As filed with the SEC on April 29, 1998
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. 13 [x]
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 20 [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 BOROS CICCHETTI 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, 1997, was filed on March 30, 1998.
It is proposed that this filing will become effective (check
appropriate space):
immediately upon filing pursuant to paragraph (b) of rule 485
x on April 29, 1998, 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 Boros Cicchetti 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 Insurance Products Fund II, and the Variable Insurance
Products Fund III (the "Fidelity Funds"). The Fidelity Funds are each
managed by Fidelity Management & Research Company. The variable
Subaccounts also invest in the mutual fund portfolios of corresponding
portfolios of other eligible funds " Other Funds". All mutual
fund portfolios available in this prospectus are collectively known as
the "Fund s". 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 April 30,
1998. The Statement of Additional Information is inco rporated
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 EITHER THE CURRENT PROSPECTUS
FOR THE MONEY MARKET INVESTMENT OPTION OR THE PROSPECTUSES
FOR ALL THE INVESTMENT OPTIONS AVAILABLE IN THE CONTRACT.
FOR FURTHER INFORMATION CALL FIDELITY INVESTMENTS:
Nationally 800-544-2442
D ate: April 30, 1998
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
Automatic Rebalancing
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
Appen dix A: 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.
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
Pilgrim Baxter Value Investors, Inc., ( " PBHG"), Strong
Capital Management, Inc. ( " Strong") and Warburg Pincus Asset
Management, 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 is
mailed to you. 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
Investment Options i nvest 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 V ariable 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
Y ou and U s and should be retained.
The Following page contains the various investment options available
to y ou 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 m aximum c ontingent d eferred s ales
c harge 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 1
ASSET MANAGER 0. 55% 0.10% 0.65%
MONEY MARKET 0.21% 0. 10% 0.31 %
INVESTMENT GRADE BOND 0.4 4% 0.14 % 0.58%
HIGH INCOME 0.59% 0.12% 0.71%
EQUITY-INCOME 0.5 0% 0.08 % 0.58%
INDEX 500 0. 24% 0.04 % 0.28%2
GROWTH 0. 60% 0.09 % 0.69%
OVERSEAS 0.7 5% 0.17% 0.92 %
ASSET MANAGER:
GROWTH 0.60% 0.17 % 0. 7 7%
CONTRAFUND 0.6 0% 0.11 % 0.7 1 %
GROWTH OPPORTUNITIES 0.6 0% 0.14 % 0.7 4 %
BALANCED 0.4 5% 0.16 % 0. 61 %
GROWTH & INCOME 0. 49% 0.21 % 0.7 0 %
MORGAN STANLEY
EMERGING MARKETS
DEBT 0.09% 1.21% 1.30%3
EMERGING MARKETS
EQUITY 0.00% 1.75% 1.75%3
GLOBAL EQUITY 0.00% 1.15% 1.15%3
INTERNATIONAL
MAGNUM 0.00% 1.15% 1.15%3
PBHG
SELECT 20 0. 61% 0.59 % 1.20%4
GROWTH II 0. 61% 0.59 % 1. 20 %4
LARGE CAP VALUE 0. 05% 0.95 % 1.00%4
SMALL CAP VALUE 0.74% 0.46 % 1.20%4
TECHNOLOGY &
COMMUNICATIONS 0. 58% 0.62 % 1.20%4
STRONG
DISCOVERY FUND II 1.00% 0.18% 1.18%
GROWTH FUND II 1.00% 0.20% 1.20%5
OPPORTUNITY FUND II 1.00% 0.15% 1.15%
WARBURG PINCUS
INTERNATIONAL EQUITY 1.00% 0.35 % 1.3 5 %6
POST-VENTURE CAPITAL 1.07% 0.33 % 1.40% 6
SMALL COMPANY GROWTH 0.90% 0.2 4% 1.14 %6
1) A portion of the brokerage commissions that certain Funds pay was
used to reduce Fund expenses. In addition, certain Funds have entered
into arrangements with their custodian and transfer agent whereby
interest earned on uninvested cash balances was used to reduce
custodian expenses. Including these reductions, the total operating
expenses presented in the table would have been .5 7 % for
Equity-Income Portfolio, .67% for Growth Portfolio, .9 0 % for
Overseas Portfolio, . 64 % for Asset Manager Portfolio,
. 68 % for Contrafund Portfolio, . 76 % for Asset Manager:
Growth Portfolio, .7 3 % for Growth Opportunities Portfolio,
. 60 % for Balanced Portfolio and .71% for High Income
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 .2 7 %,
. 13 % and .4 0 %, respectively.
3) Morgan Stanley Asset Management Inc. ("MSAM") 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. MSAM may terminate this voluntary waiver at any time at its
sole discretion. Absent such reductions, "Management Fees", "Other
Expenses" and "Total Annual Expenses", respectively, would be as
follows: Emerging Markets Debt Portfolio - 0.80%, 1.26%, 2.06%;
Emerging Markets Equity Portfolio - 1.25%, 2.62%, 4.12%%; Global
Equity Portfolio - 0.80%, 1.63%, 2.43%; International Magnum Portfolio
- - 0.80%, 1.98%, 2.78%.
4) Pilgrim Baxter & Associates, Ltd. (the " Adviser") has
voluntarily agreed to waive or limit it ' s 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, 1 998 . 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, 199 8 .
Absent such fee waivers/expense reimbursements the Advisory Fees and
estimated Total Operating Expenses for the Growth II, Small Cap
Value, Large Cap Value, Technology & Communications and Select 20
Portfolios would be 0.85% and 1.44%; 1.00% and 1.4 6 %;
.65% and 1. 60 %; .85% and 1.4 7 %; and .85% and 1.44%,
respectively.
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 , Post-Venture Capital and Small Company
Growth Portfolios are based on actual expenses for the fiscal year
ended December 31, 1 997, net any fee waivers or expense
reimbursements. Without such waivers or reimbursements, Management
Fees would have equaled 1.00% , 1.25% and 0.90% ; Other
Expenses would have equalled 0.40% , 0.33% and 0.27% ; and
Total Annual Expenses would have equalled 1.40% , 1.58% and
1.1 5 % for the International Equity and Small Company Growth
Portfolios, respectively. The Portfolios' investment A dviser
and co-administrator have undertaken to limit each Portfolio's Total
Annual Expenses to the limits shown in the table above through
December 31, 1998 .
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
F IDELITY
ASSET MANAGER $62 $76 $90 $176
MONEY MARKET 58 66 72 137
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 85 104 205
INDEX 500 58 65 71 134
ASSET MANAGER: GROWTH 63 80 97 189
CONTRAFUND 62 78 93 182
GROWTH OPPORTUNITIES 63 79 95 186
BALANCED 61 75 88 171
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
GROWTH II 67 93 119 235
LARGE CAP VALUE 65 87 109 214
SELECT 20 67 93 119 235
SMALL CAP VALUE 67 93 119 235
TECHNOLOGY &
COMMUNICATIONS 67 93 119 235
STRONG
DISCOVERY FUND II 67 93 118 233
GROWTH FUND II 67 93 119 235
OPPORTUNITY FUND II 67 92 116 230
WARBURG PINCUS
INTERNATIONAL EQUITY 68 98 126 250
POST-VENTURE CAPITAL 69 99 129 255
SMALL COMPANY GROWTH 66 91 116 229
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 $15 $46 $80 $176
MONEY MARKET 12 36 62 137
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 94 205
INDEX 500 11 35 61 134
ASSET MANAGER: GROWTH 16 50 87 189
CONTRAFUND 16 48 83 182
GROWTH OPPORTUNITIES 16 49 85 186
BALANCED 15 45 78 171
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 62 106 230
INTERNATIONAL MAGNUM 20 62 106 230
PBHG
GROWTH II 21 63 109 235
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 20 63 108 233
GROWTH FUND II 21 63 109 235
OPPORTUNITY FUND II 20 62 106 230
WARBURG PINCUS
INTERNATIONAL EQUITY 22 68 116 250
POST-VENTURE CAPITAL 23 69 119 255
SMALL COMPANY GROWTH 20 62 106 229
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
in 1981 and existing under the laws of the state of
Utah. 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. 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 Fidelity Funds are Variable Insurance Products Fund,
Variable Insurance Products Fund II, and Variable Insurance Products
Fund III . E ach 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 . T he 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 portfolio may not always hold all
of the same securities as the S&P 500. The Adviser may choose, if
extraordinary circumstances warrant, to exclude an index stock from
the fund and substitute a similar stock if doing so will help the fund
achieve its objective. 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. The Fund is managed by
FMR, which handles its business affairs. Bankers Trust Company, (BT),
Index 500 Portfolio's sub-adviser, chooses the Fund's investments. FMR
supervises the sub-adviser and, in conjunction with the Board of
Trustees, reviews the sub-adviser's performance of its duties. BT also
acts as Index 500 Portfolio's custodian.
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 normally invests
primarily in common stock and securities convertible into common
stock, but it has the flexibility to invest in other types of
Securities. 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 s 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 marke t s in other
countries develop, the Portfolio expects to expand and further
diversify the emerging market countries in which it invests.
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 issuer ' s 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
primarily invest are those comprising the Morgan Stanley
Capital International EAFE Index, which include 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"). The Portfolio may invest up to 5% of its total assets
in the securities of issuers domiciled in non-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. 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. 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,
p ortfolio 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 at least 65% of its total
assets in a diversified Portfolio of equity securities of large
capitalization companies which, in the opinion of the Adviser and
Pilgrim Baxter Value Investors, 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; c ontinuing dividend income and the
potential for increasing dividend growth; a strong
balance sheet 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 the 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
Portfolio ' s 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 fixe d -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 s ; 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 Adviser 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 PORTFOLIO 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 may 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 PORTFOLIO 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 PORTFOLIO seeks capital growth by investing
primarily in equity securities of small sized domestic companies
that represent attractive opportunities for capital growth. The
Portfolio considers a "small" company to be one that has a market
capitalization, measured at the time the Portfolio purchases a
security of that company, within the range of capitalizations of
companies represented in the Russell 2000 Index. (As of January 31,
1998, the Russell 2000 Index included companies with market
capitalizations between $23.7 million and $2.7 billion.) 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, 199 7 , it advised funds having
more than 34 million shareholder accounts with a total value of
more than $ 529 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. . Fidelity Investments Money Management, Inc.
