company retained in the separate
account.
Future Contract and Policy Benefits and Fees Charged to Contractholders
Future contract and policy benefits represent the reserve liability
which approximates the contractholder's account balance. Fees charged to
contractholders include the cost of providing insurance protection for
variable life contractholders, mortality and expense risk charges,
surrender charges and an annual administrative charge for variable annuity
contractholders.
Deferred Policy Acquisition Costs
The costs of acquiring new business, principally first-year commissions
and certain expenses of policy issue and underwriting, all of which vary
with and are related to the production of new business, have been deferred.
These acquisition costs are being amortized in proportion to the present
value of expected future gross profits from interest margins, mortality and
other elements of performance under the contracts.
Income Taxes
FILI files a consolidated life insurance return with its subsidiary,
EFILI. Under a tax sharing agreement, each company is charged or credited
its share of taxes as determined on a separate-company basis.
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse.
Goodwill
Goodwill, representing the excess of FMR Corp.'s cost over the net
assets of the Company at the date of acquisition, has been reflected in
these financial statements net of certain identifiable tax benefits
realized and is being amortized on a straight-line basis over 40 years.
Use of Estimates
The preparation of the consolidated statement of financial condition in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period. Actual results
could differ from those estimates.
Reclassifications
Certain prior year balances have been reclassified to conform with
current year presentation.
2. Investments:
The components of net investment income are as follows:
Years ended December 31,
1996 1995 1994
Debt securities $10,509,919 $9,762,049 $5,956,902
Common stocks 216,340 - -
Short-term investments
and cash equivalents 551,046 459,245 453,138
Policy loans 8,814 8,288 9,329
Investment in separate
accounts 419,102 1,002,072 15,890
Total investment
income 11,705,221 11,231,654 6,435,259
Investment expenses 649,048 544,327 383,088
Net investment
income $11,056,173 $10,687,327 $6,052,171
Gross realized gains and losses from sales of debt securities were as
follows:
Years ended December 31,
1996 1995 1994
Gross realized gains $28,075 $4,605 $462
Gross realized losses 65,830 18,626 176,571
Gross unrealized appreciation (depreciation) for debt securities, by type
of issuer, and common stock were as follows:
<TABLE>
<CAPTION>
<S> <C>
December 31, 1996
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $52,221,996 $274,739 $(93,624) $52,403,111
Corporate securities 97,184,021 1,068,425 (115,902) 98,136,544
Asset-backed securities 17,325,380 108,797 - 17,434,177
Total debt securities $166,731,397 $1,451,961 $(209,526) $167,973,832
Common stock $3,716,340 - $(139,967) $3,576,373
December 31, 1995
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Treasury securities and
obligationsof U.S.
government corporations
and agencies $24,297,882 $834,737 $ - 25,132,619
Debt securities issued by
foreign governments 690,789 10,851 - 701,640
Corporate securities 105,871,089 2,436,331 (29,189) 108,278,231
Asset-backed securities 25,257,852 386,403 (1,150) 25,643,105
Totals $156,117,612 $3,668,322 $(30,339) $159,755,595
</TABLE>
The amortized cost and fair value of debt securities at December 31, 1996,
by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Amortized Fair
Cost Value
Due in 1 year or less $42,248,904 $42,421,051
Due after 1 year through
5 years 70,557,387 71,281,586
Due after 5 years
through 10 years 34,951,519 35,054,851
Due after 10 years 1,648,207 1,782,167
Subtotal 149,406,017 150,539,655
Asset-backed securities 17,325,380 17,434,177
$166,731,397 $167,973,832
All debt securities are investment grade and there are no significant
concentrations by issuer or by industry other than U.S. government
securities.
3. Income Taxes:
Significant components of the provision for income taxes attributable to
operations were as follows:
Years ended December 31,
1996 1995 1994
Current $19,026,301 $13,508,303 $9,106,301
Deferred (4,282,383) (3,163,423) (2,090,239)
Provision for
income taxes $14,743,918 $10,344,880 $7,016,062
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets were as
follows:
Years ended December 31,
1996 1995
Deferred policy acquisition
costs $11,271,609 $8,303,903
Reserves 2,328,200 1,027,221
Unrealized (gain) loss on
securities available-for-sale (385,864) (1,273,295)
Other, net (104,106) (117,803)
Total net deferred tax assets $13,109,839 $7,940,026
Management believes that the Company's future income will be sufficient to
realize the net deferred tax assets.
FILI paid federal income taxes of $19,444,612, $13,790,214, and $8,642,087
in 1996, 1995, and 1994, respectively.
The effective tax rates approximate the statutory federal income tax rates
for the years ended 1996, 1995 and 1994.
4. Stockholders' Equity and Dividend Restrictions:
Generally, the net assets of the Company available for transfer to FMR
Corp. are limited to the excess of FILI's net assets, as determined in
accordance with statutory accounting practices, over minimum statutory
capital requirements; however, payments of such amounts as dividends may be
subject to approval by regulatory authorities.
Net income and capital stock and surplus as determined in accordance with
statutory accounting practices were as follows:
Years ended December 31,
1996 1995 1994
Net income $19,978,488 $12,651,624 $8,587,674
Capital stock
and surplus 105,642,545 86,495,098 74,227,508
5. Affiliated Company Transactions:
The Company's insurance contracts are distributed through Fidelity
Brokerage Services, Inc. (FBSI) and Fidelity Insurance Agency, Inc. (FIA),
both of which are affiliated with FMR Corp. FILI and EFILI have entered
into agreements with FIA under which FILI pays FIA first-year sales
compensation of $50 a contract and renewal sales compensation of 0.10% of
the contract value each year. EFILI pays FIA sales compensation of 3% of
payments received. The Company compensated FIA in the amount of
$9,360,582, $6,833,848 and $6,044,200 in 1996, 1995 and 1994, respectively.
The Company has entered into administrative service agreements with its
affiliates whereby the Company provides certain administrative and
accounting functions. The Company received $806,704, $988,878 and $730,790
in 1996, 1995 and 1994, respectively, for such services. The
reimbursements are accounted for as a direct reduction of the Company's
expenses.
FMR Corp. maintains a noncontributory trusteed defined benefit pension plan
covering substantially all eligible Company employees. The benefits earned
are based on years of service and the employees' compensation during the
last five years of employment. FMR Corp.'s policy for the plan is to fund
the maximum amount deductible for income tax purposes, and to charge each
subsidiary for its share of such contributions. Pension costs of $181,966,
$107,143 and $81,946 were charged to the Company in 1996, 1995 and 1994,
respectively.
FMR Corp. sponsors a trusteed Profit-Sharing Plan and a contributory 401(k)
Thrift Plan covering substantially all eligible Company employees.
Payments are made to the trustee by FMR Corp. annually for the
Profit-Sharing Plan and monthly for the 401(k) Thrift Plan. FMR Corp.'s
policy is to fund all costs accrued and to charge each subsidiary for its
share of the cost. The cost charged to the Company for these plans
amounted to $440,597, $424,336 and $330,683 in 1996, 1995 and 1994,
respectively.
The Company participates in various FMR Corp. stock-based compensatory
plans. The compensation is based on the change in the net asset value of
FMR Corp. common stock, as defined. The aggregate expenses related to
these plans charged to the Company were approximately $603,385, $708,538
and $579,345 in 1996, 1995 and 1994, respectively.
6. Underwriting, Acquisition and Insurance Expenses:
Underwriting, acquisition and insurance expenses were as follows:
Years ended December 31,
1996 1995 1994
Commissions $5,839,169 $4,215,653 $2,463,918
Taxes, licenses and
fees 1,882,452 1,351,008 1,057,712
Amortization of
deferred policy
acquisition costs 781,816 571,588 382,665
General insurance
expenses 12,829,084 10,721,161 8,054,459
$21,332,521 $16,859,410 $11,958,754
7. Commitments and Contingencies:
Reinsurance
FILI reinsures certain of its life contracts risks with other companies.
FILI retains a maximum coverage per individual life of $25,000 plus 30% of
the excess over $25,000; the maximum initial retention not to exceed
$100,000.
The Company has entered into agreements to reinsure certain guarantee
provisions and mortality losses on its annuity contracts. The Company is
contingently liable for claims reinsured that the assuming company is
unable to pay. Premiums and deposits ceded under these reinsurance
contracts were not material to the consolidated financial statements.
STATEMENT OF ASSETS AND LIABILITIES
FIDELITY INVESTMENTS VARIABLE ANNUITY ACCOUNT I
OF
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31, 1996
ASSETS
Investments at Current Market Value:
Variable Insurance Products Fund (VIP)
Money Market Portfolio - 516,421,448 shares (cost $516,421,448) $ 516,421,448
High Income Portfolio - 20,350,982 shares (cost $237,197,853) 254,794,294
Equity-Income Portfolio - 65,552,276 shares (cost $1,058,931,535) 1,378,564,385
Growth Portfolio - 30,615,412 shares (cost $766,643,782) 953,363,919
Overseas Portfolio - 13,041,994 shares (cost $214,953,936) 245,711,153
Variable Insurance Products Fund II (VIP II)
Investment Grade Bond Portfolio - 6,800,548 shares (cost $81,300,775) 83,238,712
Asset Manager Portfolio - 41,464,924 shares (cost $605,056,011) 702,001,153
Index 500 Portfolio - 4,007,905 shares (cost $306,622,134) 357,224,531
Asset Manager Growth Portfolio - 14,139,054 shares (cost $172,034,926) 185,221,607
Contrafund Portfolio - 54,748,561 shares (cost $726,283,082) 906,636,168
Total Assets $ 5,583,177,370
LIABILITIES
Total Liabilities 0
NET ASSETS
Variable Annuity Contracts $ 5,442,772,112
Annuity Reserves 139,079,202
Retained in Variable Account by Fidelity Investments Life Insurance Company 1,326,056
Total Net Assets $ 5,583,177,370
</TABLE>
FIDELITY INVESTMENTS VARIABLE ANNUITY ACCOUNT I
OF
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUBACCOUNTS INVESTING IN:
VIP - VIP - VIP -
MONEY MARKET HIGH INCOME EQUITY-INCOME VIP - GROWTH
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 12/31/95 12/31/96 12/31/95 12/31/96 12/31/95 12/31/96 12/31/95
Income:
Dividends $ 22,183,49 $ 20,938,18 $ 16,728,27 $ 7,310,462 $ 55,685,27 $ 54,694,031 $ 52,408,31 $ 2,257,895
8 5 3 0 1
EXPENSES:
Mortality, 3,678,351
expense risk
and adminis- 4,265,461 2,133,584 1,424,671 13,282,629 8,919,504 8,895,743 5,588,458
trative charges
Net investment 17,918,037 17,259,834 14,594,689 5,885,791 42,402,641 45,774,527 43,512,568 (3,330,563)
income (loss)
Realized gain 0 4,215,546 3,468,694 44,973,966 4,662,258 34,665,280 11,540,837
Unrealized
appreciation
(depreciation) 0 0 6,407,080 14,660,109 71,715,782 205,095,093 25,231,481 132,834,43
during the year 6
Net increase
in net assets
from operations 17,918,037 17,259,834 25,217,315 24,014,594 159,092,38 255,531,878 103,409,32 141,044,71
9 9 0
Payments
received from
contract
owners 716,350,46 589,374,91 19,246,520 12,599,198 67,800,413 57,511,018 65,624,862 45,108,759
3 4
Transfers
between sub- (572,043,36 (541,618,26 39,372,795 46,531,837 8,556,850 249,534,173 88,618,608 138,179,18
accounts and
the 5) 8) 1
fixed account, net
Transfers
for contract
benefits and (34,497,387 (22,256,309 (4,602,693) (2,760,110) (27,944,559 (19,939,132 (19,664,847 (12,065,908
terminations ) ) ) ) ) )
Other transfers
(to) from
Fidelity Invest-
ments Life (117,521) (165,577) (16,920) (80,197) (375,090) (608,712) (325,787) (319,611)
Insurance
Co., net
Net increase
(decrease) in
net assets 109,692,19 25,334,760 53,999,702 56,290,728 48,037,614 286,497,347 134,252,83 170,902,42
from contract 0 6 1
transactions
Retained in
(returned from)
Variable (279,345) 78,923 (113,623) 77,233 (734,182) 602,520 (385,048) 338,618
Annuity
Account I, net
Total increase
(decrease) in 127,330,88 42,673,517 79,103,394 80,382,555 206,395,82 542,631,745 237,277,11 312,285,74
net assets 2 1 7 9
Net assets at
beginning 389,090,56 346,417,04 175,690,90 95,308,345 1,172,168,5 629,536,819 716,086,80 403,801,05
of period 6 9 0 64 2 3
Net assets at end
of period $ 516,421,4 $ 389,090,5 $ 254,794,2 $ 175,690,9 $ 1,378,564, $ 1,172,168, $ 953,363,9 $ 716,086,8
48 66 94 00 385 564 19 02
</TABLE>
FIDELITY INVESTMENTS VARIABLE ANNUITY ACCOUNT I
OF
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
SUBACCOUNTS
INVESTING IN:
VIP -
OVERSEAS
12/31/96 12/31/95
Income:
Dividends $ 5,076,103 $ 1,831,239
EXPENSES:
Mortality,
expense risk
and adminis- 2,325,480
trative charges 2,035,083
Net investment 2,750,623
income (loss) (203,844)
Realized gain 4,977,991 12,959,632
Unrealized
appreciation
(depreciation) 17,808,822
during the year 2,395,325
Net increase
in net assets
from operations 25,537,436 15,151,113
Payments
received from
contract owners 15,310,022 8,380,232
Transfers
between sub- 27,187,801
accounts and the (87,240,272
fixed account, net )
Transfers
for contract
benefits and (5,076,410)
terminations (5,160,163)
Other transfers
(to) from
Fidelity Invest-
ments Life (58,320)
Insurance
Co., net (100,463)
Net increase
(decrease) in
net assets 37,363,093
from contract (84,120,666
transactions )
Retained in
(returned from)
Variable (91,969)
Annuity
Account I, net (48,579)
Total increase
(decrease) in 62,808,560
net assets (69,018,132
)
Net assets at
beginning 182,902,59
of period 3 251,920,72
5
Net assets at end
of period $ 245,711,1 $ 182,902,5
53 93
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
VIP II - VIP II -
INVESTMENT VIP II - VIP II - ASSET MANAGER:
GRADE BOND ASSET MANAGER INDEX 500 GROWTH
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/96 12/31/95 12/31/96 12/31/95 12/31/96 12/31/95 12/31/96 12/31/95
Income:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends $ 3,861,311 $ 1,682,779 $ 47,469,96 $ 17,964,09 $ 5,677,684 $ 502,158 $ 9,328,581 $ 2,142,569
3 3
EXPENSES:
Mortality,
expense risk
and adminis- 565,912 7,112,472 7,872,594 2,166,085 599,028 1,063,876 285,667
trative charges 785,033
Net investment 1,116,867 40,357,491 10,091,499 3,511,599 (96,870) 8,264,705 1,856,902
income (loss) 3,076,278
Realized gain 888,717 681,765 20,343,996 35,055,886 4,975,965 1,070,836 673,453 327,488
Unrealized
appreciation
(depreciation) 6,589,640 27,445,480 68,350,367 33,991,964 15,941,637 9,972,956 3,213,726
during the year (2,329,345)
Net increase
in net assets
from
operations 1,635,650 8,388,272 88,146,967 113,497,75 42,479,528 16,915,603 18,911,114 5,398,116
2
Payments
received from
contract
owners 4,922,193 3,797,513 13,647,683 14,616,755 33,319,804 9,671,827 15,662,363 7,219,229
Transfers
between sub- 12,837,639 (114,227,0 (264,298,1 167,661,29 67,965,310 101,765,22 38,869,985
accounts and the 37) 70) 1 4
fixed account,
net 9,167,153
Transfers
for contract
benefits and (2,319,156) (25,764,39 (26,861,42 (3,781,296) (1,614,181) (2,189,943) (418,914)
terminations (2,141,175) 1) 4)
Other transfers
(to) from
Fidelity Invest-
ments Life (48,775) (237,492) (582,886) (64,159) (147,556) (38,727) (6,713)
Insurance
Co., net 56,907
Net increase
(decrease) in
net assets 14,267,221 (126,581,2 (277,125,7 197,135,64 75,875,400 115,198,91 45,663,587
from contract 37) 25) 0 7
transactions 12,005,078
Retained in
(returned from)
Variable 14,585 (616,502) (63,314) (30,838) 108,453 4,437 45,436
Annuity
Account I, net (109,244)
Total increase
(decrease) in 22,670,078 (39,050,77 (163,691,2 239,584,33 92,899,456 134,114,46 51,107,139
net assets 13,531,484 2) 87) 0 8
Net assets at
beginning 47,037,150 741,051,92 904,743,21 117,640,20 24,740,745 51,107,139 0
of period 69,707,228 5 2 1
Net assets at end
of period $ 83,238,71 $ 69,707,22 $ 702,001,1 $ 741,051,9 $ 357,224,5 $ 117,640,2 $ 185,221,6 $ 51,107,13
2 8 53 25 31 01 07 9
</TABLE>
* FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 1995.
VIP II -
CONTRAFUND TOTAL
12/31/96 12/31/95 12/31/96 12/31/95
Income:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Dividends $ 4,625,874 $ 5,839,546 $ 223,044,8 $ 115,162,9
68 57
EXPENSES:
Mortality,
expense risk
and adminis- 6,890,563 2,454,097 48,920,926 33,423,365
trative charges
Net investment (2,264,689) 3,385,449 174,123,94 81,739,592
income (loss) 2
Realized gain 8,702,452 1,396,988 124,417,36 71,164,384
6
Unrealized
appreciation
(depreciation) 123,250,95 57,102,130 313,495,17 506,182,46
during the year 6 6 3
Net increase
in net assets
from operations 129,688,71 61,884,567 612,036,48 659,086,43
9 4 9
Payments
received from
contract owners 81,653,439 66,578,676 1,033,537, 814,858,12
762 1
Transfers
between sub- 248,553,82 331,463,99 4,613,143 (7,774,589)
accounts and the 3 6
fixed account, net
Transfers
for contract
benefits and (10,123,89 (2,955,853) (135,786,6 (96,351,150
terminations 9) 00) )
Other transfers
(to) from
Fidelity Invest-
ments Life (261,226) (51,336) (1,438,335) (2,111,826)
Insurance
Co., net
Net increase
(decrease) in
net assets 319,822,13 395,035,48 900,925,97 708,620,55
from contract 7 3 0 6
transactions
Retained in
(returned from)
Variable (180,555) 385,817 (2,536,869) 1,539,692
Annuity
Account I, net
Total increase
(decrease) in 449,330,30 457,305,86 1,510,425, 1,369,246,6
net assets 1 7 585 87
Net assets at
beginning 457,305,86 0 4,072,751, 2,703,505,0
of period 7 785 98
Net assets at end
of period $ 906,636,1 $ 457,305,8 $5,583,177 $ 4,072,751,
68 67 ,370 785
</TABLE>
* FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 1995.
* FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 1995.
FIDELITY INVESTMENTS VARIABLE ANNUITY ACCOUNT I
OF
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
ORGANIZATION.
Fidelity Investments Variable Annuity Account I (the Account), a unit
investment trust registered under the Investment Company Act of 1940 as
amended, was established by Fidelity Investments Life Insurance Company
(FILI) on July 22, 1987 and exists in accordance with the regulations of
the Utah Insurance Department. The Account is a funding vehicle for
individual Fidelity Retirement Reserves and Fidelity Income Advantage
variable annuity contracts. FILI is a wholly-owned subsidiary of FMR Corp.
Beginning in 1995, FILI added two new subaccounts to the Account; Asset
Manager: Growth and Contrafund.
SIGNIFICANT ACCOUNTING POLICIES.
Investments are made in the portfolios of the Variable Insurance Products
Fund and the Variable Insurance Products Fund II and are valued at the
reported net asset values of such portfolios. Transactions are recorded on
the trade date. Income from dividends is recorded on the ex-dividend date.
Realized gains and losses on the sales of investments are computed on the
basis of the identified cost of the investment sold.
In addition to the Account, a contractholder may also allocate funds to the
Fixed Account, which is part of FILI's general account. Because of
exemptive and exclusionary provisions, interests in the Fixed Account have
not been registered under the Securities Act of 1933 and FILI's general
account has not been registered as an investment company under the
Investment Company Act of 1940.
Annuity reserves are computed for contracts in the income stage according
to the 1983 Individual Annuitant Mortality Table. The assumed investment
return is 3.5% unless the annuitant elects otherwise, in which case the
rate may vary from 3.5% to 7%, as regulated by the laws of the respective
states. The mortality risk is fully borne by FILI and may result in
additional amounts being transferred into the Account by FILI.
The operations of the Account are included in the federal income tax return
of FILI, which is taxed as a Life Insurance Company under the provisions of
the Internal Revenue Code (the Code).
The preparation of the statement of assets and liabilities and the
statements of operations and changes in net assets in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of liabilities
at the date of the financial statements and the reported amounts of income
and expense during the reporting period. Actual results could differ from
those estimates.
Certain amounts in the financial statements for 1995 have been reclassified
to correspond to the 1996 presentation.
EXPENSES.
FILI deducts a daily charge from the net assets of the Account (equivalent
to an effective annual rate of 1% of net assets) for administrative
expenses and for the assumption of mortality and
expense risks. FILI also deducts an annual maintenance charge of $30 from
the Fidelity Retirement Reserves contract value. The maintenance charge is
waived on certain contracts.
Under the current provisions of the Code, FILI does not expect to incur
federal income taxes on the earnings of the Account to the extent the
earnings are credited under the contracts. FILI incurs federal income taxes
on the difference between the financial statement carrying value of
reserves for contracts in the income stage and those reserves held for
federal income tax purposes. The tax effect of this temporary difference is
expected to be recovered by FILI. As such, no charge is being made
currently to the Account for federal income taxes. FILI will review
periodically the status of such decision based on changes in the tax law.
Such a charge may be made in future years for any federal income taxes that
would be attributable to the contracts.
AFFILIATED COMPANY TRANSACTIONS.
The contracts are distributed through Fidelity Brokerage Services, Inc.
(FBSI) and Fidelity Insurance Agency, Inc. (FIA), both of which are
affiliated with FMR Corp. FBSI and FIA are the distributors and FBSI is the
principal underwriter of the contracts. Fidelity Management & Research
Company, an affiliate of FMR Corp., acts as investment advisor to each
portfolio. Fidelity Investments Institutional Operations Co., an affiliate
of FMR Corp., is the transfer and shareholder servicing agent for the
portfolios.
PURCHASES AND SALES OF INVESTMENTS.
The following table shows aggregate cost of shares purchased and proceeds
from sales of each subaccount for the year ended December 31, 1996:
PURCHASES SALES
Money Market $ $
390,849,861 263,518,979
High Income 114,872,935 46,392,168
Equity-Income 206,042,181 116,336,110
Growth 262,760,096 85,379,737
Overseas 73,653,371 33,631,624
Investment Grade 36,182,001 21,209,887
Asset Manager 49,130,239 135,970,488
Index 500 216,167,690 15,551,289
Asset Manager: 127,250,459 3,782,400
Growth
Contrafund 344,642,466 27,265,571
UNIT VALUES.
A summary of changes in accumulation unit values and accumulation units
outstanding for variable annuity contracts at December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PAYMENTS
BEGINNING RECEIVED TRANSFERS CONTRACT
BALANCE FROM CONTRACT BETWEEN TERMINATION ENDING BALANCE
OWNERS SUBACCOUNTS, S
NET
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
UNITS UNITS UNIT VALUE DOLLARS
JANUARY 1, 1996 TO DECEMBER 31, 1996
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Money Market Subaccount 26,268,846 42,913,398 (38,375,363) 2,586,683 33,393,564 $15.30 $ 510,850,998
High Income Subaccount 7,797,315 816,399 1,649,890 (406,652) 9,856,952 $24.89 245,332,651
Equity-Income Subaccount 41,937,122 2,359,548 324,284 (1,547,837) 43,073,117 $31.05 1,337,348,204
Growth Subaccount 23,019,869 1,987,476 2,629,901 (864,978) 26,772,269 $34.97 936,189,066
Overseas Subaccount 9,560,376 770,514 1,400,639 (311,673) 11,419,855 $21.29 243,142,393
Investment Grade Subaccount 3,993,107 291,738 528,603 (198,064) 4,615,384 $17.36 80,112,903
Asset Manager Subaccount 39,821,641 708,287 (6,035,625) (1,431,676) 33,062,627 $20.75 686,200,145
Index 500 Subaccount 7,333,800 1,943,169 9,613,725 (729,850) 18,160,844 $18.89 343,086,654
Asset Manager: Growth 4,035,434 1,168,481 7,592,101 (534,078) 12,261,937 $14.49 177,691,548
Subaccount
Contrafund Subaccount 32,421,946 5,482,352 16,672,452 (1,566,501) 53,010,249 $16.65 882,817,550
$ 5,442,772,11
2
JANUARY 1, 1995 TO DECEMBER 31, 1995
Money Market Subaccount 24,546,739 38,644,291 (35,319,303) (1,602,881) 26,268,846 $14.66 $ 385,129,503
High Income Subaccount 5,106,950 605,925 2,334,094 (249,654) 7,797,315 $22.05 171,920,260
Equity-Income Subaccount 30,415,281 2,381,915 10,482,774 (1,342,848) 41,937,122 $27.44 1,150,938,872
Growth Subaccount 17,470,386 1,561,974 4,557,411 (569,902) 23,019,869 $30.80 708,919,066
Overseas Subaccount 14,336,196 467,953 (4,944,962) (298,811) 9,560,376 $19.00 181,618,833
Investment Grade Subaccount 3,151,087 239,183 796,388 (193,551) 3,993,107 $16.99 67,854,942
Asset Manager Subaccount 56,621,559 875,715 (15,993,891) (1,681,742) 39,821,641 $18.29 728,500,356
Index 500 Subaccount 2,102,667 687,171 4,837,242 (293,280) 7,333,800 $15.54 113,950,091
Asset Manager: Growth 0 646,949 3,573,788 (185,303) 4,035,434 $12.21 49,254,936
Subaccount*
Contrafund Subaccount* 0 5,345,476 27,832,893 (756,423) 32,421,946 $13.87 449,633,817
$ 4,007,720,67
6
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
* FOR THE PERIOD JANUARY 3, 1995 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1995.
