<PAGE> 1
As filed with the Securities and Exchange Commission on April 27, 2000.
Registration No. 33-03919
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
POST-EFFECTIVE AMENDMENT NO. 22 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
(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, MN 55164
(Name and complete address of agent for service)
-------------------------------
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, 2000 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.
- --- -------------
-------------------------------
Pursuant to Rule 24f-2, the registrant has registered an indefinite amount of
interests in Variable Account C pursuant to variable life insurance policies,
the securities being registered hereby. The registrant filed its Rule 24f-2
notice for the year ended December 31, 1999 on March 28, 2000.
<PAGE> 2
[FORTIS SOLID PARTNERS, FLEXIBLE SOLUTIONS(SM) LOGO]
- --------------------------------------------------------------------------------
PROSPECTUS SUPPLEMENT
MAY 1, 2000
FOR
HARMONY INVESTMENT LIFE
FORTIS WALL STREET SERIES VUL220
FORTIS WALL STREET SERIES VUL500
- --------------------------------------------------------------------------------
MAILING ADDRESS: STREET ADDRESS:
P.O. BOX 64284 500 BIELENBERG DRIVE
ST. PAUL, MINNESOTA 55164 WOODBURY, MINNESOTA 55125
98374N (5/00)
<PAGE> 3
PROSPECTUS SUPPLEMENT DATED MAY 1, 2000
This Supplement updates certain information contained in the following
prospectus for product issued by Fortis Benefits Insurance Company:
- Harmony Investment Life dated May 1, 1995 as previously supplemented
- Fortis Wall Street Series VUL220 dated May 1, 1999
- Fortis Wall Street Series VUL500 dated May 1, 1999
Please read this Supplement carefully. You should attach this Supplement to the
Prospectus and retain them for future reference.
FORTIS SERIES FUND, INC.
There are five new portfolios available for investment on May 1, 2000 as
follows:
- Federated--American Leader Series
- MFS--Capital Opportunities Series
- MFS--Investors Growth Series
- MFS--Global Equity Series
- AIM--Blue Chip Stock Series II
In addition, the name of the Global Bond Series has changed to Multisector Bond
Series. The subadviser of this portfolio is now AIM Advisors, Inc.
FORTIS SERIES FUND, INC. ANNUAL EXPENSES(a)
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 1999
historical data, are as set out in the following table:
<TABLE>
<CAPTION>
U.S. MULTI GLOBAL
MONEY GOVERNMENT DIVERSIFIED SECTOR HIGH ASSET
MARKET SECURITIES INCOME BOND YIELD ALLOCATION
SERIES SERIES SERIES SERIES (B) SERIES SERIES
------ ---------- ----------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory and Management Fee..... 0.30% 0.47% 0.47% 0.75% 0.50% 0.90%
Other Expenses............................. 0.05% 0.05% 0.07% 0.15% 0.07% 0.12%
Total Fortis Series Operating Expenses..... 0.35% 0.52% 0.54% 0.90% 0.57% 1.02%
</TABLE>
<TABLE>
<CAPTION>
GROWTH
ASSET AMERICAN CAPITAL & S&P 500
ALLOCATION LEADERS VALUE OPPORTUNITIES INCOME INDEX
SERIES SERIES (C) SERIES SERIES (C) SERIES SERIES
---------- ---------- ------ ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory and Management Fee.... 0.47% 0.90% 0.70% 0.90% 0.63% 0.40%
Other Expenses............................ 0.05% 0.35% 0.06% 0.35% 0.06% 0.06%
Total Fortis Series Operating Expenses.... 0.52% 1.25% 0.78% 1.25% 0.69% 0.46%
</TABLE>
<TABLE>
<CAPTION>
BLUE MID SMALL
CHIP BLUE CHIP INTERNATIONAL CAP CAP
STOCK STOCK STOCK STOCK VALUE
SERIES SERIES II (C) SERIES SERIES SERIES
------ ------------- ------------- ------ ------
<S> <C> <C> <C> <C> <C>
Investment and Management Fee.......................... 0.87% 0.95% 0.84% 0.90% 0.90%
Other Expenses......................................... 0.05% 0.35% 0.10% 0.28% 0.14%
Total Fortis Series Operating Expenses................. 0.92% 1.30% 0.94% 1.18% 1.04%
</TABLE>
S-1
<PAGE> 4
<TABLE>
<CAPTION>
LARGE
GLOBAL GLOBAL CAP INVESTORS GROWTH AGGRESSIVE
GROWTH EQUITY GROWTH GROWTH STOCK GROWTH
SERIES SERIES (C) SERIES SERIES (C) SERIES SERIES
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Investment and Management Fee................ 0.70% 1.00% 0.90% 0.90% 0.61% 0.66%
Other Expenses............................... 0.07% 0.35% 0.07% 0.35% 0.05% 0.06%
Total Fortis Series Operating Expenses....... 0.77% 1.35% 0.97% 1.25% 0.66% 0.72%
</TABLE>
- ------------------------------
(a) As a percentage of portfolio average net assets based on 1999 historical
data, except that for American Leaders, Capital Opportunities, Blue Chip
Stock Series II, Global Equity and Investors Growth, these amounts are based
upon estimates after reimbursement for the current fiscal year. The
estimated expenses for those portfolios prior to reimbursement are as
follows; Global Equity 1.40%, Investors Growth 1.30%, Capital Opportunities
1.30%, American Leaders 1.30% and Blue Chip II 1.30%.
(b) The Multi Sector Bond Series will be sub-advised by AIM and is the same
shell and assets as the Global Bond Series.
(c) Expense estimate for current year.
MANAGEMENT
The directors and executive officers, to the extent responsible for variable
life insurance operations, of Fortis Benefits are listed below, together with
their principal occupations and business experience for the past five years:
<TABLE>
<S> <C>
OFFICER-DIRECTORS
Robert Brian Pollock (4) President and Chief Executive Officer; Vice President and
Treasurer of Fortis, Inc.
Dean C. Kopperud (1) President, Fortis Financial Group; Senior Vice President;
also officer of affiliated companies.
Michael John Peninger (4) Executive Vice President--President (Non medical).
OTHER DIRECTORS
Allen Royal Freedman (2) Chairman and Chief Executive Officer of Fortis, Inc.
J. Kerry Clayton (2) President and Chief Operating Officer of Fortis, Inc.;
before then Executive Vice President of Fortis, Inc.
Arie Aristide Fakkert (3) General Manager of Fortis International N.V.
Alan W. Feagin (5) Executive Vice President; (President--Fortis Family)
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.
Jon H. Nicholson (1) Senior Vice President--Custom Solutions Group.
Melinda S. Urion (1) Senior Vice President--Chief Financial Officer Fortis
Financial Group; before then Senior Vice President-Finance &
CFO of American Express Financial Corporation.
Dickson W. Lewis (1) Senior Vice President--Distribution and Marketing; before
then President of Hedstrom/Blessing Marketing.
</TABLE>
- ------------------------------
(1) Address: Fortis Benefits Insurance Company, P. O. Box 64271, St. Paul, MN
55164. Fortis Benefits is a wholly-owned subsidiary of Interfinancial, Inc.,
which is itself wholly-owned by Fortis, Inc.
(2) Address: Fortis, Inc., One Chase Manhattan Plaza, New York, NY 10005.
Fortis, Inc. is wholly owned by Fortis International, N.V., which is itself
wholly owned by AMEV/VSB 1990 N.V. The latter two
S-2
<PAGE> 5
companies share the same address as N.V. AMEV. AMEV/VSB 1990 N.V. is 50%
owned by Fortis (NL) N.V. and 50% owned by Fortis (B), Boulevard Emile
Jacqmain 53, Brussels, Belgium.
(3) Address: Fortis (NL) N.V., Archimedeslaan 10, 3584 BA Utrecht, The
Netherlands.
(4) Address: 2323 Grand Avenue, Kansas City, MO 64108.
(5) Address: 10 Glenlake Parkway NE, Suite 500, Atlanta GA 30328
THE FOLLOWING INFORMATION APPLIES SOLELY TO THE FORTIS WALL STREET SERIES VUL220
AND
THE FORTIS WALL STREET SERIES VUL500
Dollar Cost Averaging
The minimum amount requirements to begin dollar cost averaging are waived by
Fortis Benefits.
Automatic Rebalancing
The minimum amount requirements to begin automatic rebalancing (Privileged
Account Service) are waived by Fortis Benefits.
Transfers of Existing Policy Value
Unless you are transferring the entire amount you have in an investment option,
each transfer must be at least $250. We reserve the right to raise this minimum
transfer amount up to $1,000. You may make transfers at any time, except that
transfers out of the general account option are limited to one transfer per
year, and may not be for more than 50% of the policy value in the general
account.
Partial withdrawal
Between the first and second Policy year, you may make a partial withdrawal only
if your total premiums to date equal or exceed the sum of 12 recommended monthly
minimum premiums for the initial face amount of your Policy.
Policy loans
If you have specified the investment options from which monthly charges will be
taken, then the loan amount will be taken from those same investment options.
Policy Date, Policy months and years
This paragraph found on page 27 of the prospectus is hereby deleted and replaced
with the following:
Policy Date, Policy months and years. After we approve an application for
a Policy and assign an appropriate insurance risk class, we prepare the Policy.
The day we begin to deduct charges will appear on your Policy schedule and is
called the "Policy date." The Policy date will ordinarily be within three days
after the date the application is approved. Policy months and years are measured
from the Policy date. In order to preserve a younger age at issue for the
insured person, we may assign a Policy date to a Policy that is up to 6 months
earlier than would otherwise apply.
Commencement of investment performance
This paragraph, found on page 27 of the prospectus is deleted and replaced with
the following:
Commencement of investment performance. The first premium payment will be
allocated automatically to the general account as of the later of the policy
date or the date the payment is received, and assuming the Policy goes into
effect will earn a rate of return. These payments will be held in the general
account generally until the twentieth day after the Policy is issued and
insurance coverage commences.
S-3
<PAGE> 6
INDEPENDENT AUDITORS
Ernst & Young LLP, independent auditors, have audited the financial statements
of Fortis at December 31, 1999 and 1998, and for each of the three years in the
period ended December 31, 1999, and the statements of net assets of Variable
Account C at December 31, 1999, and the related statements of changes in net
assets for each of the two years in the period ended December 31, 1999, as set
forth in their report. We've included the financial statements in the prospectus
and elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
FINANCIAL STATEMENTS
The financial statements of Fortis Benefits and Variable Account C included in
the Supplement should be considered only as bearing upon the ability of Fortis
Benefits to meet its obligations under the Policies. Fortis generally reinsures
risks for non-group insurance in excess of $500,000 per insured with other
insurance companies. See Notes to Fortis Financial Statements.
S-4
<PAGE> 7
REPORT OF INDEPENDENT AUDITORS
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 (B) and Fortis (NL)
N.V., as of December 31, 1999 and 1998, 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, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
[/s/ ERNST & YOUNG]
February 17, 2000
Minneapolis, Minnesota
F-1
<PAGE> 8
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost
1999--$2,802,697; 1998--$2,315,904).................... $2,706,372 $2,402,343
Equity securities, at fair value (cost 1999--$81,554;
1998--$141,947)........................................ 85,021 157,851
Mortgage loans on real estate, less allowance for possible
losses (1999 and 1998--$11,085)........................ 754,514 610,131
Policy loans.............................................. 83,439 74,950
Short-term investments.................................... 115,527 31,868
Real estate and other investments......................... 47,502 36,156
---------- ----------
3,792,375 3,313,299
Cash and cash equivalents................................... 18,670 668
Receivables:
Uncollected premiums...................................... 62,938 61,883
Reinsurance recoverable on unpaid and paid losses......... 23,471 14,853
Other..................................................... 19,406 17,641
---------- ----------
105,815 94,377
Accrued investment income................................... 55,464 42,831
Deferred policy acquisition costs........................... 430,192 331,938
Property and equipment at cost, less accumulated
depreciation.............................................. 25,118 30,712
Deferred federal income taxes............................... 52,467 17,904
Other assets................................................ 1,582 3,923
Due from affiliates......................................... 8,304 --
Assets held in separate accounts............................ 5,120,152 3,742,403
---------- ----------
Total assets................................................ $9,610,139 $7,578,055
========== ==========
</TABLE>
F-2
<PAGE> 9
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1999 1998
---------- ----------
<S> <C> <C>
POLICY RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
Policy reserves and liabilities:
Future policy benefit reserves:
Traditional and pre-need life insurance................ $1,106,269 $ 450,776
Interest sensitive and investment products............. 1,147,657 1,238,125
Accident and health.................................... 940,865 861,334
---------- ----------
3,194,791 2,550,235
Unearned revenues......................................... 28,673 13,393
Other policy claims and benefits payable.................. 265,486 255,350
Policyholder dividends payable............................ 7,939 8,189
---------- ----------
3,496,889 2,827,167
Accrued expenses.......................................... 59,409 57,860
Current income taxes payable.............................. 1,838 4,168
Other liabilities......................................... 120,110 86,226
Due to affiliates......................................... -- 9,479
Liabilities related to separate accounts.................. 5,082,341 3,707,687
---------- ----------
Total policy reserves and liabilities....................... 8,760,587 6,692,587
Commitments and contingencies
Shareholder's equity:
Common Stock, $5 par value:
Authorized, issued and outstanding shares--1,000,000... 5,000 5,000
Additional paid-in capital................................ 468,000 468,000
Retained earnings......................................... 427,811 344,605
Accumulated other comprehensive (loss) income............. (51,259) 67,863
---------- ----------
Total shareholder's equity.................................. 849,552 885,468
---------- ----------
Total policy reserves, liabilities and shareholder's
equity.................................................... $9,610,139 $7,578,055
========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 10
STATEMENTS OF INCOME
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Insurance operations:
Traditional life insurance premiums....................... $ 301,377 $ 260,567 $ 269,540
Interest sensitive and investment product policy
charges................................................ 99,047 85,551 77,429
Accident and health insurance premiums.................... 1,002,867 953,652 891,037
---------- ---------- ----------
1,403,291 1,299,770 1,238,006
Net investment income....................................... 238,698 234,043 228,724
Net realized gains on investments........................... 25,962 52,404 41,101
Other income................................................ 53,848 44,671 36,458
---------- ---------- ----------
Total revenues.............................................. 1,721,799 1,630,888 1,544,289
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance................................ 218,993 189,337 204,497
Interest sensitive investment products.................... 93,668 96,178 103,077
Accident and health claims................................ 812,149 798,036 707,113
---------- ---------- ----------
1,124,810 1,083,551 1,014,687
Policyholder dividends...................................... 3,114 3,486 2,935
Amortization of deferred policy acquisition costs........... 43,078 33,365 43,931
Insurance commissions....................................... 124,601 118,710 107,378
General and administrative expenses......................... 302,663 299,492 273,128
---------- ---------- ----------
Total benefits and expenses................................. 1,598,266 1,538,604 1,442,059
---------- ---------- ----------
Income before federal income taxes.......................... 123,533 92,284 102,230
Federal income taxes........................................ 40,327 30,402 35,120
---------- ---------- ----------
Net income.................................................. $ 83,206 $ 61,882 $ 67,110
========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 11
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
TOTAL STOCK CAPITAL EARNINGS (LOSS) INCOME
--------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997.................. $ 780,673 $5,000 $468,000 $265,613 $ 42,060
Comprehensive income:
Net income........................... 67,110 -- -- 67,110 --
Change in unrealized gains (losses)
on investments, net................ 32,323 -- -- -- 32,323
---------
Total Comprehensive income.............. 99,433
--------- ------ -------- -------- ---------
Balance, December 31, 1997................ 880,106 5,000 468,000 332,723 74,383
Comprehensive income:
Net income........................... 61,882 -- -- 61,882 --
Change in unrealized gains (losses)
on investments, net................ (6,520) -- -- -- (6,520)
---------
Total Comprehensive income.............. 55,362
Dividend................................ (50,000) -- -- (50,000) --
--------- ------ -------- -------- ---------
Balance, December 31, 1998................ 885,468 5,000 468,000 344,605 67,863
Comprehensive income:
Net income........................... 83,206 -- -- 83,206 --
Change in unrealized gains (losses)
on investments, net................ (119,122) -- -- -- (119,122)
---------
Total Comprehensive income.............. (35,916)
--------- ------ -------- -------- ---------
Balance, December 31, 1999................ $ 849,552 $5,000 $468,000 $427,811 $ (51,259)
========= ====== ======== ======== =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 12
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................... $ 83,206 $ 61,882 $ 67,110
Adjustments to reconcile net income to net cash provided
by operating activities:
Increase (decrease) in future policy benefit
reserves for traditional, interest sensitive and
accident and health policies...................... 97,931 106,135 (2,496)
Increase (decrease) in other policy claims and
benefits and policyholder dividends payable....... 5,012 (2,514) 68,070
Provision for deferred federal income taxes......... 29,454 417 (6,449)
Decrease in income taxes payable.................... (2,330) (6,381) (6,875)
Amortization of deferred policy acquisition costs... 43,078 33,365 43,931
Policy acquisition costs deferred................... (96,308) (73,147) (69,694)
Provision for mortgage loan losses.................. -- -- 1,388
Provision for depreciation.......................... 12,807 12,409 14,351
Write-off of investment............................. -- -- 3,000
Amortization of investment (discounts) premiums,
net............................................... 1,930 (3,200) (466)
Change in receivables, accrued investment income,
unearned premiums, accrued expenses and other
liabilities....................................... 27,227 (4,455) (2,720)
Net realized gains on sold investments.............. (25,962) (52,404) (41,101)
Other............................................... -- 169 (12,496)
----------- ----------- -----------
Net cash provided by operating activities................ 176,045 72,276 55,553
INVESTING ACTIVITIES
Purchases of fixed maturity investments.................. (1,654,104) (2,380,511) (3,611,770)
Sales and repayments of fixed maturity investments....... 1,675,488 2,428,207 3,378,898
(Increase) decrease in short-term investments............ (83,659) 38,669 112,280
Purchases of other investments........................... (305,889) (408,998) (209,771)
Sales of other investments............................... 353,267 352,873 205,084
Purchases of property and equipment...................... (7,213) (356) (4,242)
Cash received pursuant to reinsurance assumption
agreement.............................................. 3,374 -- --
Other.................................................... -- -- (617)
----------- ----------- -----------
Net cash (used in) provided by investing activities...... (18,736) 29,884 (130,138)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received................................ 237,375 215,693 200,760
Surrenders and death benefits.......................... (416,537) (326,457) (190,361)
Interest credited to policyholders..................... 39,855 49,371 53,613
Dividend................................................. -- (50,000) --
----------- ----------- -----------
Net cash (used in) provided by financing activities...... (139,307) (111,393) 64,012
Increase (decrease) in cash and cash equivalents......... 18,002 (9,233) (10,573)
Cash and cash equivalents at beginning of year........... 668 9,901 20,474
----------- ----------- -----------
Cash and cash equivalents at end of year................. $ 18,670 $ 668 $ 9,901
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 13
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Assets and liabilities transferred in reinsurance transactions (Note 8):
<TABLE>
<S> <C>
Non-Cash Assets Received:
Fixed maturities.......................................... $ 517,091
Other Investments......................................... 121,696
Other Assets.............................................. 12,763
Deferred Acquisition Costs................................ 35,882
---------
Total value of assets received.............................. $ 687,432
=========
Non-Cash Liabilities Assumed:
Future policy benefit reserves............................ $(685,932)
Claim reserves............................................ (4,874)
---------
Total Liabilities Assumed................................... $(690,806)
=========
</TABLE>
F-7
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
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, Inc. (Fortis), which itself is an indirect, wholly-owned
subsidiary of Fortis (B) and Fortis (NL) N.V. The Company is incorporated in
Minnesota and distributes its products in all states except New York. The
Company's revenues are derived principally from group employee benefits products
and from individual life and annuity products.
Effective October 1, 1999, the Company assumed pre-need life insurance business
from an affiliate on a 100% co-insurance basis. These life insurance and annuity
products are marketed in connection with the advance funding of funeral
expenses. (See Note 8 "Reinsurance" for more information on this reinsurance
transaction.)
BASIS OF STATEMENT PRESENTATION
During 1998, the Company adopted Statement of Financial Accounting Standards
Board (SFAS) 130, Reporting Comprehensive Income. SFAS 130 establishes new rules
for the reporting and display of comprehensive income and its components;
however, the adoption of this SFAS had no impact on the Company's net income or
shareholder's equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities, which prior to adoption were reported
separately in shareholder's equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to the
requirements of SFAS 130.
Effective January 1, 1999, the Company adopted SOP 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments". SOP 97-3
requires the estimation and recording of certain insurance-related assessments.
Because the Company previously recorded insurance-related assessments on this
basis, the adoption of SOP 97-3 had no impact on the results of operations or
financial position.
In June 1999, the Financial Accounting Standards Board issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FAS 133", which deferred to January 1, 2001 the effective date
of the accounting and reporting requirements of SFAS 133. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
The adoption of SFAS 133 is not expected to have a material effect on the
Company's results of operations or financial position.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
The Company follows accounting principles generally accepted in the United
States which differ in certain respects from statutory accounting practices
prescribed or permitted by regulatory authorities. The more significant of these
principles are set forth below:
REVENUE RECOGNITION AND FUTURE POLICY BENEFIT RESERVES
Premiums for traditional life insurance and pre-need life products 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
crediting rates for universal life and investment products ranged from 3.5% to
12% in 1999, and 2.5% to 8.75% in 1998 and 1997.
F-8
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
A portion of the Company's pre-need life products provide an increasing future
benefit tied typically to the U.S. Consumer Price Index or a targeted growth
rate established at management's discretion. All pre-need life products that
have death benefit increases made at management's discretion are accounted for
as interest-sensitive life products.
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 1987 Commissioners Group Disability
Table. The valuation interest rate is the Single Premium Immediate Annuity
valuation rate less 100 basis points. Claims in the first five years' are
modified based on the Company's actual experience.
CLAIMS AND BENEFITS PAYABLE
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 and pre-need life insurance and long-term care
products (included as accident and health 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.
Estimation of future gross profits requires significant management judgment and
are reviewed periodically. 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 and all marketable equity securities are
classified as available-for-sale and carried at fair value.
Changes in fair values of available for sale securities, after related deferred
income taxes and after adjustment for the changes in the pattern of amortization
of deferred policy acquisition costs and participating policyholder dividends,
are reported directly in shareholder's equity as accumulated other comprehensive
income and, accordingly, have no effect on net income. The unrealized
appreciation or depreciation is net of deferred policy acquisition cost
amortization and taxes 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 amortized cost, 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 their unpaid balance. Short term investments are at
cost which approximates fair value.
Real estate and other investments consist principally of property acquired in
satisfaction of debt and limited partnerships, respectively. Real estate is
recorded at cost less allowances for depreciation. The Company provides for
depreciation on a straight-line basis over the estimated useful lives. Other
investments are accounted for using the equity method of accounting.
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.
F-9
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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. Depreciation expense was
$12,807,000, $12,409,000 and $14,351,000 for the year ended December 31, 1999,
1998 and 1997, respectively.
INCOME TAXES
Income taxes have been provided using the liability method. Deferred tax assets
and liabilities are determined based on the temporary differences between the
financial reporting and the tax bases and are measured using the enacted tax
rates.
SEPARATE ACCOUNTS
Revenues and expenses related to the separate account assets and liabilities are
excluded from the amounts reported in the accompanying statements of income.
Assets and liabilities associated with the separate accounts relate to deposits
and annuity considerations for variable life and variable annuity products for
which the contract holder, rather than the Company, bears the investment risk.
Separate account assets are reported at fair value and represent funds held for
the exclusive benefit of the variable annuity and variable life insurance
contract owners.
The Company receives mortality and expense risk fees from the separate accounts.
The Company also deducts monthly cost of insurance charges, and receives minimum
death benefit guarantee fees and issue and administrative fees from the variable
life insurance separate accounts.
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of the
annuitants and beneficiaries from the mortality assumptions implicit in the
annuity contracts. The Company makes periodic fund transfers to, or withdrawals
from, the separate account assets for such actuarial adjustments for variable
annuities that are in the benefit payment period. The Company also guarantees
that the rates at which administrative fees are deducted from contract funds
will not exceed contractual maximums.
For variable life insurance, the Company guarantees that the rates at which
insurance charges and administrative fees are deducted from contract funds will
not exceed contractual maximums. The Company also guarantees that the death
benefit will continue payable at the initial level regardless of investment
performance so long as minimum premium payments are made.
GUARANTY FUND ASSESSMENTS
There are a number of insurance companies that are currently under regulatory
supervision. This may result in future assessments by state guaranty fund
associations to cover losses to policyholders of insolvent or rehabilitated
companies. These assessments can be partially recovered through a reduction in
future premium taxes in some states. The Company believes it has adequately
provided for the impact of future assessments relating to current insolvencies.
STATEMENTS OF CASH FLOWS
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These securities are
carried principally at amortized cost which approximates fair value.
COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and other comprehensive income
which includes unrealized gains and losses on securities classified as
available-for-sale, net of the effect on deferred policy acquisition costs,
taxes and reclassification adjustment.
F-10
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1998 and 1997 financial statements have been reclassified
to conform to the 1999 presentation.
