<PAGE>
As filed with the Securities and Exchange Commission on April 30, 1997
Registration No. 33-73138
- -------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
--------------------------------
POST-EFFECTIVE AMENDMENT NO. 5
to FORM S-6
Registration Statement
Under
THE SECURITIES ACT OF 1933
--------------------------------
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)
--------------------------------
RHONDA J. SCHWARTZ, ESQ.
P. O. Box 64284
St. Paul, Minnesota 55164
(Name and complete address of agent for service)
--------------------------------
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.
__X__ On May 1, 1997 pursuant to paragraph (b) of Rule 485.
_____ 60 days after filing pursuant to paragraph (a) of Rule 485.
_____ On ___________ pursuant to paragraph (a) of Rule 485.
--------------------------------
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.
--------------------------------
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.
--------------------------------
<PAGE>
[FORTIS-R- LOGO]
- --------------------------------------------------------------------------------
Prospectus Supplement
May 1, 1997
for
VUL 100
and
Harmony
- --------------------------------
[WALL ST-R- SERIES LOGO]
[HARMONY INVESTMENT LIFE LOGO]
MAILING ADDRESS: STREET ADDRESS:
P.O. BOX 64284 500 BIELENBERG DRIVE
ST. PAUL, MINNESOTA 55164 WOODBURY, MINNESOTA 55125
98374N
<PAGE>
PROSPECTUS SUPPLEMENT DATED MAY 1, 1997
This Supplement updates certain information contained in the following
prospectuses for products issued by Fortis Benefits Insurance Company:
- Harmony Investment Life dated May 1, 1995 as previously supplemented
- Fortis VUL 100 dated May 31, 1995 as previously supplemented
Please read this Supplement carefully. You should attach this Supplement to the
Prospectus and retain them for future reference.
FORTIS SERIES FUND, INC. ANNUAL EXPENSES
Each Portfolio has a different investment objective and is managed by Fortis
Advisors, Inc. For providing investment management services to the Portfolios,
Fortis Advisors, 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:
<TABLE>
<CAPTION>
U.S. GLOBAL
MONEY GOVERNMENT DIVERSIFIED GLOBAL HIGH ASSET ASSET
MARKET SECURITIES INCOME BOND YIELD ALLOCATION ALLOCATION VALUE
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------ ---------- ----------- ------ ------ ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory and
Management Fee............... .30% .46% .47% .75% .50% .48% .90% .70%
Other Expenses................ .08% .07% .08% .27% .13% .06% .30% .17%
------ --- --- ------ ------ --- ----- ------
Total Fortis Series Operating
Expenses..................... .38% .53% .55% 1.02% .63% .54% 1.20% .87%
------ --- --- ------ ------ --- ----- ------
</TABLE>
<TABLE>
<CAPTION>
GROWTH & S&P 500 BLUE CHIP GLOBAL GROWTH INTERNATIONAL AGGRESSIVE
INCOME INDEX STOCK GROWTH STOCK STOCK GROWTH
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
-------- ------- --------- ------ ------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory and
Management Fee............... .68% .40% .90% .70% .62% .85% .70%
Other Expenses................ .08% .39% .23% .09% .05% .30% .08%
--- ------- --------- ------ ------ ----- -----
Total Fortis Series Operating
Expenses..................... .76% .79% 1.13% .79% .67% 1.15% .78%
--- ------- --------- ------ ------ ----- -----
</TABLE>
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>
<CAPTION>
OFFICER-DIRECTORS
<S> <C>
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;
before then Senior Vice President, Integrated Resources, Inc.
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.
</TABLE>
S-1
<PAGE>
<TABLE>
<S> <C>
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--Custom Solutions Group.
</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 N.V. AMEV. AMEV/VSB 1990 N.V. is 50% owned by Fortis AMEV
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.
FINANCIAL STATEMENTS
The financial statement of Fortis Benefits included in the Supplement should be
considered only as bearing upon the ability of Fortis Benefits to meet its
obligations under the Policies. They should not be considered as bearing upon
the investment experience of the Separate Account.
APPENDIX B--Illustrations of Death Benefits, Policy Values, Surrender Values,
and Accumulated Premiums
As a result of slight increases in the assumed investment advisory fees from an
annual rate of .62% to .63%, and in the assumed other expenses from an annual
rate of .07% to .08%, Policy Values, Death Benefits, and Surrender Values would
be slightly lower than those shown in Appendix B of the Prospectus.
S-2
<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
S-3
<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.
S-4
<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.
S-5
<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.
S-6
<PAGE>
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
UNREALIZED GAINS ON
GAINS ASSETS HELD
ADDITIONAL (LOSSES) ON IN SEPARATE
COMMON PAID-IN RETAINED INVESTMENTS, ACCOUNTS,
STOCK CAPITAL EARNINGS NET 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.
S-7
<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.
S-8
<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.
S-9
<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,
S-10
<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
COST GAIN LOSS FAIR 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
COST FAIR 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>
S-11
<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>
S-12
<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 AND
LIFE PRODUCTS 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>
S-13
<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.
S-14
<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.
S-15
<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.
S-16
<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:
S-17
<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.
S-18
<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
S-19
<PAGE>
STATEMENT OF NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NET ASSET
VALUE FOR
VARIABLE
LIFE
ATTRIBUTABLE TO INSURANCE
NET ASSETS FORTIS BENEFITS ATTRIBUTABLE TO ACCUMULATION POLICIES PER
AT MARKET INSURANCE VARIABLE LIFE UNITS ACCUMULATION
SHARES COST VALUE COMPANY INSURANCE POLICIES OUTSTANDING UNIT
--------- ------------ ------------ --------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in Fortis
Series Fund, Inc.
(Note 4):
Growth Stock........ 4,694,746 $107,983,324 $153,019,136 $ -- $153,019,136 6,672,384 $22.93
U.S. Government
Securities
Series............. 766,717 8,121,439 8,103,819 -- 8,103,819 527,544 15.36
Money Market
Series............. 661,850 7,378,891 7,243,083 -- 7,243,083 552,652 13.11
Asset Allocation
Series............. 1,824,030 26,691,234 30,995,929 -- 30,995,929 1,584,248 19.57
Diversified Income
Series............. 464,543 5,421,995 5,434,276 -- 5,434,276 336,664 16.14
Global Growth
Series............. 3,259,883 47,600,484 61,923,758 -- 61,923,758 3,319,885 18.65
Aggressive Growth
Series............. 1,650,622 21,303,899 22,481,138 -- 22,481,138 1,690,254 13.30
Growth & Income
Series............. 786,719 10,274,078 11,928,867 -- 11,928,867 767,092 15.55
High Yield Series... 278,353 2,817,496 2,735,009 -- 2,735,009 227,925 12.00
Global Asset
Allocation
Series............. 288,919 3,349,959 3,566,385 -- 3,566,385 275,588 12.94
Global Bond
Series............. 147,956 1,660,623 1,641,086 -- 1,641,086 136,606 12.01
International Stock
Series............. 696,108 7,993,307 8,660,838 -- 8,660,838 683,171 12.68
Value Series........ 106,485 1,120,104 1,211,875 330,066 881,809 79,662 11.07
S & P 500 Series.... 302,902 3,166,360 3,473,163 1,662,715 1,810,448 159,588 11.34
Blue Chip Stock
Series............. 244,162 2,522,147 2,849,421 1,692,240 1,157,181 100,187 11.55
------------ ------------ --------------- ------------------ ------------
Total............... $257,405,340 $325,267,783 $3,685,021 $321,582,762 17,113,450
------------ ------------ --------------- ------------------ ------------
------------ ------------ --------------- ------------------ ------------
</TABLE>
See accompanying notes.
S-20
<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>
S-21
<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 COMBINED
HIGH YIELD ALLOCATION BOND INTERNATIONAL VALUE 500 STOCK COMPANY VARIABLE
SERIES SERIES SERIES STOCK SERIES SERIES* SERIES* SERIES* STOCK FUND ACCOUNT
---------- ------------ ---------- ------------- ---------- ---------- ---------- ----------- ------------
<S> <C> <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 $ -- $ 4,534,567
Mortality and
expense and
policy
advance
charges (Note
4)........... (23,877) (27,914) (16,020) (61,578) (2,299) (4,259) (3,294) -- (3,079,963)
Net realized
gain on
investments... 21,357 367,644 1,414 368,588 365 5,170 5,823 -- 6,031,982
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 26,094,705
---------- ------------ ---------- ------------- ---------- ---------- ---------- ----------- ------------
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 33,581,291
Capital
transactions:
Purchase of
Variable
Account
units........ 1,521,655 1,974,410 1,203,711 5,472,129 868,724 1,805,644 1,156,736 -- 101,264,323
Redemption of
Variable
Account
units........ (513,751) (178,317) (495,016) (271,603) (43,808) (104,433) (94,289) -- (25,388,044)
Mortality and
expense
charge
redeemed..... 23,877 27,914 16,020 61,578 2,299 4,259 3,294 -- 3,079,963
Funding of
subaccount by
Fortis
Benefits
Insurance
Company...... -- -- -- -- 290,000 1,450,000 1,450,000 -- 3,190,000
Redemption of
Fortis
Benefits
Insurance
Company
investment in
subaccount... (1,306,472) (5,888,424) (5,496,965) (5,860,743) -- -- -- (1,248,440) (24,630,039)
Dividend
income
distribution
to Fortis
Benefits
Insurance
Company...... -- -- -- -- (1,856) (9,570) (5,945) -- (17,371)
---------- ------------ ---------- ------------- ---------- ---------- ---------- ----------- ------------
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) 57,498,832
Net assets at
beginning of
period......... 2,783,523 7,167,294 6,508,904 8,308,832 -- -- -- 1,159,487 234,187,660
---------- ------------ ---------- ------------- ---------- ---------- ---------- ----------- ------------
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 $ -- $325,267,783
---------- ------------ ---------- ------------- ---------- ---------- ---------- ----------- ------------
---------- ------------ ---------- ------------- ---------- ---------- ---------- ----------- ------------
</TABLE>
- --------------------------
* For the period from May 1, 1996 to December 31, 1996.
See accompanying notes.
S-22
<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 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>
S-23
<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 SELECT
GROWTH & FORTIS ASSET FORTIS INTERNATIONAL SMALL COMBINED
INCOME HIGH YIELD ALLOCATION GLOBAL 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.
S-24
<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 GOVERNMENT FORTIS FORTIS ASSET FORTIS
GROWTH STOCK SECURITIES MONEY MARKET ALLOCATION DIVERSIFIED
SERIES SERIES SERIES SERIES INCOME 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 $16,483,814 $3,189,335
------------ ----------- ------------ ------------ -------------
------------ ----------- ------------ ------------ -------------
</TABLE>
S-25
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
FORTIS FORTIS GROWTH FORTIS HIGH COMBINED
FORTIS GLOBAL AGGRESSIVE & INCOME YIELD VARIABLE
GROWTH SERIES GROWTH 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.
S-26
<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.
S-27
<PAGE>
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.
S-28
<PAGE>
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:
Year ended December 31, 1996:
<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>
S-30
<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
S-31
<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.
S-32
<PAGE>
FORTIS BENEFITS INSURANCE COMPANY
MAILING ADDRESS: STREET ADDRESS: TELEPHONE:
P.O. BOX 64284 500 BIELENBERG DRIVE 1-(800) 800-2638
ST. PAUL WOODBURY EXTENSION 3028
MINNESOTA 55164 MINNESOTA 55125
This Prospectus describes interests under flexible premium variable life
insurance Policies issued either on a group basis or as individual contracts by
Fortis Benefits Insurance Company ("Fortis Benefits"). Participation in a group
contract will be accounted for by the issuance of a certificate showing your
interest under the group contract. Participation in an individual contract is
shown by the issuance of an individual policy. The certificate and the
individual contract are hereafter both referred to as the "Policy". The Policies
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 you to provide for changing insurance needs
with a single insurance policy. The minimum initial Face Amount of a Policy is
$25,000.
With respect to the Policy Value available for investment under a Policy, you
may elect to receive a rate of return based on one or more of the following
separate investment portfolios of Fortis Series Fund, Inc.: the Aggressive
Growth Series, the International Stock Series, the Global Growth Series, the
Growth Stock Series, the Growth and Income Series, the Global Asset Allocation
Series, the Asset Allocation Series, the High Yield Series, the Global Bond
Series, the Diversified Income Series, the U.S. Government Securities Series, or
the Money Market Series. There is no guaranteed minimum Policy Value with
respect to these portfolios, and you bear the entire investment risk that this
value (or the Surrender Value) may decline to zero. Alternatively, you 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, you
may make a partial withdrawal of Surrender Value once a year. You also may take
out Policy loans and have 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 will not lapse if certain Minimum Premium payments are made.
This guarantee will be for the lesser of 12 years from the Policy Date or until
Age 65 (or for 5 years if over Age 60 at issue).
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 DEPOSIT INSURANCE
CORPORATION, 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.
FORTIS
VUL100
(Flexible Premium
Variable Life
Insurance Policies)
PROSPECTUS DATED
May 1, 1995
[FORTIS LOGO]
<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
- Benefit at Maturity.................................................................. 8
- Policy Loans......................................................................... 8
- Settlement Options................................................................... 8
- Taxes................................................................................ 8
- Right to Return a Policy............................................................. 8
- How to Exercise Your Rights Under a Policy........................................... 8
The Separate Account and Fortis Series Fund, Inc........................................... 9
- The Separate Account................................................................. 9
- Financial and Performance Information................................................ 10
- Fortis Series Fund, Inc.............................................................. 11
Policy Benefits............................................................................ 11
- Death Benefit........................................................................ 11
- Changes in Face Amount............................................................... 12
- Policy Value......................................................................... 12
- Policy Value Advances and Cash Value Bonuses......................................... 13
- Calculation of Separate Account Policy Value......................................... 14
- Separate Account Net Investment Return............................................... 14
Payment and Allocation of Premiums......................................................... 14
- Issuance of a Policy................................................................. 14
- Premiums............................................................................. 15
- Allocation of Premiums and Policy Value.............................................. 17
- Policy Lapse and Reinstatement....................................................... 18
Charges and Deductions..................................................................... 18
- Premium Tax and Sales Charges........................................................ 18
- Deductions to Recover Policy Value Advances.......................................... 20
- Monthly Deduction from Policy Value.................................................. 20
- Charge for Mortality and Expense Risks............................................... 21
- Miscellaneous........................................................................ 21
- Guarantee of Certain Charges......................................................... 21
Loan Privileges............................................................................ 21
- Rate Charged on Policy Loans......................................................... 22
- Credited Rate for Policy Loans....................................................... 22
- Effect of a Policy Loan.............................................................. 22
- Repayment of a Loan.................................................................. 22
Surrender and Partial Withdrawal........................................................... 22
Rights Reserved by Fortis Benefits......................................................... 23
- Payment and Deferment................................................................ 23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Distribution of the Policies............................................................... 24
Federal Tax Matters........................................................................ 24
- Tax Status of the Policy............................................................. 24
- Taxation of Policy Benefits.......................................................... 25
- Taxation of Fortis Benefits.......................................................... 26
Other Policy Provisions.................................................................... 26
Management................................................................................. 28
Voting Privileges.......................................................................... 28
Reports.................................................................................... 29
State Regulation........................................................................... 29
Legal Matters.............................................................................. 29
Experts.................................................................................... 29
Ratings and Rankings....................................................................... 29
Financial Statements....................................................................... 30
Appendix A................................................................................. A-1
- Optional Income Plans................................................................ A-1
Appendix B................................................................................. B-1
- Illustrations of Death Benefits, Policy Values, Surrender Values and Accumulated
Premiums............................................................................. B-1
- Policy Value Advances................................................................ B-2
Appendix C................................................................................. C-1
- Oregon Policy Value Advances......................................................... C-1
Appendix D................................................................................. D-1
- The General Account.................................................................. D-1
- General Description.................................................................. D-1
- General Account Policy Value......................................................... D-1
- Transfers, Surrenders and Policy Loans............................................... D-1
Appendix E................................................................................. E-1
- Maximum Death Benefit Per $1,000 of Annualized Planned Periodic Premium.............. E-1
</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...................................................................... 27
Alternative Death Benefit................................................ 11
Cash Value Bonuses....................................................... 13
Sales Charge............................................................. 18
Date of Receipt.......................................................... 26
Death Benefit............................................................ 11
Face Amount.............................................................. 14
Fortis Benefits.......................................................... 5
Fortis Series............................................................ 4
General Account.......................................................... D-1
Grace Period............................................................. 17
Guaranteed Death Benefit................................................. 5
Guideline Annual Premium................................................. 16
Home Office.............................................................. 9
Minimum Premium.......................................................... 16
Monthly Deduction........................................................ 20
Monthly Anniversary...................................................... 14
Net Amount at Risk....................................................... 20
Net Cash Value........................................................... 17
NYSE..................................................................... 14
Planned Periodic Premium................................................. 15
Policy Anniversary....................................................... 14
Policy Date.............................................................. 14
Policy Value............................................................. 12
Policy Value Advance..................................................... 12
Portfolio................................................................ 11
Pro Rata Basis........................................................... 20
Separate Account......................................................... 9
Subaccount............................................................... 9
Surrender Charge......................................................... 19
Surrender Value.......................................................... 7
Valuation Date........................................................... 12
Valuation Period......................................................... 14
1940 Act................................................................. 9
</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 1994, Fortis Benefits had
approximately $61 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 N.V. 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 life insurance and disability income
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 N.V. 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 $108
billion in assets as of year-end 1994.