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of Fidelity Investments
Variable Annuity Account I:
We have audited the accompanying statement of assets and liabilities of
Fidelity Investments Variable Annuity Account I (comprised of Money Market
Subaccount, High Income Subaccount, Equity-Income Subaccount, Growth
Subaccount, Overseas Subaccount, Investment Grade Bond Subaccount, Asset
Manager Subaccount, Index 500 Subaccount, Asset Manager: Growth Subaccount
and Contrafund Subaccount) of Fidelity Investments Life Insurance Company
as of December 31, 1996, and the related statements of operations and
changes in net assets for each of the periods indicated therein. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the aforementioned
subaccounts comprising Fidelity Investments Variable Annuity Account I of
Fidelity Investments Life Insurance Company as of December 31, 1996, and
the results of their operations and the changes in their net assets for
each of the periods indicated therein, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 29, 1997
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a) Financial Statements included in Part B
The following financial statements of Fidelity Investments Variable
Annuity Account I and of Fidelity Investments Life Insurance Company are
filed in Part B.n (Note 1)
Statement of Assets and Liabilities for Fidelity Investments Variable
Annuity Account I as of December 31, 1996. (Note 1)
Statements of Operations and Changes in Net Assets for Fidelity
Investments Variable Annuity Account I for Years Ended December 31, 1996
and 1995. (Note 1)
Report of Coopers & Lybrand L.L.P. on the Financial Statements of
Fidelity Investments Variable Annuity Account I. (Note 1)
Balance Sheets of Fidelity Investments Life Insurance Company as of
December 31, 1996 and 1995. (Note 1)
Consolidated Statements of Income for Fidelity Investments Life Insurance
Company for the Years Ended December 31, 1996, 1995 and 1994. (Note 1)
Consolidated Statements of Changes in Stockholder's Equity for Fidelity
Investments Life Insurance Company for the Years Ended December 31, 1996,
1995 and 1994. (Note 1)
Consolidated Statements of Cash Flows for Fidelity Investments Life
Insurance Company for the Years Ended December 31, 1996, 1995 and 1994.
(Note 1)
Report of Coopers & LybrandL.L.P. on Financial Statements of Fidelity
Investments Life Insurance Company. (Note 1)
There are no financial statements included in Part A, other than
Accumulation Unit Values.
b) Exhibits
(1) Resolution of Board of Directors of Fidelity Investments Life
Insurance Company ("Fidelity Investments Life") establishing the Fidelity
Investments Variable Annuity Account I. (Note 1)
(2) Not Applicable.
(3) (a) Distribution Agreement between Fidelity Investments Life,
Fidelity Insurance Agency and Fidelity Brokerage Services, Inc. (Note 1)
(b) Commission Schedule. (Note 1)
(4) (a) Specimen Variable Annuity Contract. (Note 1)
(b) Specimen Variable Annuity Contract for Use with Sponsored
Arrangements.
(Note 1)
(c) Endorsement for Qualified Contracts. (Note 1)
(5) (a) Application for Variable Annuity Contract. (Note 1)
(b) Application for Variable Annuity Contract for Use
with Sponsored Arrangements. (Note 1)
(6) (i) Articles of Domestication of Fidelity Investments Life. (Note
1)
(ii) Revised Bylaws of Fidelity Investments Life. (Note 1)
C-1
(7) Not Applicable.
(8) Not Applicable
(9) Opinion and consent of David J. Pearlman, as to the legality of
securities being issued.
(Note 3 ).
(10) Written consent of Coopers & Lybrand L.L.P. (Note 3 )
Written consent of Jorden Burt Berenson & Johnson LLP (Note 3)
(11) Not Applicable.
(12) Not Applicable.
(13) Performance Advertising Calculations (Note 1)
(14) (a) Form of Participation Agreement between Fidelity Investments
Life and Variable Insurance Products Fund. (Note 1)
(b) Form of Participation Agreement between Fidelity Investments Life
and Variable Insurance Products Fund II. (Note 1)
`
(c) Form of Participation Agreement between Fidelity Investments Life
and Variable Insurance Products Fund III. (Note 1)
(d) Form of Participation Agreement between Fidelity Investments Life
and Strong Variable Insurance Funds, Inc. on behalf of the Portfolios, and
Strong Opportunity Fund II, Inc., Strong Capital Management, Inc. (the
"Adviser"), (Note 3)
(e) Form of Participation Agreement between Fidelity Investments Life
and PBHG INSURANCE SERIES FUND, INC. ("FUND"), and PILGRIM BAXTER &
ASSOCIATES, LTD. ("ADVISER"). (Note 3)
`
(f) Form of Participation Agreement between Fidelity Investments Life
and MORGAN STANLEY UNIVERSAL FUNDS, INC. (the "Fund"), and MORGAN STANLEY
ASSET MANAGEMENT INC. and MILLER ANDERSON & SHERRERD, LLP (the "Advisers").
(Note 3)
(g) Form of Participation Agreement between Fidelity Investments Life
and Warburg, Pincus Trust, (the "Fund"); Warburg, Pincus Counsellors, Inc.
(the "Adviser"); and Counsellors Securities Inc. (Note 3)
(15) Powers of Attorney
Powers of Attorney (Note 2)
Power of Attorney for Paul J. Hondros (Note 3)
(Note 1) Incorporated by reference to Post-Effective Amendment No. 11 to
this Registration Statement filed electronically on April 27, 1997.
(Note 2) Incorporated by reference to Post-Effective Amendment No. 10 to
this Registration Statement filed on April 26, 1996.
(Note 3) Filed herein
C-3
Item 25. Directors and Officers of the Depositor
The directors and officers of Fidelity Investments Life are as follows:
Directors of Fidelity Investments Life
EDWARD C. JOHNSON 3d, Director and Chairman of the Board
J. GARY BURKHEAD, Director
JAMES C. CURVEY, Director
PAUL J. HONDROS, Director
JOHN J. REMONDI, Director
RODNEY R. ROHDA, Director and Chairman
DENIS M. McCARTHY, Director
Executive Officers Who Are Not Directors
Executive officers of Fidelity Investments Life who are not
directors are as follows:
JOSEPH L. KURTZER, JR., Treasurer
DAVID J. PEARLMAN, Vice President, Senior Legal Counsel and Secretary
The principal business address of all persons listed in Item 25 is 82
Devonshire Street, Boston, Massachusetts 02109.
C-4
Item 26. Persons Controlled By or Under Common Control with the Depositor
or Registrant.
See Exhibit 26 of the original registration statement on Form N-4 filed
August 17, 1991, Reg. No. 33-42376, on behalf of Empire Fidelity
Investments Variable Annuity Account A, which is incorporated herein by
reference.
Item 27. Number of Contract Owners.
On December 31, 1996, there were 5,359 Qualified Contracts and 81,845
Non-qualified Contracts.
Item 28. Indemnification
FMR Corp. and its subsidiaries own a directors' and officers' liability
reimbursement contract (the "Policy"), issued by National Union Fire
Insurance Company, that provides coverage for "Loss" (as defined in the
Policy) arising from any claim or claims by reason of any breach of duty,
neglect, error, misstatement, misleading statement, omission or other act
done or wrongfully attempted by a person while he or she is acting in his
or her capacity as a director or officer. The coverage is provided to
these insureds, including Fidelity Investments Life, to the extent required
or permitted according to applicable law, common or statutory, or under
their respective charters or by-laws, to indemnify directors or officers
for Loss arising from the above-described matters. Coverage is also
provided to the individual directors or officers for such Loss, for which
they shall not be indemnified, subject to relevant contract exclusions.
Loss is essentially the legal liability on claims against a director or
officer, including damages, judgements, settlements, costs, charges and
expenses (excluding salaries of officers or employees) incurred in the
defense of actions, suits or proceedings and appeals therefrom.
There are a number of exclusions from coverage. Among the matters excluded
are Losses arising as the result of (1) fines or penalties imposed by law
or other matters that may be deemed uninsurable under the law pursuant to
which the Policy is construed, (2) claims brought about or contributed to
by the fraudulent, dishonest, or criminal acts of a director or officer,
(3) any claim made against the directors or officers for violation of any
of the responsibilities, obligations, or duties imposed upon fiduciaries by
the Employee Retirement Income Security Act of 1974 or amendments thereto,
(4) professional errors or omissions, and (5) claims for an accounting of
profits in fact made from the purchase or sale by a director or officer of
any securities of the insured corporations within the meaning of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any state statutory law.
The limit of coverage of the Policy is $10 million, as an annual aggregate
limit, with 95% co-insurance for the first $1 million of coverage, and with
a deductible of $500,000 in the event that Fidelity Investments Life
indemnifies the director or officer, or a deductible of $5,000 per
individual director or officer (with a maximum aggregate per loss
deductible of $25,000) if Fidelity Investments Life does not indemnify the
director or officer.
Utah law (Revised Business Corporation Act (sub-section)16-10a-901 et seq.)
provides, in substance, that a corporation may indemnify a director,
officer, employee or agent against liability if he acted in good faith and
in a manner he reasonably believed to be in, or not opposed to, the best
interest of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The Text of Article XIV of Fidelity's By-Laws, which relates to
indemnification of the directors and officers, is as follows:
C-5
INDEMNIFICATION OF DIRECTORS, OFFICERS AND PERSONS
ADMINISTERING EMPLOYEE BENEFIT PLANS
Each officer or Director or former officer or Director of the Corporation,
and each person who shall, at the Corporation's request, have served as an
officer or director of another corporation or as trustee, partner or
officer of a trust, partnership or association, and each person who shall,
at the Corporation's request, have served in any capacity with respect to
any employee benefit plan, whether or not then in office then serving with
respect to such employee benefit plan, and the heirs, executors,
administrators, successors and assigns of each of them, shall be
indemnified by the Corporation against all satisfaction of judgements, in
compromise and or as fines or penalties and fees and disbursement of
counsel, imposed upon or reasonably incurred by him or them in connection
with or arising out of any action, suit or proceeding, by reason of his
being or having been such officer, trustee, partner or director, or by
reason of any alleged act or omission by him in such capacity or in serving
with respect to an employee benefit plan, including the cost of reasonable
settlements (other than amounts paid to the Corporation itself) made with a
view to curtailment of costs of litigation.
The Corporation shall not, however, indemnify any such person, or his
heirs, executors, administrators, successors, or assigns, with respect to
any matter as to which his conduct shall be finally adjudged in any such
action, suit, or proceedings to constitute willful misconduct or
recklessness or to the extent that such matter relates to service with
respect to any employee benefit plan, to not be in the best interest of the
participants or beneficiaries of such employee benefit plan.
Such indemnification may include payment by the Corporation of expenses
incurred in defending any such action, suit, or proceeding in advance of
the final disposition thereof, upon receipt of an undertaking by or on
behalf of the person indemnified to repay such payment if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation. Such undertaking may be accepted by the corporation without
reference to the financial ability of such person to make repayment.
The foregoing rights of indemnification shall not be exclusive of other
rights to which any such director, officer, trustee, partner or person
serving with respect to an employee benefit plan may be entitled as a
matter of law. These indemnity provisions shall be separable, and if any
portion thereof shall be finally adjudged to be invalid, such invalidity
shall not affect any other portion which can be given effect.
The Board of Directors may purchase and maintain insurance on behalf of any
persons who is or was a Director, officer, trustee, partner, employee or
other agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, trustee, partner, employee or other
agent of another corporation, association, trust or partnership, against
any liability incurred by him in any such, whether or not the Corporation
would have the power to indemnify him against such liability.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant 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 or officer, or
controlling persons of the Registrant in the successful defense of any
action, suit, or proceeding) is asserted by such 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 its is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
C-6
Item 29. Principal Underwriters.
(a) Fidelity Brokerage Services, Inc. acts as distributor for other
variable life and variable annuity contracts registered by separate
accounts of Fidelity Investments Life, Empire Fidelity Investments Life
Insurance Company, and PFL Life Insurance Company.
(b)
Name and Principal Positions and Offices with Underwriter
Business Address
Roger T. Servison Director
Steven Akin Director and President
Rodney Rohda Director
Edward L. McCartney Executive Vice President
Thomas E. Lewis Executive Vice President
Bruce MacAlpine Executive Vice President
Shaugn S. Stanley Treasurer and Chief Financial Officer
Jeffrey R. Larsen Legal Counsel & Clerk
Linda Holland Compliance Officer
(c) Commissions and other compensation received by principal underwriter.
See Item 24 (b)(3)(b). No compensation was received by the principal
underwriter from the registrant or depositor during the registrant's or
depositor's last fiscal year.
The address for each person named in Item 29 is 82 Devonshire Street,
Boston, Massachusetts 02109.
C-7
Item 30. Location of Accounts and Records
The records regarding the Account 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 at Fidelity Investments Life
Insurance Company at 82 Devonshire Street, Boston, Massachusetts 02109.
Item 31. Management Services
Not applicable
Item 32. Undertakings
(a) Registrant undertakes to file a post-effective amendment to this
Registration Statement as frequently as is necessary to ensure that the
audited financial statements in the Registration Statement are never more
than 16 months old for so long as payments under the variable annuity
contracts may be accepted.
(b) Registrant undertakes to include either (1) as part of any
application to purchase a contract offered by the prospectus, a space that
an applicant can check to request a Statement of Additional Information, or
(2) 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.
(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.
(d) Registrant represents that it meets the definition of a "separate
account" under the federal
securities laws.
(e) Fidelity Investment Life Insurance Company hereby represents that the
aggregate charges under the variable annuity policy ("the contract")
offered by Fidelity Investment Life Insurance Company are reasonable in
relation to services rendered, the expenses expected to be incurred, and
the risks assumed by Fidelity Investment Life Insurance Company
C-8
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant, Fidelity Investments Variable Annuity Account I,
certifies that it meets the requirements of the Securities Act Rule 485(b)
for effectiveness of this Registration Statement and has caused this
Post-Effective Amendment No. 12 to the Registration Statement to be signed
on its behalf in the city of Boston and the Commonwealth of Massachusetts,
on this 29th day of August, 1997.
FIDELITY INVESTMENTS VARIABLE ANNUITY ACCOUNT I
(Registrant)
By: FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(Depositor)
By: _/s/Rodney R. Rhoda Attest:_/s/David J. Pearlman
Rodney R. Rohda, Chairman and David J. Pearlman,
Chief Executive Officer Secretary
As required by the Securities Act of 1933, this Post-Effective Amendment
No. 12 to the Registration Statement has been signed below by the following
persons in the capacities indicated on this 29th day of August, 1997.
Signature Title
_/s/Rodney R. Rhoda Chairman and Director
Rodney R. Rohda (Chief Executive Officer)
)
_________________ )
Joseph L. Kurtzer Jr. Treasurer )
)
________________ )
Edward C. Johnson 3d Director )
)
________________ Director )
J. Gary Burkhead ) By: /s/David J. Pearlman
) David J. Pearlman
_________________ Director ) (Attorney-in-Fact)
James C. Curvey )
)
_________________ Director )
John J. Remondi )
)
_________________ Director )
Paul J. Hondros )
)
_________________ Director )
Denis M. McCarthy )
August 29, 1997
Board of Directors
Fidelity Investments Life Insurance Company
82 Devonshire Street
Boston, MA 02109
Ladies and Gentlemen:
In my capacity as Associate General Counsel of FMR Corp., the parent
company of Fidelity Investments Life Insurance Company ("Fidelity Life"), I
have provided legal advice to Fidelity Life with respect to the
establishment of Fidelity Investments Variable Annuity Account I (the
"Account") pursuant to the laws of the Commonwealth of Pennsylvania, and
its continuance following the redomestication of Fidelity Life under the
applicable provisions of the laws of the State of Utah. The Account was
established by unanimous consent of the Board of Directors of Fidelity Life
on July 22, 1987 and its existence continued without interruption following
the redomestication of Fidelity Life to Utah on November 10, 1992. The
Account exists for the investment of assets under certain variable annuity
contracts (the "Contracts") issued by Fidelity Life. I have participated
in the preparation and review of Post-Effective Amendment No. 12 to the
Registration Statement on Form N-4 for the registration of the Contracts
with the Securities and Exchange Commission under the Securities Act of
1933, Reg. No. 33-24400 and the registration of the Account under the
Investment Company Act of 1940.
I am of the following opinion:
(1) Fidelity Life is duly organized and validly existing under the laws of
the State of Utah.
(2) The Account is duly organized and validly existing as a separate
account of Fidelity Life under the laws of the State of Utah.
(3) The portion of the assets to be held in the Account equal to the
reserve and other liabilities for variable benefits under the Contracts is
not chargeable with liabilities arising out of any other business Fidelity
Life may conduct.
(4) The Contracts, when issued as set forth in the Registration Statement,
will be legal and binding obligations of Fidelity Life in accordance with
their terms.
In arriving at the foregoing opinion, I have made such examination of law
and examined such records and other documents as I judged to be necessary
or appropriate.
I hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement, and to the reference to my name under the heading
"Legal Matters" in the Statement of Additional Information.
Very truly yours,
/s/David J. Pearlman
David J. Pearlman
August 5, 1997
Fidelity Investments Life Insurance Company
Fidelity Investments Variable Annuity Account I
82 Devonshire Street
Boston, Massachusetts 02109
Re: Registration No. 33-24400
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Statement of Additional Information contained in
Post-Effective Amendment No. 12 to the Registration Statement on Form N-4
(File No. 33-24400) for Fidelity Investments Variable Annuity Account I
filed by the Account with the Securities and Exchange Commission pursuant
to the Securities Act of 1933.
Very truly yours,
JORDEN BURT BERENSON & JOHNSON LLP
By: /s/Michael Berenson
Michael Berenson
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form N-4
(File No. 33-24400) of our reports dated January 29, 1997, on our audits of
the consolidated financial statements of Fidelity Investments Life
Insurance Company and the financial statements of Fidelity Investments
Variable Annuity Account I. We also consent to the reference of our Firm
under the caption "Independent Accountants" in the Statement of Additional
Information.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
August 28, 1997
PARTICIPATION AGREEMENT
THIS AGREEMENT, is made as of August 28September 2, 1997, by and among
Fidelity Investments Life Insurance Company ("Company"), on its own behalf
and on behalf of Fidelity Investments Variable Annuity Account I, a
segregated asset account of the Company ("Account"), Strong Variable
Insurance Funds, Inc. ("Strong Variable") on behalf of the Portfolios of
Strong Variable listed on the attached Exhibit A as such Exhibit may be
amended from time to time (the "Designated Portfolios"), Strong Opportunity
Fund II, Inc. ("Opportunity Fund II"), Strong Capital Management, Inc. (the
"Adviser"), the investment adviser and transfer agent for the Opportunity
Fund II and Strong Variable, and Strong Funds Distributors, Inc.
("Distributors"), the distributor for Strong Variable and the Opportunity
Fund II(each, a "Party" and collectively, the "Parties").
PRELIMINARY STATEMENTS
A. Beneficial interests in Strong Variable are divided into several series
of shares, each representing the interest in a particular managed portfolio
of securities and other assets (each, a "Portfolio").
B. To the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of Opportunity Fund II and the
Designated Portfolios ("Fund" or "Funds" shall be deemed to refer to each
Designated Portfolio and to the Opportunity Fund II to the extent the
context requires), on behalf of the Account to fund the variable annuity
contracts that use the Funds as an underlying investment medium (the
"Contracts").
C. The Company, Adviser and Distributors desire to facilitate the purchase
and redemption of shares of the Funds by the Company for the Account
through one account in each Fund (each an "Omnibus Account") to be
maintained of record by the Company, subject to the terms and conditions of
this Agreement.
D. The Company desires to provide administrative services and functions
(the "Services") for purchasers of Contracts ("Owners") who are beneficial
owners of shares of the Funds on the terms and conditions set forth in
this Agreement.
AGREEMENTS
The parties to this Agreement agree as follows:
1. Performance of Services. Company agrees to perform the administrative
functions and services specified in Exhibit B attached to this Agreement
with respect to the shares of the Funds beneficially owned by the Owners
and included in the Account.
2. The Omnibus Accounts.
2.1 Each Omnibus Account will be opened based upon the information
contained in Exhibit C to this Agreement. In connection with each Omnibus
Account, Company represents and warrants that it is authorized to act on
behalf of each Owner effecting transactions in the Omnibus Account and that
the information specified on Exhibit C to this Agreement is correct.
2.2 Each Fund shall designate each Omnibus Account with an account number.
These account numbers will be the means of identification when the Parties
are transacting in the Omnibus Accounts. The assets in the Accounts are
segregated from the Company's [other assets.] The Adviser agrees to cause
the Omnibus Accounts to be kept open on each Fund's books, as applicable,
regardless of a lack of activity or small position size except to the
extent the Company takes specific action to close an Omnibus Account or to
the extent a Fund's prospectus reserves the right to close accounts which
are inactive or of a small position size. In the latter two cases, the
Adviser will give prior notice to the Company before closing an Omnibus
Account.
2.3 The Company agrees to provide Adviser such information as Adviser or
Distributors may reasonably request concerning Owners as may be necessary
or advisable to enable Company and Distributors to comply with applicable
laws, including state "Blue Sky" laws relating to the sales of shares of
the Funds to the Accounts.
3. Fund Shares Transactions.
3.1 In General. Shares of the Funds shall be sold on behalf of the Funds
by Distributors and purchased by Company for the Account and, indirectly
for the appropriate subaccount thereof at the net asset value next computed
after receipt by Distributors of each order of the Company or its designee,
in accordance with the provisions of this Agreement, the then current
prospectuses of the Funds, and the Contracts. Company may purchase shares
of the Funds for its own account subject to (a) receipt of prior written
approval by Distributors; and (b) such purchases being in accordance with
the then current prospectuses of the Fund and the Contracts. The Board of
Directors of each Fund ("Directors") may refuse to sell shares of the
applicable Fund to any person, or suspend or terminate the offering of
shares of the Fund if such action is required by law or by regulatory
authorities having jurisdiction. Company agrees to purchase and redeem the
shares of the Funds in accordance with the provisions of this Agreement, of
the Contracts and of the then current prospectuses for the Contracts and
Funds. Company shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Company's assets held in its
Separate Accounts) except (i) as necessary to implement Contract Owner
initiated or approved transactions, (ii) as required by state or federal
laws or regulations or judicial or other legal precedent of general
application (a "Legally Required Redemption"), or (iii) as permitted by an
order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon request,
Company will promptly furnish to the Fund and the Adviser the opinion of
counsel for Company (which counsel shall be reasonably satisfactory to the
Fund and the Adviser) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption.
3.2 Purchase and Redemption Orders. On each day that a Fund is open for
business (a "Business Day"), the Company shall aggregate and calculate the
net purchase or redemption order it receives for the Account from the
Owners for shares of the Fund that it received prior to the close of
trading on the New York Stock Exchange (the "NYSE") (i.e. 4:00 p.m.,
Eastern time, unless the NYSE closes at an earlier time in which case such
earlier time shall apply) and communicate to Distributors, by telephone or
facsimile (or by such other means as the Parties to this Agreement may
agree to in writing), the net aggregate purchase or redemption order (if
any) for the Omnibus Account for such Business Day (such Business Day is
sometimes referred to herein as the "Trade Date"). The Company will
communicate such orders to Distributors prior to 10:00 a.m., Eastern time,
on the next Business Day following the Trade Date. In the event of a
natural or man-made disaster, armed conflict, act of terrorism, riot, labor
disruption or any other similar circumstance beyond its control (not caused
by its own negligence or which could have been adequately remedied if not
for the Adviser's or Distributors' negligence), the Company may transmit an
estimate of such order by 10:00 a.m. Eastern time on the next Business Day
following the Trade Date, with the final order to be transmitted by 12:00
noon Eastern time on such day. All trades communicated to Distributors by
the foregoing deadline shall be treated by Distributors as if they were
received by Distributors prior to the close of trading on the Trade Date.
