FIDELITY INCOME ADVANTAGE
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1999
This Statement of Additional Information supplements the information
found in the current Prospectus for the variable annuity contracts
("Contracts") offered by Fidelity Investments Life Insurance Company
through its Variable Annuity Account I (the "Variable Account"). You
may obtain a copy of the Prospectus dated April 30, 1999, without
charge by calling 1-800-544-2442.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS FOR THE CONTRACT.
TABLE OF CONTENTS PAGE
General Information 2
Performance 3
Safekeeping of Variable 8
Account Assets
Distribution of the Contracts 9
State Regulation 9
Legal Matters 9
Registration Statement 9
Independent Accountants 9
Financial Statements 9
GENERAL INFORMATION
We may advertise quotes of Owners, Annuitants, Joint Annuitants or
Beneficiaries discussing Fidelity Income Advantage or services
provided by FILI. 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.
In addition, Fidelity Investments Life 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, 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.
Investments by the Subaccounts in securities of foreign issuers may
result in a foreign investment tax credit which we will claim on our
federal income tax filings.
PERFORMANCE
Performance information for any Investment Option may be compared, in
reports and advertising to: (1) the Standard & Poor's Index of 500
stocks ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Donoghue's
Money Market Institutional Averages; (2) other variable annuity
separate accounts or other investment products tracked by Lipper
Analytical Services, Morningstar, or the Variable Annuity Research and
Data Service, widely used independent research firms which rank mutual
funds and other investment companies by overall performance,
investment objectives, and assets; and (3) the Consumer Price Index
(measure for inflation) to assess the real rate of return from an
investment. 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 the ranking
of any Investment Option derived from rankings of variable annuity
separate accounts or other investment products tracked by Lipper
Analytical Services, rating services, companies, publications or other
persons who rank separate accounts or other investment products.
The tables below provide performance results for each Investment
Option through 12/31/98. The performance information is based on the
historical investment experience of the Investment Options and of the
Portfolios. It does not indicate or represent future performance.
TOTAL RETURN
Total returns quoted in advertising reflect all aspects of an
Investment Option's return, including the automatic reinvestment by
the separate account of all distributions and any change in the
Investment Option'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 Investment Option 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 Investment Option'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 an Investment Option.
Table 1 shows the average annual total return on a hypothetical
investment in the Investment Options 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, through December 31, 1998. The
returns reflect the risk and administrative charge (1% on an annual
basis).
Table 1: Average Annual Total Return for Period Ending on 12/31/98
if contract issued at commencement of Portfolio (which in most cases
it was not).
Investment Option Start Date One Year Five Years Life of Fund
Fidelity
Asset Manager 9/6/89 13.90% 10.69% 11.85%
Money Market 4/1/82 4.41% 4.24% 4.62%*
Investment Grade Bond 12/5/88 7.76% 5.63% 7.27%*
Equity-Income 10/9/86 10.51% 17.59% 14.47%*
Growth 10/9/86 38.10% 20.52% 18.21%*
High Income 9/19/85 (5.29)% 7.71% 9.96%*
Overseas 1/28/87 11.62% 8.60% 7.50%
Index 500 8/27/92 27.04% 22.49% 19.95%
Asset Manager: Growth 1/3/95 16.39% N/A 20.21%
Contrafund 1/3/95 28.68% N/A 27.34%
Growth Opportunities 1/3/95 23.37% N/A 25.00%
Balanced 1/3/95 16.46% N/A 14.71%
Growth & Income 12/30/96 28.29% N/A 27.90%
Morgan Stanley Dean Witter
Emerging Markets Equity 10/1/96 (24.94)% N/A (12.94)%
Emerging Markets Debt 6/16/97 (29.10)% N/A (20.05)%
Global Equity 1/2/97 12.34% N/A 18.19%
International Magnum 1/2/97 7.88% N/A 7.67%
Strong
Discovery Fund II 5/8/92 6.19% 7.89% 10.22%
Opportunity Fund II 5/8/92 12.41% 15.84% 17.86%
Growth Fund II1 12/31/96 27.39% N/A 27.93%
Warburg Pincus
International Equity 6/30/95 4.29% N/A 4.65%
Small Company Growth 9/30/95 (3.82)% N/A 13.23%
Post-Venture Capital 9/30/95 5.44% N/A 6.48%
PBHG
Growth II 5/1/97 7.10% N/A 8.38%
Large Cap Value 10/29/97 36.58% N/A 34.84%
Select 20 9/26/97 60.89% N/A 45.63%
Small Cap Value 10/29/97 9.83% N/A 12.47%
Technology & Communications 5/1/92 30.88% N/A 19.87%
Average Annual Total Return for Period Ending on 12/31/98 from Date
Portfolio Began in Separate Account.