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.
Best's Insurance Reports, Life-Health Edition 1994, assigned Fortis Benefits one
of its highest ratings, A+ (Superior) as of December 31, 1993, for financial
position and operating performance. Fortis Benefits has a rating of AA from
Standard & Poor's. As defined by Standard & Poor's, insurers rated AA offer
"excellent financial security". These ratings represent such rating agencies'
independent opinion of Fortis Benefits' financial strength and ability to meet
policyholder obligations, but have no relevance to the performance and quality
of the assets in Subaccounts of the Separate Account.
PAYMENT OF PREMIUMS
At the time of Policy issuance, you must pay at least the initial amount under a
Planned Periodic Premium payment schedule you establish. The minimum annualized
planned premium is $900.00 below age 30, $1,400.00 for ages 31-40, $2,100.00 for
ages 41-50, $2,400.00 for ages 51-60 and $2,800.00 for ages above 60. 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.
GUARANTEED DEATH BENEFIT
A Policy is guaranteed not to lapse 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 taken by you, at least equals
(2) the cumulative monthly Minimum Premiums, assuming regular monthly payment
thereof commencing on the Policy Date and continuing through the current Monthly
Anniversary. This guarantee will be for the lesser of 12 years from the Policy
Date or until Age 65 (or for 5 years if over Age 60 at issue). Subject to these
conditions, there is in effect a "Guaranteed Death Benefit" in the amount of the
Policy's then-current Face Amount. If the Minimum Premium requirements are not
met on any Monthly Anniversary, the guarantee terminates and may not be
reinstated. 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 is increased. See "Guaranteed Death
Benefit" under "Payment and Allocation of Premiums--Premiums."
If the Minimum Premium requirement described above is not met, and in any event
after the Guaranteed Death Benefit ends, 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." 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
You 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"
5
<PAGE>
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, Growth Stock Series, the Growth and
Income Series, the Global Asset Allocation Series, the 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 D--"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 at an annual rate
as follows: for Aggressive Growth Series, .7% of the first $100 million of
average daily net assets, and .6% thereafter; for International Stock Series,
.85% of the first $100 million of such assets, and .8% thereafter; for Global
Growth Series, .7% of the first $500 million of average daily net assets, and
.6% thereafter, for Growth Stock Series and the Growth and Income Series, .7% of
the first $100 million of average daily net assets, and .6% thereafter; for
Global Asset Allocation Series, .9% of the first $100 million of such assets,
and .85% thereafter; for Asset Allocation Series and High Yield Series, .5% of
the first $250 million of average daily net assets, and .45% thereafter; for
Global Bond Series, .75% of the first $100 million of such assets, and .65%
thereafter; for Diversified Income Series and U.S. Government Securities Series,
.5% of the first $50 million of average daily net assets, and .45% thereafter;
for Money Market Series, .3% of the first $500 million of average daily net
assets, and .25% thereafter. The Portfolios also bear most of their other
expenses.
The International Stock 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; 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
Global Asset Allocation Series, .5% of the first $100 million of such assets,
and .4% therafter; 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.
You 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 your investment
risk, 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. You may transfer amounts among the Subaccounts at any
time. Transfers may also be made at any time from a Subaccount to the General
Account. Under Fortis Benefits' current rules, you 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
D--"Transfers, Surrenders and Policy Loans."
POLICY VALUE; POLICY VALUE ADVANCES; CASH VALUE BONUSES
POLICY VALUE. The "Policy Value" is the amount "at work" for you 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 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 you have 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
6
<PAGE>
credited to the Policy Value, but are subject to recovery by Fortis Benefits
pursuant to subsequent daily deductions. See "Policy Benefits--Policy Value
Advances." See Appendix C for Policy Value Advances in Oregon.
CASH VALUE BONUSES. Cash Value Bonuses will be paid by Fortis Benefits starting
at the end of the third Policy year if the Surrender Value is at least $25,000.
If allowed in the state in which the Policy is issued these 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"). 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 a daily deduction at an annual rate of .06124% of the Policy's net
assets in the Separate Account. See "Charges and Deductions--Premium Tax and
Sales Charges."
SALES CHARGES. The maximum sales charge is 7.5% of premiums paid. Rather than
being deducted from premiums, this sales charge is assessed by a daily deduction
at an annual rate of .20876% of the Policy's net assets in the Separate Account.
Any remaining balance of the sales charges may be deducted as part of the
Surrender Charge. See "Charges and Deductions--Premium Tax and Sales Charges."
SURRENDER CHARGE. The maximum Surrender Charge is the sum of any premium tax and
sales charges not previously deducted on a daily basis, as described 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."
ADDITIONAL CHARGES AS A RESULT OF FACE AMOUNT INCREASES. If you request a Face
Amount increase, the Policy will be subject to additional premium tax and sales
charges. 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."
DEDUCTIONS TO RECOVER POLICY VALUE ADVANCES. Subject to certain conditions, you
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." If so, the amount of such credits may be recovered by imposing 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 any period when these deductions are made to recover the Policy
Value Advances, there would be no similar daily deductions for sales expenses
and premium taxes discussed above. Once the amount of any Policy Value Advances
had been fully recovered, the daily deductions for premium tax and sales charges
would resume. In no event will 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) a monthly cost of insurance charge, (2) 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, and (3)
an administrative expense charge, currently $4.50 per month. See "Charges and
Deductions-- Monthly Deduction From Policy Value." Fortis Benefits expects to
derive no profit from the charges set forth in (3) above.
The Policies are underwritten on a simplified issue basis (less than full
medical underwriting) up to $300,000 of Face Amount. For healthy individuals the
cost of insurance rates are higher using this method of underwriting than they
would otherwise be if full medical underwriting were utilized. Cost of Insurance
rates for the Policies are guaranteed never to be higher than 130% of those
based on the 1980 Commissioner's Standard Ordinary Mortality Tables plus $4.00
per thousand of Face Amount.
7
<PAGE>
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, 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.
The death benefit is the Face Amount of the Policy. If greater than the death
benefit otherwise payable, 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, you may increase or, after the
first Policy year, decrease the Face Amount of the Policy. See "Changes in Face
Amount." Any increase in the Face Amount requires additional evidence of
insurability satisfactory to Fortis Benefits. An increase in Face Amount will
result in additional charges. See "Premium Tax and Sales 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 result in a decrease in the monthly Minimum Premium.
See "Policy Benefits--Changes in Face Amount."
BENEFIT AT MATURITY
Unless you exercise 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
you, upon return of the Policy.
POLICY LOANS
You may borrow up to 90% of the difference between the Policy Value and the
amount of any then-applicable 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
you may qualify for a lower loan interest rate. See "Loan Privileges."
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 your
election or the beneficiary's election. 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 you until such gains are distributed to you.
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, and
perhaps other changes) partial withdrawals, loans or payment of premiums in
excess of certain amounts may have significant tax consequences. Accordingly,
you 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
You may return the Policy by delivery or by mailing postmarked within 20 days
after receipt (except where the Policy or state law requires a longer period),
within 45 days after you sign the application for insurance, or within 20 days
after receipt of a Notice of Withdrawal Right, whichever is the latest, and
receive a refund within 7 days. 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, you must follow the procedures stated in the
Policy. To request a loan, surrender, or
8
<PAGE>
partial withdrawal, you 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 you, and, in the case of a total surrender, you
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 you have 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. A Telephone
Authorization Form is attached at the end of this Prospectus. Fortis Benefits
will not be responsible for, and you will bear the risk of loss from, oral
instructions, including fraudulent instructions which are reasonably believed to
be genuine. We will employ reasonable procedures to confirm that telephone
instructions are genuine, but if such procedures are not deemed reasonable, we
may be liable for any losses due to unauthorized or fraudulent instructions. Our
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.
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 you. Currently,
however, Fortis Benefits requires the Policy to be returned only on maturity,
total surrender or death of the insured. If you are unable to return the Policy
because it has been lost or destroyed, Fortis Benefits will accept a written
statement to that effect signed by you 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.
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.
9
<PAGE>
FINANCIAL AND PERFORMANCE INFORMATION
The information presented below reflects the accumulation unit information for
subaccounts of the Separate Account through December 31, 1994. 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 and Policy Value Advance recovery 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 the performance quoted
on death benefit and cash values.
NET ANNUAL RATES OF RETURN FOR ACCUMULATION UNITS OF SUBACCOUNTS
<TABLE>
<CAPTION>
CALENDAR YEAR
THROUGH DECEMBER 31
INCEPT ---------------------------------------------------------------------
DATE 1987 1988 1989 1990 1991 1992 1993 1994
------ ----- ------ ------ ------ ----- ------- -------
<S> <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%
International Stock......... 1/95 N/A N/A N/A N/A N/A N/A N/A N/A
Global Growth............... 5/92 N/A N/A N/A N/A N/A N/A 16.55% -4.11%
Growth Stock................ 10/86 10.03% 3.23% 34.94% -4.23% 51.71% 1.78% 7.52% -3.95%
Growth & Income............. 5/94 N/A N/A N/A N/A N/A N/A N/A 0.95%
Global Asset Allocation..... 1/95 N/A N/A N/A N/A N/A N/A N/A N/A
Asset Allocation............ 4/87 N/A 2.56% 22.25% 0.82% 26.16% 5.70% 8.51% -1.47%
Global Bond................. 1/95 N/A N/A N/A N/A N/A N/A N/A N/A
High Yield.................. 5/94 N/A N/A N/A N/A N/A N/A N/A -1.54%
Diversified Income.......... 5/88 N/A N/A 10.98% 7.60% 13.33% 5.83% 11.44% -6.34%
U.S. Gov't Securities....... 11/86 0.43% 5.17% 11.74% 6.67% 13.03% 4.90% 8.18% -7.54%
Money Market................ 11/86 4.57% 5.54% 8.17% 6.61% 4.69% 2.15% 1.57% 2.70%
<CAPTION>
THROUGH
DECEMBER 31, 1994
------------------------------ AVG SINCE
1 YEAR 3 YEAR 5 YEAR INCEPT
------- -------- --------- ---------
<S> <C> <C> <C> <C>
Aggressive Growth........... N/A N/A N/A -2.65 %
International Stock......... N/A N/A N/A N/A
Global Growth............... -4.11% N/A N/A 8.05%
Growth Stock................ -3.59% 1.68% 8.84% 10.38%
Growth & Income............. N/A N/A N/A 0.95%
Global Asset Allocation..... N/A N/A N/A N/A
Asset Allocation............ -1.47% 4.16% 7.58% 6.90%
Global Bond................. N/A N/A N/A N/A
High Yield.................. N/A N/A N/A -1.54%
Diversified Income.......... -6.34% 3.37% 6.14% 6.70%
U.S. Gov't Securities....... -7.54% 1.61% 4.81% 5.20%
Money Market................ 2.70% 2.14% 3.53% 4.46%
</TABLE>
- --------------------------
VUL 100 was not offered for sale prior to June 15, 1994
Example: If a male insured age 45 had a Death Benefit Type A Policy, in which he
invested $10,000 annually in the Subaccount indicated, his life insurance Policy
would have provided the following benefits:
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS
------------------------------- ---------------------------------
POLICY SURRENDER DEATH POLICY SURRENDER DEATH
VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--------- --------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth............................... N/A N/A N/A N/A N/A N/A
International Stock............................. N/A N/A N/A N/A N/A N/A
Global Growth................................... $8,032.34 $7,083.93 $ 166,641 N/A N/A N/A
Growth Stock.................................... $7,972.11 $7,023.50 $ 166,641 $26,096.41 $24,096.72 $ 166,641
Growth & Income................................. N/A N/A N/A N/A N/A N/A
Global Asset Allocation......................... N/A N/A N/A N/A N/A N/A
Asset Allocation................................ $8,357.05 $7,409.15 $ 166,641 $27,846.32 $25,846.63 $ 166,641
Global Bond..................................... N/A N/A N/A N/A N/A N/A
High Yield...................................... N/A N/A N/A N/A N/A N/A
Diversified Income.............................. $8,039.59 $7,091.14 $ 166,641 $27,135.30 $25,135.61 $ 166,641
U.S. Gov't Securities........................... $7,964.81 $7,016.26 $ 166,641 $26,212.57 $24,212.88 $ 166,641
Money Market.................................... $9,010.72 $8,063.97 $ 166,641 $27,418.43 $25,418.74 $ 166,641
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
FIVE YEARS SINCE INCEPTION
--------------------------------- -------------------------------------
POLICY SURRENDER DEATH POLICY SURRENDER DEATH
VALUE VALUE BENEFIT VALUE VALUE BENEFIT
---------- ---------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth........................... N/A N/A N/A $ 9,174.14 $ 8,218.88 $ 166,641
International Stock......................... N/A N/A N/A N/A N/A N/A
Global Growth............................... N/A N/A N/A $ 28,881.24 $ 26,881.55 $ 166,641
Growth Stock................................ $53,908.96 $50,475.24 $ 269,072 $ 115,723.74 $ 112,487.02 $ 325,792
Growth & Income............................. N/A N/A N/A $ 9,142.66 $ 8,187.66 $ 166,641
Global Asset Allocation..................... N/A N/A N/A N/A N/A N/A
Asset Allocation............................ $52,683.70 $49,355.83 $ 261,551 $ 94,441.29 $ 91,077.88 $ 317,023
Global Bond................................. N/A N/A N/A N/A N/A N/A
High Yield.................................. N/A N/A N/A $ 9,055.56 $ 8,100.41 $ 166,641
Diversified Income.......................... $49,311.96 $46,010.14 $ 259,650 $ 74,901.91 $ 71,553.89 $ 298,091
U.S. Gov't Securities....................... $46,996.56 $43,756.76 $ 255,220 $ 94,043.20 $ 91,209.46 $ 300,708
Money Market................................ $47,204.18 $44,135.08 $ 243,027 $ 90,817.45 $ 87,619.32 $ 323,551
</TABLE>
Assumes minimum face increases to prevent premiums from violating TEFRA and
TAMRA guidelines.
These benefits will differ for other insureds. They will differ according to
differences in investment allocation, premium timing and amount, death benefit
amount as well as Age and sex 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.
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, Global
Growth, Growth Stock, Growth and Income, Global Asset Allocation, Asset
Allocation, High Yield, Global Bond, 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 High Yield Series, the Global Asset Allocation Series, the
Asset Allocation 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."