(FIMM), a subsidiary of FMR, chooses investments for Money Market
Portfolio. Beginning January 1, 1999, FIMM will choose investments for
Investment Grade Bond Portfolio. Beginning January 1, 1999, FIMM will
choose certain types of investments for Asset Manager, Asset Manager:
Growth, and Balanced Portfolios. Foreign affiliates of FMR may help
choose investments for some of the Funds. Bankers Trust Company (BT)
is a wholly-owned subsidiary of Bankers Trust New York Corporation,
the seventh largest bank holding company in the United States. BT
currently serves as sub-adviser to Index 500 Portfolio and manages the
Fund's portfolio.
The investment A dviser for the Morgan Stanley Universal
Funds , Inc. is Morgan Stanley Asset Management Inc., which
is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.,
which is a preeminent global financial services firm that maintains
leading market positions in each of its three primary businesses -
securities, asset management and credit services. MSAM, a
registered Investment Adviser under the Investment Advisers Act of
1940, as amended, serves as investment A dviser to numerous
open-end and closed-end investment companies as well as , to
employee benefit plans, endowment funds, foundations and other
institutional investors. MSAM's principal business office is
located at 1221 Avenue of the Americas, New York, New York 10020.
The investment A dviser for the PBHG Insurance Series Fund, Inc.
is Pilgrim Baxter & Associates, Ltd. ( "Pilgrim Baxter "), a
professional investment management firm and registered investment
A dviser that, along with its predecessors, has been in business
since 1982. The controlling shareholder of Pilgrim Baxter 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
825 Dupertail Road, Wayne, Pennsylvania 19087. Pilgrim
Baxter Value Investors, Inc., the Sub-Adviser, is a wholly
owned subsidiary of Pilgrim Baxter and is a registered investment
A dviser that was formed in 1940. As with the Adviser, the
controlling shareholder of the Sub-Adviser is UAM. The principal
business address of the Sub-Adviser is 825 Dupertail Road, Wayne,
Pennsylvania 19087.
The investment A dviser 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 A dviser for the Warburg Pincus Funds is Warburg
Pincus Asset Management, Inc . Incorporated in 1970, Warburg
Pincus is indirectly controlled by Warburg, Pincus & Co.
("WP&Co."), which 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
(for Contracts purchased through a 1035 exchange, the annuitant must
be no older than 85 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 generally $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 is mailed to you (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 may 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 S ubaccounts
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. The amount that may be
transferred from the Fixed Account will be determined by the company,
at its sole discretion, but will not be less than 25% of the amount
invested in the Fixed Account. When the maximum amount is less than
$1000 we permit a transfer of up to $1000. 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 or
transferred out of the Fixed Account the amounts that have been
credited to the Fixed Account for the shortest time are withdrawn
first. For the month of May 1998, up to 100% of the amounts in the
Fixed Account may be transferred even if you have already made a Fixed
Account transfer in this Contract Year. Beginning in June 1998 the
maximum withdrawal amount will again be 25% of the amount invested in
the Fixed Account. At the end of the current renewal interest
guarantee period, January 31, 1999, the amount that may be transferred
for the month of February will be declared and will not be less than
the minimums specified above. 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 w ithdrawal 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 .
At some future date, Contract Owner(s) may elect in writing on a
form provided by the Company to take systematic withdrawals of a
specified dollar amount (of at least $100) on a monthly, quarterly,
semi-annual, or annual basis. A $10,000 minimum Contract Value will be
required to begin this program. Systematic withdrawals will be taken
proportionately from all of your selected investment options at the
time of each withdrawal. The withdrawal charge may also apply to
systematic withdrawals as set forth in the WITHDRAWAL CHARGE
section on page . If a systematic withdrawal would bring the Contract
Value below $2,500, the systematic withdrawal will be made only for
the amount that will reduce the Contract Value to $2,500, and the
systematic withdrawal option will automatically terminate.
Each systematic withdrawal is subject to federal income taxes,
including any penalty tax that may apply, the same as for any other
withdrawal.
Fidelity Investments Life reserves the right to modify or
discontinue the systematic withdrawal program.
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 Contract 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 Contract (record address).
4. The check is made payable to someone other than the
Owner (s) .
5. The address of record on the Contract has changed in the past 30
days and the request is for $10,000 or more.
6. The Proceeds are being wired to a Fidelity account with
different Owner(s) than the annuity Contract.
7 . In other circumstances where we deem it necessary for the
protection of Y ou, 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 require 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.
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 have
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 C ontract (1) by exchanging another annuity
C ontract or life insurance policy, or (2) by trustee to trustee
transfer or direct rollover from an IRA or 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.
Under certain circumstances we may waive the withdrawal charge for
certain Owners who have previously exchanged out of a Fidelity
Retirement Reserves Contract and have since purchased a Fidelity
Retirement Reserves Contract through a 1035 exchange.
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 C ontract had been purchased on the date the
original C ontract was purchased, and (2) any additional
purchase payments made under the original C ontract had been
made under the new C ontract on the same date they were actually
made under the original C ontract.
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.
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) by electing annuitization
within 60 days of the date of death 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 C ONTRACTS 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 26.
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 C ontract 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 26. 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 ("Automatic Annuity Builder")
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 24. 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 either the Money Market Subaccount or at some
future date, from the Investment Grade Bond Subaccount (the "Source
Account") to any of the other variable Subaccounts. Dollar cost
averaging transfers are allowed from one Source Account only and are
not permitted to the Fixed Account. Dollar cost averaging will not be
allowed in conjunction with the Automatic Rebalance feature described
in this prospectus.
These monthly transfers will take effect on the same day each
month. You may select any date from the 1st to the 28th as the date of
your dollar cost averaging transfers (the "Transfer Date"). If the New
York Stock Exchange is not open on your selected date in a particular
month, the transfer will be made at the close of the Valuation Period
that includes the date you selected. Your transfers will continue
until the balance in the Source Account is exhausted or you notify us
to cancel dollar cost averaging for your Contract.
The minimum monthly transfer allowed to any variable Subaccount is
$250.
Dollar cost averaging will be available at no charge. Fidelity
Investments Life reserves the right to modify or terminate the dollar
cost averaging feature.
AUTOMATIC REBALANCING
At some future date, Automatic Rebalancing will be made available
to you. Automatic Rebalancing is designed to help you maintain your
specified allocation mix between the Investment Options. You can
direct Fidelity Investments Life to readjust your allocations on a
quarterly, semi-annual, or annual basis to return to the allocations
you select on the rebalancing instruction form. These transfers will
be made on the same day of each month. You may select any date from
the 1st to the 28th as the date of your automatic rebalancing
transfers. If the New York Stock Exchange is not open on your selected
date in a particular month, the transfers will be made at the close of
the Valuation Period that includes the date you selected. Your
transfers will continue until you notify us to cancel Automatic
Rebalancing for your Contract.
You may not participate in Automatic Rebalancing and the Dollar
Cost Averaging program at the same time.
Automatic Rebalancing will be available at no charge. Fidelity
Investments Life reserves the right to modify or terminate the
automatic rebalancing feature.
POSTPONEMENT OF PAYMENT
In general, we will ordinarily pay any partial or full cash withdrawal
within seven days after we receive your request . 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 Advisory
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 Fidelity 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.
Other Funds may be offered to qualified plans as well.
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.
10. APPENDIX A
Accumulation Unit Values
Fidelity Investments Variable Annuity Account I
Condensed Financial Information
Money Market Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
199 7 15.30 15.98 4.46% 28,256,730
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 Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997 24.89 29.00 16.53% 10,481,116
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 Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
199 7 31.05 39.39 26.87 % 40,838,032
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 Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997 34.97 42.76 22.29% 23,048,124
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 Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997 21.30 23.52 10.48% 10,512,524
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 Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997 17.36 18.75 8.01% 5,524,907
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 Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997 20.76 24.80 19.49% 30,320,855
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 Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997 18.90 24.83 31.42% 28,695,264
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 Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997 14.50 17.95 23.86% 17,201,030
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 Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997 16.66 20.47 22.94% 57,789,065
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
Growth Opportunities Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 12.63 28.70% 21,154,834
* Period from 1/27/97 (commencement of operations) to 12/31/97
Balanced Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 11.98 21.00% 4,649,810
* Period from 1/27/97 (commencement of operations) to 12/31/97
Growth & Income Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 12.68 28.84% 18,798,233
* Period from 1/27/97 (commencement of operations) to 12/31/97
Emerging Markets Debt Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 10.48 4.76% 270,613
* Period from 11/24/97 (commencement of operations) to 12/31/97
Emerging Markets Equity Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 10.05 0.53% 176,936
* Period from 11/24/97 (commencement of operations) to 12/31/97
Global Equity Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 10.25 2.51% 214,479
* Period from 11/24/97 (commencement of operations) to 12/31/97
International Magnum Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 9.86 (1.45)% 126,071
* Period from 11/24/97 (commencement of operations) to 12/31/97
PBHG Growth II Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 10.15 1.52% 198,868
* Period from 11/24/97 (commencement of operations) to 12/31/97
Large Cap Value Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 10.27 2.68% 71,061
* Period from 11/24/97 (commencement of operations) to 12/31/97
Small Cap Value Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 10.43 4.30% 760,923
* Period from 11/24/97 (commencement of operations) to 12/31/97
Select 20 Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 10.42 4.18% 551,473
* Period from 11/24/97 (commencement of operations) to 12/31/97
Technology & Communications Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 9.87 (1.31)% 746,784
* Period from 11/24/97 (commencement of operations) to 12/31/97
Discovery Fund II Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 9.69 (3.06)% 69,087
* Period from 11/24/97 (commencement of operations) to 12/31/97
Growth Fund II Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 10.25 2.51% 139,945
* Period from 11/24/97 (commencement of operations) to 12/31/97
Opportunity Fund II Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 10.15 1.46% 277,353
* Period from 11/24/97 (commencement of operations) to 12/31/97
International Equity Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 9.89 (1.13)% 54,981
* Period from 11/24/97 (commencement of operations) to 12/31/97
Post-Venture Capital Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 10.25 2.53% 120,198
* Period from 11/24/97 (commencement of operations) to 12/31/97
Small Company Growth Subaccount
Accumulation Accumulation Percentage Number of
Unit Value Unit Value Increase or Accumulation
at at (Decrease) Units at End
Beginning End During of
of Period of Period Period Period
1997* 10.00 10.19 1.90% 596,845
* Period from 11/24/97 (commencement of operations) to 12/31/97
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.
