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As filed with the Securities and Exchange Commission on April 30, 1997
Registration No. 33-48266
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SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
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POST-EFFECTIVE AMENDMENT NO. 9
to FORM S-6
Registration Statement
Under
THE SECURITIES ACT OF 1933
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VARIABLE ACCOUNT C
OF FORTIS BENEFITS INSURANCE COMPANY
(Exact name of trust)
FORTIS BENEFITS INSURANCE COMPANY
(formerly Western Life Insurance Company)
(Name of Depositor)
500 Bielenberg Drive
Woodbury, Minnesota 55125
(Complete address of depositor's principal executive offices)
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RHONDA J. SCHWARTZ, ESQ.
P. O. Box 64284
St. Paul, Minnesota 55164
(Name and complete address of agent for service)
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Securities Registered: Interests in Variable Account C pursuant to variable
life insurance policies
It is proposed that this filing will become effective (check appropriate line):
immediately upon filing pursuant to paragraph (b) of Rule 485.
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X On May 1, 1997 pursuant to paragraph (b) of Rule 485.
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60 days after filing pursuant to paragraph (a) of Rule 485.
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On pursuant to paragraph (a) of Rule 485.
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This filing is made pursuant to Rules 6c-3 and 6e-3(T)
under the Investment Company Act of 1940
<PAGE>
Registrant elects to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the
Investment Company Act of 1940 with respect to the Policies described in the
Prospectus.
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An indefinite amount of the securities being offered has been registered
pursuant to a declaration under Rule 24f-2 under the Investment Company Act
of 1940, set out in the Form S-6 Registration Statement contained in File No.
33-03919. The registrant filed its Rule 24f-2 notice for the year ended
December 31, 1996 on February 27, 1997.
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<PAGE>
[LOGO]
Mailing Address:
P.O. Box 64284
St. Paul
Minnesota 55164
Street Address:
500 Bielenberg Drive
Woodbury
Minnesota 55125
Telephone:
(800) 800-2638,
Ext. 3028
[LOGO]
[LOGO]
and Fortis-Registered Trademark- are registered servicemarks of Fortis AMEV and
Fortis AG.
96390 (5/97)
FORTIS
VUL 500 PROSPECTUS
(Flexible Premium Variable Life Insurance Policies)
Dated May 1, 1997
The flexible premium variable life insurance Policies
offered by this Prospectus are issued by Fortis
Benefits Insurance Company and are designed to provide
(1) lifetime insurance coverage on the insureds named
in the Policies and (2) flexibility in connection with
premium payments and death benefits. This flexibility
allows an owner of a Policy to provide for changing
insurance needs with a single insurance policy. The
minimum initial Face Amount of a Policy is $500,000.
With respect to the Policy Value available for
investment under a Policy, the Policy owner may elect
to receive a rate of return based on one or more of the
separate investment portfolios of Fortis Series Fund,
Inc. There is no guaranteed minimum Policy Value with
respect to these portfolios, and the Policy owner bears
the entire investment risk that this value (or the
Surrender Value) may decline to zero. Alternatively, a
Policy owner may, with respect to all or part of the
Policy Value, elect to receive fixed rates of return.
The Policy may be fully surrendered at any time for its
Surrender Value. See "Surrender and Partial
Withdrawal." Generally after the first Policy year, the
Policy owner may make a partial withdrawal of Surrender
Value once a year. The Policy owner also may take out
Policy loans and has considerable flexibility to vary
the frequency and amount of premium payments. Payment
of Planned Periodic Premiums will not necessarily keep
a Policy from lapsing if the Surrender Value is
exhausted. However, the Policy is guaranteed to stay in
force if certain Minimum Premium payments are made.
This guarantee will generally be for the lesser of 12
years from the Policy Date or until Age 65 (or for a
shorter period of time if the insured is over Age 60 at
issue, or is rated other than standard and issued after
May 1, 1995). $10,000 is the smallest possible initial
annual premium.
Fortis Benefits Insurance Company may allow for
variations of Policy Face Amount and initial annual
premium minimums, charges, and credits from those
otherwise described in the Prospectus for purchase of
policies in certain business related and other
circumstances. (See "Variations of Policy Premiums,
Charges, and Credits.")
This prospectus contains detailed information about
these and other Policy features, including certain
restrictions and limitations which apply. This
Prospectus also discusses the way in which the return
earned by the Policy Value can affect a Policy's death
benefit and Surrender Value.
As in the case of other life insurance policies, it may
not be advantageous to purchase flexible premium
variable life insurance as a replacement for, or in
addition to, an existing flexible premium variable or
other life insurance policy.
THESE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, NOR
ARE THEY GUARANTEED OR ENDORSED BY, ANY BANK, CREDIT
UNION, BROKER-DEALER OR OTHER FINANCIAL INSTITUTION.
THEY ARE NOT FEDERALLY INSURED BY THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY; AND INVOLVE INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THIS PROSPECTUS IS NOT VALID UNLESS
PRECEDED OR ACCOMPANIED BY THE CURRENT PROSPECTUS FOR
FORTIS SERIES FUND, INC., WHICH CONTAINS ADDITIONAL
INFORMATION ABOUT THAT ENTITY.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE
REFERENCE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Index of Defined Words and Phrases........................................ 4
Summary................................................................... 5
- Fortis Benefits/Fortis Financial Group Member....................... 5
- Payment of Premiums................................................. 5
- Guaranteed Death Benefit............................................ 5
- Allocation of Premiums Among Various Alternatives................... 5
- Policy Value; Policy Value Advances; Cash Value Bonuses............. 6
- Surrenders.......................................................... 7
- Charges............................................................. 7
- Death Benefit....................................................... 8
- Optional Insurance Benefits......................................... 8
- Benefit at Maturity................................................. 8
- Policy Loans........................................................ 8
- Settlement Options.................................................. 9
- Taxes............................................................... 9
- Right to Return a Policy............................................ 9
- How to Exercise Your Rights Under a Policy.......................... 9
The Separate Account and Fortis Series Fund, Inc.......................... 10
- The Separate Account................................................ 10
- Financial and Performance Information............................... 11
- Fortis Series Fund, Inc............................................. 13
Policy Benefits........................................................... 13
- Death Benefit....................................................... 13
- Death Benefit Options............................................... 13
- Accelerated Benefit Rider........................................... 14
- Changes in Face Amount.............................................. 15
- Change in Death Benefit Option...................................... 16
- Policy Value........................................................ 16
- Policy Value Advances and Cash Value Bonuses........................ 16
- Calculation of Separate Account Policy Value........................ 18
- Separate Account Net Investment Return.............................. 18
Payment and Allocation of Premiums........................................ 18
- Issuance of a Policy................................................ 18
- Premiums............................................................ 19
- Allocation of Premiums and Policy Value............................. 21
- Policy Lapse and Reinstatement...................................... 22
Charges and Deductions.................................................... 23
- Premium Tax and Sales Charges; Other Policy Issuance Expense
Charges............................................................ 23
- Deductions to Recover Policy Value Advances......................... 25
- Monthly Deduction from Policy Value................................. 25
- Charge for Mortality and Expense Risks.............................. 27
- Miscellaneous....................................................... 27
- Guarantee of Certain Charges........................................ 27
Variations of Policy Minimums, Charges and Credits........................ 28
Loan Privileges........................................................... 28
- Rate Charged on Policy Loans........................................ 28
- Credited Rate for Policy Loans...................................... 28
- Effect of a Policy Loan............................................. 28
- Repayment of a Loan................................................. 29
Surrender and Partial Withdrawal.......................................... 29
Rights Reserved by Fortis Benefits........................................ 30
- Payment and Deferment............................................... 30
Distribution of the Policies.............................................. 31
Federal Tax Matters....................................................... 31
- Tax Status of the Policy............................................ 31
- Tax Status of Additional Insured Rider.............................. 32
- Taxation of Policy Benefits......................................... 32
- Taxation Under Section 403(b) Plans................................. 33
- Taxation of Fortis Benefits......................................... 34
</TABLE>
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<TABLE>
<CAPTION>
PAGE
<S> <C>
Other Policy Provisions................................................... 34
Management................................................................ 37
Voting Privileges......................................................... 37
Reports................................................................... 38
State Regulation.......................................................... 38
Legal Matters............................................................. 38
Experts................................................................... 38
Ratings and Rankings...................................................... 39
Financial Statements...................................................... 39
Appendix A................................................................ A-1
- Optional Income Plans............................................... A-1
- Optional Insurance Benefits......................................... A-1
Appendix B................................................................ B-1
- Illustrations of Death Benefits, Policy Values, Surrender Values and
Accumulated Premium................................................ B-1
- Policy Value Advances............................................... B-2
Appendix C................................................................ C-1
- The General Account................................................. C-1
- General Description................................................. C-1
- General Account Policy Value........................................ C-1
- Transfers, Surrenders and Policy Loans.............................. C-1
Variable Universal Life Service Request Form..............................
Life Insurance Section 1035 Exchange Form.................................
</TABLE>
THE POLICIES ARE NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. FORTIS BENEFITS DOES NOT AUTHORIZE ANY INFORMATION OR
REPRESENTATION REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS WHICH IS NOT
INCLUDED IN THIS PROSPECTUS OR ANY SUPPLEMENT THERETO OR IN ANY SUPPLEMENTAL
SALES MATERIAL AUTHORIZED BY FORTIS BENEFITS.
The purpose of the Policies is to provide insurance protection for the
beneficiary named therein. No claim is made that the Policies are in any way
similar or comparable to a systematic investment plan of a mutual fund.
<PAGE>
INDEX OF DEFINED WORDS AND PHRASES
Below are listed words and phrases used in this Prospectus, together with the
page or pages of this Prospectus on which each is defined or explained.
<TABLE>
<CAPTION>
PAGE
<S> <C>
Age....................................................................................... 34
Alternative Death Benefit................................................................. 12
Cash Value Bonuses........................................................................ 16
Contingent Deferred Sales Charge.......................................................... 22
Date of Receipt........................................................................... 33
Death Benefit Type A (Type "A")........................................................... 12
Death Benefit Type B (Type "B")........................................................... 12
Face Amount............................................................................... 17
Fortis Benefits........................................................................... 5
Fortis Series............................................................................. 12
General Account........................................................................... D-1
Grace Period.............................................................................. 21
Guaranteed Death Benefit.................................................................. 5
Guideline Annual Premium.................................................................. 23
Home Office............................................................................... 9
Minimum Premium........................................................................... 19
Monthly Deduction......................................................................... 25
Monthly Anniversary....................................................................... 18
Net Amount at Risk........................................................................ 25
Net Cash Value............................................................................ 21
NYSE...................................................................................... 17
Planned Periodic Premium.................................................................. 18
Policy Anniversary........................................................................ 18
Policy Date............................................................................... 18
Policy Value.............................................................................. 15
Policy Value Advance...................................................................... 15
Portfolio................................................................................. 12
Pro Rata Basis............................................................................ 25
Separate Account.......................................................................... 9
Subaccount................................................................................ 10
Surrender Charge.......................................................................... 24
Surrender Value........................................................................... 7
Valuation Date............................................................................ 17
Valuation Period.......................................................................... 17
1940 Act.................................................................................. 12
</TABLE>
4
<PAGE>
SUMMARY
FORTIS BENEFITS/FORTIS FINANCIAL GROUP MEMBER
Fortis Benefits Insurance Company ("Fortis Benefits"), the issuer of the
Policies, was founded in 1910. At the end of 1996, Fortis Benefits had
approximately $91 billion of total life insurance in force. Fortis Benefits is a
Minnesota Corporation and is qualified to sell life insurance and annuity
contracts in the District of Columbia and in all states except New York. Fortis
Benefits is an indirectly wholly-owned subsidiary of Fortis, Inc., which is
itself indirectly owned 50% by Fortis AMEV nv and 50% by Fortis AG. Fortis, Inc.
manages the United States operations for these two companies.
Fortis Benefits is a member of the Fortis Financial Group, a joint effort by
Fortis Benefits, Fortis Advisers, Inc., Fortis Investors, Inc., and Time
Insurance Company, offering financial products through the management, marketing
and servicing of mutual funds, annuities, and life insurance products.
Fortis AMEV is a diversified financial services company headquartered in
Utrecht, the Netherlands, where its insurance operations began in 1847. Fortis
AG is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis AMEV and Fortis AG
have merged their operating companies under the trade name of Fortis. The Fortis
group of companies is active in insurance, banking and financial services, and
real estate development in the Netherlands, Belgium, the United States, Western
Europe, and the Pacific Rim. Fortis had approximately $175 billion in assets as
of year-end 1996.
All of the guarantees and commitments under the Policies are general obligations
of Fortis Benefits, regardless of whether the Policy Value has been allocated to
the Separate Account or to the General Account. None of Fortis Benefits'
affiliated companies has any legal obligation to back Fortis Benefits'
obligations under the Policies.
PAYMENT OF PREMIUMS
At the time of Policy issuance, the Planned Periodic Premium must be, on an
annualized basis, at least the greater of (1) $10,000, or (2) twelve monthly
Minimum Premiums. The Planned Periodic Premiums are assumed to be level in the
first Policy year. If the Planned Periodic Premium is paid monthly, the initial
premium must at least equal two months' Planned Periodic Premiums. Thereafter,
subject to the limitations described under "Payment and Allocation of
Premiums--Premiums," premium payments may be made at any time and in any amount.
All Policies will specify a Planned Periodic Premium, but payment of this is
optional, except to the extent described above with respect to the initial
premium payment.
GUARANTEED DEATH BENEFIT
A Policy is guaranteed to stay in force if, as of each Monthly Anniversary, (1)
the cumulative amount of premiums paid to date, less the amount of any
outstanding Policy loans and cumulative partial withdrawals at least equals (2)
the cumulative monthly Minimum Premiums, assuming regular monthly payment. This
guarantee will generally be for the lesser of 12 years from the Policy Date or
until Age 65 (or for 5 years if Age 60 to 70 at issue). After Age 70, the
guarantee is for the greater of two years or to Age 75. For Policies issued
after May 1, 1995, or as soon thereafter as available in the state where the
policy is issued, the guarantee for insureds rated other than standard is for
the lesser of the guarantee period for their Age or five years. The guarantee
period may be shorter in some states due to state limitations. Subject to these
conditions, there is in effect a "Guaranteed Death Benefit" in the amount of the
Policy's then-current Face Amount and term rider coverages. The initial monthly
Minimum Premiums are specified in each Policy, and additional Minimum Premium
payments will be necessary to keep this guarantee in effect if the Face Amount
of the Policy or rider benefits are increased. See "Guaranteed Death Benefit"
under "Payment and Allocation of Premiums--Premiums."
If the Guaranteed Death Benefit is not in effect, a Policy will lapse if the Net
Cash Value becomes insufficient to pay the continuing charges and deductions.
See "Payment and Allocation of Premiums--Policy Lapse and Reinstatement" and
"Charges and Deductions--Premium Tax and Sales Charges; Other Policy Issuance
Expense Charges." Premium payments in excess of the Planned Periodic Premium
payments may therefore be necessary to keep a Policy in force.
ALLOCATION OF PREMIUMS AMONG VARIOUS ALTERNATIVES
The owner of a Policy may allocate premiums paid under a Policy to one or more
of the Subaccounts of Variable Account C, a separate investment account of
Fortis Benefits (see "The Separate Account and Fortis Series Fund, Inc.") and/or
to Fortis Benefits' General Account. The assets in each of the current
Subaccounts are invested in a separate class (or series) of stock of Fortis
Series Fund, Inc. ("Fortis Series"), a "series" type of mutual fund. Each class
of stock represents a separate investment Portfolio within Fortis Series. The
investment Portfolios of Fortis Series which are currently available are the
Aggressive Growth Series, the International Stock Series the Global Growth
Series, the Growth Stock Series, the Blue Chip Stock Series, the S&P 500 Index
Series, the Growth and Income Series, the Value
5
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Series, the Asset Allocation Series, the Global Asset Allocation Series, the
High Yield Series, the Global Bond Series, the Diversified Income Series, the
U.S. Government Securities Series and the Money Market Series. Premiums
allocated to the General Account are held as part of Fortis Benefits' general
investment assets. See Appendix C--"The General Account."
Each Portfolio has a different investment objective and is managed by Fortis
Advisers, Inc. For providing investment management services to the Portfolios,
Fortis Advisers, Inc. currently receives a fee from the Funds. Fortis Series
Fund annual expenses, as a percentage of average net assets based on 1996
historical data, are as set out in the following table:
FORTIS SERIES ANNUAL EXPENSES
<TABLE>
<CAPTION>
U.S. GLOBAL
MONEY GOVERNMENT DIVERSIFIED GLOBAL HIGH ASSET ASSET
MARKET SECURITIES INCOME BOND YIELD ALLOCATION ALLOCATION
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
-------- ----------- ------------ -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory and
Management Fee.......... .30% .46% .47% .75% .50% .48% .90%
Other Expenses........... .08% .07% .08% .27% .13% .06% .30%
Total Fortis Series
Operating Expenses...... .38% .53% .55% 1.02% .63% .54% 1.20%
<CAPTION>
INTER-
GROWTH & S&P BLUE GLOBAL GROWTH NATIONAL AGGRESSIVE
VALUE INCOME 500 INDEX CHIP STOCK GROWTH STOCK STOCK GROWTH
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
-------- --------- --------- ---------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory and
Management Fee.......... .70% .68% .40% .90% .70% .62% .85% .70%
Other Expenses........... .17% .08% .39% .23% .09% .05% .30% .08%
Total Fortis Series
Operating Expenses...... .87% .76% .79% 1.13% .79% .67% 1.15% .78%
</TABLE>
The International Stock Series, the Blue Chip Stock Series, the S&P 500 Index
Series, the Global Asset Allocation Series and the Global Bond Series has each
retained a sub-adviser to provide investment research, advice and supervision
subject to the general control of Fortis Advisers, Inc. Lazard Freres Asset
Management is the sub-adviser of the International Stock Series; T.Rowe Price
Associates, Inc. is the sub-adviser of the Blue Chip Stock Series; The Dreyfus
Corporation is the sub-adviser of the S&P 500 Index Series; Morgan Stanley Asset
Management Limited is the sub-adviser of the Global Asset Allocation Series; and
Warburg Investment Management International Ltd. is the sub-adviser of the
Global Bond Series.
From its advisory fee, Fortis Advisers, Inc. pays the sub-advisers a fee at an
annual rate as follows: For International Stock Series, .45% of the first $100
million of such Series' average daily net assets, and .375% thereafter; for Blue
Chip Stock Series .5% of the first $100 million of average daily net assets, and
.45% thereafter; for S&P 500 Index Series . 17% of average daily net assets; for
Global Asset Allocation Series, .5% of the first $100 million of such assets,
and .4% thereafter; and for the Global Bond Series, .35% of the first $100
million of such assets, and .225% thereafter.
For a full description of the Portfolios, see the prospectus for Fortis Series
which accompanies this Prospectus and the Statement of Additional Information
referred to therein.
A Policy owner may change allocations of future premiums at any time without
charge by submitting a written request in form acceptable to Fortis Benefits,
subject to certain limitations. See "Payment and Allocation of
Premium--Allocation of Premiums and Policy Value." Because investment
performance of a Subaccount (unlike that of the General Account) is not
guaranteed by Fortis Benefits, allocation of premiums to a Subaccount increases
the amount of the investment risk to the Policy owner, and allocation to the
General Account decreases such risk. However, the potential benefit of the
General Account is limited to the guaranteed return, plus any discretionary
return declared by Fortis Benefits.
TRANSFERS OF POLICY VALUE. A Policy owner may transfer amounts among the
Subaccounts at any time. Transfers may also be made at any time from a
Subaccount to the General Account. The Policy owner, under Fortis Benefits'
current rules, may transfer up to 50% of any unloaned Policy Value in the
General Account to one or more Subaccounts. This transfer may be made only once
during the Policy Year.
For additional conditions and limitations on transfers, see "Payment and
Allocation of Premiums--Allocation of Premiums and Policy Value" and Appendix
C--"Transfers, Surrenders and Policy Loans."
POLICY VALUE; POLICY VALUE ADVANCES; CASH VALUE BONUSES
POLICY VALUE. The "Policy Value" is the amount "at work" for the Policy owner
earning a return in the Separate Account and/or in the General Account at any
time. It is (1) the cumulative amount of premiums paid to date, (2) less any
withdrawals and less all deductions and charges imposed to date under the
Policy, (3) plus the cumulative amount of any Policy Value Advances and Cash
Value Bonuses, (4) plus the cumulative net amount of positive or negative
investment
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return earned to date on amounts allocated to the Separate Account under the
Policy, (5) plus the cumulative net amount of interest earned to date on amounts
held in the General Account under the Policy.
POLICY VALUE ADVANCES. Policy Value Advances will be paid by Fortis Benefits
starting at the end of the seventh Policy year, if the Policy owner has met
certain Minimum Premium payment requirements. If allowed in the state in which
the Policy is issued, these advances are guaranteed. Policy Value Advances are
credited to the Policy Value, but may be subject to recovery by Fortis Benefits
pursuant to subsequent monthly and daily deductions. See "Policy
Benefits--Policy Value Advances."
CASH VALUE BONUSES. Cash Value Bonuses will be paid by Fortis Benefits starting
at the end of the ninth Policy year if the Surrender Value is at least $50,000.
If allowed in the state in which the Policy is issued these Cash Value Bonuses
are guaranteed. See "Policy Benefits--Policy Value Advances and Cash Value
Bonuses."
SURRENDERS
A Policy may be surrendered at any time for all of its Surrender Value, and part
of the Surrender Value may be withdrawn up to once a year, generally after the
first Policy year. See "Surrender and Partial Withdrawal." The Surrender Value
is the Policy Value, less the amount of the Surrender Charge (referred to
below), less the amount of any outstanding Policy loan and plus the amount of
any policy loan interest paid for future periods (see"Loan Privileges"). If
Death Benefit Type A is in effect, a partial withdrawal will reduce the Policy's
Face Amount on a dollar-for-dollar basis.
CHARGES
In addition to Fortis Series' expenses, the following charges are imposed under
the Policies:
PREMIUM TAX CHARGE. The current premium tax charge is 2.2% of all premium
payments. Rather than being deducted from premium payments, this charge is
assessed through periodic deductions from Policy Value, and any balance of the
current premium tax charge may be deducted as part of the Surrender Charge
referred to below. Periodic deductions for the current premium tax charge will
not exceed $.91 per Policy each month, plus a daily deduction at an annual rate
of .06124% of the Policy's net assets in the Separate Account.
SALES CHARGES. The maximum total sales charges are 29.5% of the amount of
premiums paid in the first two Policy years that are not in excess of the sum of
twelve monthly Minimum Premiums, plus 7.5% of all additional premiums. Rather
than being deducted from premiums, sales charges are assessed through periodic
deductions from Policy Value, and any balance of the sales charges may be
deducted as a Contingent Deferred Sales Charge that would be included as part of
the Surrender Charge. The periodic deductions for sales charges will not exceed
$3.09 per Policy each month plus a daily deduction at an annual rate of .20876%
of the Policy's net assets in the Separate Account.
CHARGE FOR OTHER POLICY ISSUANCE EXPENSES. This charge is $5.00 per thousand
dollars of a Policy's initial Face Amount. It will be deducted, if at all, only
as part of the Surrender Charge.
SURRENDER CHARGE. The maximum Surrender Charge is the sum of (1) any premium tax
and sales charges not previously deducted on a monthly or daily basis, as
described above, and (2) the charge for other Policy issuance expenses referred
to above. The Surrender Charge (a) is imposed only if the Policy is surrendered
in full or lapses before the eleventh Policy Anniversary and (b) is subject to
certain maximums that decrease over time. See "Charges and Deductions--Premium
Tax and Sales Charges; Other Policy Issuance Expense Charges."
ADDITIONAL CHARGES AS A RESULT OF FACE AMOUNT INCREASES. If the Policy owner
requests a Face Amount increase, the Policy will be subject to additional
premium tax and sales charges and a charge for issuing the Face Amount increase.
These will be imposed at the same rates and in the same manner as described
above for the similar charges in connection with the original Policy. See
"Charges and Deductions-- Premium Tax and Sales Charges; Other Policy Issuance
Expense Charges."
DEDUCTIONS TO RECOVER POLICY VALUE ADVANCES. Subject to certain conditions,
Policy owners will receive credits in the nature of Policy Value Advances
starting at the end of the seventh Policy year. See "Policy Benefits--Policy
Value Advances and Cash Value Bonuses." While it is not Fortis Benefits' current
intention to do so, Fortis Benefits reserves the right to recover such credits
by imposing the following deductions made after the payment of the credits:
$4.00 a month plus a daily deduction at an annual rate of .27% of the Policy's
net assets in the Separate Account. These deductions would continue until their
cumulative amount equals the cumulative amount of Policy Value Advances actually
credited to the Policy. During the period when these deductions are made to
recover the Policy Value Advances, there would be no similar monthly and daily
deductions for sales expenses and premium taxes discussed above. Once the amount
of any Policy Value Advances had been fully recovered, the monthly and daily
deductions for premium tax and
7
<PAGE>
sales charges would resume. In no event would a deduction be made to recover
Policy Value Advances if no such credit had been made. See "Charges and
Deductions--Deductions to Recover Policy Value Advances."
MONTHLY DEDUCTION. The Policy Value will be reduced by a Monthly Deduction equal
to the sum of (1) the monthly deduction referred to above under "Premium Tax
Charge" and "Sales Charges" or "Deductions to Recover Policy Value Advances,"
whichever may then be in effect, (2) a monthly cost of insurance charge, (3)
while the Guaranteed Death Benefit is in effect, a monthly charge for such
guarantee in the amount of $.01 per $1,000 of Face Amount in effect on the date
of the deduction, (4) the monthly cost of any optional insurance benefits added
by rider, and (5) an administrative expense charge, currently $4.50 per month.
See "Charges and Deductions--Monthly Deduction From Policy Value."
RISK CHARGE. A daily charge at an annual rate of .90% of the average daily net
assets attributable to Policies in each Subaccount of the Separate Account is
imposed to compensate Fortis Benefits for its assumption of certain mortality
and expense risks. See "Charges and Deductions--Charge for Mortality and Expense
Risks."
Subject to certain limitations, the charge for cost of insurance, the monthly
administrative expense charge, the premium tax charge, the charge for certain
optional insurance riders, and the amount of Minimum Premiums may be increased
in the future. Fortis Benefits also reserves the right to recover Policy Value
Advances and to raise the current premium tax charge assessed through periodic
deductions to 2.5% and also to deduct an additional premium tax charge of up to
2.5% of each premium payment and to impose charges for other taxes that may be
payable and are attributable to the policies. As to charges that may be imposed
or increased in the future, see generally "Charges and Deductions."
DEATH BENEFIT
The Policy provides for the payment of a benefit upon the death of the insured
pursuant to one of two options, as selected in advance by the Policy owner.
Under Death Benefit Type A, the death benefit is the Face Amount of the Policy.
Under Death Benefit Type B, the death benefit is the Face Amount of the Policy
plus the Policy Value on the date of death. If greater than the death benefit
otherwise payable under Type A or Type B, an Alternative Death Benefit equal to
a multiple (determined by Age at death) of the Policy Value will be paid. See
"Policy Benefits--Death Benefit." The death benefit payable will in any case be
reduced by any outstanding Policy loan and any due and unpaid charges accrued
during the Grace Period.
Subject to certain limitations and conditions, the Policy owner may (1) increase
or (generally after the first Policy year) decrease the Face Amount of the
Policy or (2) once a year, change the death benefit from Type A to Type B or
from Type B to Type A. See "Changes in Face Amount" and "Change in Death Benefit
Option" under "Policy Benefits." Any increase in the Face Amount or change in
death benefit from Type A to Type B requires additional evidence of insurability
satisfactory to Fortis Benefits. An increase in Face Amount requested by the
Policy owner will result in additional charges. See "Premium Tax and Sales
Charges: Other Policy Issuance Expense Charges" and "Monthly Deduction From
Policy Value" under "Charges and Deductions." A requested increase in Face
Amount will also increase the monthly Minimum Premiums, See "Minimum Premiums"
under "Payment and Allocation of Premiums--Premiums." Decreases in Face Amount
may result in a decrease in the Surrender Charge and the monthly Minimum Premium
for certain purposes. See "Policy Benefits--Changes in Face Amount."
OPTIONAL INSURANCE BENEFITS
A Policy owner has the flexibility to add optional insurance benefits by rider,
to the extent available in the Policy owner's state. These optional benefits are
described in Appendix A-- "Optional Insurance Benefits."
BENEFIT AT MATURITY
Unless the Policy owner exercises an option to extend the maturity date of the
Policy, the Policy matures if the insured reaches Age 95. See "Other Policy
Provisions--Option to Extend the Maturity Date." When the Policy matures, the
Policy Value, less the amount of any outstanding Policy loan, will be paid to
the Policy owner, upon return of the Policy.
POLICY LOANS
A Policy owner may borrow up to 90% of the difference between the Policy Value
and the amount of any then-appli-
cable Surrender Charge. After the later of 12 years or the insured's Age 70, the
Policy owner may borrow up to 100% of such difference. In Texas, the Policy
owner may also borrow up to 100% of the Policy Value in the General Account,
less a pro-rata portion of the Surrender Charge. The interest rate credited on
loaned amounts is 4%, and the interest rate charged on loans is 6.10% per year
(5.66% per year in Massachusetts), payable in advance, except to the extent that
certain Policy owners may qualify for a lower loan interest rate. See "Loan
Privileges."
8
<PAGE>
SETTLEMENT OPTIONS
Any amount payable on death of the insured or other termination of a Policy may
be received in cash or pursuant to one of several "settlement" options, at the
election of the Policy owner or beneficiary. See Appendix A--"Optional Income
Plans."
TAXES
For federal income tax purposes, under current law, Fortis Benefits believes
that gains in Policy Value resulting from positive net investment returns will
not be taxed to Policy owners until such gains are distributed to them.
Policy loan interest generally is not deductible for federal income tax
purposes. In addition, certain Policy loans, Policy pledges, or Policy
assignments may constitute taxable distributions.
Also, certain changes under a Policy (such as changes in Face Amount, death
benefit option, and perhaps other changes) or payment of premiums in excess of
certain amounts may have significant tax consequences. Accordingly, Policy
owners are strongly encouraged to consult competent tax advisers in this regard.
For a brief discussion of these and certain other tax implications of owning a
Policy, see "Federal Tax Matters."
RIGHT TO RETURN A POLICY
The Policy owner may return the Policy by delivery or by mailing postmarked
within 10 days after receipt (except where the Policy or state law requires a
longer period), within 45 days after he or she signs Part I of the application
for insurance, or within 10 days after receipt of a Notice of Withdrawal Right,
whichever is the latest, and receive a refund within 7 days. Nevertheless, under
Fortis Benefits' current administrative practice, the Notice of Withdrawal Right
will continue to be accepted if its Date of Receipt is not more than 20 days
after Fortis Benefits releases the Policy to an active status in its processing
system, pursuant to its administrative and underwriting procedures. The amount
refunded will be the amount of premiums paid. See "Policy Benefits--Changes in
Face Amount" for a description of similar rights to cancel any increases in Face
Amount.
HOW TO EXERCISE YOUR RIGHTS UNDER A POLICY
To exercise rights under a Policy, the owner must follow the procedures stated
in the Policy. To request a loan, surrender, or partial withdrawal, the owner
must utilize forms prepared by Fortis Benefits for each purpose; and it is
recommended that Fortis Benefits' forms also be used for making any other change
or request. The forms are available from your sales representative or from
Fortis Benefits at its Home Office: P.O. Box 64582, St. Paul, MN 55164,
1-800-800-2638, extension 3028. Should a request be received for a loan,
surrender or partial withdrawal that is not on Fortis Benefits' form, the proper
form will be sent to the Policy owner, and, in the case of a total surrender,
the owner will usually be contacted, as well. The completed forms, as well as
any premium payments, loan and interest payments, and all other communications
should also be submitted to Fortis Benefits' Home Office.
If a Policy owner has submitted a telephone authorization form which has been
received by Fortis Benefits, transfers of Policy Value may be made by telephone.
The number to call for this purpose is 1-800-800-2638, extension 3028. Fortis
Benefits will not be responsible for, and the Policy owner will bear the risk of
loss from, oral instructions, including fraudulent instructions which are
reasonably believed to be genuine. Fortis Benefits will employ reasonable
procedures to confirm that telephone instructions are genuine, but if such
procedures are not deemed reasonable, Fortis Benefits may be liable for any
losses due to unauthorized or fraudulent instructions. Fortis Benefits'
procedures are to verify address and social security number, tape record the
telephone call and provide written confirmation of the transaction. Fortis
Benefits reserves the right to modify, condition or terminate this telephone
privilege at any time without prior notice. A Variable Universal Life Service
Request form is attached at the end of this Prospectus.
Fortis Benefits reserves the right to require return of the Policy with any
request which makes a change in the Policy. After effecting the requested
change, Fortis Benefits will deliver a revised Policy to the Policy owner.
Currently, however, Fortis Benefits requires the Policy to be returned only on
maturity, total surrender or death of the insured. If the Policy owner is unable
to return the Policy because it has been lost or destroyed, Fortis Benefits will
accept a written statement to that effect signed by the Policy owner in lieu of
return of the Policy.
Unless the context indicates otherwise, the foregoing Summary and the discussion
in the rest of this Prospectus assume that Net Cash Values are sufficient to pay
all charges deducted on Monthly Anniversaries and that no Policy loans have been
made.
9
<PAGE>
THE SEPARATE ACCOUNT AND FORTIS SERIES FUND, INC.
THE SEPARATE ACCOUNT
The Separate Account, which is a segregated investment account of Fortis
Benefits, was established as Variable Account C by Fortis Benefits pursuant to
the insurance laws of Minnesota as of March 13, 1986. The Separate Account is
used to fund the Policies, as well as certain other variable life insurance
policies issued by Fortis Benefits. The assets allocated to the Separate Account
are the property of Fortis Benefits. Although the Separate Account is an
integral part of Fortis Benefits, the Separate Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act"). Registration does not involve
supervision of the management or investment practices or policies of the
Separate Account or of Fortis Benefits by the Commission.
All income, gains and losses, whether or not realized, from assets allocated to
the Separate Account are credited to or charged against the Separate Account
without regard to other income, gains or losses of Fortis Benefits. Each Policy
provides that assets in the Separate Account representing reserves for variable
life insurance policies shall not be chargeable with liabilities arising out of
any other business of Fortis Benefits. Fortis Benefits contributed funds to
establish various Subaccounts of the Separate Account and Fortis Benefits or its
affiliated companies may accumulate in the Separate Account proceeds from
charges under the Policies and other amounts in excess of the Separate Account
assets representing Policy reserves. Fortis Benefits may from time to time
transfer to its general investment assets any Separate Account assets in excess
of amounts attributable to Policy reserves.
The assets in each Subaccount are invested in a distinct class (or series) of
stock issued by Fortis Series, each representing a separate investment Portfolio
within Fortis Series. New Subaccounts may be added as new Portfolios are added
to Fortis Series and made available to Policy owners. Correspondingly, if any
Portfolios are eliminated from Fortis Series, Subaccounts may be eliminated from
the Separate Account.
10
<PAGE>
FINANCIAL AND PERFORMANCE INFORMATION
The information presented below reflects the performance of the underlying
investment portfolios of the Fortis Series Fund through December 31, 1996.
Annual rates of return reflect Fortis Series Fund's expenses and investment
gains and losses. They also reflect asset-based charges against the Separate
Account, consisting of the .90% mortality and expense risk charge and the .27%
premium tax and sales charge. They do not reflect current policy fees nor the
cost of insurance or Surrender Charges (See "Charges and Deductions" for a full
description of these charges). These charges reduce the performance quoted. The
example below shows the effect of all such charges that may apply to the Policy
based on the performance quoted.