2. INVESTMENTS
AVAILABLE-FOR-SALE SECURITIES
The following is a summary of the available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Fixed maturities:
Governments................................ $ 309,402 $ 46 $ 8,934 $ 300,514
Public utilities........................... 237,579 341 10,375 227,545
Industrial and miscellaneous............... 2,208,281 7,020 81,412 2,133,889
Other...................................... 47,435 184 3,195 44,424
---------- -------- -------- ----------
Total fixed maturities....................... 2,802,697 7,591 103,916 2,706,372
Equity securities............................ 81,554 5,825 2,358 85,021
---------- -------- -------- ----------
Total........................................ $2,884,251 $ 13,416 $106,274 $2,791,393
========== ======== ======== ==========
DECEMBER 31, 1998
Fixed maturities:
Governments................................ $ 321,047 $ 5,994 $ 436 $ 326,605
Public utilities........................... 190,792 7,769 1,704 196,857
Industrial and miscellaneous............... 1,723,183 79,137 6,451 1,795,869
Other...................................... 80,882 2,181 51 83,012
---------- -------- -------- ----------
Total fixed maturities....................... 2,315,904 95,081 8,642 2,402,343
Equity securities............................ 141,947 18,238 2,334 157,851
---------- -------- -------- ----------
Total........................................ $2,457,851 $113,319 $ 10,976 $2,560,194
========== ======== ======== ==========
</TABLE>
The amortized cost and fair value of available-for-sale investments in fixed
maturities at December 31, 1999, by contractual maturity, are shown below (in
thousands).
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due in one year or less..................................... $ 62,675 $ 62,547
Due after one year through five years....................... 681,595 671,472
Due after five years through ten years...................... 912,713 881,953
Due after ten years......................................... 1,145,714 1,090,400
---------- ----------
Total....................................................... $2,802,697 $2,706,372
========== ==========
</TABLE>
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.
F-11
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
2. INVESTMENTS (CONTINUED)
MORTGAGE LOANS
The Company has issued commercial mortgage loans on properties located
throughout the United States. Approximately 38% and 36% of outstanding principal
is concentrated in the states of New York, California and Florida, at December
31, 1999 and 1998, respectively. Loan commitments outstanding totaled
$12,350,000 at December 31, 1999.
INVESTMENTS ON DEPOSIT
The Company had fixed maturities carried at $17,061,000 and $19,978,000 at
December 31, 1999 and 1998, respectively, on deposit with various governmental
authorities as required by law.
INVESTMENT IN MANAGED DENTAL INITIATIVE
In 1997, the Company acquired a 99% ownership in a managed dental initiative
called Dental Health Alliance, Inc. (DHA). Based on an analysis of future DHA
profitability, the entire investment of $8,132,000 was written-off at December
31, 1997.
NET UNREALIZED GAINS (LOSSES)
The adjusted net unrealized gains (losses) on investments recorded in
accumulated other comprehensive income for the year ended December 31, are set
forth below (in thousands):
<TABLE>
<CAPTION>
TAX
BEFORE-TAX (EXPENSE) NET-OF-TAX
AMOUNT BENEFIT AMOUNT
---------- --------- ----------
<S> <C> <C> <C>
DECEMBER 31, 1999
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $(168,542) $ 58,990 $(109,552)
Decrease in amortization of deferred policy acquisition
costs................................................. 9,142 (3,200) 5,942
Reclassification adjustment for gains (losses) realized
in net income......................................... (23,864) 8,352 (15,512)
--------- -------- ---------
Other comprehensive loss................................... $(183,264) $ 64,142 $(119,122)
========= ======== =========
DECEMBER 31, 1998
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $ 32,614 $(11,562) $ 21,052
Decrease in amortization of deferred policy acquisition
costs................................................. 414 (145) 269
Reclassification adjustment for gains (losses) realized
in net income......................................... (42,832) 14,991 (27,841)
--------- -------- ---------
Other comprehensive loss................................... $ (9,804) $ 3,284 $ (6,520)
========= ======== =========
DECEMBER 31, 1997
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $ 93,826 $(33,796) $ 60,030
Increase in amortization of deferred policy acquisition
costs................................................. (2,096) 771 (1,325)
Reclassification adjustment for gains (losses) realized
in net income......................................... (40,587) 14,205 (26,382)
--------- -------- ---------
Other comprehensive income................................. $ 51,143 $(18,820) $ 32,323
========= ======== =========
</TABLE>
F-12
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
2. 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>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET INVESTMENT INCOME
Fixed maturities............................................ $167,027 $160,163 $160,444
Equity securities........................................... 7,320 8,656 9,306
Mortgage loans on real estate............................... 57,684 57,031 54,662
Policy loans................................................ 5,272 4,653 4,144
Short-term investments...................................... 844 1,701 2,851
Real estate and other investments........................... 6,375 8,194 4,635
-------- -------- --------
244,522 240,398 236,042
Expenses.................................................... (5,824) (6,355) (7,318)
-------- -------- --------
$238,698 $234,043 $228,724
======== ======== ========
NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Fixed maturities............................................ $ (9,750) $ 34,320 $ 13,827
Equity securities........................................... 33,613 8,512 26,760
Mortgage loans on real estate............................... -- (198) 301
Short-term investments...................................... -- 5 --
Real estate and other investments........................... 2,099 9,765 213
-------- -------- --------
$ 25,962 $ 52,404 $ 41,101
======== ======== ========
</TABLE>
Proceeds from sales of investments in fixed maturities were $1,627,450,000,
$2,460,316,000 and $3,360,682,000 in 1999, 1998 and 1997, respectively. Gross
gains of $11,996,000, $44,360,000 and $30,860,000 and gross losses of
$21,746,000, $10,040,000 and $17,033,000 were realized on the sales in 1999,
1998 and 1997, respectively.
F-13
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
3. DEFERRED POLICY ACQUISITION COSTS
The changes in deferred policy acquisition costs by product were as follows (in
thousands):
<TABLE>
<CAPTION>
INTEREST
TRADITIONAL SENSITIVE AND
AND PRE-NEED INVESTMENT ACCIDENT AND
LIFE PRODUCTS HEALTH TOTAL
------------ ------------- ------------ --------
<S> <C> <C> <C> <C>
Balance, January 1, 1998.................... $22,169 $264,383 $ 5,190 $291,742
Acquisition costs deferred................ -- 69,921 3,226 73,147
Acquisition costs amortized............... (7,609) (20,256) (5,500) (33,365)
Decreased amortization of deferred
acquisition costs from unrealized gains
on available-for-sale securities....... -- 414 -- 414
------- -------- ------- --------
Balance, December 31, 1998.................. 14,560 314,462 2,916 331,938
Acquisition costs deferred................ 33,783 81,016 17,391 132,190
Acquisition costs amortized............... (2,438) (38,831) (1,809) (43,078)
Decreased amortization of deferred
acquisition costs from unrealized gains
on available-for-sale securities....... -- 9,142 -- 9,142
------- -------- ------- --------
Balance, December 31, 1999.................. $45,905 $365,789 $18,498 $430,192
======= ======== ======= ========
</TABLE>
Included in total policy acquisition costs deferred in 1999 is $35,882,000 of
present value of future profits (PVP) and $1,416,000 of subsequent acquisition
costs resulting from the reinsurance assumption agreement with United Family
Life Insurance Company, an affiliate, which became effective October 1, 1999.
PVP is being amortized against the expected premium revenue of the pre-need life
insurance business assumed. See Note 8 "Reinsurance" for more information on
this reinsurance transaction.
During 1999, 1998 and 1997, the Company sold portions of its investment
portfolio and in accordance with FASB Statement 97, the recognition of the
realized net capital gains resulted in increased (decreased) amortization of
deferred acquisition costs of $(224,000), $3,357,000 and $732,000, respectively.
4. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31 for each year follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land........................................................ $ 1,900 $ 1,900
Building and improvements................................... 26,383 24,319
Furniture and equipment..................................... 76,604 87,714
-------- --------
104,887 113,933
Less accumulated depreciation............................... (79,769) (83,221)
-------- --------
Net property and equipment.................................. $ 25,118 $ 30,712
======== ========
</TABLE>
F-14
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
5. ACCIDENT AND HEALTH RESERVES
Activity for the liability for unpaid accident and health claims is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance recoverables.... $1,061,883 $ 988,036 $947,711
Add: Incurred losses related to:
Current year.............................................. 824,949 826,009 773,316
Prior years............................................... (12,800) (27,973) (59,634)
---------- ---------- --------
Total incurred losses....................................... 812,149 798,036 713,682
Deduct: Paid losses related to:
Current year.............................................. 468,404 469,881 437,405
Prior years............................................... 266,025 254,308 235,952
---------- ---------- --------
Total paid losses........................................... 734,429 724,189 673,357
---------- ---------- --------
Balance as of December 31, net of reinsurance
recoverables.............................................. $1,139,603 $1,061,883 $988,036
========== ========== ========
</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; and (2) 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 and a reduction of loss reserves due to lower than
anticipated inflation in medical costs.
The liability for unpaid accident and health claims includes $994,651,000,
$915,368,000 and $854,940,000 of total disability income reserves as of December
31, 1999, 1998 and 1997, respectively, which were discounted for anticipated
interest earnings using a rate which varies by incurral year.
6. FEDERAL INCOME TAXES
The Company reports its taxable income in a consolidated federal income tax
return along with other affiliated subsidiaries of Fortis. 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.
F-15
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
6. FEDERAL INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Separate account assets/liabilities....................... $ 60,716 $ 87,300
Reserves.................................................. 35,843 27,586
Claims and benefits payable............................... 7,964 8,089
Accrued liabilities....................................... 6,973 10,113
Unrealized Losses......................................... 32,500 --
Investments............................................... 4,549 3,861
Other..................................................... 6,755 2,723
-------- --------
Total deferred tax assets................................... 155,300 139,672
Deferred tax liabilities:
Deferred policy acquisition costs......................... 98,539 82,031
Unrealized gains.......................................... -- 35,591
Fixed assets.............................................. 2,963 3,150
Investments............................................... 1,171 982
Other..................................................... 160 14
-------- --------
Total deferred tax liabilities.............................. 102,833 121,768
-------- --------
Net deferred tax asset...................................... $ 52,467 $ 17,904
======== ========
</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 (benefit) for the year ended December 31 is shown as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current..................................................... $10,873 $30,232 $41,569
Deferred.................................................... 29,454 170 (6,449)
------- ------- -------
$40,327 $30,402 $35,120
======= ======= =======
</TABLE>
Federal income tax payments and refunds resulted in net payments of $13,203,000,
$36,367,000 and $58,859,000 in 1999, 1998 and 1997, respectively.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate................................... 35.0% 35.0% 35.0%
Other, net.................................................. (2.4) (2.1) (.6)
---- ---- ----
32.6% 32.9% 34.4%
==== ==== ====
</TABLE>
F-16
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
7. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets at December 31 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Premium and annuity considerations for the variable annuity
products and variable universal life products for which
the contract holder, rather than the Company, bears the
investment risk........................................... $5,082,341 $3,707,687
Assets of the separate accounts owned by the Company, at
fair value................................................ 37,811 34,716
---------- ----------
$5,120,152 $3,742,403
========== ==========
</TABLE>
8. REINSURANCE
In the second quarter of 1996, First Fortis Life Insurance Company (First
Fortis), an affiliate, received approval from the New York State Insurance
Department for a reinsurance agreement with the Company. The agreement, which
became effective as of January 1, 1996, decreased First Fortis' long-term
disability reinsurance retention from a $10,000 net monthly benefit to a $2,000
net monthly benefit for claims incurred on and after January 1, 1996. The
Company has assumed $6,580,000, $5,601,000 and $5,742,000 of premium from First
Fortis in 1999, 1998 and 1997, respectively. The Company has assumed
$11,047,000, $9,315,000 and $5,452,000 of reserves in 1999, 1998 and 1997,
respectively, from First Fortis.
In the fourth quarter of 1999, United Family Life Insurance Company (UFL), an
affiliate, received approval from the state of Georgia for a reinsurance
agreement with the Company. The agreement, which became effective October 1,
1999, provided for the cession of substantially all of UFL's pre-need life
insurance business on a 100% co-insurance basis. The Company assumed
approximately $690,806,000 of reserves and received approximately $654,924,000
of cash, investments (primarily fixed maturities and mortgages) and other assets
as of October 1, 1999. The $35,882,000 ceding commission was capitalized as an
acquisition cost (as described in Note 3). During the period October 1, 1999 to
December 31, 1999, the Company assumed $31,523,000 of premium under the
contract.
The maximum amount that the Company retains on any one life is $1,000,000 of
life insurance including accidental death. Amounts in excess of $1,000,000 are
reinsured with other life insurance companies on a yearly renewable term basis.
Ceded reinsurance premiums for the year ended December 31 were as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Life insurance.............................................. $ 6,246 $ 6,983 $ 8,159
Accident and health insurance............................... 17,803 13,862 13,712
------- ------- -------
$24,049 $20,845 $21,871
======= ======= =======
</TABLE>
Recoveries under reinsurance contracts for the year ended December 31 were as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Life insurance.............................................. $ 478 $ 4,549 $ 2,973
Accident and health insurance............................... 13,669 9,465 14,781
------- ------- -------
$14,147 $14,014 $17,754
======= ======= =======
</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
agreement. 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.
F-17
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
9. DIVIDEND RESTRICTIONS
Dividend distributions to the parent are restricted as to the amount by state
regulatory requirements. The Company had $49,286,000 free from such restrictions
as of December 31, 1999. Distributions in excess of this amount would require
regulatory approval.
10. REGULATORY ACCOUNTING REQUIREMENTS
Statutory-basis financial statements are prepared in accordance with accounting
practices prescribed or permitted by the Minnesota Department of Commerce.
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 from state to state, may differ from company to company
within a state, and may change in the future.
In 1998, the NAIC adopted codified statutory accounting principles
("Codification") effective January 1, 2001. Codification will likely change, to
some extent, prescribed statutory accounting practices and may result in changes
to the accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification requires adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Minnesota has adopted Codification
effective January 1, 2001. Management has not yet determined the impact of
Codification to the Company's 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. The
Company exceeds the minimum RBC requirements.
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
----------------------------- ---------------------
1999 1998 1997 1999 1998
-------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Based on statutory accounting practices........... $ 9,387 $14,841 $ 62,593 $ 497,858 $ 478,405
Deferred policy acquisition costs................. 54,049 39,782 25,763 430,192 331,938
Investment valuation differences.................. 953 745 (497) (103,361) 100,165
Deferred and uncollected premiums................. (4,637) 511 2,064 (13,188) (7,246)
Policy reserves................................... (20,070) (7,041) (19,363) (127,766) (156,889)
Commissions....................................... 79,067 -- (3,171) -- --
Current income taxes payable...................... (8,882) 925 6,450 (9,000) (10,920)
Deferred income taxes............................. (18,650) (417) 6,449 52,467 17,904
Realized gains on investments..................... 9 356 251 -- --
Realized gains (losses) transferred to the
Interest Maintenance Reserve (IMR), net of
tax............................................. (6,163) 22,748 9,644 -- --
Amortization of IMR, net of tax................... (8,565) (7,128) (6,315) -- --
Write-off of investment........................... -- (11,705) -- --
Pension expense................................... (1,475) 81 (4,153) (8,235) (6,440)
Property and equipment............................ -- -- -- 591 5,951
Interest maintenance reserve...................... -- -- -- 55,117 68,968
Asset valuation reserve........................... -- -- -- 72,940 90,986
Mortgage loans on real estate..................... -- -- -- -- (20,141)
Other, net........................................ 8,183 (3,521) (900) 1,937 (7,213)
-------- ------- -------- --------- ---------
As reported herein................................ $ 83,206 $61,882 $ 67,110 $ 849,552 $ 885,468
======== ======= ======== ========= =========
</TABLE>
F-18
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
11. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company receives various services from Fortis and its affiliates. 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 years ended December 31, 1999,
1998 and 1997, were $11,661,000, $13,077,000 and $12,015,000, respectively.
During 1997, Fortis, Inc. began providing information technology services to the
Company. Information technology expenses were $59,390,000, $55,910,000 and
$28,525,000 for years ended December 31, 1999, 1998 and 1997, respectively.
In conjunction with the marketing of its variable annuity products, the Company
paid $79,413,000, $72,638,000 and $72,105,000 in commissions to its affiliate,
Fortis Investors, Inc., for the years ended December 31, 1999, 1998 and 1997,
respectively.
Administrative expenses allocated for the Company may be greater or less than
the expenses that would be incurred if the Company were operating on a separate
company basis.
12. FAIR VALUE DISCLOSURES
VALUATION METHODS AND ASSUMPTIONS
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. Mortgage loans with
similar characteristics are aggregated for purposes of the calculations. The
carrying amount of policy loans reported in the Balance Sheet approximates fair
value. For short-term investments, the carrying amount is a reasonable estimate
of fair value. The fair values for the Company's policy reserves under the
investment products are determined using cash surrender value. Separate account
assets and liabilities are reported at their estimated fair values in the
Balance Sheet.
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, 1999 DECEMBER 31, 1998
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturities.............................. $2,706,372 $2,706,372 $2,402,343 $2,402,343
Equity securities............................. 85,021 85,021 157,851 157,851
Mortgage loans on real estate...................... 754,514 741,397 610,131 662,984
Policy loans....................................... 83,439 83,439 74,950 74,950
Short-term investments............................. 115,527 115,527 31,868 31,868
Assets held in separate accounts................... 5,120,152 5,120,152 3,742,403 3,742,403
Liabilities:
Individual and group annuities (subject to
discretionary withdrawal)....................... $ 789,002 $ 763,861 $ 923,102 $ 894,019
Liabilities related to Separate Accounts........... 5,082,341 5,082,341 3,707,687 3,707,687
</TABLE>
F-19
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
13. 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.
14. RETIREMENT AND OTHER EMPLOYEE BENEFITS
The Company is an indirect wholly-owned subsidiary of Fortis, which sponsors a
defined benefit pension plan covering employees and certain agents who meet
eligibility requirements as to age and length of service. The benefits are based
on years of service and career compensation. Fortis Inc.'s funding policy is to
contribute annually the maximum amount that can be deducted for federal income
tax purposes, and to charge each subsidiary an allocable amount based on its
employee census. Pension cost allocated to the Company amounted to approximately
$2,225,000, $1,627,000 and $1,594,000 for 1999, 1998 and 1997, respectively.
The Company participates in a contributory profit sharing plan, sponsored by
Fortis, covering employees and certain agents who meet eligibility requirements
as to age and length of service. Benefits are payable to participants on
retirement or disability and to the beneficiaries of participants in the event
of death. The first three percent of an employee's contribution is matched 200%
by the Company. The amount expensed was approximately $3,711,000, $3,610,000 and
$3,926,000 for 1999, 1998 and 1997, respectively.
In addition to retirement benefits, the Company participates in other health
care and life insurance benefit plans ("postretirement benefits") for retired
employees, sponsored by Fortis. Health care benefits, either through a Fortis
sponsored retiree plan for retirees under age 65 or through a cost offset for
individually purchased Medigap policies for retirees over age 65, are available
to employees who retire on or after January 1, 1993, at age 55 or older, with 15
years or more service. Life insurance, on a retiree pay all basis, is available
to those who retire on or after January 1, 1993.
There were no net postretirement benefit costs allocated to the Company for the
years ended December 31, 1999 and 1998. Costs allocated to the Company for the
year ended December 31, 1997 were $304,000, which includes the expected cost of
such benefits for newly eligible or vested employees, interest cost, gains and
losses arising from differences between actuarial assumptions and actual
experience, and amortization of the transition obligation. The Company made
contributions to the plans of approximately $19,000, $(5,200) and $20,000 in
1999, 1998 and 1997, respectively, as claims were incurred.
15. YEAR 2000 (UNAUDITED)
The Company utilizes Fortis and its computer systems to process Company
businesses. Fortis created a Year 2000 Project Office which was dedicated to
ensuring that all of the systems for Fortis and its subsidiaries and affiliates
were ready for year 2000. The estimated total cost of the Fortis Year 2000
Project was approximately $85 million. This cost reflects the total cost to the
Fortis U.S. companies (excluding the recent American Bankers Insurance Group
acquisition). The cost of the Company's portion is estimated at $26.9 million.
Approximately, $11.4 million was expensed by the Company in 1999.
As of December 20, 1999, 100% of the Mission Critical and non-Mission Critical
computer system lines of code that had been identified were renovated and tested
and were ready for year 2000. Although there have been several minor matters, as
of the date of this publication, no significant disruptions resulting from the
century date change have been detected in any of the mission critical systems.
The Company will continue to monitor the status of and exposure to any potential
Year 2000 issues.
F-20
<PAGE> 27
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying individual and combined statement of net assets
of the segregated subaccounts of Fortis Benefits Insurance Company Variable
Account C (comprised of, 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, Blue Chip Stock,
Mid Cap Stock, Large Cap Growth and Small Cap Value Subaccounts) as of December
31, 1999, and the related statements of changes in net assets for each of the
two years in the periods indicated therein. 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 auditing standards generally accepted
in the United States. 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, 1999 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 individual and combined
portfolio of subaccounts of Fortis Benefits Insurance Company Variable Account C
at December 31, 1999, and the changes in their net assets for the periods
described above, in conformity with accounting principles generally accepted in
the United States.
[/s/ ERNST & YOUNG]
March 29, 2000
Minneapolis, Minnesota
F-21
<PAGE> 28
STATEMENT OF NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------------------------------------------------
ATTRIBUTABLE TO ATTRIBUTABLE TO ACCUMULATION
NET ASSETS AT FORTIS BENEFITS VARIABLE LIFE UNITS
SHARES COST MARKET VALUE INSURANCE COMPANY INSURANCE POLICIES OUTSTANDING
--------- ------------ ------------- ----------------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investments in Fortis Series Fund, Inc.:
Growth Stock.................. 7,246,443 $205,294,123 $327,093,612 $ -- $327,093,612 7,332,436
U.S. Government Securities.... 958,418 10,594,034 9,705,128 -- 9,705,128 582,441
Money Market.................. 1,343,404 15,023,657 15,048,137 -- 15,048,137 1,089,603
Asset Allocation.............. 3,021,565 51,543,851 68,835,169 -- 68,835,169 2,272,923
Diversified Income............ 731,596 8,674,652 7,980,030 -- 7,980,030 463,045
Global Growth................. 3,798,038 64,347,095 131,875,104 -- 131,875,104 3,959,418
Aggressive Growth............. 3,258,540 47,958,221 110,105,427 -- 110,105,427 3,414,056
Growth & Income............... 2,082,105 35,998,406 45,681,790 -- 45,681,790 1,962,103
High Yield.................... 691,525 7,019,614 6,288,178 -- 6,288,178 491,818
Global Asset Allocation....... 672,543 8,825,916 8,857,591 -- 8,857,591 561,574
Global Bond................... 229,585 2,551,570 2,356,272 -- 2,356,272 195,221
International Stock........... 1,859,868 25,788,128 33,356,732 -- 33,356,732 1,717,579
Value......................... 1,045,799 14,418,182 16,368,213 -- 16,368,213 1,038,750
S & P 500..................... 3,445,450 60,400,026 78,077,353 -- 78,077,353 3,676,577
Blue Chip Stock............... 2,409,751 38,983,902 52,856,921 3,065,402 49,791,519 2,384,651
Mid Cap Stock................. 345,082 3,273,302 3,685,861 907,957 2,777,904 261,203
Large Cap Growth.............. 877,299 11,018,436 13,206,335 1,280,385 11,925,950 834,470
Small Cap Value............... 610,734 5,885,835 6,232,237 868,030 5,364,207 501,815
------------ ------------ ---------- ------------ ----------
Net Assets...................... $617,598,950 $937,610,090 $6,121,774 $931,488,316 32,739,683
============ ============ ========== ============ ==========
<CAPTION>
DECEMBER 31, 1999
-----------------------
NET ASSET VALUE FOR
VARIABLE LIFE INSURANCE
POLICIES PER
ACCUMULATION UNIT
-----------------------
<S> <C>
Investments in Fortis Series Fun
Growth Stock.................. $44.61
U.S. Government Securities.... 16.66
Money Market.................. 13.81
Asset Allocation.............. 30.28
Diversified Income............ 17.23
Global Growth................. 33.31
Aggressive Growth............. 32.25
Growth & Income............... 23.28
High Yield.................... 12.79
Global Asset Allocation....... 15.77
Global Bond................... 12.07
International Stock........... 19.42
Value......................... 15.76
S & P 500..................... 21.24
Blue Chip Stock............... 20.88
Mid Cap Stock................. 10.64
Large Cap Growth.............. 14.29
Small Cap Value............... 10.69
Net Assets......................
</TABLE>
See accompanying notes.