11
<PAGE>
The insurance proceeds are (1) the Death Benefit, minus (2) any outstanding
Policy loan and any due and unpaid charges accruing during a Grace Period, plus
(3) any loan interest you paid for periods beyond the date of death.
DEATH BENEFIT. The Death Benefit is the greater of the Face Amount of the Policy
or the Alternative Death Benefit. 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>
For Ages not listed, the progression between the listed Ages is constant.
CHANGES IN FACE AMOUNT
INCREASE. You 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. 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
charges will be applicable. See "Charges and Deductions--Premium Tax and Sales
Charges." An increase in Face Amount also will increase the monthly Minimum
Premium and the Guaranteed Death Benefit charge. See "Minimum Premiums" under
"Payment and Allocation of Premiums--Premiums."
You may cancel the Face Amount increase. The cancellation request must be
delivered or mailed to Fortis Benefits by letter postmarked (1) within 20 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 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.
DECREASE. After the first Policy year, you may request a decrease in the Face
Amount of the Policy. The Face Amount remaining in force after any requested
decrease may not be less than $25,000. 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.
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
approves the request. Nevertheless, there will be no insurance coverage under
any change in Face Amount, 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 will also affect
your monthly cost of insurance charge. This in turn can affect the level of
subsequent Policy Values.
POLICY VALUE
The Total Policy Value at any time is the sum of the Policy Values in the
General Account (see "Loan Privileges" and Appendix D--"The General Account")
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.
12
<PAGE>
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. These
credits are 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 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 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 the $25
minimum), times 12.
POLICY VALUES ADVANCE PERCENTAGES
<TABLE>
<CAPTION>
POLICY YEAR PERCENTAGES
- ----------- ----------------
<S> <C>
7 2%
8 6%
9 and later 10%
to Age 95
</TABLE>
Policy Value Advances are guaranteed only to the extent allowed by the state in
which the Policy is issued.
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.
In Oregon, state law requirements mandate certain changes in the way Policy
Value Advances are credited to Policies which are issued in that state.
Therefore, the conditions, limitations and guarantees discussed above do not
apply to such Policies. For a description of Policy Value Advances for policies
issued in Oregon, please see Appendix C.
Policy Value Advances are subject to recovery by Fortis Benefits over time
pursuant to subsequent 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."
Therefore, Policy Value Advances provide you an opportunity to accumulate a
greater amount of Policy Value than you otherwise would have.
Policy Value Advances are designed to encourage you to retain your Policy and to
make Minimum Premium payments for a substantial period of time, by offering you
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 third 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 OF
SURRENDER VALUE AT
END OF
SURRENDER VALUE ON POLICY YEARS
DATE OF BONUS 7 AND LATER
- ---------------------------------------- ---------------------
<S> <C>
Less than $25,000....................... .00%
$25,000 to $149,999..................... .50%
$150,000 or more........................ .60%
</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.
Policy Value Advances and Cash Value Bonuses will result in reduced cost of
insurance charges. Conversely, the above-mentioned deductions to recover Policy
Value Advances will reduce the Policy Value.
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 that you pay for
investing assets attributable to Policy Value Advances and Cash Value Bonuses in
the Separate Account.
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<PAGE>
There is no assurance that Separate Account investment performance earned on
Policy Value Advances, which are 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. If you
wish to avoid the risk of not earning a rate of return greater than the rate of
asset-based charges you can allocate amounts attributable to Policy Value
Advances and Cash Value Bonuses to Fortis Benefits' General Account. You 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"
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 $25,000. The maximum face amount
that can be issued per $1,000 of annualized planned periodic premium is
determined by a schedule set out in Appendix E. A Policy will generally be
issued to insureds Age 21-65 who supply evidence of insurability satisfactory to
Fortis Benefits. Acceptance is subject to Fortis Benefits' underwriting
guidelines and Policy approval procedures. Any
14
<PAGE>
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 $100,000 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, 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 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 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. 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, you must pay at least the
initial amount under a Planned Periodic Premium payment schedule you establish.
The minimum annualized planned premium is $900.00 below age 30, $1,400.00 for
ages 31-40, $2,100.00 for ages 41-50, $2,400.00 for ages 51-60 and $2,800.00 for
ages above 60. 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, you 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 your checking account.) Some broker/dealers
distributing the Policy may offer cash management or financial service accounts
where amounts may be held in a money market mutual fund. If you have such an
account, subject to such distributor's approval, planned premium payments may be
paid from such account. If you elect to make planned premium payments from such
an account, these will be deducted automatically from the account by the
distributor and paid to Fortis Benefits. To participate in such an account and
to make payments from such accounts, you must satisfy any criteria established
by the distributor for such accounts. In addition, if the distributor terminates
these services in the future, you will no longer be able to make planned premium
payments in this manner. You are 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."
Subject to the limitations described below, you may make additional premium
payments at any time in any amount.
15
<PAGE>
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 you direct 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 you 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."
GUARANTEED DEATH BENEFIT. A Policy is guaranteed not to lapse 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 taken
by you, at least equals the cumulative monthly Minimum Premiums, assuming
regular payment of such Minimum Premiums commencing on the Policy Date and on
each Monthly Anniversary thereafter, including the current Monthly Anniversary.
This guarantee will be for the lesser of 12 years from the Policy Date or until
Age 65 (or for 5 years if over Age 60 at issue).
If, on any Monthly Anniversary, the Minimum Premiums necessary to keep this
Guaranteed Death Benefit in force have not been paid, Fortis Benefits will send
you a notice of the minimum amount required to be paid. The Guaranteed Death
Benefit will terminate if at least this amount is not paid, or if the Date of
Receipt by Fortis Benefits of this amount is not 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. 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 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 is the estimated monthly premium payment which would keep the
Policy (or benefit change) in force until the insured reaches Age 95 based on
(1) the insured's then-current Age and sex and (2) reasonable assumptions for
interest, costs of insurance, and other charges. The smallest Minimum Premium is
$25. Monthly Minimum Premiums are used to determine the availability of the
Guaranteed Death Benefit, and Policy Value Advances. Monthly Minimum Premiums
(calculated without the $25 limit) are used to determine the anticipated amount
of Policy Value Advances. 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. 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, and other expense charges at
applicable levels under the Code.
Starting with the Monthly Anniversary when any Face Amount increase you request
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.
Starting with the Monthly Anniversary when any Face Amount decrease you request
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.
16
<PAGE>
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 you following the change.
ALLOCATION OF PREMIUMS AND POLICY VALUE
ALLOCATION OF PREMIUMS. In the application for a Policy, you indicate 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 you.)
Allocation percentages must be in whole numbers. You 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 from that date. 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 you. (If you have not
established such an allocation, the General Account will continue to be used.)
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 your
authorization to delay acceptance of the premium until permitted under Section
7702 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 premium has occurred,
and subject to the limitations described below, you 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 loans). However, if the
unloaned General Account Policy Value at the date of transfer is less than
$1,000, you 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 you 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 within 60 days after you receive 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 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: you 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
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<PAGE>
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. Fortis Benefits will notify you 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. You 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 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 charge deducted from premiums, less the first Monthly Deduction paid in
accordance 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 you request 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."
CHARGES AND DEDUCTIONS
PREMIUM TAX AND SALES 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 you. Currently, a premium tax charge in the amount of
2.2% of all premium payments is assessed through daily deductions from Policy
Value, as described below. Any portion of such amount that is not recovered by
Fortis Benefits pursuant to the 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 daily deductions from Policy Value. Any amount of this sales charge that
is not recovered by Fortis Benefits through these 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 daily deductions. First,
the cumulative sales charge will increase with each new premium payment, and you
have 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 you choose, the amount and timing of any Policy Value Advances and Cash
Value Bonuses or loans and loan repayments, and the insured's Age and sex.
The aggregate daily deduction for premium tax and sales charges is at an annual
rate of .27% of the value of the Policy's net assets in the Separate Account.
These daily
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<PAGE>
deductions, however, will be waived 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. Once the amount of any Policy Value Advances has been
fully recovered, the daily deductions for premium tax and sales charges resume.
You are 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 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.
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. The premium tax rate currently ranges from 0%
to 3% depending on the jurisdiction. 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 daily
charge limit 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. Fortis Benefits does
not expect to make a profit from the premium tax charge.
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.
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 you request). The Surrender Charge is the sum of any
portion of the premium tax charge and the sales charge referred to above that
has not yet been collected through the daily deductions therefor.
The 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 you requested. 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
SURRENDER CHARGE
(PER THOUSAND
INSURED PERSON'S DOLLARS
AGE AT TIME OF OF FACE AMOUNT OR
POLICY ISSUANCE OR FACE AMOUNT
FACE AMOUNT INCREASE INCREASE)
- -------------------- ------------------
<S> <C>
21 - 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 you request 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.
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<PAGE>
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 you choose, the amount and timing of any Policy Value Advances, Cash
Value Bonuses or loans and loan repayments, and the insured's Age and sex. 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, you 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." The amount of any such
advances that are actually paid by Fortis Benefits is subject to recovery
through 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 cost of insurance
charge, (2) while the Guaranteed Death Benefit is in effect, a monthly charge
for such guarantee (see "Guaranteed Death Benefit" under "Payment and Allocation
of Premiums--Premiums") and (3) 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 you select. If no 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 plus a flat amount
per $1,000 of Face Amount. 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.
The Policies are underwritten on a simplified issue basis (less than full
medical underwriting) up to $300,000 of Face Amount. For healthy individuals the
cost of insurance rates are higher using this method of underwriting than they
would otherwise be if full medical underwriting were utilized. Currently, the
flat amount for $1,000.00 of Face Amount is assessed for 10 years for the Face
Amount at issue and for each Face Increase. The flat amount for males is $2.00
for issue ages (or ages at Face Increase) below 40, $3.00 for ages 41-50, $3.50
for ages 51-60 and $4.00 for ages above 60. For females, the above flat amounts
are reduced by $1.00.
Cost of insurance rates are based on the Age and sex of the insured and the
length of time ("duration") since issuance of the Policy or a Face Amount
increase. 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 insureds will not
exceed 130% of the rates provided by certain of the 1980 Commissioners Standard
Ordinary Mortality Tables and the insured's sex and Age plus $4.00 per thousand
dollars of Face Amount. These tables set forth different mortality estimates for
males and females.
Any change in the cost of insurance rates or charges will apply to all insureds
of the same Age, sex and duration.
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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.
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 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 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. Fortis Benefits reserves the right to change the monthly Minimum Premium.
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, increase the amount of premium tax charges
assessed pursuant to daily deductions and to deduct premium taxes from premium
payments, subject to guaranteed maximums.
LOAN PRIVILEGES
You may borrow money from Fortis Benefits using the Policy as the only security
for the loan. 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. Fortis Benefits will allocate a Policy loan among the General Account
and the Subaccounts of the Separate Account you select. If no selection is made,
then the allocation will be on a Pro Rata Basis.
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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 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 you meet certain requirements. If you qualify
you 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. You qualify for this reduced interest rate
if (1) the Policy is in the third or subsequent Policy year and the Surrender
Value is a least $10,000, 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 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 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
you specify 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. You 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."
Partial withdrawals of Surrender Value may be made once each Policy year after
the first Policy year during the insured's lifetime. The amount withdrawn will
be deducted from the General Account and the Subaccounts of the Separate Account
you select. 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
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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).
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 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 partial withdrawal in the first seven years after issue or a Face Amount
increase is likely to cause the Policy to become a modified endowment contract.
See "Federal Tax Matters-- Taxation of Policy Benefits".
You will not be permitted to make any partial withdrawal that would reduce the
Face Amount of the Policy below the minimum Face Amount of $25,000. 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 you as to whether the request should be disregarded, reduced to a
smaller amount or changed to a request for a full surrender.
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 your 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, you 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, 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, loan, partial withdrawal, surrender or any transfer of Policy
Value for any
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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 your protection.
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.
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.
The commissions and other compensation are paid by Fortis Benefits under a
distribution agreement entered into by them as of January 1, 1994.
As compensation for distributing the Policies, Fortis Benefits pays Investors
13.75% of first year premiums and 7.6% of all other premiums. Fortis Benefits
also pays Investors .25% of Policy Value annually as a service fee. Investors
pays a selling allowance not in excess of those amount 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 represent a charge or deduction against Policies in addition
to those set forth under "Charges and Deductions." 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, 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
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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 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 you may direct your 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 you 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 you 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.
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, 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, you 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, you are 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 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 you
attain age 59 1/2, is attributable to you becoming
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disabled, or is a part of a series of substantially equal periodic payments for
your life or the joint lives of you and your 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 you 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 a debt.
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. In addition, interest on any loan
under a Policy 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 will not be tax deductible to the extent the aggregate amount of such
loans with respect to contracts covering such individual exceeds $50,000.
No amount of Policy loan interest is, however, deductible if the Policy were
deemed for federal tax purposes to be a single premium life insurance contract.
You should consult a tax adviser as to whether the Policy would be so deemed.
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 your gross income minus (ii) the aggregate amount received under the
Policy which was excluded from your gross income except that the amount of any
loan received under the policy which is excluded from gross income shall be
disregarded.
MULTIPLE CONTRACTS. Under TAMRA, all modified endowment contracts that are
issued by Fortis Benefits or its affiliates, to you 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, you should consult a tax
adviser before effecting an exchange of a Policy.
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 an individual contract is the insured, unless another owner
has been named in the application for the Policy. For a Policy issued as a
certificate under a group contract the owner named in the application for the
Certificate is the person or entity entitled to exercise all rights and
privileges of ownership under the Certificate. As owner you are 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
you should die before the insured dies. Otherwise your estate would become the
owner.
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<PAGE>
BENEFICIARY. The beneficiary is the person or persons to whom the insurance
proceeds are payable upon the insured's death. You 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, you (or your estate) will be the beneficiary. While the insured is
alive, you may change any beneficiary or contingent beneficiary. Fortis Benefits
is not responsible for the validity of any change.
COLLATERAL ASSIGNMENT. You may assign a Policy as collateral. 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 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 you 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 you, Fortis Benefits' liability with respect to such increase or
reinstatement will be limited to the cost of insurance 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 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 or any
Face Amount increase 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 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 you 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 60 days
of the current maturity date.
If this option is exercised you 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 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: 1) No further cost of
insurance charges are deducted as part of the Monthly Deduction 2) The
Guaranteed Death Benefit lapses and the Death Benefit becomes the Alternative
Death Benefit (see "Death Benefit Options--Alternative Death Benefit") 3) No
further Policy Value Advances or Cash Value Bonuses are credited 4) Any Policy
loan will be charged interest at an affective 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.
27
<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>
<CAPTION>
OFFICER-DIRECTORS
<S> <C>
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;
before then Senior Vice President, Integrated Resources, Inc.
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
Senior Vice President--Sales; before then Senior Vice
President--Western Divisional Officer, Colonial Group, Inc.
Senior Vice President--Investment Products; also officer of
affiliated companies.
Senior Vice President--Life Operations, also officer of
affiliated companies.
Senior Vice President and General Counsel--Life and Investment
Products; also officer of affiliated companies.
Michael John Peninger (4) Senior Vice President and Chief Financial Officer
Jon H. Nicholson (1) 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, 515 West Wells, 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 N.V. AMEV. 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 N.V., Archimedeslaan 10, 3584 BA Utrecht, The
Netherlands.
(4) Address: 2323 Grand Avenue, Kansas City, MO 64108.
(5) Address: 515 West Wells, 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
28
<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.
You 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 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 you.
REPORTS
You will receive promptly statements of significant transactions such as changes
in Face Amount, 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 you. 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 you authorizing monthly withdrawals of premiums from your
checking or money market 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, you 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, Esquire, Assistant 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.