NET ANNUAL RATES OF RETURN FOR ACCUMULATION
UNITS OF SUBACCOUNTS
<TABLE>
<CAPTION>
THROUGH
DECEMBER 31, 10
CALENDAR YEAR 1996 YEARS
THROUGH DECEMBER 31 ------------ OR
INCEPTION ------------------------------------------------------------------ 1 5 AVG SINCE
DATE 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 YEAR YEARS INCEPTION
--------- ---- ---- ----- ------ ----- ---- ----- ----- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aggressive Growth........ 5/94 N/A N/A N/A N/A N/A N/A N/A (2.65) 28.38 6.38 6.38 N/A 11.25
International Stock...... 1/95 N/A N/A N/A N/A N/A N/A N/A N/A 13.05 12.68 12.68 N/A 12.90
Global Growth............ 5/92 N/A N/A N/A N/A N/A N/A 16.55 (4.11) 28.97 17.71 17.71 N/A 14.30
Growth Stock............. 10/86 10.03 3.23 34.94 (4.23) 51.71 1.78 7.52 -3.95 26.18 15.05 15.05 8.82 13.01
Blue Chip Stock.......... 5/96 N/A N/A N/A N/A N/A N/A N/A N/A N/A 15.40 N/A N/A N/A
S & P 500 Index.......... 5/96 N/A N/A N/A N/A N/A N/A N/A N/A N/A 13.36 N/A N/A N/A
Growth & Income.......... 5/94 N/A N/A N/A N/A N/A N/A N/A 0.95 28.20 20.09 20.09 N/A 17.95
Value.................... 5/96 N/A N/A N/A N/A N/A N/A N/A N/A N/A 10.61 N/A N/A N/A
Global Asset
Allocation............... 1/95 N/A N/A N/A N/A N/A N/A N/A N/A 16.11 11.40 11.40 N/A 13.77
Asset Allocation......... 4/87 N/A 2.56 22.25 0.82 26.16 5.70 8.51 (1.47) 20.56 11.19 11.19 8.66 9.71
Global Bond.............. 1/95 N/A N/A N/A N/A N/A N/A N/A N/A 17.64 2.05 2.05 N/A 9.59
High Yield............... 5/94 N/A N/A N/A N/A N/A N/A N/A (1.54) 11.46 9.22 9.22 N/A 7.02
Diversified Income....... 5/88 N/A N/A 10.98 7.60 13.33 5.83 11.44 (6.34) 15.92 2.93 2.93 5.68 7.28
U.S. Gov't Securities.... 11/86 0.43 5.17 11.74 6.67 13.03 4.90 8.18 (7.54) 17.43 1.00 1.00 4.47 5.88
Money Market............. 11/86 4.57 5.54 8.17 6.61 4.69 2.15 1.57 2.70 4.50 3.94 3.94 2.96 4.43
</TABLE>
- ------------------------------
Wall Street Series VUL500 was not offered for sale prior to September 1992.
11
<PAGE>
Example: If a male nonsmoker insured age 45 had a Policy with a Type A Death
Benefit of $800,000 in which he invested $15,000 annually, the Policy would have
provided the following benefits as of December 31, 1996, for the time periods
and subaccounts indicated:
<TABLE>
<CAPTION>
ONE YEAR FIVE YEARS
--------------------------- ---------------------------
TOTAL POLICY SURRENDER TOTAL POLICY SURRENDER
INVESTMENT VALUE VALUE INVESTMENT VALUE VALUE
------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth... $15,000 $13,453 $6,209 -- -- --
International
Stock............... $15,000 $13,944 $6,698 -- -- --
Growth Stock........ $15,000 $13,947 $6,702 $75,000 $ 84,537 $74,937
Global Growth....... $15,000 $14,597 $7,353 -- -- --
Blue Chip........... -- -- -- -- -- --
S & P 500 Index..... -- -- -- -- -- --
Growth & Income..... $15,000 $14,571 $7,325 -- -- --
Value............... -- -- -- -- -- --
Global Asset
Allocation.......... $15,000 $13,784 $6,538 -- -- --
Asset Allocation.... $15,000 $13,524 $6,278 $75,000 $ 81,405 $71,805
High Yield.......... $15,000 $13,315 $6,069 -- -- --
Global Bond......... $15,000 $12,722 $5,474 -- -- --
Diversified
Income.............. $15,000 $12,651 $5,403 $75,000 $ 71,326 $61,726
U.S. Government..... $15,000 $12,431 $5,182 $75,000 $ 69,286 $59,686
Money Market........ $15,000 $12,937 $5,690 $75,000 $ 66,673 $57,073
</TABLE>
<TABLE>
<CAPTION>
TEN YEARS SINCE INCEPTION
--------------------------- ----------------------------
TOTAL POLICY SURRENDER TOTAL POLICY SURRENDER
INVESTMENT VALUE VALUE INVESTMENT VALUE VALUE
------ --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth... -- -- -- $45,000 $ 44,771 $35,171
International
Stock............... -- -- -- $30,000 $ 29,820 $21,249
Growth Stock........ $150,000 $253,680 $250,938 $165,000 $269,426 $286,054
Global Growth....... -- -- -- $75,000 $ 91,776 $82,176
Blue Chip........... -- -- -- $15,000 $ 15,143 $7,869
S & P 500 Index..... -- -- -- $15,000 $ 14,767 $7,943
Growth & Income..... -- -- -- $45,000 $ 51,018 $41,418
Value............... -- -- -- $15,000 $ 14,498 $7,224
Global Asset
Allocation.......... -- -- -- $30,000 $ 29,694 $21,123
Asset Allocation.... -- -- -- $150,000 $211,157 $208,415
High Yield.......... -- -- -- $45,000 $ 42,342 $32,742
Global Bond......... -- -- -- $30,000 $ 26,982 $18,406
Diversified
Income.............. -- -- -- $135,000 $153,385 $149,270
U.S. Government..... $150,000 $168,589 $165,846 $165,000 $185,267 $183,895
Money Market........ $150,000 $152,300 $149,557 $165,000 $167,820 $166,447
</TABLE>
These benefits will differ for other insureds. They will differ according to
differences in investment allocation, premium timing and amount, death benefit
type and amount as well as Age and underwriting classification of the insured.
Because the Policies are insurance policies, actual performance should always be
considered in context with the level of death benefit and cash values.
The performance data is historical; future performance will vary.
12
<PAGE>
FORTIS SERIES FUND, INC.
Fortis Series is a "series" type of mutual fund which is registered with the
Securities and Exchange Commission as a diversified open-end management
investment company under the 1940 Act. Fortis Series has served as the
investment medium for the Separate Account since the Separate Account commenced
operations. Fortis Series is also an investment medium for Variable Account D of
Fortis Benefits, through which variable annuity contracts are issued. Although
Fortis Benefits does not foresee any material conflicts between the interests of
Policy owners and variable annuity contract owners, Fortis Series' Board of
Directors will monitor to identify any material irreconcilable conflicts that
may develop and to determine what action, if any, should be taken in response.
If it becomes necessary for any separate account to replace shares of any
Portfolio with another investment, the Portfolio may have to liquidate
securities on a disadvantageous basis.
Fortis Benefits purchases and redeems Fortis Series shares for the Separate
Account at their net asset value without the imposition of any sales or
redemption charges. Such shares represent interests in the Portfolios of Fortis
Series, each of which corresponds to one of the Subaccounts of the Separate
Account. Any dividend or capital gain distributions received from a Portfolio
that are attributable to Policies will be reinvested in shares of that Portfolio
at net asset value as of the date paid. Such distributions will have the effect
of reducing the net asset value of each share of the Portfolio and increasing
the number of Portfolio shares outstanding. However, the total Policy Value in
the corresponding Subaccount will not change as a result of any such
distribution.
Fortis Series' Portfolios are the Aggressive Growth, International Stock Series,
Global Growth, Growth Stock, Blue Chip Stock, S&P 500 Index, Growth and Income,
Value, Global Asset Allocation Series, Asset Allocation, High Yield, Global Bond
Series, Diversified Income, U.S. Government Securities and Money Market Series.
A full description of the Portfolios, their investment policies and
restrictions, their charges, the risks attendant to investing in them, and other
aspects of their operations is contained in the prospectus for Fortis Series
accompanying the Prospectus and in the Statement of Additional Information
referred to therein. The complete risk disclosure in the Prospectus for the
Global Asset Allocation Series, Asset Allocation, the High Yield Series, and the
Diversified Income Series should be read before selection of them for Policy
investment.
POLICY BENEFITS
DEATH BENEFIT
As long as the Policy remains in force, Fortis Benefits will, upon due proof of
the insured's death and return of the Policy, pay the insurance proceeds of the
Policy to the named beneficiary. Fortis Benefits will pay interest from the date
of death to the date of commencement of any optional income plan or to the date
of distribution at a minimum of 3 1/2% per annum. See Appendix A--"Optional
Income Plans."
The insurance proceeds are: (1) the death benefit provided under Type A or Type
B, whichever is in effect on the date of death, plus (2) any additional
insurance on the insured's life that is provided by rider, minus (3) any
outstanding Policy loan and any due and unpaid charges accruing during a Grace
Period, plus (4) any loan interest paid by the Policy owner for periods beyond
the date of death.
DEATH BENEFIT OPTIONS
The Policy owner selects one of the two below-described death benefit options in
the application and can thereafter change the option once each Policy year, by
written request. See "Change in Death Benefit Option," below.
TYPE A. The death benefit is equal to the Face Amount of insurance.
TYPE B. The death benefit is equal to the Face Amount of insurance plus the
Policy Value at the date of death.
ALTERNATIVE DEATH BENEFIT. Under either Type A or Type B, there is an
Alternative Death Benefit which applies if it provides a death benefit greater
than the death benefit option chosen. The Alternative Death Benefit is a
multiple of the Policy Value at the date of death as set forth in the table
below.
<TABLE>
<CAPTION>
AGE OF INSURED MULTIPLE OF
AT DEATH POLICY VALUE
<S> <C>
40 or less 2.50
45 2.15
50 1.85
55 1.50
60 1.30
65 1.20
70 1.15
75 1.05
80 1.05
85 1.05
90 1.05
95 1.00
</TABLE>
13
<PAGE>
For Ages not listed, the progression between the listed Ages is constant.
Both Type A and Type B provide insurance protection, as well as possible
build-up of Policy Value. Under Type A, the insurance coverage remains level
unless the Alternative Death Benefit applies. Under Type B, the insurance
coverage varies as the Policy Value changes.
For any Face Amount, the death benefit under Type B will be greater than or
equal to that under Type A, since the Policy Value is added to the Face Amount
and included in the death benefit under Type B but not under Type A. However,
the cost of insurance included in the Monthly Deduction (see "Charges and
Deductions--Monthly Deduction From Policy Value") will be greater, and thus the
accumulation of Policy Value will be lower, under Type B than under Type A,
assuming the same Face Amount and otherwise identical Policies. See Appendix
B--"Illustrations of Death Benefits, Policy Values, Surrender Values and
Accumulated Premiums."
ACCELERATED BENEFIT RIDER
The Accelerated Benefit Rider will be issued as a part of all Policies issued in
a state that has approved such rider. The Accelerated Benefit Rider allows a
Policy owner to receive benefits from the Policy that would be otherwise payable
upon the death of the insured. The benefits paid under the Accelerated Benefit
Rider are available when Fortis Benefits has received written notice and
satisfactory proof (a certificate by a doctor) that the insured has a life
expectancy of twelve months or less due to an irreversible medical condition.
The benefit may vary state-by-state and a Fortis Benefits representative should
be consulted as to whether, and to what extent, the rider is available in any
particular state.
The Accelerated Benefit Rider allows the Policy owner to elect an accelerated
payment of all or part of the death benefit under the Policy and any term
insurance rider that is less than two years prior to the original expiry or
maturity date. The accelerated payment will be discounted for twelve months'
interest and will be reduced by any outstanding loan if not otherwise paid,
multiplied by the percentage of the eligible amount which is accelerated. The
interest rate discount will be equal to the lesser of (1) the applicable federal
interest rate determined under Section 846(c)(2) of the Internal Revenue Code;
(2) the current maximum statutory adjustable policy loan interest rate; or (3)
10%. Fortis Benefits can furnish details about the amount of the benefit under
the Accelerated Benefit Rider available to an eligible Policy owner under a
particular Policy. The benefit will be paid in a lump sum unless otherwise
agreed to by Fortis Benefits.
The payment of a benefit must be approved in writing by any irrevocable
beneficiary and any collateral assignee. No benefit is available if the
insured's irreversible medical condition results from self-inflicted injury and
such injury occurs within the first two policy years (one year in Colorado and
North Dakota). If such injury occurs beyond such period, the amount that may be
requested may not include any part of the death benefit that was first effective
within a two year period (one year in Colorado and North Dakota) prior to such
injury.
All or part of the eligible amount may be accelerated under the Accelerated
Benefit Rider. If the death benefit is only partially accelerated, a Face Amount
at least equal to the minimum Face Amount required for the Policy or rider must
remain under the Policy or rider. The benefit payable must be at least
$2,500.00, or if smaller the entire eligible amount. If the entire eligible
amount is accelerated, the Policy or rider will terminate. If the entire
eligible amount is paid on the person who is insured under the base Policy, any
rider on the Policy that provides insurance on the life of any other person will
be administered according to the provisions in the rider concerning the death of
the person insured under the base Policy.
The maximum amount of any accelerated death benefit payable under a Policy and
all other policies issued by Fortis Benefits is $500,000.
If only a portion of the eligible amount is paid, the Policy and/ or rider will
remain in force. The amount of insurance, and the loan amount and Surrender
Value if the benefit is paid on the death benefit provided by the base Policy,
of the Policy or rider will be reduced as of the date of approval of the benefit
request by the percentage of the eligible amount which is accelerated. Future
monthly Minimum Premiums and cost of insurance will be adjusted as if (1) a loan
repayment were made equal to the reduction in the loan amount, (2) a withdrawal
were made equal to the reduction in Surrender Value, and (3) a face amount
decrease were made equal to the difference between the accelerated eligible
amount and the face amount decrease caused by withdrawal.
There is no charge for this rider provision as a part of your policy. However,
an administrative fee (not to exceed $300) will be charged at the time the
benefit is paid. The current fee is $50.
Fortis Benefits agrees that unless otherwise required by law, no benefit will be
paid if the Policy owner is required to elect it in order to meet the claims of
creditors or to obtain a government benefit. Receipt of payment of a benefit
under
14
<PAGE>
the Accelerated Benefit Rider may affect eligibility for government sponsored
benefit programs, such as Medicaid and Supplemental Security Income. The rider
can be terminated by request.
The Accelerated Benefit Rider is not a long term care rider or nursing home
insurance rider. The amount this rider pays may not be enough to cover medical,
nursing home or other bills. The benefit can be used for any purpose.
CHANGES IN FACE AMOUNT
INCREASE. A Policy owner may at any time increase the Face Amount of a Policy,
subject to the conditions discussed below.
The minimum Face Amount increase is currently $5,000, and all other requirements
are as if the increase were a separate Policy. Increases in Face Amount may be
made only if the Surrender Value after the increase is large enough to cover at
least the Monthly Deduction for the Policy month following the increase. Any
increase may require that additional evidence of insurability be submitted to
Fortis Benefits. No Face Amount increase will be permitted if benefits are being
paid under the terms of a Waiver of Monthly Deductions Rider or the Waiver of
Selected Amount Rider. See Appendix A-- "Optional Insurance Benefits." Fortis
Benefits reserves the right to establish different maximum or minimum amounts
for future Face Amount increases.
Following a Face Amount increase requested by the Policy owner, additional sales
and issuance charges will be applicable. See "Charges and Deductions--Premium
Tax and Sales Charges; Other Policy Issuance Expense Charges." An increase in
Face Amount requested by the Policy owner also will increase the monthly Minimum
Premium and the Guaranteed Death Benefit charge. See "Minimum Premiums" under
"Payment and Allocation of Premiums--Premiums."
The Policy owner may cancel the Face Amount increase. The cancellation request
must be delivered or mailed to Fortis Benefits by letter postmarked (1) within
10 days after receipt of a Policy schedule amendment reflecting any requested
Face Amount increase, (2) within 45 days after the Policy change application for
such increase is signed, or (3) within 10 days after receipt of a Notice of
Withdrawal Right, whichever is latest. Upon such a cancellation, Monthly
Deductions, including rider costs, arising from the increase are credited to the
Policy Value. No premiums paid will be refunded, except that Fortis Benefits
will promptly refund premiums to the extent necessary to cure any violation of
the then current maximum premium limitations under Section 7702 of the Internal
Revenue Code of 1986, as amended (the "Code"). See "Payment and Allocations of
Premiums--Premiums." The Surrender Charge and the monthly Minimum Premium will
be adjusted to the level they would have been in the absence of the Face Amount
increase.
Also, during the first two years following a Face Amount increase requested by a
Policy owner, the Policy owner may transfer all or part of the Policy Value to
the General Account without charge. See "Policy Value Transfers" under "Payment
and Allocation of Premiums--Allocation of Premiums and Policy Values." Such a
transfer to the General Account could be made, for example, in the amount of any
premiums paid which are deemed attributable to the increase. See "Charges and
Deductions--Premium Tax and Sales Charges; Other Policy Issuance Expense
Charges" regarding the method of such attribution.
DECREASE. After the first Policy year, the Policy owner may request a decrease
in the Face Amount of the Policy. Face Amount decreases in the first two Policy
years will be allowed only if the cumulative amount of premiums paid are at
least equal to the sum of 12 monthly Minimum Premiums (computed without regard
to substandard risk class or optional policy riders). A comparable restriction
on decreases applies in the first two years following a Face Amount increase
requested by the Policy owner.
The Face Amount remaining in force after any requested decrease may not be less
than $500,000. No decrease in the Face Amount will be permitted if it would
result in any violation of the then current maximum premium limitations under
Section 7702 of the Code. If the Policy owner elects to decrease the Face
Amount, the Surrender Charge may be reduced (see "Charges and
Deductions--Premium Tax and Sales Charges; Other Policy Issuance Expense
Charges"). The monthly Minimum Premium, will also be reduced for purposes other
than computing sales charges. See "Minimum Premiums" under "Payment and
Allocation of Premiums--Premiums."
EFFECTIVE DATE. Any Face Amount increase or decrease will become effective on
the Monthly Anniversary on or next following (1) the Date of Receipt of the
request or (2) if evidence of insurability is required, the date Fortis Benefits
15
<PAGE>
approves the request. Nevertheless, there will be no insurance coverage under
any change in Face Amount or other change in benefits requiring evidence of
insurability, unless, at the time of delivery of a Policy schedule amendment
reflecting the change in benefits, the insured's health remains as stated in the
application for the change.
Commencing on its effective date, a change in the Face Amount generally will
also affect the Net Amount at Risk and may affect the insured's rate class, both
of which affect a Policy owner's monthly cost of insurance charge. (Net Amount
at Risk is the difference in amount between the death benefit and the Policy
Value.) See "Rate Class" under "Charges and Deductions--Monthly Deduction from
Policy Value." This in turn can affect the level of subsequent Policy Values and
death benefits.
CHANGE IN DEATH BENEFIT OPTION
The death benefit option in effect may be changed once each Policy year by
sending a written request in form acceptable to Fortis Benefits at its Home
Office. The effective date of any such change will be the Monthly Anniversary on
or following (1) the Date of Receipt of the request or (2) if evidence of
insurability is required, approval by Fortis Benefits.
A change from Type A to Type B requires evidence of insurability and results in
an automatic reduction in the Face Amount by the amount of Policy Value on the
effective date of the change. This change may not be made if it would result in
a Face Amount which is less than the minimum Face Amount, which is $500,000. Nor
will a change in death benefit option be permitted if it results in any
violation of the then current maximum premium limitations under Section 7702 of
the Code. See "Payment and Allocation of Premiums-- Premiums."
A change from Type A to Type B will not alter the death benefit at the time of
the change, but will affect the determination of the death benefit from then on.
Since, from then on, the Policy Value will be added to the new Face Amount, the
death benefit will vary with the Policy Value. Moreover, under Type B, the Net
Amount at Risk will not vary unless the Alternative Death Benefit is in effect.
Therefore, after a change from Type A to Type B, the cost of insurance will
generally be higher if the Policy Value increases, but lower if the Policy Value
decreases. See "Charges and Deductions-- Monthly Deductions From Policy Value."
Although a change from Type A to Type B results in an automatic reduction in
Face Amount, it will not result in any change in the charges from premium tax,
sales or other issuance expenses or in the monthly Minimum Premium.
If the death benefit option changes from Type B to Type A, the Face Amount will
be increased by the amount of the Policy Value on the effective date of the
change. The death benefit will not be altered at the time of the change.
However, the change in death benefit option will continue to affect the
determination of the death benefit from then on, because the Policy Value will
no longer be added to the Face Amount in determining the death benefit.
Therefore, after a change from Type B to Type A, the cost of insurance charges
will generally be lower if the Policy Value increases but higher if the Policy
Value decreases. See "Charges and Deductions-- Monthly Deductions From Policy
Value."
Although a change from Type B to Type A results in an automatic increase in the
Face Amount of a Policy, no additional sales charge or expense charge will be
imposed as a result of such a change, and no evidence of insurability will be
required. Nor will there be any change in the monthly Minimum Premium under a
Policy or any right to a refund of charges upon cancellation of the Face Amount
increase.
POLICY VALUE
The total Policy Value at any time is the sum of the Policy Values in the
General Account (see Appendix C--"The General Account" and "Loan Privileges")
and the Subaccounts of the Separate Account at such time.
The Policy Value in the Separate Account may increase or decrease on each
Valuation Date, depending on the investment return of the chosen Subaccounts.
See "Separate Account Net Investment Return," below. "Valuation Dates" are all
business days, except, with respect to any Subaccount, days on which the related
Fortis Series Portfolio does not value its shares. Valuations for any date other
than a Valuation Date will be determined as of the next Valuation Date.
POLICY VALUE ADVANCES AND CASH VALUE BONUSES
POLICY VALUE ADVANCES. A Policy may be eligible for a credit in the form of a
Policy Value Advance starting on the last day of the seventh Policy year. There
are limited guarantees applicable to these credits. These credits may be subject
to recovery by Fortis Benefits pursuant to the deductions described below.
Eligible Policies will receive a Policy Value Advance only if, as of the date of
the credit, the cumulative amount of premiums paid to date, less the amount of
any outstanding Policy loans and cumulative partial withdrawals taken by the
Policy owner, at least equals the cumulative monthly Minimum Premiums. For
purposes of meeting the premium payment requirement at the end of the seventh
Policy year, premium
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<PAGE>
payments made during that year in excess of 36 times the monthly Minimum Premium
at that time will be disregarded. If the premium requirement is not met for any
credit, no further Policy Value Advances will be paid.
For eligible Policies, Fortis Benefits currently intends to pay, at the end of
the seventh Policy year, and at the end of each subsequent Policy year prior to
the insured's Age 95, a percentage (specified below) of the average monthly
Minimum Premium to date under the Policy (calculated without regard to
substandard risks or optional riders, times 12.
CURRENT POLICY VALUE ADVANCE PERCENTAGES
<TABLE>
<CAPTION>
AGE OF POLICY YEARS
INSURED POLICY POLICY 9 AND LATER TO
AT ISSUE YEAR 7 YEAR 8 AGE 95
- -------------------------------------------------- ------- ------- --------------
<S> <C> <C> <C>
0-60.............................................. 2% 6% 10%
61-70............................................. 5% 7% 10%
71-80............................................. 6% 6% 6%
</TABLE>
The operation of the Policy Value Advances is further explained in Appendix B at
the end of this Prospectus and in the illustrations contained therein.
Subject to the guaranteed minimums set forth below, Fortis Benefits reserves the
right in its sole discretion to reduce the rate of Policy Value Advances. Policy
owners will be given one year's notice before any such reduction takes effect.
Fortis Benefits guarantees Policy Value Advances for eligible Policies at
specified rates. The guaranteed rates are based on the insured's Age at Policy
issue, as follows:
GUARANTEED POLICY VALUE ADVANCE PERCENTAGE
<TABLE>
<CAPTION>
AGE OF POLICY YEARS
INSURED POLICY POLICY 9 AND LATER TO
AT ISSUE YEAR 7 YEAR 8 AGE 95
- -------------------------------------------------- ------- ------- --------------
<S> <C> <C> <C>
0-60.............................................. 2% 6% 10%
61-70............................................. 2% 6% 7%
71-80............................................. 2% 5% 6%
</TABLE>
Policy Value Advances are guaranteed only to the extent allowed by the state in
which the Policy is issued.
While it is not Fortis Benefit's current intention to do so, Fortis Benefits
reserves the right to recover Policy Value Advances over time pursuant to
subsequent monthly and daily deductions. Accordingly, a Policy Value Advance
somewhat resembles an interest-free loan credited to the Policy. The amount of
such deductions however, may be less than (and will never exceed) the actual
amount of Policy Value Advances, irrespective of any return that may be earned
thereon in the Separate Account or in the General Account. Also, during any
period when deductions are being made to recover Policy Value Advances, the
similar deductions for premium tax and sales charges will be suspended, as
discussed under "Charges and Deductions--Premium Tax and Sales Charges; Other
Policy Issuance Expense Charges." Therefore, Policy Value Advances provide
Policy owners an opportunity to accumulate a greater amount of Policy Value than
they otherwise would have.
Policy Value Advances are designed to encourage Policy owners to retain their
Policies and to make Minimum Premium payments for a substantial period of time,
by offering Policy owners a potential economic benefit for doing so. In general,
Fortis Benefits also expects to derive an economic benefit to the extent the
Policies remain outstanding and Minimum Premiums continue to be paid.
CASH VALUE BONUSES. Fortis Benefits will credit Cash Value Bonuses at the end of
the ninth Policy year, and at the end of every Policy year thereafter to the
Policy Anniversary when the insured reaches Age 95, as set forth below:
<TABLE>
<CAPTION>
BONUS AS A PERCENT
BONUS AS A PERCENT OF OF SURRENDER VALUE
SURRENDER VALUE AT AT END OF
END OF POLICY YEARS
SURRENDER VALUE ON POLICY YEARS 20 AND LATER TO
DATE OF BONUS 9 THROUGH 19 AGE 95
- -------------------------- --------------------- ------------------
<S> <C> <C>
Less than $50,000......... .00% .00%
$50,000 to $299,999....... .10% .10%
$300,000 to $499,999...... .55% .55%
$500,000 or more.......... .55% .80%
</TABLE>
Cash Value Bonuses are guaranteed only to the extent allowed by the state in
which the Policy is issued.
ALLOCATION AND EFFECTS. Any Policy Value Advance and Cash Value Bonus will be
allocated among the General Account and the Subaccounts of the Separate Account
on a Pro Rata Basis. Following such allocation, these amounts will be credited
with investment performance and otherwise be treated the same as any other
amounts allocated to the Subaccounts or the General Account, as the case may be.
Thus, for example, any Policy Value Advance or Cash Value Bonus will increase
the Type B (but not the type A) death benefit under the Policy. Under a Type A
death benefit, Policy Value Advances and Cash Value Bonuses will result in
reduced cost of insurance charges. Conversely, if the above-mentioned deductions
to recover Policy Value Advances are made, they will reduce the Policy Value and
thus the amount of Type B death benefit.
Also, like any other increase in Policy Value, Policy Value Advances and Cash
Value Bonuses, if allocated to the Separate Account, will be subject to the
generally applicable mortality and expense risk charge and Fortis Series
expenses. These asset-based charges are, in effect, amounts
17
<PAGE>
that the Policy owner pays for investing assets attributable to Policy Value
Advances and Cash Value Bonuses in the Separate Account. There is no assurance
that Separate Account investment performance earned on Policy Value Advances,
which may be subject to recovery as described above, and Cash Value Bonuses will
be sufficient to offset these charges. This would depend to some extent on the
timing of the Policy Value Advances and of any deductions to recover them as
well as the timing of Cash Value Bonuses, because these factors indirectly
determine the amount of return that would be credited. A Policy owner who wishes
to avoid the risk of not earning a rate of return greater than the rate of
asset-based charges can allocate amounts attributable to Policy Value Advances
and Cash Value Bonuses to Fortis Benefits' General Account. The Policy owner
would also have a considerable degree of assurance in this regard by allocating
amounts attributable to Policy Value Advances and Cash Value Bonuses to the
Money Market Subaccount of the Separate Account.
CALCULATION OF SEPARATE ACCOUNT POLICY VALUE
On each Valuation Date, the Policy Value in a Subaccount of the Separate Account
will be:
(1) The cumulative amount of premiums allocated to the Subaccount; plus
(2) The amount of all Policy Value Advances and Cash Value Bonuses credited
to the Subaccount (see "Policy Benefits--Policy Value Advances and Cash
Value Bonuses"); plus
(3) All amounts transferred to the Subaccount from the General Account or
from another Subaccount; minus
(4) Any amounts transferred from the Subaccount to the General Account or to
another Subaccount; minus
(5) Any partial withdrawal from the Subaccount; minus
(6) The amount of any daily deductions for premium tax and sales charges or
to recover Policy Value Advances (see "Premium Tax and Sales Charges;
Other Policy Issuance Expense Charges" and "Deductions to Recover Policy
Value Advances" under "Charges and Deductions") allocated to the
Subaccount; minus
(7) The portion of the cumulative Monthly Deductions allocated to the
Subaccount (see "Charges and Deductions--Monthly Deductions From Policy
Value"); plus
(8) The cumulative net investment return (discussed below) on the amount of
Policy Value in the Subaccount from time to time.
The Policy's total Policy Value in the Separate Account is the sum of the Policy
Values in each Subaccount, which have no guaranteed minimum.
SEPARATE ACCOUNT NET INVESTMENT RETURN
The net asset value for each Fortis Series Portfolio is determined as of the
close of regular trading on the New York Stock Exchange ("NYSE"), on each
Valuation Date. The net investment return for each Subaccount and all
transactions and calculations with respect to the Policies as of any Valuation
Date are determined as of that time.
Each Subaccount is credited with a rate of net investment return equal to its
gross rate of investment return during each Valuation Period less (1) an
adjustment for the Separate Account's charge for mortality and expense risks (at
an annual rate of .90%) and (2) a charge for Fortis Benefits' income taxes, if
any such tax charge becomes necessary in the future (see "Federal Tax
Matters--Taxation of Fortis Benefits"). Each Subaccount's gross rate of
investment return during a Valuation Period is the rate of increase or decrease
in the per share net asset value of the underlying Fortis Series Portfolio over
the Valuation Period, adjusted upward to take appropriate account of any
dividends or distributions paid by the Portfolio during this period.
A "Valuation Period" is the period between two successive Valuation Dates,
commencing at the close of regular trading on the NYSE on each Valuation Date
and ending at the close of regular trading on the NYSE on the next succeeding
Valuation Date. Depending primarily on the investment experience of the
underlying Portfolio, a Separate Account Subaccount's net investment return may
be either positive or negative during a Valuation Period. Subject to applicable
legal requirements, Fortis Benefits reserves the right to change the times of
day when values under a Policy are determined.
PAYMENT AND ALLOCATION OF PREMIUMS
ISSUANCE OF A POLICY
Individuals wishing to purchase a Policy must complete an application which will
be sent to Fortis Benefits' Home Office. Currently the minimum Face Amount of
insurance for which a Policy may be issued is $500,000. A Policy will generally
be issued to insureds Age 25-80 who supply evidence of insurability satisfactory
to Fortis Benefits.
18
<PAGE>
As part of an arrangement with a group of distributors, Fortis Benefits will use
a simplified form of underwriting for policies issued to insureds who have been
fully underwritten for life insurance in the previous 5 years. Under this form
of underwriting, some medical tests can be waived. This group of distributors
currently consists of the Investment Marketing Group. Additional distributors
may be added during the year.
Regardless of the underwriting procedure used, acceptance of an application is
subject to Fortis Benefits underwriting guidelines and Policy approval
procedures. Any premium payments for a Policy that never goes into effect, or
that is subsequently revoked, will be returned without interest.
If the proposed insured meets certain health requirements, Fortis Benefits will
issue temporary term life insurance to cover the period before the Policy goes
into effect. Temporary insurance will be issued only if the initial premium
payment has been paid with the application and the amount of temporary insurance
coverage will not exceed $300,000 under all applications for the proposed
insured pending with Fortis Benefits and any other insurers. If a temporary
insurance benefit is paid, a premium for the amount of temporary coverage from
the date of its issue to the date of death will be charged. Temporary coverage
is subject to certain other conditions, including special limits for temporary
coverage of certain optional benefits provided by rider, and is for a maximum of
ninety days. Except as otherwise provided in any temporary insurance agreement,
there will be no insurance coverage under a Policy unless at the time the Policy
is delivered the insured's health is the same as stated in the application.
The Policy Date is the date used to determine Policy Anniversaries and Monthly
Anniversaries, regardless of when the Policy is delivered. The Policy Date is
also when Monthly Deductions commence. When temporary insurance has been
provided, the Policy Date will ordinarily be the date of part I of the
application, except that if that date is the 29th through the 31st of any month,
the Policy Date will be the first of the next month. When no temporary insurance
has been provided, the Policy Date will ordinarily be three days after the date
the application is approved, except that if that date is the 29th through 31st
of any month, the Policy Date will be the first of the next month. A later
Policy Date will result in monthly deductions being taken out later and
investment performance on any premium payment being reflected in the Separate
Account later. A prospective purchaser may request a Policy Date later than that
which otherwise would apply, subject to Fortis Benefits' current administrative
policies. No interest or other return on premium payments will be credited prior
to the Policy Date, however.
Notwithstanding the general procedures outlined above, the purchaser may,
subject to Fortis Benefits' current administrative policies and state insurance
law requirements, request a Policy Date up to six months prior to the date the
Policy is issued, for the purpose of preserving a younger Age of the insured
person under the Policy. In many cases, a younger Age will result in a smaller
monthly Minimum Premium, lower cost of insurance rates and lower Surrender
Charges. An earlier Policy Date will also result in a correspondingly earlier
commencement of Monthly Deductions and may result in lower Policy Value
Advances. If an earlier Policy Date is requested, all monthly Minimum Premiums
commencing with that date, plus the amount of initial premium payment that
otherwise would be required, must be paid before the Policy will be issued.
In other cases, unless otherwise requested, if the person's birthday falls
between the date of an application and the date the Policy is approved, the
Policy Date will generally be set early enough to preserve the younger Age.
PREMIUMS
PAYMENT OF PREMIUMS. At the time of Policy issuance, the Planned Periodic
Premium must be, on an annualized basis, at least the greater of (1) $10,000, or
(1) twelve monthly Minimum Premiums. For purposes of this requirement, the
Planned Periodic Premiums are assumed to be level in the first policy year. The
Planned Periodic Premiums are assumed to be level in the first Policy year. The
initial premium payment must cover all monthly Minimum Premiums from the Policy
Date to the next billing date, generally after the Policy is mailed for
delivery, and must be paid before a Policy will take effect. If the Planned
Periodic Premium is paid monthly, at least two months' Planned Periodic Premiums
must be paid.
Subject to Fortis Benefits' guidelines, each Policy owner will determine a
Planned Periodic Premium schedule that provides for the payment of level
premiums at specified intervals for the life of the Policy. (If desired, these
may be paid by means of automatic monthly drafts on the Policy owner's checking
account.) The Policy owner, however, is not required to pay premiums in
accordance with the Planned Periodic Premium schedule, except to the extent
described above with respect to the initial premium payment. THE PAYMENT OF
PLANNED PERIODIC PREMIUMS WILL NOT GUARANTEE THAT THE POLICY REMAINS IN FORCE.
Instead, the duration of the Policy depends upon the Net Cash Value. See
"Payment and Allocation of Premiums-- Policy Lapse and Reinstatement."
19
<PAGE>
Subject to the limitations described below, a Policy owner may make additional
premium payments at any time in any amount.
The total of all premiums paid may never exceed the then current maximum premium
limitations under Section 7702 of the Code. If at any time a premium is paid
that would result in any violation of the then current maximum premium
limitations, Fortis Benefits will accept only that portion of the premium that
will make total premiums equal to the limit. Fortis Benefits will promptly
refund any such excess, unless the Policy owner directs otherwise. Any amount so
refunded will include any positive net investment performance attributable to
such amount prior to refund. The amount of any positive net investment
performance refunded will constitute ordinary income to the Policy owner for
federal income tax purposes.
Fortis Benefits reserves the right to impose additional limits on the number or
amount of premium payments. Fortis Benefits currently has no intention of
imposing such limits except when the Alternative Death Benefit is in effect. See
"Policy Benefits--Death Benefit Options." For Policies issued pursuant to
Section 403(b) of the Code, there are premium limitations, referred to in the
Policy, which if not observed, will result in tax penalties.
GUARANTEED DEATH BENEFIT. A Policy is guaranteed to stay in force if, as of each
Monthly Anniversary, the cumulative amount of premiums paid to date, less the
amount of any outstanding Policy loans and cumulative partial withdrawals, at
least equals the cumulative monthly Minimum Premiums, assuming regular monthly
payment. This guarantee will be for the lesser of 12 years from the Policy Date
or until Age 65 (or for 5 years if Age 60 to 70 at issue). After Age 70, the
guarantee is for the greater of two years or to Age 75. For Policies issued
after May 1, 1995, or as soon thereafter as available in the state where the
Policy is issued, the guarantee for insureds rated other than standard is for
the lesser of the guarantee period for their Age or five years. The guarantee
period may be shorter in some states due to state limitations.
If, on any Monthly Anniversary, the Minimum Premiums have not been paid, Fortis
Benefits will send the Policy owner a notice of the minimum amount required to
be paid. The Guaranteed Death Benefit will terminate if at least this amount is
not paid prior to the next Monthly Anniversary. Any Grace Period under the
Policy will end on the date otherwise provided in the Policy, but in no event
earlier than the Monthly Anniversary following lapse of the Guaranteed Death
Benefit. Once the Guaranteed Death Benefit terminates, it may not be reinstated.
The monthly charge for the Guaranteed Death Benefit is $.01 per thousand dollars
of Face Amount in effect under the Policy or under any supplemental term
insurance rider described in "Appendix A." The initial charge is set forth in
the Policy schedule. A subsequent increase or decrease in Face Amount will
result in an increase or decrease, respectively, in the level of charges for the
Guaranteed Death Benefit. The same is true of the addition or cancellation of
any benefits under any supplemental term insurance rider described in "Appendix
A." The new charges will be set forth in the Policy schedule amendment delivered
following any change. If the Guaranteed Death Benefit terminates for any reason,
the charge for it will terminate at the same time.