Investment Option Date When Portfolio Began in Life of Fund
Separate Account
Fidelity
Asset Manager 10/4/89 11.78%
Index 500 9/1/92 19.83%
Asset Manager: Growth 1/9/95 20.25%
Contrafund 1/9/95 27.44%
Growth Opportunities 1/3/95 25.00%
Balanced 1/3/95 14.71%
Growth & Income 12/31/96 28.55%
Morgan Stanley Dean Witter
Emerging Markets Equity 11/24/97 (11.78)%
Emerging Markets Debt 11/24/97 (17.55)%
Global Equity 11/24/97 7.32%
International Magnum 11/24/97 3.10%
Strong
Discovery Fund II 11/24/97 .43%
Opportunity Fund II 11/24/97 1.99%
Growth Fund II1 11/24/97 14.25%
Warburg Pincus
International Equity 11/24/97 .87%
Small Company Growth 11/24/97 (.58)%
Post-Venture Capital 11/24/97 3.51%
PBHG
Growth II 11/24/97 5.13%
Large Cap Value 11/24/97 33.30%
Select 20 11/24/97 50.35%
Small Cap Value 11/24/97 12.22%
Technology & Communications 11/24/97 16.55%
* 10 Year Return shown. (The Separate Account inception date is
7/22/87.)
In addition to average annual returns, the Investment Options 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 Investment Options from the date the Portfolios began
operations through December 31, 1998. The returns reflect the risk and
administrative charge (1% on an annual basis).
Table 2: Cumulative Total Return for Period Ending on 12/31/98.
Investment Option Start Date One Year Five Years Life of Fund
Fidelity
Asset Manager 9/6/89 13.90% 66.16% 184.11%
Money Market 4/1/82 4.41% 23.07% 57.04%*
Investment Grade Bond 12/5/88 7.76% 31.53% 101.82%*
Equity-Income 10/9/86 10.51% 124.80% 286.25%*
Growth 10/9/86 38.10% 154.29% 432.59%*
High Income 9/19/85 (5.29)% 44.95% 158.51%*
Overseas 1/28/87 11.62% 51.09% 136.29%*
Index 500 8/27/92 27.04% 175.71% 217.35%
Asset Manager: Growth 1/3/95 16.39% N/A 108.64%
Contrafund 1/3/95 28.68% N/A 162.59%
Growth Opportunities 1/3/95 23.37% N/A 143.86%
Balanced 1/3/95 16.46% N/A 73.02%
Growth & Income 12/30/96 28.29% N/A 63.59%
Morgan Stanley Dean Witter
Emerging Markets Debt 6/16/97 (29.10)% N/A (29.19)%
Emerging Markets Equity 10/1/96 (24.94)% N/A (26.79)%
Global Equity 1/2/97 12.34% N/A 39.56%
International Magnum 1/2/97 7.88% N/A 15.89%
PBHG
Growth II 5/1/97 7.10% N/A 14.36%
Technology &
Communications 5/1/92 30.88% N/A 35.31%
Large Cap Value 10/29/97 36.58% N/A 42.09%
Small Cap Value 10/29/97 9.83% N/A 14.81%
Select 20 9/26/97 60.89% N/A 60.94%
Strong
Discovery Fund II 5/8/92 6.19% 46.19% 91.02%
Growth Fund II1 12/31/96 27.39% N/A 63.67%
Opportunity Fund II 5/8/92 12.41% 108.58% 198.35%
Warburg Pincus
International Equity 6/30/95 4.29% N/A 17.30%
Small Company Growth 6/30/95 (3.82)% N/A 54.59%
Post-Venture Capital 6/30/95 5.44% N/A 15.19%
* 10 Year Return shown. (The Separate Account inception date is
7/22/87.)