3.3 Settlement of Transactions.
(a) Purchases. Company will wire, or arrange for the wire of, the
purchase price of each purchase order to the custodian for the Fund in
accordance with written instructions provided by Distributors to the
Company so that either (1) such funds are received by the custodian for the
Fund prior to 1:00 p.m., Eastern time, on the next Business Day following
the Trade Date, or (2) Distributors is provided with a Federal Funds wire
system reference number prior to such 1:00 p.m. Eastern time deadline
evidencing the entry of the wire transfer of the purchase price to the
applicable custodian into the Federal Funds wire system prior to such time.
Company agrees that if it fails to provide funds to the Fund's custodian by
the close of business on the next Business Day following the Trade Date,
then, at the option of Distributors, (i) the transaction may be canceled,
or (ii) the transaction may be processed at the next-determined net asset
value for the applicable Fund after purchase order funds are received. In
such event, the Company shall indemnify and hold harmless Distributors,
Adviser and the Funds from any liabilities, costs and damages either may
suffer as a result of such failure.
(b) Redemptions. The Adviser will use its best efforts to cause to be
transmitted to such custodial account as Company shall direct in writing,
the proceeds of all redemption orders placed by Company 10:00 a.m., Eastern
time, on the Business Day immediately following the Trade Date, by wire
transfer on that Business Day. Should Company need to extend the
settlement on a trade, it will contact Adviser to discuss the extension.
For purposes of determining the length of settlement, Adviser agrees to
treat the Account no less favorably than other shareholders of the Funds.
Each wire transfer of redemption proceeds shall indicate, on the Federal
Funds wire system, the amount thereof attributable to each Fund; provided,
however, that if the number of entries would be too great to be transmitted
through the Federal Funds wire system, the Adviser shall, on the day the
wire is sent, fax such entries to Company or if possible, send via direct
or indirect systems access until otherwise directed by the Company in
writing.
(c) Authorized Persons. The following persons are each duly authorized
to act on behalf of the Company under this Agreement. The Funds, Adviser
and Distributors are entitled to conclusively rely on verbal or written
instructions that Adviser or Distributors reasonably believes were
originated by any one of the said persons listed in section 3 of Exhibit C
to this Agreement or. in any subsequent letter received by Adviser or
Distributors that amends such list.
The Company shall inform Adviser and Distributors of additions to or
subtractions from this list of authorized persons pursuant to Section 13,
hereof:
_________________________________
_________________________________
_________________________________
(d) Distributors or Adviser will provide Company (i) confirmations of
Omnibus Accounts (dollar amount, number of shares, net asset value, and
ending share balances in the Omnibus Account) within five Business Days
after each day on which a purchase or redemption of shares is effected for
an Omnibus Account, (ii) statements detailing activity in each Omnibus
Account no less frequently than monthly, and (iii) other information as may
be reasonably requested by Company. Distributors or the Adviser will
provide Company telephonic or indirect systems access to Omnibus Account
activity for each Business Day on the Business Day following the Trade
Date. On each Business Day following a Trade Date via telephone, facsimile
or direct or indirect systems access and by 9:35 a.m., Eastern time,
Distributors or AdviserAdvisor will acknowledge receipt of or notify lack
of receipt of, orders under Sections 3.3(a) and 3.3(b).
3.4 Book Entry Only. Issuance and transfer of shares of a Fund will be by
book entry only. Stock certificates will not be issued to the Company or
the Account. Shares of the Funds ordered from Distributors will be
recorded in the appropriate book entry title for the Account.
3.5 Distribution Information. The Adviser or Distributors shall provide
the Company with all distribution announcement information as soon as it is
announced by the Funds. The distribution information shall set forth, as
applicable, ex-dates, record date, payable date, distribution rate per
share, record date share balances, cash and reinvested payment amounts and
all other information reasonably requested by the Company. Where possible,
the Adviser or Distributors shall provide the Company with direct or
indirect systems access to the Adviser's systems for obtaining such
distribution information.
3.6 Reinvestment. All dividends and capital gains distributions will be
automatically reinvested on the payable date in additional shares of the
applicable Fund at net asset value in accordance with each Fund's then
current prospectus.
3.7 Pricing Information. Distributors shall use its reasonable efforts to
furnish to the Company prior to 6:30 p.m., Eastern time and use its best
efforts to furnish to the Company by 7:00 p.m., Eastern time, on each
Business Day, each Fund's closing net asset value for that day, and for
those Funds for which such information is calculated, the daily accrual for
interest rate factor (mil rate). If the Distributors is unable to provide
such information by 7:00 p.m., Eastern time, it shall provide an estimate
of such information to the Company by no later than 7:00 p.m. Eastern time.
Such information shall be communicated via fax, or indirect or direct
systems access acceptable to the Company.
3.8 Price Errors.
(a) Notification. If an adjustment is required in accordance with a
Fund's then current policies on reimbursement ("Fund Reimbursement
Policies") to correct any error in the computation of the net asset value
of Fund shares ("Price Error"), Adviser or Distributors shall notify
Company as soon as practicable after discovering the Price Error. Notice
may be made via facsimile or via direct or indirect systems access and
shall state the incorrect price, the correct price and, to the extent
communicated to the Fund's shareholders, the reason for the price change.
(b) Underpayments. If a Price Error causes an Account to receive less
than the amount to which it otherwise would have been entitled, Adviser
shall make all necessary adjustments (subject to the Fund Reimbursement
Policies) so that the Account receives the amount to which it would have
been entitled
(c) Overpayments. If a Price Error causes an Account to receive more than
the amount to which it otherwise would have been entitled, Company, when
requested by Adviser (in accordance with the Fund Reimbursement Policies),
will use its best efforts to collect such excess amounts from the
applicable Owners.
(d) Fund Reimbursement Policies. Adviser agrees to treat Company's
customers no less favorably than Adviser treats its retail shareholders in
applying the provisions of paragraphs 3.8(b) and 3.8(c).
(e) Expenses. Adviser shall reimburse Company for all reasonable and
necessary out-of-pocket expenses incurred by Company for payroll overtime,
stationery and postage in adjusting Owner accounts affected by a Price
Error described in paragraphs 3.8(b) and 3.8(c). Company shall use its
best efforts to mitigate all expenses which may be reimbursable under this
section 3.8(e) and agrees that payroll overtime shall not include any time
spent programming computers or otherwise customizing Company's
recordkeeping system. Upon requesting reimbursement, Company shall present
an itemized bill to Adviser detailing the costs for which it seeks
reimbursement.
3.9 Agency. Distributors hereby appoints the Company as its agent for the
limited purpose of accepting purchase and redemption instructions from the
Owners for the purchase and redemption of shares of the Funds by the
Company on behalf of Account.
3.10 Quarterly Reports. Adviser agrees to provide Company a statement of
Fund assets as soon as practicable and in any event within 30 days after
the end of each fiscal quarter, and a statement certifying the compliance
by the Funds during that fiscal quarter with the diversification
requirements and qualification as a regulated investment company. In the
event of a breach of Section 6.4(a), Adviser will take all reasonable steps
(a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance within the grace period afforded by
Treasury Regulation 1.817-5.
4. Proxy Solicitations and Voting. The Company shall, at its expense,
distribute or arrange for the distribution of all proxy materials furnished
by the Funds to the Account and shall: (i) solicit voting instructions from
Owners; (ii) vote the Fund shares in accordance with instructions received
from Owners; and (iii) vote the Fund shares for which no instructions have
been received, as well as shares attributable to it, in the same proportion
as Fund shares for which instructions have been received from Owners, so
long as and to the extent that the Securities and Exchange Commission (the
"SEC") continues to interpret the Investment Company Act of 1940, as
amended (the "1940 Act"), to require pass-through voting privileges for
various contract owners. The Company and its agents will not recommend
action in connection with, or oppose or interfere with, the solicitation of
proxies for the Fund shares held for Owners.
5. Customer Communications.
5.1 Prospectuses. The Adviser or Distributors, at its expense, will
provide the Company with as many copies of the current prospectus for the
Funds as the Company may reasonably request for distribution, at the
Adviser's or Distributors' expense, to existing or prospective Owners.
5.2 Shareholder Materials. The Adviser and Distributors shall, as
applicable, provide in camera ready or other form mutually agreed to by the
parties, the following shareholder communications materials prepared for
circulation to Owners: proxy or information statements, annual reports,
semi-annual reports, and all initial and updated prospectuses, supplements
and amendments thereof. . Adviser or Distributors shall pay any reasonable
and necessary costs for tabulating and archiving (to the extent archiving
is required by applicable law, rule or regulation) proxy materials of
proxies requested by Adviser, the Funds or Distributors, provided Company
uses a proxy tabulation service designated by Adviser or Distributors
The Adviser or Distributors shall be responsible for a pro-rata share of
the reasonable and necessary costs of printing such materials (to the
extent the materials relate to the Funds) determined by applying the
following formula:
A
_________________ times C
B
where A is the number of pages dedicated to information about the Fund; B
is the total number of pages in the document; and C is the total costs for
printing the document.
Adviser or Distributors shall pay the Fund's pro-rata share of the postage
and handling expenses with respect to such materials that are delivered to
Contract Owners, the calculation of which shall be determined by applying
the following formula:
A
______________ times C
A+B+C+D+E
where A is the aggregate number of annuity Contract Owners who own shares
of the Fund; B is the aggregate number of Contract Owners who own shares of
mutual funds advised by FMR Co. and included in the AccountCompany; C, D,
and E are the aggregate number of Contract Owners who own shares in funds
advised by each of the other individual fund companies participating in the
Contract; and , C is the total cost of postage and handling to all Contract
Owners.
The Company shall bear the expenses of distributing the Fund's
prospectuses, annual reports and semi-annual reports to prospective
Contract Owners.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the
Fund's expenses are calculated in accordance with this section 5.2.
6. Representations and Warranties.
6.1 The Company represents and warrants that:
(a) It is an insurance company duly organized and in good standing under
the laws of the State of Utah_________________ and that it has legally and
validly established the Account prior to any issuance or sale thereof as a
segregated asset account and that the Company has and will maintain the
capacity to issue all Contracts that may be sold; and that it is and will
remain duly registered, licensed, qualified and in good standing to sell
the Contracts in all the jurisdictions in which such Contracts are to be
offered or sold;
(b) It is and will remain duly registered and licensed in all material
respects under all applicable federal and state securities and insurance
laws and shall perform its obligations under this Agreement in compliance
in all material respects with any applicable state and federal laws;
(c) The Contracts are and will be registered under the Securities Act of
1933, as amended (the "1933 Act"), and are and will be registered and
qualified for sale in the states where so required; and the Account is and
will be registered as a unit investment trust in accordance with the 1940
Act and shall be a segregated investment account for the Contracts;
(d) The Contracts are currently treated as annuity contracts, under
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), and the Company will maintain such treatment and will notify
Adviser, Distributors and Funds promptly upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future;
(e) It is registered as a transfer agent pursuant to Section 17A of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or is not
required to be registered as such;
(f) To the extent required by applicable law, rule or regulation, the
arrangements provided for in this Agreement will be disclosed to the
Owners; and
(g) It is registered as a broker-dealer under the 1934 Act and any
applicable state securities laws, including as a result of entering into
and performing the Services set forth in this Agreement, or is not required
to be registered as such.
6.2 The Funds each represent and warrant that Fund shares sold pursuant to
this Agreement are and will be registered under the 1933 Act and the Fund
is and will be registered as a registered investment company under the
Investment Company Act of 1940, in each case, except to the extent the
Company is so notified in writing;
6.3 Distributors represents and warrants that:
(a) It is and will be a member in good standing of the NASD and is and
will be registered as a broker-dealer with the SEC; and
(b) It will sell and distribute Fund shares in accordance with all
applicable state and federal laws and regulations.
6.4 Adviser represents and warrants that:
(a) Each Portfolio invested in by the Company will elect to be treated as
a "regulated investment company" under Subchapter M of the Code, and will
qualify for such treatment for each taxable year and will notify Company
immediately upon having a reasonable basis for believing it has ceased to
so qualify or might not so qualify in the future. Each Portfolio will
comply with the diversification requirements set forth in Section 817(h) of
the Code, and the rules and regulations thereunder, including without
limitation Regulation 1.817-5 and Section 851 and will notify Company
immediately upon having a reasonable basis for believing any Portfolio has
ceased to comply or might not so comply and will immediately take all
reasonable steps to adequately diversify the Portfolio to achieve
compliance.
(b) It is and will remain duly registered and licensed in all material
respects under all applicable federal and state securities and insurance
laws and shall perform its obligations under this Agreement in compliance
in all material respects with any applicable state and federal laws; and
6.5 Each of the Parties to this Agreement represents and warrants to the
others that:
(a) It has full power and authority under applicable law, and has taken
all action necessary, to enter into and perform this Agreement and the
person executing this Agreement on its behalf is duly authorized and
empowered to execute and deliver this Agreement;
(b) This Agreement constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms and it shall comply in
all material respects with all laws, rules and regulations applicable to it
by virtue of entering into this Agreement;
(c) No consent or authorization of, filing with, or other act by or in
respect of any governmental authority, is required in connection with the
execution, delivery, performance, validity or enforceability of this
Agreement;
(d) The execution, performance and delivery of this Agreement will not
result in it violating any applicable law or breaching or otherwise
impairing any of its contractual obligations;
(e) Each Party to this Agreement is entitled to rely on any written
records or instructions provided to it by another Party; and
(f) Its directors, officers, employees, and investment advisers, and
other individuals/entities dealing with the money or securities of a Fund
are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund in an amount not less
than the amount required by the applicable rules of the National
Association of Securities Dealers, Inc. ("NASD") and the federal securities
laws, which bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company. Its directors are and at
all times will be covered by an errors and omissions policy in an amount of
not less than $50,000,000.
7. Sales Material and Information
7.1 NASD Filings. The Company shall promptly inform Distributors as to the
status of all sales literature filings pertaining to the Funds and shall
promptly notify Distributors of all approvals or disapprovals of sales
literature filings with the NASD. For purposes of this Section 7, the
phrase "sales literature or other promotional material" shall be construed
in accordance with all applicable securities laws and regulations.
7.2 Company Representations. The Company shall not make any material
representations concerning the Adviser, the Distributors, or a Fund other
than the information or representations contained in: (a) a registration
statement of the Fund or prospectus of a Fund, as amended or supplemented
from time to time; (b) published reports or statements of the Funds which
are in the public domain or are approved by Distributors or the Funds; or
(c) sales literature or other promotional material of the Funds.
7.3 Adviser, Distributors and Fund Representations. None of Adviser,
Distributors or any Fund shall make any material representations concerning
the Company other than the information or representations contained in: (a)
a registration statement or prospectus for the Contracts, as amended or
supplemented from time to time; (b) published reports or statements of the
Contracts or the Account which are in the public domain or are approved by
the Company; or (c) sales literature or other promotional material of the
Company.
7.4 Trademarks, etc. Except to the extent required by applicable law, no
Party shall use any other Party's names, logos, trademarks or service
marks, whether registered or unregistered, without the prior consent of
such Party.
7.5 Information From Distributors and Adviser. Upon request, Distributors
or Adviser will provide to Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, solicitations for voting
instructions, applications for exemptions, requests for no action letters,
and all amendments to any of the above, that relate to the Funds, in final
form as filed with the SEC, NASD and other regulatory authorities.
7.6 Information From Company. Company will provide to Distributors at
least one complete copy of all registration statements, prospectuses,
Statements of Additional Information, reports, solicitations for voting
instructions, sales literature and other promotional materials,
applications for exemptions, requests for no action letters and all
amendments to any of the above, that relate to a Fund and the Contracts, in
final form as filed with the SEC, NASD and other regulatory authorities.
7.7 Review of Marketing Materials. If so requested by Company, the Adviser
or Distributors will use its best efforts to review sales literature and
other marketing materials prepared by Company which relate to the Funds,
the Adviser or Distributors for factual accuracy as to such entities,
provided that the Adviser or Distributors is provided at least five (5)
Business Days to review such materials. Neither the Adviser nor
Distributors will review such materials for compliance with applicable
laws. Company shall provide the Adviser with copies of all sales
literature and other marketing materials which refer to the Funds, the
Company or Distributors within five (5) Business Days after their first
use, regardless of whether the Adviser or Distributors has previously
reviewed such materials. If so requested by the Adviser or Distributors,
Company shall cease to use any sales literature or marketing materials
which refer to the Funds, the Adviser or Distributors that the Adviser or
Distributors determines to be inaccurate, misleading or otherwise
unacceptable.
8. Fees and Expenses.
8.1 Fund Registration Expenses. Fund or Distributors shall bear the cost
of registration and qualification of Fund shares; preparation and filing of
Fund prospectuses and registration statements, proxy materials and reports;
preparation of all other statements and notices relating to the Fund or
Distributors required by any federal or state law; payment of all
applicable fees, including, without limitation, any fees due under Rule
24f-2 of the 1940 Act, relating to a Fund; and all taxes on the issuance or
transfer of Fund shares on the Fund's records.
8.2 Contract Registration Expenses. Except as specifically provided for
in Section 5 of this Agreement, the Company shall bear the expenses for the
costs of preparation and filing of the Company's prospectus and
registration statement with respect to the Contracts; preparation of all
other statements and notices relating to the Account or the Contracts
required by any federal or state law; expenses for the solicitation and
sale of the Contracts including all costs of printing and distributing all
copies of advertisements, prospectuses, Statements of Additional
Information, proxy materials, and reports to Owners or potential purchasers
of the Contracts as required by applicable state and federal law; payment
of all applicable fees relating to the Contracts; all costs of drafting,
filing and obtaining approvals of the Contracts in the various states under
applicable insurance laws; filing of annual reports on form N-SAR, and all
other costs associated with ongoing compliance with all such laws and its
obligations under this Agreement.
9. Indemnification.
9.1 Indemnification By Company.
(a) Company agrees to indemnify and hold harmless the Funds, Adviser and
Distributors and each of their directors, officers, employees and agents,
and each person, if any, who controls any of them within the meaning of
Section 15 of the 1933 Act (each, an "Indemnified Party" and collectively,
the "Indemnified Parties" for purposes of this Section 9.1) from and
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of Company), and expenses
(including reasonable legal fees and expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise (collectively, hereinafter "Losses"), insofar as such Losses:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement, prospectus or sales literature for the Contracts or contained in
the Contracts (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this paragraph
9.1(a) shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and in conformity with written information furnished to Company by or on
behalf of a Fund, Distributors or Adviser for use in the registration
statement or prospectus for the Contracts or in the Contracts (or any
amendment or supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares; or
(ii) arise out of, or as a result of, statements or representations or
wrongful conduct of Company or its agents, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature covering a Fund or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein
not misleading, if such a statement or omission was made in reliance upon
written information furnished to a Fund, Adviser or Distributors by or on
behalf of Company; or
(iv) arise out of, or as a result of, any failure by Company or persons
under its control to provide the Services and furnish the materials
contemplated under the terms of this Agreement; or
(v) arise out of, or result from, any material breach of any
representation or warranty made by Company or persons under its control in
this Agreement or arise out of or result from any other material breach of
this Agreement by Company or persons under its control; as limited by and
in accordance with the provisions of Sections 9.1(b) and 9.1(c) hereof; or
(vi) arise out of, or as a result of, adherence by Adviser or
Distributors to instructions that it reasonably believes were originated by
persons specified in Section 3.2(c), hereof.
This indemnification provision is in addition to any liability which the
Company may otherwise have.
(b) Company shall not be liable under this indemnification provision with
respect to any Losses to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement.
(c) Company shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify
Company of any such claim shall not relieve Company from any liability
which it may have to the Indemnified Party otherwise than on account of
this indemnification provision. In case any such action is brought against
any Indemnified Party, and it notified the indemnifying Party of the
commencement thereof, the indemnifying Party will be entitled to
participate therein and, to the extent that it may wish, assume the defense
thereof, with counsel satisfactory to such Indemnified Party. After notice
from the indemnifying Party of its intention to assume the defense of an
action, the Indemnified Party shall bear the expenses of any additional
counsel obtained by it, and the indemnifying Party shall not be liable to
such Indemnified Party under this Section for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation. The
Indemnified Party may not settle any action without the written consent of
the indemnifying Party. The indemnifying Party may not settle any action
without the written consent of the Indemnified Party unless such settlement
completely and finally releases the Indemnified Party from any and all
liability. In either event, consent shall not be unreasonably withheld.
(d) The Indemnified Parties will promptly notify Company of the
commencement of any litigation or proceedings against the Indemnified
Parties in connection with the issuance or sale of Fund shares or the
Contracts or the operation of a Fund.
9.2 Indemnification by Adviser and Distributors.
(a) Adviser and Distributors agrees to indemnify and hold harmless
Company and each of its directors, officers, employees and agents and each
person, if any, who controls Company within the meaning of Section 15 of
the 1933 Act (each, and "Indemnified Party" and collectively, the
"Indemnified Parties" for purposes of this Section 9.2) against any and all
Losses to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such Losses:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of a Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, provided that this Section 9.2(a) shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with written
information furnished to a Fund, Adviser or Distributors by or on behalf of
Company for use in the registration statement or prospectus for a Fund or
in sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of, or as a result of, statements or representations or
wrongful conduct of Adviser or Distributors or persons under its control,
with respect to the sale or distribution of Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material
fact required to be stated therein, or necessary to make the statements
therein not misleading, if such statement or omission was made in reliance
upon written information furnished to Company by or on behalf of Adviser or
Distributors; or
(iv) arise out of, or as a result of, any failure by Adviser or
Distributors or persons under its control to provide the services and
furnish the materials contemplated under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation or warranty made by Adviser or Distributors or persons under
its control in this Agreement or arise out of or result from any other
material breach of this Agreement by Adviser or Distributors or persons
under its control; as limited by and in accordance with the provisions of
Sections 9.2(b) and 9.2(c) hereof.
This indemnification provision is in addition to any liability which
Adviser and Distributors may otherwise have.
(b) Adviser and Distributors shall not be liable under this
indemnification provision with respect to any Losses to which an
Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to Company.
(c) Adviser and Distributors shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified Adviser
and Distributors in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim
shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify Adviser and Distributors of any
such claim shall not relieve Adviser and Distributors from any liability
which it may have to the Indemnified Party otherwise than on account of
this indemnification provision. In case any such action is brought against
any Indemnified Party, and it notified the indemnifying Party of the
commencement thereof, the indemnifying Party will be entitled to
participate therein and, to the extent that it may wish, assume the defense
thereof, with counsel satisfactory to such Indemnified Party. After notice
from the indemnifying Party of its intention to assume the defense of an
action, the Indemnified Party shall bear the expenses of any additional
counsel obtained by it, and the indemnifying Party shall not be liable to
such Indemnified Party under this Section for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation. The
Indemnified Party may not settle any action without the written consent of
the indemnifying Party. The indemnifying Party may not settle any action
without the written consent of the Indemnified Party unless such settlement
completely and finally releases the Indemnified Party from any and all
liability. In either event, consent shall not be unreasonably withheld.
(d) The Indemnified Parties will promptly notify Adviser and Distributors
of the commencement of any litigation or proceedings against the
Indemnified Parties in connection with the issuance or sale of the
Contracts or the operation of the Account.
10. Potential Conflicts.
10.1 Monitoring by Directors for Conflicts of Interest. The Directors of
each Fund will monitor the Fund for any potential or existing material
irreconcilable conflict of interest between the interests of the contract
owners of all separate accounts investing in the Fund, including such
conflict of interest with any other separate account of any other insurance
company investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretive letter, or any similar
action by insurance, tax or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of the Fund are being managed; (e) a
difference in voting instructions given by variable annuity contract owners
and variable life insurance contract owners or by contract owners of
different life insurance companies utilizing the Fund; or (f) a decision by
Company to disregard the voting instructions of Owners. The Directors
shall promptly inform the Company, in writing, if they determine that an
irreconcilable material conflict exists and the implications thereof.
10.2 Monitoring by the Company for Conflicts of Interest. The Company
will promptly notify the Directors, in writing, of any potential or
existing material irreconcilable conflicts of interest, as described in
Section 10.1 above, of which it is aware. The Company will assist the
Directors in carrying out their responsibilities under any applicable
provisions of the federal securities laws and any exemptive orders granted
by the SEC ("Exemptive Order"), by providing the Directors, in a timely
manner, with all information reasonably necessary for the Directors to
consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Directors whenever Owner voting
instructions are disregarded.
10.3 Remedies. If it is determined by a majority of the Directors, or a
majority of disinterested Directors, that a material irreconcilable
conflict exists, as described in Section 10.1 above, the Company shall, at
its own expense take whatever steps are necessary to remedy or eliminate
the irreconcilable material conflict, up to and including, but not limited
to: (a), withdrawing the assets allocable to some or all of the separate
accounts from the applicable Fund and reinvesting such assets in a
different investment medium, including (but not limited to) another fund
managed by the Adviser, or submitting the question whether such segregation
should be implemented to a vote of all affected Owners and, as appropriate,
segregating the assets of any particular group that votes in favor of such
segregation, or offering to the affected owners the option of making such a
change; and (b), establishing a new registered management investment
company or managed separate account.