MINIMUM PREMIUMS. The monthly Minimum Premium with respect to a Policy or
benefit change generally is the estimated monthly premium payment which would
keep the Policy (or benefit change) in force until the insured reaches Age 65
(or for 5 Policy years if longer) based on (1) the insured's then-current Age,
sex, and smoking habits and (2) reasonable assumptions for interest, costs of
insurance, and other charges. For Policies issued after May 1, 1995, or as soon
thereafter as available in the state where the Policy is issued, the Monthly
Minimum Premium for insureds rated other than standard will be reduced to one
that is sufficient to keep the Policy in force for five years. The smallest
Monthly Minimum Premium for a Policy without substandard risks or optional
riders is $25. Monthly Minimum Premiums are used to determine the availability
of the Guaranteed Death Benefit, Face Amount decreases, partial withdrawals, and
Policy Value Advances. Monthly Minimum Premiums are used to determine the
anticipated amount of Policy Value Advances and the amount of certain sales
charges. Each of these matters is discussed elsewhere in detail in this
Prospectus. Fortis Benefits reserves the right to change the monthly Minimum
Premium, although any such change would affect only subsequent increases in the
monthly Minimum Premium due to changes in benefits. Also, the sum of twelve
monthly Minimum Premiums for the initial Policy or any change in benefits will
never exceed the "Guideline Annual Premium" for the Policy or change,
respectively. For a discussion of "Guideline Annual Premium" see "Charges and
Deductions--Premium Tax and Sales Charges; Other Policy Issuance Expense
Charges."
Starting with the Monthly Anniversary when any Face Amount increase requested by
the Policy owner becomes effective, the monthly Minimum Premium will include an
additional amount attributable to the increase above the Face Amount on which
the previous monthly Minimum Premium was computed.
20
<PAGE>
Starting with the Monthly Anniversary when any Face Amount decrease requested by
the Policy owner becomes effective, the monthly Minimum Premium will be reduced
by an amount attributable to the decrease below the Face Amount on which the
previous monthly Minimum Premium was computed. (The Monthly Minimum Premium will
not be reduced for any prior periods, however.) If there have been no Face
Amount increases, the decrease in any subsequent monthly Minimum Premium will be
(1) the monthly Minimum Premium before the change, multiplied by (2) the
proportion that the decrease represents of the Face Amount before the change. If
there have been any Face Amount increases, the decrease will be deemed to reduce
the most recent increase first.
The initial monthly Minimum Premium that must be paid to ensure the availability
of the Guaranteed Death Benefit, and any Policy Value Advances, is set forth in
the Policy schedule included in the Policy. Any increased or decreased monthly
Minimum Premium for these purposes will be set forth in a Policy schedule
amendment delivered to the Policy owner following the change. Except as
otherwise discussed below, the monthly Minimum Premium for the Face Amount or
any Face Amount change will include an amount necessary to support certain
substandard rate class charges and any optional insurance benefits pursuant to
Policy riders. Accordingly, in such cases any increase or decrease in optional
benefits provided by rider will result in a higher or lower monthly Minimum
Premium. For this purpose, the amount of additional monthly Minimum Premium
attributable to an increase in benefits will be based on the most recent rate
class if the insured's rate class has worsened. On the other hand, except as
noted below, the monthly Minimum Premium will be reduced starting with the first
Monthly Anniversary after Fortis Benefits approves any new rate class for the
insured which is more favorable than that on which the previous monthly Minimum
Premium was based.
Notwithstanding the foregoing, the monthly Minimum Premiums for purposes of
determining the amount of Policy Value Advances and sales charges and the
availability of withdrawals and Face Amount decreases do not include any amount
for substandard rate classes or optional rider benefits. Such monthly Minimum
Premiums therefore will be unaffected by changes in rate class or riders.
ALLOCATION OF PREMIUMS AND POLICY VALUE
ALLOCATION OF PREMIUMS. In the application for a Policy, the Policy owner
indicates the initial allocation of premiums among the General Account and the
Subaccounts of the Separate Account. (As discussed below, this allocation will
generally take effect 20 days following the date the Policy is mailed for
delivery to the Policy owner.) Allocation percentages must be in whole numbers.
The Policy owner may change the allocation of future premiums without charge at
any time (other than during any Grace Period) by submitting a written request in
a form acceptable to Fortis Benefits at its Home Office. The change will be
effective as of the Date of Receipt of such form.
The first premium payment will be allocated automatically to the General Account
as of the later of the Policy Date or Date of Receipt, and, assuming a Policy
goes into effect, will earn a return for the Policy owner. Any other premiums
will be allocated to the General Account as of the later of the Policy Date or
the Date of Receipt. These payments will be held in the General Account
generally until the twentieth day after the policy is mailed for delivery. Then,
all premiums, plus any other amounts previously earned in the General Account,
will be re-allocated among the General Account and the Subaccounts in accordance
with the premium allocation percentage established by the Policy owner. (If the
Policy owner has not established such an allocation, the General Account will
continue to be used.) If the insured is in a substandard risk class, the
reallocation will occur on the twentieth day after the Date of Receipt by Fortis
Benefits of all items necessary under its administrative and underwriting
procedures to release the Policy to an active status in its processing system.
Each premium payment accepted after this reallocation is credited to the
Subaccounts or General Account as of the Date of Receipt. There is an exception
to this rule, however, with respect to any premium payments as to which
underwriting requirements apply or where Fortis Benefits obtains authorization
of the Policy owner to delay acceptance of the premium until permitted under
Section 7702 or Section 7702A of the Code. In such cases, the premium is held in
a non-interest bearing account until it is allocated to the Subaccounts or
General Account as of the later of the Date of Receipt of the premium or the
date of acceptance of such premium by Fortis Benefits.
POLICY VALUE TRANSFERS. After the initial allocation of premiums has occurred,
and subject to the limitations described below, the Policy owner may transfer
Policy Value between the General Account and the Subaccounts of the Separate
Account and among the Subaccounts, except during any Grace Period.
Transfers from the General Account to the Separate Account are limited to one
transfer in each Policy Year, which currently may not be for more than 50% of
the General Account Policy Value at the date of transfer (excluding the amount
of any General Account Policy Value attributable to Policy
21
<PAGE>
loans). However, if the unloaned General Account Policy Value at the date of
transfer is less than $1,000, the Policy owner may transfer the entire unloaned
balance from the General Account to the Separate Account. Fortis Benefits
reserves the right to review these limits on an annual basis and, subject to the
limits in the Policy, to reduce them.
Fortis Benefits will determine all values in connection with a transfer as of
the Date of Receipt of the transfer request. Fortis Benefits may in its
discretion permit a continuing request for transfers of specified amounts
automatically on a periodic basis. Fortis Benefits reserves the right to
restrict the number and amount of transfers, but currently has no plans to
impose any such restrictions. At least four transfers per Policy year among the
Subaccounts or to the General Account will always be permitted. Fortis Benefits
will give Policy owners advance notice of any such restrictions.
Transfers are not taxable under current law. Except as discussed below, transfer
requests must be in writing, in a form acceptable to Fortis Benefits. Although
it currently has no plans to do so, Fortis Benefits may impose a charge of up to
$25 on transfers. Any such charge would be designed only to cover the
administrative cost of effecting transfers. Telephone transfers may be made if a
telephone authorization form has been received. See "Summary--How to Exercise
Your Rights Under a Policy."
In no event will Fortis Benefits restrict or prohibit any transfer of all Policy
Value to the General Account (1) during the first two Policy years, (2) within
the first two years after a Face Amount increase requested by the Policy owner,
or (3) within 60 days after the Policy owner receives notice of any material
change in a Portfolio's investment policy. Nor will any transfer charge be
imposed on such transfers, except that a charge may be imposed subsequent to the
first full transfer after issue, a Face Amount increase, or a change in
investment policy.
LIMITATION. Under the Policy, Fortis Benefits reserves the right to control the
amount of any assets in any investment alternative. Pursuant to this authority,
Fortis Benefits has established the following administrative procedures for the
protection of the interest of all investors participating in Fortis Series'
Portfolios: a Policy owner may not invest, allocate, transfer or exchange Policy
Value into any Subaccount if the value allocated to that Subaccount under the
Policy (and under any other insurance or annuity contract directly or indirectly
controlled by the same person, jointly or individually) would immediately
thereafter equal 25% or more of the related Fortis Series Portfolio's net
assets. Fortis Benefits reserves the right to modify these procedures at any
time.
POLICY LAPSE AND REINSTATEMENT
LAPSE. A Policy may lapse if the Net Cash Value on any Monthly Anniversary is
insufficient to pay the Monthly Deduction. The "Net Cash Value" is the Policy
Value less any outstanding Policy loan, plus any loan interest paid for future
periods, less the portion of the Surrender Charge that decreases to zero after
11 years regardless of the overall Surrender Charge cap. See "Charges and
Deductions--Premium Tax and Sales Charges; Other Policy Issuance Expense
Charges." Fortis Benefits will notify the Policy owner and any assignee of
record of any Net Cash Value shortfall unless the Guaranteed Death Benefit is in
effect. If the Guaranteed Death Benefit is in effect, we will still send the
notification if the Minimum Premium payment requirement has not been met. See
"Guaranteed Death Benefit" under "Payment and Allocation of Premiums--Premiums,"
above. The Policy owner will have a Grace Period of 61 days to make a premium
payment sufficient to cover at least the amount of such shortfall, plus any
additional Monthly Deductions until the end of the Grace Period. Failure to make
a sufficient payment within the Grace Period will result in termination of the
Policy, with no remaining Surrender Value, except to the extent otherwise
provided pursuant to the Guaranteed Death Benefit.
If the insured dies during the Grace Period, the insurance proceeds payable will
be the Death Benefit in effect immediately prior to entering the Grace Period,
but any due and unpaid Monthly Deductions will be deducted from the proceeds.
REINSTATEMENT. A lapsed Policy may be reinstated at any time within five years
after the end of the Grace Period and before the maturity date by submitting the
following items to Fortis Benefits: (1) a written application for reinstatement;
(2) evidence of insurability satisfactory to Fortis Benefits; (3) a premium
that, net of any premium tax charge that Fortis Benefits may in the future
deduct from premiums, at least equals the sum of (a) an amount necessary to keep
the Policy in force for at least the two Policy months commencing with the
effective date of reinstatement, which consists of two Monthly Deductions and
any increase in the Surrender Charge attributable to such premium, and (b) the
balance needed to cover any due and unpaid Monthly Deductions through the end of
the Grace Period.
Any Policy loan on the date of termination will be automatically cancelled
(except in jurisdictions where such cancellation is not permitted) and in that
case need not otherwise be repaid or reinstated. The amount of Policy Value on
the date of reinstatement will be equal to the premium paid at reinstatement,
less any premium tax charge deducted from premiums, less the first Monthly
Deduction paid in accordance
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<PAGE>
with (a) above, and less the amounts paid in accordance with (b) above and plus
the Surrender Charge assumed at lapse. (The last addition to Policy Value is
designed to avoid duplicate Surrender Charges.) This Policy Value will be
allocated as the Policy owner requests or, in the absence of a request, to the
General Account. If the Policy loan must be reinstated, the Policy Value will be
increased by the amount of the loan, and that portion of the Policy Value will
be held in the General Account and credited with interest at a rate of 4% per
annum.
The date of reinstatement will be the first Monthly Anniversary on or following
approval of the application for reinstatement. The Guaranteed Death Benefit and
eligibility for Policy Value Advances will not be reinstated. Following
reinstatement, the Surrender Charge will be reinstated and will be calculated
using the original Policy Date and Face Amount increase dates as appropriate.
See "Charges and Deductions--Premium Tax and Sales Charges; Other Policy
Issuance Expense Charges."
CHARGES AND DEDUCTIONS
PREMIUM TAX AND SALES CHARGES; OTHER POLICY ISSUANCE EXPENSE CHARGES
PREMIUM TAX AND SALES CHARGES. Premium tax and sales charges are not deducted
from premium payments. This allows more of each premium payment to be put to
work earning a return for the Policy owner. Currently, a premium tax charge in
the amount of 2.2% of all premium payments is assessed through monthly and daily
deductions from Policy Value, as described below. Any portion of such amount
that is not recovered by Fortis Benefits pursuant to the monthly and daily
deductions may be deducted as part of the Surrender Charge discussed below.
A sales charge in the amount of 7 1/2% of all premium payments is also assessed
through the monthly and daily deductions from Policy Value. Any amount of this
sales charge that is not recovered by Fortis Benefits through these monthly and
daily deductions may be deducted as a Contingent Deferred Sales Charge that is
included as part of the Surrender Charge. It is not possible to state how long
it would take for the full 7 1/2% sales charge to be recovered through the
monthly and daily deductions. First, the cumulative sales charge will increase
with each new premium payment, and the Policy owner has considerable flexibility
to vary the amount and timing of premium payments. Second, the actual dollar
amount of the daily deduction to recover the sales charge depends on a number of
factors that will differ for each Policy, including the amount of premium
payments made, the performance of the investment options the Policy owner
chooses, the amount and timing of any Policy Value Advances and Cash Value
Bonuses or loans and loan repayments, and the insured's Age, sex and rate class.
The aggregate monthly deduction for premium tax and sales charges total $4.00
per policy (as part of the Monthly Deduction referred to below), and the daily
deduction for these purposes is at an annual rate of .27% of the value of the
Policy's net assets in the Separate Account. These monthly and daily deductions,
however, will be refunded to the extent that the cumulative amount of all such
deductions would exceed the current charge of 9.7% of all premium payments made
to date. Nor will these deductions for premium tax and sales charges be made at
any time when similar deductions to recover Policy Value Advances are being made
(which would occur only if Fortis Benefits decides to exercise its right to
recover such advances). Once the amount of any Policy Value Advances has been
fully recovered, the monthly and daily deductions for premium tax and sales
charges resume. The Policy owner is not deemed to have "paid" any periodic
premium tax and sales charges that otherwise would have been deducted during the
period when deductions to recover Policy Value Advances were being made.
Any amount of premium tax charges and sales charges not recovered through the
monthly or daily deductions are deducted, if at all, only as part of the
Surrender Charge discussed below. The Surrender Charge (1) is imposed ONLY in
the event the Policy lapses or is surrendered in full before the eleventh Policy
Anniversary and (2) is subject to an overall upper limit or "cap" that decreases
over time. Accordingly, Fortis Benefits' method of imposing premium tax charges
and sales charges under the Policies in many cases will result in substantially
less than the full amount of such charges being imposed.
As part of the Surrender Charge, Fortis Benefits also imposes a Contingent
Deferred Sales Charge in the amount of 22% of premiums paid in the first two
Policy years that are not in excess of the sum of twelve monthly Minimum
Premiums (calculated without regard to the $25 limit and any charge for riders
or substandard risks). This charge decreases at a constant rate on the fifth and
each subsequent Policy Anniversary until it is zero for surrenders and lapses as
of the eleventh Policy Anniversary and thereafter.
An additional amount of Contingent Deferred Sales Charge will be payable on
certain total surrenders or Policy lapses following an increase in Face Amount
requested by the Policy owner. The maximum additional Contingent Deferred Sales
Charge will be 22% of the lesser of (1) the sum of twelve monthly Minimum
Premiums (calculated without regard to the $25 limit and any charges for riders
or substandard
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<PAGE>
risks) for the Face Amount increase or (2) the amount of actual premium payments
deemed attributable to the increase which are made not later than two years
after the date of the increase. Any such additional Contingent Deferred Sales
Charge arising from a Face Amount increase is payable only as part of the
Surrender Charge, and will decrease at a constant rate on the fifth and each
subsequent anniversary of the related Face Amount increase until it is zero for
surrenders and lapses as of the eleventh anniversary of the increase and
thereafter.
For purposes of determining the amount of any Contingent Deferred Sales Charge,
a pro-rata portion of premium payments made after an increase in Face Amount and
a pro-rata portion of Policy Value will be deemed actual premium payments
attributable to the increase. The proportion of such premiums and Policy Value
deemed attributable to the increase is the proportion which the "Guideline
Annual Premium" for the increase bears to the sum of the "Guideline Annual
Premiums" for the initial Face Amount and each layer of increase. (The
"Guideline Annual Premium" is the amount of annual premium which would be
necessary to provide the benefits under the Policy or benefit change, including
benefits under riders, until Age 95, assuming a net investment return of 4% per
annum, cost of insurance charge deductions based on the 1980 Commissioners
Standard Ordinary Mortality Tables, any additional charges which are applicable
because of substandard mortality risks, and other expense charges at applicable
levels under the Code.) This method of attributing premiums to Face Amount
increases may be changed to conform with any other attribution procedure
permitted or required by the Securities and Exchange Commission for this
purpose.
A decrease in Face Amount may result in a reduced Surrender Charge. See
"Surrender Charge," below.
Following any change in the Surrender Charge, a Policy schedule amendment
setting forth the revised charge will be delivered to the Policy owner.
The charge for premium taxes is to reimburse Fortis Benefits for taxes on
premiums and similar assessments that are imposed by most, but not all, state
and local governmental entities at various rates. The charge for premium taxes
is imposed on all Policies even though there may be no premium tax assessed by
the jurisdiction in which the Policy is purchased. Rather, the current rate at
which the charge is imposed is an average rate that Fortis Benefits estimates
will be paid on premiums in all jurisdictions. In order to more fully reimburse
itself for premium taxes or similar charges that it has paid or expects to pay,
Fortis Benefits reserves the right to raise the current premium tax charge
assessed through periodic deductions to 2.5% which would increase the cumulative
charge to 10% (currently 9.7%) of all premium payments. Fortis Benefits also
reserves the right to impose an additional premium tax charge of up to 2.5% that
would be deducted from each payment, and to impose charges for other taxes that
may be payable and are attributable to the policies.
The sales charges under the Policies help to defray sales expenses, including
sales commissions and the cost of prospectuses, other sales material and
advertising. The amount of sales charges deducted in any year, however, cannot
be specifically related to actual sales expenses for that year. Fortis Benefits
does not expect to recover all of its sales expenses from the sales charges. The
balance will be recovered from other sources, including any profits attributable
to cost of insurance and mortality and expense risk charges under the Policies
and Fortis Benefits' general assets and surplus.
CHARGE FOR OTHER POLICY ISSUANCE EXPENSES. This charge is $5.00 per thousand
dollars of a Policy's initial Face Amount. This charge, however, is not deducted
from premium payments or from Policy Value while the Policy is in force. This
allows a larger amount of premium payments to remain at work earning a return
for the Policy owner.
This charge is deducted as part of the Surrender Charge discussed below. The
Surrender Charge (1) is deducted only if the Policy lapses or is surrendered in
full before the eleventh Policy Anniversary and (2) is subject to certain
maximums that decrease over time.
This charge also will be imposed with respect to any requested Face Amount
increase, the additional "per thousand" charge being based on the dollar amount
of the increase. Any such additional charge will be subject to maximums and
decrease over time to zero as set forth under "Surrender Charge" below.
This charge is designed primarily to compensate Fortis Benefits for underwriting
and other start-up expenses incurred in connection with issuing the Policy or
Face Amount increase. Such expenses include the cost of processing applications,
conducting medical examinations, determining insurability and the insured's risk
class, and establishing Policy records (including computer set up costs).
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<PAGE>
SURRENDER CHARGE. A Surrender Charge may be assessed on lapse or full surrender
of a Policy before the eleventh Policy Anniversary (or the eleventh anniversary
of a Face Amount increase requested by the Policy owner). The Surrender Charge
is the sum of the following components:
(1) Any portion of the current premium tax charge and the sales charge
referred to above that has not yet been collected through the monthly
and daily deductions therefor;
(2) The other Contingent Deferred Sales Charges described above; and
(3) The charge for other Policy (or increase) issuance expenses described
above.
The entire Surrender Charge is subject to an overall upper limit or "cap" as set
forth in the table below. The table below also shows the amount by which the
overall cap is increased by a Face Amount increase requested by the Policy
owner. The overall cap (and each amount of increase therein) also decreases at a
constant rate on the fifth and each subsequent Policy Anniversary (or increase
anniversary, as the case may be) until it reaches zero on the eleventh Policy
Anniversary (or increase anniversary). Accordingly, there will be no Surrender
Charge on surrenders or lapses as of the later of the eleventh Policy
Anniversary or the eleventh anniversary of any Face Amount increase.
<TABLE>
<CAPTION>
OVERALL "CAP" ON
INSURED PERSON'S SURRENDER CHARGE
AGE AT TIME OF (PER THOUSAND DOLLARS
POLICY ISSUANCE OR OF FACE AMOUNT OR
FACE AMOUNT INCREASE FACE AMOUNT INCREASE)
- -------------------- ----------------------------
<S> <C>
25 - 30 years $ 9
31 - 40 10
41 - 45 12
46 - 50 14
51 - 55 16
56 - 60 21
61 - 65 28
66 - and above 40
</TABLE>
No Surrender Charge is deducted upon a partial withdrawal of Policy Value or a
Face Amount decrease. However, when a Policy owner requests a Face Amount
decrease (or a partial withdrawal that results in a Face Amount decrease), a
portion of the overall "cap" referred to above is reduced: the portion of the
cap that is attributable to the cancelled Face Amount is reduced to the extent
that it exceeds the amount of the Surrender Charge then in effect that is
attributable to the cancelled Face Amount. For this purpose, the most recent
Face Amount increases are deemed to be cancelled first.
It is not possible to state, as a general matter, what the Surrender Charge will
be as a percentage of premiums paid. This is because the components of the
Surrender Charge vary based on factors other than the amount of premiums paid.
For example, the amount of the premium tax and sales charge that remains
uncollected at the time of surrender or lapse depends on such factors as the
period of time the Policy has been in force, the performance of the investment
options the Policy owner chooses, the amount and timing of any Policy Value
Advances, Cash Value Bonuses or loans and loan repayments, and the insured's
Age, sex, and rate class. Also, the Surrender Charge component for other Policy
issuance expenses is not based on the amount of premiums paid, but on the
Policy's Face Amount. Nor is the overall Surrender Charge "cap" referred to
above based on the amount of premiums paid, but on the Policy's Face Amount and
the number of years since the Policy was issued.
DEDUCTIONS TO RECOVER POLICY VALUE ADVANCES
Subject to certain conditions, Policy owners may receive credits in the nature
of Policy Value Advances starting at the end of the seventh Policy year. See
"Policy Benefits--Policy Value Advances and Cash Value Bonuses." While it is not
Fortis Benefits' current intention to do so, Fortis Benefits reserves the right
to recover the amount of such advances that are actually paid by Fortis Benefits
through the following deductions made after the payment of the advances: $4.00 a
month per Policy (as part of the Monthly Deduction) plus a daily deduction at an
annual rate of .27% of the value of the Policy's net assets in the Separate
Account. These deductions would continue until the cumulative amount of all
Policy Value Advances credited to the Policy had been recovered by Fortis
Benefits pursuant to the deductions. The Surrender Charge payable on lapse or
full surrender of a Policy will NOT be increased to recover any Policy Value
Advances that have not previously been recovered. The amount of the deductions
to recover Policy Value Advances is not adjusted for the effect that the
resulting increase in Policy Value may have on other charges, as explained under
"Policy Benefits--Policy Value Advances."
MONTHLY DEDUCTION FROM POLICY VALUE
The Monthly Deduction from Policy Value includes (1) the monthly charges
described above under "Premium Tax and Sales Charges; Other Policy Issuance
Expense Charges" and "Deductions to Recover Policy Advances," (2) the cost of
insurance charge, (3) while the Guaranteed Death Benefit is
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<PAGE>
in effect, a monthly charge for such guarantee (see "Guaranteed Death Benefit"
under "Payment and Allocation of Premiums--Premiums"), (4) the charge for
optional insurance benefits added by rider (see Appendix A--"Optional Insurance
Benefits"), and (5) certain monthly administrative expense charges. The cost of
insurance charges and monthly administrative expense charges are discussed
separately in the paragraphs that follow.
The Monthly Deduction will be deducted as of each Monthly Anniversary commencing
with the Policy Date. The Monthly Deduction will be allocated among the General
Account and each Subaccount of the Separate Account selected by the Policy
owner. If no such selection is made, or if there are insufficient funds in the
selected subaccounts, then the allocation will be made in the proportion that
the Policy Value in the General Account (excluding the amount of any General
Account Policy Value attributable to Policy loans) and the Policy Value in each
Subaccount, respectively, bear to the Policy's total Policy Value (excluding the
amount of any General Account Policy Value attributable to Policy Loans) as of
the date of the transaction (that is, on a "Pro Rata Basis").
If any part of a Monthly Deduction is not made because of insufficient Policy
Value, and if the Policy nevertheless does not lapse, the undeducted amount will
be deducted on receipt of any subsequent premium payment.
COST OF INSURANCE. Because the cost of insurance depends upon a number of
variables, it can vary from month to month. Fortis Benefits will determine the
monthly cost of insurance charge by multiplying the applicable cost of insurance
rate or rates by the Net Amount at Risk for each Policy month. The Net Amount at
Risk for a Policy month is (1) the death benefit, divided by 1.00327374, at the
beginning of the Policy month, less (2) the Policy Value at the beginning of the
Policy month. Additional amounts may be charged if the insured's rate class is
less favorable than standard.
If two Policies are otherwise identical, a Type A Policy will have a lower death
benefit, higher Policy Value, and lower cost of insurance charges than a Type B
Policy. Since the death benefit payable under Type A remains constant while the
death benefit payable under Type B varies with the Policy Value, Policy Value
increases will generally reduce the Net Amount at Risk under Type A but not
under Type B. If the Net Amount at Risk is greater, the cost of insurance will
be greater. If the Alternative Death Benefit is in effect (see "Policy
Benefits--Death Benefit Options"), the cost of insurance will vary directly with
the Policy Value under both death benefit options.
Cost of insurance rates are based on the Age, sex, and rate class of the insured
and the length of time ("duration") since issuance of the Policy or a Face
Amount increase requested by the Policy owner. The actual monthly cost of
insurance deductions will be based on Fortis Benefits' expectations as to future
experience, and may increase each year as the insured's Age increases. Fortis
Benefits' current cost of insurance rate schedules generally provide lower rates
for otherwise comparable insureds of the same Age whose Policies or Face Amount
increases have been in effect for specified periods of time. Although the
current cost of insurance rate schedules are not guaranteed, the maximum cost of
insurance rates for standard risk insureds will not exceed the rates provided by
certain of the 1980 Commissioners Standard Ordinary Mortality Tables and the
insured's sex, Age and smoking status. These tables set forth different
mortality estimates for males and females and for smokers and non-smokers. The
maximum cost of insurance rates for a table-rated substandard insured are a
multiple (shown on the Policy schedule page) of the above rates. Additional
level amounts per thousand dollars of Face Amount are charged if a substandard
insured is assigned a flat extra rating.
Any change in the cost of insurance rates or charges will apply to all insureds
of the same Age, sex, duration and rate class.
Cost of insurance rates that differ as between male and female insureds are not
permitted under current law in Montana, and perhaps other states or in
connection with certain employee benefit arrangements. Employers should
therefore seek legal advice as to any questions they may have in this regard. To
the extent legally necessary, Fortis Benefits makes available gender-neutral
cost of insurance rates, and affected purchasers should inquire of their sales
representative whether these are currently available in their states. The
gender-neutral rates may be higher than those otherwise applicable to females
and lower than those otherwise applicable to males. Where gender-neutral rates
are required, Minimum Premiums also will be the same as between otherwise
comparable Policies for males and female insureds.
RATE CLASS. Fortis Benefits currently places insureds into one of several rate
classes depending on the mortality risk. Fortis Benefits has both smoker and
non-smoker rate classes. For an otherwise identical Policy, insureds in a non-
smoker rate class will have a lower cost of insurance than those in a smoker
rate class.
If a Policy owner requests a Face Amount increase at a time when the insured is
in a less favorable rate class than previously, a higher cost of insurance
deduction will apply to that portion of the Net Amount at Risk attributable to
the increase. (This does not apply to Face Amount increases
26
<PAGE>
resulting automatically from a change from Death Benefit Type B to Type A, as
described under "Policy Benefits-- Change in Death Benefit Option.") When the
Alternative Death Benefit is in effect, the Net Amount at Risk can exceed the
Policy's Face Amount, in which case the rate used for such excess approximately
equals the blended rate for the other portion of the Net Amount at Risk. If the
insured's rate class improves, the lower cost of insurance deduction will apply
to the entire Net Amount at Risk, commencing on the Monthly Anniversary on or
after Fortis Benefits approves the new rate class.
A Policy owner may request a change in smoking status. The change will be
allowed only if the insured would not otherwise be in a less favorable rate
class. Any change from smoker to non-smoker rate class will take effect on the
next Monthly Anniversary, and the non-smoker rates for the coverage under the
base policy will be applicable for the previous 12 months from the effective
date of the change. Such reduced rates for the previous 12 months will be
implemented by a refund credited at the effective date of the change.
For purposes of determining the cost of insurance charge, any decrease in the
Face Amount will reduce the Face Amount in the following order: (1) the Face
Amount provided by the most recent increase; (2) the next most recent increases
successively; and (3) the Face Amount when the Policy was issued.
MONTHLY ADMINISTRATIVE EXPENSE CHARGES. A monthly administrative charge of $4.50
per Policy will be deducted from Policy Value as part of the Monthly Deduction
for each Policy Month. Fortis Benefits reserves the right to change this
administrative charge, but it will never exceed $7.50 per month. Fortis Benefits
also reserves the right to impose an additional monthly administrative expense
charge of up to $.13 per thousand dollars of Face Amount then in force. These
charges compensate Fortis Benefits for expenses incurred in administering the
Policy.
Fortis Benefits does not expect its revenues from the monthly administrative
expense charges to exceed its costs and expenses in administering the Policies.
CHARGE FOR MORTALITY AND EXPENSE RISKS
A daily charge is made for mortality and expense risks assumed by Fortis
Benefits. The charge is at an annual rate of .90% of the average daily value of
the net assets in the Separate Account that are attributable to the Policies.
The mortality risk assumed is that the insureds may live for a shorter period of
time than estimated. The expense risk assumed is that expenses incurred in
issuing and administering the Policies will be greater than estimated. Fortis
Benefits will realize a gain if the charges under the Policies prove to be more
than sufficient to cover the actual costs of its mortality and expense
commitments. If the charges are not sufficient, the loss will fall on Fortis
Benefits.
MISCELLANEOUS
As discussed under "Payment and Allocation of Premiums-- Allocation of Premiums
and Policy Value" and "Surrender and Partial Withdrawal," Fortis Benefits
reserves the right to impose charges to defray its administrative expenses in
effecting transfers of Policy Value and partial withdrawals. Fortis Benefits
currently has no plans to impose any such charges, which in any event would not
be designed to yield revenues to Fortis Benefits in excess of its costs of
effecting such transactions. Neither these charges nor any additional charges
referred to above under "Monthly Deduction from Policy Value--Monthly
Administrative Expense Charges" will be imposed if such revenues, together with
Fortis Benefits' revenues from all other administrative and expense charges
under the Policies, are expected to exceed Fortis Benefits' total costs of
issuing and administering the Policies.
CHARGE FOR INCOME TAXES. Currently, no charge is made against the Separate
Account for income taxes deemed attributable to the Policies. However, Fortis
Benefits may decide to make such a charge in the future.
GUARANTEE OF CERTAIN CHARGES
Fortis Benefits guarantees, and may not increase, the monthly and daily charges
for sales expenses and to recover Policy Value Advances; the combined maximum
rate for premium tax and sales charges; the maximum Surrender Charge rates; the
Guaranteed Death Benefit charge; the maximum monthly administrative expense
charges; the rate of the charge to cover the costs of issuing a Policy or a Face
Amount increase; the charge against the Separate Account for mortality and
expense risks with respect to the Policies; the maximum cost of insurance rates;
and the maximum amount of any charges for transfers or partial withdrawals of
Policy Value. Certain charges for sales expenses may increase with the amount of
the monthly Minimum Premium. Although the rates of these charges are guaranteed
not to change, Fortis Benefits reserves the right to change the monthly Minimum
Premium used for this purpose, as well as for other purposes. Any such change
will affect only subsequent increases in the monthly Minimum Premium due to
changes in benefits. Fortis Benefits also reserves the right to recover Policy
Value Advances, to increase the amount of premium tax charges assessed pursuant
to monthly and daily deductions and to deduct premium taxes from premium
payments, subject to guaranteed maximums.
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<PAGE>
VARIATIONS OF POLICY MINIMUMS, CHARGES AND CREDITS
Fortis Benefits may reduce the Policy Face Amount and initial annual premium
minimums, sales charges and/or other charges, or may increase credits, on
Policies sold to members of a class of associated individuals, or to a trustee,
employer or other entity representing such a class, or to individuals where it
is expected that such sales will result in savings of sales, underwriting,
and/or administrative expenses or more favorable mortality experience. Fortis
Benefits determines both the eligibility for such reductions, as well as the
amount of such reductions, by considering the following factors: (1) the number
of individuals; (2) the size of the Policy or Policies; (3) the total amount of
premium payments expected to be received for the Policy or Policies; (4) the
nature of the association between the individuals, and the expected persistency
of the Policy or Policies; (5) the purpose for which the Policy or Policies are
purchased and whether that purpose makes it likely that expenses will be
reduced; (6) the method of sale and whether that method makes it likely that
expenses will be reduced; and (7) any other circumstances which Fortis Benefits
believes to be relevant in determining whether reduced sales, underwriting,
and/or administrative expenses, or more favorable mortality experience, may be
expected. Fortis Benefits' variations of these Policy minimums, charges and
credits for these sales will not be unfairly discriminatory to the interests of
other Policy owners.
LOAN PRIVILEGES
The Policy owner may borrow money from Fortis Benefits using the Policy as the
only security for the loan. Policy loans are not permitted under Policies issued
pursuant to Section 403(b).
The maximum amount that may be borrowed at any time is 90% of the difference
between the Policy Value and the amount of any Surrender Charge then in effect.
After the later of 12 years or the insured's Age 70, the Policy owner may borrow
up to 100% of such difference. In Texas, the Policy owner may also borrow up to
100% of the Policy Value in the General Account, less a pro-rata portion of the
Surrender Charge. Fortis Benefits will allocate a Policy loan among the General
Account and the Subaccounts of the Separate Account selected by the Policy
owner. If no selection is made then the allocation will be on a Pro Rata Basis.
RATE CHARGED ON POLICY LOANS
Except as noted below, interest on Policy loans is charged at an effective
annual rate of 6.10% per year (5.66% per year in Massachusetts), payable
annually in advance. If not paid when due, loan interest at the same rate will
be added to the loan. An amount equal to the loan interest accrued to the end of
the year will be taken from the General Account and the Subaccounts on the same
basis that the Monthly Deductions are allocated and transferred to the General
Account.
Fortis Benefits will charge interest at a reduced effective annual rate of 3.85%
per year, payable in advance, if the Policy owner meets certain requirements.
Qualifying Policy owners may be charged the reduced interest rate on one Policy
loan in each Policy year of up to 10% of the Surrender Value as of the date of
the loan, provided that the generally applicable limitations on the overall
amount of Policy loans (described above) are not exceeded. A Policy owner
qualifies for this reduced interest rate if (1) the Policy is in the third or
subsequent Policy year and the Surrender Value is a least $50,000, or (2) in any
event, after the policy has been in force for at least 12 years. The 10%
limitation of such loans is increased to 15% of the Surrender Value for loans
obtained in Policy years in which the insured is age 59 1/2 or older.
CREDITED RATE FOR POLICY LOANS
As of the Date of Receipt at Fortis Benefits' Home Office of the loan request
form and assignment of the Policy for security, Policy Value equal to the
portion of the Policy loan allocated to each Subaccount will be transferred from
such Subaccount to the General Account. This amount, plus the portion of the
Policy loan allocable to Policy Value already being held in the General Account,
will be credited with interest at an effective rate of 4% per annum.
NO INTEREST IN ADDITION TO THAT REFERRED TO ABOVE WILL BE CREDITED TO LOANED
POLICY VALUES NOR WILL POLICY VALUES IN THE GENERAL ACCOUNT PARTICIPATE IN ANY
INVESTMENT EXPERIENCE APPLICABLE TO THE SEPARATE ACCOUNT.
EFFECT OF A POLICY LOAN
A loan, whether or not repaid, will have a permanent effect on Policy Value, to
the extent that the investment results of the Subaccounts differ from the
interest rate credited to loaned amounts. A loan may also have a permanent
effect on the death benefit, since a Type B benefit varies with the Policy Value
and a Type A benefit may have resulted in an Alternative Death Benefit coming
into effect if no loans were made. A loan may also cause the termination of the
Guaranteed Death Benefit or disqualify a Policy from receiving Policy Value
Advances and Cash Value Bonuses.