11.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 0.05%. 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
APRIL 30, 1998
This Statement of Additional Information supplements the information
found in the current Prospectus for the variable annuity contracts
("Contracts") of fered by Fidelity Investments Life Insurance
Company through its Variable Annuity Account I (the "Variable
Account"). You may obtain a copy of the Prospectus dated April 30,
1998 , 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
Accumulation Units 41
Fixed Annuity Income Payments 41
Variable Annuity Income Payments 41
Hypothetical Illustrations of Annuity Income Payouts 43
General Information 47
Performance 47
Transfers Among Subaccounts After the Annuity Date 54
Unavailability of Annuity Income Options in Certain Circumstances 54
IRS Required Distributions 54
Safekeeping of Variable Account Assets 54
Distribution of the Contracts 54
State Regulation 54
Legal Matters 54
Registration Statement 54
Independent Accountants 54
Financial Statements 54
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 $ 282.86 . 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 $ 141.43 $ 141.43
(b) Annuity Unit Value 1.23456 1.32465
(c) Income in Units 114.559 106.768
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 114.559 1.23456 141.43
Portfolio B 106.768 1.32465 141.43
$ 282.86
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 114.559 106.768
(g) Annuity Unit Value (current) 1.23604 1.32303
(h) Monthly Income (in dollars) $ 141.60 $ 141.26
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 $ 282.86 .
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 114.559 106.768
(k) Annuity Unit Value (current) 1.42353 1.14774
(h) Monthly Income (in dollars) $ 163.08 $ 122.54
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 $2 85.62 .
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 -1.75%, 3.50%, 4.14%, 6.11%, 8.07% and 10.04% shown in
the tables are - 0.1 5 %, 0.29%, 0.3 4 %, 0.50%,
0.6 5 % and 0.8 0 %.
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. 35 %, 6%, 8%, 10% and 12%. The values would be different
from those shown if the returns averaged 0%, 5. 35 %, 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 0.96% of the average daily net
assets of the selected portfolios. This 0.96% figure consists of
assumed management fees of 0.60% and assumed operating expenses of
0.36%, 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 0.96%, 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 0.96% 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
1.76%.
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: 3/1/3 3 STATE PREMIUM TAX: 0%
SEX: Male DATE OF ILLUSTRATION: 3/1/98
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: $311.85.
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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMOUNT OF FIRST MONTHLY ANNUITY INCOME
PAYMENT IN YEAR SHOWN ASSUMING A CONSTANT
ANNUAL INVESTMENT RETURN OF:
Gross: 0% 5.35% 6% 8% 10% 12%
PAYMENT CALENDAR AGE Net(2): -1.75% 3.50% 4.14% 6.11% 8.07% 10.04%
YEAR YEAR
1 1998 65 283 283 283 283 283 283
2 1999 66 2 69 283 28 5 29 0 29 5 30 1
3 2000 67 2 55 283 28 6 297 3 08 32 0
4 2001 68 24 2 283 2 88 30 5 3 22 34 0
5 2002 69 23 0 283 2 90 3 12 3 36 36 1
10 2007 74 1 77 283 299 3 54 4 17 491
15 2012 79 1 36 283 308 401 5 18 6 67
20 2017 84 1 05 283 3 18 4 54 6 43 9 06
</TABLE>
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: 3/1/3 3 STATE PREMIUM TAX: 0%
SEX: Male DATE OF ILLUSTRATION: 3/1/9 8
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:
$3 11 . 85 .
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 $1 55.93 . THE MONTHLY GUARANTEED PAYMENT
OF $31 1.85 IS BEING PROVIDED BY THE $25,000 APPLIED UNDER THE
FIXED ANNUITY OPTION.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMOUNT OF FIRST MONTHLY ANNUITY INCOME PAYMENT IN YEAR SHOWN ASSUMING
A CONSTANT ANNUAL INVESTMENT RETURN OF:
Gross: 0% 5.35% 6% 8% 10% 12%
PAYMENT CALENDAR AGE Net(2): -1.75% 3.50% 4.14% 6.11% 8.07% 10.04%
YEAR YEAR
1 1998 65 297 297 297 297 297 297
2 1999 66 290 297 298 301 304 306
3 2000 67 283 297 299 305 310 316
4 2001 68 277 297 300 308 317 326
5 2002 69 271 297 301 312 324 337
10 2007 74 244 297 305 333 365 401
15 2012 79 224 297 310 356 415 489
20 2017 84 209 297 315 383 477 609
</TABLE>
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.
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; and charitable giving .
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 12/31/97. 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, 1997 . 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 of 0.80%
(1% on an annual basis prior to November 1, 1997) 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 12/31/97
(a) One Year Average Annual Total Return For Contracts Issued on
December 31, 1996
Fidelity Return Return Return
If Contract If Contract If Contract
Surrendered Continued and Continued and
Maintenance Maintenance
Charge Applied Charge Not
Applicable
Asset Manager 14.47% 19.47% 19.49%
Money Market (0.28)% 4.44% 4.46%
Investment Grade Bond 3.09% 7.99% 8.01%
Equity-Income 21.85% 26.85% 26.87%
Growth 17.27% 22.27% 22.29%
High Income 11.51% 16.51% 16.53%
Overseas 5.46% 10.46% 10.48%
Index 500 26.40% 31.40% 31.42%
Asset Manager: Growth 18.84% 23.84% 23.86%
Contrafund 17.92% 22.92% 22.94%
Growth opportunities 23.68% 28.68% 28.70%
Balanced 15.98% 20.98% 21.00%
Growth & Income 23.82% 28.82% 28.84%
Strong
Discovery Fund II 5.01% 10.01% 10.03%
Opportunity Fund II 19.21% 24.21% 24.23%
Growth Fund II 23.50% 28.50% 28.52%
Warburg Pincus
International Equity (7.56)% (3.22)% (3.20)%
Small Company Growth 9.61% 14.61% 14.63%
Post-Venture Capital 7.23% 12.23% 12.25%
Morgan Stanley
Emerging Markets Equity (4.67)% (0.18)% (0.16)%
(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 Date If Contract If Contract If Contract
Surrendered Continued and Continued and
Maintenance Maintenance
Charge Charge Not
Applied Applicable
Fidelity
Money Market 4/1/82 5.73% 5.73% 5.83%
High Income 9/19/85 11.25% 11.25% 11.33%
Equity-Income 10/9/86 13.45% 13.45% 13.52%
Growth 10/9/86 14.34% 14.34% 14.41%
Asset Manager 9/6/89 11.57% 11.57% 11.61%
Investment Grade 12/5/88 7. 1 7% 7. 1 7% 7.21%
Bond
Overseas 1/28/87 7.07% 7.07% 7.14%
Index 500 8/27/92 18.65% 18.65% 18.68%
Asset Manager: 1/3/95 20.83% 21.51% 21.53%
Growth
Contrafund 1/3/95 26.26% 26.89% 26.91%
Growth 1/3/95 24.90% 25.54% 25.57%
Opportunities
Balanced 1/3/95 13.35% 14.12% 14.14%
Growth & Income 12/30/96 23.46% 27.45% 27.47%
Strong
Discovery Fund II 5/8/92 10.93% 10.93% 10.95%
Growth Fund II 12/31/96 24.50% 28.50% 28.52%
Opportunity Fund II 5/8/92 18.83% 18.83% 18.86%
Warburg Pincus
International l Equity 6/30/95 3.67% 4.79% 4.81%
Post-Venture Capital 9/30/96 4.20% 7.32% 7.34%
Small Company 6/30/95 19.93% 20.84% 20.86%
Growth
PBHG
Select 20 9/2 6 /97 N/A N/A N/A
Growth II 5/1/97 N/A N/A N/A
Large Cap Value 10/2 9 /97 N/A N/A N/A
Small Cap Value 10/2 9 /97 N/A N/A N/A
Technology & 5/1/97 N/A N/A N/A
Communications
Morgan Stanley
Emerging Markets 6/16/97 N/A N/A N/A
Debt
Emerging Markets 10/1//96 (4.80)% ( 1.97 ) % ( 1.95 ) %
Equity
Global Equity 1/2/97 N/A N/A N/A
International 1/2/97 N/A N/A N/A
Magnum
</TABLE>
(c) Five Year Average Annual Total Return If Contract Issued on
December 31, 1992
If Contract Return Return
Surrendered If Contract If Contract
Continued and Continued and
Maintenance Maintenance
Charge Applied Charge Not
Applicable
Fidelity
Asset Manager 11.67% 11.79% 11.82%
Money Market 3.60% 3.77% 3.80%
Investment Grade Bond 5.86% 6.02% 6.05%
Equity-Income 18.82% 18.91% 18.94%
Growth 16.70% 16.80% 16.82%
High Income 12.65% 12.77% 12.80%
Overseas 12.82% 12.93% 12.96%
Index 500 18.59% 18.68% 18.71%
Strong
Discovery Fund II 10.56% 10.68% 10.71%
Opportunity Fund II 18.00% 18.09% 18.12%
(d) Ten Year Average Annual Total For Contracts Issued on December
31, 1987
If Contract Return Return
Surrendered If Contract If Contract
Continued and Continued and
Maintenance Maintenance
Charge Applied Charge Not
Applicable
Money Market 4.75% 4.75% 4.80%
High Income 11.62% 11.62% 11.68%
Equity-Income 15.49% 15.49% 15.55%
Growth 15.95% 15.95% 16.00%
Overseas 8.46% 8.46% 8.52%
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, 1997.