10.4 Causes of Conflicts of Interest.
(a) State Insurance Regulators. If a material irreconcilable conflict
arises because a particular state insurance regulator's decision applicable
to the Company conflicts with the majority of other state regulators, then
the Company will withdraw the affected Account's investment in the
applicable Fund and terminate this Agreement with respect to such Account
within the period of time permitted by such decision, but in no event later
than six months after the Directors inform the Company in writing that it
has determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Directors. Until
the end of the foregoing period, the Distributors and Funds shall continue
to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund to the extent such actions do not violate
applicable law.
(b) Disregard of Owner Voting. If a material irreconcilable conflict
arises because of Company's decision to disregard Owner voting instructions
and that decision represents a minority position or would preclude a
majority vote, Company may be required, at the applicable Fund's election,
to withdraw the Account's investment in said Fund. No charge or penalty
will be imposed against the Account as a result of such withdrawal.
10.5 Limitations on Consequences. For purposes of Sections 10.3 through
10.5 of this Agreement, a majority of the disinterested Directors shall
determine whether any proposed action adequately remedies any
irreconcilable material conflict. In no event will a Fund, the Adviser or
the Distributors be required to establish a new funding medium for any of
the Contracts. The Company shall not be required by Section 10.3 to
establish a new funding medium for the Contracts if an offer to do so has
been declined by vote of a majority of Owners affected by the
irreconcilable material conflict. In the event that the Directors
determine that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Company will withdraw the
Account's investment in the applicable Fund and terminate this Agreement as
quickly as may be required to comply with applicable law, but in no event
later than six (6) months after the Directors inform the Company in writing
of the foregoing determination, provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict.
10.6 Changes in Laws. If and to the extent that Rule 6e-2 and Rule 6e-3(T)
are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Funds' Exemptive Order) on terms
and conditions materially different from those contained in the Funds'
Exemptive Order, then (a) the Funds and/or the Company, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules
are applicable; and (b) Sections 10.1, 10.2, 10.3 and 10.4 of this
Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
10.7 Terminations. Notwithstanding any other provision in this Agreement,
terminations described in Section 10 of this Agreement shall be governed by
Section 10.
11. Maintenance of Records.
(a) Recordkeeping and other administrative services to Owners shall be
the responsibility of the Company and shall not be the responsibility of
the Funds, Adviser or Distributors. None of the Funds, the Adviser or
Distributors shall maintain separate accounts or records for Owners.
Company shall maintain and preserve all records as required by law to be
maintained and preserved in connection with providing the Services and in
making shares of the Funds available to the Account.
(b) Upon the request of the Adviser or Distributors, the Company shall
provide copies of all the historical records relating to transactions
between the Funds and the Account, written communications regarding the
Funds to or from the Account and other materials, in each case (1) as are
maintained by the Company in the ordinary course of its business and in
compliance with applicable law, and (2) as may reasonably be requested to
enable the Adviser and Distributors, or its representatives, including
without limitation its auditors or legal counsel, to (A) monitor and review
the Services, (B) comply with any request of a governmental body or
self-regulatory organization or the Owners, (C) verify compliance by the
Company with the terms of this Agreement, (D) make required regulatory
reports, or (E) perform general customer supervision. The Company agrees
that it will permit the Adviser and Distributors or such representatives of
either to have reasonable access to its personnel and records in order to
facilitate the monitoring of the quality of the Services.
(c) Upon the request of the Company, the Adviser and Distributors shall
provide copies of all the historical records relating to transactions
between the Funds and the Account, written communications regarding the
Funds to or from the Account and other materials, in each case (1) as are
maintained by the Adviser and Distributors, as the case may be, in the
ordinary course of its business and in compliance with applicable law, and
(2) as may reasonably be requested to enable the Company, or its
representatives, including without limitation its auditors or legal
counsel, to (A) comply with any request of a governmental body or
self-regulatory organization or the Owners, (B) verify compliance by the
Adviser and Distributors with the terms of this Agreement, (C) make
required regulatory reports, or (D) perform general customer supervision.
(d) The Parties agree to cooperate in good faith in providing records to
one another pursuant to this Section 11.
12. Term and Termination.
12.1 Term and Termination Without Cause. The initial term of this
Agreement shall be for a period of one year from the date hereof. Unless
terminated as to any Fund upon not less than one hundred and twenty (120)
days prior written notice to the other Parties, this Agreement shall
thereafter automatically renew for the remaining Funds from year to year,
subject to termination at the next applicable renewal date upon not less
than 120 days prior written notice. Any Party may terminate this Agreement
as to any Fund following the initial term upon four (4) months advance
written notice to the other Parties.
12.2 Termination by Fund, Distributors or Adviser for Cause. Adviser, Fund
or Distributors may terminate this Agreement by written notice to the
Company, if any of them shall determine, in its sole judgment exercised in
good faith, that (a) the Company has suffered a material adverse change in
its business, operations, financial condition or prospects since the date
of this Agreement or is the subject of material adverse publicity; or (b)
any of the Contracts are not registered, issued or sold in accordance with
applicable state and federal law or such law precludes the use of Fund
shares as the underlying investment media of the Contracts issued or to be
issued by the Company.
12.3 Termination by Company for Cause. Company may terminate this
Agreement by written notice to the Adviser, Funds and Distributors in the
event that (a) any of the Fund shares are not registered, issued or sold in
accordance with applicable state or federal law or such law precludes the
use of such shares as the underlying investment media of the Contracts
issued or to be issued by the Company; (b) the Funds cease to qualify as
Regulated Investment Companies under Subchapter M of the Code or under any
successor or similar provision, or if the Company reasonably believes that
the Funds may fail to so qualify; or (c) a Fund fails to meet the
diversification requirements of Section 817 of the Code or Regulation
1.817-5 under that Section.
12.4 Termination by any Party. This Agreement may be terminated as to any
Fund by any Party at any time (A) by giving 30 days' written notice to the
other Parties in the event of a material breach of this Agreement by the
other Party or Parties that is not cured during such 30-day period, and (B)
(i) upon institution of formal proceedings relating to the legality of the
terms and conditions of this Agreement against the Account, Company, Funds,
Adviser or Distributors by the NASD, the SEC or any other regulatory body
provided that the terminating Party has a reasonable belief that the
institution of formal proceedings is not without foundation and will have a
material adverse impact on the terminating Party, (ii) by the non-assigning
Party upon the assignment of this Agreement in contravention of the terms
hereof, or (iii) as is required by law, order or instruction by a court of
competent jurisdiction or a regulatory body or self-regulatory organization
with jurisdiction over the terminating Party.
12.5 Limit on Termination. Notwithstanding the termination of this
Agreement with respect to any or all Funds, for so long as any Contracts
remain outstanding and invested in a Fund, each Party to this Agreement
shall continue to perform such of its duties under this Agreement as are
necessary to ensure the continued tax deferred status thereof and the
payment of benefits thereunder and all Contracts invested in a Fund on the
effective date of termination of this Agreement (an "Existing Contract")
shall be permitted to reallocate investments, redeem investments or make
additional purchase payments in that Fund under their Existing Contract,
except to the extent proscribed by law, the SEC or other regulatory body.
Notwithstanding the foregoing, nothing in this Section 12.5 obligates a
Fund to continue in existence. In the event that any Fund elects to
terminate its operations, the Company shall, as soon as practicable, obtain
an exemptive order or order of substitution from the SEC to remove all
Owners from the applicable Fund.
13. Notices.
All notices under this Agreement shall be given in writing (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
facsimile, by registered or certified mail or by overnight delivery
(postage prepaid, return receipt requested) to the respective Parties as
follows:
If to Strong Variable:
Strong Variable Insurance Funds, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Opportunity Fund II:
Strong Opportunity Fund II, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Adviser:
Strong Capital Management, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Distributors:
Strong Funds Distributors, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Company:
Fidelity Investments Life Insurance Company
82 Devonshire Street, Mail Zone R25B
Boston, MA 02109
Attention: Richard C. Murphy
Facsimile No.: 617/476-9014
14. Miscellaneous.
14.1. Captions. The captions in this Agreement are included for
convenience of reference only and in no way affect the construction or
effect of any provisions hereof.
14.2. Enforceability. If any portion of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder
of the Agreement shall not be affected thereby.
14.3. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which taken together shall constitute one and
the same instrument.
14.4. Remedies not Exclusive. The rights, remedies and obligations
contained in this Agreement are cumulative and are in addition to any and
all rights, remedies and obligations, at law or in equity, which the
Parties to this Agreement are entitled to under state and federal laws.
14.5. Confidentiality. Subject to the requirements of legal process and
regulatory authority, the Funds and Distributors shall treat as
confidential the names and addresses of the owners of the Contracts and all
information reasonably identified as confidential in writing by the Company
to this Agreement and, except as permitted by this Agreement, shall not
disclose, disseminate or utilize such names and addresses and other
confidential information without the express written consent of the Company
until such time as it may come into the public domain.
14.6. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the internal laws of the State of Wisconsin applicable
to agreements fully executed and to be performed therein; exclusive of
conflicts of laws.
14.7. Survivability. Sections 6, 7.2, 7.3, 7.4, 9, 11 and 12.5 hereof
shall survive termination of this Agreement. In addition, all provisions
of this Agreement shall survive termination of this Agreement in the event
that any Contracts are invested in a Fund at the time the termination
becomes effective and shall survive for so long as such Contracts remain so
invested.
14.8. Amendment and Waiver. No modification of any provision of this
Agreement will be binding unless in writing and executed by the Party to be
bound thereby. No waiver of any provision of this Agreement will be
binding unless in writing and executed by the Party granting such waiver.
Notwithstanding anything in this Agreement to the contrary, the Company may
unilaterally amend Exhibit A to this Agreement to add additional series of
Strong Variable Funds ("New Funds") as Funds by sending to the Company a
written notice of the New Funds Any valid waiver of a provision set forth
herein shall not constitute a waiver of any other provision of this
Agreement. In addition, any such waiver shall constitute a present waiver
of such provision and shall not constitute a permanent future waiver of
such provision.
14.9. Assignment. This Agreement shall be binding upon and shall inure to
the benefit of the Parties and their respective successors and assigns;
provided that, and except as set forth below in this section 14.9, neither
this Agreement nor any rights, privileges, duties or obligations of the
Parties may be assigned by any Party without the written consent of the
other Parties or as expressly contemplated by this Agreement. Company may
assign (a "Permitted Assignee") this Agreement to an affiliate with the
prior written consent of Adviser and Distributors, which consent shall not
be unreasonably withheld; provided, however, the Permitted Assignee is able
to and does make the representations and warranties in sections 6.1 and 6.5
of this Agreement. Any such permitted assignment shall not relieve Company
of its obligations under this Agreement.
14.10. Entire Agreement. This Agreement contains the full and complete
understanding between the Parties with respect to the transactions covered
and contemplated under this Agreement, and supersedes all prior agreements
and understandings between the Parties relating to the subject matter
hereof, whether oral or written, express or implied.
14.11. Relationship of Parties; No Joint Venture, Etc. Except for the
limited purpose provided in Section 3.8, it is understood and agreed that
the Company shall be acting as an independent contractor and not as an
employee or agent of the Adviser, Distributors or the Funds, and none of
the Parties shall hold itself out as an agent of any other Party with the
authority to bind such Party. Neither the execution nor performance of
this Agreement shall be deemed to create a partnership or joint venture by
and among any of the Company, Funds, Adviser, or Distributors.
14.12. Expenses. All expenses incident to the performance by each Party
of its respective duties under this Agreement shall be paid by that Party.
14.13. Time of Essence. Time shall be of the essence in this Agreement.
14.14. Non-Exclusivity. Each of the Parties acknowledges and agrees that
this Agreement and the arrangements described herein are intended to be
non-exclusive and that each of the Parties is free to enter into similar
agreements and arrangements with other entities.
14.15. Operations of Funds. In no way shall the provisions of this
Agreement limit the authority of the Funds, the Company or Distributors to
take such action as it may deem appropriate or advisable in connection with
all matters relating to the operation of such Fund and the sale of its
shares. In no way shall the provisions of this Agreement limit the
authority of the Company to take such action as it may deem appropriate or
advisable in connection with all matters relating to the provision of
Services or the shares of funds other than the Funds offered to the
Account.
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
________________________________________
Name:
Title:
STRONG CAPITAL MANAGEMENT, INC.
Rochelle Lamm Wallach, President of Strong Advisory Services, a division of
Strong Capital Management, Inc.
STRONG FUNDS DISTRIBUTORS, INC.
Stephen J. Shenkenberg, Vice President
STRONG VARIABLE INSURANCE FUNDS, INC. on behalf of the Designated
Portfolios
________________________________________
Stephen J. Shenkenberg, Vice President
STRONG OPPORTUNITY FUND II, INC.
_______________________________________
Stephen J. Shenkenberg, Vice President
EXHIBIT A
The following is a list of Designated Portfolios under this Agreement:
Strong Discovery Fund II
Strong Growth Fund II
EXHIBIT B
THE SERVICES
Company shall perform the following services. Such services shall be the
responsibility of the Company and shall not be the responsibility of the
Funds, Adviser or Distributors.
1. Maintain separate records for each Account, which records shall reflect
Fund shares ("Shares") purchased and redeemed, including the date and price
for all transactions, Share balances, and the name and address of each
Owner, and tax identification numbers.
2. Credit contributions to individual Owner accounts and invest such
contributions in shares of the Funds to the extent so designated by the
Owner.
3. Disburse or credit to the Owners, and maintain records of, all proceeds
of redemptions of Fund shares and all other distributions not reinvested in
shares.
4. Prepare and transmit to the Owners, periodic account statements
showing, among other things, the total number of units owned as of the
statement closing date, purchases and redemptions during the period covered
by the statement, the net asset value of the units as of a recent date, and
other distributions paid during the statement period, if any.
5. Transmit to the Owners, as required by applicable law, prospectuses,
proxy materials, shareholder reports, and other information provided by the
Adviser, Distributors or Funds and required to be sent to shareholders
under the Federal securities laws.
6. Transmit to Distributors purchase orders and redemption requests placed
by the Account and arrange for the transmission of funds to and from the
Funds.
7. Transmit to Distributors such periodic reports as Distributors shall
reasonably conclude is necessary to enable the Funds to comply with
applicable Federal securities and state Blue Sky requirements.
8. Transmit to each Account confirmations of purchase orders and
redemption requests placed by each Account.
9. Maintain all account balance information for the Account and daily and
monthly purchase summaries expressed in shares and dollar amounts.
10. Prepare, transmit and file any Federal, state and local government
reports and returns as required by law with respect to each account
maintained on behalf of the Account.
11. Respond to Owners' inquiries regarding, among other things, prices and
account balances.
EXHIBIT C
ACCOUNT INFORMATION
1. Entity in whose name each Account will be opened:
Mailing address:
2. Employer ID number (FOR INTERNAL USAGE ONLY):
3. Authorized contact persons: The following persons are authorized on
behalf of the Company to effect transactions in each Account:
Name: ____________________________ Name: ______________________________
Phone:____________________________ Phone: ______________________________
4. Will the Accounts have telephone exchange? ____ Yes
____ No
(THIS OPTION LETS COMPANY REDEEM SHARES BY TELEPHONE AND APPLY THE
PROCEEDS FOR PURCHASE IN ANOTHER IDENTICALLY REGISTERED STRONG FUNDS
ACCOUNT.)
5. Will the Accounts have telephone redemption? ____ Yes
____ No
(THIS OPTION LETS COMPANY SELL SHARES BY TELEPHONE. THE PROCEEDS WILL BE
WIRED TO THE BANK ACCOUNT SPECIFIED BELOW.)
6. All dividends and capital gains will be reinvested automatically.
7. Instructions for all outgoing wire transfers:
8. If this Account Information Form contains changed information, the
undersigned authorized officer has executed this amended Account
Information Form as of the date set forth below and acknowledges the
agreements and representations set forth in the Participation Agreement
between the Company, the Funds, Adviser and Distributors:
9. Company represents under penalty of perjury that:
(i) The employer ID number on this form is correct; and
(ii) Company is not subject to backup withholding because (a) Company is
exempt from backup withholding, (b) Company has not been notified by the
IRS that it is subject to backup withholding as a result of failure to
report all interest or dividends, or (c) the IRS has notified the Company
that it is no longer subject to backup withholding. (Cross out (ii) if
Company has been notified by the IRS that it is subject to backup
withholding because of underreporting interest or dividends on its tax
return.)
______________________________________
(SIGNATURE OF AUTHORIZED OFFICER) (DATE)
PLEASE NOTE: DISTRIBUTORS EMPLOYS REASONABLE PROCEDURES TO CONFIRM THAT
INSTRUCTIONS COMMUNICATED BY TELEPHONE ARE GENUINE AND MAY NOT BE LIABLE
FOR LOSSES DUE TO UNAUTHORIZED OR FRAUDULENT INSTRUCTIONS. PLEASE SEE THE
PROSPECTUS FOR THE APPLICABLE FUND FOR MORE INFORMATION ON THE TELEPHONE
EXCHANGE AND REDEMPTION PRIVILEGES.
FOR STRONG INTERNAL USE: THIS ACCOUNT INFORMATION FORM MAY BE A COPY. THE
ORIGINAL ACCOUNT INFORMATION FORM IS ATTACHED TO THE PARTICIPATION
AGREEMENT WITH THE ADVISER AND RETAINED IN THE LEGAL DEPARTMENT.
Re: Fee Letter Relating to the Fidelity Investments Life Insurance Company
Participation Agreement
Dear Sir or Madame:
Pursuant to the Participation Agreement by and among Strong Capital
Management, Inc. ("Strong"), Fidelity Investments Life Insurance Company
(the "Company"), Strong Variable Insurance Funds, Inc., Strong Opportunity
Fund II, Inc. and Strong Funds Distributors, Inc. ("Distributors") dated as
of August 28,_________ __, 1997 (the "Participation Agreement"), the
Company will provide the administrative services (the "Services") on behalf
of the registered investment companies or series of investment companies
specified in Exhibit A (each a "Fund" and collectively the "Funds").
In recognition of the reduction in administrative expenses derived from
the performance of the Services, Strong agrees to pay the Company the fee
specified below for each Fund.
(a) For average aggregate amounts (as calculated in paragraph (b), below)
invested through variable insurance products issued by the Company with the
Funds, the monthly fee shall equal the percentage (calculated in paragraph
(b), below) of the applicable annual fee for each Fund specified in Exhibit
A, provided, however, thesuch annual fee specified in Exhibit A (the "Fee")
for alleach Funds listed on Exhibit A shall increase if (i) Strong enters
into a comparable relationship with any other administrative service
provider ("Third Party Service Provider") pursuant to which the Third Party
Service Provider provides to shareholders of a variable insurance mutual
fund advised by Strong (the "Strong Variable Funds")such Fund, services
which are substantially similar to the Services provided by Company to
thethat Funds, (ii) Strong pays such Third Party Service Provider for such
Services to such Strong Variablesuch Fund at a fee rate which is greater
than that provided in Exhibit A and, (iii) the aggregate assets held by the
Company, its affiliates and its parent in any and all mutual funds for
which Strong acts as the transfer agent or distributor ("Strong Family of
Funds") are equal to or greater than the aggregate assets held by the Third
Party Service Provider in the Strong Family of Funds. In such event,
Strong shall promptly notify Company and Strong shall automatically
increase the Fee for thesuch Funds equal to such greater fee rate as of the
date the greater fee is effective for such Third Party Service Provider.
(b) Strong shall calculate and pay to the Company an amount with respect
to each Fund equal to the product of: (1) the product of (a) the number of
calendar days in the applicable month divided by the number of calendar
days in that year (365 or 366 as applicable) and (b) the Fee, multiplied by
(2) the average daily market value of the investments held in such Fund
pursuant to the Participation Agreement computed by totaling the aggregate
investment (share net asset value multiplied by the total number of shares
held) on each day during the calendar month and dividing by the total
number of days during such month.
(c) Strong shall calculate the amount of the payment to be made pursuant to
this Letter Agreement at the end of each calendar month and will make such
payment to the Company within 30 days after receiving the report referenced
in paragraph (e), below. Fees will be paid, at Strong's election, by wire
transfer or by check. All payments under this Agreement shall be
considered final unless disputed by the Company in writing within 60 days
of receipt.
(d) The parties agree that the fees contemplated herein are solely for
shareholder servicing and other administrative services provided by the
Company and do not constitute payment in any manner for investment
advisory, distribution, trustee, or custodial services.
(e) The Company agrees to provide Strong by the 30th day of each month with
a report which indicates the number of Owners that hold through a Contract
interests in each Account as of the last day of the prior month.
(f) If requested in writing by Strong, and at Strong's expense, the Company
shall provide to Strong, by March 15th of each year, a "Special Report"
from a nationally recognized accounting firm reasonably acceptable to
Strong which substantiates for each month of the prior calendar year: (1)
the number of Owners that hold, through an Account, interests in each
Account maintained by the Company on the last day of each month which held
shares for which the fee provided for in this Letter Agreement was received
by the Company, (2) that any fees billed to Strong for such month were
accurately determined in accordance with this Letter Agreement, and (3)
such other information in connection with this Agreement and the
Participation Agreement as may be reasonably requested by Strong.
(g) If requested in writing by Company, and at the Company's expense, the
AdviserAdvisor or Distributors shall provide to the Company, by March 15th
of each year, a report from a nationally recognized accounting firm
reasonably acceptable to the Company which substantiates that as of the
last day of each month of the prior year: (1) fees paid to the Company
under this Agreement were made in compliance with paragraph (a) of this
Agreement and (2) such other information as may be reasonably requested by
the Company in connection with this Agreement and the Participation
Agreement. Information provided by either party to the other party's
agents pursuant to this paragraph (g) shall be limited solely to
information necessary to verify compliance with this paragraph (g) and
shall be made available only after the party receiving the information (or
its agents, as applicable) and the party providing the information sign a
mutually agreed upon confidentiality agreement.
(h) This Letter Agreement shall terminate upon termination of the
Participation Agreement. Accordingly, all payments pursuant to this Letter
Agreement shall cease upon termination of the Participation Agreement.
(i) Capitalized terms not otherwise defined herein shall have the meaning
assigned to them in the Participation Agreement.
If you are in agreement with the foregoing, please sign and date below
where indicated and return one copy of this signed letter agreement to me.
Very truly yours,
Rochelle Lamm Wallach
President, Strong Advisory Services, a division
of Strong Capital Management, Inc.
Accepted and agreed to this _____ day of
_____________, 1997.
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
By: ________________________________________
Name:
Title:
EXHIBIT A TO FEE LETTER
Subject to the terms of the Agreement and the Fee Letter, the Funds subject
to this Agreement and applicable annual fees are as follows:
Fund Annual Fee
Strong Opportunity Fund II, Inc. .25%
Strong Variable Insurance Funds, Inc.
Strong Discovery Fund II .25%
Strong Growth Fund II .25%
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the 8th day of August, 1997, by and between the
PBHG INSURANCE SERIES FUND, INC. ("FUND"), a Maryland corporation, PILGRIM
BAXTER & ASSOCIATES, LTD. ("ADVISER"), a Delaware corporation, and FIDELITY
INVESTMENTS LIFE INSURANCE COMPANY ("LIFE COMPANY"), a life insurance
company organized under the laws of the State of Utah.
WHEREAS, FUND is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "`40
Act"), as an open-end, diversified management investment company; and
WHEREAS, FUND is organized as a series fund comprised of several Portfolios
("Portfolios"), with those currently available being listed on Appendix A
hereto; and
WHEREAS, FUND was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable
Contracts") offered by life insurance companies through separate accounts
("Separate Accounts") of such life insurance companies ("Participating
Insurance Companies"); and
WHEREAS, FUND may also offer its shares to certain qualified pension and
retirement plans ("Qualified Plans"); and
WHEREAS, FUND will apply for an order from the SEC, granting Participating
Insurance Companies and their separate accounts exemptions from the
provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the `40 Act, and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Portfolios of the FUND to be sold to and held by
Variable Contract separate accounts of both affiliated and unaffiliated
Participating Insurance Companies and Qualified Plans ("Exemptive Order");
and
WHEREAS, LIFE COMPANY has established or will establish one or more
separate accounts ("Separate Accounts") to offer Variable Contracts and is
desirous of having FUND as one of the underlying funding vehicles for such
Variable Contracts; and
WHEREAS, ADVISER is registered with the SEC as an investment adviser under
the Investment Advisers Act of 1940 and acts as the FUND's investment
adviser; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of FUND to fund the
aforementioned Variable Contracts and FUND is authorized to sell such
shares to LIFE COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
FUND, and ADVISER agree as follows:
Article I. SALE OF FUND SHARES
1.1 FUND agrees to make available to the Separate Accounts of LIFE
COMPANY shares of the selected Portfolios as listed on Appendix B for
investment of purchase payments of Variable Contracts allocated to the
designated Separate Accounts as provided in FUND's Registration Statement.