A loan may also cause the Policy to lapse if projected earnings are not
achieved. Adverse tax consequences may result if the Policy lapses, matures or
is surrendered with loans
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<PAGE>
outstanding. For Policies that are not modified endowment contracts, loans will
be treated as ordinary income to the extent of the gain upon lapse, surrender or
maturity. For Policies which are modified endowment contracts, loans are taxable
distributions when taken. See "Federal Tax Matters-- Taxation of Policy
Benefits."
The loaned Policy Value on any Valuation Date will be the amount of the
outstanding loan plus any interest credited on loaned Policy Value which has not
yet been reallocated to the unloaned portion of the General Account or to the
Subaccounts of the Separate Account as of the Valuation Date. Interest credited
to loaned Policy Values will be reallocated upon each Policy Anniversary on the
same basis that the Monthly Deductions are allocated. Interest credited will
also be reallocated upon full repayment of the loan in the same manner as the
repayment is allocated.
REPAYMENT OF A LOAN
Indebtedness may be repaid in whole or in part any time before the Maturity Date
while the insured is living. As of the Date of Receipt of the repayment, unless
the Policy owner specifies otherwise, loaned Policy Value equal to the amount of
the repayment will be reallocated among the unloaned portion of the General
Account and the Subaccounts of the Separate Account in the same proportion as
premiums are then being allocated to those accounts. The Policy owner must
designate whether a payment is intended as a loan payment or as a premium
payment. Any payment for which no designation is made will be treated as a
premium payment.
SURRENDER AND PARTIAL WITHDRAWAL
Full surrender of the Policy for the Surrender Value may be made at any time
during the insured's lifetime. A Surrender Charge will be deducted from the
Policy Value on any full surrender within eleven years after the Policy Date. An
additional amount of Surrender Charge may also be deducted on any full surrender
within eleven years after the date of any Face Amount increase above the amount
on which such charge was previously calculated. See "Surrender Charge" under
"Charges and Deductions--Premium Tax and Sales Charges; Other Policy Issuance
Expense Charges." (This does not apply to a Face Amount increase occurring
automatically upon a change from a Type B to a Type A death benefit.)
Partial withdrawals of Surrender Value may be made once each Policy year after
the first Policy year during the insured's lifetime. Partial withdrawals in the
first two Policy years will be allowed only if cumulative premiums paid to date
are at least equal to the sum of 12 monthly Minimum Premiums (calculated without
regard to any charges for riders or substandard risks) for the initial Face
Amount. A comparable restriction applies in the first two years following any
Face Amount increases requested by the Policy owner. The amount withdrawn will
be deducted from the General Account and the Subaccounts of the Separate Account
as selected by the Policy owner. If no selection is made then the amount will be
withdrawn on a Pro Rata Basis. Fortis Benefits reserves the right to deduct a
withdrawal charge from the proceeds of partial withdrawals, although it has no
current plans to do so. Any such charge would not be imposed on a full
surrender, would not be designed to yield a profit to Fortis Benefits, and would
not exceed $25 per withdrawal (or, if less, 2% of the amount withdrawn).
When Death Benefit Type A is in effect, any partial withdrawal will reduce the
Face Amount and thus the death benefit, by the amount withdrawn. Such an
automatic reduction in Face Amount does not result in any change in the monthly
Minimum Premium, but may result in a distribution (as a further partial
withdrawal) of any additional amount necessary to comply with the maximum
premium limitation under Section 7702 of the Code. See "Payment and Allocation
of Premiums--Premiums."
When Death Benefit Type B is in effect, the amount withdrawn will not reduce the
Face Amount. However, the death benefit will be reduced by the amount withdrawn,
because Policy Value is reduced by the amount withdrawn. Under either Type A or
Type B, when the Alternative Death Benefit is in effect, a partial withdrawal
will reduce the death benefit by a greater amount than otherwise would be the
case.
A partial withdrawal may also cause the termination of the Guaranteed Death
Benefit or disqualify a Policy from receiving Policy Value Advances and Cash
Value Bonuses.
A Policy owner will not be permitted to make any partial withdrawal that would
reduce the Face Amount of the Policy below a minimum Face Amount of $400,000. If
a request for a partial withdrawal is received that would reduce the Face Amount
below the minimum, Fortis Benefits will not implement the partial withdrawal
request, but will contact the Policy owner as to whether the request should be
disregarded, reduced to a smaller amount or changed to a request for a full
surrender.
Under Policies issued pursuant to Section 403(b), no distributions of voluntary
salary reduction amounts will be permitted prior to one of the following events:
attainment of 59 1/2 by the employee or the employee's separation from service,
death, disability, or hardship. (Hardship distributions will be limited to the
lesser of the amount of hardship or the amount
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of salary reduction contributions, exclusive of earnings thereon). This
restriction does not apply to another investment alternative permitted under
Section 403(b) retirement arrangement or to amounts attributable to premium
payments received prior to January 1, 1989. Also see "Federal Tax Matters --
Taxation Under Section 403(b) Policies" for required distributions. Further, in
most cases, spousal consent is required for distributions other than by a
qualified joint and survivor annuity or settlement option.
Surrenders or partial withdrawals are made by sending a written request on
Fortis Benefits' form to its Home Office, together with the Policy, in the case
of total surrender. See "Summary--How to Exercise Your Rights Under a Policy."
The surrender or withdrawal, and any related automatic Face Amount reduction,
will be effective as of the Date of Receipt by Fortis Benefits of the request on
its form and, if required, the Policy.
RIGHTS RESERVED BY FORTIS BENEFITS
Fortis Benefits reserves the right to make certain changes if, in its judgement,
they would best serve the interests of the Policy owners or would be appropriate
in carrying out the purposes of the Policies. Any changes will be made only to
the extent and in the manner permitted by applicable laws. Also, when required
by law, Fortis Benefits will obtain Policy owner approval of the changes and
approval from any appropriate regulatory authority. Such approval may not be
required in all cases, however. Examples of the changes Fortis Benefits may make
include:
- To operate the Separate Account in any form permitted under the 1940 Act
or in any other form permitted by law.
- To take any action necessary to comply with or obtain and continue any
exemptions from the 1940 Act or otherwise to comply with laws, rules,
regulations, interpretations, holdings, order or rulings which necessarily
or appropriately must be complied with for the Policies to serve their
intended purposes.
- To transfer or limit any assets in any Subaccount to another Subaccount,
or to one or more separate accounts, or to the General Account; or to add,
combine or remove Subaccounts in the Separate Account.
- To substitute, for the Portfolio shares held in any Subaccount, the shares
of another Portfolio of Fortis Series or the shares of another investment
company or any other investment permitted by law.
- To make any other necessary technical changes in the Policy in order to
conform with any action the above provisions permit Fortis Benefits to
take, including to change the way Fortis Benefits assesses charges, but
without increasing as to any then outstanding Policy the aggregate amount
of the types of charges which Fortis Benefits has guaranteed. See "Charges
and Deductions--Guarantee of Certain Charges."
If any Portfolio materially changes its investment policy, a Policy owner will
have sixty days after receiving notice of the change to transfer all of the
Policy Value to the General Account, as described under "Payment and Allocation
of Premiums--Allocation of Premiums and Policy Value."
PAYMENT AND DEFERMENT
With respect to amounts in the Subaccounts of the Separate Account, payment of
the maturity proceeds, death benefit, accelerated death benefit, all or a
portion of the Surrender Value or a loan will ordinarily be made within five
days after the Date of Receipt of all documents required for such payment. Also,
death benefit payments will be made only after all state insurance law
requirements (including receipt of any required tax waiver) are satisfied.
However, Fortis Benefits may defer the determination, application or payment of
any death benefit, accelerated death benefit, loan, partial withdrawal,
surrender or any transfer of Policy Value for any period during which the New
York Stock Exchange is closed (other than customary weekend and holiday
closings), for any period during which any emergency exists as a result of which
it is not reasonably practicable for Fortis Benefits to determine the investment
experience for a Policy, or for such other periods as the Securities and
Exchange Commission may by order permit for the protection of Policy owners.
As with traditional life insurance, Fortis Benefits may delay payment of the
entire insurance proceeds or other Policy benefits if entitlement to payment is
being questioned. Fortis Benefits may also defer the payment of any amount
attributable to a premium payment made by check to allow the check reasonable
time to clear. To the extent permitted under the Policies and applicable state
insurance laws, Fortis Benefits may also defer payment of Policy loans, partial
withdrawals or other proceeds payable out of the General Account for a period of
up to 6 months, although no such deferrals will be made of amounts to be used to
pay premiums on insurance policies issued by Fortis Benefits.
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DISTRIBUTION OF THE POLICIES
The Policies will be sold by individuals who, in addition to being licensed by
state insurance authorities to sell the policies of Fortis Benefits, are also
registered representatives of Fortis Investors, Inc. ("Investors"), the
principal underwriter of the Policies, or registered representatives of other
broker-dealer firms or representatives of firms that are exempt from
broker-dealer regulation. Investors and any such other broker-dealer firms are
registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as broker-dealers and are members of the National
Association of Securities Dealers, Inc.
Commissions and other compensation are paid by Fortis Benefits to Investors
under a distribution agreement entered into by them as of January 1, 1994 and
amended September 30, 1995. As compensation for distributing the Policies Fortis
Benefits pays Investors 110.5% of all premiums up to the first twelve monthly
Minimum Premiums (and up to the amount of twelve months' Minimum Premium
attributable to Face Amount increases); and 4% of all other premiums paid during
the first six years after the Policy Date and 2% of such excess premiums paid in
Policy years seven through ten. Fortis Benefits also pays Investors .25% of
unloaned Policy Value annually as a service fee from the eleventh Policy year.
Fortis Benefits also pays a general marketing allowance to Fortis Investors
equal to 20% of the first twelve monthly Minimum Premiums, not to exceed an
amount agreed to in advance by Fortis Benefits and Fortis Investors ($1,812,000
in calendar year 1997 for all Variable Universal Life Policies issued by Fortis
Benefits). The Minimum Premiums for these purposes are generally those used to
determine availability of the Guaranteed Death Benefit, decreased by any term
conversion credit. Investors pays a selling allowance not in excess of those
amounts to other broker dealer firms or exempt firms who sell the Policies.
Fortis Benefits may, under certain flexible compensation arrangements, pay
Fortis Investors different selling allowances and service fees than as set forth
above, and Fortis Investors may in turn pay different selling allowances and
larger service fees to its registered representatives and other broker-dealer
firms than as set forth above. However, in such case, such flexible compensation
arrangements will have actuarially equivalent present values to the amounts of
the selling allowances and service fees set forth above. In many cases,
registered representatives, broker-dealers or exempt firms are eligible for
additional compensation, and general agents and managing general agents also
receive additional compensation, based on meeting certain production or
mortality experience standards. Commissions and other compensation do not,
however, represent a charge or deduction against Policies in addition to those
set forth under "Charges and Deductions." Such compensation for the Policies and
for all other variable universal life policies issued by Fortis Benefits
totalled $35,640,601 for 1996. Commissions with respect to premium payments
which are refunded are returned. The distribution agreement may be terminated by
either party upon 60 days' notice to the other.
Investors is a Minnesota corporation engaged primarily in the sale of investment
company securities. Investors is the principal underwriter for the following
registered investment companies (in addition to the Separate Account and Fortis
Series): Variable Account D of Fortis Benefits, First Fortis Life Insurance
Company's Separate Account A and Variable Account C, Fortis Advantage
Portfolios, Inc., Fortis Capital Fund, Inc., Fortis Growth Fund, Inc., Fortis
Fiduciary Fund, Inc., Fortis Tax-Free Portfolios, Inc., Fortis Money Fund, Inc.,
Fortis Income Portfolios, Inc., Fortis Worldwide Portfolios, Inc., and Special
Portfolios, Inc. Investors' address is 500 Bielenberg Drive, Woodbury,
Minnesota, 55125.
Officers, directors, and employees of Fortis Benefits and Investors, together
with those of Fortis, Inc. and its other subsidiaries, are bonded pursuant to a
joint fidelity bond, in the amount of $5,000,000 per occurrence, in favor of
such companies.
FEDERAL TAX MATTERS
The following description is a brief summary of the tax rules, primarily related
to federal income and estate taxes, which in the opinion of Fortis Benefits are
currently in effect.
The following discussion is intended to provide a general description of the
federal income tax considerations associated with the Policy. It does not
purport either to be complete or to cover all situations; this discussion is not
intended to be taken as tax advice. Consult a qualified tax adviser for more
complete information. This discussion is based upon Fortis Benefits'
understanding of the present federal income tax laws as they are currently
interpreted by the Internal Revenue Service. No representation is made as to the
likelihood of continuation of the present federal income tax laws or of the
current interpretation by the Internal Revenue Service.
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code of 1986, as amended, (the "Code")
includes a definition of life insurance for federal income tax purposes. This
definition can be satisfied by complying with either of two tests set forth in
Section 7702. Although the secretary of the Treasury is authorized to prescribe
regulations interpreting the manner in which the tests under Section 7702 are to
be applied, such
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regulations have not been issued. In addition, the Technical and Miscellaneous
Revenue Act of 1988 (TAMRA) provides certain requirements under Section 7702 of
the Code for mortality and other expense charges of life insurance contracts.
The Treasury issued proposed regulations on mortality charges in 1991. Guidance
on these requirements is extremely limited, but Fortis Benefits believes the
Policies qualify as life insurance under the proposed regulations.
If it is subsequently determined that a Policy does not satisfy Section 7702,
Fortis Benefits reserves the right to modify the Policy as appropriate, and to
the extent possible, to qualify it as a life insurance contract under Section
7702. If a Policy were determined not to be a life insurance contract for
Section 7702 purposes, such Policy would not provide any of the tax advantages
normally provided by a life policy.
Section 817(h) of the Code also authorizes the Secretary of the Treasury (the
"Treasury") to set standards by regulation or otherwise for investments of the
Separate Account to be "adequately diversified" in order for the Policy to be
treated as life insurance for federal tax purposes. The Separate Account,
through Fortis Series, intends to comply with the diversification requirements
prescribed in Regulations Section 1.817-5, which affect how the assets of Fortis
Series may be invested. Fortis Benefits believes that Fortis Series will be
operated in compliance with the requirements prescribed by the Treasury.
In connection with the issuance of the temporary regulations on diversification
requirements, the Treasury announced that such regulations do not provide
guidance concerning the extent to which Policy owners may direct their
investments to particular Subaccounts of the Separate Account. Additional
guidance may come from the Treasury in the future. In that case, the Treasury
might treat a Policy owner as the owner of assets of the Separate Account if a
Fortis Series Portfolio is too narrow in its investment strategy, even though it
technically meets the diversification requirements. It is not clear whether
Treasury's position, if promulgated, would be applied on a prospective basis
only. While Fortis Benefits believes that the investment strategies of the
Policy's Portfolios are sufficiently broad, it reserves the right to modify the
Policy as necessary to prevent the Policy owner from being considered the owner
of the assets of the Separate Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
TAX STATUS OF ADDITIONAL INSURED RIDER
The coverage under either the Additional Insured Rider or the Additional Insured
Rider Plus for a non-family member is not a qualified additional benefit as
defined in Section 7702 of the Code. As a result, the Monthly Deductions
attributable to such coverage may be deemed to be distributions from the policy
for tax purposes. However, the benefit payable under the rider should be
excludible from the gross income of the beneficiary. Before purchasing such
coverage you should consult with a qualified tax adviser for more complete
information.
TAXATION OF POLICY BENEFITS
IN GENERAL. Fortis Benefits believes that the proceeds and Policy Value
increases of a Policy should be treated in a manner consistent with a
fixed-benefit life insurance policy for federal income tax purposes. Thus, the
death benefit under the Policy should be excludable from the gross income of the
beneficiary under Section 101(a)(1) of the Code.
The exchange of the Policy for another life insurance policy, the payment of a
premium, a change in Face Amount or death benefit option, an accelerated death
benefit payment, a transfer or assignment of a Policy, a Policy loan, a lapse
with an outstanding indebtedness, a partial withdrawal or the surrender of a
Policy may have tax consequences depending on the circumstances. Federal estate
and state and local estate, inheritance and other tax consequences of ownership
or receipt of Policy proceeds depend upon the circumstances of each owner or
beneficiary.
Generally, the Policy owner will not be deemed to be in constructive receipt of
the Policy Value, including increments thereof, under the Policy until there is
a distribution. The tax consequences of a distribution from a Policy depend, in
part, on whether the Policy is classified as a "modified endowment contract"
under Section 7702A.
MODIFIED ENDOWMENT CONTRACTS. A Policy may be treated as a modified endowment
contract depending upon the amount of premiums paid for such Policy. The premium
limitation rules for determining whether a Policy will be treated as a modified
endowment contract are extremely complex. Moreover, due to the Policy's
flexibility, classification as a modified endowment contract will depend on the
circumstances of each Policy. Accordingly, a current or prospective Policy owner
is strongly advised to contact a competent tax adviser before purchasing a
Policy or paying a premium or making any other change in any existing Policy to
determine whether the Policy would be treated as a modified endowment contract.
DISTRIBUTIONS FROM MODIFIED ENDOWMENT CONTRACTS. Policies classified as modified
endowment contracts are subject to the following tax rules: First, all
distributions from such a
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Policy are treated as taxable up to an amount equal to the excess (if any) of
the Policy Value immediately before the distribution over the investment in the
Policy (described below) at such time. Second, loans taken from or secured by
such a Policy, and assignments as well as surrenders, withdrawals and benefits
paid at maturity, are treated as taxable distributions. Third, a 10% additional
income tax is imposed on the portion of any distribution or deemed distribution
from such a Policy that is included in income except where the distribution,
loan, assignment or pledge is made on or after the Policy owner attains age
59 1/2, is attributable to the Policy owner becoming disabled, or is a part of a
series of substantially equal periodic payments for the life of the Policy owner
or the joint lives of the Policy owner and Policy owner's beneficiary.
DISTRIBUTIONS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS. The
distribution rules for Policies that are not modified endowment contracts are
the same as those that applied to all life insurance contracts before TAMRA was
enacted. Thus, distributions from Policies that are not classified as modified
endowment contracts are generally treated as first recovering the investment in
the Policy (see below) and then only after the return of all such investment in
the Policy as disbursing taxable income. An exception to this general rule
occurs in the case of a decrease in the Policy's death benefit or any other
change that reduces benefits under the Policy in the first 15 years after the
Policy is issued and that results in a cash distribution to the owner in order
for the Policy to continue complying with the Section 7702 definitional limits.
Such cash distribution will be taxed in whole or in part as ordinary income (to
the extent of any gain in the Policy) under rules prescribed in Section 7702.
Loans from Policies that are not modified endowment contracts are not treated as
distributions. Instead, such loans are treated as indebtedness of an owner.
In addition, upon a complete surrender or lapse of a Policy that is not a
modified endowment contract, or when benefits are paid at such a Policy's
maturity date, if the amount received plus the amount of indebtedness exceeds
the total investment in the Policy, the excess will generally be treated as
ordinary income.
Finally, neither distributions nor loans from Policies that are not modified
endowments are subject to the 10% additional income tax.
POLICY LOAN INTEREST. Generally, interest paid on any loan under a Policy which
is owned by an individual is not deductible. Prior to 1996 legislation, there
was an exception to this general rule for Policies with loans of less than
$50,000 owned by a taxpayer and covering the life of any individual who is an
officer or is financially interested in the business carried on by that
taxpayer. The 1996 legislation eliminates the deductibility of interest paid
even on loans of $50,000 or under, with respect to both new and previously
issued policies, subject to certain transition rules.
INVESTMENT IN THE POLICY. Investment in the Policy means (i) the aggregate
amount of any premiums or other consideration paid for the Policy including the
amount of any loan received under the Policy to the extent that the loan is
included in the gross income of the Policy owner minus (ii) the aggregate amount
received under the Policy which was excluded from the gross income of the Policy
owner, except that the amount of any loan received under the policy which is
excluded from gross income shall be disregarded.
If there is a non-family member insured under the Additional Insured Rider or
the Additional Insured Rider Plus, the Investment in the Policy may be deemed to
be reduced by the total amount of Monthly Deductions attributable to that
insured.
MULTIPLE CONTRACTS. Under TAMRA, all modified endowment contracts that are
issued by Fortis Benefits or its affiliates, to the same Policy owner during a
calendar year are treated as one modified endowment contract for purposes of
determining the amount includible in gross income under Section 72(e) of the
Code.
EXCHANGES. TAMRA also provides that a life insurance contract received in
exchange for a Policy classified as a modified endowment contract will also be
treated as a modified endowment contract. Accordingly, a Policy owner should
consult a tax adviser before effecting an exchange of a Policy.
TAXATION UNDER SECTION 403(B) PLANS.
PURCHASE PAYMENTS. Under Section 403(b) of the Code, payments made by certain
employers (i.e., tax-exempt organizations meeting the requirements of Section
501(c)(3) of the Code, or public educational institutions) to purchase Policies
for their employees are excludible from the gross income of employees to the
extent that such aggregate purchase payments do not exceed certain limitations
prescribed by the Code. This is the case whether the purchase payments are a
result of voluntary salary reduction amounts or employer contributions. Salary
reduction payments are, however, subject to FICA (social security) taxes.
TAXATION OF DISTRIBUTIONS. Distributions from a Section 403(b) Policy are taxed
as ordinary income to the recipient. Taxable distributions received before the
employee attains
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age 59 1/2 generally are subject to a 10% penalty tax in addition to regular
income tax. Certain distributions are excepted from this penalty tax, including
distributions following the employee's death, disability, separation from
service after Age 55, separation from service at any Age if the distribution is
in the form of an annuity for the life (or life expectancy) of the employee (or
the employee and Beneficiary) and distributions not in excess of deductible
medical expenses. In addition, no distributions of voluntary salary reduction
amounts made for years after December 31, 1988 (plus earnings thereon and
earnings on Policy Values as of December 31, 1988) will be permitted prior to
one of the following events: attainment of Age 59 1/2 by the employee or the
employee's separation from service, death, disability or hardship. (Hardship
distributions will be limited to the lesser of the amount of the hardship or the
amount of salary reduction contributions, exclusive of earnings thereon.)
REQUIRED DISTRIBUTION. At retirement or on April 1 of the calendar year
following the calendar year in which the employee attains age 70 1/2, the Policy
must be surrendered or one of the settlement options (other than the interest
option) must be put into effect. Otherwise, the Surrender Value becomes
reportable taxable income.
If the insured dies after the commencement of payments under a settlement
option, other than an interest option, any remaining portion of such interest
will be distributed at least as rapidly as under the method of distribution
being used on the date of such death. If the insured dies before commencement of
payments under a settlement option, or after payments commenced under the
interest option, the entire interest in the Policy will be distributed (1)
within five years after such death, or (2) as annuity payments which will begin
within one year of such death and which will be made over the life of the
designated beneficiary (who must be a natural person under this option) or over
a period not extending beyond the life expectancy of that beneficiary. However,
if the beneficiary is the insured's surviving spouse, the surviving spouse may
elect an option with payments extending more than five years after the insured's
death (but not to exceed the beneficiary's life or life expectancy) at any time
until the later of (1) the end of the calendar year following the year of the
insured's death, or (2) the end of the calendar year in which the insured would
have attained 70 1/2.
TAXATION OF FORTIS BENEFITS
Fortis Benefits does not initially expect to incur any federal income tax upon
the earnings or capital gains attributable to the Separate Account. Based upon
these expectations, no charge is currently being made against the Separate
Account for federal income taxes which may be attributable to the Separate
Account. If, however, Fortis Benefits determines that it may incur such taxes,
it may assess a charge against the Separate Account for those taxes, which would
reduce a Policy's net investment return.
Under present laws, Fortis Benefits may incur state and local taxes (in addition
to premium taxes) in several states. At present, these taxes are not
significant. If they increase, however, Fortis Benefits may decide to make
charges for such taxes or provisions for such taxes against the Separate
Account.
OTHER POLICY PROVISIONS
OWNER. The owner of a Policy is the insured, unless another owner has been named
in the application for the Policy. The owner is entitled to exercise all rights
under a Policy while the insured is alive, including the right to name a new
owner or a successor who would become the Policy owner if the owner should die
before the insured dies. Otherwise the owner's estate would become the owner. If
the Policy is part of a program under Section 403(b), it may be transferred only
in limited circumstances referred to in the Policy.
BENEFICIARY. The beneficiary is the person or persons to whom the insurance
proceeds are payable upon the insured's death. The owner may name a contingent
beneficiary to become the beneficiary if all the beneficiaries die while the
insured is alive. If no beneficiary or contingent beneficiary is alive when the
insured dies, the owner (or the owner's estate) will be the beneficiary. While
the insured is alive, the owner may change any beneficiary or contingent
beneficiary.
Under certain retirement programs, however, spousal consent may be required to
name or change a beneficiary, and the right to name a beneficiary other than the
spouse of the insured may be subject to applicable laws and regulations.
Fortis Benefits is not responsible for the validity of any change.
COLLATERAL ASSIGNMENT. The owner may assign a Policy as collateral. If the
Policy is part of a program under Section 403(b), it may be assigned only in
limited circumstances referred to in the Policy. Rights under the Policy will be
transferred to the extent of the assignee's interest. Fortis Benefits is not
bound by an assignment or release thereof, unless it is in writing and is
recorded at its Home Office. Fortis Benefits is not responsible for the validity
of any assignment or release thereof.
DATE OF RECEIPT. The Date of Receipt by Fortis Benefits of any payment or other
communication is the actual date it is received at Fortis Benefits' Home Office
in proper form
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unless received (1) after the close of the NYSE, or (2) on a date which is not a
Valuation Date. In either of these two cases, the Date of Receipt will be deemed
to be the next Valuation Date.
DATE OF CERTAIN CHANGES. Changes in beneficiaries and successor owners and
assignments take effect as of the date the owner signed the change request,
subject to any actions taken by Fortis Benefits prior to the Date of Receipt of
written notice of the change in form satisfactory to Fortis Benefits or, in the
case of an assignment, recording by Fortis Benefits.
SUICIDE. The insurance proceeds will not be paid if the insured commits suicide
within two years (one year in Colorado and North Dakota) from the Policy Date.
Instead, Fortis Benefits will pay the beneficiary an amount equal to all
premiums paid for the Policy, without interest, less any outstanding Policy
loan, plus any loan interest paid for periods beyond the date of death, and less
any partial withdrawals. If the insured commits suicide more than two years
after the Policy Date but within two years (one year in Colorado and North
Dakota) from the effective date of any reinstatement or increase in Face Amount
requested by the Policy owner, Fortis Benefits' liability with respect to such
increase or reinstatement will be limited to the cost of insurance and "per
thousand" charges attributable to such increase or reinstatement since that
date.
AGE AND SEX. If the insured's Age or sex as stated in the application is not
correct, the death benefit under a Policy will be adjusted to reflect the amount
of insurance coverage which the most recent cost of insurance charges and
deductions for riders would have purchased at the correct Age and sex. As used
herein, "Age" is the insured's actual age on the most recent Policy Anniversary.
INCONTESTABILITY. Fortis Benefits may contest the validity of a Policy, any Face
Amount increase, or any optional insurance benefit based on other misstatements
in the application therefor. However, any such statements will be considered
representations and not warranties. Fortis Benefits will not contest the
validity of a Policy after it has been in force during the insured's lifetime
for two years from the Policy Date. Fortis Benefits will not contest the
validity of any optional insurance benefit, reinstatement or increase in Face
Amount after it has been in force during the insured's lifetime for two years
from its effective date.
OPTION TO EXTEND MATURITY DATE. This option is available as part of Policies
issued in a state that has approved the endorsement containing this provision.
This option allows the Policy owner to request a later maturity date, if the
Policy Value is at least $2,000. The request must be in writing and must be made
within six months prior to the current maturity date.
If this option is exercised the Policy owner will not be permitted to 1) make
any further premium payments except if necessary to prevent lapse of the Policy
2) make any Face Amount or death benefit option changes or 3) make any partial
withdrawals that would reduce the Policy Value below $2,000.
Also, upon exercise of this option the following occurs as of the original
maturity date: 1) The Guaranteed Death Benefit lapses and the Death Benefit
becomes the Alternative Death Benefit (see "Death Benefit Options--Alternative
Death Benefit") 2) No further Policy Value Advances or Cash Value Bonuses are
credited 3) All supplemental riders except the Accelerated Benefit Rider
terminate and 4) Any Policy loan will be charged interest at an effective annual
rate of 3.85% per year payable in advance.
DIVIDENDS. The Policies are nonparticipating. This means that they are not
eligible for dividends and they do not participate in any distribution of Fortis
Benefits' surplus.
ADDITIONAL CREDITS FOR CERTAIN GROUPS. The credits described below will be made
under Policies owned by Fortis, Inc., its subsidiaries, any individual who at
the time of purchase is an officer, director, employee, retiree or sales
representative of any such company, any Fortis Series director, any director of
any of the other mutual funds managed by Fortis Advisers, Inc., or a spouse or
child under Age 21 of any such person, or a representative or employee of a
broker-dealer that has a selling agreement with Fortis Investors, Inc. No credit
will be made for any Policy for which sales compensation is paid. The minimum
initial Face Amount and minimum initial annual premium for policies issued to
these categories of persons is as follows, respectively: $250,000 and $5,000.
Additionally, in Fortis Benefits' discretion, certain charges may also be
reduced or waived for these categories of persons.
Fortis Benefits will credit 40% of the sum of twelve monthly Minimum Premiums
(calculated without regard to the $25 limit and any optional riders or
substandard risks) in the first Policy year and 25% of the sum of twelve such
monthly Minimum Premiums then in effect in the second Policy year. The first
credit, after deduction of any premium tax that Fortis Benefits may determine in
the future to impose on premium payments, will be applied as if it were a
premium payment received on the date the Policy is released by Fortis Benefits
to an active status in its processing system. The second credit will be applied
similarly on the first Policy
35
<PAGE>
Anniversary. The premium returned upon exercise of the Policy owner's right to
cancel a Policy will not include the amount of any credit.
Additionally, for a Face Amount increase, Fortis Benefits will credit 40% of the
sum of twelve monthly Minimum Premiums (calculated without regard to the $25
limit and any optional riders or substandard risks) on the effective date of
such Face Amount increase if the Policy owner is at that time a member of the
above described group. On the first anniversary of such Face Amount increase,
25% of the sum of such monthly Minimum Premiums attributable to the Face Amount
increase still in effect will be credited to the Policy. These credits are
granted only if the Face Amount increase is at least $25,000 and the annualized
planned periodic premium is equal to twelve monthly Minimum Premiums for the
entire Policy. The credit is granted only on the portion of the Face Amount
increase that equals the excess of the current face amount over the largest face
amount that has ever been in force on the Policy.
If a Policy is issued in exchange for another policy issued by Fortis Benefits
or Time Insurance Company within the last 5 years and Fortis Benefits relies on
the evidence of insurability previously provided, no credits will be paid for
the transferred Face Amount. If such exchange is made after 5 years, the credit
is 50% of the amount above for the transferred coverage. The full credit amount
will be paid on any increase in Face Amount above the transferred coverage.
The foregoing program is subject to termination at any time without notice. All
variations will reflect differences in Fortis Benefits' expected commissions,
sales or administrative expenses or mortality experience with respect to the
group of persons to whom such variations apply. All such variations will be
pursuant to administrative rules and procedures established by Fortis Benefits
from time to time and will be designed to be fair, reasonable and
non-discriminatory with respect to each group of Policy owners.
PURCHASES BY LIFE INSURANCE POLICY HOLDERS. When issuing a Policy or increasing
the Face Amount for an insured who is already covered by one of its or Time
Insurance Company's life insurance policies, Fortis Benefits may rely on the
evidence of insurability previously provided, rather than relying on new
evidence, in which case, the suicide and contestability periods will run from
the original date of coverage. This procedure applies only to that portion of
the Policy's Face Amount which is not in excess of the amount of existing
insurance coverage, and the insurance will terminate when the new coverage
becomes effective.
If the value of an existing life insurance policy which was issued by Fortis
Benefits Insurance Company is transferred to a Policy, then neither the premium
tax charge of 2.2% nor the sales charge of 7.5% will be assessed against the
amount transferred.
Also, for its or Time Insurance Company's term insurance policy holders, if the
term policy has been outstanding for at least one year, Fortis Benefits will
give the Policy owner a "conversion credit" in the amount of the lesser of the
prior twelve months' premiums on the term policy or 25% of twelve monthly
Minimum Premiums for the amount of Policy Face Amount established by the
conversion, without regard to any optional benefits provided by rider. The
conversion credit will be applied as if it were a premium payment received by us
on the date the Policy is released by Fortis Benefits to an active status in its
processing system (or, in the case of an existing Policy, on the effective date
of the Face Amount increase). No premium tax charges will be assessed against
the conversion credit. The Policy's Surrender Value and Policy loan value during
the first year following the conversion do not include the amount of the
conversion credit, nor does the amount paid upon an exercise of the Policy
owner's right to cancel a Policy or Face Amount increase.
Fortis Benefits will also not require new evidence of insurance, and will grant
a "conversion credit" as described above, when term policies issued by Old Line
Life Insurance Company are converted to a Policy issued by Fortis Benefits under
the following conditions: a) the term policy has been in force for less than
three years b) the insured is age 55 or younger at the time of conversion and c)
the term policy was sold by a registered representative of Fortis Investors,
Inc.
The foregoing procedures are subject to Fortis Benefits' administrative rules as
in effect from time to time and may be terminated at any time.
36
<PAGE>
MANAGEMENT
The directors and executive officers, to the extent responsible for variable
life insurance operations, of Fortis Benefits are listed below, together with
their principal occupations and business experience for the past five years:
<TABLE>
<S> <C>
OFFICER-DIRECTORS
Robert Brian Pollock (4) President and Chief Executive Officer; before then Senior Vice
President--Life and Disability.
Thomas Michael Keller (5) Executive Vice President; before then Senior Vice President of
Fortis, Inc.
Dean C. Kopperud (1) Senior Vice President--also officer of affiliated companies.
OTHER DIRECTORS
Allen Royal Freedman (2) Chairman and Chief Executive Officer of Fortis, Inc.
Henry Carroll Mackin (2) Executive Vice President of Fortis, Inc.
Arie Aristide Fakkert (3) Assistant General Manager of Fortis International N.V.
EXECUTIVE OFFICERS
Peggy Ettestad (1) Senior Vice President--Operations; before then Vice President,
General Electric Company.
Rhonda J. Schwartz (1) Senior Vice President and General Counsel--Life and Investment
Products; before then Secretary and General Counsel of Fortis,
Inc.; before then Norris, McLaughlin, Marcus--attorneys.
Michael John Peninger (4) Senior Vice President and Chief Financial Officer
Jon H. Nicholson (1) Senior Vice President--Product Development and Marketing
</TABLE>
- -------------------------------------------
(1) Address: Fortis Benefits Insurance Company, P.O. Box 64271, St. Paul, MN
55164. Fortis Benefits is a wholly-owned subsidiary of Time Insurance
Company, 501 West Michigan, Milwaukee, WI 53201, which is itself
wholly-owned by Fortis, Inc.
(2) Address: Fortis, Inc., One World Trade Center, Suite 5001, New York, NY
10048. Fortis, Inc. is wholly owned by Fortis International, N.V., which is
itself wholly owned by AMEV/VSB 1990 N.V. The latter two companies share the
same address as Fortis AMEV N.V. AMEV/VSB 1990 N.V. is 50% owned by Fortis
AMEV N.V. and 50% owned by Fortis AG, Boulevard Emile Jacqmain 53, Brussels,
Belgium.
(3) Address: Fortis AMEV, Archimedeslaan 10, 3584 BA Utrecht, The Netherlands.
(4) Address: 2323 Grand Avenue, Kansas City, MO 64108.
(5) Address: 501 West Michigan, Milwaukee WI 53201.
VOTING PRIVILEGES
In accordance with its view of current applicable law, Fortis Benefits will,
with respect to certain matters, vote each Subaccount's shares in the
corresponding Portfolio at regular and special meetings of the shareholders of
Fortis Series in proportion to instructions received from persons having the
voting interest in the corresponding Subaccount of the Separate Account.
However, if the 1940 Act or any rules thereunder should be amended or if the
present interpretation thereof should change, and as a result Fortis Benefits
determines that it is permitted to vote such shares of the Portfolios in its own
right, it may elect to do so.
Each Policy owner participating in a Subaccount will be entitled to cast one
vote with respect to that Subaccount for each $100 of Policy Value in that
Subaccount as of the date stock ownership is determined for the corresponding
Fortis Series shareholder meeting. (Fractional votes will be counted.) All
shares of the Portfolio held by that Subaccount will be voted in proportion to
the votes of Policy owners participating in the Subaccount. Shares held in other
separate accounts will in general be voted in accordance with instructions of
the participants therein. This tends to diminish the relative voting influence
of the Policies. Any shares of a Portfolio owned by Fortis Benefits in its
General Account or by affiliated companies of Fortis Benefits will be voted in
the
37
<PAGE>
same proportion as instructions for that Portfolio which are received from
persons having the voting interest in all separate accounts investing in Fortis
Series.