1 Strong Growth Fund II is currently called Strong Mid Cap Growth Fund
II.
YIELDS
Some Investment Options may also advertise yields. Yields quoted in
advertising reflect the change in value of a hypothetical investment
in the Investment Option over a stated period of time, not taking into
account capital gains or losses. Yields are annualized and stated as a
percentage. Yields quoted in advertising may be based on historical
seven day periods.
Current yield for the Money Market Investment Option reflects the
income generated by the Investment Option over a 7 day period. Current
yield is calculated by determining the change (net of management fees
and the 1% insurance charge) of a hypothetical account containing one
share of the underlying Portfolio exclusive of capital changes. This
change is divided by the value of the account at the beginning of the
base period to obtain the base period return. This base period return
is annualized by multiplying by (365/7). The resulting yield figure is
carried to the nearest hundredth of a percent. Effective yield is
obtained by compounding the base period return over a one year period.
Since the reinvestment of income is assumed in the calculation of the
effective yield, it will generally be higher than the current yield.
For the 7 day period ending on 12/31/98, the Money Market Investment
Option had a current yield of 4.06% and an effective yield of 4.14%.
A 30 day yield for bond Investment Options reflects the income
generated by an Investment Option over a 30 day period. Current yield
is calculated by determining the interest income (net of management
fees and the 1% insurance charge) of a hypothetical account containing
one share exclusive of capital changes. Yield will be computed by
dividing the net interest income during the period by the value of the
hypothetical account at the end of the period. Income is calculated
for purposes of yield quotations in accordance with standardized
methods applicable to all bond funds. In general, interest income is
reduced with respect to bonds trading at a premium over their par
value by subtracting a portion of premium from income on a daily basis
and is increased with respect to bonds trading at a discount by adding
a portion of the discount to daily income. Capital gains and losses
are generally excluded from the calculation. The 30 day yield for the
period ending on 12/31/98 was 4.56% for the Investment Grade Bond
Investment Option, 9.36% for the High Income Investment Option and
11.94% for Emerging Markets Debt Investment Option.
ANNUITY INCOME
Periodic annuity income amounts may be illustrated using the
historical performance of the Investment Options, the Standard &
Poor's 500 Composite Stock Price Index or other recognized investment
benchmark portfolios. All illustrations will reflect the 1% annual
annuity charge and actual or assumed Portfolio expenses.
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
The assets of the Variable Account are held by FILI. 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 Investment Options. 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 FILI. 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
FILI is subject to regulation by the Department of Insurance of the
State of Utah, which periodically examines our financial condition and
operations. We are also subject to the insurance laws and regulations
of all jurisdictions where we do business. The Contract described in
the Prospectus and Statement of Additional Information has been filed
with and, where required, approved by, insurance officials in those
jurisdictions where it is sold.
We are required to submit annual statements of our operations,
including financial statements, to the insurance departments of the
various jurisdictions where we do business to determine solvency and
compliance with applicable insurance laws and regulations.
LEGAL MATTERS
The legal validity of the Contracts described in the Prospectus and
Statement of Additional Information has been passed on by David J.
Pearlman, Senior Legal Counsel of Fidelity Investments Life Insurance
Company. Jorden Burt Boros Cicchetti Berenson & Johnson LLP of
Washington, D.C. has passed on matters relating to Federal securities
laws.
REGISTRATION STATEMENT
We have filed a Registration Statement under the Securities Act of
1933 with the SEC relating to the Contracts. The Prospectus and
Statement of Additional Information do not include all the information
in the Registration Statement. We have omitted certain portions
pursuant to SEC rules. You may obtain the omitted information from the
SEC's main office in Washington, D.C. by paying the SEC's prescribed
fees.
INDEPENDENT ACCOUNTANTS
The consolidated balance sheets of Fidelity Investments Life Insurance
Company and its subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of income and comprehensive income, of
stockholder's equity, and of cash flows for each of the three years in
the period ended December 31, 1998, and the statement of assets and
liabilities of the Fidelity Investments Variable Annuity Account I as
of December 31, 1998, and the related statements of operations and
changes in net assets for the years ended December 31, 1998 and 1997
included in this registration statement have been included herein in
reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, on the authority of that firm as experts in accounting
and auditing.
FINANCIAL STATEMENTS
The financial statements of FILI 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.