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
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
RATING SERVICE CATEGORY
- ---------------------------------------- ------------------------------
<S> <C>
Lipper Analytical Services, Inc. small Company Growth
INTERNATIONAL STOCK SUBACCOUNT
Morningstar Publications, Inc. international stock
Lipper Analytical Services, Inc. international equity
GLOBAL GROWTH SUBACCOUNT
Morningstar Publications, Inc. international stock
Lipper Analytical Services, Inc. global
GROWTH STOCK SUBACCOUNT
Morningstar Publications, Inc. growth
Lipper Analytical Services, Inc. capital appreciation
GROWTH AND INCOME SUBACCOUNT
Morningstar Publications, Inc. growth and income
Lipper Analytical Services, Inc. growth and income
GLOBAL ASSET ALLOCATION SUBACCOUNT
Morningstar Publications, Inc. balanced
Lipper Analytical Services, Inc. global flexible
ASSET ALLOCATION SUBACCOUNT
Morningstar Publications, Inc. balanced
Lipper Analytical Services, Inc. flexible portfolios
HIGH YIELD SUBACCOUNT
Morningstar Publications, Inc. high Yield
Lipper Analytical Services, Inc. high Current Yield
GLOBAL BOND SUBACCOUNT
Morningstar Publications, Inc. international bond
Lipper Analytical Services, Inc. world income
DIVERSIFIED INCOME SUBACCOUNT
Morningstar Publications, Inc. corporate bond
Lipper Analytical Services, Inc. general bond
U.S. GOVERNMENT SUBACCOUNT
Morningstar Publications, Inc. U.S. government bond
Lipper Analytical Services, Inc. U.S. government
MONEY MARKET SUBACCOUNT
Morningstar Publications, Inc. money market
Lipper Analytical Services, Inc. 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 Notes 2 and 11 to
Fortis Benefits' financial statements.
30
<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 as of December 31, 1994 and 1993, and the related statements of income,
shareholder's equity and cash flows for each of the three years in the period
ended December 31, 1994. 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, 1994 and 1993, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
In 1993, as discussed in Note 2 to the financial statements, the Company changed
its method of accounting for income taxes, postretirement benefits other than
pensions and certain investments in debt and equity securities.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 16, 1995
31
<PAGE>
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Investments--Note 4
Fixed maturities, at fair value (amortized cost 1994--$1,749,347,
1993--$1,630,393)..................................................... $ 1,674,782 $ 1,706,702
Equity securities, at fair value (cost 1994--$59,010 1993--$56,126).... 64,552 65,905
Mortgage loans on real estate, less allowance for possible losses
(1994--$7,429; 1993--$6,324).......................................... 452,547 355,515
Policy loans........................................................... 49,221 47,009
Short-term investments................................................. 117,562 73,382
Real estate and other investments...................................... 13,441 10,976
----------- -----------
2,372,105 2,259,489
Cash..................................................................... 10,888 6,675
Receivables:
Uncollected premiums................................................... 40,667 33,910
Reinsurance recoverable on unpaid and paid losses...................... 15,181 16,554
Due from affiliates.................................................... 2,220 4,555
Other.................................................................. 12,593 3,720
----------- -----------
70,661 58,739
Accrued investment income................................................ 38,584 32,591
Deferred policy acquisition costs--Note 5................................ 232,198 196,483
Property and equipment at cost, less accumulated depreciation--Note 6.... 56,939 53,540
Deferred federal income taxes--Note 8.................................... 48,509 --
Other assets............................................................. 1,120 985
Assets held in separate accounts--Note 9................................. 1,212,910 975,637
----------- -----------
TOTAL ASSETS............................................................. $ 4,043,914 $ 3,584,139
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
32
<PAGE>
BALANCE SHEETS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
POLICY RESERVES, LIABILITIES, AND SHAREHOLDER'S EQUITY
POLICY RESERVES AND LIABILITIES
Future policy benefit reserves:
Traditional life insurance........................................ $ 375,257 $ 353,407
Interest sensitive and investment products........................ 912,653 690,061
Accident and health............................................... 798,293 752,047
----------- -----------
2,086,203 1,795,515
Unearned premiums................................................... 16,145 18,574
Other policy claims and benefits payable............................ 169,864 158,705
Policyholder dividends payable...................................... 6,793 10,561
----------- -----------
2,279,005 1,983,355
Accrued expenses.................................................... 45,905 45,035
Current income taxes payable........................................ 4,352 1,069
Deferred federal income taxes--Note 8............................... -- 4,229
Other liabilities................................................... 32,416 48,107
Liabilities related to separate accounts............................ 1,208,039 970,436
----------- -----------
TOTAL POLICY RESERVES AND LIABILITIES................................. 3,569,717 3,052,231
SHAREHOLDER'S EQUITY--Notes 1, 10 and 12
Common stock, $5 par value, 1,000,000 shares authorized, issued and
outstanding........................................................ 5,000 5,000
Additional paid-in capital.......................................... 358,000 345,000
Retained earnings................................................... 153,551 130,694
Unrealized gains (losses) on investments, net--Note 4............... (42,908) 50,144
Unrealized gains on assets held in separate accounts net of deferred
taxes of $298 in 1994 and $576 in 1993............................. 554 1,070
----------- -----------
TOTAL SHAREHOLDER'S EQUITY............................................ 474,197 531,908
----------- -----------
TOTAL RESERVES, LIABILITIES, AND SHAREHOLDER'S EQUITY................. $ 4,043,914 $ 3,584,139
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements.
33
<PAGE>
STATEMENTS OF INCOME
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES
Insurance operations
Traditional life insurance premiums.......................... $ 207,824 $ 187,863 $ 191,887
Interest sensitive and investment product policy charges..... 37,823 28,778 23,690
Accident and health premiums................................. 776,799 738,412 751,534
------------- ------------- -------------
1,022,446 955,053 967,111
Net investment income--Note 4.................................. 162,514 153,657 156,431
Realized gains (losses) on investments--Note 4................. (28,815) 73,623 37,928
Other income................................................... 35,958 27,100 26,176
------------- ------------- -------------
TOTAL REVENUES............................................. 1,192,103 1,209,433 1,187,646
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance................................... 162,168 145,958 151,291
Interest sensitive and investment products................... 55,026 50,935 46,490
Accident and health.......................................... 620,367 598,146 591,927
------------- ------------- -------------
837,561 795,039 789,708
Policyholder dividends......................................... 1,986 5,855 5,061
Amortization of deferred policy acquisition costs--Note 5...... 34,566 36,503 37,005
Insurance commissions.......................................... 86,111 76,816 80,275
General and administrative expenses............................ 197,427 185,986 199,481
------------- ------------- -------------
TOTAL BENEFITS AND EXPENSES................................ 1,157,651 1,100,199 1,111,530
------------- ------------- -------------
Income before federal income taxes and cumulative effect of
accounting changes.............................................. 34,452 109,234 76,116
Federal income taxes--Note 8..................................... 11,595 31,090 25,660
------------- ------------- -------------
Income before cumulative effect of accounting changes............ 22,857 78,144 50,456
Cumulative effect of change in accounting for income
taxes--Note 2................................................. -- 4,814 --
Cumulative effect of change in accounting for postretirement
benefits other than pensions, net of tax--Note 2.............. -- (1,251) --
------------- ------------- -------------
NET INCOME................................................. $ 22,857 $ 81,707 $ 50,456
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See notes to financial statements.
34
<PAGE>
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAINS ON
ASSETS
ADDITIONAL UNREALIZED HELD IN
COMMON PAID-IN RETAINED GAINS (LOSSES) SEPARATE
STOCK CAPITAL EARNINGS ON INVESTMENTS ACCOUNTS TOTAL
------ ---------- -------- -------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1992........................... $5,000 $345,000 $ 2,178 $ 860 $ 588 $353,626
Net income........................................ -- -- 50,456 -- -- 50,456
Change in unrealized gains on investments, net.... -- -- -- 3,403 -- 3,403
Change in unrealized gains on assets held in
separate account, net of deferred tax expense of
$36.............................................. -- -- -- -- 69 69
------ ---------- -------- ------- ----- --------
Balance December 31, 1992......................... 5,000 345,000 52,634 4,263 657 407,554
------ ---------- -------- ------- ----- --------
Net income........................................ -- -- 81,707 -- -- 81,707
Dividends to shareholder.......................... -- -- (4,000 ) -- -- (4,000)
Other............................................. -- -- 353 -- -- 353
Change in unrealized gains on investments, net.... -- -- -- 2,099 -- 2,099
Change in unrealized gains on investments, net,
resulting from initial adoption of FASB 115 (Note
1)............................................... -- -- -- 43,782 -- 43,782
Change in unrealized gain on assets held in
separate account, net of deferred tax expense of
$238............................................. -- -- -- -- 413 413
------ ---------- -------- ------- ----- --------
Balance December 31, 1993......................... 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 loss on assets held in
separate account, net of deferred tax benefit of
$277............................................. -- -- -- -- (516) (516)
------ ---------- -------- ------- ----- --------
Balance December 31, 1994......................... $5,000 $358,000 $153,551 $(42,908) $ 554 $474,197
------ ---------- -------- ------- ----- --------
------ ---------- -------- ------- ----- --------
</TABLE>
See notes to financial statements.
35
<PAGE>
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1993 1992 1991
------------ ------------ -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income...................................... $ 22,857 $ 81,707 $ 50,456
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting changes....... -- (3,563) --
Increase in future policy benefit reserves for
traditional, interest sensitive and accident
and health policies.......................... 79,014 58,299 44,582
Increase (decrease) in other policy claims and
benefits and policyholder dividends
payable...................................... 10,075 (15,868) (8,318)
Decrease in deferred federal income taxes..... (2,356) (9,776) (28,923)
Increase (decrease) in income taxes payable... 3,283 (12,733) (3,218)
Amortization of policy acquisition costs...... 34,566 36,503 37,005
Policy acquisition costs deferred............. (54,349) (45,841) (31,232)
Provision for mortgage loan losses............ 1,105 1,648 1,653
Provision for depreciation.................... 12,267 9,399 7,506
Accrual of discount, net...................... (914) 72 3,868
Change in uncollected premiums, accrued
investment income, other receivables,
unearned premiums, accrued expenses and other
liabilities.................................. (36,650) 5,751 1,135
Net realized (gains) losses on investments.... 28,815 (73,623) (37,928)
Other......................................... (135) 164 289
------------ ------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES... 97,578 32,139 36,875
INVESTING ACTIVITIES
Purchase of fixed maturity investments.......... (1,943,697) (2,337,842) (2,459,482)
Sales or maturities of fixed maturity
investments.................................... 1,798,184 2,358,288 2,431,920
(Increase) decrease in short-term investments... (44,266) 28,756 (76,226)
Purchase of other investments................... (211,836) (201,601) (46,054)
Sales or maturities of other investments........ 104,399 75,539 33,414
Purchase of property and equipment.............. (16,164) (13,155) (27,370)
Purchase of group insurance business............ (6,644) (5,521) (8,685)
Other........................................... 500 49 12,241
------------ ------------ -----------
NET CASH USED BY INVESTING ACTIVITIES....... (319,524) (95,487) (140,242)
------------ ------------ -----------
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received....................... 200,499 68,943 99,631
Surrenders and death benefits................. (19,207) (37,262) (23,371)
Interest credited to policyholders............ 31,867 30,024 27,958
Additional paid-in capital from shareholder..... 13,000 -- --
Dividends paid to shareholder................... -- (4,000) (8,000)
------------ ------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES... 226,159 57,705 96,218
------------ ------------ -----------
INCREASE (DECREASE) IN CASH................. 4,213 (5,643) (7,149)
Cash at beginning of year......................... 6,675 12,318 19,467
------------ ------------ -----------
CASH AT END OF YEAR......................... $ 10,888 $ 6,675 $ 12,318
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
See notes to financial statements.
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF STATEMENT PRESENTATION: Fortis Benefits Insurance Company (the Company)
is incorporated in Minnesota and is an indirect wholly-owned subsidiary of
Fortis, Inc. The financial statements are presented in conformity with generally
accepted accounting principles. Certain amounts included in the 1993 and 1992
financial statements have been reclassified to conform to the 1994 presentation.
RECOGNITION OF REVENUES, POLICY RESERVES AND LIABILITIES AND POLICY ACQUISITION
COSTS: 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 long-duration traditional life policies are recognized as
revenues when due over the premium-paying period. Liabilities for future
policy benefits and expenses 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 universal life 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 and
certain deferred policy initiation fees that are being recognized in income
over the term of the policies. 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 4% to 7.80% in 1994 and
4% to 7.75% in 1993.
Premiums for long-term disability, short-term traditional life, and accident
and health are recognized as revenues ratably over the contract period in
proportion to the risk insured. Liabilities for future disability income
policy benefits are based on the 1964 Commissioners Disability Table at 6
percent interest. Calculated reserves are modified based on the Company's
actual experience. Claims and benefits payable for reported and incurred but
not reported losses and related loss 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 earnings
currently.
For traditional life, interest sensitive and investment products in force at
inception, the Company recorded the present value of future profits as
deferred policy acquisition costs. For traditional life, such costs are
amortized in proportion to premium revenue over the estimated premium paying
period of the related policies. For interest sensitive and investment
products, such costs are amortized in relation to statutory profits. For
group life, accident and health, disability, and dental insurance business
acquired on October 1, 1991 (see Note 3), the Company recorded the present
value of future profits as deferred policy acquisition costs. These costs
are amortized in proportion to premium revenue over the estimated premium
paying period of the related policies and, if required, are expensed when
such costs are deemed not to be recoverable from future policy revenues,
including the related investment income.
For insurance products issued subsequent to December 31, 1984, 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 from
future profits, and amortized against income. The period of amortization
varies depending upon the product. For traditional life products, the policy
acquisition costs are deferred and amortized over the premium paying period
of the contracts. For interest sensitive and investment products, the policy
acquisition costs are deferred and amortized in relation to the present
value of estimated future gross profits.
37
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Prior to December 31, 1993, the Company classified fixed maturity investments as
available-for-sale recorded at the lower of amortized cost or market, computed
on a portfolio basis. Equity securities were carried at fair value. At December
31, 1993, all fixed maturity securities were classified as available-for-sale
and carried at fair value. The effect of adopting Statement 115 at December 31,
1993 was to increase the carrying amount of fixed maturities by $76,309,000,
policyholder dividends payable by $2,684,000, deferred income taxes by
$23,575,000 and shareholder's equity by $43,782,000 and to reduce the carrying
amount of deferred policy acquisition costs by $6,268,000. Beginning in 1994,
the classification of fixed maturity investments between available-for-sale or
held to maturity is made at the time of each purchase and, prospectively, that
classification is reevaluated as of each balance sheet date.
Changes in market values of available-for-sale securities, after deferred income
taxes and after adjustment for the amortization of deferred policy acquisition
costs, and participating policyholders' share of earnings are reported as
unrealized gains (losses) on investments directly in shareholder's equity and,
accordingly, have no effect on net income. The offsets to the unrealized
appreciation or depreciation represent valuation adjustments relating to amounts
of additional deferred policy acquisition costs or amortization of deferred
policy acquisition costs and the additional liabilities established for future
policyholder benefits and participating policyholders' share of the Company's
earnings that would have been required as a charge or credit to operations 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 balances, 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 contractholder, 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.
2. CHANGES IN ACCOUNTING PRINCIPLES
EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: Effective
January 1, 1993, the Company adopted FASB Statement 106, EMPLOYERS' ACCOUNTING
FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. The Company elected to
38
<PAGE>
2. CHANGES IN ACCOUNTING PRINCIPLES (CONTINUED)
immediately recognize the cumulative effect of this change in accounting for
postretirement benefits of $1,895,000 ($1,251,000 net of deferred income tax
benefit), which represents the accumulated postretirement benefit obligation
existing at January 1, 1993. Prior years' financial statements have not been
restated. The impact of Statement 106 on operating results for 1993 was not
material.
ACCOUNTING FOR INCOME TAXES: Effective January 1, 1993, the Company adopted FASB
Statement 109, ACCOUNTING FOR INCOME TAXES. Statement 109 provides for a balance
sheet approach in determining deferred income tax assets and liabilities. The
cumulative effect of adopting Statement 109 increased the Company's deferred tax
asset and net income by approximately $4,814,000 in 1993. As permitted under
Statement 109, prior years' financial statements have not been restated.