F-22
<PAGE> 29
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------------------------------------------------
FORTIS FORTIS U.S. FORTIS FORTIS FORTIS FORTIS FORTIS
GROWTH GOVERNMENT MONEY ASSET DIVERSIFIED GLOBAL AGGRESSIVE
STOCK SECURITIES MARKET ALLOCATION INCOME GROWTH GROWTH
------------ ----------- ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income............. $ 68,600,729 $ 545,626 $ 455,198 $ 5,702,124 $ 537,176 $ 2,343,557 $ 2,188,207
Mortality and expense and
policy advance charges.... (2,617,454) (114,406) (135,023) (661,177) (94,686) (1,101,815) (721,499)
Net realized gain (loss) on
investments............... 6,854,503 32,363 52,720 884,820 3,490 3,569,955 2,263,220
Net unrealized appreciation
(depreciation) of
investments............... 41,309,025 (778,023) 67,654 4,467,472 (678,120) 42,471,612 51,764,386
------------ ----------- ------------ ----------- ----------- ------------ ------------
Net increase (decrease) in
net assets resulting from
operations................ 114,146,803 (314,440) 440,549 10,393,239 (232,140) 47,283,309 55,494,314
CAPITAL TRANSACTIONS
Purchase of variable account
units..................... 15,064,905 1,668,767 25,347,642 7,693,019 1,720,635 6,699,253 12,534,699
Redemption of variable
account units............. (20,847,428) (2,283,527) (20,672,836) (3,510,989) (2,275,162) (10,761,442) (6,563,882)
Redemptions for mortality
and expense charges....... 2,617,454 114,406 135,023 661,177 94,686 1,101,815 721,499
Redemption of Fortis
Benefits Insurance Company
investment in
subaccount................ -- -- -- -- -- -- --
Dividend income distribution
to Fortis Benefits
Insurance Company......... -- -- -- -- -- -- --
------------ ----------- ------------ ----------- ----------- ------------ ------------
Increase (decrease) from
capital transactions...... (3,165,069) (500,354) 4,809,829 4,843,207 (459,841) (2,960,374) 6,692,316
Net assets at beginning of
year...................... 216,111,878 10,519,922 9,797,759 53,598,723 8,672,011 87,552,169 47,918,797
------------ ----------- ------------ ----------- ----------- ------------ ------------
Net assets at end of year... $327,093,612 $9,705,128 $ 15,048,137 $68,835,169 $ 7,980,030 $131,875,104 $110,105,427
============ =========== ============ =========== =========== ============ ============
</TABLE>
See accompanying notes.
F-23
<PAGE> 30
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------------------------
FORTIS FORTIS FORTIS
GROWTH & FORTIS GLOBAL ASSET FORTIS INTERNATIONAL
INCOME HIGH YIELD ALLOCATION GLOBAL BOND STOCK FORTIS VALUE
----------- ---------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income........................... $ 2,745,445 $ 549,436 $ 633,679 $ 91,276 $ 36,464 $ 10,774
Mortality and expense and policy advance
charges................................. (487,348) (68,287) (99,596) (26,971) (310,866) (167,133)
Net realized gain (loss) on investments... 890,490 (37,098) 94,445 (14,256) 548,594 126,282
Net unrealized appreciation (depreciation)
of investments.......................... 717,105 (446,229) (792,067) (259,018) 5,561,066 1,094,508
----------- ---------- ----------- ---------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations............... 3,865,692 (2,178) (163,539) (208,969) 5,835,258 1,064,431
CAPITAL TRANSACTIONS
Purchase of variable account units........ 5,696,466 1,711,503 2,227,173 926,447 7,847,729 3,580,517
Redemption of variable account units...... (4,111,216) (929,543) (1,381,437) (609,351) (3,994,737) (1,467,073)
Redemptions for mortality and expense
charges................................. 487,348 68,287 99,596 26,971 310,866 167,133
Redemption of Fortis Benefits Insurance
Company investment in subaccount........ -- -- -- -- -- --
Dividend income distribution to Fortis
Benefits Insurance Company.............. -- -- -- -- -- --
----------- ---------- ----------- ---------- ----------- -----------
Increase (decrease) from capital
transactions............................ 2,072,598 850,247 945,332 344,067 4,163,858 2,280,577
Net assets at beginning of year........... 39,743,500 5,440,109 8,075,798 2,221,174 23,357,616 13,023,205
----------- ---------- ----------- ---------- ----------- -----------
Net assets at end of year................. $45,681,790 $6,288,178 $ 8,857,591 $2,356,272 $33,356,732 $16,368,213
=========== ========== =========== ========== =========== ===========
</TABLE>
See accompanying notes.
F-24
<PAGE> 31
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------------
FORTIS FORTIS FORTIS FORTIS COMBINED
FORTIS BLUE CHIP MID CAP LARGE CAP SMALL CAP VARIABLE
S & P 500 STOCK STOCK GROWTH VALUE ACCOUNT
------------ ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income........................ $ 10,913 $ 746,163 $ 3,735 $ 214,165 $ 249,092 $ 85,663,759
Mortality and expense and policy
advance charges...................... (706,715) (449,554) (18,162) (74,802) (38,640) (7,894,134)
Net realized gain (loss) on
investments.......................... 1,981,345 264,388 17,080 110,890 21,104 17,664,335
Net unrealized appreciation
(depreciation) of investments........ 9,732,465 7,059,117 362,883 1,753,501 352,079 163,759,416
------------ ----------- ---------- ----------- ---------- ------------
Net increase (decrease) in net assets
resulting from operations............ 11,018,008 7,620,114 365,536 2,003,754 583,635 259,193,376
CAPITAL TRANSACTIONS
Purchase of variable account units..... 32,401,571 14,660,904 1,936,256 8,885,494 3,769,879 154,372,859
Redemption of variable account units... (10,760,728) (1,256,278) (192,002) (876,762) (370,648) (92,865,041)
Redemptions for mortality and expense
charges.............................. 706,715 449,554 18,162 74,802 38,640 7,894,134
Redemption of Fortis Benefits Insurance
Company investment in subaccount..... -- -- -- -- -- --
Dividend income distribution to Fortis
Benefits Insurance Company........... -- (44,596) (952) (21,701) (28,521) (95,770)
------------ ----------- ---------- ----------- ---------- ------------
Increase (decrease) from capital
transactions......................... 22,347,558 13,809,584 1,761,464 8,061,833 3,409,350 69,306,182
Net assets at beginning of year........ 44,711,787 31,427,223 1,558,861 3,140,748 2,239,252 609,110,532
------------ ----------- ---------- ----------- ---------- ------------
Net assets at end of year.............. $ 78,077,353 $52,856,921 $3,685,861 $13,206,335 $6,232,237 $937,610,090
============ =========== ========== =========== ========== ============
</TABLE>
See accompanying notes.
F-25
<PAGE> 32
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------------------------------
FORTIS FORTIS U.S. FORTIS FORTIS FORTIS FORTIS FORTIS
GROWTH GOVERNMENT MONEY ASSET DIVERSIFIED GLOBAL AGGRESSIVE
STOCK SECURITIES MARKET ALLOCATION INCOME GROWTH GROWTH
------------ ----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income............... $ 10,011,623 $ 604,612 $ 417,836 $ 95,130 $ 516,581 $ 92,908 $ 78,258
Mortality and expense and
policy advance charges...... (2,172,350) (108,978) (97,182) (532,382) (89,921) (965,714) (457,512)
Net realized gain (loss) on
investments................. 5,194,040 198,574 47,621 555,821 77,069 1,873,640 452,032
Net unrealized appreciation
(depreciation) of
investments................. 19,387,059 (18,374) (24,618) 8,022,659 (130,599) 6,899,076 7,815,700
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations.................. 32,420,372 675,834 343,657 8,141,228 373,130 7,899,910 7,888,478
CAPITAL TRANSACTIONS
Purchase of variable account
units....................... 16,114,322 4,401,606 15,648,521 6,247,649 2,923,619 7,934,991 8,656,071
Redemption of variable account
units....................... (14,790,719) (3,465,915) (14,377,114) (2,713,046) (1,482,876) (7,198,093) (4,140,981)
Redemptions for mortality and
expense charges............. 2,172,350 108,978 97,182 532,382 89,921 965,714 457,512
Funding of subaccount by
Fortis Benefits Insurance
Company..................... -- -- -- -- -- -- --
Redemption of Fortis Benefits
Insurance Company investment
in subaccount............... -- -- -- -- -- -- --
Dividend income distribution
to Fortis Benefits Insurance
Company..................... -- -- -- -- -- -- --
------------ ----------- ------------ ----------- ----------- ----------- -----------
Increase from capital
transactions................ 3,495,953 1,044,669 1,368,589 4,066,985 1,530,664 1,702,612 4,972,602
Net assets at beginning of
year........................ 180,195,553 8,799,419 8,085,513 41,390,510 6,768,217 77,949,647 35,057,717
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net assets at end of year..... $216,111,878 $10,519,922 $ 9,797,759 $53,598,723 $ 8,672,011 $87,552,169 $47,918,797
============ =========== ============ =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-26
<PAGE> 33
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------------------
FORTIS FORTIS FORTIS
GROWTH & FORTIS GLOBAL ASSET FORTIS INTERNATIONAL
INCOME HIGH YIELD ALLOCATION GLOBAL BOND STOCK FORTIS VALUE
----------- ----------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income.......................... $ 10,771 $ 428,836 $ 561,799 $ 94,052 $ 1,605,384 $ 283,540
Mortality and expense and policy advance
charges................................ (399,394) (61,285) (83,639) (22,737) (234,715) (119,375)
Net realized gain (loss) on
investments............................ 459,331 47,340 151,193 11,737 346,030 205,629
Net unrealized appreciation
(depreciation) of investments.......... 3,655,009 (463,439) 347,862 145,597 815,560 401,780
----------- ----------- ----------- ---------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations.............. 3,725,717 (48,548) 977,215 228,649 2,532,259 771,574
CAPITAL TRANSACTIONS
Purchase of variable account units....... 10,810,093 2,313,861 2,107,553 646,464 7,684,870 6,707,673
Redemption of variable account units..... (2,405,271) (1,552,255) (1,150,806) (456,482) (2,727,690) (914,596)
Redemptions for mortality and expense
charges................................ 399,394 61,285 83,639 22,737 234,715 119,375
Funding of subaccount by Fortis Benefits
Insurance Company...................... -- -- -- -- -- --
Redemption of Fortis Benefits Insurance
Company investment in subaccount....... -- -- -- -- -- (453,865)
Dividend income distribution to Fortis
Benefits Insurance Company............. -- -- -- -- -- --
----------- ----------- ----------- ---------- ----------- -----------
Increase from capital transactions....... 8,804,216 822,891 1,040,386 212,719 5,191,895 5,458,587
Net assets at beginning of year.......... 27,213,567 4,665,766 6,058,197 1,779,806 15,633,462 6,793,044
----------- ----------- ----------- ---------- ----------- -----------
Net assets at end of year................ $39,743,500 $ 5,440,109 $ 8,075,798 $2,221,174 $23,357,616 $13,023,205
=========== =========== =========== ========== =========== ===========
</TABLE>
See accompanying notes.
F-27
<PAGE> 34
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------------------
FORTIS FORTIS FORTIS FORTIS COMBINED
FORTIS BLUE CHIP MID CAP LARGE CAP SMALL CAP VARIABLE
S & P 500 STOCK STOCK* GROWTH* VALUE* ACCOUNT
----------- ----------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income.......................... $ 661,349 $ 526,017 $ 2,654 $ 803 $ 29,147 $ 16,021,300
Mortality and expense and policy advance
charges................................ (353,094) (226,004) (1,146) (3,149) (2,269) (5,930,846)
Net realized gain (loss) on
investments............................ 1,417,959 163,987 (551) (599) (2,161) 11,198,692
Net unrealized appreciation
(depreciation) of investments.......... 5,641,705 4,970,502 49,677 434,398 (5,675) 57,943,879
----------- ----------- ---------- ---------- ---------- ------------
Net increase (decrease) in net assets
resulting from operations.............. 7,367,919 5,434,502 50,634 431,453 19,042 79,233,025
CAPITAL TRANSACTIONS
Purchase of variable account units....... 24,567,864 14,173,614 697,126 1,909,786 1,405,053 134,950,736
Redemption of variable account units..... (4,191,140) (856,152) (38,634) (53,376) (26,427) (62,541,573)
Redemptions for mortality and expense
charges................................ 353,094 226,004 1,146 3,149 2,269 5,930,846
Funding of subaccount by Fortis Benefits
Insurance Company...................... -- -- 850,000 850,000 850,000 2,550,000
Redemption of Fortis Benefits Insurance
Company investment in subaccount....... (2,506,810) (74,424) -- -- -- (3,035,099)
Dividend income distribution to Fortis
Benefits Insurance Company............. -- (43,474) (1,411) (264) (10,685) (55,834)
----------- ----------- ---------- ---------- ---------- ------------
Increase from capital transactions....... 18,223,008 13,425,568 1,508,227 2,709,295 2,220,210 77,799,076
Net assets at beginning of year.......... 19,120,860 12,567,153 -- -- -- 452,078,431
----------- ----------- ---------- ---------- ---------- ------------
Net assets at end of year................ $44,711,787 $31,427,223 $1,558,861 $3,140,748 $2,239,252 $609,110,532
=========== =========== ========== ========== ========== ============
</TABLE>
* For the period from May 1, 1998 to December 31, 1998.
See accompanying notes.
F-28
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
DECEMBER 31, 1999
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 serves as distributor of
Harmony Investment Life and Wall Street Series policies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The assets of the Account are segregated from Fortis Benefits' other assets. The
operations of the Account are part of Fortis Benefits. The following is a
summary of significant accounting policies consistently followed by the Account
in the preparation of its financial statements.
INVESTMENT TRANSACTIONS
Capital gain distributions from subaccounts are recorded on the ex-dividend date
and reinvested upon receipt.
INVESTMENT INCOME
Dividend income from subaccounts is recorded on the ex-dividend date and
reinvested upon receipt.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of net assets at the date of
the financial statements and the reported amounts of net increase and decrease
in net assets from operations during the reporting period. Actual results could
differ from these estimates.
3. INVESTMENTS
There are eighteen subaccounts within the Account, each of which invests only in
a corresponding portfolio of Fortis Series Fund, Inc. (the Series). Investments
in shares of the Series 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 these Series. The Series' net asset value is based on market
quotations of the securities held in the portfolio.
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 subaccount's undistributed net investment income,
undistributed realized gains and losses and unrealized appreciation or
depreciation.
Purchases and sales of shares of the Funds are recorded on the trade date. The
number of shares and aggregate cost of purchases, including reinvested dividends
and realized capital gains, and aggregate cost of investments sold or redeemed
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------
SHARES
---------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock.......................... 2,512,076 525,378 $83,665,633 $13,992,925
U.S. Government Securities............ 211,520 215,751 2,214,393 2,251,164
Money Market.......................... 2,302,851 1,845,033 25,802,840 20,620,116
Asset Allocation...................... 646,220 165,710 13,395,143 2,626,169
Diversified Income.................... 199,861 196,143 2,257,811 2,271,672
Global Growth......................... 361,442 442,904 9,042,810 7,191,487
</TABLE>
F-29
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
VARIABLE ACCOUNT C
DECEMBER 31, 1999
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------
SHARES
---------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Aggressive Growth..................... 704,802 315,547 $14,722,906 $ 4,300,662
Growth & Income....................... 401,616 191,812 8,441,911 3,220,726
High Yield............................ 238,168 95,826 2,260,939 966,641
Global Asset Allocation............... 207,822 99,180 2,549,922 1,286,992
Global Bond........................... 94,115 56,663 792,845 623,607
International Stock................... 503,248 256,163 7,884,193 3,446,143
Value................................. 238,790 98,941 3,591,291 1,340,791
S&P 500............................... 1,590,474 518,948 32,412,484 8,779,383
Blue Chip Stock....................... 783,478 65,509 15,541,663 1,036,486
Mid Cap Stock......................... 202,776 19,461 1,940,943 175,874
Large Cap Growth...................... 680,882 64,360 9,121,360 787,573
Small Cap Value....................... 409,800 40,373 4,047,492 378,065
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------
SHARES
---------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock.......................... 729,677 388,040 $26,125,945 $ 9,596,679
U.S. Government Securities............ 456,835 318,071 5,006,218 3,267,341
Money Market.......................... 1,455,023 1,287,790 16,066,357 14,329,493
Asset Allocation...................... 334,518 142,687 6,342,779 2,157,225
Diversified Income.................... 285,468 122,389 3,440,200 1,405,807
Global Growth......................... 376,880 339,005 8,027,899 5,324,453
Aggressive Growth..................... 615,389 283,998 8,734,329 3,688,949
Growth & Income....................... 541,513 120,216 10,820,864 1,945,940
High Yield............................ 263,774 147,833 2,742,697 1,504,915
Global Asset Allocation............... 188,040 80,102 2,669,352 999,613
Global Bond........................... 65,856 40,879 740,516 444,745
International Stock................... 627,164 184,515 9,290,254 2,381,660
Value................................. 494,519 94,739 6,991,213 1,162,832
S&P 500............................... 1,494,482 401,256 25,229,213 5,279,991
Blue Chip Stock....................... 896,941 57,169 14,699,631 810,063
Mid Cap Stock......................... 166,528 4,760 1,549,780 40,596
Large Cap Growth...................... 266,175 5,412 2,760,589 54,239
Small Cap Value....................... 245,700 4,393 2,284,200 39,273
</TABLE>
F-30
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
VARIABLE ACCOUNT C
DECEMBER 31, 1999
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, 1999:
<TABLE>
<CAPTION>
NUMBER COST OF
OF SHARES SHARES
--------- ----------
<S> <C> <C>
Fortis Series Fund, Inc.:
Blue Chip Stock........................................... 139,751 $1,443,162
Mid Cap Stock............................................. 85,006 849,946
Large Cap Growth.......................................... 85,056 856,963
Small Cap Value........................................... 85,063 848,510
</TABLE>
4. ACCOUNT CHARGES
PREMIUM EXPENSE CHARGE
For Wall Street Series VUL, VUL 100, VUL 220, VUL 500 and Survivor policies,
there currently is no premium expense charge; however, Fortis Benefits reserves
the right to impose a charge up to 2.5% of each premium payment, for the VUL,
VUL 100, VUL 220, VUL 500 and a charge up to 3.0% of each premium payment for
the Survivor, to be reimbursed for premium taxes or similar charges it expects
to pay.
For Harmony Investment Life policies, a 5% sales charge and a 2.2% state premium
tax are 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.
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 Wall Street Series VUL policies:
- - Monthly administrative charge of $5.00 per policy. Fortis Benefits reserves
the right to change this administrative charge, but it will never exceed
$11.50 per month. Fortis Benefits also reserves the right to impose an
additional monthly administrative charge of up to $.13 per thousand dollars
of face amount in force.
- - Asset-based charge (mortality and expense risk charge) deducted from the
policy value invested in any of the investment options (other than the
general account option). The charge is based on annual percentage rates as
follows:
<TABLE>
<CAPTION>
YEARS 1 - 9 YEARS 10+
----------- ---------
<S> <C> <C>
Unloaned policy value:
In variable subaccounts:
$0 - $25,000........................................... 1.10% 70%
$25,001 - $250,000..................................... .70% 30%
$250,001 or more....................................... .35% 10%
</TABLE>
F-31
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
VARIABLE ACCOUNT C
DECEMBER 31, 1999
4. ACCOUNT CHARGES (CONTINUED)
For Wall Street Series VUL 100, VUL 220, VUL 500 and Survivor Policies:
- - For Wall Street Series VUL 100, VUL 220 and VUL 500, a monthly
administrative charge of $4.50 per policy. For Wall Street Series Survivor,
a monthly administrative charge of $6.00 per policy. Fortis Benefits
reserves the right to change this administrative charge, but it will never
exceed $7.50 per month for VUL 100, VUL 220, VUL 500 and Survivor.
- - For VUL 220 and VUL 500, a monthly sales, premium tax and policy advance
charge of $4.00 per policy.
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 amount of insurance expense charge of not
more than $.08 per month for insureds age 29 or less and $.25 per month for
insureds age 30 and over during the first 12 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
amount of insurance expense charge of $0.06 per month for insureds age 29 or
less and $0.20 per month for insureds age 30 and over during the first 12
policy months.
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 0.75% of the net assets of Harmony Investment Life
policyholders, 0.90% of the net assets of Wall Street Series VUL 100, VUL 220
and VUL 500 policyholders, and 1.00% of the net assets of Wall Street Survivor
policyholders. 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 0.27% of net assets of Wall Street Series VUL 220 and VUL 500
policyholders, and 0.35% of net assets of Wall Street Series Survivor
policyholders.
5. SURRENDER CHARGES
Policies surrendered within the first 14 years of issuance for Wall Street
Series VUL and the first 11 years of issuance for the Wall Street Series VUL
100, VUL 220 and VUL 500, and the first 10 years of issuance for the Wall Street
Survivor, Fortis Benefits assesses a surrender charge. For Wall Street Series
VUL, the charge is based on the face amount and the insured person's age at
issuance of the policy. For Wall Street VUL 100, VUL 220 and VUL 500, 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. The surrender charge for the
Wall Street Series VUL 100, VUL 220 and VUL 500 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 anniversaries until it reaches zero on
the eleventh policy anniversary.
The surrender charge for the Wall Street Survivor is limited to a certain
maximum based on the insured person's age at the time of issuance and decreases
at a constant rate on subsequent anniversaries 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 anniversaries until it reaches zero on
the ninth policy anniversary.
F-32
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
VARIABLE ACCOUNT C
DECEMBER 31, 1999
5. SURRENDER CHARGES (CONTINUED)
Surrender charges are included in redemptions and are paid directly to Fortis
Benefits. Surrender charges collected by Fortis Benefits were $6,308,174 and
$5,034,170 in 1999 and 1998, respectively.
6. 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.
7. RELATED PARTY TRANSACTIONS
Fortis Advisers, Inc. (a wholly-owned subsidiary of Fortis, Inc.) provides
investment management services to Fortis Series Fund, Inc. 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 variable accounts to which
Fortis Advisers, Inc. provided investment management services amounted to
$21,779,394 and $17,790,513 in 1999 and 1998, respectively.
8. YEAR 2000 (UNAUDITED)
The Account has no computer systems of its own and is, therefore, dependent upon
the systems of its affiliates, including Fortis Benefits Insurance Company
(Fortis Benefits), Fortis Advisers (Advisers) and certain other third parties.
Fortis Benefits and Advisers utilize Fortis Inc. (Fortis) to process their
businesses. Fortis created a Year 2000 Project which was dedicated to ensuring
that all systems for Fortis and subsidiaries and affiliates were Year 2000
ready. The estimated total cost of Fortis Year 2000 Project was approximately
$85 million. There were no costs allocated to the Account, as amounts are only
allocated to the affiliated companies.
As of December 20, 1999, 100% of the Mission Critical and non-Mission Critical
computer system lines of code that had been identified were renovated and tested
and were Year 2000 ready. Although there have been several matters as of the
date of this publication, no significant disruptions resulting from the century
date change have been detected in any of its Mission Critical systems. Fortis
will continue to monitor the status of and respond to any potential Year 2000
issue.
F-33
<PAGE> 40
APPENDIX
ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES, SURRENDER VALUES, AND
ACCUMULATED PREMIUMS
As a result of slight increases in the assumed investment advisory fees and
other expenses from an annual rate of .78% to .87%, Policy Values, Death
Benefits, and Surrender Values would be slightly lower than those shown in the
Prospectus. In the absence of a voluntary agreement to reimburse certain
expenses, the total fund operating expenses assumed would have been .88%. The
revised illustrations are as follows:
HARMONY INVESTMENT LIFE
<TABLE>
<CAPTION>
TABLE PAGE
----- ----
<S> <C>
Death Benefit Option A
Current Charges........................................... A-2
Guaranteed Maximum Charges................................ A-3
Death Benefit Option B
Current Charges........................................... A-4
Guaranteed Maximum Charges................................ A-5
</TABLE>
WALL STREET SERIES VUL220
<TABLE>
<CAPTION>
TABLE PAGE
----- ----
<S> <C>
Death Benefit Option A
Current Charges........................................... A-6
Guaranteed Maximum Charges................................ A-7
Death Benefit Option B
Current Charges........................................... A-8
Guaranteed Maximum Charges................................ A-9
</TABLE>
WALL STREET SERIES VUL500
<TABLE>
<CAPTION>
TABLE PAGE
----- ----
<S> <C>
Death Benefit Option A
Current Charges........................................... A-10
Guaranteed Maximum Charges................................ A-11
Death Benefit Option B
Current Charges........................................... A-12
Guaranteed Maximum Charges................................ A-13
</TABLE>
A-1
<PAGE> 41
HARMONY
MALE ISSUE AGE 35
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000--DEATH BENEFIT OPTION A
CURRENT CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
------------------------------------------------------------------------------------------------
PREMIUMS 0%(1)(2) 6%(1)(2) 12%(1)(2)(3)
END OF ACCUMULATED ----------------------------- ------------------------------ -------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR(1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 945 $100,000 $ 613 $ 417 $100,000 $ 657 $ 461 $100,000 $ 700 $ 504
2 1,937 100,000 1,208 1,012 100,000 1,333 1,137 100,000 1,463 1,267
3 2,979 100,000 1,783 1,588 100,000 2,030 1,834 100,000 2,297 2,101
4 4,073 100,000 2,339 2,144 100,000 2,746 2,550 100,000 3,206 3,010
5 5,222 100,000 2,875 2,679 100,000 3,483 3,287 100,000 4,198 4,003
6 6,428 100,000 3,389 3,233 100,000 4,239 4,083 100,000 5,282 5,125
7 7,694 100,000 3,881 3,764 100,000 5,015 4,898 100,000 6,464 6,347
8 9,024 100,000 4,349 4,271 100,000 5,809 5,731 100,000 7,754 7,676
9 10,420 100,000 4,792 4,753 100,000 6,621 6,582 100,000 9,163 9,124
10 11,886 100,000 5,207 5,207 100,000 7,449 7,449 100,000 10,700 10,700
15 20,392 100,000 6,777 6,777 100,000 11,753 11,753 100,000 20,761 20,761
20 31,247 100,000 7,336 7,336 100,000 16,205 16,205 100,000 36,604 36,604
25 45,102 100,000 6,514 6,514 100,000 20,516 20,516 100,000 62,318 62,318
40 114,156 0 0 0 100,000 23,490 23,490 314,789 286,250 286,250
</TABLE>
(1) Assumes annual premium payments of $900 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
(3) Alternative Death Benefit applies.