1.2 FUND agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of FUND which LIFE COMPANY orders, executing such orders on a
daily basis at the net asset value next computed after receipt by FUND or
its designee of the order for the shares of FUND. For purposes of this
Section 1.2, LIFE COMPANY shall be the designee of FUND for receipt of such
orders from the designated Separate Account and receipt by such designee
shall constitute receipt by FUND; provided that LIFE COMPANY receives the
order by the close of business of the New York Stock Exchange and FUND
receives notice from LIFE COMPANY by telephone or facsimile (or by such
other means as FUND and LIFE COMPANY may agree in writing) of such order by
9:00 a.m. New York time on the next following Business Day. In the event
of a natural or manmade disaster, armed conflict, act of terrorism, riot,
labor disruption or any other circumstance beyond LIFE COMPANY's control
(not caused by its own negligence or which could have been adequately
remedied if not for LIFE COMPANY's negligence), LIFE COMPANY shall transmit
an estimate of such order by 9:00 a.m. New York time on the next following
Business Day, with a definitive order to be transmitted by 12:00 noon on
such day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which FUND calculates its net asset
value pursuant to the rules of the SEC.
1.3 FUND agrees to redeem on LIFE COMPANY's request, any full or
fractional shares of FUND held by LIFE COMPANY, executing such requests on
a daily basis at the net asset value next computed after receipt by FUND or
its designee of the request for redemption, in accordance with the
provisions of this agreement and FUND's Registration Statement. For
purposes of this Section 1.3, LIFE COMPANY shall be the designee of FUND
for receipt of requests for redemption from the designated Separate Account
and receipt by such designee shall constitute receipt by FUND; provided
that LIFE COMPANY receives the request for redemption by the closing of
business of the New York Stock Exchange and FUND receives notice from LIFE
COMPANY by telephone or facsimile (or by such other means as FUND and LIFE
COMPANY may agree in writing) of such request for redemption by 9:00 a.m.
New York time on the next following Business Day.
1.4 FUND shall furnish, on or before the ex-dividend date, notice to LIFE
COMPANY of any income dividends or capital gain distributions payable on
the shares of any Portfolio of FUND. LIFE COMPANY hereby elects to receive
all such income dividends and capital gain distributions as are payable on
a Portfolio's shares in additional shares of the Portfolio. FUND shall
notify LIFE COMPANY or its designee of the number of shares so issued as
payment of such dividends and distributions.
1.5 FUND shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as
reasonably practicable after the net asset value per share is calculated
but shall use its best efforts to make such net asset value available by
6:30 p.m. New York time. If the net asset value per share for the selected
Portfolio(s) are unavailable by 6:30 p.m. New York time, FUND shall provide
LIFE COMPANY with such net asset value by no later than 730 p.m. New York
time. If FUND provides LIFE COMPANY with materially incorrect share net
asset value information through no fault of LIFE COMPANY, LIFE COMPANY on
behalf of the Separate Accounts, shall be entitled to an adjustment to the
number of shares purchased or redeemed to reflect the correct share net
asset value. Any material error in the calculation of net asset value per
share, dividend or capital gain information shall be reported promptly upon
discovery to LIFE COMPANY. If LIFE COMPANY suffers any out-of-pocket
expenses as a result of FUND or its designee providing LIFE COMPANY with an
incorrect net asset value for any Portfolio, ADVISER will reimburse LIFE
COMPANY for all such reasonable expenses suffered by LIFE COMPANY.
1.6 At the end of each Business Day, LIFE COMPANY shall use the
information described in Section 1.5 to calculate Separate Account unit
values for the day. Using these unit values, LIFE COMPANY shall process
each such Business Day's Separate Account transactions based on requests
and premiums received by it to determine the net dollar amount of FUND
shares which shall be purchased or redeemed at that day's closing net asset
value per share. The net purchase or redemption orders so determined shall
be transmitted to FUND by LIFE COMPANY by 9:00 a.m. New York Time on the
Business Day next following LIFE COMPANY's receipt of such requests and
premiums in accordance with the terms of Sections 1.2 and 1.3 hereof.
1.7 If LIFE COMPANY's order requests the purchase of FUND shares, LIFE
COMPANY shall pay for such purchase by wiring federal funds to FUND or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, FUND shall use its best
efforts to wire the redemption proceeds to LIFE COMPANY by the close of the
Business Day on which the order is transmitted to FUND or its designee,
subject to such longer period of time as may be permitted by the '40 Act or
the rules, orders or regulations thereunder.
1.8 (a) FUND agrees that all shares of the Portfolios of FUND will be
sold only to Participating Insurance Companies which have agreed to
participate in FUND to fund their Separate Accounts and/or to Qualified
Plans, all in accordance with the requirements of Section 817(h) of the
Internal Revenue Code of 1986, as amended ("Code") and Treasury Regulation
1.817-5. Shares of the Portfolios of FUND will not be sold directly to the
general public. (b) The FUND agrees that through October 31, 1998, shares
of the FUND's Select 20 Portfolio will be sold only to LIFE COMPANY and to
Empire Fidelity Investments Life Insurance Company, an affiliate of LIFE
COMPANY. The foregoing sentence shall not apply if before October 31,
1998, LIFE COMPANY or Empire Fidelity Investments Life Insurance Company
adds any additional investment option to any of their Separate Accounts to
be funded by an investment company other than those advised by or sponsored
by Morgan Stanley & Co., Warburg, Pincus, Strong Capital Management or
Fidelity Management & Research Company or any of their respective
affiliates.
1.9 FUND may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of the shares of or liquidate any
Portfolio of FUND if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
of Directors of the FUND (the "Board"), acting in good faith and in light
of its duties under federal and any applicable state laws, deemed
necessary, desirable or appropriate and in the best interests of the
shareholders of such Portfolios.
1.10 Issuance and transfer of Portfolio shares will be by book entry only.
Stock certificates will not be issued to LIFE COMPANY or the Separate
Accounts. Shares ordered from Portfolio will be recorded in appropriate
book entry titles for the Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Utah and
that it has legally and validly established each Separate Account as a
segregated asset account under such laws, and that Fidelity Brokerage
Services, Inc., the principal underwriter for the Variable Contracts, is
registered as a broker-dealer under the Securities Exchange Act of 1934
(the "'34 Act").
2.2 LIFE COMPANY represents and warrants that it has registered or, prior
to any issuance or sale of the Variable Contracts, will register each
Separate Account as a unit investment trust ("UIT") in accordance with the
provisions of the `40 Act and cause each Separate Account to remain so
registered to serve as a segregated asset account for the Variable
Contracts, unless an exemption from registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts will
be registered under the Securities Act of 1933 (the "`33 Act") unless an
exemption from registration is available prior to any issuance or sale of
the Variable Contracts and that the Variable Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws and further that the sale of the Variable Contracts shall comply
in all material respects with applicable state insurance law suitability
requirements.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code,
that it will maintain such treatment and that it will notify FUND
immediately upon having a reasonable basis for believing that the Variable
Contracts have ceased to be so treated or that they might not be so treated
in the future.
2.5 FUND represents and warrants that the Fund shares offered and sold
pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal and state laws, and FUND shall be
registered under the `40 Act prior to and at the time of any issuance or
sale of such shares. FUND, subject to Section 1.9 above, shall amend its
registration statement under the `33 Act and the `40 Act from time to time
as required in order to effect the continuous offering of its shares. FUND
shall register and qualify its shares for sale in accordance with the laws
of the various states only if and to the extent deemed advisable by FUND.
2.6 FUND represents and warrants that each Portfolio will comply with the
diversification requirements set forth in Section 817(h) of the Code, and
the rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply or might
not so comply and will immediately take all reasonable steps to adequately
diversify the Portfolio to achieve compliance. Contemporaneously with the
execution of this Agreement, FUND will furnish a copy of its written
compliance procedures concerning Section 817 and Regulation 1.817-5 to LIFE
COMPANY. ADVISER agrees to provide LIFE COMPANY a statement of the assets
of each Portfolio in which LIFE COMPANY invests within 20 days after the
end of each calendar quarter, together with a statement certifying that
each such Portfolio has complied with the requirements of Section 817 and
Rule 1.817-5 for the quarter, and that each such Portfolio has for the
calendar quarter complied with all diversification and other requirements
for qualification as a regulated investment company under Section 851.
2.7 FUND represents and warrants that each Portfolio invested in by the
Separate Account has elected to be treated as a "regulated investment
company" under Subchapter M of the Code, and to qualify for such treatment
for each taxable year and will notify LIFE COMPANY immediately upon having
a reasonable basis for believing it has ceased to so qualify or might not
so qualify in the future.
2.8. ADVISER represents and warrants that it is and will remain duly
registered and licensed in all material respects under all applicable
federal and state securities laws and shall perform its obligations
hereunder in compliance in all material respects with any applicable state
and federal laws. The FUND and ADVISER represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the FUND
are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage for the benefit of the FUND in an amount not less
than the minimal coverage as required currently by Rule 17g-(1) of the 1940
Act or related provisions as may be promulgated from time to time. The
aforesaid Bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company. The FUND and ADVISER
further represent and warrant that the FUND and its directors are and at
all times will be covered by an errors and omissions policy in an amount of
not less than $30,000,000.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 FUND shall prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional
information of FUND. FUND shall bear the costs of registration and
qualification of shares of the Portfolios, preparation and filing of the
documents listed in this Section 3.1 and all taxes and filing fees to which
an issuer is subject on the issuance and transfer of its shares.
3.2 At least annually, FUND or its designee shall provide LIFE COMPANY,
free of charge, with as many copies of the current prospectus, proxy
materials, notices, annual report and semi-annual report for the shares of
the Portfolios as LIFE COMPANY may reasonably request for distribution to
existing Variable Contract owners whose Variable Contracts are funded by
such shares. FUND or its designee shall provide LIFE COMPANY, at ADVISER's
expense, with as many copies of the current prospectus, annual report and
semi-annual report for the shares as LIFE COMPANY may reasonably request
for distribution to prospective purchasers of Variable Contracts and
existing Variable Contract owners whose Variable Contracts are not funded
by shares of the Fund. If requested by LIFE COMPANY in lieu thereof, FUND
or its designee shall provide such documentation (including a "camera
ready" copy of the new prospectus, annual report and semi-annual report as
set in type or, at the request of LIFE COMPANY, as a diskette in the form
sent to the financial printer) and other assistance as is reasonably
necessary in order for the parties hereto once a year (or more frequently
if the prospectus for the shares is supplemented or amended) to have the
prospectus, annual report and semi-annual report for the Variable Contracts
and the prospectus, annual report and semi-annual report for the FUND
shares printed together in one document. The FUND's share of printing and
production costs for such materials shall be determined by assigning to the
FUND a pro-rata share of such expenses, the calculation of which shall be
determined by applying the following formula:
A/B x C
Where A equals the number of pages contained in the document relating to
the Fund; B equals the total number of pages in the entire document and C
equals the total cost of printing and producing the entire document. LIFE
COMPANY shall provide the FUND, or its designee, and the ADIVSER with such
information as may be reasonably necessary to allow the FUND and the
ADVISER to assure themselves that the FUND's allocated portion of expenses
do not include the cost of printing any prospectuses, statements of
additional information, annual reports or semi-annual reports other than
those actually distributed to existing owners of Variable Contracts whose
contracts are funded by the FUND's shares.
3.3 LIFE COMPANY shall bear the expenses of distributing the FUND's
prospectuses, annual reports and semi-annual reports to prospective
Variable Contract owners. Fund shall bear a portion of the postage and
mailing expenses with respect to such materials that are delivered to
Variable Contract owners. The FUND shall bear a portion of such expenses
in accordance with the following formula:
A x F
A + B + C + D + E
Where A is the aggregate number of Variable Contract Owners who own shares
of the Fund, B is the aggregate number of Variable Contract owners who own
shares of mutual funds advised by FMR; C, D and E are the aggregate number
of Variable Contract owners who own shares in the other mutual funds
participating in the Variable Contracts as available investment options. F
equals the total cost of postage and handling attributable to such
materials to all Variable Contract owners. In the event that LIFE COMPANY
requests that FUND, or its designee, provide FUND's prospectus, annual
report and semi-annual report in a "camera ready" or diskette format, FUND
shall be responsible for providing the prospectus, annual report and
semi-annual report in the format in which it is accustomed and shall bear
the expense of providing the prospectus, annual report and semi-annual
report in such format (e.g. typesetting expenses), and LIFE COMPANY shall
bear the expense of adjusting or changing the format to conform with its
customary format.
3.4 FUND will provide LIFE COMPANY with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly
after the filing of each such document with the SEC or other regulatory
authority. LIFE COMPANY will provide FUND with at least one complete copy
of all prospectuses, statements of additional information, annual and
semi-annual reports, proxy statements, exemptive applications and all
amendments or supplements to any of the above that relate to a Separate
Account promptly after the filing of each such document with the SEC or
other regulatory authority.
Article IV. SALES MATERIALS
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to FUND and
ADVISER, each piece of sales literature or other promotional material in
which FUND or ADVISER is named, at least ten (10) Business Days prior to
its intended use. No such material will be used if FUND or ADVISER objects
to its use in writing within seven (7) Business Days after receipt of such
material.
4.2 FUND and ADVISER will furnish, or will cause to be furnished, to LIFE
COMPANY, each piece of sales literature or other promotional material in
which LIFE COMPANY or its Separate Accounts are named, at least ten (10)
Business Days prior to its intended use. No such material will be used if
LIFE COMPANY objects to its use in writing within seven (7) Business Days
after receipt of such material.
4.3 FUND and its affiliates and agents shall not give any information or
make any representations on behalf of LIFE COMPANY or concerning LIFE
COMPANY, the Separate Accounts, or the Variable Contracts issued by LIFE
COMPANY, other than the information or representations contained in a
registration statement or prospectus for such Variable Contracts, as such
registration statement and prospectus may be amended or supplemented from
time to time, or in reports of the Separate Accounts or reports prepared
for distribution to owners of such Variable Contracts, or in sales
literature or other promotional material approved by LIFE COMPANY or its
designee, except with the written permission of LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of FUND or concerning
FUND other than the information or representations contained in a
registration statement or prospectus for FUND, as such registration
statement and prospectus may be amended or supplemented from time to time,
or in sales literature or other promotional material approved by FUND or
its designee, except with the written permission of FUND.
4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards, motion
pictures or other public media), sales literature (such as any written
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters,
form letters, seminar texts, or reprints or excerpts of any other
advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under National Association of Securities Dealers, Inc. ("NASD")
rules, the `40 Act or the '33 Act.
Article V. POTENTIAL CONFLICTS
5.1 The parties acknowledge that FUND will be filing an application with
the SEC to request an order granting relief from various provisions of the
'40 Act and the rules thereunder to the extent necessary to permit FUND
shares to be sold to and held by Variable Contract separate accounts of
both affiliated and unaffiliated Participating Insurance Companies and
Qualified Plans. It is anticipated that the Exemptive Order, when and if
issued, shall require FUND and each Participating Insurance Company to
comply with conditions and undertakings substantially as provided in this
Section 5. If the Exemptive Order imposes conditions materially different
from those provided for in this Section 5, the conditions and undertakings
imposed by the Exemptive Order shall govern this Agreement and the parties
hereto agree to amend this Agreement consistent with the Exemptive Order.
The Fund will not enter into a participation agreement with any other
Participating Insurance Company unless it imposes the same conditions and
undertakings as are imposed on LIFE COMPANY hereby.
5.2 The Board will monitor FUND for the existence of any material
irreconcilable conflict between the interests of Variable Contract owners
of all separate accounts investing in FUND. An irreconcilable material
conflict may arise for a variety of reasons, which may include: (a) an
action by any state insurance regulatory authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling or any similar
action by insurance, tax or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of FUND are being managed; (e) a difference
in voting instructions given by Variable Contract owners; (f) a decision by
a Participating Insurance Company to disregard the voting instructions of
Variable Contract owners and (g) if applicable, a decision by a Qualified
Plan to disregard the voting instructions of plan participants.
5.3 LIFE COMPANY will report any potential or existing conflicts to the
Board. LIFE COMPANY will be responsible for assisting the Board in
carrying out its duties in this regard by providing the Board with all
information reasonably necessary for the Board to consider any issues
raised. The responsibility includes, but is not limited to, an obligation
by the LIFE COMPANY to inform the Board whenever it has determined to
disregard Variable Contract owner voting instructions. These
responsibilities of LIFE COMPANY will be carried out with a view only to
the interests of the Variable Contract owners.
5.4 If a majority of the Board or majority of its disinterested Directors,
determines that a material irreconcilable conflict exists affecting LIFE
COMPANY, LIFE COMPANY, at its expense and to the extent reasonably
practicable (as determined by a majority of the Board's disinterested
Directors), will take any steps necessary to remedy or eliminate the
irreconcilable material conflict, including; (a) withdrawing the assets
allocable to some or all of the Separate Accounts from FUND or any
Portfolio thereof and reinvesting those assets in a different investment
medium, which may include another Portfolio of FUND, or another investment
company; (b) submitting the question as to whether such segregation should
be implemented to a vote of all affected Variable Contract owners and as
appropriate, segregating the assets of any appropriate group (i.e variable
annuity or variable life insurance Contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation,
or offering to the affected Variable Contract owners the option of making
such a change; and (c) establishing a new registered management investment
company (or series thereof) or managed separate account. If a material
irreconcilable conflict arises because of LIFE COMPANY's decision to
disregard Variable Contract owner voting instructions, and that decision
represents a minority position or would preclude a majority vote, LIFE
COMPANY may be required, at the election of FUND, to withdraw the Separate
Account's investment in FUND, and no charge or penalty will be imposed as a
result of such withdrawal. The responsibility to take such remedial action
shall be carried out with a view only to the interests of the Variable
Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict but in no event
will FUND or ADVISER (or any other investment adviser of FUND) be required
to establish a new funding medium for any Variable Contract. Further, LIFE
COMPANY shall not be required by this Section 5.4 to establish a new
funding medium for any Variable Contracts if any offer to do so has been
declined by a vote of a majority of Variable Contract owners materially and
adversely affected by the irreconcilable material conflict.
5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the
Board may fully carry out its obligations. Such reports, materials, and
data shall be submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to all
Variable Contract owners so long as the SEC continues to interpret the `40
Act as requiring pass-through voting privileges for Variable Contract
owners. Accordingly, LIFE COMPANY, where applicable, will vote shares of
the Portfolio held in its Separate Accounts in a manner consistent with
voting instructions timely received from its Variable Contract owners.
LIFE COMPANY will be responsible for assuring that each of its Separate
Accounts that participates in FUND calculates voting privileges in a manner
consistent with other Participating Insurance Companies. LIFE COMPANY will
vote shares for which it has not received timely voting instructions, as
well as shares it owns, in the same proportion as its votes those shares
for which it has received voting instructions. ADVISER will bear all
expenses incurred by LIFE COMPANY in connection with the (solicitation)
tabulation and any necessary archiving of any proxy materials, provided
LIFE COMPANY uses a tabulation service designated by ADVISER.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
`40 Act or the rules thereunder with respect to mixed and shared funding on
terms and conditions materially different from any exemptions granted in
the Exemptive Order, then FUND, and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to
comply with Rule 6e-2 and Rule 6e-3(T), as amended, and Rule 6e-3, as
adopted, to the extent such Rules are applicable.
Article VII. INDEMNIFICATION
7.1 Indemnification by LIFE COMPANY. LIFE COMPANY agrees to indemnify
and hold harmless FUND, ADVISER and each of their directors, principals,
officers, employees and agents and each person, if any, who controls FUND
or ADVISER within the meaning of Section 15 of the `33 Act (collectively,
the "Indemnified Parties" for purposes of this Article VII) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of LIFE COMPANY, which consent shall
not be unreasonably withheld) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of FUND's shares or the
Variable Contracts and:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the Registration Statement or
prospectus for the Variable Contracts or contained in the Variable
Contracts (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to LIFE COMPANY by or on
behalf of FUND for use in the registration statement or prospectus for the
Variable Contracts or in the Variable Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection with the sale
of the Variable Contracts or FUND shares; or
(b) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature of FUND not supplied by LIFE COMPANY, or
persons under its control) or wrongful conduct of LIFE COMPANY or persons
under its control, with respect to the sale or distribution of the Variable
Contracts or FUND shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature of FUND or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information
furnished to FUND by or on behalf of LIFE COMPANY; or
(d) arise as a result of any failure by LIFE COMPANY to provide
substantially the services and furnish the materials under the terms of
this Agreement; or
(e) arise out of or result from any material breach of any representation
and/or warranty made by LIFE COMPANY in this Agreement or arise out of or
result from any other material breach of this Agreement by LIFE COMPANY.
7.2 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from
such Indemnified Party's willful misfeasance, bad faith, or negligence in
the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
7.3 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify LIFE
COMPANY of any such claim shall not relieve LIFE COMPANY from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In
case any such action is brought against an Indemnified Party, LIFE COMPANY
shall be entitled to participate at its own expense in the defense of such
action. LIFE COMPANY also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice
from LIFE COMPANY to such party of LIFE COMPANY's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and LIFE COMPANY will not be liable
to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
7.4 Indemnification by ADVISER. ADVISER agrees to indemnify and hold
harmless LIFE COMPANY and each of its directors, officers, employees, and
agents and each person, if any, who controls LIFE COMPANY within the
meaning of Section 15 of the `33 Act (collectively, the "Indemnified
Parties" for the purposes of this Article VII) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of ADVISER which consent shall not be unreasonably
withheld) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, or regulation, at
common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of FUND's shares or the Variable
Contracts and:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of FUND (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to ADVISER or FUND by or on behalf of LIFE COMPANY for use in the
registration statement or prospectus for FUND or in sales literature (or
any amendment or supplement) or otherwise for use in connection with the
sale of the Variable Contracts or FUND shares; or
(b) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature for the Variable Contracts not supplied by
ADVISER or persons under its control) or wrongful conduct of FUND or
ADVISER or persons under their control, with respect to the sale or
distribution of the Variable Contracts or FUND shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature covering the Variable Contracts, or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity
with information furnished to LIFE COMPANY for inclusion therein by or on
behalf of FUND; or
(d) arise as a result of (i) a failure by FUND to provide substantially
the services and furnish the materials under the terms of this Agreement;
or (ii) a failure by a Portfolio(s) invested in by the Separate Account to
comply with the diversification requirements of Section 817(h) of the Code;
or (iii) a failure by a Portfolio(s) invested in by the Separate Account to
qualify as a "regulated investment company" under Subchapter M of the Code;
or
(e) arise out of or result from any material breach of any representation
and/or warranty made by ADVISER in this Agreement or arise out of or result
from any other material breach of this Agreement by ADVISER.
7.5 ADVISER shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement.
7.6 ADVISER shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified ADVISER in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify
ADVISER of any such claim shall not relieve ADVISER from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties, ADVISER
shall be entitled to participate at its own expense in the defense thereof.
ADVISER also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from ADVISER
to such party of ADVISER's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and ADVISER will not be liable to such party under
this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
Article VIII. TERM; TERMINATION
8.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions
herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of LIFE COMPANY at any time from the date hereof upon 60
days' notice, unless a shorter time is agreed to by the parties;
(b) At the option of the FUND at any time from the date hereof upon 120
days' notice, unless shorter time is agreed to by the parties;
(c) At the option of LIFE COMPANY, if FUND shares are not reasonably
available to meet the requirements of the Variable Contracts as determined
by LIFE COMPANY. Prompt notice of election to terminate shall be furnished
by LIFE COMPANY, said termination to be effective ten days after receipt of
notice unless FUND makes available a sufficient number of shares to
reasonably meet the requirements of the Variable Contracts within said
ten-day period;
(d) At the option of LIFE COMPANY, upon the institution of formal
proceedings against FUND by the SEC, the NASD, or any other regulatory
body, the expected or anticipated ruling, judgment or outcome of which
would, in LIFE COMPANY's reasonable judgment, materially impair FUND's
ability to meet and perform FUND's obligations and duties hereunder.
Prompt notice of election to terminate shall be furnished by LIFE COMPANY
with said termination to be effective upon receipt of notice;
(e) At the option of FUND, upon the institution of formal proceedings
against LIFE COMPANY by the SEC, the NASD, or any other regulatory body,
the expected or anticipated ruling, judgment or outcome of which would, in
FUND's reasonable judgment, materially impair LIFE COMPANY's ability to
meet and perform its obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by FUND with said termination to
be effective upon receipt of notice;
(f) In the event FUND's shares are not registered, issued or sold in
accordance with applicable state or federal law, or such law precludes the
use of such shares as the underlying investment medium of Variable
Contracts issued or to be issued by LIFE COMPANY. Termination shall be
effective upon such occurrence without notice;
(g) At the option of FUND if the Variable Contracts cease to qualify as
annuity contracts or life insurance contracts, as applicable, under the
Code, or if FUND reasonably believes that the Variable Contracts may fail
to so qualify. Termination shall be effective upon receipt of notice by
LIFE COMPANY;
(h) At the option of LIFE COMPANY, upon FUND's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of LIFE COMPANY within ten days after written notice of such
breach is delivered to FUND;
(i) At the option of FUND, upon LIFE COMPANY's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of FUND within ten days after written notice of such breach is
delivered to LIFE COMPANY;
(j) At the option of FUND, if the Variable Contracts are not registered,
issued or sold in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such occurrence without
notice;
(k) In the event this Agreement is assigned without the prior written
consent of LIFE COMPANY, FUND, and ADVISER, termination shall be
effective immediately upon such occurrence without notice, except that LIFE
COMPANY may assign this Agreement to an affiliated life insurance company
without consent.