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 0.80% on an annual basis (1% prior to November 1, 1997)
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: Cumulative Total Return For Periods Beginning at Commencement
of Port folios and Ending on 12/31/97
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Subaccount Portfolio's Return Return Return
Start Date If Contract If Contract If Contract
Surrendered Continued and Continued and
Maintenance Maintenance
Charge Applied Charge Not
Applicable
Fidelity
Asset Manager 9/6/89 148.80% 148.80% 149.52%
Investment Grade 12/5/88 87.50% 87.50% 88.20%
Bond
High Income 9/19/85 270.88% 270.88% 274.02%
Overseas 1/28/87 111.05% 111.05% 112.47%
Index 500 8/27/92 149.57% 149.57% 149.88%
Growth Opportunities 1/3/95 94.62% 97.62% 97.73%
Balanced 1/3/95 45.52% 48.52% 48.61%
Equity Income 10/9/86 312.82% 312.82% 315.66%
Growth 10/9/86 350.74% 350.74% 353.79%
Contrafund 1/3/95 101.02% 104.02% 104.13%
Asset Manager: Growth 1/3/95 76.21% 79.21% 79.31%
Growth & Income 12/30/9 23.53% 27.53% 27.55%
</TABLE>
Morgan Stanley
Emerging Markets 6/16/97 (5.12)% (0.12)% (0.10%)
Debt
Emerging Markets 10/1/96 (6.46)% (2.46)% (2.43)%
Equity
Global Equity 1/2/97 19.25% 24.25% 24.27%
International Magnum 1/2/97 2.45% 7.45% 7.47%
PBHG
Growth II 5/1/97 1.80% 6.80% 6.81%
Large Cap Value 10/2 9 /97 (0.93)% 4.07% 4.07%
Small Cap Value 10/2 9 /97 (0.43)% 4.57% 4.57%
Technology & 5/1/97 (1.59 ) % 3.41% 3.42%
Communications
Select 20 9/2 6 /97 (4.95)% 0.05% 0.06%
Strong
Discovery Fund II 5/8/92 79.69% 79.69% 79.95%
Growth Fund II 12/31/96 24.50% 28.50% 28.52%
Opportunity Fund II 5/8/92 165.15% 165.15% 165.50%
Warburg Pincus
International Equity 6/30/95 9.45% 12.45% 12.51%
Post-Venture Capital 9/30/96 5.25% 9.25% 9.28%
Small Company 6/30/95 57.71% 60.71% 60.79%
Growth
(c) Cumulative Total Return For Five Year Period From 12/31/92 Through
12/31/97
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Subaccount Return Return Return
If Contract If Contract If Contract
Surrendered Continued and Continued and
Maintenance Maintenance
Charge Applied Charge Not
Applicable
Asset Manager 73.68% 74.68% 74.88%
Money Market 19.36% 20.36% 20.51%
Investment Grade Bond 32.97% 33.97% 34.14%
Equity-Income 1 3 6. 86 % 1 3 7. 86 % 1 38 . 13 %
Growth 1 16 . 44 % 1 1 7. 44 % 1 17.68 %
High Income 81.44% 82.44% 82.65%
Overseas 82.75% 83.75% 83.96%
Index 500 134.60% 135.60% 135.86%
Strong
Discovery Fund II 6 5 .1 6 % 66.16% 66.35%
Opportunity Fund II 128.76% 129.76% 130.02%
</TABLE>
(d) Cumulative Total Return For Ten Year Period From 12/31/87 Through
12/31/97
Return Return Return
If Contract If Contract If Contract
Surrendered Continued and Continued and
Maintenance Maintenance
Charge Applied Charge Not
Applicable
Money Market 59.11% 59.11% 59.95%
High Income 200.47% 200.47% 202.01%
Equity-Income 322.73% 322.73% 324.79%
Growth 339.74% 339.74% 341.86%
Overseas 125.50% 125.50% 126.66%
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 12/31/97, the Money
Market Subaccount had a current yield of 4.71% and an effective yield
of 4.82%. For Contracts on which there is currently no maintenance
charge, the current yield would be 4.73% and the effective yield would
be 4.84%.
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 1 2/31/9 7 was
4.95% for the Investment Grade Bond Subaccount, 7.55% for the High
Income Subaccount and 9.1 5% for the Emerging Markets Debt
Subaccount. For Contracts on which there is no maintenance charge, the
30 day yield would be 4.97% for the Investment Grade Bond Subaccount,
7.57 % for the High Income Subaccount and 9.17% 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.
The Beneficiaries or second Owners' entire interest is payable over
the Beneficiary's or second Owners lifetime (or a period not extending
beyond the life expectancy of the Beneficiary or second Owner) by
electing annuitization within 60 days of the date of death 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.
However, for Qualified Contracts where the owner's sp ouse 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 h as be en 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 Boros Cicchetti
Berenson & Johnson LLP of Washington, D.C. has passed on matters
relating to Federal sec urities 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, 199 7 and
1996, 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, 199 7, and the statement of assets and liabilities
of the Fidelity Investments Variable Annuity Account I as of December
31, 199 7 , and the related statements of operations and changes
in net assets 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, 1997, 1996 and 1995
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of FMR Corp.)
CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1997, 1996 and 1995
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 6-14
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, 1997 and
1996, 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, 1997. 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, 1997
and 1996, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
Boston, Massachusetts
January 28, 1998
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of FMR Corp.)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share data)
December 31, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
ASSETS 1997 1996
Debt securities available-for-sale $ 199,525 $ 167,974
Common stocks 3,817 3,576
Policy loans 168 128
Total investments 203,510 171,678
Cash and cash equivalents 4,770 2,886
Accrued investment income 3,527 2,729
Deferred policy acquisition costs 18,091 16,866
Goodwill, net of accumulated amortization of 3,401 3,515
$1,385 in 1997 and $1,271 in 1996
Other assets 1,725 1,040
Deferred taxes 17,288 13,110
Separate account assets 8,317,683 6,165,793
Total assets $ 8,569,995 $ 6,377,617
LIABILITIES
Future contract and policy benefits $ 63,440 $ 66,269
Payable to affiliates 4,309 1,685
Other liabilities and accrued expenses 4,764 3,117
Separate account liabilities 8,316,204 6,164,194
Total liabilities 8,388,717 6,235,265
Commitments and contingencies (Note 8)
STOCKHOLDER'S EQUITY
Common stock, par value $10 per share - 3,000 3,000
1,000,000 shares authorized; 300,000 shares
issued and outstanding
Additional paid-in capital 68,048 68,048
Unrealized gain on securities available-for-sale, 2,144 717
net of tax
Retained earnings 108,086 70,587
Total stockholder's equity 181,27 142,352
Total liabilities and stockholder's equity $ 8,569,995 $ 6,377,617
</TABLE>
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of FMR Corp.)
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
REVENUES 1997 1996 1995
Fees charged to contractholders $ 73,553 $ 56,601 $ 39,172
Net investment income 12,509 11,056 10,687
Realized gains (losses), net 946 (38) (14)
Premium revenue, net 286 -- --
Other income 263 -- --
$ 87,557 $ 67,619 $ 49,845
BENEFITS AND EXPENSES
Return credited to contractholders and 3,379 3,630 4,180
other benefits
Underwriting, acquisition and 26,354 20,615 16,518
insurance expenses (1)
29,733 24,245 20,698
Income before before provision income tax 57,824 43,374 29,147
Provision for income taxes 20,325 15,575 10,800
Net income $ 37,499 $ 27,799 $ 18,347
</TABLE>
(1) Includes affiliated party transaction (Note 6)
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of FMR Corp.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(in thousands)
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Common Additional Unrealized Retained Total
stock paid-in gain (loss) on earnings stockholder's
capital securities equity
available-for-
sale
Balance at January 1, 1995 $ 3,000 $ 68,048 $ (2,690) $ 24,411 $ 92,799
Net income 18,347 18,347
Change in unrealized gain (loss), 5,055 5,055
net of tax of $2,722
Balance at December 31, 1995 3,000 68,048 2,365 42,788 116,201
Net income 27,799 27,799
Change in unrealized gain (loss), (1,648) (1,648)
net of tax benefit of $887
Balance at December 31, 1996 3,000 68,048 717 70,587 142,352
Net income 37,499 37,499
Change in unrealized gain (loss), 1,427 1,427
net of tax of $813
$ 3,000 $ 68,048 $ 2,144 $ 108,086 $ 181,278
Balance at December 31, 1995
</TABLE>
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of FMR Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1997 1996 1995
Cash flows from operating activities:
Net income $ 37,499 $ 27,799 $ 18,347
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of bond discount and premium 1,110 1,133 1,112
Realized gain (loss) on investments (946) 38 14
Amortization of goodwill 114 114 114
Depreciation and amortization 3,464 1,241 870
Change in deferred taxes (4,991) (4,282) (3,163)
Increase in future contract and policy benefits 2,639 3,296 1,875
Addition to deferred policy acquisition costs (4,137) (4,407) (3,381)
Changes in assets and liabilities:
Accrued investment income (798) (124) (523)
Amounts due to (from) separate accounts 120 2,789 (1,586)
Payable to parent and affiliates, net 2,624 (1,209) 2,052
Other assets and liabilities 697 (916) 2,054
Net cash provided by (used in) operating activities 37,395 25,472 17,785
Cash flows from investing activities:
Purchase of investments (178,474) (83,411) (54,337)
Proceeds from disposal of investments 148,758 67,910 23,221
Additions to separate accounts (748,800) (1,007,858) (785,157)
Additions to fixed assets (328) (819) (570)
Net cash used in investing activities (788,844) (1,024,178) (816,843)
Cash flows from financing activities:
Considerations and deposits on variable 1,042,482 1,153,250 908,482
annuity products
Payments to contractholders (299,149) (153,956) (109,797)
Net cash provided by financing activities 743,333 999,294 798,685
Net increase (decrease) in cash and cash equivalents 1,884 588 (373)
Cash and cash equivalents:
Beginning of year 2,886 2,298 2,671
End of year $ 4,770 $ 2,886 $ 2,298
</TABLE>
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of FMR Corp.)