A-2
<PAGE> 42
HARMONY
MALE ISSUE AGE 35
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000--DEATH BENEFIT OPTION A
GUARANTEED CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
------------------------------------------------------------------------------------------------
PREMIUMS 0%(1)(2) 6%(1)(2) 12%(1)(2)(3)
END OF ACCUMULATED ----------------------------- ------------------------------ -------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR(1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 945 $100,000 $ 80 $ 0 $100,000 $ 105 $ 0 $100,000 $ 131 $ 0
2 1,937 100,000 626 430 100,000 697 502 100,000 773 577
3 2,979 100,000 1,152 956 100,000 1,305 1,109 100,000 1,470 1,274
4 4,073 100,000 1,658 1,463 100,000 1,927 1,731 100,000 2,228 2,032
5 5,222 100,000 2,144 1,948 100,000 2,564 2,368 100,000 3,052 2,857
6 6,428 100,000 2,606 2,450 100,000 3,213 3,057 100,000 3,947 3,790
7 7,694 100,000 3,045 2,928 100,000 3,875 3,758 100,000 4,919 4,801
8 9,024 100,000 3,460 3,382 100,000 4,549 4,471 100,000 5,975 5,897
9 10,420 100,000 3,849 3,810 100,000 5,235 5,196 100,000 7,124 7,085
10 11,886 100,000 4,210 4,210 100,000 5,929 5,929 100,000 8,373 8,373
15 20,392 100,000 5,549 5,549 100,000 9,495 9,495 100,000 16,485 16,485
20 31,247 100,000 5,824 5,824 100,000 12,940 12,940 100,000 28,983 28,983
25 45,102 100,000 4,312 4,312 100,000 15,501 15,501 100,000 48,574 48,574
40 114,156 0 0 0 0 0 0 241,801 219,569 219,569
</TABLE>
(1) Assumes annual premium payments of $900 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
(3) Alternative Death Benefit applies.
A-3
<PAGE> 43
HARMONY
MALE ISSUE AGE 35
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000--DEATH BENEFIT OPTION B
CURRENT CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
------------------------------------------------------------------------------------------------
PREMIUMS 0%(1)(2) 6%(1)(2) 12%(1)(2)
END OF ACCUMULATED ----------------------------- ------------------------------ -------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR(1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 945 $100,612 $ 612 $ 416 $100,655 $ 655 $ 460 $100,699 $ 699 $ 503
2 1,937 101,205 1,205 1,009 101,329 1,329 1,134 101,460 1,460 1,264
3 2,979 101,777 1,777 1,582 102,023 2,023 1,827 102,289 2,289 2,093
4 4,073 102,329 2,329 2,134 102,734 2,734 2,538 103,192 3,192 2,996
5 5,222 102,859 2,859 2,664 103,463 3,463 3,268 104,174 4,174 3,979
6 6,428 103,367 3,367 3,210 104,210 4,210 4,054 105,245 5,245 5,088
7 7,694 103,851 3,851 3,733 104,974 4,974 4,856 106,409 6,409 6,291
8 9,024 104,309 4,309 4,230 105,752 5,752 5,674 107,675 7,675 7,597
9 10,420 104,740 4,740 4,700 106,545 6,545 6,505 109,052 9,052 9,013
10 11,886 105,141 5,141 5,141 107,348 7,348 7,348 110,548 10,548 10,548
15 20,392 106,600 6,600 6,600 111,423 11,423 11,423 120,144 20,144 20,144
20 31,247 106,963 6,963 6,963 115,339 15,339 15,339 134,562 34,562 34,562
25 45,102 105,857 5,857 5,857 118,530 18,530 18,530 156,278 56,278 56,278
40 114,156 0 0 0 109,036 9,036 9,036 311,521 211,521 211,521
</TABLE>
(1) Assumes annual premium payments of $900 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
A-4
<PAGE> 44
HARMONY
MALE ISSUE AGE 35
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000--DEATH BENEFIT OPTION B
GUARANTEED CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
------------------------------------------------------------------------------------------------
PREMIUMS 0%(1)(2) 6%(1)(2) 12%(1)(2)
END OF ACCUMULATED ----------------------------- ------------------------------ -------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR(1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.. $ 945 $100,079 $ 79 $ 0 $100,104 $ 104 $ 0 $100,130 $ 130 $ 0
2... 1,937 100,623 623 428 100,695 695 499 100,770 770 574
3... 2,979 101,147 1,147 952 101,299 1,299 1,104 101,464 1,464 1,268
4... 4,073 101,650 1,650 1,454 101,917 1,917 1,721 102,217 2,217 2,021
5... 5,222 102,131 2,131 1,935 102,548 2,548 2,352 103,032 3,032 2,837
6... 6,428 102,587 2,587 2,430 103,188 3,188 3,032 103,915 3,915 3,759
7... 7,694 103,018 3,018 2,900 103,839 3,839 3,721 104,871 4,871 4,753
8... 9,024 103,423 3,423 3,345 104,498 4,498 4,420 105,905 5,905 5,827
9... 10,420 103,801 3,801 3,762 105,166 5,166 5,126 107,025 7,025 6,986
10.. 11,886 104,149 4,149 4,149 105,838 5,838 5,838 108,236 8,236 8,236
15.. 20,392 105,387 5,387 5,387 109,198 9,198 9,198 115,939 15,939 15,939
20.. 31,247 105,488 5,488 5,488 112,168 12,168 12,168 127,194 27,194 27,194
25.. 45,102 103,729 3,729 3,729 113,719 13,719 13,719 143,192 43,192 43,192
40.. 114,156 0 0 0 0 0 0 230,585 130,585 130,585
</TABLE>
(1) Assumes annual premium payments of $900 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
A-5
<PAGE> 45
VUL220
MALE ISSUE AGE 35
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $150,000--DEATH BENEFIT OPTION A
CURRENT CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
-------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2) 12% (1)(2)(3)
END OF ACCUMULATED ------------------------------ ------------------------------ -------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,575 $150,000 $ 1,118 $ 157 $150,000 $ 1,196 $ 236 $150,000 $ 1,275 $ 315
2 3,229 150,000 2,181 1,130 150,000 2,408 1,357 150,000 2,644 1,593
3 4,965 150,000 3,208 2,068 150,000 3,651 2,513 150,000 4,134 2,997
4 6,788 150,000 4,203 2,978 150,000 4,935 3,713 150,000 5,763 4,544
5 8,703 150,000 5,202 3,894 150,000 6,294 4,992 150,000 7,580 6,284
6 10,713 150,000 6,208 4,943 150,000 7,736 6,481 150,000 9,609 8,364
7 12,824 150,000 7,234 6,163 150,000 9,277 8,205 150,000 11,883 10,812
8 15,040 150,000 8,284 7,427 150,000 10,924 10,067 150,000 14,431 13,574
9 17,367 150,000 9,333 8,690 150,000 12,659 12,016 150,000 17,256 16,613
10 19,810 150,000 10,308 9,879 150,000 14,410 13,981 150,000 20,313 19,884
15 33,986 150,000 14,506 14,506 150,000 23,891 23,891 150,000 40,676 40,676
20 52,079 150,000 17,291 17,291 150,000 34,640 34,640 150,000 73,098 73,098
25 75,170 150,000 18,056 18,056 150,000 46,337 46,337 171,607 126,131 126,131
40 190,260 0 0 0 150,000 83,007 83,007 644,009 586,511 586,511
</TABLE>
(1) Assumes annual premium payments of $1,500 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
(3) Alternative Death Benefit applies.
A-6
<PAGE> 46
VUL220
MALE ISSUE AGE 35
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $150,000--DEATH BENEFIT OPTION A
GUARANTEED CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2) 12% (1)(2)(3)
END OF ACCUMULATED ----------------------------- ------------------------------ -------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,575 $150,000 $ 793 $ 0 $150,000 $ 860 $ 0 $150,000 $ 927 $ 0
2 3,229 150,000 1,559 496 150,000 1,743 680 150,000 1,935 873
3 4,965 150,000 2,293 1,135 150,000 2,643 1,487 150,000 3,027 1,872
4 6,788 150,000 2,994 1,743 150,000 3,563 2,315 150,000 4,209 2,964
5 8,703 150,000 3,662 2,321 150,000 4,499 3,162 150,000 5,491 4,159
6 10,713 150,000 4,294 3,008 150,000 5,450 4,165 150,000 6,879 5,593
7 12,824 150,000 4,908 3,837 150,000 6,435 5,363 150,000 8,400 7,329
8 15,040 150,000 5,523 4,666 150,000 7,472 6,615 150,000 10,089 9,232
9 17,367 150,000 6,137 5,494 150,000 8,562 7,919 150,000 11,959 11,316
10 19,810 150,000 6,706 6,277 150,000 9,664 9,235 150,000 13,987 13,559
15 33,986 150,000 8,868 8,868 150,000 15,349 15,349 150,000 27,158 27,158
20 52,079 150,000 9,437 9,437 150,000 20,875 20,875 150,000 47,484 47,484
25 75,170 150,000 7,349 7,349 150,000 25,122 25,122 150,000 79,206 79,206
40 190,260 0 0 0 0 0 0 388,633 352,867 352,867
</TABLE>
(1) Assumes annual premium payments of $1,500 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
(3) Alternative Death Benefit applies.
A-7
<PAGE> 47
VUL220
MALE ISSUE AGE 35
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $150,000--DEATH BENEFIT OPTION B
CURRENT CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
-------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2) 12% (1)(2)(3)
END OF ACCUMULATED ------------------------------ ------------------------------ -------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,575 $151,116 $ 1,116 $ 155 $151,194 $ 1,194 $ 234 $151,273 $ 1,273 $ 313
2 3,229 152,175 2,175 1,123 152,401 2,401 1,350 152,636 2,636 1,586
3 4,965 153,195 3,195 2,055 153,637 3,637 2,498 154,117 4,117 2,980
4 6,788 154,182 4,182 2,956 154,909 4,909 3,687 155,732 5,732 4,513
5 8,703 155,171 5,171 3,863 156,255 6,255 4,952 157,532 7,532 6,235
6 10,713 156,167 6,167 4,902 157,682 7,682 6,426 159,539 9,539 8,294
7 12,824 157,182 7,182 6,111 159,206 9,206 8,135 161,788 11,788 10,717
8 15,040 158,220 8,220 7,363 160,834 10,834 9,997 164,304 14,304 13,447
9 17,367 159,255 9,255 8,612 162,544 12,544 11,901 167,088 17,088 16,445
10 19,810 160,210 10,210 9,782 164,260 14,260 13,832 170,087 20,087 19,658
15 33,986 164,241 14,241 14,241 173,408 23,408 23,408 189,781 39,781 39,781
20 52,079 166,693 16,693 16,693 183,312 33,312 33,312 220,070 70,070 70,070
25 75,170 166,865 16,865 16,865 193,050 43,050 43,050 266,642 116,642 116,642
40 190,260 0 0 0 199,675 49,675 49,675 631,145 481,145 481,145
</TABLE>
(1) Assumes annual premium payments of $1,500 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
A-8
<PAGE> 48
VUL220
MALE ISSUE AGE 35
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $150,000--DEATH BENEFIT OPTION B
CURRENT CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
-------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2) 12% (1)(2)
END OF ACCUMULATED ------------------------------ ------------------------------ -------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,575 $150,791 $ 791 $ 0 $150,858 $ 858 $ 0 $150,925 $ 925 $ 0
2 3,229 151,553 1,553 491 151,736 1,736 674 151,928 1,928 867
3 4,965 152,282 2,282 1,124 152,631 2,631 1,475 153,013 3,013 1,858
4 6,788 152,977 2,977 1,726 153,542 3,542 2,294 154,185 4,185 2,939
5 8,703 153,636 3,636 2,295 154,467 4,467 3,130 155,451 5,451 4,119
6 10,713 154,258 4,258 2,972 155,403 5,403 4,117 156,817 6,817 5,531
7 12,824 154,859 4,859 3,788 156,368 6,368 5,297 158,310 8,310 7,239
8 15,040 155,459 5,459 4,602 157,381 7,381 6,524 159,961 9,961 9,104
9 17,367 156,055 6,055 5,412 158,441 8,441 7,798 161,782 11,782 11,139
10 19,810 156,603 6,603 6,174 159,507 9,507 9,078 163,747 13,747 13,319
15 33,986 158,607 8,607 8,607 164,863 14,863 14,863 176,241 26,241 26,241
20 52,079 158,904 8,904 8,904 169,637 19,637 19,637 194,544 44,544 44,544
25 75,170 156,421 6,421 6,421 172,270 22,270 22,270 220,472 70,472 70,472
40 190,260 0 0 0 0 0 0 364,032 214,032 214,032
</TABLE>
(1) Assumes annual premium payments of $1,500 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
A-9
<PAGE> 49
VUL500
MALE ISSUE AGE 45
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $800,000--DEATH BENEFIT OPTION A
CURRENT CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2)(3) 12% (1)(2)(3)
END OF ACCUMULATED ------------------------------- ------------------------------------ -----------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,750 $800,000 $ 12,099 $ 4,854 $ 800,000 $ 12,915 $ 5,671 $ 800,000 $ 13,733
2 32,288 800,000 23,630 15,045 800,000 26,014 17,436 800,000 28,500
3 49,652 800,000 34,781 25,181 800,000 39,491 29,891 800,000 44,603
4 67,884 800,000 45,551 35,951 800,000 53,355 43,755 800,000 62,171
5 87,029 800,000 56,177 46,577 800,000 67,859 58,259 800,000 81,602
6 107,130 800,000 66,663 58,434 800,000 83,034 74,806 800,000 103,089
7 128,237 800,000 77,159 70,302 800,000 99,057 92,199 800,000 126,995
8 150,308 800,000 87,706 82,220 800,000 116,003 110,518 800,000 153,612
9 173,668 800,000 98,271 94,156 800,000 133,925 129,810 800,000 183,289
10 198,102 800,000 108,205 105,463 800,000 152,198 149,455 800,000 215,668
15 339,868 800,000 150,376 150,376 800,000 251,710 251,710 800,000 438,380
20 520,789 800,000 176,809 176,809 800,000 370,713 370,713 996,896 817,128
25 751,702 800,000 181,927 181,927 800,000 518,722 518,722 1,684,166 1,451,867
40 1,902,596 0 0 0 1,382,281 1,316,458 1,316,458 7,668,089 7,302,942
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
----------
12% (1)(2)(3)
END OF ----------
POLICY SURRENDER
YEAR VALUE
- ------ ---------
<S> <C>
1 $ 6,490
2 19,928
3 35,003
4 52,571
5 72,002
6 94,861
7 120,138
8 148,126
9 179,174
10 212,925
15 438,380
20 817,128
25 1,451,867
40 7,302,942
</TABLE>
(1) Assumes annual premium payments of $15,000 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
(3) Alternative Death Benefit applies.
A-10
<PAGE> 50
VUL500
MALE ISSUE AGE 45
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $800,000--DEATH BENEFIT OPTION A
GUARANTEED CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
--------------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2) 12% (1)(2)
END OF ACCUMULATED ------------------------------- ------------------------------- ------------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,750 $800,000 $ 10,176 $ 2,882 $800,000 $ 10,919 $ 3,626 $ 800,000 $ 11,664 $ 4,373
2 32,288 800,000 19,963 11,278 800,000 22,087 13,407 800,000 24,306 15,630
3 49,652 800,000 29,360 19,760 800,000 33,508 23,908 800,000 38,018 28,418
4 67,884 800,000 38,355 28,755 800,000 45,175 35,575 800,000 52,899 43,299
5 87,029 800,000 46,938 37,338 800,000 57,085 47,485 800,000 69,056 59,456
6 107,130 800,000 55,087 46,858 800,000 69,221 60,993 800,000 86,598 78,370
7 128,237 800,000 62,932 56,075 800,000 81,722 74,864 800,000 105,806 98,948
8 150,308 800,000 70,615 65,129 800,000 94,743 89,258 800,000 127,001 121,516
9 173,668 800,000 78,162 74,047 800,000 108,371 104,257 800,000 150,512 146,398
10 198,102 800,000 85,121 82,378 800,000 122,166 119,423 800,000 176,103 173,360
15 339,868 800,000 110,166 110,166 800,000 193,250 193,250 800,000 347,659 347,659
20 520,789 800,000 112,637 112,637 800,000 264,172 264,172 800,000 638,679 638,679
25 751,702 800,000 76,513 76,513 800,000 331,111 331,111 1,319,654 1,137,632 1,137,632
40 1,902,596 0 0 0 800,000 220,557 220,557 5,785,567 5,510,063 5,510,063
</TABLE>
(1) Assumes annual premium payments of $15,000 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
(3) Alternative Death Benefit applies.
A-11
<PAGE> 51
VUL500
MALE ISSUE AGE 45
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $800,000--DEATH BENEFIT OPTION B
CURRENT CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
----------------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2) 12% (1)(2)
END OF ACCUMULATED ------------------------------- --------------------------------- ------------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,750 $812,057 $ 12,057 $ 4,812 $ 812,871 $ 12,871 $ 5,627 $ 813,686 $ 13,686 $ 6,443
2 32,288 823,499 23,499 14,915 825,870 25,870 17,291 828,342 28,342 19,769
3 40,652 834,515 34,515 24,915 839,185 39,185 29,585 844,252 44,252 34,652
4 67,884 845,098 45,098 35,498 852,812 52,812 43,212 861,526 61,526 51,926
5 87,029 855,501 55,501 45,901 867,016 67,016 57,416 880,558 80,558 70,958
6 107,130 865,730 65,730 57,501 881,822 81,822 73,594 901,526 101,526 93,298
7 128,237 875,935 75,935 69,078 897,399 97,399 90,542 924,769 124,769 117,912
8 150,308 886,140 86,140 80,655 913,798 113,798 108,313 950,527 150,527 145,042
9 173,668 896,293 96,293 92,179 931,028 131,028 126,913 979,071 179,071 174,957
10 198,102 905,702 105,702 102,959 948,393 148,393 145,650 1,009,908 209,908 207,165
15 339,868 943,472 143,472 143,472 1,039,045 239,045 239,045 1,214,642 414,642 414,642
20 520,789 961,146 161,146 161,146 1,133,594 333,594 333,594 1,535,960 735,960 735,960
25 751,702 951,373 151,373 151,373 1,225,748 425,748 425,748 2,045,866 1,245,866 1,245,866
40 1,902,596 0 0 0 1,252,105 452,105 452,105 6,260,248 5,460,248 5,460,248
</TABLE>
(1) Assumes annual premium payments of $15,000 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
A-12
<PAGE> 52
VUL500
MALE ISSUE AGE 45
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $800,000--DEATH BENEFIT OPTION B
GUARANTEED CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
----------------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2) 12% (1)(2)
END OF ACCUMULATED ------------------------------- --------------------------------- ------------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,750 $810,133 $ 10,133 $ 2,839 $ 810,873 $ 10,873 $ 3,581 $ 811,615 $ 11,615 $ 4,324
2 32,288 819,838 19,838 11,152 821,948 21,948 13,268 824,153 24,153 15,477
3 49,652 829,109 29,109 19,509 833,218 33,218 23,618 837,687 37,687 28,087
4 67,884 837,931 37,931 28,331 844,666 44,666 35,066 852,292 52,292 42,692
5 87,029 846,289 46,289 36,689 856,274 56,274 46,674 868,050 68,050 58,450
6 107,130 854,154 54,154 45,926 868,009 68,009 59,781 885,034 85,034 76,806
7 128,237 861,650 61,650 54,793 879,987 79,987 73,130 903,477 103,477 96,620
8 150,308 868,909 68,909 63,423 892,342 92,342 86,856 923,645 123,645 118,159
9 173,668 875,943 75,943 71,829 905,123 105,123 101,008 945,784 145,784 141,669
10 198,102 882,290 82,290 79,548 917,855 117,855 115,112 969,566 169,566 166,823
15 339,868 902,431 102,431 102,431 978,796 178,796 178,796 1,118,885 318,885 318,885
20 520,789 896,017 96,017 96,017 1,024,872 224,872 224,872 1,339,579 539,579 539,579
25 751,702 847,532 47,532 47,532 1,032,062 232,062 232,062 1,656,738 856,738 856,738
40 1,902,596 0 0 0 0 0 0 3,349,296 2,549,296 2,549,296
</TABLE>
(1) Assumes annual premium payments of $15,000 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
A-13
<PAGE> 53
MEMBER FINANCIAL GROUP
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES (HARMONY)
(Minimum Initial Face Amount $25,000)
Issued by
FORTIS BENEFITS INSURANCE COMPANY
PROSPECTUS DATED
May 1, 1995
MAILING ADDRESS: STREET ADDRESS: TELEPHONE:
P.O. BOX 64582 500 BIELENBERG 1-800-800-2638,
ST. PAUL, MN DRIVE EXTENSION 3028
55164 WOODBURY, MN 55125
The flexible premium variable life insurance Policies offered by this Prospectus
are issued by Fortis Benefits Insurance Company and are designed to provide (1)
lifetime insurance coverage on the insureds named in the Policies and (2)
flexibility in connection with premium payments and death benefits. This
flexibility allows an owner of a Policy to provide for changing insurance needs
with a single insurance policy.
With respect to the Policy Value available for investment under a Policy, the
Policy owner may elect to receive a rate of return based on one or more of the
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 High Yield Series, the Global Bond Series, the Asset
Allocation 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 the Policy owner bears the entire
investment risk that this value (or the Surrender Value) may decline to zero.
Alternatively, a Policy owner may, with respect to all or part of the Policy
Value, elect to receive fixed rates of return.
The Policy may be fully surrendered at any time for its Surrender Value, and,
after the first Policy year, the Policy owner may generally make a partial
withdrawal of Surrender Value once a year. The Policy owner also may take out
Policy loans and has considerable flexibility to vary the frequency and amount
of premium payments. Payment of Planned Periodic Premiums will not necessarily
keep a Policy from lapsing if the Surrender Value is exhausted. However, the
Policy will not lapse in the first two years if certain minimum premium payments
are made. $300 is generally the smallest possible initial annual premium.
This Prospectus contains detailed information about these and other Policy
features, including certain restrictions and limitations which apply. This
Prospectus also discusses the way in which the return earned by the Policy Value
can affect a Policy's death benefit and Surrender Value.
As in the case of other life insurance policies, it may not be advantageous to
purchase flexible premium variable life insurance as a replacement for, or in
addition to, an existing flexible premium variable or other life insurance
policy.