The Policy owners may give instructions regarding the election of the Board of
Directors of Fortis Series, ratification of the selection of its independent
auditors, the approval of the investment adviser of a Portfolio, changes in
fundamental investment policies of a Portfolio, and all other matters that are
put to a vote by Fortis Series shareholders.
Notwithstanding contrary Policy owner voting instructions, Fortis Benefits may
vote Portfolio shares in any manner necessary to enable any Portfolio to (1)
make or refrain from making any change in the investments or investment policies
of any Portfolio, if required by any insurance regulatory authority; (2) refrain
from making any change in the investment policies or any investment adviser or
principal underwriter of any Portfolio which may be initiated by Policy owners
or the Fortis Series Board of Directors, provided that Fortis Benefits'
disapproval of the change is reasonable and, in the case of a change in
investment policies or investment adviser, based on a good faith determination
that such change would be contrary to state law or otherwise inappropriate in
light of the Portfolio's objective and purposes; or (3) enter into or refrain
from entering into any advisory agreement or underwriting contract, if required
by any insurance regulatory authority. If Fortis Benefits does disregard Policy
owner voting instructions, an explanation of this action and the reasons for it
will be included in the next semi-annual report to Policy owners.
REPORTS
Policy owners will receive promptly statements of significant transactions such
as changes in Face Amount, changes in death benefit option, transfers among
Subaccounts, partial withdrawals, Policy loans, loan repayments, termination for
any reason, reinstatement, premium payments (except as noted below) and unpaid
loan interest added to loan principal. These transactions will also be
summarized in an annual statement sent to the Policy owner. The annual statement
will be as of a date not more than 60 days prior to mailing, and will also
summarize the following other items: premiums paid by use of a plan selected by
the Policy owner authorizing monthly withdrawals of premiums from the Policy
owner's checking account, paycheck or government payment during the annual
period, deductions of charges occurring during that annual period, any Policy
Value Advances and Cash Value Bonuses credited during that period and the status
of the death benefit, Policy Value (both total and net of any Surrender Charge),
amounts in the Subaccounts and General Account, and any Policy loan. In
addition, an owner will be sent semiannual reports containing financial
statements for Fortis Series, as required by the 1940 Act. Fortis Benefits'
current policy is to honor requests for statements of Policy values during a
Policy year, although Fortis Benefits reserves the right at any time to cease
offering or to charge for this service. Such statements may be requested through
the phone number on the cover of this Prospectus.
STATE REGULATION
Fortis Benefits is subject to regulation and supervision by the Commerce
Department of the State of Minnesota, which periodically examines its affairs.
It is also subject to the insurance laws and regulations of all jurisdictions
where it is authorized to do business. Fortis Benefits intends to satisfy the
necessary requirements to sell the policies in all states, other than New York,
as soon as possible.
LEGAL MATTERS
The legality of the Policies described in this Prospectus has been passed upon
by Douglas R. Lowe, Associate General Counsel of Fortis Benefits. Messrs.
Freedman, Levy, Kroll & Simonds, Washington, D.C., have advised Fortis Benefits
on certain federal securities law matters.
EXPERTS
The financial statements of Fortis Benefits Insurance Company and Fortis
Benefits Insurance Company Variable Account C appearing in this Prospectus have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
Actuarial matters included in this Prospectus have been examined by Renee C.
West, FSA, MAAA, Actuarial Officer, Individual Actuarial Department of Fortis
Benefits, as stated in her opinion filed as an exhibit to the registration
statement.
38
<PAGE>
RATINGS AND RANKINGS
Fortis Benefits may advertise its relative performance as compiled by outside
organizations. Following is a list of ratings services which may be referred to
in advertisements, along with the category in which the applicable Subaccount is
included:
<TABLE>
<CAPTION>
RATING SERVICE CATEGORY
- -------------------------------------- --------------------------
<S> <C>
AGGRESSIVE GROWTH SUBACCOUNT
Morningstar Publications, Inc. aggressive growth
Lipper Analytical Services, Inc. small company growth
Variable Annuity Research & Data
Service growth
INTERNATIONAL STOCK SUBACCOUNT
Morningstar Publications, Inc. international stock
Lipper Analytical Services, Inc. international equity
Variable Annuity Research & Data
Service all other equity funds
GLOBAL GROWTH SUBACCOUNT
Morningstar Publications, Inc. international stock
Lipper Analytical Services, Inc. global
Variable Annuity Research & Data
Service all other equity funds
GROWTH STOCK SUBACCOUNT
Morningstar Publications, Inc. growth
Lipper Analytical Services, Inc. capital appreciation
Variable Annuity Research & Data
Service growth
BLUE CHIP STOCK SUBACCOUNT
Morningstar Publications, Inc. growth
Lipper Analytical Services, Inc. capital appreciation
Variable Annuity Research & Data
Service growth
S&P 500 INDEX SUBACCOUNT
Morningstar Publications, Inc growth and income
Lipper Analytical Services, Inc. growth and income
Variable Annuity Research & Data
Service growth and income
GLOBAL ASSET ALLOCATION SUBACCOUNT
Morningstar Publications, Inc. balanced
Lipper Analytical Services, Inc. global flexible
Variable Annuity Research & Data
Service balanced/asset allocation
VALUE SUBACCOUNT
Morningstar Publications, Inc. growth
Lipper Analytical Services, Inc. captial appreciation
Variable Annuity Research & Data
Service all other equity funds
<CAPTION>
RATING SERVICE CATEGORY
- -------------------------------------- --------------------------
<S> <C>
GROWTH AND INCOME SUBACCOUNT
Morningstar Publications, Inc. growth and income
Lipper Analytical Services, Inc. growth and income
Variable Annuity Research & Data
Service growth and income
ASSET ALLOCATION SUBACCOUNT
Morningstar Publications, Inc. balanced
Lipper Analytical Services, Inc. flexible portfolios
Variable Annuity Research & Data
Service balanced/asset allocation
HIGH YIELD SUBACCOUNT
Morningstar Publications, Inc. high yield
Lipper Analytical Services, Inc. high current yield
Variable Annuity Research & Data all other general fixed
Service income funds
GLOBAL BOND SUBACCOUNT
Morningstar Publications, Inc. international bond
Lipper Analytical Services, Inc. world income
Variable Annuity Research & Data all other general fixed
Service income funds
DIVERSIFIED INCOME SUBACCOUNT
Morningstar Publications, Inc. corporate bond
Lipper Analytical Services, Inc. general bond
Variable Annuity Research & Data corporate bond high
Service quality
U.S. GOVERNMENT SUBACCOUNT
Morningstar Publications, Inc. U.S. government bond
Lipper Analytical Services, Inc. U.S. government
Variable Annuity Research & Data all other general fixed
Service income funds
MONEY MARKET SUBACCOUNT
Morningstar Publications, Inc. money market
Lipper Analytical Services, Inc. money market
Variable Annuity Research & Data
Service money market
</TABLE>
FINANCIAL STATEMENTS
The financial statements of Fortis Benefits included in this Prospectus should
be considered only as bearing upon the ability of Fortis Benefits to meet its
obligations under the Policies.
Fortis Benefits generally reinsures risks for non-group insurance in excess of
$500,000 per insured with other insurance companies. See Note 10 to Fortis
Benefits' financial statements.
39
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying balance sheets of Fortis Benefits Insurance
Company, an indirect wholly-owned subsidiary of Fortis AMEV and Fortis AG, as of
December 31, 1996 and 1995, and the related statements of income, changes in
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fortis Benefits Insurance
Company at December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, MN
February 12, 1997
40
<PAGE>
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Investments (NOTE 3):
Fixed maturities, at fair value (amortized cost 1996--$2,078,438;
1995--$1,951,204)..................................................... $2,115,499 $2,075,624
Equity securities, at fair value (cost 1996--$84,144; 1995--$60,935)... 106,290 78,852
Mortgage loans on real estate, less allowance for possible losses
(1996--$9,697; 1995-- $8,353)......................................... 582,869 562,697
Policy loans........................................................... 60,722 53,863
Short-term investments................................................. 182,817 153,499
Real estate and other investments...................................... 29,628 11,918
--------- ---------
3,077,825 2,936,453
Cash..................................................................... 20,474 1
Receivables:
Uncollected premiums................................................... 71,386 55,992
Reinsurance recoverable on unpaid and paid losses...................... 12,939 11,812
Due from affiliates.................................................... -- 388
Other.................................................................. 9,045 14,581
--------- ---------
93,370 82,773
Accrued investment income................................................ 39,519 41,209
Deferred policy acquisition costs (NOTE 4)............................... 268,075 237,509
Property and equipment at cost, less accumulated depreciation (NOTE 5)... 52,882 60,031
Deferred federal income taxes (NOTE 7)................................... 17,008 --
Other assets............................................................. 8,005 3,551
Assets held in separate accounts (NOTE 8)................................ 2,374,718 1,781,485
--------- ---------
TOTAL ASSETS............................................................. $5,951,876 $5,143,012
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
41
<PAGE>
BALANCE SHEETS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
--------- ---------
<S> <C> <C>
POLICY RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
POLICY RESERVES AND LIABILITIES:
Future policy benefit reserves:
Traditional life insurance........................................... $ 434,378 $ 407,706
Interest sensitive and investment products........................... 1,175,480 1,101,931
Accident and health.................................................. 834,119 832,925
--------- ---------
2,443,977 2,342,562
Unearned revenues...................................................... 12,622 13,044
Other policy claims and benefits payable............................... 191,940 196,403
Policyholder dividends payable......................................... 8,783 7,930
--------- ---------
2,657,322 2,559,939
Accrued expenses....................................................... 42,223 68,441
Current income taxes payable........................................... 17,424 5,375
Deferred federal income taxes (NOTE 7)................................. -- 9,538
Other liabilities...................................................... 104,834 31,145
Due to affiliates...................................................... 4,926 --
Liabilities related to separate accounts (NOTE 8)...................... 2,344,474 1,757,476
--------- ---------
TOTAL POLICY RESERVES AND LIABILITIES.................................... 5,171,203 4,431,914
SHAREHOLDER'S EQUITY (NOTES 1, 9 AND 11):
Common Stock, $5 par value:
Authorized, issued and outstanding shares--1,000,000................... 5,000 5,000
Additional paid-in capital............................................. 468,000 408,000
Retained earnings...................................................... 265,613 207,421
Unrealized gains on investments, net (NOTE 3).......................... 36,290 88,131
Unrealized gains on assets held in separate accounts, net (NOTE 3)..... 5,770 2,546
--------- ---------
TOTAL SHAREHOLDER'S EQUITY............................................... 780,673 711,098
--------- ---------
TOTAL POLICY RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY.............. $5,951,876 $5,143,012
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
42
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
REVENUES
Insurance operations:
Traditional life insurance premiums...................... $ 258,496 $ 251,353 $ 207,824
Interest sensitive and investment product policy
charges................................................. 63,336 46,076 37,823
Accident and health premiums............................. 974,046 934,900 776,799
---------- ---------- ---------
1,295,878 1,232,329 1,022,446
Net investment income (NOTE 3)............................. 206,023 203,537 162,514
Net realized gains (losses) on investments (NOTE 3)........ 25,731 55,080 (28,815)
Other income............................................... 31,725 33,085 35,958
---------- ---------- ---------
TOTAL REVENUES......................................... 1,559,357 1,524,031 1,192,103
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance............................... 220,227 202,911 162,168
Interest sensitive and investment products............... 90,358 73,676 55,026
Accident and health claims............................... 778,439 769,588 620,367
---------- ---------- ---------
1,089,024 1,046,175 837,561
Policyholder dividends..................................... 4,169 4,305 1,986
Amortization of deferred policy acquisition costs (NOTE
4)........................................................ 39,325 41,291 34,566
Insurance commissions...................................... 94,723 95,559 86,111
General and administrative expenses........................ 242,825 254,940 197,427
---------- ---------- ---------
TOTAL BENEFITS AND EXPENSES............................ 1,470,066 1,442,270 1,157,651
---------- ---------- ---------
Income before federal income taxes and cumulative effect of
accounting changes........................................ 89,291 81,761 34,452
Federal income taxes (NOTE 7).............................. 31,099 27,891 11,595
---------- ---------- ---------
NET INCOME................................................. $ 58,192 $ 53,870 $ 22,857
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See accompanying notes.
43
<PAGE>
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
GAINS GAINS ON ASSETS
ADDITIONAL (LOSSES) ON HELD IN
COMMON PAID-IN RETAINED INVESTMENTS, SEPARATE
STOCK CAPITAL EARNINGS NET ACCOUNTS, NET TOTAL
----------- ----------- ----------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 5,000 $ 345,000 $ 130,694 $ 50,144 $ 1,070 $ 531,908
Net income................. -- -- 22,857 -- -- 22,857
Additional paid-in
capital................... -- 13,000 -- -- -- 13,000
Change in unrealized losses
on investments, net....... -- -- -- (93,052) -- (93,052)
Change in unrealized gain
on assets held in separate
account, net.............. -- -- -- -- (516) (516)
----------- ----------- ----------- ------- ------ ---------
Balance, December 31,
1994...................... 5,000 358,000 153,551 (42,908) 554 474,197
Net income................. -- -- 53,870 -- -- 53,870
Additional paid-in
capital................... -- 50,000 -- -- -- 50,000
Change in unrealized gains
on investments, net....... -- -- -- 131,039 -- 131,039
Change in unrealized gain
on assets held in separate
account, net.............. -- -- -- -- 1,992 1,992
----------- ----------- ----------- ------- ------ ---------
Balance, December 31,
1995...................... 5,000 408,000 207,421 88,131 2,546 711,098
Net income................. -- -- 58,192 -- -- 58,192
Additional paid-in
capital................... -- 60,000 -- -- -- 60,000
Change in unrealized gains
on investments, net....... -- -- -- (51,841) -- (51,841)
Change in unrealized gain
on assets held in separate
account, net.............. -- -- -- -- 3,224 3,224
----------- ----------- ----------- ------- ------ ---------
Balance, December 31,
1996...................... $ 5,000 $ 468,000 $ 265,613 $ 36,290 $ 5,770 $ 780,673
----------- ----------- ----------- ------- ------ ---------
----------- ----------- ----------- ------- ------ ---------
</TABLE>
See accompanying notes.
44
<PAGE>
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1996 1995 1994
------------ ---------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................................. $ 58,192 $ 53,870 $ 22,857
Adjustments to reconcile net income to net cash provided
by operating activities:
Increase in future policy benefit reserves for
traditional, interest sensitive and accident and
health policies...................................... 26,193 80,478 79,014
Increase in other policy claims and benefits and
policyholder dividends payable....................... 18,638 27,676 10,075
Provision for deferred federal income taxes........... (1,094) (13,584) (2,356)
Increase in income taxes payable...................... 12,049 1,023 3,283
Amortization of deferred policy acquisition costs..... 39,325 41,291 34,566
Policy acquisition costs deferred..................... (66,515) (56,391) (54,349)
Provision for mortgage loan losses.................... 1,344 924 1,105
Provision for depreciation............................ 17,312 15,654 12,267
Amortization of investment premiums (discount) net.... 1,821 (239) (914)
Change in receivables, accrued investment income,
unearned premiums, accrued expenses and other
liabilities.......................................... 38,614 3,427 (36,650)
Net realized (gains) losses on investments............ (25,731) (55,080) 28,815
Other................................................. (261) (2,431) (135)
------------ ---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES......... 119,887 96,618 97,578
INVESTING ACTIVITIES
Purchases of fixed maturity investments................. (2,778,352) (2,151,133) (1,943,697)
Sales or maturities of fixed maturity investments....... 2,652,887 2,000,068 1,798,184
Increase in short-term investments...................... (29,318) (35,908) (44,266)
Purchases of other investments.......................... (210,182) (240,264) (211,836)
Sales of other investments.............................. 163,569 112,598 104,399
Purchases of property and equipment..................... (10,992) (19,975) (16,164)
Purchase of group insurance business.................... -- -- (6,644)
Other................................................... -- 1,229 500
------------ ---------- -----------
NET CASH USED IN INVESTING ACTIVITIES............. (212,388) (333,385) (319,524)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received............................... 128,446 187,484 200,499
Surrenders and death benefits......................... (125,274) (60,522) (19,207)
Interest credited to policyholders.................... 49,802 48,918 31,867
Additional paid-in capital from shareholder............. 60,000 50,000 13,000
------------ ---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 112,974 225,880 226,159
------------ ---------- -----------
Increase (decrease) in cash............................. 20,473 (10,887) 4,213
CASH AT BEGINNING OF YEAR......................... 1 10,888 6,675
------------ ---------- -----------
CASH AT END OF YEAR............................... $ 20,474 $ 1 $ 10,888
------------ ---------- -----------
------------ ---------- -----------
</TABLE>
See accompanying notes.
45
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
DECEMBER 31, 1996
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Fortis Benefits Insurance Company (the Company) is an indirect wholly-owned
subsidiary of Fortis AMEV and Fortis AG. The Company is incorporated in
Minnesota and distributes its products in all states except New York. To date,
the majority of the Company's revenues have been derived from group employee
benefits products and the remainder from individual life and annuity products.
RECOGNITION OF REVENUES AND POLICY RESERVES AND LIABILITIES
The Company follows generally accepted accounting principles which differ in
certain respects from statutory accounting practices prescribed or permitted by
regulatory authorities. The more significant of these principles are:
Premiums for traditional life insurance are recognized as revenues when due
over the premium-paying period. Reserves for future policy benefits are
computed using the net level method and include investment yield, mortality,
withdrawal, and other assumptions based on the Company's experience,
modified as necessary to reflect anticipated trends and to include
provisions for possible unfavorable deviations.
Revenues for interest sensitive and investment products consist of charges
assessed against policy account balances during the period for the cost of
insurance, policy administration, and surrender charges. Future policy
benefit reserves are computed under the retrospective deposit method and
consist of policy account balances before applicable surrender charges.
Policy benefits charged to expense during the period include amounts paid in
excess of policy account balances and interest credited to policy account
balances. Interest credit rates for universal life and investment products
ranged from 6.2% to 7% and 4% to 7.8% in 1996 and 1995, respectively.
Premiums for accident and health insurance products, including medical, long
and short-term disability and dental insurance products are recognized as
revenues ratably over the contract period in proportion to the risk insured.
Reserves for future disability benefits are based on the 1964 Commissioners
Disability Table at 6% interest. Calculated reserves are modified based on
the Company's actual experience. Other policy claims and benefits payable
for reported and incurred but not reported claims and related claims
adjustment expenses are determined using case-basis estimates and past
experience. The methods of making such estimates and establishing the
related liabilities are continually reviewed and updated. Any adjustments
resulting therefrom are reflected in income currently.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, which vary with and are directly related to
the production of new business are deferred to the extent recoverable and
amortized. For traditional life insurance products, such costs are amortized
over the premium paying period. For interest sensitive and investment products,
such costs are amortized in relation to expected future gross profits. For
accident and health and group life insurance products, these costs represent the
present value at the acquisition of these lines in the October 1, 1991 purchase
(see Note 2) of future profits which are amortized against the expected premium
revenues of the lines acquired. These amortization periods require significant
management judgment and are reviewed continually. As excess amounts of deferred
costs over future premiums or gross profits are identified, such excess amounts
are expensed.
INVESTMENTS
The Company's investment strategy is developed based on many factors including
insurance liability matching, rate of return, maturity, credit risk, tax
considerations and regulatory requirements.
All fixed maturity investments are classified as available-for-sale and carried
at fair value. That determination is made at the time of each purchase and,
prospectively, is reevaluated as of each balance sheet date.
46
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Changes in fair values of available-for-sale securities, after related deferred
income taxes and after adjustment for the changes in pattern of amortization of
deferred policy acquisition costs and participating policyholder dividends, are
reported directly in shareholder's equity as unrealized gains (losses) on
investments and, accordingly, have no effect on net income. The offsets to the
unrealized appreciation or depreciation represent adjustments of deferred policy
acquisition cost amortization and policyholder dividends payable that would have
been required as a charge or credit to income had such unrealized amounts been
realized.
Mortgage loans constitute first liens on commercial real estate and other income
producing properties. The insurance statutes in Minnesota generally require that
the initial principal loaned not exceed 80% of the appraised value of the
property securing the loan. The Company's policy fully complies with this
statute. Mortgage loans on real estate are reported at unpaid balance, adjusted
for amortization of premium or discount, less allowance for possible losses. The
change in the allowance for possible losses is recorded with realized gains and
losses on investments. Policy loans are reported at unpaid balance.
Realized gains and losses on sales of investments, and declines in value judged
to be other-than-temporary, are recognized on the specific identification basis.
Investment income is recorded as earned.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation. The
Company provides for depreciation principally on the straight-line method over
the estimated useful lives of the related property.
INCOME TAXES
Income taxes have been provided using the liability method in accordance with
Financial Accounting Standards Board ("FASB") Statement 109, ACCOUNTING FOR
INCOME TAXES. Deferred tax assets and liabilities are determined based on the
differences between the financial reporting and the tax bases and are measured
using the enacted tax rates.
SEPARATE ACCOUNTS
Assets and liabilities associated with separate accounts relate to premium and
annuity considerations for variable life and annuity products for which the
contract holder, rather than the Company, bears the investment risk. Separate
account assets are reported at fair value.
GUARANTY FUND ASSESSMENTS
The economy and other factors have caused an increase in the number of insurance
companies that are under regulatory supervision. This circumstance may result in
an increase in assessments by state guaranty funds, or voluntary payments by
solvent insurance companies, to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments can be partially recovered
through a reduction in future premium taxes in some states. The Company is not
able to reasonably estimate the impact of future assessments on its financial
position but does not believe that the impact will be material.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 financial statements have been reclassified
to conform to the 1996 presentation.
2. ACQUIRED BUSINESS
In 1991, the company purchased certain assets and assumed certain
liabilities from The Mutual Benefit Life Insurance Company in Rehabilitation
(MBL). The seller transferred to the Company, the assets and liabilities
relating to the group life,
47
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
2. ACQUIRED BUSINESS (CONTINUED)
accident and health, disability and dental insurance business of MBL. The
acquisition was accounted for as a purchase. The original purchase price of the
acquisition was $318,000,000. Subsequent additional payments of $20,850,000 were
made ending in 1994. These additional payments, as well as $126,515,000 of the
original purchase price represent the present value of future profits on the
lines of business acquired at the date of acquisition and have been accounted
for as deferred policy acquisition costs (see Note 4).
3. INVESTMENTS
AVAILABLE FOR SALE SECURITIES
The following is a summary of the available for sale securities (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
December 31, 1996:
Fixed income securities:
Governments.................... $ 321,574 $ 3,418 $ 1,323 $ 323,669
Public utilities............... 92,116 2,758 403 94,471
Industrial and miscellaneous... 1,656,420 38,413 6,527 1,688,306
Other.......................... 8,328 750 25 9,053
--------- ----------- ----------- ---------
Total fixed income
securities.................... 2,078,438 45,339 8,278 2,115,499
Equity securities.............. 84,144 23,340 1,194 106,290
--------- ----------- ----------- ---------
Total........................ $2,162,582 $ 68,679 $ 9,472 $2,221,789
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
December 31, 1995:
Fixed income securities:
Governments.................... $ 453,406 $ 36,938 $ 142 $ 490,202
Public utilities............... 55,793 4,617 -- 60,410
Industrial and miscellaneous... 1,420,374 82,705 1,282 1,501,797
Other.......................... 21,631 1,586 2 23,215
--------- ----------- ----------- ---------
Total fixed income
securities.................... 1,951,204 125,846 1,426 2,075,624
Equity securities.............. 60,935 20,321 2,404 78,852
--------- ----------- ----------- ---------
Total........................ $2,012,139 $ 146,167 $ 3,830 $2,154,476
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
</TABLE>
The amortized cost and fair value of available-for-sale investments in fixed
maturities at December 31, 1996, by contractual maturity, are shown below (in
thousands). Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less................................. $ 57,745 $ 57,849
Due after one year through five years................... 576,951 588,257
Due after five years through ten years.................. 666,892 675,262
Due after ten years..................................... 776,850 794,131
--------- ---------
Total................................................... $2,078,438 $2,115,499
--------- ---------
--------- ---------
</TABLE>
48
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
3. INVESTMENTS (CONTINUED)
MORTGAGE LOANS
The Company has issued commercial mortgage loans on properties located
throughout the United States. Approximately 36% of outstanding principal is
concentrated in the states of California, Texas and New York at December 31,
1996 as compared to concentrated interests in California, Florida and New York
of 35% at December 31, 1995. Loan commitments outstanding totaled $6,141,000 at
December 31, 1996.
In May 1993, FASB issued Statement 114, ACCOUNTING FOR CREDITORS FOR IMPAIRMENT
OF A LOAN, which became effective for fiscal years beginning after December 15,
1994, and which the Company adopted in 1995. Statement 114 requires that
impaired loans are to be valued at the present value of expected future cash
flows discounted at the loan's effective interest rate, or, as a practical
expedient, at the loan's observable market price, or the fair market value of
the collateral if the loan is collateral dependent. The impact of adoption was
not material to the Company's financial position or operating results.
INVESTMENTS ON DEPOSIT
The Company had fixed maturities carried at $2,537,000 and $2,385,000 at
December 31, 1996 and 1995, respectively, on deposit with various governmental
authorities as required by law.
NET UNREALIZED GAINS (LOSSES)
The adjusted net unrealized gains (losses) recorded in shareholder's equity for
the year ended December 31 were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Change in unrealized gains before adjustments....... $ (83,065) $ 214,452 $(155,923)
Adjustments:
Decrease (increase) in amortization of deferred
policy acquisition costs........................... 3,376 (9,789) 9,288
Participating policyholders' share of earnings...... -- -- 2,684
Deferred income taxes............................... 31,072 (71,632) 50,383
--------- --------- ---------
Change in net unrealized gains (losses)............. (48,617) 133,031 (93,568)
Net unrealized gains (losses), beginning of year.... 90,677 (42,354) 51,214
--------- --------- ---------
Net unrealized gains (losses), end of year.......... $ 42,060 $ 90,677 $ (42,354)
--------- --------- ---------
--------- --------- ---------
</TABLE>
49
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
3. INVESTMENTS (CONTINUED)
NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Major categories of net investment income and realized gains (losses) on
investments for each year were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
NET INVESTMENT INCOME
Fixed maturities..................................... $ 141,973 $ 139,062 $ 119,668
Equity securities.................................... 6,682 2,026 1,937
Mortgage loans on real estate........................ 52,949 49,227 36,816
Policy loans......................................... 3,195 2,797 2,731
Short-term investments............................... 5,175 11,863 4,671
Real estate and other investments.................... 5,358 4,750 2,138
--------- --------- ---------
215,332 209,725 167,961
Expenses............................................. (9,309) (6,188) (5,447)
--------- --------- ---------
$ 206,023 $ 203,537 $ 162,514
--------- --------- ---------
--------- --------- ---------
NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Fixed maturities..................................... $ 3,334 $ 50,393 $ (27,854)
Equity securities.................................... 18,281 2,830 1,352
Mortgage loans on real estate........................ (144) (242) (2,992)
Policy loans......................................... -- -- --
Short-term investments............................... 57 (3) (60)
Real estate and other investments.................... 4,203 2,102 739
--------- --------- ---------
$ 25,731 $ 55,080 $ (28,815)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Proceeds from sales of investments in fixed maturities were $2,652,887,000,
$2,000,068,000 and $1,798,185,000 in 1996, 1995 and 1994, respectively. Gross
gains of $28,606,000, $61,070,000 and $16,618,000 and gross losses of
$25,272,000, $10,677,000 and $44,472,000 were realized on the sales in 1996,
1995 and 1994, respectively.
4. DEFERRED POLICY ACQUISITION COSTS
The changes in deferred policy acquisition costs by product were as follows
(in thousands):
<TABLE>
<CAPTION>
INTEREST
SENSITIVE AND
TRADITIONAL INVESTMENT ACCIDENT
LIFE PRODUCTS AND HEALTH TOTAL
----------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Balance January 1, 1995.......... $ 49,910 $ 141,309 $ 40,979 $ 232,198
Acquisition costs deferred....... -- 56,391 -- 56,391
Acquisition costs amortized...... (11,378) (17,071) (12,842) (41,291)
Additional amortization of
deferred acquisition costs from
unrealized gains on
available-for-sale securities -- (9,789) -- (9,789)
----------- --------------- ----------- ---------
Balance December 31, 1995........ 38,532 170,840 28,137 237,509
Acquisition costs deferred....... -- 66,515 -- 66,515
Acquisition costs amortized...... (5,375) (19,695) (14,255) (39,325)
Reduced amortization of deferred
acquisition costs from
unrealized gains on
available-for-sale securities... -- 3,376 -- 3,376
----------- --------------- ----------- ---------
Balance December 31, 1996........ $ 33,157 $ 221,036 $ 13,882 $ 268,075
----------- --------------- ----------- ---------
----------- --------------- ----------- ---------
</TABLE>
50
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
4. DEFERRED POLICY ACQUISITION COSTS (CONTINUED)
Included within total deferred policy acquisition costs at December 31, 1996 is
$27,914,000 of present value of future profits (PVP) resulting from acquisitions
accounted for as a purchase. The estimated amount of PVP to be amortized during
each of the next two years is as follows: 1997--$17,478,000; and
1998--$10,436,000.
During 1996, 1995 and 1994, the Company sold portions of its investment
portfolio and in accordance with FASB Statement 97, the recognition of the
realized capital (losses) gains resulted in (reduced) additional amortization of
acquisition costs deferred of $1,894,000, $4,825,000 and $(935,000),
respectively. In addition, the Company recorded (reduced) policyholder dividends
payable of $1,095,000 in 1995 and $(761,000) in 1994.
5. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31 for each year follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Land.......................................................... $ 1,900 $ 1,900
Building and improvements..................................... 25,133 23,319
Furniture and equipment....................................... 95,370 85,592
--------- ---------
122,403 110,811
Less accumulated depreciation................................. (69,521) (50,780)
Net property and equipment.................................... $ 52,882 $ 60,031
--------- ---------
--------- ---------
</TABLE>
6. ACCIDENT AND HEALTH RESERVES
Activity for the liability for unpaid accident and health claims and claims
adjustment expenses is summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance
recoverables........................................ $ 928,832 $ 838,810 $ 806,538
Add: Incurred losses related to:
Current year....................................... 865,907 827,261 656,052
Prior years........................................ (64,094) (28,520) (58,218)
--------- --------- ---------
Total incurred losses............................ 801,813 798,741 597,834
Deduct: Paid losses related to:
Current year....................................... 549,144 492,460 377,595
Prior years........................................ 233,790 216,259 187,967
--------- --------- ---------
Total paid losses................................ 782,934 708,719 565,562
--------- --------- ---------
Balance as of December 31, net of reinsurance
recoverables........................................ $ 947,711 $ 928,832 $ 838,810
--------- --------- ---------
--------- --------- ---------
</TABLE>
The table above compares to the amounts reported on the balance sheet in the
following respects: (1) the table above is presented net of ceded reinsurance
and the accident and health reserves reported on the balance sheet are gross of
ceded reinsurance; (2) the table above includes claims adjustment expense
liabilities that are included in accrued expenses on the balance sheet; and (3)
the table above includes accident and health benefits payable which are included
with other policy claims and benefits payable reported on the balance sheet.
In each of the years presented above, the accident and health insurance line of
business experienced overall favorable development on claims reserves
established as of the previous year end. The favorable development was a result
of lower medical costs due to less uncertainty in the health business, a
reduction of loss reserves which considered historically high inflation in
medical costs and, in 1994, a refinement in the claims reserve estimates.
51
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
7. FEDERAL INCOME TAXES
The Company reports its taxable income in a consolidated federal income tax
return along with other affiliated subsidiaries of Fortis, Inc. Income tax
expense or credits are allocated among the affiliated subsidiaries by applying
corporate income tax rates to taxable income or loss determined on a separate
return basis according to a Tax Allocation Agreement.
Deferred income taxes reflect the net tax effects of temporary differences
between the basis of assets and liabilities for financial statement purposes and
for income tax purposes.
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Reserves.................................................... $ 51,271 $ 54,346
Separate account assets/liabilities......................... 40,989 34,386
Unrealized losses........................................... 2,648 --
Accrued liabilities......................................... 8,439 13,781
Claims and benefits payable................................. 7,764 2,626
Other....................................................... 1,549 123
--------- ---------
Total deferred tax assets................................. 112,660 105,262
Deferred tax liabilities:
Other....................................................... 2,348 --
Unrealized gains............................................ 20,402 48,826
Deferred policy acquisition costs........................... 67,850 60,930
Investments................................................. 1,942 --
Fixed assets................................................ 3,110 5,044
--------- ---------
Total deferred tax liabilities............................ 95,652 114,800
--------- ---------
Net deferred tax asset (liability)........................ $ 17,008 $ (9,538)
--------- ---------
--------- ---------
</TABLE>
The Company is required to establish a valuation allowance for any portion of
the deferred tax asset that management believes will not be realized. In the
opinion of management, it is more likely than not that the Company will realize
the benefit of the deferred tax assets, and, therefore, no such valuation
allowance has been established.
The Company's tax expense (credit) for the year ended December 31 is shown as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current................................................ $ 32,193 $ 39,660 $ 15,046
Deferred............................................... (1,094) (11,769) (3,451)
--------- --------- ---------
$ 31,099 $ 27,891 $ 11,595
--------- --------- ---------
--------- --------- ---------
</TABLE>
Federal Income tax payments and refunds resulted in net payments of $16,434,000,
$40,453,000 and $10,351,000 in 1996, 1995 and 1994, respectively.
52
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
7. FEDERAL INCOME TAXES (CONTINUED)
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Statutory income tax rate.............................. 35.0% 35.0% 35.0%
Tax audit provision.................................... -- -- 0.8
Other, net............................................. (.2) (0.9) (2.1)
--------- --------- ---------
34.8% 34.1% 33.7%
--------- --------- ---------
--------- --------- ---------
</TABLE>
8. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets at December 31 were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Premium and annuity considerations for the variable annuity
products and variable universal life product for which the
contract holder, rather than the Company, bears the
investment risk........................................... $2,344,474 $1,757,476
Assets of the separate accounts owned by the Company, at
fair value................................................ 30,244 24,009
--------- ---------
$2,374,718 $1,781,485
--------- ---------
--------- ---------
</TABLE>
9. STATUTORY ACCOUNTING PRACTICES
Reconciliations of net income and shareholder's equity on the basis of
statutory accounting to the related amounts presented in the accompanying
statements were as follows (in thousands):
<TABLE>
<CAPTION>
NET INCOME SHAREHOLDER'S EQUITY
------------------------------- --------------------
1996 1995 1994 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Based on statutory accounting
practices........................ $ 55,046 $ 30,576 $ 49,759 $ 482,507 $ 377,040
Deferred policy acquisition
costs............................ 27,190 15,100 19,783 268,075 237,509
Investment valuation
differences...................... (1,600) 330 370 31,326 114,413
Policy reserves................... (19,505) (29,238) (25,213) (131,159) (114,259)
Current income taxes payable...... (1,292) (1,294) -- (7,895) (7,895)
Deferred income taxes............. 1,094 11,769 2,356 17,008 (9,538)
Realized gains (losses) on
investments...................... 264 1,938 (1,052) -- --
Realized gains (losses)
transferred to the Interest
Maintenance Reserve (IMR), net of
tax.............................. 2,335 31,711 (18,456) -- --
Amortization of IMR, net of tax... (6,130) (5,261) (5,479) -- --
Property and equipment............ -- -- -- 20,481 27,172
Interest maintenance reserve...... -- -- -- 50,019 53,814
Asset valuation reserve........... -- -- -- 62,961 48,507
Other, net........................ 790 (1,761) 789 (12,650) (15,665)
--------- --------- --------- --------- ---------
As reported herein................ $ 58,192 $ 53,870 $ 22,857 $ 780,673 $ 711,098
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
10. REINSURANCE
The maximum amount that the Company retains on any one life is $500,000 of
life insurance including accidental death. Amounts in excess of $500,000 are
reinsured with other life insurance companies on a yearly renewable term basis.
53
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
10. REINSURANCE (CONTINUED)
Ceded reinsurance premiums for the year ended December 31 were as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Life insurance........................................... $ 8,680 $ 4,661 $ 5,571
Accident and health insurance............................ 6,793 3,410 36,782
--------- --------- ---------
$ 15,473 $ 8,071 $ 42,353
--------- --------- ---------
--------- --------- ---------
</TABLE>
Recoveries under reinsurance contracts for the year ended December 31 were as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Life insurance.......................................... $ 7,225 $ 2,489 $ 1,650
Accident and health insurance........................... 5,993 8,807 19,913
--------- --------- ---------
$ 13,218 $ 11,296 $ 21,563
--------- --------- ---------
--------- --------- ---------
</TABLE>
Reinsurance ceded would become a liability of the Company in the event the
reinsurers are unable to meet the obligations assumed under the reinsurance
agreements. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk arising from similar geographic
regions, activities or economic characteristics of the reinsurers.
11. STATUTORY INFORMATION
Dividend distributions to parent are restricted as to amount by state
regulatory requirements. The Company had $47,728,000 free from such restrictions
at December 31, 1996. Distributions in excess of this amount would require
regulatory approval.