Notes to Consolidated Financial Statements
1. 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 transactions 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 Annuity Accounts are invested in the portfolios
of the Variable Insurance Products Fund, the Variable Insurance
Products Fund II and, beginning in 1997, the Variable Insurance
Products Fund III, the Morgan Stanley Universal Funds, the PBGH
Insurance Series Funds, the Strong Variable Insurance Funds and the
Warburg Pincus Trust Funds. The assets of the Variable Life Account
are invested in the portfolios of the Variable Insurance Products Fund
and the Variable Insurance Products Fund II. The invested assets are
reported at the net asset value of such portfolios.
FILI also offers a term life insurance product with level premium
paying periods of one, five, ten, fifteen and twenty years.
2. Summary of Significant Accounting Policies:
BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company
have been prepared on the basis of generally accepted accounting
principles, which vary in certain respects from reporting practices
prescribed or permitted by state insurance regulatory authorities.
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, excluding loan-backed bonds
and structured securities, is amortized using the effective interest
method. Amortization of loan-backed bonds and structured securities
includes anticipated prepayments over the estimated economic life of
the security. When actual prepayments differ significantly from
anticipated prepayments, the effective yield is recalculated to
reflect actual payments to date and anticipated future payments and
any resulting adjustment is included in investment income. 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 fair 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 and realized 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.
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of FMR Corp.)
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies: (continued)
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 or
decrease 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.
REVENUE RECOGNITION
Fees charged to contractholders include the cost of providing
insurance protection for variable life contractholders, mortality
risk, expense risk, administrative charges and surrender charges for
variable annuity contractholders. Premium revenues for term life
insurance products are recognized as revenues over the premium-paying
period.
FUTURE CONTRACT AND POLICY BENEFITS
Future contract and policy benefits represent the reserve liability
which approximates the contractholder's account balance. The
liabilities for future policy benefits for term life insurance
products are computed by the natural reserve method, including
provision for adverse deviation with respect to estimates for future
investment yield, mortality and withdrawal experience.
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 federal income tax 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 financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the related
amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with
current year presentation.
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of FMR Corp.)
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS:
The components of net investment income were as follows:
Years ended December 31,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
(in thousands)
Debt securities $ 11,840 $ 10,510 $ 9,762
Common stocks 271 216 --
Cash and cash equivalents 529 551 459
Policy loans 10 9 8
Investment in separate accounts 610 419 1,002
Total investment income 13,260 11,705 11,231
Investment expenses 751 649 544
Net investment income $ 12,509 $ 11,056 $ 10,687
</TABLE>
Gross realized gains and losses from the sale of debt securities were
as follows:
Years ended December 31,
1997 1996 1995
(in thousands)
Gross realized gains $ 1,030 $ 28 $ 5
Gross realized losses $ 84 $ 66 $ 19
The amortized cost and estimated fair value of debt securities, by
type of issuer, and common stock were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997
Amortized Gross Gross Estimated
cost unrealized unrealized Fair
gains losses value
(in thousands)
U.S. Treasury securities $ 61,949 $ 1,671 $ (2) $ 63,618
Corporate securities 118,700 1,695 (17) 120,378
Loan-backed bonds and 15,363 166 15,529
structured securities
Total debt securities $ 196,012 $ 3,532 $ (19) $ 199,525
Common stock $ 3,987 $ -- $ (170) $ 3,817
</TABLE>
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of FMR Corp.)
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS: (continued)
December 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Amortized Gross Gross Estimated
cost unrealized unrealized Fair
gains losses value
(in thousands)
U.S. Treasury securities $ 52,032 $ 272 $ (94) $ 52,210
Corporate securities 97,374 1,072 (116) 98,330
Loan-backed bonds and 17,325 109 -- 17,434
structured securities
Total debt securities $ 166,731 $ 1,453 $ (210) $ 167,974
Common stock $ 3,716 $ -- $ (140) $ 3,576
</TABLE>
The amortized cost and estimated fair value of debt securities at
December 31, 1997, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Amortized Estimated
cost Fair value
(in thousands)
Due in 1 year or less $ 14,237 $ 14,262
Due after 1 year through 5 years 78,550 79,443
Due after 5 years through 10 years 82,911 84,876
Due after 10 years 4,951 5,415
Subtotal 180,649 183,996
Loan-backed bonds and structured securities 15,363 15,529
$ 196,012 $ 199,525
</TABLE>
All debt securities are investment grade and there are no significant
concentrations by issuer or by industry other than U.S. Treasury
securities.
4. INCOME TAXES:
The components of the provision for federal and state income taxes
attributable to operations were as follows:
Years ended December 31,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995
(in thousands)
Current $ 25,316 $ 19,857 $ 13,963
Deferred (4,991) (4,282) (3,163)
Provision for income taxes $ 20,325 $ 15,575 $ 10,800
</TABLE>
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of FMR Corp.)
Notes to Consolidated Financial Statements (continued)
4. INCOME TAXES: (continued)
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:
Year ended December 31,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1997 1996
(in thousands)
Deferred income tax assets:
Deferred policy acquisition costs $ 14,503 $ 11,272
Reserves 4,205 2,328
Unrealized gain on securities available for sale (1,198) (386)
Other, net (222) (104)
Total net deferred tax assets $ 17,288 $ 13,110
</TABLE>
Management believes that the Company's future income will be
sufficient to realize the net deferred tax assets.
FILI paid federal income taxes of $25,314,000, $19,445,000, and
$13,790,000 in 1997, 1996 and 1995, respectively. State income taxes
of $884,000, $782,000 and $390,000 were paid in 1997, 1996 and 1995,
respectively.
The effective tax rates approximate the statutory federal income tax
rates for the years ended 1997, 1996 and 1995.
5. STOCKHOLDER'S 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Years ended December 31,
1997 1996 1995
(in thousands)
Statutory net income $ 30,620 $ 19,673 $ 12,652
Statutory capital stock and surplus $ 136,356 $ 105,643 $ 86,495
</TABLE>
6. 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 per deferred annuity contract and renewal
sales compensation of 0.10% of the annuity contract value each year.
FILI also pays FIA 37.5% of term life insurance first-year sales.
EFILI pays FIA sales compensation of 3% of annuity payments received.
The Company compensated FIA in the amount of $10,637,000, $9,361,000
and $6,834,000 in 1997, 1996 and 1995, respectively.
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of FMR Corp.)
Notes to Consolidated Financial Statements (continued)
6. AFFILIATED COMPANY TRANSACTIONS: (continued)
The Company has entered into administrative service agreements with
its affiliates whereby the Company provides certain administrative and
accounting functions. The Company received $1,044,000, $807,000 and
$989,000 in 1997, 1996 and 1995, 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 $204,000, $182,000 and $107,000
were charged to the Company in 1997, 1996 and 1995, 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 $621,000, $441,000 and $424,000 in 1997,
1996 and 1995, 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 $424,000, $603,000 and $709,000 in 1997, 1996 and 1995,
respectively.
7. UNDERWRITING, ACQUISITION AND INSURANCE EXPENSES:
Underwriting, acquisition and insurance expenses were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Years ended December 31,
1997 1996 1995
(in thousands)
Commissions $ 10,6737 $ 9,396 $ 6,834
Amortization of deferred policy 15 (2,661) (1,933)
acquisition costs and goodwill
Taxes, licenses and fees 1,175 1,052 896
General insurance expenses 14,527 12,828 10,721
$ 26,354 $ 20,615 $ 16,518
</TABLE>
During 1997, EFILI amortized an additional $1,850,000 of deferred
policy acquisition costs. Amortization is adjusted periodically when
estimates of future gross profits are revised to reflect actual
experience. This adjustment has been reflected in underwriting,
acquisition and insurance expenses.
8. COMMITMENTS AND CONTINGENCIES:
Reinsurance
FILI reinsures certain of its life insurance products 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. Premiums and
deposits ceded under these reinsurance contracts were not material to
the consolidated financial statements.
The Company is contingently liable for claims reinsured that the
assuming companies are unable to pay.