THESE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, NOR ARE THEY GUARANTEED OR
ENDORSED BY, ANY BANK, CREDIT UNION, BROKER-DEALER OR OTHER FINANCIAL
INSTITUTION. THEY ARE NOT FEDERALLY INSURED BY THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY; AND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THIS PROSPECTUS IS NOT VALID UNLESS PRECEDED
OR ACCOMPANIED BY THE CURRENT PROSPECTUS FOR FORTIS
SERIES FUND, INC., WHICH CONTAINS ADDITIONAL
INFORMATION ABOUT THAT ENTITY.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
[LOGO]
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TABLE OF CONTENTS
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INDEX OF DEFINED WORDS AND PHRASES............................................... 4
SUMMARY.......................................................................... 5
- Fortis Benefits/Fortis Financial Group Member.............................. 5
- Payment of Premiums........................................................ 5
- Allocation of Net Premiums Among Various Alternatives...................... 6
- Policy Value............................................................... 7
- Surrenders and Exchanges................................................... 7
- Other Charges.............................................................. 8
- Death Benefit.............................................................. 8
- Optional Insurance Benefits................................................ 9
- Benefit at Maturity........................................................ 9
- Policy Loans............................................................... 9
- Settlement Options......................................................... 9
- Taxes...................................................................... 9
- Right to Return a Policy................................................... 9
- How to Exercise Your Rights Under a Policy................................. 10
THE SEPARATE ACCOUNT AND FORTIS SERIES FUND, INC................................. 10
- The Separate Account....................................................... 10
- Fortis Series Fund, Inc.................................................... 11
POLICY BENEFITS.................................................................. 11
- Death Benefit.............................................................. 11
- Death Benefit Options...................................................... 12
- Accelerated Benefit Rider.................................................. 12
- Changes in Face Amount..................................................... 14
- Change in Death Benefit Option............................................. 15
- Policy Value............................................................... 16
- Calculation of Separate Account Policy Value............................... 16
- Separate Account Net Investment Return..................................... 17
PAYMENT AND ALLOCATION OF PREMIUMS............................................... 17
- Issuance of a Policy....................................................... 17
- Premiums................................................................... 18
- Allocation of Premiums and Policy Value.................................... 20
- Policy Lapse and Reinstatement............................................. 21
CHARGES AND DEDUCTIONS........................................................... 22
- Premium Expense Charge..................................................... 22
- Monthly Deduction From Policy Value........................................ 23
- Contingent Deferred Sales Charge........................................... 25
- Miscellaneous.............................................................. 26
- Charges Against the Separate Account....................................... 26
- Guarantee of Certain Charges............................................... 26
LOAN PRIVILEGES.................................................................. 27
- Effect of a Policy Loan.................................................... 27
- Repayment of a Loan........................................................ 28
SURRENDER AND PARTIAL WITHDRAWAL................................................. 28
RIGHTS RESERVED BY FORTIS BENEFITS INSURANCE COMPANY............................. 29
- Payment and Deferment...................................................... 29
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TABLE OF CONTENTS (CONTINUED)
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DISTRIBUTION OF THE POLICIES..................................................... 30
FEDERAL TAX MATTERS.............................................................. 31
- Tax Status of the Policy................................................... 31
- Taxation of Policy Benefits................................................ 32
- Taxation of Fortis Benefits................................................ 34
OTHER POLICY PROVISIONS.......................................................... 34
MANAGEMENT....................................................................... 37
VOTING PRIVILEGES................................................................ 38
REPORTS.......................................................................... 38
STATE REGULATION................................................................. 39
LEGAL MATTERS.................................................................... 39
EXPERTS.......................................................................... 39
FINANCIAL STATEMENTS............................................................. 39
APPENDIX A
- Optional Income Plans...................................................... A-1
- Optional Insurance Benefits................................................ A-2
APPENDIX B
- Illustrations of Death Benefits, Policy Values, Surrender Values and
Accumulated Premiums....................................................... B-1
APPENDIX C
- The General Account........................................................ C-1
- General Description........................................................ C-1
- General Account Policy Value............................................... C-1
- Transfers, Surrenders and Policy Loans..................................... C-2
TELEPHONE TRANSFER AUTHORIZATION FORM
</TABLE>
THE POLICIES ARE NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. FORTIS BENEFITS DOES NOT AUTHORIZE ANY INFORMATION OR
REPRESENTATION REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS WHICH IS NOT
INCLUDED IN THIS PROSPECTUS OR ANY SUPPLEMENT THERETO OR IN ANY SUPPLEMENTAL
SALES MATERIAL AUTHORIZED BY FORTIS BENEFITS.
The purpose of the Policies is to provide insurance protection for the
beneficiary named therein. No claim is made that the Policies are in any way
similar or comparable to a systematic investment plan of a mutual fund.
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<PAGE> 56
INDEX OF DEFINED WORDS AND PHRASES
Below are listed certain words and phrases used in this Prospectus, together
with the page or pages of this Prospectus on which each is defined or explained.
<TABLE>
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Age............................................................................... 35
Alternative Death Benefit......................................................... 12
Contingent Deferred Sales Charge.................................................. 25
Date of Receipt................................................................... 34
Death Benefit Type A (Type "A")................................................... 12
Death Benefit Type B (Type "B")................................................... 12
Face Amount....................................................................... 17
Fortis Series..................................................................... 11
Fortis Group Funds................................................................ 35
Fortis Benefits................................................................... 5
General Account................................................................... C-1
Grace Period...................................................................... 21
Guideline Annual Premium.......................................................... 25
Home Office....................................................................... 10
Monthly Deduction................................................................. 23
Monthly Anniversary............................................................... 18
Net Amount at Risk................................................................ 23
Net Premium....................................................................... 6
NYSE.............................................................................. 17
Planned Periodic Premium.......................................................... 18
Policy Anniversary................................................................ 17
Policy Date....................................................................... 17
Policy Value...................................................................... 16
Portfolio......................................................................... 11
Premium Expense Charge............................................................ 22
Pro Rata Basis.................................................................... 23
Required Premium.................................................................. 19
Separate Account.................................................................. 10
Subaccount........................................................................ 11
Surrender Value................................................................... 7
Valuation Date.................................................................... 16
Valuation Period.................................................................. 17
1940 Act.......................................................................... 10
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SUMMARY
FORTIS BENEFITS/FORTIS FINANCIAL GROUP MEMBER
Fortis Benefits Insurance Company, 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 Group AG ("Group 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 N.V. 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 over $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.
PAYMENT OF PREMIUMS
At the time of Policy issuance, the Policy owner must either (1) pay in advance
at least the sum of twelve monthly Required Premiums specified in the Policy or
(2) pay at least the initial amount under a Planned Periodic Premium payment
schedule established by the Policy owner which, if followed, will result in the
payment of at least the sum of such Required Premiums in the first Policy year.
If the Planned Periodic Premium is paid monthly, the initial premium must at
least equal two months' Planned Periodic Premiums. The smallest possible monthly
Minimum Premium is generally $25. Thereafter, subject to the limitations
described under "Payment and Allocation of Premiums--Premiums," premium payments
may be made at any time and in any amount. All Policies will specify a Planned
Periodic Premium, but payment of this is optional, except to the extent
described above with respect to the initial premium payment.
A Policy is guaranteed not to lapse in the first two Policy years if, as of each
Monthly Anniversary during that period, (1) the cumulative amount of premiums
paid to date, less the amount of any outstanding Policy loans and cumulative
partial withdrawals taken by the Policy owner, at least equals (2) the
cumulative monthly Required Premiums, assuming regular monthly payment thereof
commencing on the Policy Date and continuing through the current Monthly
Anniversary. If these requirements are not met on any Monthly Anniversary, the
guarantee terminates and may not be reinstated. The initial monthly Required
Premiums are specified in each Policy, and additional minimum premium payments
will be necessary to keep this guarantee in effect if the Face Amount of the
Policy or rider benefits are increased during the first two Policy years. See
"Payment and Allocation of Premiums--Premiums."
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<PAGE> 58
If the minimum premium requirement described above is not met in the first two
Policy years, and in any event thereafter, a Policy will lapse if the Surrender
Value becomes insufficient to pay the continuing charges and deductions. See
"Payment and Allocation of Premiums--Policy Lapse and Reinstatement." Premium
payments in excess of the Planned Periodic Premium payments may therefore be
necessary to keep a Policy in force.
A Premium Expense Charge will be deducted from each premium payment to help
cover premium taxes and sales expenses. See "Charges and Deductions--Premium
Expense Charge." The remainder is the "Net Premium." The Premium Expense Charge,
as a percentage of each premium payment, is currently 2.2% for premium taxes
plus 5% for sales expenses.
ALLOCATION OF NET PREMIUMS AMONG VARIOUS ALTERNATIVES
The owner of a Policy may allocate Net 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 Funds, Inc.")
and/or to Fortis Benefits' General Account. The assets in each of the current
Subaccounts are invested in a separate class (or series) of stock of Fortis
Series Fund, Inc. ("Fortis Series"), a "series" type of mutual fund. Each class
of stock represents a separate investment Portfolio within Fortis Series. The
investment Portfolios of Fortis Series which are currently available are the
Aggressive Growth Series, the International Stock Series, the Global Growth
Series, the Growth Stock Series, the Growth and Income Series, the Global Asset
Allocation Series, the High Yield Series, the Global Bond Series, the Asset
Allocation Series, the Diversified Income Series, the U.S. Government Securities
Series, and the Money Market Series. Premiums allocated to the General Account
are held as part of Fortis Benefits' general investment assets. See Appendix
C--"The General Account."
Each Portfolio has a different investment objective and is managed by Fortis
Advisers, Inc. For providing investment management services to the Portfolios,
Fortis Advisers, Inc. currently receives a fee from the Funds 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 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, for Global Bond Series, .75% of
the first $100 million of such assets, and .65% thereafter; .5% of the first
$250 million of average daily net assets, and .45% 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; and 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% thereafter; and for the Global Bond Series, .35% of the first $100
million of such assets, and .225% thereafter.
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<PAGE> 59
For a full description of the Portfolios, see the prospectus for Fortis Series
which accompanies this Prospectus and the Statement of Additional Information
referred to therein.
A Policy owner may change allocations of future Net 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
Premiums--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 Net premiums to a Subaccount
increases the amount of the investment risk to the Policy owner, and allocation
to the General Account decreases such risk. However, the potential benefit of
the General Account is limited to the guaranteed return, plus any discretionary
return declared by Fortis Benefits from time to time.
TRANSFERS OF POLICY VALUE. A Policy owner may transfer amounts among the
Subaccounts at any time. Transfers may also be made at any time from a
Subaccount to the General Account. The Policy owner, under Fortis Benefits'
current rules, may transfer up to 50% of any unloaned Policy Value in the
General Account to one or more Subaccounts. This transfer may be made only once
during the Policy year and Policy Value may not be transferred out of the
General Account at any other time.
For additional conditions and limitations on transfers, see "Payment and
Allocation of Premiums--Allocation of Premiums and Policy Value" and Appendix
C--"Transfers, Surrenders and Policy Loans."
POLICY VALUE
The "Policy Value" is the amount "at work" for the Policy owner earning a return
in the Separate Account and/or in the General Account at any time. It is the
cumulative amount of premiums paid to date, less any withdrawals and less all
deductions and charges imposed to date under the Policy, plus the cumulative net
amount of positive or negative investment return earned to date on amounts
allocated to the Separate Account under the Policy, plus the cumulative net
amount of interest earned to date on amounts held in the General Account under
the Policy.
SURRENDERS AND EXCHANGES
A Policy may be surrendered at any time for all of its Surrender Value, and,
subject to certain conditions, part of the Surrender Value may be withdrawn up
to once a year after the first Policy year. See "Surrender and Partial
Withdrawal." The Surrender Value is the Policy Value, less the amount of the
Contingent Deferred Sales Charge, less the amount of any Policy loan, plus any
loan interest paid for future periods (see "Loan Privileges"). If Death Benefit
Type A is in effect, a partial withdrawal will reduce the Policy's Face Amount
on a dollar-for-dollar basis.
CONTINGENT DEFERRED SALES CHARGE. Assuming no Face Amount increases have been
made, the maximum Contingent Deferred Sales Charge is 25% of the lesser of (1)
the sum of twelve monthly Required Premiums specified in the Policy schedule as
being subject to such charge or (2) the actual amount of premiums paid through
the end of the first two Policy years. The Contingent Deferred Sales Charge
decreases for surrenders after the fifth Policy year and continues to decrease
for each year thereafter until it reaches zero after the ninth Policy year.
Western Life imposes a comparable amount of additional Contingent Deferred Sales
Charge with respect to certain total surrenders following increases in Face
Amount. See "Charges and Deductions--Contingent Deferred Sales Charge," for a
further description of these charges.
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<PAGE> 60
EXCHANGE FOR FIXED BENEFIT POLICY. At any time before the second Policy
Anniversary, a Policy may be exchanged for a new policy of fixed benefit
insurance on the insured's life. Such exchanges will be implemented by
transferring all of the Policy Value to the General Account, as described under
"Payment and Allocation of Premiums--Allocation of Premiums and Policy Value"
and Appendix C--"The General Account."
OTHER CHARGES
In addition to the Premium Expense Charge, Fortis Series expenses, and
Contingent Deferred Sales Charge referred to above, the following charges are
imposed under the Policies:
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) the monthly cost of
any optional insurance benefits added by rider, and (3) an administrative charge
of $5.00 per month in each Policy year. See "Charges and Deductions--Monthly
Deduction From Policy Value." Fortis Benefits expects to derive no profit from
the charges set forth in (3) above. For policies applied for prior to July 1,
1988, see "Charges and Deductions--Monthly Deductions From Policy Value."
CHARGES AGAINST THE SEPARATE ACCOUNT. A daily charge at an annual rate of .75%
of the average daily net assets that are 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--Charges Against the Separate Account."
Subject to certain limitations, the charge for cost of insurance, the premium
tax charge, the charge for certain optional insurance riders, and the amount of
Required Premiums may be increased in the future. As to charges that may be
imposed or increased in the future, see generally "Charges and Deductions."
DEATH BENEFIT
The Policy provides for the payment of a benefit upon the death of the insured
pursuant to one of two options, as selected in advance by the Policy owner.
Under Death Benefit Type A, the death benefit is the Face Amount of the Policy.
Under Death Benefit Type B, the death benefit is the Face Amount of the Policy
plus the Policy Value on the date of death. If greater than the death benefit
otherwise payable under Type A or Type B, an Alternative Death Benefit equal to
a multiple (determined by Age at death) of the Policy Value will be paid. See
"Policy Benefits--Death Benefit." The death benefit payable will in any case be
reduced by any outstanding Policy loan and any due and unpaid charges accrued
during the Grace Period.
Subject to certain limitations and conditions, the Policy owner may increase or
decrease the Face Amount of the Policy, change the death benefit from Type A to
Type B or from Type B to Type A. See "Changes in Face Amount" and "Change in
Death Benefit Option" under "Policy Benefits." Any increase in the Face Amount
or change in death benefit from Type A to Type B requires additional evidence of
insurability satisfactory to Fortis Benefits. An increase in Face Amount will
result in additional sales and cost of insurance charges. See "Contingent
Deferred Sales Charge" and "Monthly Deduction From Policy Value" under "Charges
and Deductions." An increase in the initial Face Amount within the first two
Policy years will also increase the monthly Required Premiums that must be paid
to guarantee that the Policy will not lapse during that period. See "Payment and
Allocation of Premiums-- Premiums."
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<PAGE> 61
OPTIONAL INSURANCE BENEFITS
A Policy owner has the flexibility to add optional insurance benefits by rider,
to the extent available in the Policy owner's state. These optional benefits are
described in Appendix A--"Optional Insurance Benefits."
BENEFIT AT MATURITY
Unless the Policy owner exercises an option to extend the Maturity date of the
Policy the Policy matures if the insured reaches Age 95. See "Other Policy
Provisions--Option to Extend the Maturity Date." When the Policy matures the
Policy Value, less the amount of any outstanding Policy loan, will be paid to
the Policy owner, upon return of the Policy.
POLICY LOANS
A Policy owner may borrow up to 90% of the difference between the Policy Value
and the amount of any then-applicable Contingent Deferred Sales Charge. In
Texas, the Policy owner may also borrow up to 100% of the Policy Value in the
General Account, less a pro-rata portion of the Contingent Deferred Sales
Charge. The interest rate credited on loaned amounts is 5%, and the interest
rate charged on loans is 7.4% per year, payable in advance, except to the extent
that certain Policy owners may qualify for a higher credited rate for Policy
loans. 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 the
election of the Policy owner or beneficiary. See Appendix A--"Optional Income
Plans."
TAXES
For federal income tax purposes, under current law, Fortis Benefits believes
that gains in Policy Value resulting from positive net investment returns will
not be taxed to Policy owners until such gains are distributed to them.
Policy loan interest generally is not deductible for federal income tax
purposes. In addition, certain Policy loans, Policy pledges, or Policy
assignments may constitute taxable distributions.
Also, certain changes under a Policy (such as changes in Face Amount, death
benefit option, and perhaps other changes) or payment of premiums in excess of
certain amounts may have significant tax consequences. Accordingly, Policy
owners are strongly encouraged to consult competent tax advisers in this regard.
For a brief discussion of these and certain other tax implications of owning a
Policy, see "Federal Tax Matters."
RIGHT TO RETURN A POLICY
The Policy owner may return the Policy by delivery or by mailing postmarked
within 10 days after receipt (except where state law requires a longer period),
within 45 days after he or she signs Part I of the application for insurance, or
within 10 days after receipt of a Notice of Withdrawal Right, whichever is the
latest, and receive a refund within 7 days. Nevertheless, under Fortis Benefits'
current administrative practice, the Notice of Withdrawal Right will continue to
be accepted if its Date of Receipt is not more than 20 days after Fortis
Benefits releases the Policy to an active status in its processing system,
pursuant to its administrative and underwriting procedures. The amount refunded
will be the amount of the premiums paid. See "Policy Benefits--Changes in Face
Amount" for a description of similar rights to cancel any increases in Face
Amount.
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<PAGE> 62
HOW TO EXERCISE YOUR RIGHTS UNDER A POLICY
To exercise rights under a Policy, the owner must follow the procedures stated
in the Policy. To request a loan, surrender, or partial withdrawal, the owner
must utilize forms prepared by Fortis Benefits for each purpose; and it is
recommended that Fortis Benefits' forms also be used for making any other change
or request. The forms are available from your sales representative or from
Fortis Benefits at its Home Office: P.O. Box 64582, St. Paul, MN 55164,
1-800-800-2638, extension 3028. Should a request be received for a loan,
surrender or partial withdrawal that is not on Fortis Benefits' form, the proper
form will be sent to the Policy owner, and, in the case of a total surrender,
the owner will usually be contacted, as well. The completed forms, as well as
any premium payments, loan and interest payments, and all other communications
should also be submitted to Fortis Benefits' Home Office.
If a Policy owner has submitted a telephone authorization form which has been
received by Fortis Benefits, transfers of Policy Value may be made by telephone.
The number to call for this purpose is 1-800-800-2638, extension 3028. A
Telephone Authorization Form is attached at the end of this Prospectus. Fortis
Benefits will not be responsible for, and the Policy owner will bear the risk of
loss from, oral instructions, including fraudulent instructions which are
reasonably believed to be genuine. Fortis Benefits will employ reasonable
procedures to confirm that telephone instructions are genuine, but if such
procedures are not deemed reasonable, Fortis Benefits may be liable for any
losses due to unauthorized or fraudulent instructions. Fortis Benefit's
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 the Policy owner.
Currently, however, Fortis Benefits requires the Policy to be returned only on
maturity, total surrender or death of the insured.
Unless the context indicates otherwise, the foregoing Summary and the discussion
in the rest of this Prospectus assume that Surrender 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
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<PAGE> 63
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.
FORTIS SERIES FUND, INC.
Fortis Series is a "series" type of mutual fund which is registered with the
Securities and Exchange Commission as a diversified open-end management
investment company under the 1940 Act. Fortis Series has served as the
investment medium for the Separate Account since the Separate Account commenced
operations. Fortis Series is also an investment medium for Variable Account D of
Fortis Benefits, through which variable annuity contracts are issued. Although
Fortis Benefits does not foresee any material conflicts between the interests of
Policy owners and variable annuity contract owners, Fortis Series' Board of
Directors will monitor to identify any material irreconcilable conflicts that
may develop and to determine what action, if any, should be taken in response.
If it becomes necessary for any separate account to replace shares of any
Portfolio with another investment, the Portfolio may have to liquidate
securities on a disadvantageous basis.
Fortis Benefits purchases and redeems Fortis Series shares for the Separate
Account at their net asset value without the imposition of any sales or
redemption charges. Such shares represent interests in the Portfolios of Fortis
Series, each of which corresponds to one of the Subaccounts of the Separate
Account. Any dividend or capital gain distributions received from a Portfolio
that are attributable to Policies will be reinvested in shares of that Portfolio
at net asset value as of the date paid. Such distributions will have the effect
of reducing the net asset value of each share of the Portfolio and increasing
the number of Portfolio shares outstanding. However, the total Policy Value in
the corresponding Subaccount will not change as a result of any such
distribution.
Fortis Series' Portfolios are the Aggressive Growth, International Stock Series,
Global Growth, Growth Stock, 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 this Prospectus and in the Statement
of Additional Information referred to therein. The complete risk disclosure in
the Prospectus for the High Yield Series, 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."
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The insurance proceeds are: (1) the death benefit provided under Type A or Type
B, whichever is in effect on the date of death, plus (2) any additional
insurance on the insured's life that is provided by rider, minus (3) any
outstanding Policy loan and any due and unpaid charges accruing during a Grace
Period, plus (4) any loan interest paid by the Policy owner for periods beyond
the date of death.
DEATH BENEFIT OPTIONS
The Policy owner selects one of the two below-described death benefit options in
the application and can thereafter change the option by written request. See
"Change in Death Benefit Option," below.
TYPE A. The death benefit is equal to the Face Amount of insurance.
TYPE B. The death benefit is equal to the Face Amount of insurance plus the
Policy Value at the date of death.
ALTERNATIVE DEATH BENEFIT. Under either Type A or Type B, there is an
Alternative Death Benefit which applies if it provides a death benefit greater
than the death benefit option chosen. The Alternative Death Benefit is a
multiple of the Policy Value at the date of death as set forth in the table
below.
<TABLE>
<CAPTION>
AGE OF
INSURED MULTIPLE OF
AT DEATH POLICY VALUE
---------- ------------
<S> <C>
40 or less 2.50
45 2.15
50 1.85
55 1.50
60 1.30
65 1.20
70 1.15
75 1.05
80 1.05
85 1.05
90 1.05
95 1.00
</TABLE>
For Ages not listed, the progression between the listed Ages is constant.
Both Type A and Type B provide insurance protection, as well as possible
build-up of Policy Value. Under Type A, the insurance coverage remains level
unless the Alternative Death Benefit applies. Under Type B, the insurance
coverage varies as the Policy Value changes.
For any Face Amount, the death benefit under Type B will be greater than or
equal to that under Type A, since the Policy Value is added to the Face Amount
and included in the death benefit under Type B but not under Type A. However,
the cost of insurance included in the Monthly Deduction (see "Charges and
Deductions--Monthly Deduction From Policy Value") will be greater, and thus the
accumulation of Policy Value will be lower, under Type B than under Type A,
assuming the same Face Amount and otherwise identical Policies.
ACCELERATED BENEFIT RIDER
The Accelerated Benefit Rider will be issued as a part of all policies issued in
a state that has approved such rider. The Accelerated Benefit Rider allows a
Policy owner to receive benefits from the Policy that would be otherwise payable
upon the death of the insured. The benefit may vary state-by-state and a Fortis
Benefits representative should be consulted as to whether, and to what extent,
the rider is available in any particular state.
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<PAGE> 65
The Accelerated Benefit Rider allows the Policy owner to elect an accelerated
payment of all or part of the death benefit under the Policy and any term
insurance rider that is less than two years prior to expiry or maturity. The
accelerated payment will be discounted for twelve months' interest and will be
reduced by any outstanding loan, if not otherwise paid, multiplied by the
percentage of the eligible amount which is accelerated. The interest rate
discount will be equal to the lesser of (1) the applicable federal interest rate
determined under Section 846(c)(2) of the Internal Revenue Code; (2) the current
maximum statutory adjustable policy loan interest rate or (3) 10%. Fortis
Benefits can furnish details about the amount of the benefit under the
Accelerated Benefit Rider available to an eligible Policy owner under a
particular Policy. The benefits paid under the Accelerated Benefit Rider are
available when Fortis Benefits has received written notice and satisfactory
proof (a certificate by a doctor) that the insured has a life expectancy of
twelve months or less due to an irreversible medical condition. The benefit will
be paid in a lump sum unless otherwise agreed to by Fortis Benefits.
The payment of a benefit must be approved in writing by any irrevocable
beneficiary and any collateral assignee. No benefit is available if the
insured's irreversible medical condition results from self-inflicted injury and
such injury occurs within the first two policy years (one year in Colorado and
North Dakota). If such injury occurs beyond such period, the amount that may be
requested may not include any part of the death benefit that was first effective
within a two year period (one year in Colorado and North Dakota) prior to such
injury.
All or part of the eligible amount may be accelerated under the Accelerated
Benefit Rider. If the death benefit is only partially accelerated, a Face Amount
at least equal to the minimum Face Amount required for the Policy or rider must
remain under the Policy or rider. The benefit payable must be at least
$2,500.00, or if smaller the entire eligible amount. If the entire eligible
amount is accelerated, the Policy or rider will terminate. If the entire
eligible amount is paid on the person who is insured under the base Policy, any
rider on the Policy that provides insurance on the life of any other person will
be administered according to the provisions in the rider concerning the death of
the person insured under the base Policy.
The maximum amount of any benefit payable under a Policy and all of the policies
issued by Fortis Benefits under any other Accelerated Benefit Rider on such
policies is $500,000. If only a portion of the eligible amount is paid, the
Policy and/or rider will remain in force. The amount of insurance, and the loan
amount and Surrender Value if the benefit is paid on the death benefit provided
by the base Policy, of the Policy or rider will be reduced as of the date of
approval of the benefit request by the percentage of the eligible amount which
is accelerated. The monthly Minimum Premiums and cost of insurance will be
adjusted as if (1) a loan repayment were made equal to the reduction in the loan
amount, (2) a withdrawal were made equal to the reduction in Surrender Value (3)
and a face amount decrease were made equal to the difference between the
accelerated eligible amount and the face amount decrease caused by the
withdrawal.
There is no charge for this rider provision as a part of your policy. However,
an administrative fee (not to exceed $300) will be charged at the time the
benefit is paid. The current fee is $50.
Fortis Benefits agrees that unless otherwise required by law, no benefit will be
paid if the Policy owner is required to elect it in order to meet the claims of
creditors or to obtain a government benefit. Receipt of payment of a benefit
under the Accelerated Benefit Rider may affect eligibility for government
sponsored benefit programs, such as Medicaid and Supplemental Security Income.