Statutory-basis financial statements are prepared in accordance with accounting
practices prescribed or permitted by Minnesota Insurance regulatory authorities.
Prescribed statutory accounting practices include a variety of publications of
the National Association of Insurance Commissioners ("NAIC"), as well as state
laws, regulations and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so prescribed; such
practices may differ form state to state, may differ from company to company
within a state, and may change in the future. The NAIC is currently in the
process of codifying statutory accounting practices. This project, which is not
expected to be completed before 1998, may result in changes to the accounting
practices that insurance enterprises use to prepare their statutory-basis
financial statements.
Insurance enterprises are required by State Insurance Departments to adhere to
minimum risk-based capital ("RBC") requirements developed by the NAIC. All of
the Company's insurance subsidiaries exceed minimum RBC requirements.
12. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company receives various services from Fortis, Inc. These services
include assistance in benefit plan administration, corporate insurance,
accounting, tax, auditing, investment and other administrative functions. The
fees paid to Fortis, Inc. for these services for the years ended December 31,
1996, 1995 and 1994, were $13,319,000, $10,074,000 and $8,944,000, respectively.
In conjunction with the marketing of its variable annuity products, the Company
paid $68,616,000, $59,308,000 and $57,307,000, in commissions to its affiliate,
Fortis Investors, Inc. for the years ended December 31, 1996, 1995 and 1994,
respectively.
13. FAIR VALUE DISCLOSURES
VALUATION METHODS AND ASSUMPTIONS
Investments are reported in the accompanying balance sheets on the following
basis:
54
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
13. FAIR VALUE DISCLOSURES (CONTINUED)
The fair values for fixed maturity securities and equity securities are
based on quoted market prices, where available. For fixed maturity
securities not actively traded, fair values are estimated using values
obtained from independent pricing services or, in the case of private
placements, are estimated by discounting expected future cash flows using a
current market rate applicable to the yield, credit quality, and maturity of
the investments.
Mortgage loans are reported at unpaid principal balance less allowances for
possible losses. The fair values of mortgage loans are estimated using
discounted cash flow analyses, using interest rates currently being offered
for similar loans to borrowers with similar credit ratings. Loans with
similar characteristics are aggregated for purposes of the calculations. The
fair values for the Company's policy reserves under the investment products
are determined using cash surrender value.
The fair values under all insurance contracts are taken into consideration
in the Company's overall management of interest rate risk, such that the
Company's exposure to changing interest rates is minimized through the
matching of investment maturities with amounts due under insurance
contracts.
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------
1996 1995
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturities........................ $2,115,499 $2,115,499 $2,075,624 $2,075,624
Equity securities....................... 106,290 106,290 78,852 78,852
Mortgage loans on real estate........... 582,869 614,555 562,697 605,501
Policy loans................................ 60,722 60,722 53,863 53,863
Short-term investments...................... 182,817 182,817 153,499 153,499
Cash........................................ 20,474 20,474 1 1
Assets held in separate accounts............ 2,371,601 2,371,601 1,781,485 1,781,485
Liabilities:
Individual and group annuities (subject to
discretionary withdrawal).................. $ 916,754 $ 886,110 $ 865,623 $ 834,621
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
The Company is named as a defendant in a number of legal actions arising
primarily from claims made under insurance policies. These actions have been
considered in establishing policy benefit and loss reserves. Management and its
legal counsel are of the opinion that the settlement of these actions will not
have a material adverse effect on the Company's financial position or results of
operations.
15. RETIREMENT AND OTHER EMPLOYEE BENEFITS
The Company participates in the Fortis, Inc. noncontributory defined benefit
pension plan covering substantially all of its employees. Benefits are based on
years of service and the employee's compensation during such years of service.
Fortis, Inc. is not able to segregate Company specific benefit obligations or
plan assets. On an aggregate basis, the fair value of plan assets exceeded the
accumulated benefit obligations as of December 31, 1996.
The Company has a profit sharing plan covering substantially all employees which
provides benefits payable to participants on retirement or disability and to
beneficiaries of participants in event of the participant's death. Amounts
contributed to the plan and expensed by the Company were $3,913,000, $3,765,000
and $3,536,000 in 1996, 1995 and 1994, respectively.
55
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying statement of net assets of Fortis Benefits
Insurance Company Variable Account C (comprising, respectively, the Fortis
Series Fund, Inc.'s Growth Stock, U.S. Government Securities, Money Market,
Asset Allocation, Diversified Income, Global Growth, Aggressive Growth, Growth &
Income, High Yield, Global Asset Allocation, Global Bond, International Stock,
Value, S & P 500 and Blue Chip Stock Subaccounts and the Norwest Select Fund's
Small Company Stock Subaccount) as of December 31, 1996, and the related
statements of changes in net assets for each of the three years in the period
then ended, except for the Fortis Series Fund, Inc.'s Global Asset Allocation,
Global Bond, and International Stock Subaccounts and the Norwest Select Fund's
Small Company Stock Subaccount which are for the years ended December 31, 1996
and 1995, and the Fortis Series Fund, Inc.'s Value, S & P 500 and Blue Chip
Stock Subaccounts which are for the period from May 1, 1996 to December 31,
1996. These financial statements are the responsibility of the management of
Fortis Benefits Insurance Company. 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. Our procedures included
confirmation of securities owned as of December 31, 1996 by correspondence with
the custodian. 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 Fortis Benefits Insurance
Company Variable Account C at December 31, 1996, and the changes in its net
assets for the periods described in the first paragraph, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, MN
April 18, 1997
56
<PAGE>
STATEMENT OF NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ATTRIBUTABLE
TO
FORTIS
NET ASSETS BENEFITS ATTRIBUTABLE TO
AT MARKET INSURANCE VARIABLE LIFE
SHARES COST VALUE COMPANY INSURANCE POLICIES
--------- ---------- ---------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Investments in Fortis Series Fund, Inc. (Note 3):
Growth Stock..................................... 4,694,746 $107,983,324 $153,019,136 $ -- $153,019,136
U.S. Government Securities Series................ 766,717 8,121,439 8,103,819 -- 8,103,819
Money Market Series.............................. 661,850 7,378,891 7,243,083 -- 7,243,083
Asset Allocation Series.......................... 1,824,030 26,691,234 30,995,929 -- 30,995,929
Diversified Income Series........................ 464,543 5,421,995 5,434,276 -- 5,434,276
Global Growth Series............................. 3,259,883 47,600,484 61,923,758 -- 61,923,758
Aggressive Growth Series......................... 1,650,622 21,303,899 22,481,138 -- 22,481,138
Growth & Income Series........................... 786,719 10,274,078 11,928,867 -- 11,928,867
High Yield Series................................ 278,353 2,817,496 2,735,009 -- 2,735,009
Global Asset Allocation Series................... 288,919 3,349,959 3,566,385 -- 3,566,385
Global Bond Series............................... 147,956 1,660,623 1,641,086 -- 1,641,086
International Stock Series....................... 696,108 7,993,307 8,660,838 -- 8,660,838
Value Series..................................... 106,485 1,120,104 1,211,875 330,066 881,809
S & P 500 Series................................. 302,902 3,166,360 3,473,163 1,662,715 1,810,448
Blue Chip Stock Series........................... 244,162 2,522,147 2,849,421 1,692,240 1,157,181
---------- ---------- ------------- -------------------
Total.............................................. $257,405,340 $325,267,783 $3,685,021 $321,582,762
---------- ---------- ------------- -------------------
---------- ---------- ------------- -------------------
<CAPTION>
NET ASSET VALUE FOR
VARIABLE LIFE
ACCUMULATION INSURANCE POLICIES
UNITS PER
OUTSTANDING ACCUMULATION UNIT
------------ -------------------
<S> <C> <C>
Investments in Fortis Series Fund, Inc. (Note 3):
Growth Stock..................................... 6,672,384 $ 22.93
U.S. Government Securities Series................ 527,544 15.36
Money Market Series.............................. 552,652 13.11
Asset Allocation Series.......................... 1,584,248 19.57
Diversified Income Series........................ 336,664 16.14
Global Growth Series............................. 3,319,885 18.65
Aggressive Growth Series......................... 1,690,254 13.30
Growth & Income Series........................... 767,092 15.55
High Yield Series................................ 227,925 12.00
Global Asset Allocation Series................... 275,588 12.94
Global Bond Series............................... 136,606 12.01
International Stock Series....................... 683,171 12.68
Value Series..................................... 79,662 11.07
S & P 500 Series................................. 159,588 11.34
Blue Chip Stock Series........................... 100,187 11.55
------------
Total.............................................. 17,113,450
------------
------------
</TABLE>
See accompanying notes.
57
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
FORTIS U.S. FORTIS FORTIS FORTIS FORTIS FORTIS FORTIS
FORTIS GOVERNMENT MONEY ASSET DIVERSIFIED GLOBAL AGGRESSIVE GROWTH &
GROWTH STOCK SECURITIES MARKET ALLOCATION INCOME GROWTH GROWTH INCOME
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------------ ----------- ---------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Dividend income........ $ 527,085 $ 605,366 $ 247,490 $ 1,554,337 $ 400,689 $ 83,808 $ 39,056 $ 325,645
Mortality and expense
and policy advance
charges (Note 4)...... (1,560,953) (93,233) (65,386) (304,540) (58,622) (587,181) (185,010) (85,797)
Net realized gain on
investments........... 3,093,713 5,038 169,300 865,889 57,483 993,919 357,189 274,926
Net unrealized
appreciation
(depreciation) of
investments during the
period................ 16,535,918 (438,794) (117,129) 840,429 (242,246) 6,922,496 (12,181) 1,035,468
------------ ----------- ---------- ----------- ----------- ----------- ---------- -----------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS..... 18,595,763 78,377 234,275 2,956,115 157,304 7,413,042 199,054 1,550,242
Capital transactions:
Purchase of Variable
Account units......... 27,173,798 1,636,966 9,335,749 6,373,151 1,861,420 19,313,887 14,849,914 6,716,429
Redemption of Variable
Account units......... (6,937,039) (2,341,998) (7,246,239) (1,972,178) (1,629,694) (1,849,063) (1,128,224) (582,392)
Mortality and expense
charge redeemed....... 1,560,953 93,233 65,386 304,540 58,622 587,181 185,010 85,797
Funding of subaccount
by Fortis Benefits
Insurance Company..... -- -- -- -- -- -- -- --
Redemption of Fortis
Benefits Insurance
Company investment in
subaccount............ (1,710,453) -- -- (795,833) -- (691,667) (813,949) (817,093)
Dividend income
distribution to Fortis
Benefits Insurance
Company............... -- -- -- -- -- -- -- --
------------ ----------- ---------- ----------- ----------- ----------- ---------- -----------
INCREASE (DECREASE)
FROM CAPITAL
TRANSACTIONS........ 20,087,259 (611,799) 2,154,896 3,909,680 290,348 17,360,338 13,092,751 5,402,741
------------ ----------- ---------- ----------- ----------- ----------- ---------- -----------
Net assets at beginning
of period............... 114,336,114 8,637,241 4,853,912 24,130,134 4,986,624 37,150,378 9,189,333 4,975,884
------------ ----------- ---------- ----------- ----------- ----------- ---------- -----------
NET ASSETS AT END OF
PERIOD.............. $153,019,136 $8,103,819 $7,243,083 $30,995,929 $5,434,276 $61,923,758 $22,481,138 $11,928,867
------------ ----------- ---------- ----------- ----------- ----------- ---------- -----------
------------ ----------- ---------- ----------- ----------- ----------- ---------- -----------
</TABLE>
58
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NORWEST
FORTIS FORTIS FORTIS SELECT
FORTIS GLOBAL ASSET GLOBAL FORTIS FORTIS FORTIS S&P BLUE CHIP SMALL
HIGH YIELD ALLOCATION BOND INTERNATIONAL VALUE 500 STOCK COMPANY
SERIES SERIES SERIES STOCK SERIES SERIES* SERIES* SERIES* STOCK FUND
---------- ------------ ---------- ------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Dividend
income......... $ 234,012 $ 141,406 $ 80,570 $ 259,053 $ 6,679 $ 19,549 $ 9,822 $ --
Mortality and
expense and
policy advance
charges (Note
4)............. (23,877) (27,914) (16,020) (61,578) (2,299) (4,259) (3,294) --
Net realized
gain on
investments.... 21,357 367,644 1,414 368,588 365 5,170 5,823 --
Net unrealized
appreciation
(depreciation)
of investments
during the
period......... (5,315) (17,628) (161,532) 384,582 91,771 306,803 327,274 88,953
---------- ------------ ---------- ------------- ---------- ---------- ---------- -----------
NET INCREASE
(DECREASE) IN
NET ASSETS
RESULTING
FROM
OPERATIONS... 226,177 463,508 (95,568) 950,645 96,516 327,263 339,625 88,953
Capital
transactions:
Purchase of
Variable
Account
units.......... 1,521,655 1,974,410 1,203,711x 5,472,129 868,724 1,805,644 1,156,736 --
Redemption of
Variable
Account
units.......... (513,751) (178,317) (495,016) (271,603) (43,808) (104,433) (94,289) --
Mortality and
expense charge
redeemed....... 23,877 27,914 16,020 61,578 2,299 4,259 3,294 --
Funding of
subaccount by
Fortis Benefits
Insurance
Company........ -- -- -- -- 290,000 1,450,000 1,450,000 --
Redemption of
Fortis Benefits
Insurance
Company
investment in
subaccount..... (1,306,472) (5,888,424) (5,496,965) (5,860,743) -- -- -- (1,248,440)
Dividend income
distribution to
Fortis Benefits
Insurance
Company........ -- -- -- -- (1,856) (9,570) (5,945) --
---------- ------------ ---------- ------------- ---------- ---------- ---------- -----------
INCREASE
(DECREASE)
FROM CAPITAL
TRANSACTIONS... (274,691) (4,064,417) (4,772,250) (598,639) 1,115,359 3,145,900 2,509,796 (1,248,440)
---------- ------------ ---------- ------------- ---------- ---------- ---------- -----------
Net assets at
beginning of
period........... 2,783,523 7,167,294 6,508,904 8,308,832 -- -- -- 1,159,487
---------- ------------ ---------- ------------- ---------- ---------- ---------- -----------
NET ASSETS AT
END OF
PERIOD....... $2,735,009 $3,566,385 $1,641,086 $8,660,838 $1,211,875 $3,473,163 $2,849,421 $ --
---------- ------------ ---------- ------------- ---------- ---------- ---------- -----------
---------- ------------ ---------- ------------- ---------- ---------- ---------- -----------
<CAPTION>
COMBINED
VARIABLE
ACCOUNT
------------
<S> <C>
Operations:
Dividend
income......... $ 4,534,567
Mortality and
expense and
policy advance
charges (Note
4)............. (3,079,963)
Net realized
gain on
investments.... 6,031,982
Net unrealized
appreciation
(depreciation)
of investments
during the
period......... 26,094,705
------------
NET INCREASE
(DECREASE) IN
NET ASSETS
RESULTING
FROM
OPERATIONS... 33,581,291
Capital
transactions:
Purchase of
Variable
Account
units.......... 101,264,323
Redemption of
Variable
Account
units.......... (25,388,044)
Mortality and
expense charge
redeemed....... 3,079,963
Funding of
subaccount by
Fortis Benefits
Insurance
Company........ 3,190,000
Redemption of
Fortis Benefits
Insurance
Company
investment in
subaccount..... (24,630,039)
Dividend income
distribution to
Fortis Benefits
Insurance
Company........ (17,371)
------------
INCREASE
(DECREASE)
FROM CAPITAL
TRANSACTIONS... 57,498,832
------------
Net assets at
beginning of
period........... 234,187,660
------------
NET ASSETS AT
END OF
PERIOD....... $325,267,783
------------
------------
</TABLE>
- --------------------------
* For the period from May 1, 1996 to December 31, 1996.
See accompanying notes.
59
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
FORTIS
U.S. FORTIS FORTIS FORTIS FORTIS FORTIS
FORTIS GOVERNMENT MONEY ASSET DIVERSIFIED GLOBAL AGGRESSIVE
GROWTH STOCK SECURITIES MARKET ALLOCATION INCOME GROWTH GROWTH
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------------ ---------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Dividend income........ $ 510,059 $ 379 $ 180,105 $ 924,340 $ 155 $ 194,924 $ 32,999
Mortality and expense
and policy advance
charges (Note 4)...... (1,093,454) (95,405) (52,173) (231,545) (49,814) (352,145) (55,105)
Net realized gain
(loss) on
investments........... 542,606 (54,024) 176,710 184,857 10,234 155,887 87,207
Net in unrealized
appreciation
(depreciation) of
investments during the
period................ 20,881,118 1,463,356 (98,436) 2,815,928 639,984 7,220,951 1,158,725
------------ ---------- ---------- ----------- ---------- ----------- ----------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS..... 20,840,329 1,314,306 206,206 3,693,580 600,559 7,219,617 1,223,826
Capital transactions:
Purchase of Variable
Account units......... 23,231,047 2,331,839 5,764,979 5,135,857 2,234,605 9,569,763 6,246,152
Redemption of Variable
Account units......... (2,402,006) (2,234,298) (5,395,064) (1,383,622) (1,087,689) (1,321,205) (621,660)
Mortality and expense
charge redeemed....... 1,093,454 95,405 52,173 231,545 49,814 352,145 55,105
Funding of subaccount
by Fortis Benefits
Insurance Company..... -- -- -- -- -- -- --
Dividend income
distribution to Fortis
Benefits Insurance
Company............... (7,237) -- -- (31,040) -- (3,423) (2,760)
------------ ---------- ---------- ----------- ---------- ----------- ----------
INCREASE FROM CAPITAL
TRANSACTIONS........ 21,915,258 192,946 422,088 3,952,740 1,196,730 8,597,280 5,676,837
------------ ---------- ---------- ----------- ---------- ----------- ----------
Net assets at beginning
of period............... 71,580,527 7,129,989 4,225,618 16,483,814 3,189,335 21,333,481 2,288,670
------------ ---------- ---------- ----------- ---------- ----------- ----------
NET ASSETS AT END OF
PERIOD.............. $114,336,114 $8,637,241 $4,853,912 $24,130,134 $4,986,624 $37,150,378 $9,189,333
------------ ---------- ---------- ----------- ---------- ----------- ----------
------------ ---------- ---------- ----------- ---------- ----------- ----------
</TABLE>
60
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
FORTIS NORWEST
FORTIS GLOBAL FORTIS FORTIS SELECT
GROWTH & FORTIS ASSET GLOBAL INTERNATIONAL SMALL COMBINED
INCOME HIGH YIELD ALLOCATION BOND STOCK COMPANY VARIABLE
SERIES SERIES SERIES SERIES SERIES STOCK FUND ACCOUNT
---------- ---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Dividend
income......... $ 83,612 $ 252,046 $ 199,139 $ 349,572 $ 117,200 $ 38,350 $ 2,882,880
Mortality and
expense and
policy advance
charges (Note
4)............. (24,640) (11,638) (7,642) (5,019) (13,805) -- (1,992,385)
Net realized
gain (loss) on
investments.... 40,572 7,233 21,531 37,910 13,134 -- 1,223,857
Net unrealized
appreciation
(depreciation)
of investments
during the
period......... 619,472 11,854 742,740 608,208 775,358 121,137 36,960,395
---------- ---------- ---------- ---------- ---------- ---------- ------------
NET INCREASE
IN NET ASSETS
RESULTING
FROM
OPERATIONS... 719,016 259,495 955,768 990,671 891,887 159,487 39,074,747
Capital
transactions:
Purchase of
Variable
Account
units.......... 3,356,014 1,244,092 1,423,812 1,061,190 2,584,243 -- 64,183,593
Redemption of
Variable
Account
units.......... (366,822) (346,228) (59,928) (242,976) (101,103) -- (15,562,601)
Mortality and
expense charge
redeemed....... 24,640 11,638 7,642 5,019 13,805 -- 1,992,385
Funding of
subaccount by
Fortis Benefits
Insurance
Company........ -- -- 5,000,000 5,000,000 5,000,000 1,000,000 16,000,000
Dividend income
distribution to
Fortis Benefits
Insurance
Company........ (13,202) (120,917) (160,000) (305,000) (80,000) -- (723,579)
---------- ---------- ---------- ---------- ---------- ---------- ------------
INCREASE FROM
CAPITAL
TRANSACTIONS... 3,000,630 788,585 6,211,526 5,518,233 7,416,945 1,000,000 65,889,798
---------- ---------- ---------- ---------- ---------- ---------- ------------
Net assets at
beginning of
period........... 1,256,238 1,735,443 -- -- -- -- 129,223,115
---------- ---------- ---------- ---------- ---------- ---------- ------------
NET ASSETS AT
END OF
PERIOD....... $4,975,884 $2,783,523 $7,167,294 $6,508,904 $8,308,832 $1,159,487 $234,187,660
---------- ---------- ---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ---------- ---------- ------------
</TABLE>
See accompanying notes.
61
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
FORTIS U.S. FORTIS FORTIS
FORTIS GOVERNMENT FORTIS ASSET DIVERSIFIED
GROWTH STOCK SECURITIES MONEY MARKET ALLOCATION INCOME
SERIES SERIES SERIES SERIES SERIES
------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Operations:
Dividend income............................................ $ 524,850 $ 607,364 $ -- $ 626,408 $ 257,570
Mortality and expense and policy advance charges (Note
4)........................................................ (630,146) (79,454) (21,446) (146,296) (29,757)
Net realized gain (loss) on investments.................... 193,238 (126,731) 13,988 42,277 (32,443)
Net unrealized appreciation (depreciation) of investments
during the period......................................... (1,837,695) (967,547) 100,566 (678,881) (335,368)
------------ ----------- ------------ ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.............................................. (1,749,753) (566,368) 93,108 (156,492) (139,998)
Capital transactions:
Purchase of Variable Account units......................... 24,347,849 1,951,506 4,963,584 5,042,184 2,099,560
Redemption of Variable Account units....................... (1,554,311) (1,984,288) (2,269,774) (488,270) (601,619)
Mortality and expense charge redeemed...................... 630,146 79,454 21,446 146,296 29,757
Funding of subaccount by Fortis Benefits Insurance
Company................................................... -- -- -- -- --
Redemption of Fortis Benefits Insurance Company in
investment in subaccount.................................. -- -- -- -- --
Dividend income distribution to Fortis Benefits Insurance
Company................................................... (9,364) -- -- (26,122) --
------------ ----------- ------------ ----------- ------------
INCREASE FROM CAPITAL TRANSACTIONS....................... 23,414,320 46,672 2,715,256 4,674,088 1,527,698
------------ ----------- ------------ ----------- ------------
Net assets at beginning of period............................ 49,915,960 7,649,685 1,417,254 11,966,218 1,801,635
------------ ----------- ------------ ----------- ------------
NET ASSETS AT END OF PERIOD.............................. $71,580,527 $7,129,989 $4,225,618 1$6,483,814 $3,189,335
------------ ----------- ------------ ----------- ------------
------------ ----------- ------------ ----------- ------------
</TABLE>
62
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
FORTIS FORTIS FORTIS FORTIS
GLOBAL AGGRESSIVE GROWTH & HIGH COMBINED
GROWTH GROWTH INCOME YIELD VARIABLE
SERIES SERIES SERIES SERIES ACCOUNT
------------ ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Operations:
Dividend income............................................. $ 144,687 $ 8,878 $ 12,968 $ 81,918 $2,264,643
Mortality and expense and policy advance charges (Note 4)... (157,000) (4,484) (1,404) (1,463) (1,071,450)
Net realized gain (loss) on investments..................... 490,813 (2,388) 124 (3,503) 575,375
Net unrealized appreciation (depreciation) of investments
during the period.......................................... (1,089,277) 30,648 (222) (88,789) (4,866,565)
------------ ------------ ------------ --------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................... (610,777) 32,654 11,466 (11,837) (3,097,997)
Capital transactions:
Purchase of Variable Account units.......................... 14,421,587 1,858,035 656,805 733,981 56,075,091
Redemption of Variable Account units........................ (698,757) (204,115) (6,999) (229,014) (8,037,147)
Mortality and expense charge redeemed....................... 157,000 4,484 1,404 1,463 1,071,450
Funding of subaccount by Fortis Benefits Insurance
Company.................................................... -- 600,000 600,000 1,300,000 2,500,000
Redemption of Fortis Benefits Insurance Company investment
in subaccount.............................................. (2,500,000) -- -- -- (2,500,000)
Dividend income distribution to Fortis Benefits Insurance
Company.................................................... (3,407) (2,388) (6,438) (59,150) (106,869)
------------ ------------ ------------ --------- ----------
INCREASE FROM CAPITAL TRANSACTIONS........................ 11,376,423 2,256,016 1,244,772 1,747,280 49,002,525
------------ ------------ ------------ --------- ----------
Net assets at beginning of period............................. 10,567,835 -- -- -- 83,318,587
------------ ------------ ------------ --------- ----------
NET ASSETS AT END OF PERIOD............................... $21,333,481 $2,288,670 $1,256,238 $1,735,443 $129,223,115
------------ ------------ ------------ --------- ----------
------------ ------------ ------------ --------- ----------
</TABLE>
See accompanying notes.
63
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
DECEMBER 31, 1996
1. GENERAL
Fortis Benefits Insurance Company Variable Account C (the Account) was
established as a segregated asset account of Fortis Benefits Insurance Company
(Fortis Benefits) on March 13, 1986 under Minnesota law. The Account is
registered under the Investment Company Act of 1940 as a unit investment trust.
Fortis Benefits was founded in 1910. At December 31, 1996, Fortis Benefits had
approximately $91 billion of total life insurance in force. Fortis Benefits is a
Minnesota corporation and is qualified to sell life insurance and annuity
contracts in the District of Columbia and in all states except New York. Fortis
Benefits is an indirectly wholly-owned subsidiary of Fortis, Inc., which is
itself indirectly owned 50% by N.V. AMEV and 50% by Compagnie Financiere et de
Reassurance du Group AG ("Group AG"). Fortis, Inc. manages the United States
operations for these two companies.
N.V. AMEV is a diversified financial services company headquartered in Utrecht,
The Netherlands, where its insurance operations began in 1847. Group AG is a
diversified financial services company headquartered in Brussels, Belgium, where
its insurance operations began in 1824. N.V. AMEV and Group AG have merged their
operating companies under the trade name of Fortis. The Fortis group of
companies is active in insurance, banking, and financial services, and real
estate development in the Netherlands, Belgium, The United States, Western
Europe, and the Pacific Rim. The Fortis group of companies had over $175 billion
in assets at the end of 1996.
Fortis Advisers, Inc. (a wholly-owned subsidiary of Fortis, Inc.) provides
investment management services to the Fortis Series Fund, Inc. portfolios in
exchange for investment advisory and management fees. Investment advisory and
management fees are based on each portfolio's daily net assets and decrease in
reduced percentages as average daily net assets increase. The fees represent an
investment expense to Fortis Series Fund, Inc. which reduces the portfolios' net
assets. These fees charged by Fortis Advisers, Inc. are not available on an
individual variable account basis. Fees for all Fortis Series Fund, Inc.
portfolios to which Fortis Advisers, Inc. provided investment management
services amounted to $11,076,174, $7,819,224 and $5,839,044 in 1996, 1995 and
1994, respectively.
There are fifteen subaccounts within the Account, each of which invests only in
a corresponding portfolio of Fortis Series Fund, Inc. (the Fund). The investment
objectives and policies of each of the Account's subaccounts are as follows.
- GROWTH STOCK PORTFOLIO SUBACCOUNT--seeks growth of capital through
short-term and long-term appreciation.
- U.S. GOVERNMENT SECURITIES PORTFOLIO SUBACCOUNT--seeks to earn a high
level of current income consistent with prudent investment risk.
- MONEY MARKET PORTFOLIO SUBACCOUNT--seeks high level of capital stability
and liquidity and, to the extent consistent with these objectives, a high
level of current income.
- ASSET ALLOCATION PORTFOLIO SUBACCOUNT--seeks favorable overall rates of
return on capital, primarily through increased ownership of equity
securities during periods when stock market conditions appear favorable,
and short-term and long-term debt instruments during periods when stock
market conditions are less favorable.
- DIVERSIFIED INCOME PORTFOLIO SUBACCOUNT--seeks high level of current
income by investing primarily in a diversified portfolio of government
securities and investment grade corporate bonds.
- GLOBAL GROWTH PORTFOLIO SUBACCOUNT--seeks growth of capital through
long-term capital appreciation, through ownership of equity securities,
allocated among diverse international markets.
- AGGRESSIVE GROWTH PORTFOLIO SUBACCOUNT--seeks long-term capital
appreciation in equity securities.
- GROWTH AND INCOME PORTFOLIO SUBACCOUNT--seeks growth of capital and
current income, through ownership of equity securities that provide an
income component and the potential for growth.
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1. GENERAL (CONTINUED)
- HIGH YIELD PORTFOLIO SUBACCOUNT--seeks maximum total return through
current income and capital appreciation, through ownership of a
diversified portfolio of high-yielding fixed-income securities.
- GLOBAL ASSET ALLOCATION SUBACCOUNT--seeks favorable overall rates of
return on capital, primarily through increased ownership of foreign &
domestic equity securities during periods when stock market conditions
appear favorable, and short-term and long-term foreign & domestic debt
instruments during periods when stock market conditions are less
favorable.
- GLOBAL BOND SUBACCOUNT--seeks total return from current income and
capital appreciation, by investing in a global portfolio of high quality
fixed income securities.
- INTERNATIONAL STOCK SUBACCOUNT--seeks capital appreciation by investing
primarily in equity securities of non-United States companies.
- VALUE SUBACCOUNT--seeks growth of capital through short and long-term
capital appreciation. Investing in equity securities based on the "Value"
philosophy.
- S & P 500 INDEX SUBACCOUNT--seeks growth of capital by replicating the
total return of the Standard & Poor's 500 Composite Stock Price Index.
- BLUE CHIP STOCK SUBACCOUNT--seeks capital appreciation by investing
primarily in large and medium-sized blue chip companies.
Certain 1995 amounts have been reclassified to conform to the 1996 presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The assets of the Account are segregated from Fortis Benefits Insurance
Company's other assets. The operations of the Account are part of Fortis
Benefits Insurance Company. The following is a summary of significant accounting
policies consistently followed by the Account in the preparation of its
financial statements.
INVESTMENT VALUATION
Investments in mutual funds (the "Funds") are valued at the net asset (market)
value per share at the close of business on December 31, 1996, as reported by
the Fund.
INVESTMENT TRANSACTIONS
Investment transactions are accounted for on the trade date. Realized gains and
losses on investments are determined in the basis of identified cost. Capital
gain distributions from mutual funds are recorded on the ex-dividend date and
reinvested upon receipt.
INVESTMENT INCOME
Dividend income from mutual funds is recorded on the ex-dividend date and
reinvested upon receipt.
3. INVESTMENTS
Investments in shares of Fortis Series Fund, Inc. are stated at market value,
which is based on the percentage owned by the Account of the net asset value of
the respective portfolios of the Funds. The Funds' net asset value is based on
market quotations of the securities held in the portfolios. The cost of
investments sold and redeemed is determined using the average cost method.
Unrealized appreciation or depreciation of investments represents the Account's
share of the mutual fund's undistributed net investment income, undistributed
realized gains and losses and unrealized appreciation or depreciation in the
Funds' investments.
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3. INVESTMENTS (CONTINUED)
Purchases and sales of shares of the Funds are recorded on the trade date. The
number of shares and aggregate cost of purchases and proceeds from sales of
shares were as follows:
<TABLE>
<CAPTION>
SHARES
----------------------- COST OF PROCEEDS
PURCHASED SOLD PURCHASES FROM SALES
---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Fortis Series Fund, Inc.:
Growth Stock Series....................................... 890,387 281,510 $ 27,173,798 $ 5,553,779
U.S. Government Securities Series......................... 151,037 218,096 1,636,966 2,336,960
Money Market Series....................................... 851,794 661,265 9,335,749 7,076,939
Asset Allocation Series................................... 381,630 166,417 6,373,151 1,902,122
Diversified Income Series................................. 156,687 136,953 1,861,420 1,572,211
Global Growth Series...................................... 1,072,793 143,512 19,313,887 1,546,811
Aggressive Growth Series.................................. 1,066,159 143,413 14,849,914 1,584,984
Growth & Income Series.................................... 480,632 103,219 6,716,429 1,124,559
High Yield Series......................................... 148,721 180,194 1,521,655 1,798,886
Global Asset Allocation Series............................ 165,534 515,514 1,974,410 5,699,097
Global Bond Series........................................ 107,893 543,796 1,203,711 5,990,567
International Stock Series................................ 460,278 522,628 5,472,129 5,763,758
Value Series.............................................. 110,116 4,219 1,158,724 45,299
S & P 500 Series.......................................... 310,869 9,660 3,255,644 108,833
Blue Chip Stock Series.................................... 252,023 8,703 2,606,736 94,411
Norwest Select Fund:
Small Company Stock Fund.................................. -- 103,433 -- 1,248,440
YEAR ENDED DECEMBER 31, 1995
Fortis Series Fund, Inc.:
Growth Stock Series....................................... 903,891 90,700 23,231,047 2,409,243
U.S. Government Securities Series......................... 228,211 213,159 2,331,839 2,234,298
Money Market Series....................................... 540,043 506,551 5,764,979 5,395,064
Asset Allocation Series................................... 333,531 90,515 5,135,857 1,414,662
Diversified Income Series................................. 197,390 95,167 2,234,605 1,087,689
Global Growth Series...................................... 673,847 93,947 9,569,763 1,324,628
Aggressive Growth Series.................................. 537,853 49,233 6,246,152 624,420
Growth & Income Series.................................... 287,048 30,747 3,356,014 380,024
High Yield Series......................................... 122,624 46,105 1,244,092 467,145
Global Asset Allocation Series............................ 629,303 19,414 6,423,812 219,928
Global Bond Series........................................ 593,769 48,334 6,061,190 547,976
International Stock Series................................ 742,827 16,307 7,584,243 181,103
Norwest Select Fund:
Small Company Stock Fund.................................. 100,000 -- 1,000,000 --
YEAR ENDED DECEMBER 31, 1994
Fortis Series Fund, Inc.:
Growth Stock Series....................................... 1,106,287 70,314 24,347,849 1,563,675
U.S. Government Securities Series......................... 188,049 192,822 1,951,506 1,984,288
Money Market Series....................................... 476,828 217,878 4,963,584 2,269,774
Asset Allocation Series................................... 361,546 37,257 5,042,184 514,392
Diversified Income Series................................. 183,908 53,081 2,099,560 601,619
Global Growth Series...................................... 1,156,826 261,960 14,421,587 3,202,164
Aggressive Growth Series.................................. 254,672 21,957 2,458,035 206,503
Growth & Income Series.................................... 124,784 1,316 1,256,805 13,437
High Yield Series......................................... 203,595 28,990 2,033,981 288,164
</TABLE>
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<PAGE>
3. INVESTMENTS (CONTINUED)
The number of shares and cost of shares issued from reinvestment of dividends
with the Funds were as follows:
<TABLE>
<CAPTION>
COST OF
SHARES SHARES
----------- ---------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Fortis Series Fund, Inc.:
Growth Stock Series............................... 15,969 $ 527,085
U.S. Government Securities Series................. 59,976 605,366
Money Market Series............................... 22,984 247,490
Asset Allocation Series........................... 91,142 1,554,337
Diversified Income Series......................... 35,960 400,689
Global Growth Series.............................. 4,487 83,808
Aggressive Growth Series.......................... 2,878 39,056
Growth & Income Series............................ 21,580 325,645
High Yield Series................................. 23,981 234,012
Global Asset Allocation Series.................... 11,670 141,406
Global Bond Series................................ 7,323 80,570
International Stock Series........................ 21,531 259,053
Value Series...................................... 588 6,679
S & P 500 Series.................................. 1,693 19,549
Blue Chip Stock Series............................ 842 9,822
YEAR ENDED DECEMBER 31, 1995
Fortis Series Fund, Inc.:
Growth Stock Series............................... 18,797 510,059
U.S. Government Securities Series................. 38 379
Money Market Series............................... 17,356 180,105
Asset Allocation Series........................... 59,192 924,340
Diversified Income Series......................... 14 155
Global Growth Series.............................. 12,645 194,924
Aggressive Growth Series.......................... 2,746 32,999
Growth & Income Series............................ 16,670 83,612
High Yield Series................................. 26,030 252,046
Global Asset Allocation Series.................... 17,511 199,139
Global Bond Series................................ 31,253 349,572
International Stock Series........................ 10,608 117,200
Norwest Select Fund:
Small Company Stock Fund.......................... 3,433 38,350
YEAR ENDED DECEMBER 31, 1994
Fortis Series Fund, Inc.:
Growth Stock Series............................... 23,983 524,850
U.S. Government Securities Series................. 64,492 607,364
Money Market Series............................... -- --
Asset Allocation Series........................... 46,335 626,408
Diversified Income Series......................... 24,758 257,570
Global Growth Series.............................. 11,872 144,687
Aggressive Growth Series.......................... 915 8,878
Growth & Income Series............................ 1,288 12,968
High Yield Series................................. 8,691 81,918
</TABLE>
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<PAGE>
3. INVESTMENTS (CONTINUED)
Fortis Benefits' investment in the subaccounts represented the following number
of shares of the Funds held and aggregate cost of amounts invested at December
31, 1996:
<TABLE>
<CAPTION>
NUMBER COST OF
OF SHARES SHARES
----------- ---------
<S> <C> <C>
Fortis Series Fund, Inc.:
Value Series...................................... 29,002 $ 290,240
S&P 500 Series.................................... 145,009 1,451,374
Blue Chip Stock Series............................ 145,005 1,450,900
</TABLE>
4. ORGANIZATIONAL EXPENSES AND OTHER CHARGES
ORGANIZATIONAL EXPENSES
Fortis Benefits assumes all organizational expenses of the Account.