STATEMENT OF ASSETS AND LIABILITIES
FIDELITY INVESTMENTS VARIABLE ANNUITY ACCOUNT I
OF
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
<S> <C>
ASSETS DECEMBER 31, 1997
Investments at current market value:
Variable Insurance Products Fund (VIP)
Money Market Portfolio - 460,982,572 shares (cost $ 460,982,572) $ 460,982,572
High Income Portfolio - 23,562,757 shares (cost $285,396,045) 319,982,242
Equity-Income Portfolio - 68,854,231 shares (cost $1,172,384,612) 1,671,780,722
Growth Portfolio - 27,119,930 shares (cost $720,172,839) 1,006,149,404
Overseas Portfolio - 13,057,776 shares (cost $226,119,324) 250,709,295
Variable Insurance Products Fund II (VIP II)
Investment Grade Bond Portfolio - 8,678,689 shares (cost $105,071,360) 109,004,339
Asset Manager Portfolio - 43,062,200 shares (cost $639,821,964) 775,550,216
Index 500 Portfolio - 6,478,500 shares (cost $575,914,283) 741,075,671
Asset Manager: Growth Portfolio - 19,819,521 shares (cost $258,793,890) 324,247,367
Contrafund Portfolio - 61,077,832 shares (cost $876,225,604) 1,217,891,969
Variable Insurance Products Fund III (VIP III)
Balanced Portfolio - 4,224,346 shares (cost $57,173,868) 61,590,960
Growth & Income Portfolio - 20,276,256 shares (cost $226,604,918) 254,061,491
Growth Opportunities Portfolio - 14,481,673 shares (cost $241,548,958) 279,061,839
Morgan Stanley Universal Funds (MSUF)
Emerging Markets Equity Portfolio - 188,634 shares (cost $1,833,208) 1,778,822
Emerging Markets Debt Portfolio - 295,288 shares (cost $2,922,674) 2,855,436
Global Equity Portfolio - 188,287 shares (cost $2,216,615) 2,210,491
International Magnum Portfolio - 133,450 shares (cost $1,437,953) 1,385,206
PBHG Insurance Series Funds (PBHG)
Growth II Portfolio - 204,826 shares (cost $2,132,436) 2,201,877
Small Cap Value Portfolio - 785,346 shares (cost $8,033,806) 8,230,420
Large Cap Value Portfolio - 72,842 shares (cost $746,849) 759,743
Technology & Communications Portfolio - 720,879 shares (cost $7,534,752) 7,504,351
Select 20 Portfolio - 700,903 shares (cost $6,898,930) 7,030,055
Strong Variable Insurance Funds (SVIF)
Discovery Fund II Portfolio - 69,643 shares (cost $856,201) 837,800
Growth Fund II Portfolio - 117,876 shares (cost $1,490,880) 1,467,550
Opportunity Fund II Portfolio - 138,820 shares (cost $2,987,628) 3,012,387
Warburg Pincus Trust (WPT)
Small Company Growth Portfolio - 388,177 shares (cost $6,245,903) 6,397,165
International Equity Portfolio - 53,141 shares (cost $585,839) 557,449
Post-Venture Capital Portfolio - 112,196 shares (cost $1,220,247) 1,240,887
Total Assets $ 7,519,557,726
NET ASSETS
Variable Annuity Contracts $ 7,262,735,649
Annuity Reserves 255,519,966
Retained in Variable Account by Fidelity Investments Life Insurance Company 1,302,111
Total Net Assets $ 7,519,557,726
</TABLE>
FIDELITY INVESTMENTS VARIABLE ANNUITY ACCOUNT I
OF
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SUBACCOUNTS INVESTING IN:
VIP - VIP - VIP -
MONEY MARKET HIGH INCOME EQUITY-INCOME
12/31/97 12/31/96 12/31/96 12/31/97 12/31/96
12/31/97
INCOME:
Dividends $ 26,699,688 $ 22,183,498 $ 20,817,461 $ 16,728,273 $ 139,970,603 $ 55,685,270
EXPENSES:
Mortality risk, 4,865,592 2,709,414 14,608,539
expense risk
and adminis- 4,265,461 2,133,584 13,282,629
trative charges
Net investment 21,834,096 17,918,037 18,108,047 14,594,689 125,362,064 42,402,641
income (loss)
Realized gain (loss) 6,949,695 4,215,546 48,965,707 44,973,966
Unrealized
appreciation
(depreciation) 0 0 16,989,756 6,407,080 179,763,260 71,715,782
during the period
Net increase
(decrease) in
net assets 21,834,096 17,918,037 42,047,498 25,217,315 354,091,031 159,092,389
from operations
Payments
received from
contract owners 629,101,224 716,350,463 15,807,824 19,246,520 37,916,433 67,800,413
Transfers
between sub- (638,722,858) (572,043,365) 19,435,560 39,372,795 (42,350,907) 8,556,850
accounts and the
fixed account, net
Transfers
for contract
benefits and (67,465,064) (34,497,387) (11,995,400) (4,602,693) (56,020,921) (27,944,559)
terminations
Other transfers
(to) from
Fidelity Invest-
ments Life (215,320) (117,521) (71,599) (16,920) (43,377) (375,090)
Insurance
Co., net
Net increase
(decrease) in
net assets (77,302,018) 109,692,190 23,176,385 53,999,702 (60,498,772) 48,037,614
from contract
transactions
Retained in
(returned from)
Variable 29,046 (279,345) (35,935) (113,623) (375,922) (734,182)
Annuity
Account I, net
Total increase (55,438,876) 65,187,948 293,216,337
(decrease) in 127,330,882 79,103,394 206,395,821
net assets
Net assets at
beginning 516,421,448 389,090,566 254,794,294 175,690,900 1,378,564,385 1,172,168,564
of period
Net assets at end
of period $ 460,982,572 $ 516,421,448 $ 319,982,242 $ 254,794,294 $ 1,671,780,722 $ 1,378,564,385
</TABLE>
SUBACCOUNTS INVESTING IN:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
VIP -
VIP - OVERSEAS
GROWTH
12/31/97 12/31/96 12/31/97 12/31/96
INCOME:
Dividends $ 33,907,980 $ 52,408,311 $ 21,080,704 $ 5,076,103
EXPENSES:
Mortality risk, 9,346,562 2,648,546
expense risk
and adminis- 8,895,743 2,325,480
trative charges
Net investment 24,561,418 43,512,568 18,432,158 2,750,623
income (loss)
Realized gain (loss) 67,921,108 34,665,280 13,687,852 4,977,991
Unrealized
appreciation
(depreciation) 99,256,428 25,231,481 (6,167,246) 17,808,822
during the period
Net increase
(decrease) in
net assets 191,738,954 103,409,329 25,952,764 25,537,436
from operations
Payments
received from
contract owners 27,687,604 65,624,862 10,161,356 15,310,022
Transfers
between sub- (133,879,505) 88,618,608 (23,441,635) 27,187,801
accounts and the
fixed account, net
Transfers
for contract
benefits and (32,443,849) (19,664,847) (7,577,179) (5,076,410)
terminations
Other transfers
(to) from
Fidelity Invest-
ments Life (59,301) (325,787) (36,899) (58,320)
Insurance
Co., net
Net increase
(decrease) in
net assets (138,695,051) 134,252,836 (20,894,357) 37,363,093
from contract
transactions
Retained in
(returned from)
Variable (258,418) (385,048) (60,265) (91,969)
Annuity
Account I, net
Total increase 52,785,485 4,998,142
(decrease) in 237,277,117 62,808,560
net assets
Net assets at
beginning 953,363,919 716,086,802 245,711,153 182,902,593
of period
Net assets at end
of period $ 1,006,149,404 $ 953,363,919 $ 250,709,295 $ 245,711,153
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
VIP II -
INVESTMENT VIP II - VIP II -
GRADE BOND ASSET MANAGER INDEX 500
12/31/97 12/31/96 12/31/97 12/31/96 12/31/96
12/31/97
INCOME:
Dividends $ 4,769,202 $ 3,861,311 $ 84,602,748 $ 47,469,963 $ 14,463,456 $ 5,677,684
EXPENSES:
Mortality risk, 836,719 7,130,105 5,648,542
expense risk
and adminis- 7,112,472 2,166,085
trative charges 785,033
Net investment 3,932,483 77,472,643 40,357,491 8,814,914 3,511,599
income (loss) 3,076,278
Realized gain (loss) 858,556 888,717 13,884,351 20,343,996 24,508,427 4,975,965
Unrealized
appreciation
(depreciation) 1,995,042 38,783,110 27,445,480 114,558,991 33,991,964
during the period (2,329,345)
Net increase
(decrease) in
net assets 1,635,650 130,140,104 88,146,967 147,882,332 42,479,528
from operations 6,786,081
Payments
received from
contract owners 4,109,827 4,922,193 12,080,157 13,647,683 46,826,607 33,319,804
Transfers
between sub- 22,693,615 (32,631,061) (114,227,037) 204,978,269 167,661,291
accounts and the
fixed account, net 9,167,153
Transfers
for contract
benefits and (7,797,627) (35,791,511) (25,764,391) (15,577,435) (3,781,296)
terminations (2,141,175)
Other transfers
(to) from
Fidelity Invest-
ments Life (72,701) (155,845) (237,492) (150,934) (64,159)
Insurance
Co., net 56,907
Net increase
(decrease) in
net assets 18,933,114 (56,498,260) (126,581,237) 236,076,507 197,135,640
from contract
transactions 12,005,078
Retained in
(returned from)
Variable 46,432 (92,781) (616,502) (107,699) (30,838)
Annuity
Account I, net (109,244)
Total increase 25,765,627 73,549,063 383,851,140
(decrease) in (39,050,772) 239,584,330
net assets 13,531,484
Net assets at
beginning 83,238,712 702,001,153 741,051,925 357,224,531 117,640,201
of period 69,707,228
Net assets at end
of period $ 109,004,339 $ 83,238,712 $ 775,550,216 $ 702,001,153 $ 741,075,671 $ 357,224,531
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
VIP II -
ASSET MANAGER: VIP II -
GROWTH CONTRAFUND
12/31/97 12/31/96 12/31/97 12/31/96
INCOME:
Dividends $ 327,986 $ 9,328,581 $ 29,715,425 $ 4,625,874
EXPENSES:
Mortality risk, 2,618,594 10,453,261
expense risk
and adminis- 1,063,876 6,890,563
trative charges
Net investment (2,290,608) 8,264,705 19,262,164 (2,264,689)
income (loss)
Realized gain (loss) 5,935,984 673,453 35,690,439 8,702,452
Unrealized
appreciation
(depreciation) 52,266,796 9,972,956 161,313,279 123,250,956
during the period
Net increase
(decrease) in
net assets 55,912,172 18,911,114 216,265,882 129,688,719
from operations
Payments
received from
contract owners 19,500,391 15,662,363 54,807,976 81,653,439
Transfers
between sub- 70,469,134 101,765,224 66,369,243 248,553,823
accounts and the
fixed account, net
Transfers
for contract
benefits and (6,744,007) (2,189,943) (25,715,125) (10,123,899)
terminations
Other transfers
(to) from
Fidelity Invest-
ments Life (80,124) (38,727) (281,176) (261,226)
Insurance
Co., net
Net increase
(decrease) in
net assets 83,145,394 115,198,917 95,180,918 319,822,137
from contract
transactions
Retained in
(returned from)
Variable (31,806) 4,437 (190,999) (180,555)
Annuity
Account I, net
Total increase 139,025,760 311,255,801
(decrease) in 134,114,468 449,330,301
net assets
Net assets at
beginning 185,221,607 51,107,139 906,636,168 457,305,867
of period
Net assets at end
of period $ 324,247,367 $ 185,221,607 $ 1,217,891,969 $ 906,636,168
</TABLE>
FIDELITY INVESTMENTS VARIABLE ANNUITY ACCOUNT I
OF
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SUBACCOUNTS INVESTING IN:
VIP III - VIP III - VIP III - MSUF - MSUF -
BALANCED* GROWTH & GROWTH EMERGING EMERGING
INCOME* OPPORTUNITIES* MARKETS MARKETS
EQUITY** DEBT**
12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
INCOME:
Dividends $ 24,769 $ 6,524,950 $ 490,995 $ 50,198 $ 82,487
EXPENSES:
Mortality risk, 307,802 1,300,226 1,508,291 777 1,196
expense risk
and adminis-
trative charges
Net investment (283,033) 5,224,724 (1,017,296) 49,421 81,291
income (loss)
Realized gain (loss) 1,117,028 255,257 671,295 1,555 1,555
Unrealized
appreciation
(depreciation) 4,417,092 27,456,573 37,512,881 (54,386) (67,238)
during the period
Net increase
(decrease) in
net assets 5,251,087 32,936,554 37,166,880 (3,410) 15,608
from operations
Payments
received from
contract owners 6,706,277 29,329,428 42,870,806 56,721 28,145
Transfers
between sub- 50,665,808 193,894,819 202,642,472 1,725,664 2,812,620
accounts and the
fixed account, net
Transfers
for contract
benefits and (1,021,595) (2,031,557) (3,368,361) (91) 0
terminations
Other transfers
(to) from
Fidelity Invest-
ments Life (11,728) (80,558) (262,599) (62) (946)
Insurance
Co., net
Net increase
(decrease) in
net assets 56,338,762 221,112,132 241,882,318 1,782,232 2,839,819
from contract
transactions
Retained in
(returned from)
Variable 1,111 12,805 12,641 0 9
Annuity
Account I, net
Total increase 61,590,960 254,061,491 279,061,839 1,778,822 2,855,436
(decrease) in
net assets
Net assets at
beginning 0 0 0 0 0
of period
Net assets at end
of period $ 61,590,960 $ 254,061,491 $ 279,061,839 $ 1,778,822 $ 2,855,436
</TABLE>
* FOR THE PERIOD JANUARY 27, 1997 (COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31, 1997.