8.3 Notwithstanding any termination of this Agreement pursuant to Section
8.2(a), 8.2(c), (d), (h) or (k) hereof, the FUND shall, at the option of
LIFE COMPANY, continue to make available additional FUND shares, pursuant
to the terms and conditions of this Agreement, for all Variable Contracts
in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, the owners of the Existing Contracts or LIFE COMPANY, whichever
shall have legal authority to do so, shall be permitted to reallocate
investments in FUND, redeem investments in FUND and/or invest in FUND upon
the payment of additional premiums under the Existing Contracts. If FUND
shares continue to be made available after such termination, the provisions
of this Agreement shall remain in effect.
8.4 LIFE COMPANY shall not redeem FUND shares attributable to the Variable
Contracts (as opposed to FUND shares attributable to LIFE COMPANY's assets
held in its Separate Accounts) except (i) as necessary to implement
Variable Contract owner initiated or approved transactions, or (ii) as
required by state and/or federal laws or regulations or judicial or other
legal precedent of general application (hereinafter referred to as a
"Legally Required Redemption") or (iii) as permitted by an order of the SEC
pursuant to Section 26(b) of the 1940 Act. Upon request, LIFE COMPANY will
promptly furnish to the FUND and the ADVISER the opinion of counsel for
LIFE COMPANY (which counsel shall be reasonably satisfactory to the FUND
and the ADVISER) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Variable Contracts, LIFE COMPANY shall not
prevent Variable Contract owners from allocating payments to a Portfolio
that was otherwise available under the Variable Contracts without first
giving the FUND and the ADVISER sixty (60) days notice of its intention to
do so.
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail return
receipt requested to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to FUND: PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: Mr. Brian F. Bereznak
With a copy to: PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: John M. Zerrr, Esq.
If to the ADVISER: PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: Mr. Brian F. Bereznak
With a copy to: PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: John M. Zerrr, Esq.
If to LIFE COMPANY: Fidelity Investments Life Insurance Company
82 Devonshire Street
Mail Zone R25B
Boston, MA 02109-3614
Attn: Richard C. Murphy
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the
same instrument.
10.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Pennsylvania. It shall also be subject to the provisions of the federal
securities laws and the rules and regulations thereunder and to any orders
of the SEC granting exemptive relief therefrom and the conditions of such
orders.
10.5 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Directors or officers of
FUND or any Portfolio shall be personally liable hereunder. No Portfolio
shall be liable for the liabilities of any other Portfolio. All persons
dealing with FUND or a Portfolio must look solely to the property of FUND
or that Portfolio, respectively, for enforcement of any claims against FUND
or that Portfolio. It is also understood that each of the Portfolios shall
be deemed to be entering into a separate Agreement with LIFE COMPANY so
that it is as if each of the Portfolios had signed a separate Agreement
with LIFE COMPANY and that a single document is being signed simply to
facilitate the execution and administration of the Agreement.
10.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD
and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
10.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
10.8 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by
FUND, ADVISER and the LIFE COMPANY.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first
above written.
PBHG INSURANCE SERIES FUND, INC.
By:_____________________________
Name:
Title:
PILGRIM BAXTER & ASSOCIATES, LTD.
By:_____________________________
Name:
Title:
FIDELITY INVESTMENTS LIFE
INSURANCE COMPANY
By:______________________________
Name:
Title:
APPENDIX A
PBHG Insurance Series Fund, Inc. - Portfolios
PBHG Growth II Portfolio
PBHG Technology & Communications Portfolio
PBHG Select 20 Portfolio
PBHG Large Cap Value Portfolio
PBHG Small Cap Value Portfolio
APPENDIX B
Separate Accounts Selected Portfolios
Fidelity Investments PBHG Growth II Portfolio
Variable Annuity Account I PBHG Technology &
Communications Portfolio
PBHG Select 20 Portfolio
PBHG Large Cap Value Portfolio
PBHG Small Cap Value Portfolio
FundPart\Fidelity
THIS AGREEMENT, made and entered into as of the 1st day of September, 1997
by and among FIDELITY INVESTMENTS LIFE INSURANCE COMPANY (hereinafter the
"Company"), a Utah corporation, on its own behalf and on behalf of each
separate account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and MORGAN STANLEY UNIVERSAL FUNDS, INC. (hereinafter the
"Fund"), a Maryland corporation, and MORGAN STANLEY ASSET MANAGEMENT INC.
and MILLER ANDERSON & SHERRERD, LLP (hereinafter collectively the
"Advisers" and individually the "Adviser"), a Delaware corporation and a
Pennsylvania limited liability partnership, respectively.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or
pay-out provisions (hereinafter referred to individually and/or
collectively as "Variable Insurance Products") and (ii) the investment
vehicle for certain qualified pension and retirement plans (hereinafter
"Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Contracts enter into participation
agreements with the Fund and the Advisers (the "Participating Insurance
Companies");
WHEREAS, shares of the Fund are divided into several series of shares,
each representing the interest in a particular managed portfolio of
securities and other assets, any one or more of which may be made available
under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to
as a "Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated September 19, 1996 (File No. 812-10118), granting
Participating Insurance Companies and Variable Insurance Product separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (hereinafter the
"1940 Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the
extent necessary to permit shares of the Fund to be sold to and held by
Variable Annuity Product separate accounts of both affiliated and
unaffiliated life insurance companies and Qualified Plans (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, each Adviser is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities laws; and
WHEREAS, each Adviser manages certain Portfolios of the Fund; and
WHEREAS, Morgan Stanley & Co. Incorporated (the "Underwriter") is
registered as a broker/dealer under the Securities Exchange Act of 1934, as
amended (hereinafter the "1934 Act"), is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD") and
serves as principal underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule A
hereto, to set aside and invest assets attributable to the aforesaid
Variable Insurance Product; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase, on behalf of each Account,
shares in the Portfolios set forth in Schedule B attached to this Agreement
to fund certain of the aforesaid Variable Insurance Products and the
Underwriter is authorized to sell such shares to each such Account at net
asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. PURCHASE OF FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Fund and shall execute orders placed for each Account on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of such order. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee of an order by the close of the New
York Stock Exchange or any Business Day shall constitute receipt by the
Fund on such Business Day; provided that the Fund receives notice of such
order by 10:00 a.m. Eastern time on the next following Business Day. In
the event of a natural or man-made disaster, armed conflict, act of
terrorism, riot, labor disruption or any other circumstance beyond its
control (not caused by its own negligence or which could have been
adequately remedied if not for the Company's negligence), the Company may
transmit an estimate of such order by 10:00 a.m. Eastern time on the next
following Business Day, with the final order to be transmitted by 12:00
p.m. on such day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange
Commission. Promptly upon receipt of any purchase or redemption order
placed by the Company, by such designee shall constitute receipt by the
Fund; provided that the Fund receives notice of such request for redemption
on the next following Business Day. The Fund shall use its best efforts to
wire the redemption proceeds to the Company by the close of business on the
Business Day on which the order is transmitted to the Fund or its designee.
the Fund will send an acknowledgment to the Company of receipt of such
order, by facsimile, e-mail, or other medium agreed to by the Fund and the
Company.
1.2. The Fund, so long as this Agreement is in effect, agrees to make its
shares available indefinitely for purchase at the applicable net asset
value per share by the Company and its Accounts on those days on which the
Fund calculates its net asset value pursuant to rules of the Securities and
Exchange Commission and the Fund shall use reasonable efforts to calculate
such net asset value on each day which the New York Stock Exchange is open
for trading. Notwithstanding the foregoing, the Board of Directors of the
Fund (hereinafter the "Board") may refuse to permit the Fund to sell shares
of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal
and any applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
1.3. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts and to
certain Qualified Plans. No shares of any Portfolio will be sold to the
general public.
1.4. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing
provisions substantially the same as Articles I, III, V, VII and Section
2.5 of Article II of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption. For
purposes of this Section 1.5, the Company shall be the designee of the Fund
for receipt of requests for redemption from each Account and
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Variable Insurance
Products issued by the Company, under which amounts may be invested in the
Fund (hereinafter the "Contracts"), are listed on Schedule A attached
hereto and incorporated herein by reference, as such Schedule A may be
amended from time to time by mutual written agreement of all of the parties
hereto. The Company will give the Fund and the Adviser 45 days written
notice of its intention to make available in the future, as a funding
vehicle under the Contracts, any other investment company.
1.7. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by
wire. For purposes of Section 2.10 and 2.11, upon receipt by the Fund of
the federal funds so wired, such funds shall cease to be the responsibility
of the Company and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for
each Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends
or capital gain distributions payable on the Fund's shares. The Company
hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Portfolio shares in additional shares
of that Portfolio. The Company reserves the right to revoke this election
and to receive all such income dividends and capital gain distributions in
cash. The Fund shall notify the Company of the number of shares so issued
as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use
its best efforts to make such net asset value per share available by 6:30
p.m., Eastern time, but no later than 7:00 p.m. Eastern time.
1.11. If the Fund provides materially incorrect share net asset value
information receipt through no fault of the Company, the Company shall be
entitled to an adjustment with respect to the Fund shares purchased or
redeemed to reflect the correct net asset value per share. The
determination of the materiality of any net asset value pricing error shall
be based on the SEC's recommended guidelines regarding such errors. The
correction of any such errors shall be made at the Company level and shall
be made pursuant to the SEC's recommended guidelines. Any material error
in the calculation or reporting of net asset value per share, dividend or
capital gain information shall be reported promptly upon discovery to the
Company.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally
and validly established each Account prior to any issuance or sale thereof
as a segregated asset account under Section 31A-5-217.5 of the Utah
Insurance Code and has registered or, prior to any issuance or sale of the
Contracts, will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Maryland and
all applicable federal and state securities laws and that the Fund is and
shall remain registered under the 1940 Act. The Fund shall amend the
registration statement for its shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of
its shares. The Fund shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund.
2.3 The Fund represents and warrants that each Portfolio invested in by
the Company will elect to be treated as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and will qualify for such treatment for each taxable year and will
notify the Company immediately upon having a reasonable basis for believing
that it has ceased to so qualify or that it might not so qualify in the
future.
2.4. The Company represents that the Contracts are currently treated as
life insurance policies or annuity contracts, under applicable provisions
of the Code and that it will make every effort to maintain such treatment
and that it will notify the Fund immediately upon having a reasonable basis
for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5.. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not
interested persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various
states except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the
laws of the State of Maryland and the Fund represents that their respective
operations are and shall at all times remain in material compliance with
the laws of the State of Maryland to the extent required to perform this
Agreement.
2.7. The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.8. Each Adviser represents and warrants that it is and shall remain
duly registered in all material respects under all applicable federal and
state securities laws and that it will perform its obligations for the Fund
in compliance in all material respects with the laws of its state of
domicile and any applicable state and federal securities laws.
2.9. The Fund represents and warrants that its directors, officers,
employees, and other individuals/entities dealing with the money and/or
securities of the Fund are and shall continue to be at all times covered by
a blanket fidelity bond or similar coverage for the benefit of the Fund in
an amount not less than the minimal coverage as required currently by Rule
17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid blanket fidelity bond shall include coverage
for larceny and embezzlement and shall be issued by a reputable bonding
company. The Fund and each Adviser further represent and warrant that the
Fund and its directors are and at all times will be covered by an errors
and omissions policy in an amount of not less than $5,000,000. Such policy
may be a joint liability policy covering the Fund as well as other Funds
advised by the Advisers or their affiliates, having an aggregate limit of
liability of not less than $10,000,000.
2.10. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
dealing with the money and/or securities of the Fund are covered by a
blanket fidelity bond or similar coverage, in an amount not less $5
million. The aforesaid includes coverage for larceny and embezzlement is
issued by a reputable bonding company. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS;
VOTING
3.1. The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus and statement of additional
information as the Company may reasonably request. If requested by the
Company, in lieu of providing printed copies the Fund shall provide
camera-ready film or computer diskettes containing the Fund's prospectus
and statement of additional information, and such other assistance as is
reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or statement of additional information for
the Fund is amended during the year) to have the prospectus for the
Contracts and the Fund's prospectus printed together in one document, and
to have the statement of additional information for the Fund and the
statement of additional information for the Contracts printed together in
one document. Alternatively, the Company may print the Fund's prospectus
and/or its statement of additional information in combination with other
fund companies' prospectuses and statements of additional information.
3.2. Except as provided in this Section 3.2., all expenses of printing
and distributing Fund prospectuses, statements of additional information,
annual reports and semi-annual reports shall be the expense of the Company.
For prospectuses, statements of additional information , annual reports and
semi-annual reports provided by the Company to its existing owners of
Contracts in order to update disclosure as required by the 1933 Act and/or
the 1940 Act, the cost of printing shall be borne by the Fund. If the
Company chooses to receive camera-ready film or computer diskettes in lieu
of receiving printed copies of the Fund's prospectus, annual reports and
semi-annual reports the Fund or its designee will reimburse the Company in
the manner described below. The Fund's share of printing and production
costs for such materials shall be determined by assigning the Fund a
prorata share of such expenses, the calculation of which shall be
determined by applying the following formula:
A X C
B
A equals the number of pages relating to the Fund contained in the
document; B represents the total number of pages in the document; and C
represents the total costs for printing and producing the document. The
Company agrees to provide the Fund or its designee with such information as
may be reasonably requested by the Fund to assure that the Fund's expenses
do not include the cost of printing any prospectuses, statements of
additional information, annual reports or semi-annual reports other than
those actually distributed to existing owners of the Contracts.
3.3 The Fund or its designee shall bear a portion of the postage and
mailing expenses with respect to such materials that are delivered to
Contract owners. The Funds or its designee shall bear such expenses in an
amount equal to the following formula:
a times C
a+b+c+d+e
a is the aggregate number of annuity Contract owners who own shares of the
Fund; b is the aggregate number of Contract owner who own shares of the
funds advised by Fidelity Management & Research Company or any of its
affiliates or sub-advised by Fidelity Management & Research Company or any
of its affiliates; c, d, and e are the aggregate number of Contract owners
who own shares in funds advised by each of the other individual fund
companies participating in the Contract: C is the total cost of mailing to
all Contract owners.
3.4 The Fund's statement of additional information shall be obtainable
from the Fund, the Company or such other person as the Fund may designate,
as agreed upon by the parties.
3.5 The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications
(except for prospectuses, statements of additional information and reports
to Shareholders, which are covered in section 3.1) to shareholders in such
quantity as the Company shall reasonably require for distributing to
Contract owners. The Fund shall not be responsible for any costs
associated with any proxy statement or other proxy materials which are not
created due to an event caused by the Fund or at the request of the Fund.
3.6 The Fund or the Adviser will bear all expenses incurred by the
Company in connection with the tabulation and any necessary archiving of
any Fund proxy materials, provided the Company uses a tabulation service
designated by the Adviser and any archiving expenses is reasonable.
3.7 If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received from
Contract owners; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such Portfolio for which instructions
have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting
privileges for variable contract owners. The Company reserves the right to
vote Fund shares held in any segregated asset account in its own right, to
the extent permitted by law. The Fund and the Company shall follow the
procedures, and shall have the corresponding responsibilities, for the
handling of proxy and voting instruction solicitations, as set forth in
Schedule C attached hereto and incorporated herein by reference.
Participating Insurance Companies shall be responsible for ensuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule
C, which standards will also be provided to the other Participating
Insurance Companies.
3.8 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as
well as with Sections 16(a) and, if and when applicable, 16(b). Further,
the Fund will act in accordance with the Securities and Exchange
Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of directors and with whatever rules the
Commission may promulgate with respect thereto.
3.9 The Fund shall use reasonable efforts to provide Fund prospectuses,
reports to shareholders, proxy materials and other Fund communications (or
camera-ready equivalents) to the Company sufficiently in advance of the
Company's mailing dates to enable the Company to complete, at reasonable
cost, the printing, assembling and/or distribution of the communications in
accordance with applicable laws and regulations.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.0 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or the Adviser(s) is named, at least ten
Business Days prior to its use. No such material shall be used if the Fund
or its designee reasonably objects to such use within ten Business Days
after receipt of such material. The Fund and the Adviser shall use their
best efforts to review any such material within five Business Days of
receipt from the Company.
4.1 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund
in connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for
the Fund shares, as such registration statement and prospectus may be
amended or supplemented from time to time, or in reports or proxy
statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission
of the Fund.
4.2 The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or its separate
account(s) is named at least ten Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to
such use within ten Business Days after receipt of such material. The
Company shall use its best efforts to review any such material within five
Business Days of receipt from the Fund or the Adviser.
4.3. The Fund and the Advisers shall not give any information or make any
representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as
such registration statement and prospectus may be amended or supplemented
from time to time, or in published reports for each Account which are in
the public domain or approved by the Company for distribution to Contract
owners, or in sales literature or other promotional material approved by
the Company or its designee, except with the permission of the Company.
4.4. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or
its shares, which are relevant to the Company or the Contracts.
4.5. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no action letters, and all amendments to any of the above,
that relate to the investment in the Fund under the Contracts.
4.6. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund:
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or
tape recording, videotape display, signs or billboards, motion pictures, or
other public media), sales literature (i.e., any written communication
distributed or made generally available to customers or the public,
including brochures, circulars, research reports, market letters, form
letters, seminar texts, reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials
or other communications distributed or made generally available to some or
all agents or employees, and registration statements, prospectuses,
statements of additional information, shareholder reports, and proxy
materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund shall pay no fee or other compensation to the Company under
this Agreement, except that if the Fund or any Portfolio adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses,
then the Underwriter may make payments to the Company or to the underwriter
for the Contracts if and in amounts agreed to by the Underwriter in
writing.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with
applicable federal law and, if and to the extent deemed advisable by the
Fund, in accordance with applicable state laws prior to their sale. The
Fund shall bear the expenses for the cost of registration and qualification
of the Fund's shares, preparation and filing of the Fund's prospectus and
registration statement, proxy materials and reports, setting the prospectus
in type, setting in type and printing the proxy materials and reports to
shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required
by any federal or state law, and all taxes on the issuance or transfer of
the Fund's shares.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund represents and warrants that each Portfolio will comply
with the diversification requirements set forth in Section 817(h) of the
Code, and the rules and regulations thereunder, including without
limitation Regulation 1.817-5, and will notify the Company immediately upon
having a reasonable basis for believing any Portfolio has ceased to comply
or might not so comply and will immediately take all reasonable steps to
adequately diversify the Portfolio to achieve compliance. The Advisers
represent that they, or their agent, have written compliance procedures in
place concerning Section 817 and Regulation 1.817-5. Each Adviser agrees
to provide the Company a statement of the assets of each Portfolio managed
by such Adviser in which the Company invests within 20 days after the end
of each calendar quarter, together with a statement indicating whether each
such Portfolio has complied with the requirements of Section 817 and Rule
1.817-5 for the quarter, and whether each such Portfolio has for the
calendar quarter complied with all diversification and other requirements
for qualification as a regulated investment company under Section 851.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by
any state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or regulations, or a
public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax, or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of any Portfolio are
being managed; (e) a difference in voting instructions given by Variable
Insurance Product owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board
to consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Board whenever contract owner
voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of
the disinterested directors), take whatever steps are necessary to remedy
or eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the
Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract
owners, life insurance policy owners, or variable contract owners of one or
more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected contract owners the option of
making such a change; and (2) establishing a new registered management
investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote,
the Company may be required, at the Fund's election, to withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account (at the Company's expense); provided, however that
such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority
of the disinterested members of the Board.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts
with the majority of other state regulators, then the Company will withdraw
the affected Account's investment in the Fund and terminate this Agreement
with respect to such Account within six months after the Board informs the
Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal
and termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six
month period, the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares
of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether
any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund be required to establish a new
funding medium for the Contracts. The Company shall not be required by
Section 7.3 to establish a new funding medium for the Contracts if an offer
to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or
shared funding (as defined in the Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Shared
Funding Exemptive Order, then (a) the Fund and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be
necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable; and (b) Sections 3.4,
3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company
8.1(a) The Company agrees to indemnify and hold harmless the Fund and
each member of the Board and officers, and each Adviser and each director
and officer of each Adviser, and each person, if any, who controls the Fund
or the Adviser within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually, "Indemnified
Party," for purposes of this Section 8.1) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Contracts or contained in the Contracts or
sales literature for the Contracts (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund for use in the
registration statement or prospectus for the Contracts or in the Contracts
or sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature of the Fund not supplied by the Company, or
persons under its control and other than statements or representations
authorized by the Fund or an Adviser) or unlawful conduct of the Company or
persons under its control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made
in reliance upon and in conformity with information furnished to the Fund
by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or
by reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Company of any such claim shall not relieve the Company from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties, the
Company shall be entitled to participate, at its own expense, in the
defense of such action. The Company also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the
operation of the Fund.
8.2. Indemnification by the Advisers
8.2(a). Each Adviser agrees, with respect to each Portfolio that it
manages, to indemnify and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes
of this Section 8.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent
of the Adviser) or litigation (including legal and other expenses) to which
the Indemnified Parties may become subject under any statute, at common law
or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of shares of the Portfolio that it manages or the
Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Fund (or any amendment
or supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of the Company for use in
the registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature for the Contracts not supplied by the Fund
or persons under its control and other than statements or representations
authorized by the Company) or unlawful conduct of the Fund, Adviser(s) or
Underwriter or persons under their control, with respect to the sale or
distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by
or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Adviser; as limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b). An Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or
by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement.
8.2(c). An Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Adviser in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Adviser of any such claim shall not relieve the Adviser from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties, the
Adviser will be entitled to participate, at its own expense, in the defense
thereof. The Adviser also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice
from the Adviser to such party of the Adviser's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Adviser will not be liable
to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the
Contracts or the operation of each Account.
8.3. Indemnification by the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act (hereinafter
collectively, the "Indemnified Parties" and individually, "Indemnified
Party," for purposes of this Section 8.3) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements result from the gross negligence, bad faith or willful
misconduct of the Board or any member thereof, are related to the
operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement; or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Fund;
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in
the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Fund of any such claim shall not relieve the Fund from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own expense, in the defense thereof. The
Fund also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Fund
to such party of the Fund's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and the Fund will not be liable to such party under
this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company agrees promptly to notify the Fund of the
commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited
to, the Shared Funding Exemptive Order) and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by one hundred and twenty
(120) days advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio is not reasonably available to
meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event any of the Portfolio's
shares are not registered, issued or sold in accordance with applicable
state and/or federal law or such law precludes the use of such shares as
the underlying investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event that such Portfolio
ceases to qualify as a Regulated Investment Company under Subchapter M of
the Code or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event that such Portfolio
falls to meet the diversification requirements specified in Article VI
hereof; or
(f) termination by either the Fund by written notice to the Company if the
Fund shall determine, in its sole judgment exercised in good faith, that
the Company and/or its affiliated companies has suffered a material adverse
change in its business, operations, financial condition or prospects since
the date of this Agreement or is the subject of material adverse
publicity, or
(g) termination by the Company by written notice to the Fund and the
Adviser, if the Company shall determine, in its sole judgment exercised in
good faith, that either the Fund or the Adviser has suffered a material
adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material
adverse publicity; or
(h) termination by the Fund or the Adviser by written notice to the
Company, if the Company gives the Fund and the Adviser the written notice
specified in Section 1.6 hereof and at the time such notice was given there
was no notice of termination outstanding under any other provision of this
Agreement; provided, however any termination under this Section 10.1(h)
shall be effective one hundred and twenty (120) days after the notice
specified in Section 1.6 was given.
10.2. Notwithstanding any termination of this Agreement, the Fund shall
at the option of the Company, continue to make available additional shares
of the Fund pursuant to the terms and conditions of this Agreement, for all
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing, Contracts"). Specifically, without
limitation, the owners of the Existing Contracts shall be permitted to
direct reallocation of investments in the Fund, redemption of investments
in the Fund and/or investment in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that
this Section 10.2 shall not apply to any terminations under Article VII and
the effect of such Article VII terminations shall be governed by Article
VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's
assets held in the Account) except (i) as necessary to implement Contract
Owner initiated or approved transactions, or (ii) as required by state
and/or federal laws or regulations or judicial or other legal precedent of
general application (hereinafter referred to as a "Legally Required
Redemption") or (iii) as permitted by an order of the Securities and
Exchange Commission pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to
the Fund) to the effect that any redemption pursuant to clause (ii) above
is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund 90 days prior
written notice of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
Morgan Stanley Universal Funds, Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Secretary
If to Adviser:
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Harold J. Schaaff, Jr., Esq.