PREMIUM EXPENSE CHARGE
For Harmony Investment Life policies a 5% sales charge and a 2.2% state premium
tax is deducted from each premium payment received by Fortis Benefits. The
resulting net premiums are allocated to the subaccounts of the Account and/or to
the Fortis Benefits General Accounts. For Wall Street Series VUL 100, VUL 220,
VUL 500 and Survivor policies, Fortis Benefits reserves the right to impose a
charge up to 2.5% of each premium payment to be reimbursed for premium taxes or
similar charges it expects to pay.
MONTHLY DEDUCTIONS FROM POLICY VALUE
Monthly deductions from the net assets attributed to each policy are as follows:
- Monthly cost of insurance.
- Monthly cost of any optional insurance benefits added by rider.
For Harmony Investment Life Policies:
- Monthly administrative charge of $5.00 per policy ($3.00 for policies
applied for prior to July 1, 1988).
- For policies issued subsequent to July 1, 1988, Fortis Benefits reserves
the right to impose an expense charge of not more than $15.00 per month
and an additional per-thousand-of-face expense charge of not more than
$.08 per month for insureds aged 29 or less and $.25 per month for
insureds age 30 and over during the first twelve policy months. Fortis
Benefits currently does not impose any of the expense charges described
in the preceding sentence.
- For policies issued prior to July 1, 1988, Fortis Benefits currently
imposes an expense charge of $10.00 per month and an additional
per-thousand-of-face expense charge of $.06 per month for insureds age 29
or less and $.20 per month for insureds age 30 and over during the first
twelve policy months.
For Wall Street Series VUL 100, VUL 220, VUL 500 and Survivor Policies:
- Monthly administrative charge of $4.50 per policy for VUL 100, VUL 220
and VUL 500 and $6.00 per Policy for Survivor. Fortis Benefits reserves
the right to change this administrative charge, but it will never exceed
$7.50 per month.
- For VUL 220, VUL 500 and Survivor, a monthly sales, premium tax and
policy advance charge of $4.00 per policy.
MORTALITY AND EXPENSE RISK AND POLICY ADVANCE CHARGES
Fortis Benefits deducts a daily mortality and expense risk charge from the
Account at an annual rate of .75% of the average daily net assets representing
equity of Harmony Investment Life policyholders and .90% of the average daily
net assets representing equity of Wall Street Series VUL 100, VUL 220 and VUL
500 and 1.00% of the net assets representing equity of Wall Street Series
Survivor policyholders held in each account. These charges will be deducted by
Fortis Benefits in return for its
68
<PAGE>
4. ORGANIZATIONAL EXPENSES AND OTHER CHARGES (CONTINUED)
assumption of expenses arising from adverse mortality experience or excess
administrative expenses in connection with policies issued. Fortis Benefits also
deducts a sales, premium tax and policy advance charge from the Account at an
annual rate of .27% of net assets representing equity of Wall Street Series VUL
100, VUL 220 and VUL 500 policyholders, and .35% of net assets representing
equity of Wall Street Series Survivor. These charges are included in the
statements of changes in net assets as a component of net investment income
(loss).
SURRENDER CHARGES
For Wall Street Series VUL 100, VUL 220 and VUL 500 policies surrendered within
the first eleven years of issuance, Fortis Benefits assesses a surrender charge.
The charge is the sum of any sales, premium tax, and policy advance charges not
previously deducted on a monthly or daily basis. For VUL 220 and VUL 500, there
is an additional surrender charge of $5.00 per thousand of the policy's initial
face amount plus a maximum percentage of the annualized net minimum premiums.
The percentage is 12% for VUL 220 and 22% for VUL 500. This surrender charge is
limited to certain maximums based on the insured person's age at the time of
issuance and decreases at a constant rate on the fifth and subsequent
anniversary until it reaches zero on the eleventh policy anniversary. A similar
schedule of surrender charges is imposed on face increases.
For Wall Street Series Survivor policies surrendered within the first ten years
of issuance, Fortis Benefits assesses a surrender charge. The charge is the sum
of any sales, premium tax and policy issuance expense charges not previously
deducted. The entire surrender charge is subject to an overall upper limit "cap"
as set forth in a table based on adjusted age and face amount in force. This cap
decreases at a constant rate on the first and each subsequent policy anniversary
until it reaches zero on the tenth policy anniversary.
For Harmony Investment Life policies surrendered within the first nine years of
issuance of the policy or face increase, a surrender charge is assessed. The
charge is a maximum of 25% of the annualized net premium and decreases at a
constant rate on the fifth and subsequent anniversary until it reaches zero on
the ninth policy anniversary.
Surrender charges collected by Fortis Benefits were $3,159,110, $2,057,483 and
$1,475,321 in 1996, 1995 and 1994, respectively.
5. FEDERAL INCOME TAXES
The operations of the Account form a part of, and are taxed with, the operations
of Fortis Benefits, which is taxed as a life insurance company under the
Internal Revenue Code. As a result, the net asset values of the subaccounts are
not affected by federal income taxes on income distributions received by the
subaccounts.
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<PAGE>
APPENDIX A
OPTIONAL INCOME PLANS
The insurance proceeds when the insured dies or the Surrender Value on the
maturity date or on full surrender of the Policy, instead of being paid in one
lump sum, may be applied under one or more of the following income plans. A tax
advisor should be consulted as to the differing tax consequences of each of
these plans. Values under the income plans do not depend upon the investment
experience of a separate account. Under options 3 or 4, unless a guaranteed
period or refund alternative is selected, it would be possible to receive only
one payment, in the case of the payee's early death.
OPTION 1. INTEREST PAYMENTS
Fortis Benefits will pay interest at twelve, six, three or one month intervals
for a specified period, as selected by the Policy owner. At the end of the
selected period, Fortis Benefits will pay the proceeds in a single sum or under
any other option selected when this option is chosen.
OPTION 2. PAYMENTS OF A FIXED AMOUNT OR FOR A FIXED PERIOD
Fortis Benefits will make payments in an amount the Policy owner selects when
choosing this option or equal payments for a period of from one to thirty years,
at the choice of the Policy owner. In either case, the Policy owner may request
payments at twelve, six, three or one month intervals.
OPTION 3. LIFE INCOME PAYMENTS
(1) Life Annuity: a monthly income during the lifetime of the payee; or
(2) Life Annuity with a Guaranteed Period: a monthly income with payments
guaranteed for either ten or twenty years, as the Policy owner chooses,
continuing during the payee's lifetime; or
(3) Refund Life Annuity: a monthly income with payments guaranteed for the
number of months determined by dividing the proceeds by the first
monthly payment. The payments continue during the payee's lifetime.
OPTION 4. JOINT LIFE INCOME PAYMENTS
The Policy owner names two payees to whom Fortis Benefits will pay a joint
monthly income during their joint lifetime. After either payee's death, Fortis
Benefits will make monthly payments equal to 2/3 of the joint monthly payment
during the survivor's lifetime.
For options 3 and 4, the amount of the monthly payments depends on the type of
income selected, the Ages of the payees on the settlement date and the amount of
the proceeds. The minimum amounts payable for selected Ages are set forth in the
Policy.
For Policies issued pursuant to Section 403(b), the guarantee period under
Option 3 and the percentage of payments to the insured after the death of a
beneficiary under Option 4 may be limited according to that section and Section
401(a) of the Code. Spousal consent may be required for an annuity option other
than a qualified joint and survivor option.
APPLICABLE RATES. The interest rate under options 1, 2, 3 and 4 above will
effectively be at least 3 1/2% per year. If option 1 is chosen, Fortis Benefits
may pay excess interest. If options 2, 3, or 4 are chosen and the monthly
payments are less than those provided by Fortis Benefits under settlement rates
that Fortis Benefits is then currently offering, Fortis Benefits will pay the
larger amount.
OTHER TERMS AND CONDITIONS. The Policy owner may also choose any other option
agreed to by Fortis Benefits. The Policy owner may also change or revoke a
choice of options under which payments have not yet commenced. If the Policy
owner does not choose an option before the insured dies, the beneficiary will
have the right to choose an option.
No payee has the right to change the settlement option chosen before the
insured's death. Payments may not be assigned or commuted.
If the payee dies before receiving all proceeds payable, Fortis Benefits will
pay any amount still due to the payee's estate. Fortis Benefits has the right to
pay the proceeds in a single sum if (1) the proceeds payable are less than
$2,000; or (2) payments under the settlement option chosen would be less than
$20 each. When an income plan starts, a separate contract will be issued
describing the terms of the plan, and the Policy must be returned to us at this
time. Specimen plans may be obtained from Fortis Benefits' Home Office and
reference should be made to these forms for further details.
OPTIONAL INSURANCE BENEFITS
Optional insurance benefit riders may be attached to a Policy, subject to
certain insurance underwriting requirements, approval in the state where the
Policy is sold, and the payment of additional charges. These riders are
described in general terms below. Limitations and conditions are contained in
the riders, and the description below is subject to the specific terms of the
riders. A prospective purchaser may obtain specimen riders from Fortis Benefits'
Home Office. The charges for these riders are deducted each month as part of the
Monthly Deduction from Policy Value.
A-1
<PAGE>
Any rider selected becomes a part of the Policy and is subject to all terms of
the Policy which are not inconsistent with the terms of the rider. Fortis
Benefits may decline to issue any optional insurance rider in its sole
discretion based on current underwriting guidelines and other regulatory
restrictions. Riders may be cancelled by Policy owners in accordance with the
procedures established by Fortis Benefits from time to time.
WAIVER OF MONTHLY DEDUCTIONS RIDER. If the insured is totally disabled for more
than six months while this rider is in effect, Fortis Benefits will waive
subsequent Monthly Deductions, so long as the total disability continues. Any
monthly charges deducted after disability begins but before Fortis Benefits
approves the disability claim will be added to the Policy Value in a lump sum as
of the date of approval, based on the premium allocation percentage then in
effect. For any month that deductions are waived, otherwise applicable
requirements to make additional Minimum Premium payments will be waived or
suspended. You should consult your sales representative for details. The rider
does not cover preexisting disabilities and terminates when the insured reaches
Age 60, except as to any disability commencing prior to that time. The charges
for this rider are based on the Net Amount at Risk under a Policy from time to
time and the insured's Age and rate class. The rates of charges for this rider
are set forth in the Rider, and the rate at which the charge is imposed
increases from year to year. An increase or decrease in the Net Amount at Risk,
or the addition or cancellation of any benefits under riders the charges for
which are covered under this rider, will result in an increase or decrease in
the charges for this rider. The charges for this rider will also be decreased if
Fortis Benefits approves a more favorable rate class for the insured.
WAIVER OF SELECTED AMOUNT RIDER. If the primary insured is totally disabled for
more than six months while this rider is in effect, Fortis Benefits will apply a
premium payment to the Policy on each subsequent Monthly Anniversary and while
the primary insured remains totally disabled until Age 95.
The amount of the premium payment is equal to the Selected Amount chosen by the
applicant at the time of application, and shown in the Policy schedule. The
minimum Selected Amount that can be chosen is $25. The maximum Selected Amount
that can be chosen is the greater of $300 or the monthly Minimum Premium. If the
Policy's Face Amount is greater than $2,000,000, the Selected Amount is capped
at the monthly Minimum Premium for $2,000,000. The annualized Selected Amount
cannot be greater than the guideline annual premium. If the Face Amount of the
Policy is decreased so that the annualized benefit is greater than the guideline
annual premium, the benefit will be reduced.
The rider does not cover preexisting conditions and terminates when the primary
insured reaches Age 60, except as to any disability commencing prior to that
time. Monthly Deductions will be increased to include the cost of the rider
which is a specified percentage of the Selected Amount based on the primary
insured's Age. In most states, the current charges will be shown in the Policy
schedule. The charges increase from year to year. Fortis Benefits may change the
rates, up to the guaranteed maximum rates set forth in the rider.
The Policy owner cannot elect to have both this rider and a Waiver of Monthly
Deductions Rider attached as supplementary benefits with the same Policy.
ADDITIONAL INSURED RIDER PLUS. This rider provides fixed amounts of insurance
until Age 95 on the life of the primary insured, one or more insured persons who
are members of the primary insured's immediate family, or individuals in whom
the owner has an insurable interest. In the event an insured under this rider is
not a family member, certain special tax rules will apply. For a brief
description of these tax rules see "Federal Tax Matters." The number of insureds
that may be covered by this rider is limited to five. Subject to Fortis
Benefits' underwriting requirements, coverage on persons not already insured may
be added on a Policy Anniversary. Coverage under this rider may not exceed six
times the base Policy's Face Amount. Coverage on additional insureds will
automatically be reduced pro-rata, to the extent necessary to ensure that this
limit is not exceeded. Coverage on the primary insured under this and all other
term riders cannot exceed six times the base Policy's Face Amount.
The charges increase from year to year. Fortis Benefits may change the rates at
which the charges for this rider are imposed, although the resulting charges
will not exceed the guaranteed maximum charges for this rider set forth in the
Policy schedule.
The Policy owner may convert the coverage on an additional insured (except if
the additional insured is also the primary insured) to a variable universal life
insurance policy offered by us at any time before the later of the end of the
fifth Policy year or the additional insured's 65th birthday. The conversion is
not available more than 31 days after the death of the primary insured. Fortis
Benefits permits conversion of less than the full coverage on an additional
insured. However, partial conversions are subject to a $25,000 minimum and may
be elected only on the Policy Anniversary, and only if remaining coverage on the
additional insured under the Rider will be at least $25,000. If the additional
insured is also the primary insured, the Policy owner may exchange the coverage
under this rider for a Face Amount Increase under the base Policy, subject to
the same limitations.
A-2
<PAGE>
Fortis Benefits will waive its usual requirement for evidence of insurability
with respect to an amount of the new Policy's Face Amount that is not in excess
of the amount of rider coverage cancelled, and the new coverage will be based on
the same rate class as under the rider. The suicide and contestability periods
will run from the original date of the transferred coverage. The coverage under
the rider will terminate when the new coverage becomes effective. Any amounts
deducted for the rider coverage for periods beyond such time will be refunded.
Except as noted above, the customary procedures and charges for issuing a new
Policy or a Face Amount increase will apply to a conversion from the Additional
Insured Rider Plus.
PRIMARY INSURED RIDER PLUS. This rider is in most respects similar to the
Additional Insured Rider Plus described immediately above, except that this
rider is available only at the time the Policy is first issued.
As discussed further below, coverage obtained under the Primary Insured Rider
Plus is less costly initially than a comparable amount of additional coverage
obtained under the base Policy. However, for Policy owners who intend to retain
their Policies and meet the Minimum Premium requirements in order to obtain the
full benefit of Policy Value Advances and additionally qualify for Cash Value
Bonuses, coverage under the base Policy will probably be more economical over
the long term.
The other significant difference from the Additional Insured Rider Plus
described above is that, under the Primary Insured Rider Plus, the Policy owner
does not have a right to convert to a new variable universal life insurance
policy. Instead, at any time before the later of the end of the fifth Policy
year or the insured's 65th birthday, the Policy owner may exchange the coverage
under the Primary Insured Rider Plus for a Face Amount increase in the same
amount under the base Policy. Fortis Benefits permits exchanges of less than the
full coverage under the Primary Insured Rider Plus, subject to a $25,000
minimum. Such partial exchanges may be elected only once each Policy year, as of
the Policy Anniversary, and only if remaining coverage on the primary insured
under the rider will be at least $25,000.
Fortis Benefits will waive its usual requirements for evidence of insurability
with respect to the Face Amount increase, and the increase will be based on the
same rate class as the rider. The suicide and contestability periods will run
from the original date of the transferred coverage. The coverage under the rider
will terminate when the Face Amount increase becomes effective.
Except as noted above, a Face Amount increase implemented upon an exchange from
the primary insured rider will be subject to the same procedures and charges and
in all respects have the same effect as any other Face Amount increase.
The rates of charges for coverage under the Primary Insured Rider Plus are
expected to be lower than the rates of the cost of insurance charges for a
comparable amount of coverage under the base Policy, for at least several years
after the Policy is issued. However the rates for the Primary Insured Rider Plus
increase more rapidly as the insured's Age increases than do the cost of
insurance rates for a comparable amount of coverage under the base Policy, and
may eventually be higher. Also, the maximum guaranteed charges for coverage
under the Primary Insured Rider Plus are at higher rates than the maximum
guaranteed cost of insurance rates under the base Policy. Although it may be
necessary for Fortis Benefits to obtain an order of the Securities and Exchange
Commission in order to assess charges at the maximum rates permitted under the
Primary Insured Rider Plus, Fortis Benefits specifically reserves the right to
seek such an order. Fortis Benefits cannot predict whether the Commission would
issue any requested order.
If coverage on the Policy's insured person is taken pursuant to the Primary
Insured Rider Plus, the monthly Minimum Premium will be lower (unless and until
such coverage is exchanged for a Face Amount increase as described above) than
if the same amount of Face Amount were purchased under the base Policy. This
means that any Surrender Charge would also be lower, and that initially a
smaller amount of premiums will be required to maintain the Policy's Guaranteed
Death Benefit and to ensure the receipt of Policy Value Advances and certain
other benefits. See "Minimum Premiums" under "Payment and Allocation of
Premiums--Premiums." Reduced premium payments, of course, will tend to result in
lower amounts of charges that are based on premium payments or Policy Value. See
"Charges and Deductions." However, the amount of any Policy Value Advances will
be less if coverage on the primary insured is taken under the Primary Insured
Rider Plus, rather than under the base Policy. In most cases this makes coverage
under the base Policy more advantageous, in the long run, for Policy owners who
plan to retain their Policies and meet the Minimum Premium requirements to
obtain the full benefit of the Policy Value Advances.
Finally, under death benefit Type A, lower premium payments will increase the
Net Amount at Risk, which will increase the amount of cost of insurance charges.
Accordingly, Policy owners who are interested in making the maximum amount of
premium payments and maintaining the maximum amount of Policy Value, relative to
the amount of insurance coverage, may be well advised to elect coverage under
the base Policy, rather than under the Primary Insured Rider Plus.
A-3
<PAGE>
ADDITIONAL INSURED RIDER AND PRIMARY INSURED RIDER. These riders are in most
respects similar to the corresponding Additional Insured Rider Plus and Primary
Insured Rider Plus described above.
The primary difference is that these riders provide 12 year annually renewable
term insurance while the "Plus" riders provide for such coverage until Age 95.
Also, the Additional Insured Rider does not allow the primary insured to be an
additional insured while the Additional Insured Rider Plus does so allow.
Finally, these riders will continue to be offered in a state only until the
corresponding "Plus" riders are available in that state, at which time they will
be withdrawn from sale.
CHILD INSURANCE RIDER. This rider provides fixed insurance in limited amounts on
the life of each child of the primary insured named in the application and
accepted by Fortis Benefits, and any subsequent child acquired after the date of
the application. This coverage, however, will not apply for any child who is age
15 or more at the time the coverage on that child is to take effect. Nor is
there any insurance coverage for a child until 15 days after that child's birth,
or after the first Policy Anniversary on or after that child's 25th birthday.
The charge for this rider is shown on the Policy schedule and is paid in level
amounts. The insurance under this rider becomes fully paid-up upon receipt by
Fortis Benefits of due proof of the primary insured's death while the rider is
in force. This rider terminates when the Policy terminates or on the first
Policy Anniversary on or after the primary insured's 65th birthday.
EXCHANGE OF POLICY RIDER. This rider is available to corporate owned Policies
issued in a state that has approved such rider. This rider allows the Policy
owner to exchange a Policy covering a current insured to another Policy on a new
insured who is less than Age 71. The exchange date must be on a monthly
anniversary date. Such exchange is treated as a taxable transaction.
Accordingly, a Policy owner should consult a tax adviser before effecting such
an exchange.
There is no charge for this rider. However, an administrative fee is charged on
exercise of the exchange, currently at $100. This fee cannot exceed $300.
The Policy Date on the new policy is the same as the original Policy. The
unloaned Policy Value of the original policy will become the Policy Value of the
new policy, unless the transfer would require a Face Amount increase to prevent
the Policy from becoming a modified endowment contract. (See "Federal Tax
Matters--Modified Endowment Contracts"). If so, Fortis Benefits will only
require the transfer of the portion of the unloaned Policy Value that will not
cause the increase in Face Amount. The transferred Policy Value is immediately
allocated to the subaccounts or general account in the same manner as it was
allocated in the old Policy. Any new premiums are immediately allocated
according to the Policy owner's requested allocation. There is no initial period
where such amounts are allocated to the General Account.
The owner can cancel the exchange within the normal period for returning a
Policy (see "Right to Return Policy"). Upon cancellation, Fortis Benefits will
pay the Surrender Value of the old Policy on the date of exchange plus any new
premiums.
The suicide and contestability periods runs from the exchange date. The
Surrender Value of the old Policy on the date of exchange plus any new premiums,
less any loans and withdrawals, will be paid if the new insured commits suicide
or Fortis Benefits has a legal basis to contest a claim within this period.
The Minimum Premium and the cost of insurance charges are based on the new
insured's Age, sex, and rate class as of the most recent Policy anniversary. The
duration of the cost of insurance charges is also measured from that date. If a
full surrender occurs, the greater of the Surrender Charges on the old and new
Policies is assessed. The maximum rate of surrender charges are based on the new
insured's age as of the most recent Policy Anniversary.
The Minimum Premiums to determine eligibility for Policy Value Advances are
based on the sum of Minimum Premiums from the old Policy to the exchange date
plus the sum of Minimum Premiums from the new Policy from such date. Similarly,
the Policy Value Advance amount is based on this history of Minimum Premiums.
If the Guaranteed Death Benefit has lapsed under the old Policy, it is not made
available on the new Policy. Otherwise the premium requirement is met if the
transferred Policy Value plus new premiums, less any withdrawals and loans, is
at least equal to the sum of Minimum Premiums on the new Policy from the most
recent Policy Anniversary.
A-4
<PAGE>
APPENDIX B
ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES,
SURRENDER VALUES AND ACCUMULATED PREMIUMS
The tables on pages B-3 to B-6 illustrate the way in which a Policy's death
benefit, Policy Value and Surrender Value could vary over an extended period of
time, assuming that all premiums are allocated to the Subaccounts of the
Separate Account for the entire period shown and assuming hypothetical gross
investment rates of return for the underlying Fortis Series Portfolios (i.e.,
investment income and capital gains and losses, realized and unrealized)
equivalent to constant gross annual rates of 0%, 4%, 8% and 12%.
The tables are based on Face Amounts of $800,000 for males Age 45. Each
illustration assumes that the insured is in the non-smoker underwriting risk
classification. Illustrations for an insured in the smoker or a substandard
underwriting risk classification would show, for the same Age and premium
payments, lower Policy Values and, therefore, lower Surrender Values and, for
the Alternative Death Benefit and Death Benefit Type B, lower death benefits.
These values would be higher, however, for an otherwise comparable Policy on the
life of a non-smoker female insured. An otherwise comparable Policy using
gender-neutral cost of insurance rates may also show higher values than the
Policies illustrated in the tables that follow.
The amounts shown for the death benefits, Policy Values and Surrender Values
take into account the deductions from premiums and the Monthly Deduction, as
well as the daily deductions from the Separate Account for premium tax, sales
expenses and for Policy Value Advances equivalent to an annual rate of .27%, for
mortality and expense risks equivalent to an annual rate of .90% of the Policy
Value in the Separate Account, for assumed Portfolio investment advisory fees
equivalent to an annual rate of .63% and for other Portfolio operating expenses
equivalent to an annual rate of .08% of the average daily value of the aggregate
net assets of the Portfolio. (.63% is the average of the advisory fee rates paid
by the currently available Portfolios and .08% is the actual amount of other
expenses that those Portfolios incurred in 1996).
Taking account of the daily deductions for premium tax and sales expenses,
mortality and expense risks and assumed Portfolio operating expenses, the gross
annual investment rates of return of 0%, 4%, 8% and 12% correspond to actual (or
net) annual rates of: -1.88%, 2.12%, 6.12% and 10.12%, respectively.
The hypothetical returns in the tables do not reflect any charges for income
taxes against the Separate Account, since no such charges are currently made.
However, if in the future such charges are made, in order to produce the death
benefits, Policy Values and Surrender Values illustrated, the gross annual
investment rate of return would have to exceed 0%, 4%, 8% or 12% by a sufficient
amount to cover the tax charges. See "Federal Tax Matters--Taxation of Fortis
Benefits."
The second column of the tables shows the amount which would accumulate if each
year an amount equal to the sum of twelve monthly Minimum Premiums were invested
to earn interest, after taxes, at 5% compounded annually. The difference between
Policy Values and Surrender Values during the first eleven Policy years, as
shown in the tables, is the amount of Surrender Charge.
Upon request, Fortis Benefits will furnish an illustration reflecting the
proposed insured's Age and sex,
the Face Amount and premium amounts requested, frequency of premium payments,
the death benefit option and any available rider requested.
TABLE OF CONTENTS FOR ILLUSTRATIONS
OF DEATH BENEFITS, POLICY VALUES,
SURRENDER VALUES AND
ACCUMULATED PREMIUMS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Illustrations Based on CURRENT Charge
and Policy Value Advance Schedules:
Death Benefit Type A.................. B-3
Death Benefit Type B.................. B-4
Illustrations Based on GUARANTEED Charge
and Policy Value Advance Schedules:
Death Benefit Type A.................. B-5
Death Benefit Type B.................. B-6
</TABLE>
B-1
<PAGE>
POLICY VALUE ADVANCES
Set forth below is supplemental information pertaining to the Policy illustrated
on page B-5 below, assuming a 0% hypothetical gross annual investment rate of
return. The purpose of the following example is to show the way the Policy Value
Advances and deductions therefor would operate and the way in which the
deductions for Policy Value Advances would affect the deductions for sales
charges under the Policies in the event Fortis Benefits decides to recoup Policy
Value Advances. Actual amounts would vary significantly based on such factors as
the size of the Policy, the death benefit option selected, the amount of
premiums paid, the investment options selected under the Policy and the actual
return earned thereon, the Cash Value Bonuses paid, the receipt and repayment of
any Policy loans, and any partial withdrawals.
EXAMPLE
SUPPLEMENTAL INFORMATION PERTAINING TO
THE ILLUSTRATION ON PAGE B-5
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGES
CUMULATIVE MONTHLY PAYABLE UPON
AND DAILY SALES SURRENDER AT
CHARGE DEDUCTIONS END OF YEAR CUMULATIVE
POLICY VALUE ADVANCES ------------------------ ---------------------- SALES CHARGES
END OF ---------------------- DOLLAR % OF TOTAL DOLLAR % OF TOTAL AS % OF TOTAL
POLICY YEAR CREDITS DEDUCTIONS AMOUNT PREMIUM AMOUNT PREMIUM PREMIUM
- --------------- --------- ----------- ----------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 0.00 0.00 60.75 0.4050 2,938.66 19.5911 19.9961
2 0.00 0.00 141.73 0.4724 3,982.67 13.2756 13.7480
3 0.00 0.00 242.19 0.5382 4,668.60 10.3747 10.9129
4 0.00 0.00 361.36 0.6023 4,668.60 7.7810 8.3833
5 0.00 0.00 498.43 0.6646 4,668.60 6.2248 6.8894
6 0.00 0.00 652.58 0.7251 4,001.46 4.4461 5.1712
7 170.40 0.00 822.91 0.7837 3,334.78 3.1760 3.9597
8 511.20 170.40 880.99 0.7342 2,667.64 2.2230 2.9572
9 852.00 268.11 880.99 0.6526 2,000.96 1.4822 2.1348
10 852.00 287.96 880.99 0.5873 1,333.82 0.8892 1.4765
11 852.00 306.19 880.99 0.5339 667.14 0.4043 0.9382
12 852.00 322.75 880.99 0.4894 0.00 0.0000 0.4894
13 852.00 337.67 880.99 0.4518 0.00 0.0000 0.4518
14 852.00 350.81 880.99 0.4195 0.00 0.0000 0.4195
15 852.00 361.89 880.99 0.3916 0.00 0.0000 0.3916
16 852.00 370.73 880.99 0.3671 0.00 0.0000 0.3671
17 852.00 377.08 880.99 0.3455 0.00 0.0000 0.3455
18 852.00 380.68 880.99 0.3263 0.00 0.0000 0.3263
19 852.00 381.12 880.99 0.3091 0.00 0.0000 0.3091
</TABLE>
The second and third columns of the above example show, respectively, the amount
of Policy Value Advance credited and the amount deducted to recover Policy Value
Advances in each Policy year. The fourth column shows how the monthly and daily
deductions for sales charges are deferred beginning in the 8th Policy year
(during the time when deductions to recover Policy Value Advances are being
made).
B-2
<PAGE>
MALE ISSUE AGE 45
NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $800,000--DEATH BENEFIT TYPE A
CURRENT CHARGE AND POLICY VALUE ADVANCE SCHEDULES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
PREMIUMS ---------------------------------------------------------------------------------------------------------
ACCUMULATED
AT 5% 0% (1)(2)(3)(4) 4% (1)(2)(3)(4) 8% (1)(2)(3)(4) 12% (1)(2)(3)(4)
END OF INTEREST --------------------------- --------------------------- ----------------------------- -------------------
POLICY PER YEAR DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY
YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE
- ------ ----------- --------- ------- --------- --------- ------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,750 800,000 12,120 4,875 800,000 12,664 5,420 800,000 13,209 5,966 800,000 13,754
2 32,288 800,000 23,692 15,108 800,000 25,272 16,692 800,000 26,897 18,321 800,000 28,568
3 49,652 800,000 34,902 25,302 800,000 38,005 28,405 800,000 41,284 31,684 800,000 44,745
4 67,884 800,000 45,747 36,147 800,000 50,858 41,258 800,000 56,407 46,807 800,000 62,420
5 87,029 800,000 56,464 46,864 800,000 64,070 54,470 800,000 72,554 62,954 800,000 81,999
6 107,130 800,000 67,057 58,829 800,000 77,652 69,424 800,000 89,794 81,566 800,000 103,681
7 128,237 800,000 77,676 70,819 800,000 91,761 84,904 800,000 108,346 101,489 800,000 127,836
8 150,398 800,000 88,360 82,874 800,000 106,450 100,964 800,000 128,336 122,851 800,000 154,767
9 173,668 800,000 99,078 94,964 800,000 121,728 117,614 800,000 149,885 145,771 800,000 184,836
10 198,102 800,000 109,181 106,438 800,000 136,952 134,209 800,000 172,427 169,685 800,000 217,697
15 339,862 800,000 152,391 152,391 800,000 214,225 214,225 800,000 306,504 306,504 800,000 444,881
20 520,789 800,000 180,141 180,141 800,000 291,111 291,111 800,000 493,438 493,438 1,017,444 833,971
25 751,702 800,000 186,800 186,800 800,000 373,262 373,262 890,904 768,021 768,021 1,728,516 1,490,100
40 1,902,596 0 0 0 800,000 637,860 637,860 2,582,992 2,459,992 2,459,992 8,026,991 7,644,753
<CAPTION>
END OF
POLICY SURRENDER
YEAR VALUE
- ------ ---------
<S> <C>
1 6,512
2 19,996
3 35,145
4 52,820
5 72,399
6 95,452
7 120,979
8 149,281
9 180,721
10 214,955
15 444,881
20 833,971
25 1,490,100
40 7,644,753
</TABLE>
(1)Assumes annual premium of $15,000 paid in full at the beginning of each
Policy year. The values vary from those shown if the amount or frequency of
payments vary.
(2)Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
(3)Reflects Policy Value Advances and Cash Value Bonuses credited according to
the following schedule:
<TABLE>
<CAPTION>
POLICY VALUE ADVANCES CASH VALUE BONUSES
- --------------------------- -------------------------------------------------------------------------
CREDIT AS A BONUS AS A PERCENT OF
PERCENT OF 12 BONUS AS A PERCENT OF SURRENDER VALUE
TIMES SURRENDER VALUE AT THE END OF POLICY
END OF THE AVERAGE SURRENDER VALUE AT THE END OF POLICY YEARS 20
POLICY YEAR MINIMUM PREMIUM ON DATE OF BONUS YEARS 9-19 AND LATER TO AGE 95
- ----------- --------------- -------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
7 2% Less than $ 50,000 .00% .00%
8 6% $ 50,000 to $299,999 .10% .10%
9 to Age 95 10% $300,000 to $499,999 .55% .55%
$500,000 or more .55% .80%
</TABLE>
(4)Alternative Death Benefit applies: See "Policy Benefits--Death Benefit
Options" for further details.
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 INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF
FACTORS INCLUDING THE PREMIUM AND POLICY VALUE ALLOCATIONS MADE BY AN OWNER
AND THE DIFFERENT RATES OF RETURN OF THE PORTFOLIOS. THE DEATH BENEFIT,
POLICY VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGES 0%, 4%, 8%, AND 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS OR IF ANY PREMIUMS WERE ALLOCATED OR POLICY VALUE
TRANSFERRED TO THE GENERAL ACCOUNT. NO REPRESENTATIONS CAN BE MADE BY FORTIS
BENEFITS OR FORTIS SERIES THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-3
<PAGE>
MALE ISSUE AGE 45
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $800,000--DEATH BENEFIT TYPE B
CURRENT CHARGE AND POLICY VALUE ADVANCE SCHEDULES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
PREMIUMS -----------------------------------------------------------------------------------------------------------------
ACCUMULATED
AT 5% 0% (1)(2)(3)(4) 4% (1)(2)(3)(4) 8% (1)(2)(3)(4) 12% (1)(2)(3)(4)
END OF INTEREST ------------------------- --------------------------- ----------------------------- -----------------------------
POLICY PER YEAR DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ ----------- ------- ------- --------- --------- ------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,750 812,079 12,079 4,834 812,621 12,621 5,377 813,164 13,164 5,920 813,707 13,707 6,465
2 32,288 823,561 23,561 14,977 825,132 25,132 16,552 826,748 26,748 18,171 828,409 28,409 19,836
3 49,652 834,635 34,635 25,035 837,712 37,712 28,112 840,963 40,963 31,363 844,393 44,393 34,793
4 67,884 845,292 45,292 35,692 850,345 50,345 40,745 855,829 55,829 46,229 861,773 61,773 52,173
5 87,029 855,784 55,784 46,184 863,282 63,282 53,682 871,643 71,643 62,043 880,949 80,949 71,349
6 107,130 866,117 66,117 57,889 876,532 76,532 68,304 888,465 88,465 80,236 902,107 102,107 93,879
7 128,237 876,441 76,441 69,584 890,250 90,250 83,392 906,502 106,502 99,644 925,593 125,593 118,735
8 150,398 886,780 86,780 81,295 904,463 104,463 98,978 925,845 125,845 120,360 951,655 151,655 146,169
9 173,668 897,080 97,080 92,965 919,150 119,150 115,035 946,566 146,566 142,452 980,576 180,576 176,462
10 198,102 906,649 106,649 103,906 933,604 133,604 130,861 968,006 168,006 165,264 1,011,874 211,874 209,131
15 339,862 945,376 145,376 145,376 1,003,724 203,724 203,724 1,089,337 289,337 289,337 1,220,749 420,749 420,749
20 520,789 964,142 164,142 164,142 1,063,740 263,740 263,740 1,242,953 442,953 442,953 1,551,441 751,441 751,441
25 751,702 955,402 155,402 155,402 1,103,630 303,630 303,630 1,430,026 630,026 630,026 2,081,093 1,281,093 1,281,093
40 1,902,596 0 0 0 886,414 86,414 86,414 2,095,619 1,295,619 1,295,619 6,566,206 5,766,206 5,766,206
</TABLE>
(1)Assumes annual premium of $15,000 paid in full at the beginning of each
Policy year. The values vary from those shown if the amount or frequency of
payments vary.