The rider can be terminated by request.
The Accelerated Benefit Rider is not a long term care rider or nursing home
insurance rider. The amount this rider pays may not be enough to cover medical,
nursing home or other bills. The benefit can be used for any purpose.
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<PAGE> 66
Having the Accelerated Benefit Rider as a part of the Policy has no adverse tax
consequences. However, electing to use it could. Although there currently are
proposed IRS regulations which would treat a benefit received under the
Accelerated Benefit Rider for income tax purposes like a death benefit received
by a beneficiary after the death of an insured, receipt of a benefit under the
Accelerated Benefit Rider may give rise to a Federal or State income tax. A
competent tax adviser should be consulted for further information.
CHANGES IN FACE AMOUNT
INCREASE. A Policy owner may at any time increase the Face Amount of a Policy,
subject to the conditions discussed below.
The minimum Face Amount increase currently is $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 requires that additional evidence of insurability be submitted to
Fortis Benefits. No Face Amount increase will be permitted if benefits are being
paid under the terms of a Waiver of Monthly Deductions Rider or the Waiver of
Selected Amount Rider. See Appendix A--"Optional Insurance Benefits." Fortis
Benefits may refuse a Face Amount increase if the effect would be to increase
Fortis Benefits' Net Amount at Risk with respect to any insured under all Fortis
Benefits insurance policies to more than $300,000, if it is unable to reinsure
its risk in excess of that amount on customary terms. (Net Amount at Risk is the
difference in amount between the death benefit and the Policy Value.) Fortis
Benefits reserves the right to establish different maximum or minimum amounts
for future Face Amount increases.
Certain surrenders following a Face Amount increase will be subject to an
additional amount of Contingent Deferred Sales Charge. See "Charges and
Deductions--Contingent Deferred Sales Charge." An increase in the initial Face
Amount requested by the Policy owner in the first two Policy years also will
increase the monthly Required Premium that must be paid to guarantee against
lapse during that period. See "Payment and Allocation of Premiums--Premiums."
The Policy owner may cancel the Face Amount increase. The cancellation request
must be delivered or mailed to Fortis Benefits by letter postmarked (1) within
10 days after receipt of a Policy schedule amendment reflecting any requested
Face Amount increase, (2) within 45 days after the Policy change application for
such increase is signed, or (3) within 10 days after receipt of a Notice of
Withdrawal Right, whichever is latest. Upon such a cancellation, Monthly
Deductions, including rider costs, arising from the increase are credited to the
Policy Value. No premiums paid will be refunded, except that Fortis Benefits
will promptly refund premiums (including any related premium expense charges) 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 Allocation of Premiums--Premiums." The Contingent
Deferred Sales Charge and other charges will be adjusted to the level they were
at before the Face Amount increase, as will the monthly Required Premium.
Also, during the first two years following a Face Amount increase requested by a
Policy owner, the Policy owner may transfer all or part of the Policy Value to
the General Account without charge. See "Policy Value Transfer" under "Payment
and Allocation of Premiums--Allocation of Premiums and Policy Values." Such a
transfer to the General Account could be made, for example, in the amount of any
premiums paid which are deemed attributable to the increase. See "Charges and
Deductions--Contingent Deferred Sales Charge" regarding the method of such
attribution.
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<PAGE> 67
DECREASE. After the first Policy year, the Policy owner may request a decrease
in the Face Amount of the Policy. Face Amount decreases in the first two Policy
years will be allowed only if the cumulative amount of premiums paid are at
least equal to the sum of 12 monthly Required Premiums (computed without regard
to substandard risk class or optional policy riders). A comparable restriction
on decreases applies in the first two years following a Face Amount increase
requested by the Policy owner.
The Face Amount remaining in force after any requested decrease may not be less
than $25,000. No decrease in the Face Amount will be permitted if it would
result in any violation of the then current maximum premium limitation
determined by Internal Revenue Service rules. A reduction in Face Amount
requested by the Policy owner within the first two Policy years will decrease
the monthly Required Premium necessary to guarantee against lapse during that
period.
For Policies applied for prior to May 1, 1990, the following procedures apply
that are different from those set forth above:
1. There is no prohibition on Face Amount decreases in the first Policy
year (or in the first year following a Face Amount increase) and there
is no requirement that any specific amount of premiums have been paid
as a precondition to making any Face Amount decrease. All other limits
and conditions on Face Amount decreases will apply as set forth in the
prospectus.
2. If the Policy owner elects to decrease the Face Amount within the
first Policy year, the monthly Required Premium will be reduced for
purposes of any guarantee against lapse that may be in effect and for
purposes of any Contingent Deferred Sales Charge. The same is true if
the Policy owner requests a Face Amount decrease within one year after
a Face Amount increase (other than an increase resulting automatically
from a change in death benefit type), except that only the amount of
the monthly Required Premium attributable to the increase will be
subject to the decrease. In either case, the decrease in monthly
Required Premiums is the same as that described in relation to other
Face Amount decreases under the heading "Payment and Allocation of
Premiums--Premiums" in the prospectus.
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 or other change in benefits requiring evidence of
insurability, unless, at the time of delivery of a Policy schedule amendment
reflecting the change in benefits, the insured's health remains as stated in the
application for the change.
Commencing on its effective date, a change in the Face Amount generally will
also affect the Net Amount at Risk and may affect the insured's rate class, both
of which affect a Policy owner's monthly cost of insurance charge. See "Charges
and Deductions--Monthly Deduction From Policy Value." This in turn can affect
the level of subsequent Policy Values and death benefits.
CHANGE IN DEATH BENEFIT OPTION
The death benefit option in effect may be changed at any time by sending a
written request in form acceptable to Fortis Benefits at its Home Office. The
effective date of any such change will be the Monthly Anniversary on or
following (1) the Date of Receipt of the request or (2) if evidence of
insurability is required, approval by Fortis Benefits.
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<PAGE> 68
A change from Type A to Type B requires evidence of insurability and results in
an automatic reduction in the Face Amount by the amount of the Policy Value on
the effective date of the change. This change may not be made if it would result
in a Face Amount which is less than the minimum Face Amount of $25,000. Nor will
a change in death benefit option be permitted if it results in any violation of
the then current maximum premium limitations under Section 7702 of the Code. See
"Payment and Allocation of Premiums--Premiums."
A change from Type A to Type B will not alter the death benefit at the time of
the change, but will affect the determination of the death benefit from then on.
Since, from then on, the Policy Value will be added to the new Face Amount, the
death benefit will vary with the Policy Value. Moreover, under Type B, the Net
Amount at Risk will not vary unless the Alternative Death Benefit is in effect.
Therefore, after a change from Type A to Type B, the cost of insurance will
generally be higher if the Policy Value increases, but lower if the Policy Value
decreases. See "Charges and Deductions--Monthly Deduction From Policy Value."
Although a change from Type A to Type B results in an automatic reduction in
Face Amount, it will not result in any change in the Contingent Deferred Sales
Charge or monthly Required Premium.
If the death benefit option changes from Type B to Type A, the Face Amount will
be increased by the amount of the Policy Value on the effective date of the
change. The death benefit will not be altered at the time of the change.
However, the change in death benefit option will continue to affect the
determination of the death benefit from then on, because the Policy Value will
no longer be added to the Face Amount in determining the death benefit.
Therefore, after a change from Type B to Type A, the cost of insurance charges
will generally be lower if the Policy Value increases but higher if the Policy
Value decreases. See "Charges and Deductions--Monthly Deductions From Policy
Value."
Although a change from Type B to Type A results in an automatic increase in the
Face Amount of a Policy, no additional sales charge or expense charge will be
imposed as a result of such a change, and no evidence of insurability will be
required. Nor will there be any change in the monthly Required Premium under a
Policy or any right to a refund of charges upon cancellation of the Face Amount
increase.
POLICY VALUE
The total Policy Value at any time is the sum of the Policy Values in the
General Account (see Appendix C--"The General Account" and "Loan Privileges")
and the Subaccounts of the Separate Account at such time. The Policy Value in
the Separate Account may increase or decrease on each Valuation Date, depending
on the investment return of the chosen Subaccounts. See "Separate Account Net
Investment Return," below. "Valuation Dates" are all business days, except, with
respect to any Subaccount, days on which the related Fortis Series Portfolio
does not value its shares. Valuations for any date other than a Valuation Date
will be determined as of the next Valuation Date.
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 Net Premiums allocated to the Subaccount;
plus
(2) All amounts transferred to the Subaccount from the General Account or
from another Subaccount; minus
(3) Any amount transferred from the Subaccount to the General Account or
to another Subaccount; minus
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<PAGE> 69
(4) Any partial withdrawal from the Subaccount; minus
(5) The portion of the cumulative Monthly Deductions allocated to the
Subaccount (see "Charges and Deductions--Monthly Deduction From Policy
Value"); plus
(6) 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 .75%) 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 the 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
with respect to any insured will depend on the availability of reinsurance for
the Net Amount at Risk in excess of $300,000 as applied for under the Policy and
all other life insurance policies in force with Fortis Benefits. A Policy will
generally be issued only to insureds Age 70 or under who supply evidence of
insurability satisfactory to Fortis Benefits. Acceptance is subject to Fortis
Benefits' underwriting guidelines and Policy approval procedures. Any premium
payments for a Policy that never goes into effect, or that is subsequently
revoked, will be returned without interest.
If the proposed insured meets certain health requirements, Fortis Benefits will
issue temporary term life insurance to cover the period before the Policy goes
into effect. Temporary insurance will be issued only if the initial premium
payment has been paid with the application and will not exceed $300,000 under
all applications for the proposed
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<PAGE> 70
insured pending with Fortis Benefits and any other insurers. If a temporary
insurance benefit is paid, a premium for the amount of temporary coverage from
the date of its issue to the date of death will be charged. Temporary coverage
is subject to certain other conditions, including special limits for temporary
coverage of certain optional benefits provided by rider, and is for a maximum of
ninety days. Except as otherwise provided in any temporary insurance agreement,
there will be no insurance coverage under a Policy unless at the time the Policy
is delivered the insured's health is the same as stated in the application.
The Policy Date is the date used to determine Policy Anniversaries and Monthly
Anniversaries, regardless of when the Policy is delivered. The Policy Date is
also when Monthly Deductions commence. When temporary insurance has been
provided, the Policy Date will ordinarily be the date of part I of the
application, except that if that date is the 29th through 31st of any month, the
Policy Date will be the first of the next month. When no temporary insurance has
been provided, the Policy Date will ordinarily be three days after the date the
application is approved, except that if that date is the 29th through 31st of
any month, the Policy Date will be the first of the next month. A later Policy
Date will result in monthly deductions being taken out later and investment
performance on any premium payment being reflected in the Separate Account
later. A prospective purchaser may request a Policy Date later than that which
otherwise would apply, subject to Fortis Benefits' current administrative
policies. No interest or other return on premium payments will be credited prior
to the Policy Date, however.
Notwithstanding the general procedures outlined above, the purchaser may,
subject to Fortis Benefits' current administrative policies and state insurance
law requirements, request a Policy Date up to six months prior to the date the
Policy is issued, for the purpose of preserving a younger Age of the insured
person under the Policy. A younger Age, in many cases, will result in a smaller
monthly Required Premium, lower costs of insurance rates, and lower Contingent
Deferred Sales 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 Required 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 insured 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 least the sum of twelve monthly Required Premiums
specified in the Policy must be paid in advance before a Policy will take
effect; or, alternatively, at least the initial amount must be paid under a
Planned Periodic Premium payment schedule established by the Policy owner which,
if followed, will result in at least that sum being paid within the first Policy
year. The initial amount must cover all monthly Required Premiums from the
Policy Date to the next billing date, generally after the policy is mailed for
delivery. If the Planned Periodic Premium is paid monthly, at least two months'
Planned Periodic Premiums must be paid.
Each Policy owner will determine a Planned Periodic Premium schedule that
provides for the payment of level premiums at specified intervals for the life
of the Policy. (If desired, these may be paid by means of automatic monthly
drafts on the Policy owner's checking account.) The Policy owner, however, is
not required to pay premiums in accordance with the Planned Periodic Premium
schedule, except to the extent described above with respect to the initial
premium payment. THE PAYMENT OF PLANNED PERIODIC PREMIUMS WILL NOT GUARANTEE
THAT THE POLICY REMAINS IN FORCE. Instead, the duration of the Policy depends
upon the Surrender Value. See "Payment and Allocation of Premiums--Policy Lapse
and Reinstatement."
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<PAGE> 71
Subject to the limitations described below, a Policy owner may make additional
premium payments at any time in any amount. The total of all premiums paid may
never exceed the then current maximum premium limitations under Section 7702 of
the Code. If at any time a premium is paid that would result in any violation of
the then current maximum premium limitations, Fortis Benefits will accept only
that portion of the premium that will make total premiums equal to the limit.
Fortis Benefits will promptly refund any such excess (including any related
premium expense charge), unless the Policy owner directs otherwise. Any amount
so refunded will include any positive net investment performance attributable to
such amount prior to refund. The amount of any positive net investment
performance refunded will constitute ordinary income to the Policy owner for
federal income tax purposes.
Fortis Benefits reserves the right to impose additional limits on the number or
amount of premium payments. Fortis Benefits currently has no intention of
imposing such limits except when the Alternative Death Benefit is in effect. See
"Policy Benefits--Death Benefit Options."
A Policy is guaranteed not to lapse in the first two Policy years, if as of each
Monthly Anniversary during that period, (1) the cumulative amount of premiums
paid to date, less the amount of any outstanding Policy loans and cumulative
partial withdrawals taken by the Policy owner, at least equals (2) the
cumulative monthly Required Premiums, assuming regular payment of such Required
Premiums commencing on the Policy Date and on each Monthly Anniversary
thereafter, including the current Monthly Anniversary.
REQUIRED PREMIUMS. The monthly Required 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 to maturity based on (1) the insured's
then-current Age, sex, and smoking habits and (2) reasonable assumptions for
interest, costs of insurance, and other expense charges described below under
"Charges and Deductions--Monthly Deduction From Policy Value." The smallest
monthly Minimum Premiums for a policy without substandard risks or optional
riders is $25. Fortis Benefits reserves the right to change the monthly Required
Premium both for purposes of the Contingent Deferred Sales Charge and for
purposes of the no-lapse guarantee provided during the first two Policy years or
pursuant to rider. Any such change will affect only subsequent increases in the
monthly Required Premium due to changes in benefits. Also, the sum of twelve
monthly Required Premiums for the initial Policy or any change in benefits will
never exceed the "Guideline Annual Premium" for the Policy or change,
respectively. For a discussion of "Guideline Annual Premium" see "Charges and
Deductions--Contingent Deferred Sales Charge."
Starting with the Monthly Anniversary when any Face Amount increase requested by
the Policy owner becomes effective, the monthly Required Premium will include an
additional amount attributable to the increase above the Face Amount on which
the previous monthly Required Premium was computed.
Starting with the Monthly Anniversary when any Face Amount decrease requested by
the Policy owner becomes effective during the first two Policy years, the
monthly Required Premium for purposes of the two-year guarantee against lapse
will be reduced by an amount attributable to the decrease below the Face Amount
on which the previous monthly Required Premium was computed. If there have been
no Face Amount increases the decrease in any subsequent monthly Required Premium
will be (1) the monthly Required Premium before the change, multiplied by (2)
the proportion that the decrease represents of the Face Amount before the
change. If there has been more than one Face Amount increase within the
preceding Policy year, the decrease will be deemed to reduce the most recent
increase first.
The initial monthly Required Premium for purposes of the two-year no-lapse
guarantee is set forth in the Policy schedule included in the Policy. Any
increased or decreased monthly Required Premium for this purpose will be set
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<PAGE> 72
forth in a Policy schedule amendment delivered to the Policy owner following the
change. For the purpose of guaranteeing that a Policy will not lapse in the
first two Policy years (but not for purposes of determining the amount of any
Contingent Deferred Sales Charge), the monthly Required Premium for the Face
Amount or any Face Amount change will include an amount necessary to support any
substandard rate class charges and any optional insurance benefits pursuant to
Policy riders. Accordingly, for this purpose, any increase or decrease in
optional benefits provided by rider will result in a higher or lower monthly
Required Premium.
For the purpose of guaranteeing a Policy against lapse (but not for Contingent
Deferred Sales Charge purposes), the amount of additional monthly Required
Premium attributable to an increase in benefits will be based on the most recent
rate class if the insured's rate class has worsened. On the other hand, the
monthly Required Premium for this purpose will be reduced starting with the
first Monthly Anniversary after Fortis Benefits approves any new rate class for
the insured which is more favorable than that on which the previous monthly
Required Premium was based.
ALLOCATION OF PREMIUMS AND POLICY VALUE
ALLOCATION OF NET PREMIUMS. In the application for a Policy, the Policy owner
indicates the initial allocation of Net Premiums among the General Account and
the Subaccounts of the Separate Account. (As discussed below, this allocation
will generally take effect at the end of 20 days following the date the Policy
is mailed for delivery to the Policy owner.) Allocation percentages must be in
whole numbers. The Policy owner may change the allocation of future Net 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 Net Premium payment will be allocated automatically to the General
Account as of the later of the Policy Date or Date of Receipt, and, assuming a
Policy goes into effect, will earn a return for the Policy owner. Any other Net
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 following the date the Policy is mailed for
delivery. Then, all Net Premiums, plus any other amounts previously earned in
the General Account, will be re-allocated among the General Account and the
Subaccounts in accordance with the premium allocation percentage established by
the Policy owner. (If the Policy owner has not established such an allocation,
the General Account will continue to be used.) If the insured is in a
substandard risk category, the reallocation will occur 20 days after the Date of
Receipt by Fortis Benefits of all items necessary under its administrative and
underwriting procedures to release the Policy to an active status in its
processing system.
Each Net 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 when Fortis Benefits obtains authorization of
the Policy owner to delay acceptance of the premium until permitted under
Section 7702 of the Code. In such cases, the Net Premium is held in a
non-interest bearing account until it is allocated to the Subaccounts or General
Account as of the later of the Date of Receipt of the premium or the date of
acceptance of such premium by Fortis Benefits.
POLICY VALUE TRANSFERS. After the initial allocation of premiums has occurred,
and subject to the limitations described below, the Policy owner may transfer
Policy Value between the General Account and the Subaccounts of the Separate
Account and among the Subaccounts, except during any Grace Period.
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<PAGE> 73
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, the Policy owner may transfer the entire unloaned balance from the
General Account to the Separate Account. Fortis Benefits reserves the right to
review these limits on an annual basis and, subject to the limits in the Policy,
to reduce them.
Except as noted below, Fortis Benefits will determine all values in connection
with transfers as of the Date of Receipt of the transfer request. Also, 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. Fortis Benefits will give Policy owners
advance notice of any such restrictions, if required under the terms of Policies
issued in their state.
Transfers are not taxable under current law. Except as discussed below, transfer
requests must be in writing, in a form acceptable to Fortis Benefits. Although
it currently has no plans to do so, Fortis Benefits may impose a charge of up to
$25 on transfers. Any such charge would be designed only to cover the
administrative cost of effecting transfers. Telephone transfers may be made if a
telephone authorization form has been received. See "Summary--How to Exercise
Your Rights Under a Policy."
In no event will Fortis Benefits restrict or prohibit any transfer of all Policy
Value to the General Account (1) during the first two Policy years, (2) within
the first two years after a Face Amount increase requested by the Policy owner,
or (3) within 60 days after the Policy owner receives notice of any material
change in a Portfolio's investment policy. Nor will any transfer charge be
imposed on such transfers, except that a charge may be imposed subsequent to the
first full transfer after issue, a Face Amount increase, or a change in
investment policy.
LIMITATION. Under the Policy, Fortis Benefits reserves the right to control the
amount of any assets in any investment alternative. Pursuant to this authority,
Fortis Benefits has established the following administrative procedures for the
protection of the interests of all investors participating in Fortis Series'
Portfolios: a Policy owner may not invest, allocate, transfer or exchange Policy
Value into any Subaccount if the value allocated to that Subaccount under the
Policy (and under any other insurance or annuity contract directly or indirectly
controlled by the same person, jointly or individually) would immediately
thereafter equal 25% or more of the related Fortis Series Portfolio's net
assets. Fortis Benefits reserves the right to modify these procedures at any
time.
POLICY LAPSE AND REINSTATEMENT
LAPSE. If the Surrender Value on any Monthly Anniversary is insufficient to
cover the Monthly Deduction, Fortis Benefits will notify the Policy owner and
any assignee of record of the shortfall unless the no-lapse guarantee is in
effect during the first two Policy years (see "Payment of Premiums," above). The
Policy owner will have a Grace Period of 61 days to make a premium payment
sufficient to cover at least the difference between the Monthly Deductions until
the end of the Grace Period and the Surrender Value. Failure to make a
sufficient payment within the Grace Period will result in termination of the
Policy, with no remaining Surrender Value. Nevertheless, the Grace Period will
not begin while the no-lapse guarantee is in effect during the first two Policy
years.
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.
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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, after deduction of the Premium Expense Charge (see "Charges and
Deductions--Premium Expense Charge"), 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, for reinstatements in the first two Policy years or
within two years following a Face Amount increase requested by the Policy owner,
any increase in the Contingent Deferred Sales Charge to the effective date of
the reinstatement, (b) the balance needed to cover any due and unpaid Monthly
Deductions through the end of the Grace Period, and (c) the amount of any unpaid
monthly expense charges that would have applied from the end of the Grace Period
until the earlier of the reinstatement date or the end of the first Policy year
(see "Charges and Deductions--Monthly Deduction From Policy Value").
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 the Premium Expense Charge, less the first Monthly Deduction paid in
accordance with (a) above, and less the amounts paid in accordance with (b) and
(c) above and plus the Contingent Deferred Sales Charge assumed at lapse. (The
last addition to Policy Value is designed to avoid duplicate Contingent Deferred
Sales Charges.) This Policy Value will be allocated as the Policy owner requests
or, in the absence of a request, to the General Account. If the Policy loan must
be reinstated, the Policy Value will be increased by the amount of the loan, and
that portion of the Policy Value will be held in the General Account and
credited with interest at a rate of 5% per annum.
The date of reinstatement will be the first Monthly Anniversary on or following
approval of the application for reinstatement. The no-lapse guarantee benefit
provided during the first two Policy years or by rider will not be reinstated.
Following reinstatement, the Contingent Deferred Sales Charge will be reinstated
and will be calculated using the original Policy Date and Face Amount increase
dates as appropriate. See "Charges and Deductions--Contingent Deferred Sales
Charge."
CHARGES AND DEDUCTIONS
PREMIUM EXPENSE CHARGE
SALES CHARGE. A 5% sales charge is deducted from each premium payment received
by Fortis Benefits.
This charge and the Contingent Deferred Sales Charge discussed below 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.
STATE PREMIUM TAX CHARGE. A charge is made for state premium taxes, currently
2.2% of each premium payment. 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 2.2% rate is the average tax rate
Fortis Benefits estimates will be paid on premiums from all states. Fortis
Benefits may change the amount of this charge if its estimates change. Fortis
Benefits does not expect to make a profit from the premium tax charge.
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MONTHLY DEDUCTION FROM POLICY VALUE
The Monthly Deduction from Policy Value includes the cost of insurance charge,
the charge for optional insurance benefits added by rider (see Appendix
A--"Optional Insurance Benefits") and the monthly administrative and expense
charges. The cost of insurance charges and monthly administrative and expense
charges are discussed separately in the paragraphs that follow.
The Monthly Deduction will be deducted as of each Monthly Anniversary commencing
with the Policy Date. The Monthly Deduction will be allocated among the General
Account and each Subaccount of the Separate Account selected by the Policy
owner. If no such selection is made, or if there are insufficient funds in the
selected Subaccounts, then the allocation will be made in the proportion that
the Policy Value in the General Account (excluding the amount of any General
Account Policy Value attributable to Policy loans) and the Policy Value in each
Subaccount, respectively, bear to the Policy's total Policy Value (excluding the
amount of any General Account Policy Value attributable to Policy Loans) as of
the date of the transaction (that is, on a "Pro Rata Basis").
If any part of a Monthly Deduction is not made because of insufficient Policy
Value, and if the Policy nevertheless does not lapse, the undeducted amount will
be deducted on receipt of any subsequent premium payment.
COST OF INSURANCE. Because the cost of insurance depends upon a number of
variables, it can vary from month to month. Fortis Benefits will determine the
monthly cost of insurance charge by multiplying the applicable cost of insurance
rate or rates by the Net Amount at Risk for each Policy month. The Net Amount at
Risk for a Policy month is (1) the death benefit, divided by 1.0040741, at the
beginning of the Policy month, less (2) the Policy Value at the beginning of the
Policy month. Additional amounts may be charged if the insured's rate class is
less favorable than standard.
If two Policies are otherwise identical, a Type A Policy will have a lower death
benefit, higher Policy Value, and lower cost of insurance charges than a Type B
Policy. Since the death benefit payable under Type A remains constant while the
death benefit payable under Type B varies with the Policy Value, Policy Value
increases will generally reduce the Net Amount at Risk under Type A but not
under Type B. If the Net Amount at Risk is greater, the cost of insurance will
be greater. If the Alternative Death Benefit is in effect (see "Policy
Benefits--Death Benefit Options"), the cost of insurance will vary directly with
the Policy Value under both death benefit options.