** FOR THE PERIOD NOVEMBER 24, 1997 (COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31, 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SUBACCOUNTS INVESTING IN:
PBHG - PBHG -
SMALL CAP LARGE
MSUF - MSUF - PBHG - VALUE** CAP
GLOBAL INTERNATIONAL GROWTH II** VALUE**
EQUITY** MAGNUM**
12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
INCOME:
Dividends $ 38,854 $ 38,893 $ 0 $ 0 $ 0
EXPENSES:
Mortality risk, 1,073 737 847 3,809 427
expense risk
and adminis-
trative charges
Net investment 37,781 38,156 (847) (3,809) (427)
income (loss)
Realized gain (loss) 0 1,566 726 1,588 1,407
Unrealized
appreciation
(depreciation) (6,124) (52,747) 69,441 196,614 12,894
during the period
Net increase
(decrease) in
net assets 31,657 (13,025) 69,320 194,393 13,874
from operations
Payments
received from
contract owners 347,239 130,652 110,103 604,447 56,451
Transfers
between sub- 1,832,160 1,267,297 2,022,554 7,434,078 689,520
accounts and the
fixed account, net
Transfers
for contract
benefits and 0 0 (117) (924) (102)
terminations
Other transfers
(to) from
Fidelity Invest-
ments Life (576) 268 21 (1,552) (1)
Insurance
Co., net
Net increase
(decrease) in
net assets 2,178,823 1,398,217 2,132,561 8,036,049 745,868
from contract
transactions
Retained in
(returned from)
Variable 11 14 (4) (22) 1
Annuity
Account I, net
Total increase 2,210,491 1,385,206 2,201,877 8,230,420 759,743
(decrease) in
net assets
Net assets at
beginning 0 0 0 0 0
of period
Net assets at end
of period $ 2,210,491 $ 1,385,206 $ 2,201,877 $ 8,230,420 $ 759,743
</TABLE>
* FOR THE PERIOD JANUARY 27, 1997 (COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31, 1997.
** FOR THE PERIOD NOVEMBER 24, 1997 (COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31, 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PBHG - SVIF - SVIF - SVIF -
SELECT 20** DISCOVERY GROWTH OPPORTUNITY
PBHG - FUND II** FUND II** FUND II**
TECHNOLOGY &
COM-
MUNICATIONS**
12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
INCOME:
Dividends $ 0 $ 0 $ 0 $ 51,405 $ 2,789
EXPENSES:
Mortality risk, 3,029 433 686 1,349
expense risk
and adminis-
trative charges 3,175
Net investment (3,029) (433) 50,719 1,440
income (loss) (3,175)
Realized gain (loss) 348 49 (2,563) 438 3,293
Unrealized
appreciation
(depreciation) 131,125 (18,401) (23,330) 24,759
during the period (30,401)
Net increase
(decrease) in
net assets 128,145 (21,397) 27,827 29,492
from operations (33,228)
Payments
received from
contract owners 1,166,675 241,149 115,879 210,484 316,468
Transfers
between sub- 5,661,006 743,684 1,229,535 2,666,657
accounts and the
fixed account, net 6,356,784
Transfers
for contract
benefits and (748) (383) 0 (73)
terminations (1,170)
Other transfers
(to) from
Fidelity Invest-
ments Life (2,417) (55) 20 (524)
Insurance
Co., net 15,296
Net increase
(decrease) in
net assets 5,898,990 859,125 1,440,039 2,982,528
from contract
transactions 7,537,585
Retained in
(returned from)
Variable 1,002,920 72 (316) 367
Annuity
Account I, net (6)
Total increase 7,030,055 837,800 1,467,550 3,012,387
(decrease) in
net assets 7,504,351
Net assets at
beginning 0 0 0 0
of period 0
Net assets at end
of period $ 7,504,351 $ 7,030,055 $ 837,800 $ 1,467,550 $ 3,012,387
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
WPT - WPT - WPT -
SMALL INTERNATIONAL POST-
COMPANY EQUITY** VENTURE
GROWTH** CAPITAL**
TOTAL
12/31/97 12/31/97 12/31/97 12/31/97 12/31/96
INCOME:
Dividends $ 0 $ 24,727 $ 150 $ 383,685,470 $ 223,044,868
EXPENSES:
Mortality risk, 2,764 273 679 64,003,447
expense risk
and adminis- 48,920,926
trative charges
Net investment (2,764) 24,454 (529) 319,682,023 174,123,942
income (loss)
Realized gain (loss) (1) (984) (323) 220,454,353 124,417,366
Unrealized
appreciation
(depreciation) 151,262 (28,390) 20,640 728,471,680 313,495,176
during the period
Net increase
(decrease) in
net assets 148,497 (4,920) 19,788 1,268,608,056 612,036,484
from operations
Payments
received from
contract owners 547,503 37,724 322,881 941,198,431 1,033,537,762
Transfers
between sub- 5,700,629 522,333 898,095 1,685,570 4,613,143
accounts and the
fixed account, net
Transfers
for contract
benefits and 0 (93) (0) (273,553,332) (135,786,600)
terminations
Other transfers
(to) from
Fidelity Invest-
ments Life 1,366 (23,099) (2) (1,534,424) (1,438,335)
Insurance
Co., net
Net increase
(decrease) in
net assets 6,249,498 536,865 1,220,974 667,796,245 900,925,970
from contract
transactions
Retained in
(returned from)
Variable (830) 25,504 125 (23,945) (2,536,869)
Annuity
Account I, net
Total increase 6,397,165 557,449 1,240,887 1,936,380,356
(decrease) in 1,510,425,585
net assets
Net assets at
beginning 0 0 0 5,583,177,370 4,072,751,785
of period
Net assets at end
of period $ 6,397,165 $ 557,449 $ 1,240,887 $ 7,519,557,726 $5,583,177,370
</TABLE>
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
FIDELITY INVESTMENTS VARIABLE ANNUITY ACCOUNT I
OF
FIDELITY INVESTMENTS LIFE INSURANCE COMPANY
12. 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 State of 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.
In 1997, FILI added eighteen new subaccounts to the Account: VIP III -
Balanced, VIP III - Growth & Income, VIP III - Growth Opportunities,
MSUF - Emerging Markets Equity, MSUF - Emerging Markets Debt, MSUF -
Global Equity, MSUF - International Magnum, PBHG - Growth II, PBHG -
Small Cap Value, PBHG - Large Cap Value, PBHG - Technology &
Communications, PBHG - Select 20, SVIF - Discovery Fund II, SVIF -
Growth Fund II, SVIF - Opportunity Fund II, WPT - Small Company
Growth, WPT - International Equity, WPT - Post-Venture Capital.
13. SIGNIFICANT ACCOUNTING POLICIES.
Investments are made in the portfolios of the subaccounts 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 related amounts and
disclosures in the financial statements. Actual results could differ
from those estimates.
14. EXPENSES.
FILI deducts a daily charge from the net assets of the Account for
administrative expenses and for the assumption of mortality risk and
expense risk. Prior to November 3, 1997, the daily charge was
equivalent to an annual effective rate of 1% of net assets. On
November 3, 1997, FILI reduced the daily charge on the Retirement
Reserves contracts to an annual effective rate of 0.8% of net assets.
FILI also deducts an annual maintenance charge of $30 from the
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.
15. 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 the VIP, VIP II and VIP III portfolios. Fidelity
Investments Institutional Operations Co., an affiliate of FMR Corp.,
is the transfer and shareholder servicing agent for the VIP, VIP II
and VIP III portfolios.