If to Adviser:
Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, Pennsylvania 19428
Attention: Lorraine Truten
If to the Company:
Fidelity Investments Life
Insurance Company
82 Devonshire Street
Mail Zone R25B
Boston, MA 02109
Attention: Richard C. Murphy
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither
the Board, officers, agents or shareholders assume any personal liability
for obligations entered into on behalf of the Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and, except
as permitted by this Agreement, shall not disclose, disseminate or utilize
such names and addresses and other confidential information until such time
as it may come into the public domain without the express written consent
of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the
same instrument.
12.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. Notwithstanding the generality of the foregoing, each
party hereto further agrees to furnish the California Insurance
Commissioner with any information or reports in connection with services
provided under this Agreement which such Commissioner may request in order
to ascertain whether the insurance operations of the Company are being
conducted in a manner consistent with the California Insurance Regulations
and any other applicable law or regulations.
12.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations at law or in equity, which the parties hereto are entitled to
under state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all
parties hereto; provided, however, that an Adviser may assign this
Agreement or any rights or obligations hereunder to any affiliate of or
company under common control with the Adviser, if such assignee is duly
licensed and registered to perform the obligations of the Adviser under
this Agreement and provided that the Company may assign this Agreement to
an affiliated insurance company, if such assignee is duly licensed and
registered to perform the obligations of the Company under this Agreement.
12. 9 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory accounting
principles), as soon as practical and in any event within 90 days after the
end of each fiscal year;
(b) the Company's quarterly statements (statutory) as soon as practical
and in any event within 45 days after the end of each quarterly period:
(c) any registration statement (without exhibits) and financial reports
of the Company filed with the Securities and Exchange Commission or any
state insurance regulator, as soon as practical after the filing thereof;
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified above.
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
By: ______________________________
NAME:
TITLE:
MORGAN STANLEY UNIVERSAL FUNDS, INC.
By: ______________________________
NAME:
TITLE:
MORGAN STANLEY ASSET MANAGEMENT INC.
By: ______________________________
NAME:
TITLE:
MILLER ANDERSON & SHERRERD, LLP
By: ______________________________
NAME:
TITLE:
SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
<TABLE>
<CAPTION>
<S> <C>
NAME OF SEPARATE ACCOUNT AND FORM NUMBER* AND NAME OF CONTRACT
DATE ESTABLISHED BY BOARD OF DIRECTORS FUNDED BY SEPARATE ACCOUNT
Fidelity Investments Variable Annuity Account FVA-88200
I, established July 22, 1987 FVA-88201
FVIA-92100
NRR-96100
NRR-96101
VA-1/87
</TABLE>
*Refers to the basic contract. While there are state specific contracts
having different contract numbers, they are variations of these basic
contracts.
A-1
SCHEDULE B
PORTFOLIOS OF MORGAN STANLEY
UNIVERSAL FUNDS, INC.
Global Equity Portfolio
International Magnum Portfolio
Emerging Markets Debt Portfolio
Emerging Markets Equity Portfolio
B-1
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities
for the handling of proxies and voting instructions relating to the Fund.
The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include
the department or third party assigned by the Company to perform the steps
delineated below.
. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call
in the number of Customers to the Fund , as soon as possible, but no later
than two weeks after the Record Date.
. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting,
instruction solicitation material. The Fund will provide the last Annual
Report to the Company pursuant to the terms of Section 3.3 of the Agreement
to which this Schedule relates.
. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is agreed to by the Company and the Fund. The Company, at its expense,
shall produce and personalize the Voting Instruction Cards. The Fund or
its affiliate must approve the Card before it is printed. Allow
approximately 2-4 business days for printing information on the Cards.
Information commonly found on the Cards includes:
C-1
. name (legal name as found on account registration)
. address
. fund or account number
. coding to state number of units
. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
. During this time, the Fund will develop, produce and pay for the Notice
of Proxy and the Proxy Statement (one document). Printed and folded
notices and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
. Voting Instruction Card(s)
. One proxy notice and statement (one document)
. return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible and
that their vote is important. One copy will be supplied by the Fund.)
. cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund.
. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company as
the shareowner. (A 5-week period is recommended.) Solicitation time is
calculated as calendar days from (but not including,) the meeting, counting
backwards.
. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process used.
An often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
C-2
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to why
they did not complete the system. Any questions on those Cards are usually
remedied individually.
. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) The Fund must
review and approve tabulation format.
. Final tabulation in shares is verbally given by the Company to the Fund
on the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
C-3
. The Company or the tabulating agency will be required to box and archive
the Cards received from the Customers. In the event that any vote is
challenged or if otherwise necessary for legal, regulatory, or accounting
purposes, the Fund will be permitted reasonable access to such Cards.
. All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
C-4
PARTICIPATION AGREEMENT
AMONG
MORGAN STANLEY UNIVERSAL FUNDS, INC.,
MORGAN STANLEY ASSET MANAGEMENT INC.
MILLER ANDERSON & SHERRERD, LLP
AND
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
DATED AS OF
SEPTEMBER 1, 1997
TABLE OF CONTENTS
Page
ARTICLE I. Purchase of Fund Shares 2
ARTICLE II Representations and Warranties 5
ARTICLE III. Prospectuses, Reports to Shareholders 7
and Proxy Statements, Voting
ARTICLE IV. Sales Material and Information 9
ARTICLE V Fees and Expenses 11
ARTICLE VI. Diversification 12
ARTICLE VII. Potential Conflicts 12
ARTICLE VIII. Indemnification 14
ARTICLE IX. Applicable Law 20
ARTICLE X. Termination 20
ARTICLE XI. Notices 22
ARTICLE XII. Miscellaneous 23
SCHEDULE A Separate Accounts and Contracts A-1
SCHEDULE B Portfolios of Morgan Stanley Universal
Funds, Inc. B-1
SCHEDULE C Proxy Voting Procedures C-1
FIDELITY INVESTMENTS LIC
EXECUTION COPY
PARTICIPATION AGREEMENT
BY AND AMONG
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
AND
WARBURG, PINCUS TRUST
AND
WARBURG, PINCUS COUNSELLORS, INC.
AND
COUNSELLORS SECURITIES INC.
THIS AGREEMENT, made and entered into this day of _____________,
1997, by and among Fidelity Investments Life Insurance Company, a Utah
corporation (the "Company"), on its own behalf and on behalf of each
separate account of the Company named in Schedule 1 to this Agreement as
may be amended from time to time (each account referred to as the
"Account"), Warburg, Pincus Trust, an open-end management investment
company and business trust organized under the laws of the Commonwealth of
Massachusetts (the "Fund"); Warburg, Pincus Counsellors, Inc. a corporation
organized under the laws of the State of Delaware (the "Adviser"); and
Counsellors Securities Inc., a corporation organized under the laws of the
State of New York ("CSI").
WHEREAS, the Fund engages in business as an open-end management investment
company and was established for the purpose of serving as the investment
vehicle for separate accounts established for variable life insurance
contracts and variable annuity contracts to be offered by insurance
companies that have entered into participation agreements similar to this
Agreement (the "Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Fund are divided into several series
of shares, each representing the interest in a particular managed portfolio
of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has received an order from the Securities and Exchange
Commission (the "SEC") granting Participating Insurance Companies and
variable annuity separate accounts and variable life insurance separate
accounts relief from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (the "1940 Act"),
and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity separate accounts and variable life insurance separate accounts of
both affiliated and unaffiliated Participating Insurance Companies and
qualified pension and retirement plans outside of the separate account
context (the "Mixed and Shared Funding Exemptive Order"). The parties to
this Agreement agree that the conditions or undertakings specified in the
Mixed and Shared Funding Exemptive Order and that may be imposed on the
Company, the Fund, the Adviser and/or CSI by virtue of the receipt of such
order by the SEC will be incorporated herein by reference, and such parties
agree to comply with such conditions and undertakings to the extent
applicable to each such party; and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable
annuity contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company and existing under the laws of the State of Utah, to set aside and
invest assets attributable to the Contracts; and
WHEREAS, the Company has registered the Account as a unit investment trust
under the 1940 Act; and
WHEREAS, CSI, the Fund's distributor, is registered as a broker-dealer
with the SEC under the Securities Exchange Act of 1934 (the "1934 Act") and
is a member in good standing of the National Association of Securities
Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Portfolios named
in Schedule 2, as such schedule may be amended from time to time (the
"Designated Portfolios"), on behalf of the Account to fund the Contracts,
and the Fund is authorized to sell such shares to unit investment trusts
such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund, the Adviser and CSI agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares of the Designated
Portfolios that each Account orders, executing such orders on a daily basis
at the net asset value next computed after receipt and acceptance by the
Fund or its designee of the order for the shares of the Fund. For purposes
of this Section 1.1, the Company will be the designee of the Fund for
receipt of such orders from each Account and receipt by such designee will
constitute receipt by the Fund; provided that the Fund receives notice of
such order by 10:00 a.m. Eastern Time on the next following Business Day
("T+1"). In the event of a natural or man-made disaster, armed conflict,
act of terrorism, riot, labor disruption or any other circumstance beyond
its control (not caused by its own negligence or which could have been
adequately remedied if not for the Company's negligence), the Company may
transmit an estimate of such order by 10:00 a.m. Eastern time on T+1, with
the final order to be transmitted by 12:00 p.m. on such day. "Business
Day" will mean any day on which the New York Stock Exchange, Inc. (the
"NYSE") is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the SEC.
1.2. The Company will pay for Fund shares on T+1 in each case that an order
to purchase Fund shares is made in accordance with Section 1.1 above.
Payment will be in federal funds transmitted by wire. This wire transfer
will be initiated by 2:00 p.m. Eastern Time.
1.3. The Fund agrees to make shares of the Designated Portfolios available
indefinitely for purchase at the applicable net asset value per share by
Participating Insurance Companies and their separate accounts on those days
on which the Fund calculates its Designated Portfolio net asset value
pursuant to rules of the SEC and the Fund shall use reasonable efforts to
calculate such net asset value on each day the NYSE is open for trading;
provided, however, that the Fund, the Adviser or CSI may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering
of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in its or their sole
discretion acting in good faith, necessary in the best interests of the
shareholders of such Portfolio.
1.4. On each Business Day on which the Fund calculates its net asset value,
the Company will aggregate and calculate the net purchase or redemption
orders for each Account maintained by the Fund in which contract owner
assets are invested. Net orders will only reflect orders that the Company
has received prior to the close of regular trading on the NYSE (currently
4:00 p.m., Eastern Time) on that Business Day. Orders that the Company has
received after the close of regular trading on the NYSE will be treated as
though received on the next Business Day. Each communication of orders by
the Company will constitute a representation that such orders were received
by it prior to the close of regular trading on the NYSE on the Business Day
on which the purchase or redemption order is priced in accordance with Rule
22c-1 under the 1940 Act. Other procedures relating to the handling of
orders will be in accordance with the prospectus and statement of
information of the relevant Designated Portfolio or with oral or written
instructions that CSI or the Fund will forward to the Company from time to
time.
1.5. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts, qualified
pension and retirement plans or such other persons as are permitted under
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), and regulations promulgated thereunder, the sale
to which will not impair the tax treatment currently afforded the
Contracts. No shares of any Portfolio will be sold to the general public
except as set forth in this Section 1.5.
1.6. The Fund agrees to redeem for cash, upon the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after
receipt and acceptance by the Fund or its designee of the request for
redemption. For purposes of this Section 1.6, the Company will be the
designee of the Fund for receipt of requests for redemption from each
Account and receipt by such designee will constitute receipt by the Fund,
provided the Fund receives notice of request for redemption by 10:00 a.m.
Eastern Time on the next following Business Day. Payment will be in
federal funds transmitted by wire to the Company's account as designated by
the Company in writing from time to time, on the same Business Day the Fund
receives notice of the redemption order from the Company. The Fund
reserves the right to delay payment of redemption proceeds, but in no event
may such payment be delayed longer than the period permitted by the 1940
Act. The Fund will not bear any responsibility whatsoever for the proper
disbursement or crediting of redemption proceeds; the Company alone will be
responsible for such action. If notification of redemption is received
after 10:00 a.m. Eastern Time, payment for redeemed shares will be made on
the next following Business Day. As promptly as reasonably practicable
upon receipt of any purchase or redemption order placed by Company, CSI
will send an acknowledgement to Company of receipt of such order by fax,
e-mail or other medium agreed to by CSI and Company.
1.7. The Company agrees to purchase and redeem the shares of the Designated
Portfolios offered by the then current prospectus of the Fund in accordance
with the provisions of such prospectus.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.9. The Fund will furnish same day notice (by telecopier, followed by
written confirmation) to the Company of the declaration of any income,
dividends or capital gain distributions payable on each Designated
Portfolio's shares. The Company hereby elects to receive all such
dividends and distributions as are payable on the Designated Portfolio
shares in the form of additional shares of that Designated Portfolio. The
Fund will notify the Company of the number of shares so issued as payment
of such dividends and distributions. The Company reserves the right to
revoke this election upon reasonable prior notice to the Fund and to
receive all such dividends and distributions in cash.
1.10. The Fund will make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and will use
its best efforts to make such net asset value per share available by 6:00
p.m., Eastern Time, but in no event later than 7:00 p.m., Eastern Time,
each Business Day.
1.11. In the event adjustments are required to correct any error in the
computation of the net asset value of the Fund's shares, the Fund or CSI
will notify the Company as soon as practicable after discovering the need
for those adjustments that result in an aggregate reimbursement of $150 or
more to any one Account maintained by a Designated Portfolio unless
notified otherwise by the Company (or, if lesser, results in an adjustment
of $10 or more to each contractowner's account). Any such notice will
state for each day for which an error occurred the incorrect price, the
correct price and, to the extent communicated to the Fund's shareholders,
the reason for the price change. The Company may send this notice or a
derivation thereof (so long as such derivation is approved in advance by
CSI or the Adviser) to contractowners whose accounts are affected by the
price change. The parties will negotiate in good faith to develop a
reasonable method for effecting such adjustments. CSI or the Adviser will
reimburse Company for any reasonable out-of-pocket expenses incurred by
Company as a result of the Fund or its designee providing Company with an
incorrect net asset value for a Designated Portfolio, provided, however,
that such reimbursement shall not exceed $10,000 for any such incorrectly
reported net asset value.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act and that the Contracts will be issued and
sold in compliance with all applicable federal and state laws, including
state insurance suitability requirements. The Company further represents
and warrants that it is an insurance company duly organized and in good
standing under applicable law and that it has legally and validly
established each Account as a separate account under applicable state law
and has registered the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment
account for the Contracts, and that it will maintain such registration for
so long as any Contracts are outstanding. The Company will amend the
registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Account from time to time
as required in order to effect the continuous offering of the Contracts or
as may otherwise be required by applicable law. The Company will register
and qualify the Contracts for sale in accordance with the securities laws
of the various states only if and to the extent deemed necessary by the
Company.
2.2. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts under applicable
provisions of the Internal Revenue Code, and that it will make every effort
to maintain such treatment and that it will notify the Fund and the Adviser
immediately upon having a reasonable basis for believing that the Contracts
have ceased to be so treated or that they might not be so treated in the
future.
2.3. The Company represents and warrants that it will not purchase shares
of the Designated Portfolios with assets derived from tax-qualified
retirement plans except, indirectly, through Contracts purchased in
connection with such plans.
2.4. The Fund represents and warrants that Fund shares of the Designated
Portfolios sold pursuant to this Agreement will be registered under the
1933 Act and duly authorized for issuance in accordance with applicable law
and that the Fund is and will remain registered under the 1940 Act for as
long as such shares of the Designated Portfolios are outstanding. The Fund
will amend the registration statement for its shares under the 1933 Act and
the 1940 Act from time to time as required in order to effect the
continuous offering of its shares or as may otherwise be required by
applicable law. The Fund will register and qualify the shares of the
Designated Portfolios for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Fund.
2.5. The Fund represents that each Designated Portfolio will elect to be
treated as a "regulated investment company" under Subchapter M of the
Internal Revenue Code and will qualify for such treatment for each taxable
year and will notify the Company immediately upon having a reasonable basis
for believing that a Designated Portfolio has ceased to so qualify or that
it might not so qualify in the future.
2.6. The Fund represents and warrants that in performing the services
described in this Agreement, the Fund will comply with all applicable laws,
rules and regulations. The Fund makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses
and investment policies, objectives and restrictions) complies with the
insurance laws and regulations of any state. The Fund and CSI agree that
upon request they will use their best efforts to furnish the information
required by state insurance laws so that the Company can obtain the
authority needed to issue the Contracts in the various states.
2.7. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although
it reserves the right to make such payments in the future. To the extent
that it decides to finance distribution expenses pursuant to Rule 12b-1 the
Fund undertakes to have its Fund Board formulate and approve any plan under
Rule 12b-1 to finance distribution expenses in accordance with the 1940
Act.
2.8. The Fund represents that it is lawfully organized and validly existing
under the laws of The Commonwealth of Massachusetts and that it does and
will comply in all material respects with applicable provisions of the 1940
Act.
2.9. CSI represents and warrants that it will distribute the Fund shares of
the Designated Portfolios in accordance with all applicable federal and
state securities laws including, without limitation, the 1933 Act, the 1934
Act and the 1940 Act.
2.10. CSI represents and warrants that it is and will remain duly
registered under all applicable federal and state securities laws and that
it will perform its obligations for the Fund in accordance in all material
respects with any applicable state and federal securities laws.
2.11. The Fund represents and warrants that all of its trustees, officers,
employees, and other individuals/entities having access to the funds and/or
securities of the Fund are and continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimal coverage as required currently by Rule
17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company. CSI and the
Fund's investment advisers represent and warrant that they are and continue
to be at all times covered by policies similar to the aforesaid bond. The
Fund and Adviser further represent and warrant that the Fund and its
trustees are and at all times during the term of this Agreement will be
covered by an errors and omissions insurance policy in an amount of not
less than $3 million.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Fund or CSI will provide a copy of the current Fund prospectus for
the Designated Portfolios (the "Portfolio Prospectus"), including a
computer diskette of the Company's specification or a final copy of a
current Portfolio Prospectus set in type at the Fund's or its affiliate's
expense, and such other assistance as is reasonably necessary in order for
the Company at least annually (or more frequently if the Portfolio
Prospectus is amended more frequently) to have the Portfolio Prospectus,
the prospectus for the Contracts and the prospectuses of other mutual funds
in which assets attributable to the Contracts may be invested printed
together in one document (the "Multifund Prospectus"). The Fund's share of
printing costs for such materials shall be determined by assigning the Fund
a pro-rata share of such expenses, the calculation of which shall be
determined by applying the following formula:
A/B x C
where "A" equals the number of pages of the Multifund Prospectus
attributable to the Portfolio Prospectus, "B" equals the total number of
pages of the Multifund Prospectus and "C" represents the total costs for
printing the Multifund Prospectus. The Company agrees to provide the Fund
or its designee with such information as may reasonably be requested by the
Fund or CSI to insure that the Fund's expenses do not include the cost of
printing any prospectuses other than those actually distributed to existing
owners of the Contracts.
3.2. The Fund or CSI will provide the Company, at the Fund's or its
affiliate's expense, with as many copies of the prospectus, statement of
additional information, annual report or semi-annual report as the Company
may reasonably request for distribution to prospective Contract owners and
applicants. The Fund or CSI will provide, at the Fund's or its affiliate's
expense, as many copies of said documents as necessary for distribution to
any existing Contract owner who requests such documents or whenever state
or federal law otherwise requires that such documents be provided. The
Fund or CSI will provide the copies of said documents to the Company or to
its mailing agent.
3.3 The Company shall bear the expenses of distributing the Multifund
Prospectus, statements of additional information, annual reports,
semi-annual reports and proxies to prospective Contract owners. The Fund
shall reimburse the Company for a portion of such postage and mailing
expenses with respect to such materials that are delivered to Contract
owners in an amount as determined by the following formula:
a/(a+b+c+d+e . . .+n) x C
where "a" equals the aggregate number of Contract owners who own shares of
the Fund; "b" is the aggregate number of Contract owners who own shares of
mutual funds advised by Fidelity Management and Research; "c" through "n"
each respectively equal the aggregate number of Contract owners who own
shares of funds advised by each of the other individual fund companies
whose funds serve as investment media for Contracts; and C is the total
cost of mailing such materials to all Contract owners.
3.4. To the extent that the Fund or CSI desires to change (whether by
revision or supplement) any of the information contained in any form of
Fund prospectus or statement of additional information provided to the
Company for inclusion in a Multifund Prospectus, the Company agrees to make
such changes within a reasonable period of time after receipt of a request
to make such change from the Fund or CSI, subject to the following
limitation. To the extent that the Fund is legally required to make a
change to a Fund prospectus or statement of additional information provided
to the Company for inclusion in a Multifund Prospectus, the Company agrees
to make any such change as soon as possible following receipt of the form
of revised prospectus and/or statement of additional information or
supplement, as applicable, but in no event later than five days following
receipt. To the extent that the Fund is required by law to cease selling
shares of a Designated Portfolio, the Company agrees to cease offering
shares of the Designated Portfolio until the Fund or CSI notifies the
Company otherwise.
3.5. If and to the extent required by law the Company will:
(a) solicit voting instructions from Contract owners;
(b) vote the shares of the Designated Portfolios held in the Account in
accordance with instructions received from Contract owners; and
(c) vote shares of the Designated Portfolios held in the Account for
which no timely instructions have been received, as well as shares it owns,
in the same proportion as shares of such Designated Portfolio for which
instructions have been received from the Company's Contract owners;
so long as and to the extent that the SEC continues to interpret the 1940
Act to require pass-through voting privileges for variable contract owners.
Except as set forth above, the Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law. The Company will be responsible for assuring that each
of its separate accounts participating in the Fund calculates voting
privileges in a manner consistent with all legal requirements, including
the Mixed and Shared Funding Exemptive Order. The Fund or its affiliate
will bear all reasonable expenses incurred by Company in connection with
the solicitation, tabulation and archiving, to the extent required by law,
rule or regulation, of the Fund's proxy material, provided Company uses a
solicitation and tabulation service designated by CSI or the Adviser.
3.6. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular, the Fund either will provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the
1940 Act not to require such meetings) or, as the Fund currently intends,
will comply with Section 16(c) of the 1940 Act (although the Fund is not
one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the SEC's interpretation of the requirements of
Section 16(a) with respect to periodic elections of trustees and with
whatever rules the SEC may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. CSI will provide the Company on a timely basis with investment
performance information for each Designated Portfolio in which the Company
maintains an Account, including total return for the preceding calendar
month and calendar quarter, the calendar year to date, and the prior
one-year, five-year, and ten year (or life of the Designated Portfolio)
periods. The Company may, based on the SEC mandated information supplied
by CSI, prepare communications for contractowners ("Contractowner
Materials"). The Company will provide copies of all Contractowner
Materials concurrently with their first use for CSI's internal
recordkeeping purposes. It is understood that neither CSI nor any
Designated Portfolio will be responsible for errors or omissions in, or the
content of, Contractowner Materials except to the extent that the error or
omission resulted from information provided by or on behalf of CSI or the
Designated Portfolio. Any printed information that is furnished to the
Company pursuant to this Agreement other than each Designated Portfolio's
prospectus or statement of additional information (or information
supplemental thereto), periodic reports and proxy solicitation materials is
CSI's sole responsibility and not the responsibility of any Designated
Portfolio or the Fund. The Company agrees that the Portfolios, the
shareholders of the Portfolios and the officers and governing Board of the
Fund will have no liability or responsibility to the Company in these
respects.
4.2. The Company will not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection
with the sale of the Contracts other than the information or
representations contained in the registration statement, prospectus or
statement of additional information for Fund shares, as such registration
statement, prospectus and statement of additional information may be
amended or supplemented from time to time, or in reports or proxy
statements for the Fund, or in published reports for the Fund which are in
the public domain or approved by the Fund or CSI for distribution, or in
sales literature or other material provided by the Fund, the Adviser or by
CSI, except with permission of CSI. The Company will furnish, or will
cause to be furnished, to the Fund, the Adviser or CSI, each piece of sales
literature or other promotional material in which the Company or its
Account is named, at least ten (10) business days prior to its use. No
such sales literature or other promotional material which requires the
permission of CSI prior to use will be used if CSI reasonably objects to
such use within five (5) business days after receipt.
Nothing in this Section 4.2 will be construed as preventing the Company or
its employees or agents from giving advice on investment in the Fund.
4.3. The Fund, the Adviser and CSI will not give any information or make
any representations or statements on behalf of the Company or concerning
the Company, each Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or
statement of additional information for the Contracts, as such registration
statement, prospectus and statement of additional information may be
amended or supplemented from time to time, or in published reports for each
Account or the Contracts which are in the public domain or approved by the
Company for distribution to contractowners, or in sales literature or other
material provided by the Company, except with permission of the Company.
The Company agrees to respond to any request for approval on a prompt and
timely basis. The Fund, the Adviser or CSI will furnish, or will cause to
be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company or its
Account is named at least ten (10) business days prior to its use. No such
material will be used if the Company reasonably objects to such use within
five (5) business days after receipt of such material.
4.4. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additions information,
reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the SEC, the NASD
or other regulatory authority.
4.5. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no action letters, and all amendments to any of the above,
that relate to the Contracts or each Account, contemporaneously with the
filing of such document with the SEC, the NASD or other regulatory
authority.