ACCOUNTING AND REPORTING FOR REINSURANCE OF SHORT-DURATION AND LONG-DURATION
CONTRACTS: In 1993, the Company adopted FASB Statement 113, ACCOUNTING AND
REPORTING FOR REINSURANCE OF SHORT-DURATION AND LONG-DURATION CONTRACTS. Under
Statement 113, amounts paid or deemed to have been paid for reinsurance
contracts are recorded as reinsurance recoverables. The effect of adopting
Statement 113 was to increase both assets and liabilities by $15,752,000 at
December 31, 1993.
ACCOUNTING FOR CERTAIN DEBT AND EQUITY SECURITIES: The Company adopted FASB
Statement 115, ACCOUNTING FOR CERTAIN DEBT AND EQUITY SECURITIES, as of December
31, 1993. Under Statement 115, all fixed maturities are classified as
available-for-sale and carried at fair value, while equity securities continue
to be carried at fair value. Adoption of Statement 115 had no effect on net
income in 1993.
3. ACQUIRED BUSINESS
In October, 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, accident and health, disability and dental insurance
business of MBL. The acquisition was accounted for as a purchase. The Company
purchased this business for $318,000,000. Per contractual agreement, additional
payments were paid to MBL based upon the persistency of the long term disability
portion of the business. Under terms of this agreement, the Company paid
$6,644,000, $5,521,000 and $8,685,000 in 1994, 1993, and 1992, respectively.
This additional purchase price was accounted for as deferred policy acquisition
costs. No additional payments will be made.
39
<PAGE>
4. 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
COST GAIN LOSS FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1994:
Fixed Income Securities:
Governments................................... $ 829,607 $ 1,129 $40,642 $ 790,094
Public utilities.............................. 60,885 1,132 1,389 60,628
Industrial & miscellaneous.................... 847,018 3,184 38,505 811,697
Other......................................... 11,837 764 238 12,363
----------- ---------- ---------- -----------
Total....................................... 1,749,347 6,209 80,774 1,674,782
Equity Securities............................... 59,010 9,896 4,354 64,552
----------- ---------- ---------- -----------
Total....................................... $1,808,357 $16,105 $85,128 $1,739,334
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
December 31, 1993:
Fixed Income Securities:
Governments................................... $ 323,629 $ 8,684 $ 2,642 $ 329,671
Public utilities.............................. 108,444 9,583 -- 118,027
Industrial & miscellaneous.................... 1,010,933 58,880 3,294 1,066,519
Other......................................... 187,387 5,338 240 192,485
----------- ---------- ---------- -----------
Total....................................... 1,630,393 82,485 6,176 1,706,702
Equity Securities............................... 56,126 12,040 2,261 65,905
----------- ---------- ---------- -----------
Total....................................... $1,686,519 $94,525 $ 8,437 $1,772,607
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
The amortized cost and fair value of available-for-sale investments in fixed
maturities at December 31, 1994, 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
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Due in one year or less........................... $ 54,540 $ 54,333
Due after one year through five years............. 407,103 393,734
Due after five years through ten years............ 650,526 629,070
Due after ten years............................... 637,178 597,645
----------- -----------
Total........................................... $1,749,347 $1,674,782
----------- -----------
----------- -----------
</TABLE>
MORTGAGE LOANS: The Company has issued commercial mortgage loans on properties
located throughout the country. Approximately 34% of outstanding principal is
concentrated in the states of California, Florida and Texas at December 31, 1994
as compared to 38% at December 31, 1993. Loan commitments outstanding at
December 31, 1994 totalled $47,375,000.
In May 1993, FASB issued Statement 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT
OF A LOAN, which becomes effective for fiscal years beginning after December 15,
1994, and which the Company will adopt 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 Company does not expect
the impact of adoption to be material to its financial position or operating
results.
40
<PAGE>
4. INVESTMENTS (CONTINUED)
INVESTMENTS ON DEPOSIT: The Company had fixed maturities and mortgage loans on
real estate carried at $2,635,000 and $8,132,000, respectively, at December 31,
1994, and $2,470,000 and $8,132,000 respectively, at December 31, 1993 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 (See Note 1) were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Change in unrealized gains (losses) before adjustment for the
following items (for equity securities only in 1993 and
1992):........................................................ $(155,923) $ 3,979 $ 5,705
Capitalization (amortization) of deferred policy acquisition
costs....................................................... 9,288 -- --
Effect of initial adoption of FASB 115....................... -- 43,782 --
Participating policyholders' share of earnings............... 2,684 -- --
Deferred income taxes........................................ 50,383 (1,467) (2,233)
--------- --------- ---------
Change in net unrealized gains (losses)........................ (93,568) 46,294 3,472
Net unrealized gains, beginning of the year.................... 51,214 4,920 1,448
--------- --------- ---------
Net unrealized gains (losses), end of year..................... $ (42,354) $ 51,214 $ 4,920
--------- --------- ---------
--------- --------- ---------
</TABLE>
The increase (decrease) in unrealized gains on fixed maturity investments was
$31,079,000 in 1993 and $(5,538,000) in 1992. The deferred tax expense (benefit)
would have been $10,878,000 in 1993 and $(1,883,000) in 1992.
NET INVESTMENT INCOME AND 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>
REALIZED GAINS (LOSSES)
NET INVESTMENT INCOME ON INVESTMENTS
------------------------------- -------------------------------
1994 1993 1992 1994 1993 1992
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities.......................... $ 119,668 $ 120,844 $ 128,532 $ (27,854) $ 70,626 $ 38,864
Equity securities......................... 1,937 1,490 654 1,352 3,955 10
Mortgage loans on real estate............. 36,816 28,370 25,205 (2,992) (1,805) (1,700)
Policy loans.............................. 2,731 3,004 2,968 -- -- --
Short-term investments.................... 4,671 4,282 3,152 (60) 1 4
Real estate & other investments........... 2,138 1,171 1,132 739 846 750
--------- --------- --------- --------- --------- ---------
Total................................... 167,961 159,161 161,643 $ (28,815) $ 73,623 $ 37,928
--------- --------- ---------
--------- --------- ---------
Expenses.................................. (5,447) (5,504) (5,212)
--------- --------- ---------
$ 162,514 $ 153,657 $ 156,431
--------- --------- ---------
--------- --------- ---------
</TABLE>
Proceeds from sales of investments in fixed maturities were $1,798,185,000,
$335,230,000, and $2,425,212,000 in 1994, 1993, and 1992, respectively. Gross
gains of $16,618,000, $75,133,000 and $55,833,000 and gross losses of
$44,472,000, $4,507,000, and $16,969,000 were realized on the sales in 1994,
1993, and 1992, respectively.
41
<PAGE>
5. 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 AND
LIFE PRODUCTS HEALTH TOTAL
----------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
Balance January 1, 1993.......................... $ 74,325 $ 59,212 $ 54,354 $ 187,891
Acquisition costs deferred:
Acquired business.............................. -- -- 5,521 5,521
Other business................................. -- 45,841 -- 45,841
Acquisition costs amortized...................... (12,851) (10,839) (12,812) (36,502)
Allowance for additional amortization from
unrealized gains on available-for-sale
securities...................................... -- (6,268) -- (6,268)
----------- ------------- ------------- ---------
Balance December 31, 1993........................ 61,474 87,946 47,063 196,483
Acquisition costs deferred:
Acquired business.............................. -- -- 6,644 6,644
Other business................................. -- 54,349 -- 54,349
Acquisition costs amortized...................... (11,564) (10,274) (12,728) (34,566)
Additional deferred acquisition costs from
unrealized losses on available-for-sale
securities...................................... -- 9,288 -- 9,288
----------- ------------- ------------- ---------
Balance December 31, 1994........................ $ 49,910 $ 141,309 $ 40,979 $ 232,198
----------- ------------- ------------- ---------
----------- ------------- ------------- ---------
</TABLE>
Included within total deferred policy acquisition costs at December 31, 1994 is
$68,194,000 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 four years is as follows: 1995--$21,444,000; 1996--$19,210,000;
1997--$17,262,000; 1998--$10,278,000.
During 1994, 1993, and 1992, 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 $(935,000), $5,400,000, and $5,300,000,
respectively. In addition, the Company (reduced) recorded additional
policyholder dividends payable of $(761,000) in 1994 and $2,800,000 in 1993.
6. PROPERTY AND EQUIPMENT
A summary of property and equipment for each year follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Land................................................... $ 1,900 $ 1,900
Building and improvements.............................. 23,084 22,382
Furniture and equipment................................ 68,017 55,896
--------- ---------
93,001 80,178
Less accumulated depreciation.......................... (36,062) (26,638)
--------- ---------
NET PROPERTY AND EQUIPMENT........................... $ 56,939 $ 53,540
--------- ---------
--------- ---------
</TABLE>
42
<PAGE>
7. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
Activity for the liability for unpaid accident and health claims and claims
adjustment expense is summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance recoverables............. $ 806,538 $ 776,194 $ 755,849
Add: Incurred losses related to:
Current year....................................................... 656,052 612,621 645,008
Prior years........................................................ (58,218) (41,619) (54,869)
--------- --------- ---------
Total incurred losses................................................ 597,834 571,002 590,139
Deduct: Paid losses related to:
Current year....................................................... 377,595 353,124 378,879
Prior years........................................................ 187,967 187,534 190,915
--------- --------- ---------
Total paid losses.................................................... 565,562 540,658 569,794
--------- --------- ---------
Balance as of December 31, net of reinsurance recoverables........... $ 838,810 $ 806,538 $ 776,194
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1994 and 1993, the accident/health 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.
8. 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.
The cumulative effect of adopting Statement 109 as of January 1, 1993 was to
increase net income for 1993 by $4,814,000. An increase in the tax rate from 34%
to 35% was effective in the third quarter of 1993 and resulted in a $305,000
increase in net income from the recalculation of the deferred liability account.
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.
43
<PAGE>
8. FEDERAL INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Deferred tax assets:
Reserves............................................. $ 42,715 $ 46,823
Separate account assets/liabilities.................. 27,663 19,313
Unrealized losses.................................... 22,806 --
Accrued liabilities.................................. 14,565 12,142
Claims and benefits payable.......................... 1,976 1,860
Other................................................ 1,393 1,268
--------- ---------
Total deferred tax assets............................ 111,118 81,406
Deferred tax liabilities:
Unrealized gains..................................... -- 27,577
Deferred policy acquisition costs.................... 55,329 43,336
Investments.......................................... 1,194 9,949
Fixed assets......................................... 6,086 4,585
Other................................................ -- 188
--------- ---------
Total deferred tax liabilities....................... 62,609 85,635
--------- ---------
Net deferred tax asset (liability)................... $ 48,509 $ (4,229)
--------- ---------
--------- ---------
</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 components of the provision for deferred income taxes for the year ended
December 31, 1992 based on APB Opinion 11 are as follows (in thousands):
<TABLE>
<CAPTION>
1992
---------
<S> <C>
Amortization of present value of future profits................. $ (4,709)
Deferred policy acquisition costs............................... 2,898
Increase in policy reserves..................................... (10,568)
Accrual of discount on investments.............................. 474
Purchase accounting adjustments................................. (24,711)
Depreciation expense............................................ 1,323
Discounting of post-1986 unpaid losses and loss adjustment
expenses....................................................... 660
Expenses accrued not currently deductible for tax............... (4,369)
Other........................................................... (1,648)
---------
Deferred income tax expense (benefit)......................... $ (40,650)
---------
---------
</TABLE>
The Company's tax expense before cumulative effect of accounting changes is
shown as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Current........................................ $ 15,046 $ 35,747 $ 66,310
Deferred....................................... (3,451) (4,657) (40,650)
--------- --------- ---------
$ 11,595 $ 31,090 $ 25,660
--------- --------- ---------
--------- --------- ---------
</TABLE>
44
<PAGE>
8. FEDERAL INCOME TAXES (CONTINUED)
Tax payments were made of $18,080,000, $53,600,000, and $64,600,000 in 1994,
1993, and 1992, respectively. Tax refunds were received of $7,729,000 and
$17,130,493 in 1994 and 1992, respectively.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Statutory income tax rate......................... 35.0% 35.0% 34.0%
Tax audit provision............................... 0.8 (4.6) --
Other, net........................................ (2.1) (1.9) (0.3)
----- ----- -----
33.7% 28.5% 33.7%
----- ----- -----
----- ----- -----
</TABLE>
9. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
----------- ---------
<S> <C> <C>
Premium and annuity considerations for the
variable annuity products and variable universal
life product for which the contractholder, rather
than the Company, bears the investment risk...... $ 1,208,038 $ 970,436
Assets of the separate accounts owned by the
Company, at fair value........................... 4,872 5,201
----------- ---------
$ 1,212,910 $ 975,637
----------- ---------
----------- ---------
</TABLE>
45
<PAGE>
10. 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>
SHAREHOLDER'S
NET INCOME EQUITY
------------------------------- --------------------
1994 1993 1992 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Based on statutory accounting practices.......... $ 49,759 $ 46,605 $ 26,499 $ 304,231 $ 258,574
Deferred policy acquisition costs................ 19,783 9,338 (5,772) 232,198 196,483
Investment valuation differences................. 370 520 (17) (85,944) 65,716
Deferred and uncollected premiums................ (14) 1,655 763 (8,393) (8,680)
Unearned premiums................................ 1,126 7,035 (1,253) (13,008) (14,133)
Loading and equity in unearned premiums.......... 316 (179) (248) 85 82
Property and equipment........................... (204) (63) (20) 22,027 18,424
Policy reserves.................................. (26,655) (38,558) (19,606) (72,192) (45,547)
Current income taxes payable..................... -- 4,656 (1,609) (4,786) (4,786)
Deferred income taxes............................ 2,356 9,776 40,650 48,509 (4,229)
Realized gains (losses) on investments........... (1,052) 3,651 (781) -- --
Realized gains (losses) transferred to the
Interest Maintenance Reserve (IMR), net of
tax............................................. (18,456) 40,459 23,266 -- --
Amortization of IMR, net of tax.................. (5,479) (3,777) (8,649) -- --
Interest maintenance reserve..................... -- -- -- 27,364 51,299
Asset valuation reserve.......................... -- -- -- 32,011 31,233
Cumulative effect of accounting changes.......... -- 3,563 -- -- --
Other, net....................................... 1,007 (2,974) (2,767) (7,905) (12,528)
--------- --------- --------- --------- ---------
$ 22,857 $ 81,707 $ 50,456 $ 474,197 $ 531,908
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
11. REINSURANCE
The maximum amount that the Company retains on any one life is $750,000 of life
insurance including accidental death. Amounts in excess of $750,000 are
reinsured with other life insurance companies on a yearly renewable term basis.
Ceded reinsurance premiums were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Life Insurance.................................... $ 5,571 $ 4,366 $ 5,772
Accident & Health Insurance....................... 36,782 37,088 46,508
-------- -------- --------
$ 42,353 $ 41,454 $ 52,280
-------- -------- --------
-------- -------- --------
</TABLE>
Recoveries under reinsurance contracts were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Life Insurance.................................... $ 1,650 $ 6,963 $ 5,669
Accident & Health Insurance....................... 19,913 15,448 47,482
-------- -------- --------
$ 21,563 $ 22,411 $ 53,151
-------- -------- --------
-------- -------- --------
</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.
46
<PAGE>
12. DIVIDEND RESTRICTIONS
Dividend distributions to parent are restricted as to amount by state regulatory
requirements. The Company had $41,595,000 free from such restrictions at
December 31, 1994. Distributions in excess of this amount would require
regulatory approval.
13. 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, 1994, 1993, and
1992, were $8,944,000, $8,595,000, and $8,239,000 respectively.
In conjunction with the marketing of its variable annuity products, the Company
paid $57,307,000, $27,931,000, and $19,898,000 in commissions to its affiliate,
Fortis Investors, Inc. for the years ended December 31, 1994, 1993, and 1992,
respectively.