Cost of insurance rates are based on the Age, sex, and rate class of the
insured. 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. The maximum cost of insurance rates for standard
risk insureds will not exceed the rates provided by certain of the 1980
Commissioners Standard Ordinary Mortality Tables and the insured's sex, Age and
smoking status. These tables set forth different mortality estimates for males
and females and for smokers and non-smokers. The maximum cost of insurance rates
for a table-rated substandard insured are a multiple (shown on the Policy
schedule page) of the above rates. Additional level amounts per thousand dollars
of face amount are charged if a substandard insured is assigned a flat extra
rating.
Any change in the cost of insurance rates or charges will apply to all insureds
of the same Age, sex, and rate class.
Cost of insurance rates that differ as between male and female insureds are not
permitted under current law in Montana, and perhaps other states or in
connection with certain employee benefit arrangements. Employers should
therefore seek legal advice as to any questions they may have in this regard. To
the extent legally necessary, Fortis Benefits intends to make available
gender-neutral cost of insurance rates, and affected purchasers should inquire
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<PAGE> 76
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, Required Premiums also will be the same as
between otherwise comparable Policies for male and female insureds.
RATE CLASS. Fortis Benefits currently places insureds into a standard rate class
or rate classes involving a higher or lower mortality risk. For an otherwise
identical Policy, insureds in the standard rate class will have a lower cost of
insurance than those in a rate class with a higher mortality risk and a higher
cost of insurance than those in a rate class with a lower mortality risk.
If a Policy owner requests a Face Amount increase at a time when the insured is
in a less favorable rate class than previously, a higher cost of insurance
deduction will apply to that portion of the Net Amount at Risk attributable to
the increase. (This does not apply to Face Amount increases resulting
automatically from a change from Death Benefit Type B to Type A, as described
under "Policy Benefits--Change in Death Benefit Option.") When the Alternative
Death Benefit is in effect, the Net Amount at Risk can exceed the Policy's Face
Amount, in which case the rate used for such excess approximately equals the
blended rate for the other portion of the Net Amount at Risk. If the insured's
rate class improves, the lower cost of insurance deduction will apply to the
entire Net Amount at Risk, commencing on the Monthly Anniversary on or after
Fortis Benefits approves the new rate class.
Any change from smoker to non-smoker rate class will take effect on the next
Monthly Anniversary, and the non-smoker rates for the coverage under the base
Policy will be applicable for the previous 12 months from the effective date of
the change. Such reduced rates for the previous 12 months will be implemented by
a refund credited at the effective date of the change.
For purposes of determining the cost of insurance charge, any decrease in the
Face Amount will reduce the Face Amount in the following order: (1) the Face
Amount provided by the most recent increase; (2) the next most recent increases
successively; and (3) the Face Amount when the Policy was issued.
MONTHLY ADMINISTRATIVE AND EXPENSE CHARGES. A monthly administrative charge of
$5.00 per Policy ($3.00 for Policies applied for prior to July 1, 1988) will be
deducted from Policy Value as part of the Monthly Deduction for each Policy
Month. This charge compensates Fortis Benefits for expenses incurred in
administering the Policy. Fortis Benefits reserves the right to change this
administrative charge, but it will never exceed $5.00 per month.
Also, during the first twelve Policy months, Fortis Benefits reserves the right
to impose (1) a monthly expense charge of not more than $15.00 per month and (2)
an additional monthly expense charge per $1,000 of Face Amount of not more than
$.08 per month for insureds Age 29 and less and $.25 per month for insureds Age
30 and over. Fortis Benefits reserves the right again to impose these charges in
full for twelve months following any Face Amount increase requested by the
Policy owner, the additional "per thousand" charge being based on the dollar
amount of the increase. These charges would be designed primarily to compensate
Fortis Benefits for underwriting and other start-up expenses incurred in
connection with the Policy or increase. Such expenses include the cost of
processing applications, conducting medical examinations, determining
insurability and the insured's risk class, and establishing Policy records
(including computer set-up costs). Fortis Benefits currently does not impose any
of the monthly expense charges described in this paragraph (except pursuant to
Policies applied for prior to July 1, 1988).
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Under Policies applied for prior to July 1, 1988, Fortis Benefits currently
imposes an expense charge of $10.00 per month during the first twelve Policy
months following issuance or a Face Amount increase requested by the Policy
owner.
Fortis Benefits does not expect its revenues from the monthly administrative and
expense charges to exceed its costs and expenses in issuing and administering
the Policies.
CONTINGENT DEFERRED SALES CHARGE
In addition to the 5% sales charge deducted from each premium payment (see
"Charges and Deductions--Premium Expense Charge"), the Policies impose a
Contingent Deferred Sales Charge on total surrenders during the first nine
Policy years to help defray Fortis Benefits' sales expenses. The amount of the
Contingent Deferred Sales Charge is a percentage of the lesser of (1) the sum of
twelve monthly Required Premiums specified in the Policy schedule as being
subject to such charge or (2) the actual amount of premium payments paid through
the end of the first two Policy years. This percentage varies as follows:
<TABLE>
<CAPTION>
FOR A TOTAL PERCENTAGE OF THE LESSER OF 12
SURRENDER DURING MONTHS' REQUIRED OR 24 MONTHS'
POLICY YEAR ACTUAL PREMIUMS
---------------- ------------------------------
<S> <C>
1 through 5 25%
6 20%
7 15%
8 10%
9 5%
10 or later 0%
</TABLE>
Accordingly, for a Policy with premiums totalling $900 in the first year (for
example, the Policy illustrated on page B-3 of Appendix B to this Prospectus),
the Contingent Deferred Sales Charge that could be imposed would be $195.75,
assuming no Face Amount increases. The maximum total sales charge with respect
to such a $900 premium payment (including both the sales charge deducted from
premiums and the Contingent Deferred Sales Charge) would be $240.75.
An additional amount of Contingent Deferred Sales Charge will be payable on
certain total surrenders following an increase in Face Amount requested by the
Policy owner. The additional Contingent Deferred Sales Charge will be 25% of the
lesser of (1) the sum of twelve monthly Required Premiums (calculated without
regard to the $25 limit or any charges for riders or substandard risks) for the
Face Amount increase or (2) the amount of actual premium payments deemed
attributable to the increase which are made within two years after the date of
the increase. For purposes of determining the amount of the Contingent Deferred
Sales Charge, a pro-rata portion of premium payments made after an increase in
Face Amount and a pro-rata portion of Policy Value will be deemed actual premium
payments attributable to the increase. The proportion of such premiums and
Policy Value deemed attributable to the increase is the proportion which the
"Guideline Annual Premium" for the increase bears to the sum of the "Guideline
Annual Premiums" for the initial Face Amount and each layer of increase. (The
"Guideline Annual Premium" is the amount of annual premium which would be
necessary to provide the benefits under the Policy (or benefit change),
including benefits under riders, until maturity, assuming a net investment
return of 5% per annum, cost of insurance charge deductions based on the 1980
Commissioners Standard Ordinary Mortality Tables, any additional charges which
are applicable because of substandard mortality risks, and other expense
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charges at applicable levels under the Code.) This method of attributing
premiums to Face Amount increases may be changed to conform with any other
attribution procedure permitted or required by the Securities and Exchange
Commission for this purpose.
Commencing five years after the increase in Face Amount, the amount of the
Contingent Deferred Sales Charge for that increase decreases in the same way as
set forth in the above table, so that it will be zero for surrenders more than
nine years after the date of the increase.
Following any change in the Contingent Deferred Sales Charge, a new Policy
Schedule setting forth the revised charge will be delivered to the Policy owner.
No Contingent Deferred Sales Charge whatsoever will be imposed on any
termination of a Policy more than nine years after the later of the Policy Date
or the date of any increase in Face Amount. Nor will any Contingent Deferred
Sales Charge be deducted from any partial withdrawal of Surrender Value by the
Policy owner.
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. Nor will these charges 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.
CHARGES AGAINST THE SEPARATE ACCOUNT
CHARGE FOR MORTALITY AND EXPENSE RISKS. Commencing on the Policy Date, a daily
charge is made for mortality and expense risks assumed by Fortis Benefits. The
charge is at an annual rate of .75% 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 insured 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.
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. See "Federal Tax
Matters--Taxation of Fortis Benefits."
GUARANTEE OF CERTAIN CHARGES
Fortis Benefits guarantees, and may not increase, the sales charge deducted from
premiums, the maximum monthly administrative and 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. Although the rate
of the Contingent Deferred Sales Charge is guaranteed not
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<PAGE> 79
to change, Fortis Benefits reserves the right to change the monthly Required
Premium subject to the Contingent Deferred Sales Charge and that used for the
purpose of the no-lapse guarantee. Any such change will affect only subsequent
increases in the monthly Required Premium due to changes in benefits.
LOAN PRIVILEGES
The Policy owner 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
Contingent Deferred Sales Charge then in effect. In Texas, the Policy owner may
also borrow up to 100% of the Policy Value in the General Account, less a
pro-rata portion of the Contingent Deferred Sales Charge. Fortis Benefits will
allocate a Policy loan among the General Account and the Subaccounts of the
Separate Account selected by the Policy owner. If no selection is made, then the
allocation will be on a Pro-Rata Basis.
Interest on Policy loans is at a fixed rate of 7.4% per year, payable annually
in advance. If not paid when due, loan interest at the same rate will be added
to the loan. The additional interest will be taken from the General Account and
the Subaccounts on the same basis that Monthly Deductions are allocated.
EFFECT OF A POLICY LOAN
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 5% per annum. NO
ADDITIONAL INTEREST WILL BE CREDITED TO SUCH LOANED POLICY VALUES NOR WILL
POLICY VALUES IN THE GENERAL ACCOUNT PARTICIPATE IN ANY INVESTMENT EXPERIENCE
APPLICABLE TO THE SEPARATE ACCOUNT.
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 5%
annual rate credited to loaned amounts. A loan may also have a permanent effect
on the death benefit, since a Type B benefit varies with the Policy Value and a
Type A benefit may have resulted in an Alternative Death Benefit coming into
effect if no loans were made. A loan may also cause the termination of the
no-lapse guarantee provided during the first two policy years or pursuant to an
optional rider because the loan amount is deducted from the total premiums paid
in determining whether the Required Premiums have been paid for purposes of the
guarantee.
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 generally 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 on
the same basis as the repayment is reallocated.
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<PAGE> 80
REPAYMENT OF A LOAN
Indebtedness may be repaid in whole or in part any time before the Maturity Date
while the insured is living. As of the Date of Receipt of the repayment, unless
the Policy owner specifies otherwise, loaned Policy Value equal to the amount of
the repayment will be reallocated among the unloaned portion of the General
Account and the Subaccounts of the Separate Account in the same proportion as
Net premiums are then being allocated to those accounts. The Policy owner must
designate whether a payment is intended as a loan payment or as a premium
payment. Any payment for which no designation is made will be treated as a
premium payment.
SURRENDER AND PARTIAL WITHDRAWAL
Full surrender of the Policy for the Surrender Value may be made at any time
during the insured's lifetime. A Contingent Deferred Sales Charge will be
deducted from the Policy Value on any full surrender within nine years after the
Policy Date. An additional amount of Contingent Deferred Sales Charge may also
be deducted on any full surrender within nine years after the date of any Face
Amount increase above the amount on which such charge was previously calculated.
See "Charges and Deductions--Contingent Deferred Sales Charge." (This does not
apply to a Face Amount increase occurring automatically upon a change from a
Type B to a Type A death benefit.)
Partial withdrawals of Surrender Value may be made once each Policy year after
the first Policy year during the insured's lifetime. Partial withdrawals in the
first two Policy years will be allowed only if cumulative premiums paid to date
are at least equal to the sum of 12 monthly Required Premiums (calculated
without regard to any charges for riders or substandard risks) for the initial
Face Amount. A comparable restriction applies in the first two years following
any Face Amount increases requested by the Policy owner. For policies applied
for prior to May 1, 1990 partial withdrawals are not subject to a requirement
that any specific amount of premiums have been paid. The amount withdrawn will
be deducted from the General Account and the Subaccounts of the Separate Account
selected by the Policy owner. If no selection is made, then the amount will be
withdrawn on a Pro Rata Basis. Fortis Benefits reserves the right to deduct a
withdrawal charge from the proceeds of partial withdrawals, although it has no
current plans to do so. Any such charge would not be imposed on a full
surrender, would not be designed to yield a profit to Fortis Benefits, and would
not exceed $25 per withdrawal (or, if less, 2% of the amount withdrawn).
When Death Benefit Type A is in effect, any partial withdrawal will reduce the
Face Amount and thus the death benefit, by the amount withdrawn. Such an
automatic reduction in Face Amount does not result in any change in the monthly
Required Premium, or the Contingent Deferred Sales Charge, but may result in a
distribution (as a further partial withdrawal) of any additional amount
necessary to comply with the maximum premium limitation under then-applicable
Internal Revenue Service Rules. See "Payment and Allocation of
Premiums--Premiums" and "Charges and Deductions--Contingent Deferred Sales
Charge."
When Death Benefit Type B is in effect, the amount withdrawn will not reduce the
Face Amount. However, the death benefit will be reduced by the amount withdrawn,
because Policy Value is reduced by the amount withdrawn. Under either Type A or
Type B, when the Alternative Death Benefit is in effect, a partial withdrawal
will reduce the death benefit by a greater amount than otherwise would be the
case.
A partial withdrawal may also cause the termination of the no-lapse guarantee
provided during the first two Policy years or pursuant to an optional rider,
because the partial withdrawal amount is deducted from the total premiums paid
in determining whether the minimum Required Premiums have been paid for the
purpose of the guarantee.
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<PAGE> 81
A Policy owner 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 the Policy owner as to whether the request
should be disregarded, reduced to a smaller amount or changed to a request for a
full surrender.
Surrenders or partial withdrawals are made by sending a written request on
Fortis Benefits form to its Home Office, together with the Policy, in the case
of total surrender. See "Summary--How To Exercise Your Rights Under a Policy."
The surrender or withdrawal, and any related automatic Face Amount reduction,
will be effective as of the Date of Receipt by Fortis Benefits of the request on
its form and, if required, the Policy.
RIGHTS RESERVED BY FORTIS BENEFITS
Fortis Benefits reserves the right to make certain changes if, in its judgement,
they would best serve the interests of the Policy owners or would be appropriate
in carrying out the purposes of the Policies. Any changes will be made only to
the extent and in the manner permitted by applicable laws. Also, when required
by law, Fortis Benefits will obtain Policy owner approval of the changes and
approval from any appropriate regulatory authority. Such approval may not be
required in all cases, however. Examples of the changes Fortis Benefits may make
include:
- To operate the Separate Account in any form permitted under the 1940
Act or in any other form permitted by law.
- To take any action necessary to comply with or obtain and continue any
exemptions from the 1940 Act or otherwise to comply with laws, rules,
regulations, interpretations, holdings, orders or rulings which
necessarily or appropriately must be complied with for the Policies to
serve their intended purposes.
- To transfer or limit any assets in any Subaccount to another
Subaccount, or to one or more separate accounts, or to the General
Account; or to add, combine or remove Subaccounts in the Separate
Account.
- To substitute, for the Portfolio shares held in any Subaccount, the
shares of another Portfolio of Fortis Series or the shares of another
investment company or any other investment permitted by law.
- To make any other necessary technical changes in the Policy in order
to conform with any action the above provisions permit Fortis Benefits
to take, including to change the way Fortis Benefits assesses charges,
but without increasing as to any then outstanding Policy the aggregate
amount of the types of charges which Fortis Benefits has guaranteed.
See "Charges and Deductions--Guarantee of Certain Charges."
If any Portfolio materially changes its investment policy, a Policy owner will
have sixty days after receiving notice of the change to transfer all of the
Policy Value to the General Account, as described under "Payment and Allocation
of Premiums--Allocation of Premiums and Policy Value."
PAYMENT AND DEFERMENT
With respect to amounts in the Subaccounts of the Separate Account, payment of
the maturity proceeds, death benefit, 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.
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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 period during which the New York Stock Exchange is closed (other
than customary weekend and holiday closings), for any period during which any
emergency exists as a result of which it is not reasonably practicable for
Fortis Benefits to determine the investment experience for a Policy, or for such
other periods as the Securities and Exchange Commission may by order permit for
the protection of Policy owners.
As with traditional life insurance, Fortis Benefits may delay payment of the
entire insurance proceeds or other Policy benefits if entitlement to payment is
being questioned. Fortis Benefits may also defer the payment of any amount
attributable to a premium payment made by check to allow the check reasonable
time to clear. To the extent permitted under the Policies and applicable state
insurance laws, Fortis Benefits may also defer payment of Policy loans, partial
withdrawals or other proceeds payable out of the General Account for a period of
up to 6 months, although no such deferrals will be made of amounts to be used to
pay premiums on insurance policies issued by Fortis Benefits.
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.
When payable in full, the basic commission paid to representatives is 50% of all
premiums, regardless of when paid, up to the first twelve monthly Required
Premiums (and up to the amount of twelve months' Required Premiums attributable
to Face Amount increases); 2% of all other premiums paid during the first six
years after the Policy Date (or after increases in Face Amount); and .5% of all
premiums paid thereafter. The Required Premiums for these purposes are those
used to compute the maximum Contingent Deferred Sales Charge increased for
substandard risk and certain riders and decreased by any term conversion credit.
In many cases, 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 standards.
Commissions with respect to premium payments which are refunded are returned.
The commissions and other compensation are paid by Fortis Benefits on behalf of
Investors under a distribution agreement entered into by them as of September 9,
1986. The commissions and other compensation do not, however, represent a charge
or deduction against the Policy in addition to those set forth under "Charges
and Deductions." Pursuant to the distribution agreement, Fortis Benefits also
reimburses Investors for all of its expenses in serving as principal underwriter
of the Policies and of Fortis Series shares offered in connection with the
Policies. Such reimbursements for the Policies and for all other variable
universal life policies issued by Fortis Benefits totaled $24,147,115 for 1994.
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.,
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Fortis Growth Fund, Inc., Fortis Fiduciary Fund, Inc., Fortis Tax-Free
Portfolios, Inc., Fortis Money Fund, Inc., Fortis Income Portfolios, Inc.,
Fortis Worldwide Portfolios, Inc. and Special Portfolios, Inc. Investors'
address is 500 Bielenberg Drive, Woodbury, Minnesota 55125.
Officers, directors, and employees of Fortis Benefits and Investors, together
with those of Fortis, Inc. and its other subsidiaries, are bonded pursuant to a
joint fidelity bond, in the amount of $5,000,000 per occurrence, in favor of
such companies.
FEDERAL TAX MATTERS
The following description is a brief summary of the tax rules, primarily related
to federal income and estate taxes, which in the opinion of Fortis Benefits are
currently in effect.
The following discussion is intended to provide a general description of the
federal income tax considerations associated with the Policy. It does not
purport either to be complete or to cover all situations; this discussion is not
intended to be taken as tax advice. Consult a qualified tax adviser for more
complete information. This discussion is based upon Fortis Benefits
understanding of the present federal income tax laws as they are currently
interpreted by the Internal Revenue Service. No representation is made as to the
likelihood of continuation of the present federal income tax laws or of the
current interpretation by the Internal Revenue Service.
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code of 1986, as amended, (the "Code")
includes a definition of life insurance for federal income tax purposes. This
definition can be satisfied by complying with either of two tests set forth in
Section 7702. Although the Secretary of the Treasury is authorized to prescribe
regulations interpreting the manner in which the tests under Section 7702 are to
be applied, such 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. Fortis Benefits believes the Policies qualify as life insurance
under the proposed regulations.
If it is subsequently determined that a Policy does not satisfy Section 7702,
Fortis Benefits reserves the right to modify the Policy as appropriate, and to
the extent possible, to qualify it as a life insurance contract under Section
7702.
If a Policy were determined not to be a life insurance contract for Section 7702
purposes, such Policy would not provide any of the tax advantages normally
provided by a life policy.
Section 817(h) of the Code also authorizes the Secretary of the Treasury (the
"Treasury") to set standards by regulation or otherwise for investments of the
Separate Account to be "adequately diversified" in order for the Policy to be
treated as life insurance for federal tax purposes. The Separate Account,
through Fortis Series, intends to comply with the diversification requirements
prescribed in Regulations Section 1.817-5, which affect how the assets of Fortis
Series may be invested. Fortis Benefits believes that Fortis Series will be
operated in compliance with the requirements prescribed by the Treasury.
In connection with the issuance of the temporary regulations on diversification
requirements, the Treasury announced that such regulations do not provide
guidance concerning the extent to which Policy owners may direct
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their investments to particular Subaccounts of the Separate Account. Additional
guidance may come from the Treasury in the future. In that case the Treasury
might treat a Policy owner as the owner of the assets of the Separate Account if
a Fortis Series Portfolio is too narrow in its investment strategy, even though
it technically meets the diversification requirements. It is not clear whether
Treasury's position, if promulgated, would be applied on a prospective basis
only. While Fortis Benefits believes that the investment strategies of the
Policy's Portfolios are sufficiently broad, it reserves the right to modify the
Policy as necessary to prevent the Policy owner from being considered the owner
of the assets of the Separate Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
TAXATION OF POLICY BENEFITS
IN GENERAL. Fortis Benefits believes that the proceeds and Policy Value
increases of a Policy should be treated in a manner consistent with a
fixed-benefit life insurance policy for federal income tax purposes. Thus, the
death benefit under the Policy should be excludable from the gross income of the
beneficiary under Section 101(a)(1) of the Code.
The exchange of the Policy for another life insurance policy, the payment of a
premium, a change in Face Amount or death benefit option, a transfer or
assignment of a Policy, a Policy loan, a lapse with an outstanding indebtedness,
a partial withdrawal or the surrender of a Policy may have tax consequences
depending on the circumstances. Federal estate and state and local estate,
inheritance and other tax consequences of ownership or receipt of Policy
proceeds depend upon the circumstances of each owner or beneficiary.
Generally, the Policy owner will not be deemed to be in constructive receipt of
the Policy Value, including increments thereof, under the Policy until there is
a distribution. The tax consequences of a distribution from a Policy depend, in
part, on whether the Policy is classified as a "modified endowment contract"
under Section 7702A.
MODIFIED ENDOWMENT CONTRACTS. A Policy entered into after June 20, 1988, may be
treated as a modified endowment contract depending upon the amount of premiums
paid for such Policy. Policies entered into before June 21, 1988, that are
materially changed after June 20, 1988, may in certain circumstances also be
treated as modified endowment contracts. The premium limitation and material
change rules for determining whether a Policy will be treated as a modified
endowment contract are extremely complex. Moreover, due to the Policy's
flexibility, classification as a modified endowment contract will depend on the
circumstances of each Policy. Accordingly, a current or prospective Policy owner
is strongly advised to contact a competent tax adviser before purchasing a
Policy or paying a premium or making any other change in any existing Policy to
determine whether the Policy would be treated as a modified endowment contract.
DISTRIBUTIONS FROM MODIFIED ENDOWMENT CONTRACTS. Policies classified as modified
endowment contracts are subject to the following tax rules: First, all
distributions from such a Policy are treated as taxable up to an amount equal to
the excess (if any) of the Policy Value immediately before the distribution over
the investment in the Policy (described below) at such time. Second, loans taken
from or secured by such a Policy, and assignments as well as surrenders,
withdrawals and benefits paid at maturity, are treated as taxable distributions.
Third, a 10% additional income tax is imposed on the portion of any distribution
or deemed distribution from such a Policy that is included in income except
where the distribution, loan, assignment or pledge is made on or after the
Policy owner attains age 59 1/2, is attributable to the Policy owner becoming
disabled, or is a part of a series of substantially equal periodic payments for
the life of the Policy owner or the joint lives of the Policy owner and Policy
owner's beneficiary.
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DISTRIBUTIONS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS. The
distribution rules for Policies that are not modified endowment contracts are
the same as those that applied to all life insurance contracts before TAMRA was
enacted. Thus, distributions from Policies that are not classified as modified
endowment contracts are generally treated as first recovering the investment in
the Policy (see below) and then only after the return of all such investment in
the Policy as disbursing taxable income. An exception to this general rule
occurs in the case of a decrease in the Policy's death benefit or any other
change that reduces benefits under the Policy in the first 15 years after the
Policy is issued and that results in a cash distribution to the owner in order
for the Policy to continue complying with the Section 7702 definitional limits.
Such cash distribution will be taxed in whole or in part as ordinary income (to
the extent of any gain in the Policy) under rules prescribed in Section 7702.
Loans from Policies that are not modified endowment contracts are not treated as
distributions. Instead, such loans are treated as indebtedness of an owner.
In addition, upon a complete surrender or lapse of a Policy that is not a
modified endowment contract, or when benefits are paid at such a Policy's
maturity date, if the amount received plus the amount of indebtedness exceeds
the total investment in the Policy, the excess will generally be treated as
ordinary income.
Finally, neither distributions nor loans from Policies that are not modified
endowments are subject to the 10% additional income tax.