4.6. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such
as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media (e.g.,
on-line networks such as the Internet or other electronic messages)), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, reprints or
excerpts of any other advertisements sales literature, or published
article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees,
registration statements, prospectuses, statements of additional
information, shareholder reports, proxy materials and any other material
constituting sales literature or advertising under the NASD rules, the 1933
Act or the 1940 Act.
4.7. The Fund and CSI hereby consent to the Company's use of the names
Warburg, Pincus Trust Post-Venture Capital Portfolio, or other Designated
Portfolio, and Warburg, Pincus Counsellors, Inc. in connection with the
marketing of the Contracts, subject to the terms of Sections 4.1 and 4.2 of
this Agreement. Such consent will continue only as long as any Contracts
are invested in the relevant Designated Portfolio.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund, the Adviser and CSI will pay no fee or other compensation to
the Company (other than as set forth in Article III hereof and in the
administrative services letter agreement between CSI and the Company)
except if the Fund or any Designated Portfolio adopts and implements a plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses,
then, subject to obtaining any required exemptive orders or other
regulatory approvals, the Fund may make payments to the Company or to the
underwriter for the Contracts if and in such amounts agreed to by the Fund
in writing.
5.2. All expenses incident to performance by the Fund of this Agreement
will be paid by the Fund to the extent permitted by law. The Fund will
bear the expenses for the cost of registration and qualification of the
Fund's shares; preparation and filing of the Fund's prospectus, statement
of additional information and registration statement, proxy materials and
reports; setting in type and printing the Fund's prospectus; setting in
type and printing proxy materials and reports by it to contractowners
(including the costs of printing a Fund prospectus that contains an annual
report); the preparation of all statements and notices required by any
federal or state law; all taxes on the issuance or transfer of the Fund's
shares; any expenses permitted to be paid or assumed by the Fund pursuant
to a plan, if any, under Rule 12b-1 under the 1940 Act; and all other
expenses set forth in Article III of this Agreement.
ARTICLE VI. DIVERSIFICATION
6.1. The Adviser will ensure that each Portfolio will comply at all times
during the term of this Agreement with (a) the diversification requirements
set forth in Section 817(h) of the Internal Revenue Code and the rules and
regulations thereunder, as amended from time to time, including without
limitation Regulation 1.817-5 and (b) the requirements for qualification as
a regulated investment company under Section 851 of the Internal Revenue
Code. In the event of a breach of this Article VI the Adviser will take
all reasonable steps: (a) to notify the Company immediately of such breach;
and (b) with respect to Section 817(h), to adequately diversify the Fund so
as to achieve compliance therewith within the grace period afforded by
Treasury Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board of Trustees of the Fund (the "Fund Board") will monitor the
Fund for the existence of any irreconcilable material conflict among the
interests of the contractowners of all separate accounts investing in the
Fund. An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax
or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by Participating Insurance Companies or by variable
annuity and variable life insurance contractowners; or (f) a decision by an
insurer to disregard the voting instructions of contractowners. The Fund
Board will promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Fund Board. The Company agrees to assist the Fund Board
in carrying out its responsibilities, as delineated in the Mixed and Shared
Funding Exemptive Order, by providing the Fund Board with all information
reasonably necessary for the Fund Board to consider any issues raised.
This includes, but is not limited to, an obligation by the Company to
inform the Fund Board whenever contractowner voting instructions are to be
disregarded. The Company's responsibilities hereunder will be carried out
with a view only to the interest of contractowners.
7.3. If it is determined by a majority of the Fund Board, or a majority of
its disinterested trustees, that an irreconcilable material conflict
exists, the Company will, at its expense and to the extent reasonably
practicable (as determined by a majority of the disinterested trustees),
take whatever steps are necessary to remedy or eliminate the irreconcilable
material conflict, up to and including: (a) withdrawing the assets
allocable to some or all of the Accounts from the Fund or any Designated
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or submitting
the question whether such segregation should be implemented to a vote of
all affected contractowners and, as appropriate, segregating the assets of
any appropriate group (i.e., variable annuity contractowners or variable
life insurance contractowners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the
affected contractowners the option of making such a change; and (b)
establishing a new registered management investment company or managed
separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contractowner voting instructions, and the
Company's judgment represents a minority position or would preclude a
majority vote, the Company may be required, at the Fund's election, to
withdraw the affected subaccount of the Account's investment in the Fund
and terminate this Agreement with respect to such subaccount; provided,
however, that such withdrawal and termination will be limited to the extent
required by the foregoing irreconcilable material conflict as determined by
a majority of the disinterested trustees of the Fund Board. No charge or
penalty will be imposed as a result of such withdrawal.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts
with the majority of other state insurance regulators, then the Company
will withdraw the affected subaccount of the Account's investment in the
Fund and terminate this Agreement with respect to such subaccount;
provided, however, that such withdrawal and termination will be limited to
the extent required by the foregoing irreconcilable material conflict as
determined by a majority of the disinterested directors of the Fund Board.
No charge or penalty will be imposed as a result of such withdrawal.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Fund Board will determine whether any
proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund or the Adviser (or any other investment
adviser to the Fund) be required to establish a new funding medium for the
Contracts. The Company will not be required by Section 7.3 to establish a
new funding medium for the Contracts if an offer to do so has been declined
by vote of a majority of contractowners materially affected by the
irreconcilable material conflict.
7.7. The Company will at least annually submit to the Fund Board such
reports, materials or data as the Fund Board may reasonably request so that
the Fund Board may fully carry out the duties imposed upon it as delineated
in the Mixed and Shared Funding Exemptive Order, and said reports,
materials and data will be submitted more frequently if deemed appropriate
by the Fund Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or
shared funding (as defined in the Mixed and Shared Funding Exemptive Order)
on terms and conditions materially different from those contained in the
Mixed and Shared Funding Exemptive Order, then: (a) the Fund and/or the
Participating Insurance Companies, as appropriate, will take such steps as
may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b)
Sections 3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement will
continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as
so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, CSI, and each person, if any, who controls or is associated with
the Fund, the Adviser or CSI within the meaning of such terms under the
federal securities laws and any director, trustee, officer, partner,
employee or agent of the foregoing (collectively, the "Indemnified Parties"
for purposes of this Section 8.1) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including reasonable
legal and other expenses), to which the Indemnified Parties may become
subject under any statute, regulation, at common law or otherwise, insofar
as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
(1) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement, prospectus or statement of additional information for the
Contracts or contained in the Contracts or sales literature or other
promotional material for the Contracts (or any amendment or supplement to
any of the foregoing), including any prospectuses or statements of
additional information of the Fund to which the Company has made any
changes to the information provided to the Company or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated or necessary to make such statements not
misleading in light of the circumstances in which they were made; provided
that this agreement to indemnify will not apply as to any Indemnified Party
if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with written information furnished
to the Company by the Fund, the Adviser or CSI for use in the registration
statement, prospectus or statement of additional information for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(2) arise out of or as a result of statements or representations by or
on behalf of the Company or wrongful conduct of the Company or persons
under its control, with respect to the sale or distribution of the
Contracts or Fund shares (other than statements or representations
contained in the Fund registration statement, Fund prospectus, Fund
statement of additional information, sales literature or other promotional
material of the Fund not supplied by the Company or persons under its
control); or
(3) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Fund registration statement, prospectus,
statement of additional information or sales literature or other
promotional material of the Fund (or amendment or supplement) or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make such statements not misleading in
light of the circumstances in which they were made, if such a statement or
omission was made in reliance upon and in conformity with information
furnished to the Fund by or on behalf of the Company or persons under its
control; or
(4) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(5) arise out of any material breach of any representation and/or
warranty made by the Company in this Agreement or arise out of or result
from any other material breach by the Company of this Agreement, including,
but not limited to, a failure to comply with the provisions of Section 3.3;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification will be in addition to any liability that the Company
otherwise may have.
(b) No party will be entitled to indemnification under Section 8.1(a) to
the extent such loss, claim, damage, liability or litigation is due to the
willful misfeasance, bad faith, or gross negligence in the performance of
such party's duties under this Agreement, or by reason of such party's
reckless disregard of its obligations or duties under this Agreement by the
party seeking indemnification.
(c) The Indemnified Parties promptly will notify the Company of the
commencement of any litigation, proceedings, complaints or actions by
regulatory authorities against them in connection with the issuance or sale
of the Fund shares or the Contracts or the operation of the Fund.
8.2. Indemnification By The Adviser, the Fund and CSI
(a) The Adviser, the Fund and CSI, in each case solely to the extent
relating to such party's responsibilities hereunder, agree to indemnify and
hold harmless the Company and each person, if any, who controls or is
associated with the Company within the meaning of such terms under the
federal securities laws and any director, trustee, officer, partner,
employee or agent of the foregoing (collectively, the "Indemnified Parties"
for purposes of this Section 8.2) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with
the written consent of the Adviser) or litigation (including reasonable
legal and other expenses) to which the Indemnified Parties may become
subject under any statute, regulation, at common law or otherwise, insofar
as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement, prospectus or statement of additional information for the Fund
or sales literature or other promotional material of the Fund (or any
amendment or supplement to any of the foregoing) or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated or necessary to make such statements not
misleading in light of the circumstances in which they were made (in each
case substantially as transmitted to you by the Fund or CSI), provided that
this agreement to indemnify will not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished to the
Adviser, CSI or the Fund by or on behalf of the Company for use in the
registration statement, prospectus or statement of additional information
for the Fund or in sales literature of the Fund (or any amendment or
supplement thereto) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(2) arise out of or as a result of statements or representations or
wrongful conduct of the Adviser, the Fund or CSI or persons under the
control of the Adviser, the Fund or CSI respectively, with respect to the
sale of the Fund shares (other than statements or representations contained
in a registration statement, prospectus, statement of additional
information, sales literature or other promotional material covering the
Contracts not supplied by CSI or persons under its control); or
(3) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, statement
of additional information or sales literature or other promotional material
covering the Contracts (or any amendment or supplement thereto), or the
omission or alleged omission to state therein a material fact required to
be stated or necessary to make such statement or statements not misleading
in light of the circumstances in which they were made, if such statement or
omission was made in reliance upon and in conformity with written
information furnished to the Company by the Adviser, the Fund or CSI or
persons under the control of the Adviser, the Fund or CSI; or
(4) arise as a result of any failure by the Fund, the Adviser or CSI to
provide the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good faith or
otherwise, to comply with the diversification requirements and procedures
related thereto specified in Article VI of this Agreement); or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser, the Fund or CSI in this
Agreement, or arise out of or result from any other material breach of this
Agreement by the Adviser the Fund or CSI;
except to the extent provided in Sections 8.2(b) and 8.3 hereof. These
indemnifications will be in addition to any liability that the Fund,
Adviser or CSI otherwise may have.
(b) No party will be entitled to indemnification under Section 8.2(a) to
the extent such loss, claim, damage, liability or litigation is due to the
willful misfeasance, bad faith, or gross negligence in the performance of
such party's duties under this Agreement, or by reason of such party's
reckless disregard of its obligations or duties under this Agreement by the
party seeking indemnification.
(c) The Indemnified Parties will promptly notify the Adviser, the Fund and
CSI of the commencement of any litigation, proceedings, complaints or
actions by regulatory authorities against them in connection with the
issuance or sale of the Contracts or the operation of the account.
8.3. Indemnification Procedure
Any person obligated to provide indemnification under this Article VIII
("Indemnifying Party" for the purpose of this Section 8.3) will not be
liable under the indemnification provisions of this Article VIII with
respect to any claim made against a party entitled to indemnification under
this Article VIII ("Indemnified Party" for the purpose of this Section 8.3)
unless such Indemnified Party will have notified the Indemnifying Party in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim will have been served
upon such Indemnified Party (or after such party will have received notice
of such service on any designated agent), but failure to notify the
Indemnifying Party of any such claim will not relieve the Indemnifying
Party from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of the
indemnification provision of this Article VIII, except to the extent that
the failure to notify results in the failure of actual notice to the
Indemnifying Party and such Indemnifying Party is damaged solely as a
result of failure to give such notice. In case any such action is brought
against the Indemnified Party, the Indemnifying Party will be entitled to
participate, at its own expense, in the defense thereof. The Indemnifying
Party also will be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the
Indemnifying Party to the Indemnified Party of the Indemnifying Party's
election to assume the defense thereof, the Indemnified Party will bear the
fees and expenses of any additional counsel retained by it, and the
Indemnifying Party will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation, unless: (a) the Indemnifying Party and the
Indemnified Party will have mutually agreed to the retention of such
counsel; or (b) the named parties to any such proceeding (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
The Indemnifying Party will not be liable for any settlement of any
proceeding effected without its written consent but if settled with such
consent or if there is a final judgment for the plaintiff, the Indemnifying
Party agrees to indemnify the Indemnified Party from and against any loss
or liability by reason of such settlement or judgment. A successor by law
of the parties to this Agreement will be entitled to the benefits of the
indemnification contained in this Article VIII. The indemnification
provisions contained in this Article VIII will survive any termination of
this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York.
9.2. This Agreement will be subject to the provisions of the 1933 Act, the
1934 Act and the 1940 Act, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the SEC may grant (including, but not limited to, the Mixed
and Shared Funding Exemptive Order) and the terms hereof will be
interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement will terminate:
(a) at the option of any party, with or without cause, with respect to
some or all of the Designated Portfolios, upon one hundred twenty (120)
days' advance written notice to the other parties; or
(b) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio if
shares of the Designated Portfolio are not reasonably available to meet the
requirements of the Contracts as determined in good faith by the Company;
or
(c) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio in
the event any of the Designated Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or Federal law or
such law precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by Company; or
(d) at the option of the Fund, upon receipt of the Fund's written notice
by the other parties, upon institution of formal proceedings against the
Company by the NASD, the SEC, the insurance commission of any state or any
other regulatory body regarding the Company's duties under this Agreement
or related to the sale of the Contracts, the administration of the
Contracts, the operation of the Account, or the purchase of the Fund
shares, provided that the Fund determines in its sole judgment, exercised
in good faith, that any such proceeding would have a material adverse
effect on the Company's ability to perform its obligations under this
Agreement; or
(e) at the option of the Company, upon receipt of the Company's written
notice by the other parties, upon institution of formal proceedings against
the Fund, Adviser or CSI by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body, provided that the
Company determines in its sole judgment, exercised in good faith, that any
such proceeding would have a material adverse effect on the Fund's,
Adviser's or CSI's ability to perform its obligations under this Agreement;
or
(f) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio if
the Designated Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M of the Internal Revenue Code, or under any
successor or similar provision, or if the Company reasonably and in good
faith believes that the Designated Portfolio may fail to so qualify; or
(g) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio if
the Designated Portfolio fails to meet the diversification requirements
specified in Article VI hereof or if the Company reasonably and in good
faith believes the Designated Portfolio may fail to meet such requirements;
or
(h) at the option of any party to this Agreement, upon written notice to
the other parties, upon another party's material breach of any provision of
this Agreement which material breach is not cured within thirty (30) days
of said notice; or
(i) at the option of the Company, if the Company determines in its sole
judgment exercised in good faith, that either the Fund, the Adviser or CSI
has suffered a material adverse change in its business, operations or
financial condition since the date of this Agreement or is the subject of
material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Company, such termination to
be effective sixty (60) days' after receipt by the other parties of written
notice of the election to terminate; or
(j) at the option of the Fund or CSI, if the Fund or CSI respectively,
determines in its sole judgment exercised in good faith, that the Company
has suffered a material adverse change in its business, operations or
financial condition since the date of this Agreement or is the subject of
material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Fund or the Adviser, such
termination to be effective sixty (60) days' after receipt by the other
parties of written notice of the election to terminate; or
(k) at the option of the Company or the Fund upon receipt of any necessary
regulatory approvals and/or the vote of the contractowners having an
interest in the Account (or any subaccount) to substitute the shares of
another investment company for the corresponding Designated Portfolio
shares of the Fund in accordance with the terms of the Contracts for which
those Designated Portfolio shares had been selected to serve as the
underlying investment media. The Company will give sixty (60) days' prior
written notice to the Fund of the date of any proposed vote or other action
taken to replace the Fund's shares; or
(l) at the option of the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an irreconcilable material conflict exists among the
interests of: (1) all contractowners of variable insurance products of all
separate accounts; or (2) the interests of the Participating Insurance
Companies investing in the Fund as set forth in Article VII of this
Agreement; or
(m) at the option of the Fund in the event any of the Contracts are not
issued or sold in accordance with applicable federal and/or state law.
Termination will be effective immediately upon such occurrence without
notice.
10.2. Notice Requirement
Except as specified in Section 10.1(m), no termination of this Agreement
will be effective unless and until the party terminating this Agreement
gives prior written notice to all other parties of its intent to terminate,
which notice will set forth the basis for the termination.
10.3. Effect of Termination
In the event of any termination of this Agreement other than pursuant to
subsection (d), (j), (l) or (m) of Section 10.1, the Fund and CSI will, at
the option of the Company, continue to make available additional shares of
the Fund pursuant to the terms and conditions of this Agreement, for all
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, the owners of the Existing Contracts will be permitted to
reallocate investments in the Designated Portfolios (as in effect on such
date), redeem investments in the Designated Portfolios and/or invest in the
Designated Portfolios upon the making of additional purchase payments under
the Existing Contracts. In the event of such termination, the Company
agrees (i) to terminate the availability of shares of the Fund to Contracts
other than Existing Contracts and (ii) to use its best efforts to receive
approval from the SEC as soon as reasonably practicable to replace shares
of the Fund with other investments for Contracts and, if and when granted
such approval, thereafter to so replace the shares of the Fund, in each
such case as soon as reasonably practicable.
10.4. Surviving Provisions
Notwithstanding any termination of this Agreement, each party's
obligations under Article VIII to indemnify other parties will survive and
not be affected by any termination of this Agreement. In addition, each
party's obligations under Section 12.6 will survive and not be affected by
any termination of this Agreement. Finally, with respect to Existing
Contracts, all provisions of this Agreement also will survive and not be
affected by any termination of this Agreement.
ARTICLE XI. NOTICES
11.1. Any notice will be deemed duly given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other parties.
If to the Company: If to the Fund, the Adviser and/or CSI:
Fidelity Investments 466 Lexington Avenue
Life Insurance Company 10th Floor
82 Devonshire Street New York, NY 10017 Mail Zone R25B Attn:
Eugene P. Grace
Boston, MA 02109 Senior Vice President
Attn: Richard C. Murphy
ARTICLE XII. MISCELLANEOUS
12.1. The Fund, the Adviser and CSI acknowledge that the identities of the
customers of the Company or any of its affiliates (collectively the
"Company Protected Parties" for purposes of this Section 12.1), information
maintained regarding those customers, and all computer programs and
procedures or other information developed or used by the Company Protected
Parties or any of their employees or agents in connection with the
Company's performance of its duties under this Agreement are the valuable
property of the Company Protected Parties. The Fund, the Adviser and CSI
agree that if they come into possession of any list or compilation of the
identities of or other information about the Company Protected Parties'
customers, or any other information or property of the Company Protected
Parties, other than such information as is publicly available or as may be
independently developed or compiled by the Fund, the Adviser or CSI from
information supplied to them by the Company Protected Parties' customers
who also maintain accounts directly with the Fund, the Adviser or CSI, the
Fund, the Adviser and CSI will hold such information or property in
confidence and refrain from using, disclosing or distributing any of such
information or other property except: (a) with the Company's prior written
consent; or (b) as required by law or judicial process. The Company
acknowledges that the identities of the customers of the Fund, the Adviser,
CSI or any of their affiliates (collectively the "Adviser Protected
Parties" for purposes of this Section 12.1), information maintained
regarding those customers, and all computer programs and procedures or
other information developed or used by the Adviser Protected Parties or any
of their employees or agents in connection with the Fund's, the Adviser's
or CSI's performance of their respective duties under this Agreement are
the valuable property of the Adviser Protected Parties. The Company agrees
that if it comes into possession of any list or compilation of the
identities of or other information about the Adviser Protected Parties'
customers, or any other information or property of the Adviser Protected
Parties, other than such information as is publicly available or as may be
independently developed or compiled by the Company from information
supplied to them by the Adviser Protected Parties' customers who also
maintain accounts directly with the Company, the Company will hold such
information or property in confidence and refrain from using, disclosing or
distributing any of such information or other property except: (a) with the
Fund's, the Adviser's or CSI's prior written consent; or (b) as required by
law or judicial process. Each party acknowledges that any breach of the
agreements in this Section 12.1 would result in immediate and irreparable
harm to the other parties for which there would be no adequate remedy at
law and agree that in the event of such a breach, the other parties will be
entitled to equitable relief by way of temporary and permanent injunctions,
as well as such other relief as any court of competent jurisdiction deems
appropriate.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
12.4. If any provision of this Agreement will be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement
will not be affected thereby.
12.5. This Agreement will not be assigned by any party hereto without the
prior written consent of all the parties, except that the Company may
delegate its responsibilities under this Agreement to an insurance company
controlled by or under common control with the Company (the "Company
Affiliate"), provided that the Company shall remain fully liable for the
performance of all services hereunder and the Company Affiliate shall at
such time and thereafter throughout the term of this Agreement be deemed to
make all representations, warranties and covenants made by Company in this
Agreement and in the administrative services letter between CSI and the
Company. The Company shall give written notice to CSI of such delegation.
12.6. Each party to this Agreement will maintain all records required by
law, including records detailing the services it provides. Such records
will be preserved, maintained and made available to the extent required by
law and in accordance with the 1940 Act and the rules thereunder. Each
party to this Agreement will cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records in connection
with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby. Upon request by the Fund or CSI, the
Company agrees to promptly make copies or, if required, originals of all
records pertaining to the performance of services under this Agreement
available to the Fund or CSI, as the case may be. The Fund agrees that the
Company will have the right to inspect, audit and copy all records
pertaining to the performance of services under this Agreement pursuant to
the requirements of any state insurance department. Each party also agrees
to promptly notify the other parties if it experiences any difficulty in
maintaining the records in an accurate and complete manner. This provision
will survive termination of this Agreement.
12.7. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have
been duly authorized by all necessary corporate or board action, as
applicable, by such party and when so executed and delivered this Agreement
will be the valid and binding obligation of such party enforceable in
accordance with its terms.
12.8. The parties to this Agreement acknowledge and agree that all
liabilities of the Fund arising, directly or indirectly, under this
agreement, will be satisfied solely out of the assets of the Fund and that
no trustee, officer, agent or holder of shares of beneficial interest of
the Fund will be personally liable for any such liabilities. No Portfolio
or series of the Fund will be liable for the obligations or liabilities of
any other Portfolio or series.
12.9. The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the
Contracts, the Accounts or the Designated Portfolios of the Fund or other
applicable terms of this Agreement.
12.10. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and behalf by its duly authorized representative
as of the date specified below.
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
By:_____________________________________
Name:___________________________________
Title:____________________________________
WARBURG, PINCUS TRUST
By:_____________________________________
Name:___________________________________
Title:____________________________________
WARBURG, PINCUS COUNSELLORS, INC.
By:_____________________________________
Name:___________________________________
Title:____________________________________
COUNSELLORS SECURITIES INC.
By:_____________________________________
Name:___________________________________
Title:____________________________________
SCHEDULE 1
PARTICIPATION AGREEMENT
BY AND AMONG
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
AND
WARBURG, PINCUS TRUST
AND
WARBURG, PINCUS COUNSELLORS, INC.
AND
COUNSELLORS SECURITIES INC.
The following separate accounts of Fidelity Investments Life Insurance
Company are permitted in accordance with the provisions of this Agreement
to invest in Designated Portfolios of the Fund shown in Schedule 2:
Fidelity Investments Variable Annuity Account I
established July 22, 1987
SCHEDULE 2
PARTICIPATION AGREEMENT
BY AND AMONG
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
AND
WARBURG, PINCUS TRUST
AND
WARBURG, PINCUS COUNSELLORS, INC.
AND
COUNSELLORS SECURITIES INC.
The Separate Account(s) shown on Schedule 1 may invest in the following
Designated Portfolios of the Warburg, Pincus Trust:
International Equity Portfolio
Small Company Growth Portfolio
Post-Venture Capital Portfolio
POWER OF ATTORNEY
I the undersigned Director of Fidelity Investments Life Insurance Company
(the "Company"), hereby constitute and appoint David J. Pearlman, my true
and lawful attorneys-in-fact, with full power of substitution, to sign for
me and in my name in the appropriate capacities, all Initial Registration
Statements of the Company, all Pre-Effective Amendments to any Registration
Statements of the Company, any and all subsequent Post-Effective Amendments
to said Registration Statements, and any supplements or other instruments
in connection therewith, and generally to do all such things in my name and
behalf in connection therewith as said attorneys-in-fact deem necessary or
appropriate, to comply with the provisions of the Securities Act of 1933
and Investment Company Act of 1940, and all related requirements of the
Securities and Exchange Commission, hereby ratifying and confirming all
that said attorney-in-fact or their substitutes may do or cause to be done
by virtue hereof.
/s/Paul J. Hondros__________ 25 April 1997
Paul J. Hondros
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