14. FAIR VALUE DISCLOSURES
VALUATION METHODS AND ASSUMPTIONS: Investments are reported in the accompanying
balance sheets on the following basis:
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 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
-----------------------------------------------------
1994 1993
------------------------- -------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturities............................ $ 1,674,782 $ 1,674,782 $ 1,706,702 $ 1,706,702
Equity securities........................... 64,552 64,552 65,905 65,905
Mortgage loans on real estate................. 452,547 434,503 355,515 367,746
Policy loans.................................. 49,221 49,221 47,009 47,009
Short-term investments........................ 117,562 117,562 73,382 73,382
Cash.......................................... 10,888 10,888 6,675 6,675
Assets held in separate accounts.............. 1,212,910 1,212,910 975,637 975,637
Liabilities:
Individual and group annuities (subject to
discretionary withdrawal)...................... 692,196 657,454 480,900 456,300
</TABLE>
47
<PAGE>
15. 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.
16. 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, 1994.
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 $3,536,000 and
$3,399,000 in 1994 and 1993, respectively.
48
<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's Growth Stock, U.S. Government Securities, Money Market, Asset
Allocation, Diversified Income, Global Growth, Aggressive Growth, Growth &
Income, and High Yield Subaccounts) as of December 31, 1994, and the related
statements of operations and changes in net assets for each of the three years
then ended, except for the Fortis Series Fund's Aggressive Growth, Growth &
Income, and High Yield Subaccounts which are for the year ended December 31,
1994. 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, 1994 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 each of the portfolio
subaccounts constituting Fortis Benefits Insurance Company Variable Account C at
December 31, 1994, and the results of their operations and changes in their net
assets for the periods described in the first paragraph, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 24, 1995
49
<PAGE>
STATEMENT OF NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
DECEMBER 31, 1994
<TABLE>
<CAPTION>
U.S. GOVT. MONEY ASSET DIVERSIFIED
GROWTH STOCK SECURITIES MARKET ALLOCATION INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in Fortis Series Funds, Inc., at
market value (Note 2):
Growth Stock Series (3,237,912 shares;
cost-- $63,961,752)....................... $71,580,527
U.S. Government Securities Series (758,711
shares; cost--$8,172,171)................. $7,129,989
Money Market Series (397,488 shares; cost--
$4,145,861)............................... $4,225,618
Asset Allocation Series (1,215,468 shares;
cost-- $15,835,476)....................... $16,483,814
Diversified Income Series (306,614 shares;
cost-- $3,574,792)........................ $3,189,335
Global Growth Series (1,733,570 shares;
cost-- $21,153,654).......................
Aggressive Growth Series (233,631 shares;
cost-- $2,257,975)........................
Growth & Income Series (124,756 shares;
cost-- $1,256,389)........................
High Yield Series (183,296 shares; cost--
$1,824,469)...............................
------------ ----------- ----------- ------------ -----------
$71,580,527 7,129,989 4,225,618 16,483,814 3,189,335
Attributable to Fortis Benefits Insurance
Company..................................... 1,279,487 -- -- 667,902 --
------------ ----------- ----------- ------------ -----------
Net assets for variable life insurance
policies.................................... $70,301,040 $7,129,989 $4,225,618 $15,815,912 $3,189,335
------------ ----------- ----------- ------------ -----------
------------ ----------- ----------- ------------ -----------
Accumulation units outstanding............... 4,345,216 545,205 343,687 1,073,015 235,648
------------ ----------- ----------- ------------ -----------
------------ ----------- ----------- ------------ -----------
Net asset value for variable life insurance
policies per accumulation unit.............. $ 16.18 $ 13.08 $ 12.29 $ 14.74 $ 13.53
------------ ----------- ----------- ------------ -----------
------------ ----------- ----------- ------------ -----------
<CAPTION>
AGGRESSIVE GROWTH &
GLOBAL GROWTH GROWTH INCOME HIGH YIELD
PORTFOLIO PORTFOLIO PORTFOLIO SERIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments in Fortis Series Funds, Inc., at
market value (Note 2):
Growth Stock Series (3,237,912 shares;
cost-- $63,961,752).......................
U.S. Government Securities Series (758,711
shares; cost--$8,172,171).................
Money Market Series (397,488 shares; cost--
$4,145,861)...............................
Asset Allocation Series (1,215,468 shares;
cost-- $15,835,476).......................
Diversified Income Series (306,614 shares;
cost-- $3,574,792)........................
Global Growth Series (1,733,570 shares;
cost-- $21,153,654)....................... $21,333,481
Aggressive Growth Series (233,631 shares;
cost-- $2,257,975)........................ $2,288,670
Growth & Income Series (124,756 shares;
cost-- $1,256,389)........................ $1,256,238
High Yield Series (183,296 shares; cost--
$1,824,469)............................... $1,735,443
------------- ----------- ----------- -----------
21,333,481 2,288,670 1,256,238 1,735,443
Attributable to Fortis Benefits Insurance
Company..................................... 501,474 587,791 604,185 1,231,006
------------- ----------- ----------- -----------
Net assets for variable life insurance
policies.................................... $20,832,007 $1,700,879 $ 652,053 $ 504,437
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Accumulation units outstanding............... 1,692,124 172,983 62,693 50,920
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Net asset value for variable life insurance
policies per accumulation unit.............. $ 12.31 $ 9.83 $ 10.40 $ 9.91
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
50
<PAGE>
STATEMENTS OF OPERATIONS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
GROWTH STOCK PORTFOLIO SUBACCOUNT
Investment income:
Dividend income................................. $ 524,850 $ 186,295 $ 194,919
Mortality and expense and policy advance charges
(Note 3)....................................... (630,146) (406,385) (196,675)
------------ ----------- -----------
NET INVESTMENT LOSS........................... (105,296) (220,090) (1,756)
Net realized gain on redemption of Fortis Series
Fund, Inc. portfolio shares...................... 193,238 315,227 --
Net change in unrealized (depreciation)
appreciation on investments...................... (1,828,331) 3,121,509 1,311,743
------------ ----------- -----------
NET (DECREASE) INCREASE IN NET ASSETS FROM
OPERATIONS................................... $ (1,740,389) $ 3,216,646 $ 1,309,987
------------ ----------- -----------
------------ ----------- -----------
U.S. GOVERNMENT SECURITIES PORTFOLIO SUBACCOUNT
Investment income:
Dividend income................................. $ 607,364 $ 523,262 $ 251,334
Mortality and expense and policy advance charges
(Note 3)......................................... (79,454) (51,142) (34,292)
------------ ----------- -----------
NET INVESTMENT INCOME......................... 527,910 472,120 217,042
Net realized (loss) gain on redemption of Fortis
Series Fund, Inc. portfolio
shares........................................... (126,731) 56,486 --
Net change in unrealized depreciation on
investments...................................... (967,547) (133,072) (66,898)
------------ ----------- -----------
NET (DECREASE) INCREASE IN NET ASSETS FROM
OPERATIONS................................... $ (566,368) $ 395,534 $ 150,144
------------ ----------- -----------
------------ ----------- -----------
MONEY MARKET PORTFOLIO SUBACCOUNT
Investment income:
Dividend income................................. $ -- $ 35,403 $ 37,503
Mortality and expense and policy advance charges
(Note 3)....................................... (21,446) (14,578) (9,903)
------------ ----------- -----------
NET INVESTMENT (LOSS) INCOME.................. (21,446) 20,825 27,600
Net realized gain on redemption of Fortis Series
Fund, Inc. portfolio shares...................... 13,988 4,990 --
Net change in unrealized appreciation
(depreciation) on investments.................... 100,566 (3,006) 5,429
------------ ----------- -----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.... $ 93,108 $ 22,809 $ 33,029
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes.
51
<PAGE>
STATEMENTS OF OPERATIONS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
ASSET ALLOCATION PORTFOLIO SUBACCOUNT
Investment income:
Dividend income................................. $ 626,408 $ 363,460 $ 194,016
Mortality and expense and policy advance charges
(Note 3)....................................... (146,296) (91,158) (43,171)
------------ ------------ ------------
NET INVESTMENT INCOME......................... 480,112 272,302 150,845
Net realized gain on redemption of Fortis Series
Fund, Inc. portfolio shares...................... 42,277 67,563 --
Net change in unrealized (depreciation)
appreciation on investments...................... (652,759) 432,499 184,791
------------ ------------ ------------
NET (DECREASE) INCREASE IN NET ASSETS FROM
OPERATIONS................................... $ (130,370) $ 772,364 $ 335,636
------------ ------------ ------------
------------ ------------ ------------
DIVERSIFIED INCOME PORTFOLIO SUBACCOUNT
Investment income:
Dividend income................................. $ 257,570 $ 120,019 $ 16,039
Mortality and expense and policy advance charges
(Note 3)....................................... (29,757) (11,358) (2,020)
------------ ------------ ------------
NET INVESTMENT INCOME......................... 227,813 108,661 14,019
Net realized (loss) gain on redemption of Fortis
Series Fund, Inc. portfolio
shares........................................... (32,443) 16,707 --
Net change in unrealized depreciation on
investments...................................... (335,368) (49,202) (3,365)
------------ ------------ ------------
NET (DECREASE) INCREASE IN NET ASSETS FROM
OPERATIONS................................... $ (139,998) $ 76,166 $ 10,654
------------ ------------ ------------
------------ ------------ ------------
GLOBAL GROWTH PORTFOLIO SUBACCOUNT
Investment income:
Dividend income................................. $ 144,687 $ 25,615 $ 10,131
Mortality and expense and policy advance charges
(Note 3)....................................... (157,000) (35,224) (2,084)
------------ ------------ ------------
NET INVESTMENT INCOME (LOSS).................. (12,313) (9,609) 8,047
Net realized gain on redemption of Fortis Series
Fund, Inc. portfolio shares...................... 490,813 33,810 --
Net change in unrealized (depreciation)
appreciation on investments...................... (1,085,870) 930,476 254,238
------------ ------------ ------------
NET (DECREASE) INCREASE IN NET ASSETS FROM
OPERATIONS................................... $ (607,370) $ 954,677 $ 262,285
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
52
<PAGE>
STATEMENTS OF OPERATIONS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
-------------
<S> <C>
AGGRESSIVE GROWTH PORTFOLIO SUBACCOUNT
Investment income:
Dividend income.................................................................. $ 8,878
Mortality and expense and policy advance charges (Note 3)........................ (4,484)
-------------
NET INVESTMENT INCOME.......................................................... 4,394
Net realized loss on redemption of Fortis Series Fund, Inc. portfolio shares....... (2,388)
Net change in unrealized appreciation on investments............................... 33,036
-------------
NET INCREASE IN NET ASSETS FROM OPERATIONS..................................... $ 35,042
-------------
-------------
GROWTH & INCOME PORTFOLIO SUBACCOUNT
Investment income:
Dividend income.................................................................. $ 12,968
Mortality and expense and policy advance charges (Note 3)........................ (1,404)
-------------
NET INVESTMENT INCOME.......................................................... 11,564
Net realized gain on redemption of Fortis Series Fund, Inc. portfolio shares....... 124
Net change in unrealized appreciation on investments 6,216
-------------
NET INCREASE IN NET ASSETS FROM OPERATIONS..................................... $ 17,904
-------------
-------------
HIGH YIELD PORTFOLIO SUBACCOUNT
Investment income:
Dividend income.................................................................. $ 81,918
Mortality and expense and policy advance charges (Note 3)........................ (1,463)
-------------
NET INVESTMENT INCOME.......................................................... 80,455
Net realized loss on redemption of Fortis Series Fund, Inc. portfolio shares....... (3,503)
Net change in unrealized depreciation on investments............................... (29,639)
-------------
NET INCREASE IN NET ASSETS FROM OPERATIONS..................................... $ 47,313
-------------
-------------
</TABLE>
See accompanying notes.