16. 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,
1997:
PURCHASES SALES
VIP - Money Market $ 326,583,049 $ 382,021,925
VIP - High Income 114,897,983 73,649,486
VIP - Equity-Income 198,894,123 134,406,753
VIP - Growth 56,549,510 170,941,561
VIP - Overseas 72,099,269 74,621,733
VIP II - Investment Grade Bond 47,032,620 24,120,591
VIP II - Asset Manager 98,479,844 77,598,242
VIP II - Index 500 306,095,779 61,312,057
VIP II - Asset Manager: Growth 100,798,108 19,975,128
VIP II - Contrafund 199,694,635 85,442,570
VIP III - Balanced 65,612,689 9,555,849
VIP III - Growth & Income 228,481,958 2,132,297
VIP III - Growth Opportunities 245,497,853 4,620,190
MSUF - Emerging Markets Equity 2,115,422 283,769
MSUF - Emerging Markets Debt 3,274,862 353,743
MSUF - Global Equity 2,216,615 0
MSUF - International Magnum 1,571,078 134,691
PBHG - Growth II 2,184,299 52,589
PBHG - Small Cap Value 8,166,634 134,416
PBHG - Large Cap Value 851,823 106,381
PBHG - Technology & Communications 7,552,890 18,486
PBHG - Select 20 6,910,570 11,689
SVIF - Discovery Fund II 1,033,348 174,584
SVIF - Growth Fund II 1,568,802 78,360
SVIF - Opportunity Fund II 3,262,583 278,248
WPT - Small Company Growth 6,245,904 0
WPT - International Equity 921,970 335,147
WPT - Post-Venture Capital 1,271,438 50,868
17. UNIT VALUES.
A summary of changes in accumulation units and ending unit and
contract values for variable annuity contracts at December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
PAYMENTS
BEGINNING RECEIVED TRANSFERS CONTRACT
BALANCE FROM BETWEEN TERMINATIONS ENDING BALANCE
CONTRACT SUBACCOUNTS, UNITS UNIT VALUE DOLLARS
OWNERS NET
JANUARY 1, 1997 TO DECEMBER 31, 1997
VIP - Money Market 33,393,564 35,765,040 (40,993,364) 91,490 28,256,730 $ 15.98 $ 451,543,983
VIP - High Income 9,856,952 586,582 661,363 (623,781) 10,481,116 $ 29.00 303,988,166
VIP - Equity-Income 43,073,117 1,075,044 (1,451,095) (1,859,034) 40,838,032 $ 39.39 1,608,658,423
VIP - Growth 26,772,269 709,036 (3,594,444) (838,737) 23,048,124 $ 42.76 985,593,562
VIP - Overseas 11,419,855 436,554 (983,144) (360,741) 10,512,524 $ 23.52 247,274,432
VIP II - Investment Grade Bond 4,615,384 228,138 1,229,196 (547,810) 5,524,907 $ 18.75 103,579,135
VIP II - Asset Manager 33,062,627 530,613 (1,505,174) (1,767,212) 30,320,855 $ 24.80 751,916,385
VIP II - Index 500 18,160,844 2,122,452 9,533,877 (1,121,909) 28,695,264 $ 24.83 712,404,342
VIP II - Asset Manager: Growth 12,261,937 1,205,712 4,500,037 (766,657) 17,201,030 $ 17.95 308,741,994
VIP II - Contrafund 53,010,249 2,983,188 3,494,055 (1,698,427) 57,789,065 $ 20.47 1,183,200,370
VIP III - Balanced * 606,056 4,630,639 (586,884) 4,649,810 $ 11.98 55,714,035
VIP III - Growth & Income * 2,622,603 17,602,327 (1,426,696) 18,798,233 $ 12.68 238,278,772
VIP III - Growth Opportunities * 3,852,029 18,523,967 (1,221,162) 21,154,834 $ 12.63 267,246,966
MSUF - Emerging Markets Equity ** 5,745 171,206 (15) 176,936 $ 10.05 1,778,822
MSUF - Emerging Markets Debt ** 2,756 269,897 (2,040) 270,613 $ 10.48 2,834,996
MSUF - Global Equity ** 34,595 181,040 (1,155) 214,479 $ 10.25 2,198,667
MSUF - International Magnum ** 13,105 127,421 (14,455) 126,071 $ 9.86 1,242,464
PBHG - Growth II ** 11,237 205,656 (18,025) 198,868 $ 10.15 2,018,998
PBHG - Small Cap Value ** 59,114 730,068 (28,259) 760,923 $ 10.43 7,936,253
PBHG - Large Cap Value ** 5,653 68,352 (2,944) 71,061 $ 10.27 729,623
PBHG - Technology & Communications ** 120,942 639,601 (13,759) 746,784 $ 9.87 7,369,743
PBHG - Select 20 ** 23,751 554,810 (27,088) 551,473 $ 10.42 5,745,102
SVIF - Discovery Fund II ** 11,942 74,522 (17,377) 69,087 $ 9.69 669,714
SVIF - Growth Fund II ** 21,083 122,113 (3,251) 139,945 $ 10.25 1,434,554
SVIF - Opportunity Fund II ** 31,632 265,241 (19,520) 277,353 $ 10.15 2,814,079
WPT - Small Company Growth ** 55,431 572,410 (30,997) 596,845 $ 10.19 6,081,692
WPT - International Equity ** 3,884 53,678 (2,581) 54,981 $ 9.24 508,179
WPT - Post-Venture Capital ** 32,317 88,717 (836) 120,198 $ 10.25 1,232,198
$ 7,262,735,649
JANUARY 1, 1996 TO DECEMBER 31, 1996
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
VIP - Money Market 26,268,846 42,913,398 (38,375,363) 2,586,683 33,393,564 $ 15.30 $ 510,850,998
VIP - High Income 7,797,315 816,399 1,649,890 (406,652) 9,856,952 $ 24.89 245,332,651
VIP - Equity-Income 41,937,122 2,359,548 324,284 (1,547,837) 43,073,117 $ 31.05 1,337,348,204
VIP - Growth 23,019,869 1,987,476 2,629,901 (864,978) 26,772,269 $ 34.97 936,189,066
VIP - Overseas 9,560,376 770,514 1,400,639 (311,673) 11,419,855 $ 21.29 243,142,393
VIP II - Investment Grade
Bond 3,993,107 291,738 528,603 (198,064) 4,615,384 $ 17.36 80,112,903
VIP II - Asset Manager 39,821,641 708,287 (6,035,625) (1,431,676) 33,062,627 $ 20.75 686,200,145
VIP II - Index 500 7,333,800 1,943,169 9,613,725 (729,850) 18,160,844 $ 18.89 343,086,654
VIP II - Asset Manager:
Growth 4,035,434 1,168,481 7,592,101 (534,078) 12,261,937 $ 14.49 177,691,548
VIP II - Contrafund 32,421,946 5,482,352 16,672,452 (1,566,501) 53,010,249 $ 16.65 882,817,550
$ 5,442,772,112
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
<C>
* FOR THE PERIOD JANUARY 27, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1997.
** FOR THE PERIOD NOVEMBER 24, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1997.
</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 VIP -
Money Market, VIP - High Income, VIP - Equity-Income, VIP - Growth,
VIP - Overseas, VIP II - Investment Grade Bond, VIP II - Asset
Manager, VIP II - Index 500, VIP II - Asset Manager: Growth, VIP II -
Contrafund, VIP III - Balanced, VIP III - Growth & Income, VIP III -
Growth Opportunities, MSUF - Emerging Markets Equity, MSUF - Emerging
Markets Debt, MSUF - Global Equity, MSUF - International Magnum, PBHG
- - Growth II, PBHG - Small Cap Value, PBHG - Large Cap Value, PBHG -
Technology & Communications, PBHG - Select 20, SVIF - Discovery Fund
II, SVIF - Growth Fund II, SVIF - Opportunity Fund II, WPT - Small
Company Growth, WPT - International Equity and WPT - Post-Venture
Capital) of Fidelity Investments Life Insurance Company as of December
31, 1997, 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, 1997, 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 28, 1998
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,
1997 and 1996. (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, 1997 and 1996. (Note 1)
Consolidated Statements of Income for Fidelity Investments Life
Insurance Company for the Years Ended December 31, 1997, 1996 and
1995. (Note 1)
Consolidated Statements of Changes in Stockholder's Equity for
Fidelity Investments Life Insurance Company for the Years Ended
December 31, 1997, 1996 and 1995. (Note 1)
Consolidated Statements of Cash Flows for Fidelity Investments Life
Insurance Company for the Years Ended December 31, 1997, 1996 and
1995. (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 4 ).
(10) Written consent of Coopers & Lybrand L.L.P. (Note 4 )
Written consent of Jorden Burt Berenson & Johnson LLP (Note 4)
(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) Incorporated by reference to Post-Effective Amendment No. 12
to this Registration Statement filed electronically on August 29,
1997.
(Note 4) 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
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, 1997, there were 5,036 Qualified Contracts and
93,380 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
Robert P. Mazzarella Director and President
Rodney R. Rohda Director
Edward L. McCartney Executive Vice President
J. Peter Benzie Executive Vice President
Bruce MacAlpine Vice President
Kenneth Klipper Treasurer
Gary Greenstein Assistant Treasurer
Jeffrey R. Larsen Legal Counsel & Clerk
Linda Holland Compliance Officer
Richard Blades Compliance Registered Options Principal
Jay Freedman Assistant Clerk
(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. 13 to the Registration
Statement to be signed on its behalf in the city of Boston and the
Commonwealth of Massachusetts, on this 28th day of April, 1998.
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, President, Chairman, David J. Pearlman,
Chief Operating Officer and Chief Executive Officer
Secretary
As required by the Securities Act of 1933, this Post-Effective
Amendment No. 13 to the Registration Statement has been signed below
by the following persons in the capacities indicated on this 28th day
of April, 1998.
Signature Title
_/s/Rodney R. Rhoda President, Chairman and Director
Rodney R. Rohda (Chief Executive Officer)
(Chief Operating 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 )
Denis M. McCarthy )
FIDELITY (LOGO) INVESTMENTS(registered trademark) FMR Corp.
82 Devonshire Street
Boston MA 02109-3614
617 563 7000
April 28, 1998
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. 13 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
April 10, 1998
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. 13 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 BOROS CICCHETTI 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 28, 1998, 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
April 24, 1998
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
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000821051
<NAME> Fidelity Investments Variable Annuity Account I
<SERIES>
<NUMBER> 1
<NAME> Fidelity Investments Variable Annuity Account I
<MULTIPLIER> 1,000
<S>
<C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> dec-31-1997
<PERIOD-END> dec-31-1997
<INVESTMENTS-AT-COST> 5,893,354
<INVESTMENTS-AT-VALUE> 7,519,558
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,519,558
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 7,519,558
<DIVIDEND-INCOME> 383,685
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 64,003
<NET-INVESTMENT-INCOME> 319,682
<REALIZED-GAINS-CURRENT> 220,454
<APPREC-INCREASE-CURRENT> 728,472
<NET-CHANGE-FROM-OPS> 1,268,608
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,936,380
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