(2)Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
(3)Reflects Policy Value Advances and Cash Value Bonuses credited according to
the following schedule:
<TABLE>
<CAPTION>
POLICY VALUE ADVANCES CASH VALUE BONUSES
- --------------------------- -------------------------------------------------------------------------
CREDIT AS A BONUS AS A PERCENT OF
PERCENT OF 12 BONUS AS A PERCENT OF SURRENDER VALUE
TIMES SURRENDER VALUE AT THE END OF POLICY
END OF THE AVERAGE SURRENDER VALUE AT THE END OF POLICY YEARS 20
POLICY YEAR MINIMUM PREMIUM ON DATE OF BONUS YEARS 9-19 AND LATER TO AGE 95
- ----------- --------------- -------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
7 2% Less than $ 50,000 .00% .00%
8 6% $ 50,000 to $299,999 .10% .10%
9 to Age 95 10% $300,000 to $499,999 .55% .55%
$500,000 or more .55% .80%
</TABLE>
(4)Alternative Death Benefit applies: See "Policy Benefits--Death Benefit
Options" for further details.
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 INVESTMENT RATES OF RETURN
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF
FACTORS INCLUDING THE PREMIUM AND POLICY VALUE ALLOCATIONS MADE BY AN OWNER
AND THE DIFFERENT RATES OF RETURN OF THE PORTFOLIOS. THE DEATH BENEFIT,
POLICY VALUE AND SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL INVESTMENT RATES OF RETURN AVERAGES 0%, 4%, 8%, AND 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS OR IF ANY PREMIUMS WERE ALLOCATED OR POLICY VALUE
TRANSFERRED TO THE GENERAL ACCOUNT. NO REPRESENTATIONS CAN BE MADE BY FORTIS
BENEFITS OR FORTIS SERIES THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-4
<PAGE>
MALE ISSUE AGE 45
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $800,000--DEATH BENEFIT TYPE A
GUARANTEED CHARGE AND POLICY VALUE ADVANCE SCHEDULES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
PREMIUMS ----------------------------------------------------------------------------------------------------------------
ACCUMULATED
AT 5% 0% (1)(2)(3)(4) 4% (1)(2)(3)(4) 8% (1)(2)(3)(4) 12% (1)(2)(3)(4)
END OF INTEREST ------------------------- -------------------------- ----------------------------- -----------------------------
POLICY PER YEAR DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ ----------- ------- ------- --------- -------- ------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,750 800,000 10,195 2,902 800,000 10,690 3,398 800,000 11,187 3,895 800,000 11,684 4,392
2 32,288 800,000 20,019 11,333 800,000 21,426 12,744 800,000 22,875 14,196 800,000 24,366 15,691
3 49,652 800,000 29,466 19,866 800,000 32,198 22,598 800,000 35,089 25,489 800,000 38,144 28,544
4 67,884 800,000 38,526 28,926 800,000 42,991 33,391 800,000 47,847 38,247 800,000 53,118 43,518
5 87,029 800,000 47,187 37,587 800,000 53,791 44,191 800,000 61,171 51,571 800,000 69,402 59,802
6 107,130 800,000 55,426 47,198 800,000 64,569 56,341 800,000 75,072 66,844 800,000 87,111 78,883
7 128,237 800,000 63,374 56,517 800,000 75,452 68,594 800,000 89,718 82,861 800,000 106,532 99,675
8 150,398 800,000 71,170 65,685 800,000 86,580 81,095 800,000 105,301 99,816 800,000 127,995 122,509
9 173,668 800,000 78,843 74,728 800,000 98,010 93,896 800,000 121,964 117,849 800,000 151,837 147,723
10 198,102 800,000 85,938 83,195 800,000 109,287 106,545 800,000 139,307 136,564 800,000 177,835 175,092
15 339,862 800,000 111,798 111,798 800,000 162,311 162,311 800,000 237,637 237,637 800,000 353,114 353,114
20 520,789 800,000 115,237 115,237 800,000 203,501 203,501 800,000 363,626 363,626 800,000 653,279 653,279
25 751,702 800,000 80,123 80,123 800,000 218,025 218,025 800,000 533,696 533,696 1,356,918 1,169,757 1,169,757
40 1,902,596 0 0 0 0 0 0 1,767,265 1,683,110 1,683,110 6,065,506 5,776,673 5,776,673
</TABLE>
(1)Assumes annual premium of $15,000 paid in full at the beginning of each
Policy year. The values vary from those shown if the amount or frequency of
payments vary.
(2)Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
(3)Reflects Policy Value Advances and Cash Value Bonuses credited according to
the following schedule:
<TABLE>
<CAPTION>
POLICY VALUE ADVANCES CASH VALUE BONUSES
- --------------------------- -------------------------------------------------------------------------
CREDIT AS A BONUS AS A PERCENT OF
PERCENT OF 12 BONUS AS A PERCENT OF SURRENDER VALUE
TIMES SURRENDER VALUE AT THE END OF POLICY YEAR
END OF THE AVERAGE SURRENDER VALUE AT THE END OF POLICY 20
POLICY YEAR MINIMUM PREMIUM ON DATE OF BONUS YEARS 9-19 AND LATER TO AGE 95
- ----------- --------------- -------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
7 2% Less than $ 50,000 .00% .00%
8 6% $ 50,000 to $299,999 .10% .10%
9 to Age 95 10% $300,000 to $499,999 .55% .55%
$500,000 or more .55% .80%
</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 INVESTMENT RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS INCLUDING THE
PREMIUM AND POLICY VALUE ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF
RETURN OF THE PORTFOLIOS. THE DEATH BENEFIT, POLICY VALUE AND SURRENDER VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGES 0%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS OR IF ANY PREMIUMS
WERE ALLOCATED OR POLICY VALUE TRANSFERRED TO THE GENERAL ACCOUNT. NO
REPRESENTATIONS CAN BE MADE BY FORTIS BENEFITS OR FORTIS SERIES THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
B-5
<PAGE>
MALE ISSUE AGE 45
NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $800,000--DEATH BENEFIT TYPE B
GUARANTEED CHARGE AND POLICY VALUE ADVANCE SCHEDULES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
PREMIUMS ---------------------------------------------------------------------------------------------------------------
ACCUMULATED
AT 5% 0% (1)(2)(3)(4) 4% (1)(2)(3)(4) 8% (1)(2)(3)(4) 12% (1)(2)(3)(4)
END OF INTEREST -------------------------- -------------------------- --------------------------- -----------------------------
POLICY PER YEAR DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ ----------- -------- ------- --------- -------- ------- --------- --------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,750 810,153 10,153 2,859 810,646 10,646 3,353 811,140 11,140 3,848 811,635 11,635 4,344
2 32,288 819,893 19,893 11,208 821,291 21,291 12,609 822,731 22,731 14,052 824,213 24,213 15,537
3 49,652 829,214 29,214 19,614 831,921 31,921 22,321 834,785 34,785 25,185 837,811 37,811 28,211
4 67,884 838,100 38,100 28,500 842,510 42,510 32,910 847,305 47,305 37,705 852,509 52,509 42,909
5 87,029 846,534 46,534 36,934 853,033 53,033 43,433 860,294 60,294 50,694 868,391 68,391 58,791
6 107,130 854,487 54,487 46,259 863,449 63,449 55,221 873,742 73,742 65,514 885,537 85,537 77,309
7 128,237 862,082 62,082 55,225 873,870 73,870 67,012 887,788 87,788 80,931 904,185 104,185 97,328
8 150,398 869,449 69,449 63,963 884,417 84,417 78,931 902,590 102,590 97,104 924,608 124,608 119,123
9 173,668 876,601 76,601 72,487 895,119 95,119 91,005 918,243 118,243 114,128 947,062 147,062 142,947
10 198,102 883,075 83,075 80,333 905,496 105,496 102,754 934,295 134,295 131,552 971,225 171,225 168,482
15 339,862 903,934 103,934 103,934 950,389 150,389 150,389 1,019,509 219,509 219,509 1,123,855 323,855 323,855
20 520,789 898,234 98,234 98,234 973,358 173,358 173,358 1,106,423 306,423 306,423 1,351,861 551,861 551,861
25 751,702 850,243 50,243 50,243 952,007 152,007 152,007 1,179,966 379,966 379,966 1,683,951 883,951 883,951
40 1,902,596 0 0 0 0 0 0 0 0 0 3,558,442 2,758,442 2,758,442
</TABLE>
(1)Assumes annual premium of $15,000 paid in full at the beginning of each
Policy year. The values vary from those shown if the amount or frequency of
payments vary.
(2)Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
(3)Reflects Policy Value Advances and Cash Value Bonuses credited according to
the following schedule:
<TABLE>
<CAPTION>
POLICY VALUE ADVANCES
- --------------------------- CASH VALUE BONUSES
CREDIT AS A ---------------------------------------------------------------------------------
PERCENT OF 12 BONUS AS A PERCENT OF BONUS AS A PERCENT OF
TIMES SURRENDER VALUE SURRENDER VALUE
END OF THE AVERAGE SURRENDER VALUE AT THE END OF POLICY YEARS AT THE END OF POLICY YEAR 20
POLICY YEAR MINIMUM PREMIUM ON DATE OF BONUS 9-19 AND LATER TO AGE 95
- ----------- --------------- -------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C>
7 2% Less than $ 50,000 .00% .00%
8 6% $ 50,000 to $299,999 .10% .10%
9 to Age 95 10% $300,000 to $499,999 .55% .55%
$500,000 or more .55% .80%
</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 INVESTMENT RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND UPON A NUMBER OF FACTORS INCLUDING THE
PREMIUM AND POLICY VALUE ALLOCATIONS MADE BY AN OWNER AND THE DIFFERENT RATES OF
RETURN OF THE PORTFOLIOS. THE DEATH BENEFIT, POLICY VALUE AND SURRENDER VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL INVESTMENT RATES
OF RETURN AVERAGES 0%, 4%, 8%, AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED
ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS OR IF ANY PREMIUMS
WERE ALLOCATED OR POLICY VALUE TRANSFERRED TO THE GENERAL ACCOUNT. NO
REPRESENTATIONS CAN BE MADE BY FORTIS BENEFITS OR FORTIS SERIES THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
B-6
<PAGE>
APPENDIX C
THE GENERAL ACCOUNT
A POLICY OWNER MAY ALLOCATE PREMIUMS OR TRANSFER POLICY VALUE TO THE GENERAL
ACCOUNT, WHICH CONSISTS OF ALL FORTIS BENEFITS' ASSETS NOT HELD IN THE SEPARATE
ACCOUNT OR OTHER SEGREGATED ASSET ACCOUNTS. BECAUSE OF EXEMPTIVE AND
EXCLUSIONARY PROVISIONS, INTERESTS IN THE GENERAL ACCOUNT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND THE GENERAL ACCOUNT HAS NOT
BEEN REGISTERED AS AN INVESTMENT COMPANY UNDER THE 1940 ACT. ACCORDINGLY,
NEITHER THE GENERAL ACCOUNT NOR ANY INTERESTS THEREIN ARE GENERALLY SUBJECT TO
THE PROVISIONS OF THOSE ACTS AND FORTIS BENEFITS HAS BEEN ADVISED THAT THE STAFF
OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURES IN
THIS PROSPECTUS RELATING TO THE GENERAL ACCOUNT. 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.
This prospectus is generally intended to serve as a disclosure document only for
the aspects of the Policy involving the Separate Account and contains only
selected information regarding the General Account. More information regarding
the General Account may be obtained from Fortis Benefits' Home Office or from
your sales representatives.
GENERAL DESCRIPTION
Subject to applicable law, Fortis Benefits has sole discretion over the
investment of the assets of the General Account. Unlike the assets of the
Separate Account, the assets of the General Account are chargeable with
liabilities arising out of any other business of Fortis Benefits.
The allocation or transfer of amounts to the General Account does not entitle a
Policy owner to share in the investment experience of the General Account.
Instead, Fortis Benefits guarantees that Policy Value in the General Account
will accrue interest at an effective annual rate of at least 4%, independent of
the actual investment experience of the General Account. Fortis Benefits is not
obligated to credit interest at any higher rate, although Fortis Benefits, in
its sole discretion, may do so. The rates of interest actually credited to any
amount in the General Account from time to time may vary depending on when that
amount was first allocated to the General Account.
The Policy owner may select either Death Benefit Type A or B under the Policy
and may change such option or the Policy's Face Amount, subject to satisfactory
evidence of insurability where required and subject to all the conditions and
limitations applicable to such transactions generally. See "Policy Benefits."
GENERAL ACCOUNT POLICY VALUE
The Policy Value in the General Account will reflect the amount and frequency of
premium payments allocated to the General Account, the amount of interest and
any Policy Value Advances and Cash Value Bonuses credited to amounts in the
General Account, any partial withdrawals, any transfers from or to the Separate
Account, any Policy loans and the Monthly Deduction imposed on amounts in the
General Account in connection with the Policy. Charges under a Policy are the
same as when the Separate Account is being used, except that no daily charges
for mortality and expense risk or premium tax and sales expenses, or daily
deductions to recover any Policy Value Advances, are imposed on amounts of
Policy Value in the General Account. See "Charges and Deductions."
TRANSFERS, SURRENDERS AND POLICY LOANS
Amounts in the General Account are generally subject to the same rights and
limitations and will be subject to the same charges as are amounts allocated to
the Subaccounts of the Separate Account with respect to transfers, total
surrenders, partial withdrawals, and Policy loans. See "Payment and Allocation
of Premiums--Allocation of Premiums and Policy Value," "Loan Privileges," and
"Surrender and Partial Withdrawal." One exception is that transfers out of the
General Account are limited to one transfer in each Policy year, which may not
be for more than 50% of the Policy Value in the General Account (excluding the
amount of General Account Policy Value attributable to Policy loans) at the date
of transfer. However, if the unloaned General Account Policy Value at the date
of transfer is less than $1,000, the entire unloaned balance may be transferred
from the General Account to the Separate Account. See "Payment and Allocation of
Premiums--Allocation of Premiums and Policy Value." Fortis Benefits reserves the
right to review these limits on an annual basis and, subject to the limits in
the Policy, to reduce them.
C-1
<PAGE>
VARIABLE UNIVERSAL LIFE SERVICE REQUEST
* The Policy owner(s) may use this form to request services for a NEW or
EXISTING policy.
* CONTRACT INFORMATION and SIGNATURES must be completed to allow us to
complete the service request.
1. TELEPHONE TRANSFER AUTHORIZATION
/ / Check this box to authorize telephone transfer by owner(s) or
registered representative.
/ / Check this box to authorize telephone transfer by owner(s) only.
The owner(s) and/or registered representative may transfer by telephone
amount investment choices. I have read the telephone transfer authorization
terms in the prospectus and elect telephone transfers.
2. TRANSFER REQUEST
Move all or part of your existing asset balances from one subaccount to
another.
* Specify dollar amounts OR whole percentages
* Transfers from the General Account to the Separate Account ONLY are
subject to the following:
1. Maximum transfer is 50% of your unloaned General Account value once
per policy year.
2. If unloaned General Account value is less than $1,000, you may
transfer the entire unloaned balance.
TRANSFER FROM TRANSFER TO
BOND INVESTMENTS
$_________________ General Account $_____________%
$_________________ Money Market $_____________%
$_________________ U.S. Government $_____________%
$_________________ Diversified Income $_____________%
$_________________ Global Bond $_____________%
$_________________ High Yield $_____________%
STOCK INVESTMENTS
$_________________ Asset Allocation $_____________%
$_________________ Global Asset Allocation $_____________%
$_________________ Value $_____________%
$_________________ Growth & Income $_____________%
$_________________ S&P 500 Index $_____________%
$_________________ Blue Chip Stock $_____________%
$_________________ Global Growth $_____________%
$_________________ Growth Stock $_____________%
$_________________ International Stock $_____________%
$_________________ Aggressive Growth $_____________%
CONTRACT INFORMATION:
Policy Number _______________________________________________
/ / New Policy / / Existing
_____________________________________________________________
Name of Policy Owner
_____________________________________________________________
Name of Joint Owner (if applicable)
_____________________________________________________________
Social Security Number of Owner
_____________________________________________________________
Address
_____________________________________________________________
City State Zip Code
Telephone Number (_______) __________________________________
/ / Citizen of U.S. / / Resident Alien of U.S.
/ / Other __________________________________________________
3. SYSTEMATIC TRANSFER (DOLLAR COST AVERAGING):
Automatically move assets among investment choices.
* Specify dollar amounts only
* $5,000 minimum beginning balance, minimum transfer: $50
* General Account: Monthly amount must be less than or equal to 1/36 of the
principal.
* Frequency: Monthly
TRANSFER $___________________ on the 1st day of each month from the
____________________________ account to the following accounts:
BOND INVESTMENTS
$_________________ General Account
$_________________ Money Market
$_________________ U.S. Government
$_________________ Diversified Income
$_________________ Global Bond
$_________________ High Yield
STOCK INVESTMENTS
$_________________ Asset Allocation
$_________________ Global Asset Allocation
$_________________ Value
$_________________ Growth & Income
$_________________ S&P 500 Index
$_________________ Blue Chip Stock
$_________________ Global Growth
$_________________ Growth Stock
$_________________ International Stock
$_________________ Aggressive Growth
<PAGE>
VARIABLE UNIVERSAL LIFE SERVICE REQUEST, CONTINUED
INSTRUCTIONS FOR SECTIONS 4, 5 & 6:
A. Use whole percentages
B. Must equal 100%
4. CHANGE OF PREMIUM ALLOCATION:
Indicate which subaccount(s) incoming premium dollars should be allocated
to future payments.
* Specify future premium allocations.
BOND INVESTMENTS
____% General Account
____% Money Market
____% U.S. Government
____% Diversified Income
____% Global Bond
____% High Yield
STOCK INVESTMENTS
____% Asset Allocation
____% Global Asset Allocation
____% Value
____% Growth & Income
____% S&P 500 Index
____% Blue Chip Stock
____% Global Growth
____% Growth Stock
____% International Stock
____% Aggressive Growth
100 % TOTAL
5. PRIVILEGED ACCOUNT SERVICE:
Automatically rebalances the assets within your policy.
Note: This does not change future Premium Allocations.
* $2,000 minimum policy value.
FREQUENCY
/ / Quarterly (3/31, 6/30, 9/30, 12/31)
/ / Semi-Annual (6/30, 12/31)
/ / Annual (12/31)
BOND INVESTMENTS
____% General Account
____% Money Market
____% U.S. Government
____% Diversified Income
____% Global Bond
____% High Yield
STOCK INVESTMENTS
____% Asset Allocation
____% Global Asset Allocation
____% Value
____% Growth & Income
____% S&P 500 Index
____% Blue Chip Stock
____% Global Growth
____% Growth Stock
____% International Stock
____% Aggressive Growth
100 % TOTAL
6. SPECIFY MONTHLY DEDUCTIONS
Indicate which subaccount you want the monthly deductions from.
* Loans and withdrawals will also follow this unless otherwise stated.
* If the subaccount chosen does not have sufficient amount to cover
monthly charges, pro rata allocation will be automatically used.
BOND INVESTMENTS
____% General Account
____% Money Market
____% U.S. Government
____% Diversified Income
____% Global Bond
____% High Yield
STOCK INVESTMENTS
____% Asset Allocation
____% Global Asset Allocation
____% Value
____% Growth & Income
____% S&P 500 Index
____% Blue Chip Stock
____% Global Growth
____% Growth Stock
____% International Stock
____% Aggressive Growth
100 % TOTAL
_____________________________________________________________________________
SIGNATURES:
___________________________________________ _________
Policy Owner's Signature Date
___________________________________________ _________
Joint Owner's Signature Date
(______) ____________________________________________
Daytime Telephone Number
REPRESENTATIVE INFORMATION (IF KNOWN):
___________________________________________ _________
Registered Representative's Signature Date
_____________________________________________________
Registered Representative's Name (please print)
_____________________________________________________
Representative's Contract Number
(______) ____________________________________________
Registered Representative's Telephone Number
FORTIS-Registered Trademark-
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE UNIVERSAL LIFE
P.O. BOX 64582
ST. PAUL, MN 55164
(800) 800-2638 98009 (4/96)
<PAGE>
VARIABLE UNIVERSAL LIFE
LIFE INSURANCE
SECTION 1035 EXCHANGE
- --------------------------------------------------------------------------------
Internal Revenue Code Section 1035 permits a nontaxable transfer of Life
Insurance policies between Insurance Companies. When circumstances warrant
replacing one policy with another, a 1035 EXCHANGE allows policyholders to
retain the cost basis in the initial policy and to defer taxation on any gain
in the policy.
You may use a 1035 Exchange to make a nontaxable transfer from a life
insurance policy to a life insurance policy, provided that the insured on the
new policy is the same as the insured on the original policy.
If the original policy is a MEC, the owner of the new policy must be the same
or the exchange will be taxable. In all cases, if the owner of the new policy
is different than the owner of the old policy, the change of ownership must
be due to a gift, not a sale to the new owner, or the exchange will be
taxable.
You may not use a 1035 exchange to make a nontaxable transfer from an
endowment policy or an annuity contract to a life insurance policy.
A 1035 exchange of a policy with an outstanding loan may produce unfavorable
tax consequences. The original carrier must generally report the amount of
the outstanding loan as taxable income to the extent of gain on the original
contract.
The effect of the Technical and Miscellaneous Revenue Act of 1988 (TAMRA) on
1035 exchanges is not entirely clear. However if a new policy is issued in
exchange for a MEC policy, the new policy will also be a MEC. Reduction
in face amount from the old policy to the new policy is generally not
recommended.
- -------------------------------------------------------------------------------
INSTRUCTIONS FOR REQUESTING A SECTION 1035 EXCHANGE
- -------------------------------------------------------------------------------
/ / 1) A completed LIFE APPLICATION
/ / 2) Indicate on the app that this is A "1035 EXCHANGE."
/ / 3) Complete any necessary REPLACEMENT FORMS.
/ / 4) Complete a T.O.M. (if on monthly mode) Automatic Bank Draft
Authorization Form (95765) and collect a voided check from your
client.
/ / 5) Include any necessary life insurance ledger illustrations.
/ / 6) Have your client complete the attached 1035 EXCHANGE LETTER OF
INTENT/ABSOLUTE ASSIGNMENT.
/ / 7) Collect the OLD POLICY from the insured.
/ / 8) Collect a COMPLETED SURRENDER FORM OF THE OTHER INSURER.
SEND THE ABOVE ITEMS TO THE HOME OFFICE.
The processing of the exchange will be coordinated by the VUL New
Business/1035 Unit. When the surrender value is received in the Home Office,
we will allocate all monies to the new policy.
You and your client will be notified when we receive payment. A confirmation
notice will be sent to the client.
- --------------------------------------------------------------------------------
The Company agrees to and accepts the terms of this exchange agreement
and the accompanying directions to issuer of original contract/policy.
ALLOW 2 TO 3 MONTHS FOR PROCESSING OF THE EXCHANGE.
- --------------------------------------------------------------------------------
[LETTERHEAD]
- --------------------------------------------------------------------------------
95757 (2/97)
[LOGO]-Registered Trademark- and Fortis-Registered Trademark- are registered
servicemarks of Fortis AMEV and Fortis AG.
<PAGE>
1035 EXCHANGE -- LETTER OF INTENT/ABSOLUTE ASSIGNMENT
Fortis Policy #
-----------------------------------
Insured
------------------------------------------
Policy Owner
-------------------------------------
Social Security #
--------------------------------
(TAXPAYER I.D.)
PREVIOUS COMPANY INFORMATION
Old Contract #
------------------------------------
Company Name
-------------------------------------
Company Address
----------------------------------
City, State, Zip
---------------------------------
Telephone #
--------------------------------------
Estimated Contract Value
-------------------------
In accordance with Internal Revenue Code #1035, I wish to transfer
the funds standing to my credit on the listed policy directly to Fortis
Benefits Insurance Company. It is my wish to avoid constructive or actual
receipt of my funds. I understand that should verification of this exchange
be required by the IRS, it will be my responsibility to provide such
documentation. Therefore, I absolutely assign my policy to Fortis Benefits
Insurance Company. I understand that completion of this form is to effect
an assignment of my policy and does not guarantee a 1035 exchange. I further
request that this policy be exchanged in a timely manner and that no cash
value is to be depleted as a non-forfeiture option for additional premium
payments.
[Bar Code] 1035/95757
ABSOLUTE ASSIGNMENT/CASH SURRENDER
I, (owner) , absolutely assign and transfer all incidents of ownership
-------------------
and beneficial interest in policy number from to Fortis
--------- ---------------
Benefits Insurance Company, St. Paul, Minnesota, its successors or assigns to
effect a Section 1035 Exchange.
Executed this day of .
-------------- -------------------------
I ask that you send the surrender check, payable to Fortis Benefits Insurance
Company, to:
VUL NEW BUSINESS DEPARTMENT; FORTIS BENEFITS INSURANCE COMPANY; P.O. BOX
64582, ST. PAUL MN 55164-0582. Total of all premiums paid, less any dividends
and any other supplemental insurance coverage charges: $
------------
Please answer the following questions:
1. Is the policy a modified endowment contract within the meaning of
section 7702A of the Internal Revenue Code (TAMRA)? / / Yes / / No
2. What is the face amount of the policy? $
----------
3. Is there an outstanding loan on this policy? / / Yes / / No
If yes, indicate amount $
------------
4. Was there a loan on this policy during the last 2 years (24 months)?
/ / Yes / / No
If yes, indicate amount. $
-------------
5. Was there a withdrawal from this policy within the last 2 years
(24 months)? / / Yes / / No
If yes, indicate amount. $
-------------
6. I certify the policy which I plan to replace is lost. / / Yes / / No
NOTE: YOU MAY PROVIDE ALL THIS INFORMATION ON A COPY OF THIS LETTER OR ON THE
CHECK STUB.
- ----------------------------------- -----------------------------------------
Name of Policy Owner (please print) Agent's Name and Number (please print)
- ----------------------------------- -----------------------------------------
Signature of Policy Owner Date Signature of Agent Date
- ----------------------------------- -----------------------------------------
Policy Owner address Officer of Fortis Benefits Date
Signature
- ------------------------------------------
Signature if other than policy owner
(spouse, collateral assignee, etc.)
95757 (2/97)
<PAGE>
FORTIS-REGISTERED TRADEMARK-
FORTIS FINANCIAL GROUP
P.O. BOX 64284
ST. PAUL, MN 55164
BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 3794
MINNEAPOLIS, MN
PROSPECTUS
MAY 1, 1997
FORTIS
SERIES FUND, INC.
FORTIS
VUL500
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
Facing Sheet.
Cross-Reference Table. (Filed as a part of the initial filing of this
Form S-6 Registration Statement filed on June 5, 1992.)
Prospectus, consisting of pages.
Undertaking to File Reports. (Filed as a part of the initial filing of
this Form S-6 Registration Statement filed on June 5, 1992.)
Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933.
(Filed as a part of the initial filing of this Form S-6 Registration
Statement filed on June 5, 1992.)
Reasonableness Representation. Fortis Benefits Insurance Company
represents that the fees and charges deducted under the Policies
described in this Registration Statement, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected
to be incurred, and the risks assumed by Fortis Benefits under the
Policies. Fortis Benefits bases its representation on its assessment
of all of the facts and circumstances, including such relevant factors
as: the nature and extent of such services, expenses and risks; the
need for Fortis Benefits to make a profit; the degree to which the
Policies include innovative features; and the regulatory standards for
exemptive relief under the Investment Company Act of 1940 used prior
to October 1996, including the range of industry practice.
Signatures.
Written Consents of the following persons:
Renee C. West, FSA, MAAA (Filed with Exhibit 6 below).
David A. Peterson, Esq. (Filed with Exhibit 3 below).
Ernst & Young LLP, Independent Auditors
The following exhibits:
1A. (1) --Resolution of Board of Directors of Fortis Benefits (under
its prior name, Western Life Insurance Company) effecting the
establishment of Variable Account C (Incorporated by reference
from Exhibit 1.A(1) to registrant's Form S-6 Registration
Statement, File No. 33-28551, filed on May 5, 1989).
(2) --Not applicable
(3) --(a) Distribution Agreement between Fortis Benefits and Fortis
Investors, Inc. (Incorporated by reference from Exhibit No. 3(a)
to Post-Effective Amendment No. 9 to registrant's Form S-6
registration statement, File No. 33-28551, filed April 29, 1994.)
--(b) Form of Dealer Sales Agreement. (Incorporated by reference
from Post-Effective Amendment No. 12 to registrant's Form N-4
registration statement, File No. 33-19421, filed December 22,
1994.)
--(c) Schedule of sales commissions (Incorporated by reference
from "Distribution of the Policies" in the attached prospectus).
<PAGE>
(4) --Not applicable
(5) --(a) Specimen Flexible Premium Variable Life Insurance Policy
(Filed as part of Post-Effective Amendment No. 8 to this Form S-6
registration statement filed on April 29, 1996).
--(b) Form of Child Insurance Rider (Incorporated by reference
from Exhibit 1.A(5) to Pre-Effective Amendment No. 1 to
registrant's Form S-6 Registration Statement, File No. 33-03919,
filed on November 5, 1986).
--(c) Forms of Waiver of Monthly Deductions Rider, Additional
Insured Rider and Primary Insured Rider (Incorporated by
reference from Exhibit 1.A(5)(c) to Pre-Effective Amendment No. 1
to registrant's Form S-6 Registration Statement, File No.
33-28551, filed on August 18, 1989).
--(d) Forms of Waiver of Selected Amount Rider, Exchange of
Policy Rider, Extend Maturity Date Rider and Accelerated Death
Benefit Rider. (Incorporated by reference from Exhibit 5(d) to
Post-Effective Amendment No. 33-28551, filed April 29, 1994.)
--(e) Forms of Additional Insured Rider Plus and Primary
Insured Rider Plus. (Filed as part of Post-Effective Amendment
No. 7 to this Form S-6 registration statement filed on April 28,
1995.)
(6) --(a) Articles of Incorporation of Fortis Benefits (Incorporated
by reference from Exhibit 1.A(6)(a) to the initial filing of
registrant's Form S-6 Registration Statement, File No. 33-03919,
filed on March 17, 1986).
--(b) Bylaws of Fortis Benefits (Incorporated by reference from
Exhibit 1.A(6)(b) to the initial filing of registrant's Form
S-6 Registration Statement, File No. 33-03919, filed on March 17,
1986).
--(c) Amendment to Articles of Incorporation and Bylaws dated
November 21, 1991 (Incorporated by reference from Exhibit
1.A(6)(c) to registrant's Post-Effective Amendment No. 4 to
Form S-6 Registration Statement, File No. 33-28551, filed on
March 2, 1992).
(7) --Not applicable.
(8) --Not applicable.
(9) --Not applicable.
(10) --(a) Application Form for Flexible Premium Variable Life
Insurance Policy and Form of Temporary Insurance Agreement.
(Incorporated by reference from Exhibit No. 10(a) to
Post-Effective Amendment No. 9 to registrant's Form S-6
registration statement, File No. 33-28551, filed April 29, 1994.)
--(b) Policy Change Application, Transfer Request Form, and
Change of Premium Allocation Form (Incorporated by reference
from Exhibit 1.A(10)(b) to registrant's Post-Effective Amendment
No. 4 to Form S-6 Registration Statement, File 33-28851, filed on
March 2, 1992).
2. --See Exhibit 1.A(5) above.
<PAGE>
3. --Opinion and consent of counsel as to the legality of Securities
being registered. (Filed as a part of the initial filing of this
Form S-6 Registration Statement filed on June 5, 1992.)
4. --Not applicable.
5. --Not applicable.
6. --(a) Opinion and consent of actuary. (Filed as a part of the
initial filing of this Form S-6 Registration Statement filed on
June 5, 1992.)
--(b) Supplemental Opinion and Consent of Actuary.
7. --Forms of Notice of Cancellation Right and Request for
Cancellation pursuant to Rule 6e-3(T)(b)(13)(viii) under the
Investment Company Act of 1940. (Filed as a part of the initial
filing of this Form S-6 Registration Statement filed on June 5,
1992.)
8. --Method of computing exchange pursuant to Rule 6e-3(T)(b)(13)
(v)(B) under the Investment Company Act of 1940 (Not required
because there will be no cash value adjustments in connection
with the right to transfer Policy Value to the General Account,
which registrant intends to satisfy the requirements of said
provision).
9. --Not Applicable
10. --(a) Memorandum of Certain Procedures with Respect to Pricing
and Processing of Transactions Pursuant to Rule 6e-3(T)(b)(12)
(iii) (Incorporated by reference from Exhibit 10 to
Post-Effective Amendment No. 6 to registrant's Form S-6
Registration Statement, File No. 33-03919, filed on April 28,
1989).
--(b) Supplemental Memorandum in connection with Exhibit 10(a)
(Incorporated by reference from Exhibit 10(b) to Post-Effective
Amendment No. 1 to registrant's Form S-6 Registration, File No.
33-28551, on April 30, 1990).
--(c) Second Supplemental Memorandum in connection with
Exhibit 10(a). (Filed as part of Post-Effective Amendment No. 2
to this Form S-6 Registration Statement filed April 29, 1993).
--(d) Third Supplemental Memorandum in connection with Exhibit
10(a). (Filed as part of Post-Effective Amendment No. 3 to this
Form S-6 Registration Statement filed February 28, 1994.)
11. --Power of Attorney for Messrs, Freedman, Gaddy, Mackin, Keller,
Clayton, Mahoney, Clancy, Meler and Greiter (Incorporated by
reference from Exhibit 11 to registrant's Form S-6 Registration
Statement, File No. 33-73138, filed on December 17, 1993).
12. --Not Applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, FORTIS BENEFITS
INSURANCE COMPANY has duly caused this amended Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized, and its
seal to be hereunto affixed and attested all in the City of St. Paul,
Minnesota, this 25th day of April, 1997. Fortis Benefits Insurance Company
hereby makes the representation required by Rule 485(b)(4) under the
Securities Act of 1933, and further represents that the amended registration
statement contains no information that would render Rule 485(b) unavailable.
FORTIS BENEFITS INSURANCE COMPANY
By: /s/ Robert Brian Pollock
-------------------------------------
Robert Brian Pollock, President
Attest: /s/ Douglas R. Lowe
--------------------------------
Douglas R. Lowe
Associate General Counsel --
Life and Investment Products
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following persons in the
capacities indicated on April 25, 1997.
/s/ Robert Brian Pollock
- --------------------------------------------------
Robert Brian Pollock, President and Director
(Chief Executive Officer)
/s/ Michael John Peninger
- --------------------------------------------------
Michael John Peninger, Senior Vice President,
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Dean Conrad Kopperud
- --------------------------------------------------
Dean Conrad Kopperud, Director
*
- --------------------------------------------------
Allen Royal Freedman, Chairman of the Board
*
- --------------------------------------------------
Thomas Michael Keller, Director
* By: /s/ Robert Brian Pollock
---------------------------------------------
Robert Brian Pollock, Attorney-in-Fact
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the registrant,
VARIABLE ACCOUNT C of Fortis Benefits Insurance Company, has duly caused this
amended Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal to be hereunto affixed and attested,
all in the City of St. Paul, State of Minnesota this 25th day of April, 1997.
VARIABLE ACCOUNT C
OF FORTIS BENEFITS INSURANCE COMPANY
By: FORTIS BENEFITS INSURANCE COMPANY
(Depositor)
By: /s/ Robert Brian Pollock
-------------------------------------
Robert Brian Pollock, President
Attest: /s/ Douglas R. Lowe
---------------------------------------
Douglas R. Lowe,
Associate General Counsel --
Life and Investment Products
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 12, 1997 on the financial statements of
Fortis Benefits Insurance Company and our report dated April 18, 1997 on the
financial statements of Fortis Benefits Insurance Company Variable Account C
(Account C) in Post-Effective Amendment No. 9 to the Registration Statement
(Form S-6 No. 33-48266) and the related Prospectus of Fortis Benefits
Insurance Company being filed under the Securities Act of 1933 and the
Investment Company Act of 1940 for the registration of an indefinite amount
of interests in Account C pursuant to variable life insurance policies.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 25, 1997
<PAGE>
INDEX TO EXHIBITS
6(b) Supplemental Opinion and Consent of Actuary
<PAGE>
[LOGO]
April 1, 1997
Fortis Benefits Insurance Company
P. O. Box 64271
St. Paul, Minnesota 55164
Gentlemen:
This opinion is furnished in connection with the offering by Fortis Benefits
Insurance Company of a Flexible Premium Variable Life Insurance Policy
("Policy"), under the Securities Act of 1933. The prospectus included in our
registration statement on Form S-6 describes the Policy. I have reviewed the
Policy Form and I am familiar with the amended registration statement, and the
exhibits thereto, as proposed to be filed.
1. The hypothetical illustrations of the Policy values, cash surrender
values, and death benefits included in Appendix B to the prospectus
are based on assumptions stated in the illustrations and are
consistent with the provisions of the Policy.
2. The Policy has not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations, appear
disproportionately more favorable to a prospective purchaser of a
Policy for a standard risk non-smoker male age 45, than to a
prospective purchaser of Policies for males of other ages or
underwriting classes, or for females. Nor have the particular
examples set forth in the illustrations been selected for the
purpose of making this relationship appear more favorable.
I hereby consent to the use of this opinion as an exhibit to the amended
registration statement and to the use of my name under the heading of
"Experts" in the prospectus.
Sincerely,
/s/ RENEE WEST
Renee C. West, FSA, MAAA
Actuarial Officer
Fortis Benefits Insurance Company