53
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
GROWTH STOCK PORTFOLIO SUBACCOUNT
From operations:
Net investment loss............................. $ (105,296) $ (220,090) $ (1,756)
Net realized gain on redemption of Fortis Series
Fund, Inc. portfolio
shares......................................... 193,238 315,227 --
Net change in unrealized (depreciation)
appreciation on investments.................... (1,828,331) 3,121,509 1,311,743
----------- ----------- -----------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.................... (1,740,389) 3,216,646 1,309,987
Capital transactions:
Purchase of Variable Account C units............ 24,347,849 18,848,153 13,122,018
Redemption of Variable Account C units.......... (1,563,675) (1,856,898) (1,607,358)
Mortality and expense charge redeemed from
Fortis Series Funds, Inc....................... 630,146 -- 196,675
Mortality and expense charge due from Fortis
Series Funds, Inc.............................. -- 406,385 --
Dividend income distribution to Fortis Benefits
Insurance Company.............................. (9,364) -- (3,950)
----------- ----------- -----------
NET INCREASE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................. 23,404,956 17,397,640 11,707,385
----------- ----------- -----------
TOTAL INCREASE IN NET ASSETS.................. 21,664,567 20,614,286 13,017,372
Net assets, beginning of year..................... 49,915,960 29,301,674 16,284,302
----------- ----------- -----------
NET ASSETS, END OF YEAR....................... $71,580,527 $49,915,960 $29,301,674
----------- ----------- -----------
----------- ----------- -----------
U.S. GOVERNMENT SECURITIES PORTFOLIO SUBACCOUNT
From operations:
Net investment income........................... $ 527,910 $ 472,120 $ 217,042
Net realized (loss) gain on redemption of Fortis
Series Fund, Inc. portfolio shares............. (126,731) 56,486 --
Net change in unrealized depreciation on
investments.................................... (967,547) (133,072) (66,898)
----------- ----------- -----------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.................... (566,368) 395,534 150,144
Capital transactions:
Purchase of Variable Account C units............ 1,951,506 4,101,566 2,384,230
Redemption of Variable Account C units.......... (1,984,288) (971,887) (385,801)
Mortality and expense charge redeemed from
Fortis Series Funds, Inc....................... 79,454 -- 34,292
Mortality and expense charge due from Fortis
Series Funds, Inc.............................. -- 51,142 --
Redemption of Fortis Benefits Insurance Company
investment in
subaccount..................................... -- -- (1,390,338)
----------- ----------- -----------
NET INCREASE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................. 46,672 3,180,821 642,383
----------- ----------- -----------
TOTAL (DECREASE) INCREASE IN NET ASSETS....... (519,696) 3,576,355 792,527
Net assets, beginning of year..................... 7,649,685 4,073,330 3,280,803
----------- ----------- -----------
NET ASSETS, END OF YEAR....................... $ 7,129,989 $ 7,649,685 $ 4,073,330
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
54
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
MONEY MARKET PORTFOLIO SUBACCOUNT
From operations:
Net investment (loss) income.................... $ (21,446) $ 20,825 $ 27,600
Net realized gain on redemption of Fortis Series
Fund, Inc. portfolio
shares......................................... 13,988 4,990 --
Net change in unrealized appreciation
(depreciation) on investments.................. 100,566 (3,006) 5,429
------------ ------------ ------------
NET INCREASE IN NET ASSETS FROM OPERATIONS.... 93,108 22,809 33,029
Capital transactions:
Purchase of Variable Account C units............ 4,963,584 3,163,424 2,473,144
Redemption of Variable Account C units.......... (2,269,774) (3,233,030) (1,783,229)
Mortality and expense charge redeemed from
Fortis Series Funds, Inc....................... 21,446 -- 9,903
Mortality and expense charge due from Fortis
Series Funds, Inc.............................. -- 14,578 --
Redemption of Fortis Benefits Insurance Company
investment in the subaccount................... -- -- (1,070,910)
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CAPITAL TRANSACTIONS......................... 2,715,256 (55,028) (371,092)
------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS....... 2,808,364 (32,219) (338,063)
Net assets, beginning of year..................... 1,417,254 1,449,473 1,787,536
------------ ------------ ------------
NET ASSETS, END OF YEAR....................... $ 4,225,618 $ 1,417,254 $ 1,449,473
------------ ------------ ------------
------------ ------------ ------------
ASSET ALLOCATION PORTFOLIO SUBACCOUNT
From operations:
Net investment income........................... $ 480,112 $ 272,302 $ 150,845
Net realized gain on redemption of Fortis Series
Fund, Inc. portfolio
shares......................................... 42,277 67,563 --
Net change in unrealized (depreciation)
appreciation on investments.................... (652,759) 432,499 184,791
------------ ------------ ------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.................... (130,370) 772,364 335,636
Capital transactions:
Purchase of Variable Account C units............ 5,042,184 5,311,744 2,431,645
Redemption of Variable Account C units.......... (514,392) (572,086) (210,349)
Mortality and expense charge redeemed from
Fortis Series Funds, Inc....................... 146,296 -- 43,171
Mortality and expense charge due from Fortis
Series Funds, Inc.............................. -- 91,158 --
Dividend income distribution to Fortis Benefits
Insurance Company.............................. (26,122) -- (15,527)
------------ ------------ ------------
NET INCREASE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................. 4,647,966 4,830,816 2,248,940
------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS.................. 4,517,596 5,603,180 2,584,576
Net assets, beginning of year..................... 11,966,218 6,363,038 3,778,462
------------ ------------ ------------
NET ASSETS, END OF YEAR....................... $ 16,483,814 $ 11,966,218 $ 6,363,038
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
55
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
DIVERSIFIED INCOME PORTFOLIO SUBACCOUNT
From operations:
Net investment income........................... $ 227,813 $ 108,661 $ 14,019
Net realized (loss) gain on redemption of Fortis
Series Fund, Inc. portfolio shares............. (32,443) 16,707 --
Net change in unrealized depreciation on
investments.................................... (335,368) (49,202) (3,365)
------------ ------------ ------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.................... (139,998) 76,166 10,654
Capital transactions:
Purchase of Variable Account C units............ 2,099,560 1,934,554 444,073
Redemption of Variable Account C units.......... (601,619) (509,368) (314,214)
Mortality and expense charge redeemed from
Fortis Series Funds, Inc....................... 29,757 -- 2,020
Mortality and expense charge due from Fortis
Series Fund, Inc............................... -- 11,358 --
------------ ------------ ------------
NET INCREASE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................. 1,527,698 1,436,544 131,879
------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS.................. 1,387,700 1,512,710 142,533
Net assets, beginning of year..................... 1,801,635 288,925 146,392
------------ ------------ ------------
NET ASSETS, END OF YEAR....................... $ 3,189,335 $ 1,801,635 $ 288,925
------------ ------------ ------------
------------ ------------ ------------
GLOBAL GROWTH PORTFOLIO SUBACCOUNT
From operations:
Net investment (loss) income.................... $ (12,313) $ (9,609) $ 8,047
Net realized gain on redemption of Fortis Series
Fund, Inc. portfolio
shares......................................... 490,813 33,810 --
Net change in unrealized (depreciation)
appreciation on investments.................... (1,085,870) 930,476 254,238
------------ ------------ ------------
NET (DECREASE) INCREASE IN NET ASSETS FROM
OPERATIONS................................... (607,370) 954,677 262,285
Capital transactions:
Purchase of Variable Account C units............ 14,421,587 6,887,276 723,203
Redemption of Variable Account C units.......... (702,164) (722,115) (28,714)
Mortality and expense charge redeemed from
Fortis Series Funds, Inc....................... 157,000 -- 2,084
Mortality and expense charge due from Fortis
Series Fund, Inc............................... -- 35,224 --
Funding of subaccount by Fortis Benefits
Insurance Company.............................. -- -- 2,461,249
Redemption of Fortis Benefits Insurance Company
investment in
subaccount..................................... (2,500,000) -- --
Dividend income distributed to Fortis Benefits
Insurance Company.............................. (3,407) -- (7,334)
------------ ------------ ------------
NET INCREASE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................. 11,373,016 6,200,385 3,150,488
------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS.................. 10,765,646 7,155,062 3,412,773
Net assets, beginning of year..................... 10,567,835 3,412,773 --
------------ ------------ ------------
NET ASSETS, END OF YEAR....................... $ 21,333,481 $ 10,567,835 $ 3,412,773
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
56
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
<S> <C>
AGGRESSIVE GROWTH PORTFOLIO SUBACCOUNT
From operations:
Net investment income............................................................ $ 4,394
Net realized loss on redemption of Fortis Series Fund, Inc. portfolio shares..... (2,388)
Net change in unrealized appreciation on investments............................. 33,036
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS..................................... 35,042
Capital transactions:
Purchase of Variable Account C units............................................. 1,858,035
Redemption of Variable Account C units........................................... (206,503)
Mortality and expense charge redeemed from Fortis Series Funds, Inc.............. 4,484
Funding of subaccount by Fortis Benefits Insurance Company....................... 600,000
Dividend income distributed to Fortis Benefits Insurance Company................. (2,388)
------------
NET INCREASE IN NET ASSETS FROM CAPITAL TRANSACTIONS........................... 2,253,628
------------
TOTAL INCREASE IN NET ASSETS................................................... 2,288,670
Net assets, beginning of year...................................................... --
------------
NET ASSETS, END OF YEAR........................................................ $2,288,670
------------
------------
GROWTH & INCOME PORTFOLIO SUBACCOUNT
From operations:
Net investment income............................................................ $ 11,564
Net realized gain on redemption of Fortis Series Fund, Inc. portfolio shares..... 124
Net change in unrealized appreciation on investments............................. 6,216
------------
Net increase in net assets from operations......................................... 17,904
Capital transactions:
Purchase of Variable Account C units............................................. 656,805
Redemption of Variable Account C units........................................... (13,437)
Mortality and expense charge redeemed from Fortis Series Funds, Inc.............. 1,404
Funding of subaccount by Fortis Benefits Insurance Company....................... 600,000
Dividend income distributed to Fortis Benefits Insurance Company................. (6,438)
------------
NET INCREASE IN NET ASSETS FROM CAPITAL TRANSACTIONS........................... 1,238,334
------------
TOTAL INCREASE IN NET ASSETS................................................... 1,256,238
Net assets, beginning of year...................................................... --
------------
NET ASSETS, END OF YEAR........................................................ $1,256,238
------------
------------
</TABLE>
See accompanying notes.
57
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
<S> <C>
HIGH YIELD PORTFOLIO SUBACCOUNT
From operations:
Net investment income............................................................ $ 80,455
Net realized loss on redemption of Fortis Series Fund, Inc. portfolio shares..... (3,503)
Net change in unrealized depreciation on investments............................. (29,639)
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS..................................... 47,313
Capital transactions:
Purchase of Variable Account C units............................................. 733,981
Redemption of Variable Account C units........................................... (288,164)
Mortality and expense charge redeemed from Fortis Series Funds, Inc.............. 1,463
Funding of subaccount by Fortis Benefits Insurance Company....................... 1,300,000
Dividend income distributed to Fortis Benefits Insurance Company................. (59,150)
------------
NET INCREASE IN NET ASSETS FROM CAPITAL TRANSACTIONS........................... 1,688,130
------------
TOTAL INCREASE IN NET ASSETS................................................... 1,735,443
Net assets, beginning of year...................................................... --
------------
NET ASSETS, END OF YEAR........................................................ $1,735,443
------------
------------
</TABLE>
See accompanying notes.
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
DECEMBER 31, 1994
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 the end of 1994, Fortis Benefits had
approximately $61 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 $100 billion
in assets at the end of 1994.
Fortis Advisers, Inc. (a wholly-owned subsidiary of Fortis, Inc.) provides
investment management services to the 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 Funds, Inc. (the Fund) which reduces the portfolios' net assets.
The fees charged by Fortis Advisers, Inc. are not available on an individual
variable account basis. Fees for all variable accounts to which Fortis Advisers,
Inc. provided investment management services amounted to $5,839,044, $3,748,274
and $1,791,966 in 1994, 1993 and 1992, respectively.
There are nine subaccounts within the Account, each of which invests only in a
corresponding portfolio of 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 levels 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 & 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.
- 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.
59
<PAGE>
2. INVESTMENT IN FORTIS SERIES FUNDS, INC.
INVESTMENTS
Investment in shares of the Fund is 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 Fund. The Fund's net asset value is based on market quotations
of the securities held in the portfolio. The cost of investments sold and
redeemed is determined on the average cost method. Prior to 1993 the Account was
not able to separately identify realized gains or losses on redemption of the
Fund portfolio shares. Any such gains or losses were netted with redemption of
Account units. Unrealized appreciation or depreciation of investments represents
the Account's share of the mutual fund's undistributed net investment income,
undistributed realized gains or losses and unrealized appreciation or
depreciation in the Fund's investments.
Purchases and sales of shares of the Fund 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, 1994:
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
Year ended December 31, 1993:
Growth Stock Series............................. 870,748 86,471 $ 18,848,154 $1,856,898
U.S. Government Securities Series............... 356,363 84,648 4,101,566 971,887
Money Market Series............................. 305,838 312,668 3,163,424 3,233,030
Asset Allocation Series......................... 383,082 41,515 5,311,744 572,086
Diversified Income Series....................... 156,725 41,226 1,934,555 509,368
Global Growth Series............................ 573,601 62,506 6,887,276 722,115
Year ended December 31, 1992:
Growth Stock Series............................. 671,220 81,875 $ 13,122,018 $1,615,536
U.S. Government Securities Series............... 216,618 165,246 2,384,230 1,776,139
Money Market Series............................. 239,206 277,163 2,473,144 2,854,139
Asset Allocation Series......................... 188,477 17,567 2,431,644 230,753
Diversified Income Series....................... 37,743 26,729 444,073 314,214
Global Growth Series............................ 317,627 3,512 3,192,402 36,664
</TABLE>
60
<PAGE>
The number of shares and cost of shares issued from reinvestment of dividends
with the Fund were as follows:
<TABLE>
<CAPTION>
COST OF
SHARES SHARES
----------- ---------
<S> <C> <C>
Year ended December 31, 1994:
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.............................. 11,872 144,686
Aggressive Growth Series.......................... 915 8,878
Growth & Income Series............................ 1,288 12,968
High Yield Series................................. 8,691 81,918
Year ended December 31, 1993:
Growth Stock Series............................... 8,199 $ 186,295
U.S. Government Securities Series................. 47,700 523,262
Money Market Series............................... 3,462 35,403
Asset Allocation Series........................... 25,803 363,460
Diversified Income Series......................... 10,051 120,018
Global Growth Series.............................. 2,026 25,615
Year ended December 31, 1992:
Growth Stock Series............................... 8,949 $ 186,742
U.S. Government Securities Series................. 23,459 251,334
Money Market Series............................... 3,672 37,503
Asset Allocation Series........................... 13,141 173,613
Diversified Income Series......................... 1,416 16,039
Global Growth Series.............................. 202 2,181
</TABLE>
Fortis Benefits' investment in the subaccounts represented the following number
of shares of the Fund held and aggregate cost of amounts invested at December
31, 1994:
<TABLE>
<CAPTION>
GROWTH ASSET GLOBAL AGGRESSIVE GROWTH & HIGH
STOCK ALLOCATION GROWTH GROWTH INCOME YIELD
SERIES SERIES SERIES SERIES SERIES SERIES
--------- ---------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Number of shares.................................. 57,877 49,249 40,750 60,003 60,001 130,018
Cost.............................................. $ 602,256 $510,433 $ 409,185 $599,953 $600,052 $ 1,296,735
</TABLE>
3. ORGANIZATIONAL EXPENSES AND OTHER CHARGES
ORGANIZATIONAL EXPENSES
Fortis Benefits assumed all organizational expenses of the Account.
PREMIUM EXPENSE CHARGE
For Harmony Investment Life policies a 5% sales charge and a charge for state
premium taxes (currently 2.2% of each premium payment) 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 Account. For Wall Street Series VUL 100, VUL 220 and VUL 500 policies,
Fortis Benefits reserves the right to impose a charge up to 2.5% of each premium
payment, to be reimbursed to a greater extent 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.
61
<PAGE>
3. ORGANIZATIONAL EXPENSES AND OTHER CHARGES (CONTINUED)
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 a monthly expense charge of not more than $15.00 per
month and an additional monthly per thousand of face expense charge of
not more than $.08 per month for insureds age 29 and 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 a monthly expense charge at $10.00 per month and an additional
monthly 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 and VUL 500 Policies:
- Monthly administrative charge of $4.50 per policy. Fortis Benefits
reserves the right to change this administrative charge, but it will
never exceed $7.50 per month.
- For VUL 220 and VUL 500, 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 net assets representing equity of
Harmony Investment Life policyholders and .90% of the net assets representing
equity of Wall Street Series VUL 100, VUL 220 and VUL 500 policyholders held in
each account. These charges will be deducted by Fortis Benefits in return for
its 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.
Except for Fortis Benefits mortality and expense risk and policy advance charges
which are recorded in the statement of operations, these monthly deductions are
included in the statement of changes in net assets as a part of the redemption
of Variable Account C units.
SURRENDER CHARGE
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, an
additional surrender charge of $5.00 per thousand of the policies 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. The surrender charge for all
Wall Street Series policies is limited to certain maximums based on the
insured'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 a face
increase.
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 $1,475,321, $730,008 and
$415,231 in 1994, 1993 and 1992, respectively.
4. 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.
62
<PAGE>
FORTIS-R-
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
HARMONY SUPPLEMENT
VUL100 SUPPLEMENT
<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. 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 you. 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 you select when choosing this
option or equal payments for a period of from one to thirty years, at your
choice. In either case, you 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 you choose, 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
You name 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.
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. You may also choose any other option agreed to by
Fortis Benefits. You may also change or revoke a choice of options under which
payments have not yet commenced. If you do 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 any beneficiary designated by the payee or, if no
such beneficiary is named, 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
$50 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.
A-1
<PAGE>
APPENDIX B
ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES,
SURRENDER VALUES AND ACCUMULATED PREMIUMS
The tables on pages B-3 and B-4 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 annual premiums of $10,000 paid in full at the beginning
of each Policy year for 10 years and Face Amounts as shown for males Age 45.
These values would be higher for an otherwise comparable Policy on the life of a
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, if any, 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 .62% and for other Portfolio
operating expenses equivalent to an annual rate of .07% of the average daily
value of the aggregate net assets of the Portfolio. (.62% is the average of the
advisory fee rates paid by the currently available Portfolios and .07% is the
actual amount of other expenses that those Portfolios incurred in 1994).
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: -1.86%, 2.14%, 6.14% and 10.14%, 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 the premiums were invested to earn interest, after taxes, at 5% compounded
annually. The difference between Policy Values and Surrender Values, 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,
and frequency of premium payments.