POLICY LOAN INTEREST. Generally, interest paid on any loan under a Policy which
is owned by an individual is not deductible. 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.
The Policy owner 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 the gross income of the Policy owner minus (ii) the aggregate amount
received under the Policy which was excluded from the gross income of the Policy
owner, except that the amount of any loan received under the policy which is
excluded from gross income shall be disregarded.
MULTIPLE CONTRACTS. Under TAMRA, all modified endowment contracts that are
issued by Fortis Benefits (or its affiliates) to the same Policy owner during a
calendar year are treated as one modified endowment contract for purposes of
determining the amount includible in gross income under Section 72(e) of the
Code.
EXCHANGES. TAMRA also provides that a life insurance contract received in
exchange for a Policy classified as a modified endowment contract will also be
treated as a modified endowment contract. Accordingly, a Policy owner should
consult a tax adviser before effecting an exchange of a Policy.
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TAXATION OF FORTIS BENEFITS
Fortis Benefits does not initially expect to incur any federal income tax upon
the earnings or capital gains attributable to the Separate Account. Based upon
these expectations, no charge is currently being made against the Separate
Account for federal income taxes which may be attributable to the Separate
Account. If, however, Fortis Benefits determines that it may incur such taxes,
it may assess a charge against the Separate Account for those taxes, which would
reduce a Policy's net investment return.
Under present laws, Fortis Benefits may incur state and local taxes (in addition
to premium taxes) in several states. At present, these taxes are not
significant. If they increase, however, Fortis Benefits may decide to make
charges for such taxes or provisions for such taxes against the Separate
Account.
OTHER POLICY PROVISIONS
OWNER. The owner of a Policy is the insured, unless another owner has been named
in the application for the Policy. The owner is entitled to exercise all rights
under a Policy while the insured is alive, including the right to name a new
owner or a successor who would become the Policy owner if the owner should die
before the insured dies. Otherwise the owner's estate would become the owner.
BENEFICIARY. The beneficiary is the person or persons to whom the insurance
proceeds are payable upon the insured's death. The owner may name a contingent
beneficiary to become the beneficiary if all the beneficiaries die while the
insured is alive. If no beneficiary or contingent beneficiary is alive when the
insured dies, the owner (or the owner's estate) will be the beneficiary. While
the insured is alive, the owner may change any beneficiary or contingent
beneficiary.
Under certain retirement programs, however, spousal consent may be required to
name or change a beneficiary, and the right to name a beneficiary other than the
spouse of the insured may be subject to applicable laws and regulations. Fortis
Benefits is not responsible for the validity of any change.
COLLATERAL ASSIGNMENT. The owner may assign a Policy as collateral. 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 the owner signed the change request,
subject to any actions taken by Fortis Benefits prior to the Date of Receipt of
written notice of the change in form satisfactory to Fortis Benefits or, in the
case of an assignment, recording by Fortis Benefits.
SUICIDE. The insurance proceeds will not be paid if the insured commits suicide
within two years (one year in Colorado and North Dakota) from the Policy Date.
Instead, Fortis Benefits will pay the beneficiary an amount equal to all
premiums paid for the Policy, without interest, less any outstanding Policy
loan, plus any loan interest paid for
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periods beyond the date of death, and less any partial withdrawals. If the
insured commits suicide more than two years after the Policy Date but within two
years (one year in Colorado and North Dakota) from the effective date of any
reinstatement or increase in Face Amount requested by the Policy owner, Fortis
Benefits liability with respect to such increase or reinstatement will be
limited to the cost of insurance attributable to such increase or reinstatement
since that date.
AGE AND SEX. If the insured's Age or sex as stated in the application is not
correct, the death benefit under a Policy will be adjusted to reflect the amount
of insurance coverage which the most recent cost of insurance charges and
deductions for riders would have purchased at the correct Age and sex. As used
herein, "Age" is the insured's actual age on the most recent Policy Anniversary.
INCONTESTABILITY. Fortis Benefits may contest the validity of a Policy, any Face
Amount increase, or any optional insurance benefit based on other misstatements
in the application therefor. However, any such statements will be considered
representations and not warranties. Fortis Benefits will not contest the
validity of a Policy after it has been in force during the insured's lifetime
for two years from the Policy Date. Fortis Benefits will not contest the
validity of any optional insurance benefit, reinstatement or increase in Face
Amount after it has been in force during the insured's lifetime for two years
from its effective date.
OPTION TO EXTEND MATURITY DATE. This option is available as part of Policies
issued in a state that has approved the endorsement containing this provision.
This option allows the Policy owner to request a later maturity date, if the
Policy Value is at least $2,000. The request must be in writing and must be made
within 60 days of the current maturity date.
If this option is exercised the Policy owner will not be permitted to (1) make
any further premium payments except if necessary to prevent lapse of the Policy
(2) make any Face Amount or death benefit option changes or (3) make any partial
withdrawals that would reduce the Policy Value below $2,000.
Also, upon exercise of this option the following occurs: (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) All
supplemental riders except the Accelerated Benefit Rider terminate and (5) Any
Policy loan will be charged interest at an effective annual rate of 3.85% per
year payable in advance.
DIVIDENDS. The Policies are nonparticipating. This means that they are not
eligible for dividends and they do not participate in any distribution of Fortis
Benefits' surplus.
ADDITIONAL CREDITS FOR CERTAIN GROUPS. The credits described below will be made
under Policies owned by Fortis, Inc., its subsidiaries, any individual who at
the time of purchase is an officer, director, employee, retiree or sales
representative of any such company, any Fortis Series director, any director of
any of the other mutual funds managed by Fortis Advisers, Inc., or a spouse or
child under the age of 21 of any such person, or a representative or employee of
a broker-dealer that has a selling agreement with Fortis Investors, Inc. No
credit will be made for any policy for which sales compensation is paid. In
Fortis Benefits discretion, certain charges may also be reduced or waived for
these categories of persons.
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Fortis Benefits will credit 40% of the sum of twelve monthly Required Premiums
(calculated without regard to the $25 limit and any optional riders or
substandard risks) in the first Policy year and 25% of the sum of twelve such
monthly Required Premiums then in effect in the second Policy year. The first
credit, after deduction of the Premium Expense Charge, will be applied as if it
were a premium payment received on the date the Policy is released by Fortis
Benefits to an active status in its processing system. The second credit will be
applied similarly on the first Policy Anniversary, unless the Policy owner has
requested a Face Amount decrease (in which case, the second credit will be
forfeited). The premium returned upon exercise of the Policy owner's right to
cancel a Policy will not include the amount of any credit.
The foregoing program is subject to termination at any time without notice. All
charge variations will reflect differences in Fortis Benefits expected
commissions, sales or administrative expenses or mortality experience with
respect to the group of persons to whom such variations apply. All such
variations will be pursuant to administrative rules and procedures established
by Fortis Benefits from time to time and will be designed to be fair, reasonable
and non-discriminatory with respect to each group of Policy owners.
PURCHASES BY LIFE INSURANCE POLICY HOLDERS. When issuing a Policy or increasing
the Face Amount for an insured who is already covered by one of its life
insurance policies, Fortis Benefits may rely on the evidence of insurability
previously provided, rather than relying on new evidence, in which case the
suicide and contestability periods will run from the original date of coverage.
This procedure applies only to that portion of the Policy's Face Amount which is
not in excess of the amount of existing insurance coverage, and the insurance
will terminate when the new coverage becomes effective. Any premium paid under
the insurance policy for periods beyond the date of termination of that coverage
will be refunded.
If the value of an existing life insurance policy which was issued by Fortis
Benefits Insurance Company is transferred to a Policy under the provisions of
Section 1035 of the Internal Revenue Code, then the Premium Expense Charge
attributable to the amount transferred will be waived.
Also, for term insurance policy holders, if the term policy has been outstanding
for at least one year, Fortis Benefits will give the Policy owner a "conversion
credit" in the amount of the lesser of the prior twelve months' premiums on the
term policy or 25% of twelve monthly Required Premiums for the amount of Policy
Face Amount established by the conversion, without regard to any optional
benefits provided by rider. The conversion credit, after deduction of the
Premium Expense Charge will be applied as if it were a premium payment received
by us on the date the Policy is released by Fortis Benefits to an active status
in its processing system (or, in the case of an existing Policy, on the
effective date of the Face Amount increase). The Policy's Surrender Value and
Policy loan value during the first year following the conversion do not include
the amount of the conversion credit, nor does the amount paid upon an exercise
of the Policy owner's right to cancel a Policy or Face Amount increase.
The foregoing procedures are subject to Fortis Benefits administrative rules as
in effect from time to time and may be terminated at any time.
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MANAGEMENT
The directors, executive officers, and, to the extent responsible for variable
life insurance operations, other officers of Fortis Benefits are listed below,
together with their principal occupations and business experience for the past
five years:
OFFICER-DIRECTORS
Robert Brian Pollock (4) President and Chief Executive Officer;
before then Senior Vice President--Life and
Disability.
Thomas Michael Keller (5) Executive Vice President; before then Senior
Vice President of Fortis, Inc.
Dean C. Kopperud (1) Senior Vice President--also officer of
affiliated companies; 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
Larry A. Medin (1) Senior Vice President--Sales; before then
Senior Vice President--Western Divisional
Officer, Colonial Group, Inc.
Robert James Clancy (1) Senior Vice President--Investment Products;
also officer of affiliated companies.
Anthony J. Rotondi (1) Senior Vice President--Life Operations, also
officer of affiliated companies.
John W. Norton (1) 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
_____________________
(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 N.V. AMEV
and 50% owned by Groupe Compagnie Financiere et de Reassurance du Groupe
AG, Boulevard Emil Jacqmain 53, Brussels, Belgium.
(3) Address: N.V. AMEV, Archmideslaan 10, 3584 BA Utrecht, The Netherlands.
(4) Address: 2323 Grand Avenue, Kansas City, MO 64108.
(5) Address: 515 West Wells, Milwaukee, WI 53201.
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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 that 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 same proportion as instructions for that Portfolio which are received
from persons having the voting interest in all of Fortis Benefits' separate
accounts investing in Fortis Series.
The Policy owners may give instructions regarding the election of the Board of
Directors of Fortis Series, ratification of the selection of its independent
auditors, the approval of the investment adviser of a Portfolio, changes in
fundamental investment policies of a Portfolio, and all other matters that are
put to a vote by Fortis Series shareholders.
Notwithstanding contrary Policy owner voting instructions, Fortis Benefits may
vote Portfolio shares in any manner necessary to enable any Portfolio to (1)
make or refrain from making any change in the investments or investment policies
of any Portfolio, if required by any insurance regulatory authority; (2) refrain
from making any change in the investment policies or any investment adviser or
principal underwriter of any Portfolio which may be initiated by Policy owners
or the Fortis Series Board of Directors, provided that Fortis Benefits
disapproval of the change is reasonable and, in the case of a change in
investment policies or investment adviser, based on a good faith determination
that such change would be contrary to state law or otherwise inappropriate in
light of the Portfolio's objective and purposes; or (3) enter into or refrain
from entering into any advisory agreement or underwriting contract, if required
by any insurance regulatory authority. If Fortis Benefits does disregard Policy
owner voting instructions, an explanation of this action and the reasons for it
will be included in the next semi-annual report to Policy owners.
REPORTS
Policy owners will receive promptly statements of significant transactions such
as changes in Face Amount, changes in death benefit option, transfers among
Subaccounts, partial withdrawals, Policy loans, loan repayments, termination for
any reason, reinstatement, premium payments (except for scheduled monthly
payments) and unpaid loan interest added to loan principal. These transactions
will also be summarized in an annual statement sent to the Policy owner. The
annual statement will be as of a date not more than 60 days prior to mailing,
and will also summarize the following other items: premiums paid by use of a
plan selected by the Policy owner authorizing monthly withdrawals of premiums
from the Policy owner's checking account, paycheck or government payment during
the annual period, deductions of charges occurring during that annual period,
and the status of the death
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benefit, Policy Value (both total and net of any Contingent Deferred Sales
Charge), amounts in the Subaccounts and General Account, and any Policy loan. In
addition, an owner will be sent semi-annual 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, Associate General Counsel of Fortis Benefits.
Messrs. Freedman, Levy, Kroll & Simonds, Washington, D.C., have advised Fortis
Benefits on certain federal securities law matters.
EXPERTS
The financial statements of Fortis Benefits Insurance Company and Fortis
Benefits Insurance Company Variable Account C appearing in this Prospectus have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
Actuarial matters included in this Prospectus have been examined by Renee C.
West, FSA, MAAA, Actuarial Officer, Individual Actuarial Department of Fortis
Benefits, as stated in her opinion filed as an exhibit to the registration
statement.
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.
39
<PAGE> 92
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.
[SIGNATURE]
Minneapolis, Minnesota
February 16, 1995
40
<PAGE> 93
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.
41
<PAGE> 94
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.
42
<PAGE> 95
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.
43
<PAGE> 96
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAINS ON
UNREALIZED ASSETS
ADDITIONAL GAINS HELD IN
COMMON PAID-IN RETAINED (LOSSES) ON SEPARATE
STOCK CAPITAL EARNINGS 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.
44
<PAGE> 97
STATEMENT OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1994 1993 1992
----------- ----------- -----------
<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.
45
<PAGE> 98
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
46
<PAGE> 99
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
47
<PAGE> 100
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
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.
48
<PAGE> 101
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.
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>
49
<PAGE> 102
4. INVESTMENTS (CONTINUED)
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.
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>
50
<PAGE> 103
4. INVESTMENTS (CONTINUED)
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.
51
<PAGE> 104
5. DEFERRED POLICY ACQUISITION COSTS
The changes in deferred policy acquisition costs by product were as follows
(in thousands):
<TABLE>
<CAPTION>
INTEREST
TRADITIONAL SENSITIVE AND ACCIDENT AND
LIFE INVESTMENT 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>
52
<PAGE> 105
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.
53
<PAGE> 106
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>
54
<PAGE> 107
8. FEDERAL INCOME TAXES (CONTINUED)
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>
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 5201
----------- ---------
$ 1,212,910 $ 975,637
=========== =========
</TABLE>
55
<PAGE> 108
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>
NET INCOME SHAREHOLDER'S 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>
56
<PAGE> 109
11. REINSURANCE (CONTINUED)
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.
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.
57
<PAGE> 110
14. FAIR VALUE DISCLOSURES (CONTINUED)
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>
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.
58
<PAGE> 111
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.
[SIGNATURE]
Minneapolis, Minnesota
March 24, 1995
59
<PAGE> 112
STATEMENT OF NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
DECEMBER 31, 1994
<TABLE>
<CAPTION>
GROWTH U.S. GOVT. MONEY ASSET DIVERSIFIED GLOBAL AGGRESSIVE GROWTH &
STOCK SECURITIES MARKET ALLOCATION INCOME GROWTH GROWTH INCOME HIGH YIELD
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO SERIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ---------- ---------- ----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <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)... $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
----------- ---------- ---------- ----------- ----------- ----------- ---------- ---------- ----------
71,580,527 7,129,989 4,225,618 16,483,814 3,189,335 21,333,481 2,288,670 1,256,238 1,735,443
Attributable to
Fortis Benefits
Insurance
Company........ 1,279,487 -- -- 667,902 -- 501,474 587,791 604,185 1,231,006
----------- ---------- ---------- ----------- ----------- ----------- ---------- ---------- ----------
Net assets for
variable life
insurance
policies....... $70,301,040 $7,129,989 $4,225,618 $15,815,912 $ 3,189,335 $20,832,007 $1,700,879 $ 652,053 $ 504,437
=========== ========== ========== =========== =========== =========== ========== ========== ==========
Accumulation
units
outstanding.... 4,345,216 545,205 343,687 1,073,015 235,648 1,692,124 172,983 62,693 50,920
=========== ========== ========== =========== =========== =========== ========== ========== ==========
Net asset value
for variable
life insurance
policies per
accumulation
unit........... $ 16.18 $ 13.08 $ 12.29 $ 14.74 $ 13.53 $ 12.31 $ 9.83 $ 10.40 $ 9.91
=========== ========== ========== =========== =========== =========== ========== ========== ==========
</TABLE>
See accompanying notes.
60
<PAGE> 113
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.
61
<PAGE> 114
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.
62
<PAGE> 115
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.
63
<PAGE> 116
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.
64
<PAGE> 117
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.
65
<PAGE> 118
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.
66
<PAGE> 119
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.
67
<PAGE> 120
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.
68
<PAGE> 121
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.
69
<PAGE> 122
1. GENERAL (CONTINUED)
- 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.
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
</TABLE>
70
<PAGE> 123
2. INVESTMENT IN FORTIS SERIES FUNDS, INC. (CONTINUED)
<TABLE>
<CAPTION>
SHARES
------------------- COST OF PROCEEDS
PURCHASED SOLD PURCHASES FROM SALES
---------- ------- ----------- -----------
<S> <C> <C> <C> <C>
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>
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
</TABLE>
71
<PAGE> 124
<TABLE>
<CAPTION>
COST OF
SHARES SHARES
--------- ---------
<S> <C> <C>
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, 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 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.
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.
72
<PAGE> 125
3. ORGANIZATIONAL EXPENSES AND OTHER CHARGES (CONTINUED)
- 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, VUL 500 and Survivor 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, VUL 500 and Survivor, 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 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. This surrender charge 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.
73
<PAGE> 126
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.
74
<PAGE> 127
PART II
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
Facing Sheet
Cross-Reference Table (Filed as part of Post-Effective Amendment No. 4
to this Registration Statement filed on April 29, 1988)
Prospectus dated May 1, 1995 and Prospectus supplement dated May 1, 2000
Undertaking to File Reports (filed as part of the initial filing of this
Registration Statement made on March 17, 1986)
Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933
(Filed as part of the initial filing of this Registration Statement made on
March 17, 1986)
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:
Kay M. Doughty, ASA, 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 effecting
the establishment of Variable Account C (Filed as part of the
initial filing of this Form S-6 Registration Statement made on
March 17, 1986)
(2) --Not applicable
(3) --(a) Distribution Agreement between Fortis Benefits and Fortis
Investors, Inc. (Incorporated by reference from Exhibit No. 3(a) to
Post-Effective Amendment No. 9 to registrant's Form S-6
registration statement, File No. 33-28551, filed April 29, 1994.)
--(b) Form of Dealer Sales Agreement. (Incorporated by reference
from Post-Effective Amendment No. 12 to registrant's Form N-4
registration statement, File No. 33-19421, filed December 22,
1994.)
--(c) Schedule of sales commissions (Incorporated by reference from
"Distribution of the Policies" in the attached prospectus)
(4) --Not applicable
(5) --(a) Specimen Flexible Premium Variable Life Insurance Policy
(Filed as part of Post-Effective Amendment No. 10 to this Form S-6
Registration Statement filed on March 2, 1992)
--(b) Form of Child Insurance Rider (Filed as part of Pre-Effective
Amendment No. 1 to this Registration Statement filed on November 5,
1986)
--(c) Form of Guaranteed Death Benefit rider and, for use in Texas,
revised form of Policy with guaranteed death benefit feature (Filed
as part of Post-Effective Amendment No. 5 to this Registration
Statement filed on March 1, 1989)
--(d) Form of Waiver of Monthly Deductions Rider (Incorporated by
reference from Pre-Effective Amendment No. 1 to registrant's Form
S-6 Registration Statement (File No. 33-28551) filed on August 18,
1989)
<PAGE> 128
--(e) Endorsement pertaining to initial allocation to General
Account and revised limits on withdrawals and reductions in face
amount (Filed as part of Post-Effective Amendment No. 8 to this
Registration Statement filed on April 30, 1990)
--(f) Forms of Accelerated Death Benefit Rider and Extend Maturity
Date Rider. (Incorporated by reference from Exhibit No. 5(f) to
Post-Effective Amendment No. 9 to registrant's Form S-6
registration statement, File No. 33-28551, filed April 29, 1994.)
(6) --(a) Articles of Incorporation of Fortis Benefits (Filed as part
of the initial filing of this Form S-6 Registration Statement made
on March 17, 1986)
--(b) Bylaws of Fortis Benefits (Filed as part of the initial
filing of this Form S-6 Registration Statement made on March 17,
1986)
--(c) Amendment to Articles and Bylaws dated November 21, 1991
(Filed as part of Post-Effective Amendment No. 10 to this Form S-6
Registration Statement filed on March 2, 1992)
--(d) Amendment to Bylaws dated May 1, 1999 (Incorporated by
reference from Exhibit 3(d) to Form 10-K filing, No. 33-46620,
filed March 27, 2000).
(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
Post-Effective Amendment No. 10 to this Form S-6 Registration
Statement filed on March 2, 1992)
--(b) Policy Change Application, Transfer Request Form, and Change
of Premium Allocation Form (Filed as part of Post-Effective
Amendment No. 10 to this Form S-6 Registration Statement 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 Post-Effective Amendment No. 7 to this
Registration Statement filed on March 1, 1990)
4. --Not applicable
5. --Not applicable
6. --(a) Opinion and consent of actuary (Filed as part of Post-Effective
Amendment No. 8 to this Registration Statement filed on April 30, 1990)
--(b) Supplemental Opinion and Consent of Actuary.
7. --Forms of Notice of Cancellation Right and Request for Cancellation
pursuant to Rule 6e-3(T)(b)(13)(viii) under the Investment Company Act of
1940. (Filed as part of Post-Effective Amendment No. 10 to this Form S-6
Registration Statement filed on March 2, 1992)
8. --Method of Computing Exchange pursuant to Rule 6e-3(T)(b)(13)(v)(B) under
the Investment Company Act of 1940 (not required because there will be no
cash value adjustments in connection with the right to transfer Policy
Value to the General Account, which Registrant intends to satisfy the
requirements of said provision)
9. --Not applicable
10. --(a) Memorandum of Certain Procedures with Respect to Pricing and
Processing of Transactions Pursuant to Rule 6e-3(T)(b)(12)(iii) (Filed as
part of Post-Effective Amendment No. 6 to this Registration Statement
filed on April 28, 1989)
--(b) Supplemental Memorandum in connection with Exhibit 10(a) (Filed as
part of Post-Effective Amendment No. 7 to this Registration Statement
filed on March 1, 1990)
11. -- Power of Attorney for Messrs. Freedman, Gaddy, Mackin, Keller, Clayton,
Mahoney, Clancy, Meler, and Greiter (Incorporated by reference from
Exhibit No. 11 to registrant's Form S-6 Registration Statement, File
No. 33-73138, filed December 17, 1993.
12. --Not applicable
<PAGE> 129
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
17th day of April, 2000. 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 17, 2000.
/s/ Robert Brian Pollock
- --------------------------------------------
Robert Brian Pollock, President and Director
(Chief Executive Officer)
/s/ Larry M. Cains
- --------------------------------------------
Larry M. Cains, Treasurer
/s/ Dean Conrad Kopperud
- --------------------------------------------
Dean Conrad Kopperud, Director
*
- --------------------------------------------
Allen Royal Freedman, Chairman of the Board
*
- --------------------------------------------
J. Kerry Clayton, Director
*
- --------------------------------------------
Arie Aristide Fakkert, Director
*By: /s/ Robert Brian Pollock
---------------------------------------
Robert Brian Pollock, Attorney-in-Fact
<PAGE> 130
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 17th day of April, 2000.
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> 131
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Experts" and
"Independent Auditors" and to the use of our reports dated February 17, 2000 and
February 16, 1995 on the financial statements of Fortis Benefits Insurance
Company and our reports dated March 29, 2000 and March 24, 1995 on the financial
statements of Fortis Benefits Insurance Company Variable Accounts C (Account C)
in Post-Effective Amendment No. 22 to the Registration Statement (Form S-6 No.
33-03919) and related Prospectus of Fortis Benefits Insurance Company for the
registration of flexible premium variable live insurance policies.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 27, 2000
<PAGE> 132
Index to Exhibits
6(b) Supplemental Opinion and Consent of Actuary
<PAGE> 1
EXHIBIT 6(B)
April 17, 2000
Fortis Benefits Insurance Company
P.O. Box 64271
St. Paul, Minnesota 55164
Gentlemen:
This opinion is furnished in connection with the offering by Fortis Benefits
Insurance Company of a Flexible Premium Variable Life Insurance Policy
("Policy"), under the securities Act of 1933. The prospectus included in our
registration statement on Form S-6 describes the Policy. I have reviewed the
Policy Form and I am familiar with the amended registration statement, and the
exhibits thereto, as proposed to be filed.
1. The hypothetical illustrations of the Policy values, cash surrender
values, and death benefits included in the prospectus are based on
assumptions stated in the illustrations and are consistent with the
provisions of the Policy.
2. The Policy has not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations, appear
disproportionately more favorable to a prospective purchaser of a
Policy for a standard risk non-smoker male age 35, than to a
prospective purchaser of Policies for males of other ages or
underwriting classes, or for females. Nor have the particular
examples set forth in the illustrations been selected for the purpose
of making this relationship appear more favorable.
I hereby consent to the use of this opinion as an exhibit to the amended
registration statement and to the use of my name under the heading of "Experts"
in the prospectus.
Sincerely,
/s/ Kay M. Doughty
Kay M. Doughty, ASA, MAAA
Staff Actuary
Fortis Benefits Insurance Company