TABLE OF CONTENTS FOR ILLUSTRATIONS
OF DEATH BENEFITS, POLICY VALUES,
SURRENDER VALUES AND
ACCUMULATED PREMIUMS(1)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Illustrations Based on CURRENT Charge and Policy Value Advance
Schedules:............................................................... B-3
Illustrations Based on GUARANTEED Charge and Policy Value Advance
Schedules:............................................................... B-4
</TABLE>
- ------------------------
(1) See Appendix C as to "Policy Value Advances in
Oregon"
B-1
<PAGE>
POLICY VALUE ADVANCES
Set forth below is supplemental information pertaining to the Policy illustrated
on page B-3 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. Actual amounts would vary significantly based on
such factors as the size of the Policy, 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-3(1)
<TABLE>
<CAPTION>
CUMULATIVE DAILY SALES CONTINGENT DEFERRED
CHARGES SALES CHARGES CUMULATIVE
------------------------ --------------------- SALES
END OF POLICY VALUE ADVANCES AS % OF AS % OF CHARGES AS %
POLICY ---------------------- AMOUNT OF TOTAL AMOUNT OF TOTAL OF TOTAL
YEAR CREDITS CHARGES CHARGE PREMIUM CHARGE PREMIUM PREMIUM
- ----------- --------- ----------- ----------- ----------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 0.00 0.00 19.17 0.1917% 730.83 7.3083% 7.5000%
3 0.00 0.00 109.50 0.3650% 1546.15 5.1538% 5.5188%
6 0.00 0.00 368.18 0.6136% 2027.20 3.3787% 3.9923%
9 459.74 185.49 553.53 0.6150% 2468.67 2.7430% 3.3580%
10 494.55 201.28 553.53 0.5535% 2496.29 2.4963% 3.0498%
11 523.03 189.77 553.53 0.5535% 2175.26 2.1753% 2.7288%
12 546.76 178.35 553.53 0.5535% 1801.59 1.8016% 2.3551%
13 566.85 166.37 553.53 0.5535% 1595.34 1.5953% 2.1489%
14 584.06 153.73 553.53 0.5535% 1337.30 1.3373% 1.8908%
15 598.98 140.51 553.53 0.5535% 1029.50 1.0295% 1.5830%
16 612.03 126.50 553.53 0.5535% 721.64 0.7216% 1.2752%
17 0.00 111.33 553.53 0.5535% 514.09 0.5141% 1.0676%
18 0.00 93.25 553.53 0.5535% 306.56 0.3066% 0.8601%
19 0.00 73.68 553.53 0.5535% 151.37 0.1514% 0.7049%
20 0.00 52.03 553.53 0.5535% 49.86 0.0499% 0.6034%
21 0.00 28.38 553.53 0.5535% 0.00 0.0000% 0.5535%
</TABLE>
- ------------------------
(1) See Appendix C as to "Policy Value Advances in Oregon"
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 daily deductions for
sales charges are deferred beginning in the 10th Policy year (during the time
when deductions to recover Policy Value Advances are being made).
B-2
<PAGE>
MALE ISSUE AGE 45
FACE AMOUNT: $166,640
CURRENT CHARGE AND POLICY VALUE ADVANCE SCHEDULES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL RATE OF
RETURN OF
---------------------------------------------------------------
0% (1)(2)(3)(4) 4% (1)(2)(3)(4)
END OF ------------------------------ ------------------------------
POLICY PREMIUMS ACCUMULATED AT 5% DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR INTEREST PER YEAR (1) BENEFIT(5) VALUE VALUE BENEFIT(5) VALUE VALUE
- -------- ------------- ---------- ------ --------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 10,500 166,641 8,491 7,546 166,641 8,863 7,919
2 $ 21,525 166,641 16,756 14,888 166,641 17,849 15,984
3 $ 33,101 166,641 24,850 22,851 166,641 27,141 25,142
4 $ 45,256 166,641 32,941 30,941 166,641 36,682 34,682
5 $ 58,019 231,491 40,339 37,431 240,485 45,802 42,768
6 $ 71,420 231,491 47,634 45,012 240,485 55,168 52,420
7 $ 85,491 261,129 54,575 51,764 271,460 64,521 61,563
8 $100,266 291,487 61,171 58,161 292,622 73,996 70,985
9 $115,779 320,731 67,397 64,205 321,863 83,478 80,285
10 $132,068 348,932 72,984 69,755 350,064 92,699 89,488
15 $168,556 348,932 50,221 48,890 350,064 87,852 86,578
20 $215,125 348,932 15,460 15,396 350,064 70,801 70,737
25 $274,560 0 0 0 350,064 29,716 29,716
40 $570,790 0 0 0 0 0 0
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL RATE OF RETURN OF
-----------------------------------------------------------------------
8% (1)(2)(3)(4) 12% (1)(2)(3)(4)
END OF ------------------------------- -------------------------------------
POLICY DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR BENEFIT(5) VALUE VALUE BENEFIT(5) VALUE VALUE
- -------- ---------- ------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 166,641 9,236 8,291 166,641 9,608 8,665
2 166,641 18,973 17,111 166,641 20,128 18,268
3 166,641 29,440 27,440 166,641 31,863 29,864
4 166,641 40,617 38,617 166,641 44,878 42,878
5 249,947 51,767 48,601 260,194 58,404 55,094
6 249,947 63,676 60,796 260,194 73,402 70,379
7 290,804 76,013 72,765 312,909 89,512 85,931
8 311,274 89,072 85,782 312,909 107,524 104,228
9 332,184 102,900 99,561 371,863 126,932 122,978
10 353,600 117,285 114,056 371,863 148,375 144,895
15 353,600 145,150 143,983 371,863 231,845 230,622
20 353,600 177,322 177,273 455,580 373,426 373,426
25 216,279 216,279 216,279 703,516 606,479 606,479
40 501,325 477,452 477,452 2,734,752 2,734,752 2,734,752
</TABLE>
(1)Assumes annual premium of $10,000 paid in full at the beginning of each
Policy year for 10 years. 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. 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>
BONUS AS A PERCENT
OF SURRENDER VALUE
CREDIT AS A PERCENT AT THE END OF
END OF POLICY OF 12 TIMES THE SURRENDER VALUE POLICY YEAR 3 AND
YEAR AVERAGE MINIMUM PREMIUM ON DATE OF BONUS LATER TO AGE 95
- --------------- ----------------------- ------------------------- ------------------
<S> <C> <C> <C>
7 2% Less than $25,000 0.00%
8 6% $25,000 to $150,000 0.50%
9 to Age 95 10% $150,000 or more 0.60%
</TABLE>
(4)Assumes minimum face increases to prevent premiums from violating TEFRA and
TAMRA Guidelines.
(5)Alternative Death Benefit applies: See "Policy Benefits--Death Benefit" 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 YOU 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
FACE AMOUNT: $166,640
GUARANTEED CHARGE AND POLICY VALUE ADVANCE SCHEDULES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL RATE OF
RETURN OF
---------------------------------------------------------------
PREMIUMS 0% (1)(2)(3)(4) 4% (1)(2)(3)(4)
END OF ACCUMULATED ------------------------------ ------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT(4) VALUE VALUE BENEFIT(4) VALUE VALUE
- ------ -------------- ---------- ------ --------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 10,500 166,641 7,583 6,606 166,641 7,930 6,954
2 $ 21,525 166,641 14,995 13,061 166,641 16,003 14,072
3 $ 33,101 166,641 22,241 20,241 166,641 24,227 22,227
4 $ 45,256 166,641 29,462 27,463 166,641 32,762 30,762
5 $ 58,019 166,641 36,559 34,559 166,641 41,511 39,511
6 $ 71,420 195,446 43,106 40,989 206,006 49,890 47,625
7 $ 85,491 195,446 49,576 47,745 206,006 58,520 56,540
8 $100,266 195,446 56,044 54,498 206,006 67,492 65,799
9 $115,779 217,686 62,126 60,510 239,717 76,235 74,287
10 $132,068 217,686 68,043 66,713 239,717 85,158 83,497
15 $168,556 217,686 45,824 45,455 239,717 77,341 76,799
20 $215,125 217,686 14,208 14,208 239,717 58,378 58,378
25 $274,560 0 0 0 239,717 13,409 13,409
40 $570,790 0 0 0 0 0 0
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL RATE OF RETURN OF
----------------------------------------------------------------------
8% (1)(2)(3)(4) 12% (1)(2)(3)(4)
END OF ------------------------------- ------------------------------------
POLICY DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR BENEFIT(4) VALUE VALUE BENEFIT(4) VALUE VALUE
- ------ ---------- ------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 166,641 8,279 7,303 166,641 8,627 7,652
2 166,641 17,041 15,113 166,641 18,108 16,182
3 166,641 26,326 24,326 166,641 28,674 26,675
4 166,641 36,345 34,345 166,641 40,376 38,377
5 166,641 47,036 45,036 166,641 53,352 51,353
6 217,796 57,666 55,236 231,284 66,742 64,124
7 217,796 69,058 66,913 231,284 81,645 79,312
8 217,796 81,361 79,502 231,284 98,343 96,295
9 266,477 93,789 91,437 231,284 117,077 115,315
10 266,477 107,041 104,975 328,488 136,052 133,020
15 266,477 126,235 125,474 328,488 199,618 198,026
20 266,477 146,107 146,107 372,775 305,553 305,331
25 266,477 165,793 165,793 555,776 479,117 479,117
40 266,477 203,183 203,183 2,119,304 2,018,385 2,018,385
</TABLE>
(1)Assumes annual premium of $10,000 paid in full at the beginning of each
Policy year for 10 years. 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. 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>
BONUS AS A PERCENT
OF SURRENDER VALUE
AT THE END OF
CREDIT AS A PERCENT POLICY YEAR
END OF POLICY OF 12 TIMES THE SURRENDER VALUE 3 AND LATER TO
YEAR AVERAGE MINIMUM PREMIUM ON DATE OF BONUS AGE 95
- --------------- ----------------------- ------------------------- ------------------
<S> <C> <C> <C>
7 2% Less than $ 0.00%
8 6% $ to $299,999
9 to Age 95 10% $300,000 or more
</TABLE>
(4) Assumes minimum face increases to prevent premiums from violating TEFRA and
TAMRA Guidelines.
(5)Alternative Death Benefit applies: See "Policy Benefits--Death Benefit" 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 YOU 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>
APPENDIX C
In Oregon, Policy Value Advances are credited starting on the last day of the
10th Policy year. The Policy Value Advance credited at the end of that, and
subsequent Policy years prior to the insured's Age 95, will be a percentage
(specified below) of the average monthly Minimum Premium (calculated without
regard to the $25 limit), times 12. The average monthly Minimum Premium is the
sum of the monthly Minimum Premiums from issue to the end of the year in which
the credit is to be made, divided by the number of months over the same period.
The Minimum Premium for any month in which the policy is not in force is deemed
to be zero.
POLICY VALUE ADVANCE PERCENTAGES
<TABLE>
<CAPTION>
POLICY YEAR PERCENTAGES
- ------------ -----------------
<S> <C>
10 2%
11 4%
12 - later
to Age 95 7%
</TABLE>
These percentages are guaranteed only to the extent allowed by Oregon.
The Policy must be in force as of the time the Policy Value Advance is credited.
If the Policy lapses and is reinstated, future Policy Value Advances will only
be credited if the policy has been in force for 1 year from the date of
reinstatement. There are no premium payment or other requirements in order to be
eligible for the Policy Value Advances.
In all other respects Policy Value Advances for Policies issued in Oregon are
the same as for Policies issued in other states.
In view of the above described differences in the Policy Value Advances in
Oregon, the tables in Appendix B that demonstrate the effect of Policy Value
Advances would show somewhat less favorable results with respect to a Policy
issued in Oregon.
C-1
<PAGE>
APPENDIX D
THE GENERAL ACCOUNT
YOU 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
you 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.
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.
D-1
<PAGE>
APPENDIX E
MAXIMUM DEATH BENEFIT PER $1000 OF ANNUALIZED PLANNED PERIODIC PREMIUM
<TABLE>
<CAPTION>
ISSUE AGE MALE FEMALE
- ----------- --------- -----------
<S> <C> <C>
0 68,120 91,075
1 66,712 88,968
2 65,147 86,656
3 63,533 84,246
4 61,882 81,767
5 60,169 79,366
6 58,686 76,924
7 57,143 74,572
8 55,587 72,203
9 53,967 69,882
10 52,357 67,614
11 50,736 65,403
12 49,141 63,252
13 47,574 61,125
14 46,020 59,102
15 44,803 57,373
16 43,573 55,525
17 42,373 53,793
18 41,221 52,111
19 40,097 50,480
20 39,017 48,900
21 36,154 44,544
<CAPTION>
ISSUE AGE MALE FEMALE
- ----------- --------- -----------
<S> <C> <C>
22 35,212 43,216
23 34,294 41,912
24 33,356 40,618
25 32,436 39,355
26 31,506 38,110
27 30,572 36,914
28 29,656 35,728
29 28,744 34,579
30 27,848 33,468
31 26,969 32,394
32 26,117 31,368
33 25,279 30,350
34 24,462 29,352
35 23,664 28,385
36 22,894 27,450
37 22,149 26,554
38 21,428 25,681
39 20,726 24,833
40 20,053 24,027
41 18,918 22,553
42 18,326 21,844
43 17,750 21,160
<CAPTION>
ISSUE AGE MALE FEMALE
- ----------- --------- -----------
<S> <C> <C>
44 17,197 20,501
45 16,664 19,865
46 16,148 19,253
47 15,652 18,664
48 15,173 18,090
49 14,711 17,538
50 14,260 17,004
51 13,703 16,311
52 13,291 15,826
53 12,895 15,357
54 12,521 14,906
55 12,167 14,472
56 11,833 14,053
57 11,512 13,651
58 11,199 13,258
59 10,889 12,872
60 10,579 12,490
61 10,205 12,015
62 9,902 11,646
63 9,607 11,285
64 9,318 10,932
65 9,040 10,589
</TABLE>
E-1
<PAGE>
97132
<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 filed December 17, 1993.)
Prospectus and Prospectus supplement dated May 1, 1997, consisting of
pages and pages, respectively.
Prospectus Supplement dated May 1, 1996 (Filed as part of Post-Effective
Amendment No. 5 to this Form S-6 Registration Statement filed April 29,
1996).
Undertaking to File Reports. (Filed as a part of the initial filing of this
Form S-6 Registration Statement filed on December 17, 1993.)
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 December 17, 1993.)
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).
Douglas R. Lowe, Esq. (Filed with Exhibit 3 below).
Ernst & Young LLP, Independent Auditors
The following exhibits:
1.A (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 1.A
(3)(a) to registrant's Post-Effective Amendment No. 9 to Form S-6
Registration Statement, File No. 33-28551, filed April 29, 1994.)
--(b) Form of Dealer Sales Agreement. (Incorporated by reference
from registrant's Post-Effective Amendment No. 12 to 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) Form of Individual Flexible Premium Variable Life Insurance
Policy. (Filed as part of the initial filing of this Form S-6
Registration Statement filed December 17, 1993.)
--(b) Form of Group Flexible Premium Variable Life Insurance
Master Contract. (Filed as part of Pre-Effective Amendment No.1
to this Form S-6 Registration Statement filed May 6, 1994).
--(c) Form of Certificate to be used in connection with Master
Contract filed as Exhibit 5(b). (Filed as part of Pre-Effective
Amendment No.1 to this Form S-6 Registration Statement filed
May 6, 1994).
(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.
(Filed as part of the initial filing of this Form S-6
Registration Statement filed December 17, 1993.)
--(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.
3. --Opinion and consent of counsel as to the legality of Securities
being registered. (Filed as part of the initial filing of this Form
S-6 Registration Statement filed December 17, 1993.)
4. --Not applicable.
5. --Not applicable.
<PAGE>
6. --(a) Opinion and consent of actuary. (Filed as part of the initial
filing of this Form S-6 Registration Statement filed December 17,
1993.)
--(b) Supplemental Opinion and Consent of Actuary. (Filed as part
of Post-Effective Amendment No. 4 to this Form S-6 Registration
Statement filed April 29, 1996).
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. (Incorporated by reference from Exhibit 7 to
registrant's Form S-6 Registration Statement, File No. 33-48266,
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. Memorandum of Certain Procedures with Respect to Pricing and
Processing of Transactions Pursuant to Rule 6e-3(T)(b)(12) (iii).
(Filed as part of Pre-Effective Amendment No.1 to this Form S-6
Registration Statement filed May 6, 1994).
11. --Power of Attorney for Messrs, Freedman, Gaddy, Mackin, Keller,
Clayton, Mahoney, Clancy, Meler and Greiter. (Filed as part of the
initial filing of this Form S-6 Registration Statement filed
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 and February 16, 1995 on the
financial statements of Fortis Benefits Insurance Company and our report
dated April 18, 1997 and March 24, 1995 on the financial statements of Fortis
Benefits Insurance Company Variable Account C (Account C) in Post- Effective
Amendment No. 5 to the Registration Statement (Form S-6 No. 33-73138) 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
