<PAGE> 1
As filed with the Securities and Exchange Commission on April 27, 2000
Registration No. 33-65243
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
-----------------------------------
Post-Effective Amendment No. 4
to
FORM S-6
Registration Statement
Under
THE SECURITIES ACT OF 1933
-----------------------------------
VARIABLE ACCOUNT C
OF FORTIS BENEFITS INSURANCE COMPANY
(Exact name of trust)
FORTIS BENEFITS INSURANCE COMPANY
(formerly Western Life Insurance Company)
(Name of Depositor)
500 Bielenberg Drive
Woodbury, Minnesota 55125
(Complete address of depositor's principal executive offices)
---------------------------------------
RHONDA J. SCHWARTZ, ESQ.
P. O. Box 64284
St. Paul, Minnesota 55164
(Name and complete address of agent for service)
---------------------------------------
Securities Registered: Interests in Variable Account C pursuant to variable
life insurance policies
It is proposed that this filing will become effective (check appropriate line):
Immediately upon filing pursuant to paragraph (b) of Rule 485.
-----
X On May 1, 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.
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-----------------------------------
An indefinite amount of the securities being offered has been registered
pursuant to a declaration under Rule 24f-2 under the Investment Company Act of
1940, set out in the Form S-6 Registration Statement contained in File No. 33-
03919. The registrant filed its Rule 24f-2 notice for the year ended December
31, 1999 on March 28, 2000.
<PAGE> 2
[FORTIS Solid partners, flexible solutionsSM LOGO]
FORTIS WALL STREET SERIES SURVIVOR VUL PROSPECTUS
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE
POLICIES (THE "POLICIES")
ISSUED BY
FORTIS BENEFITS INSURANCE COMPANY ("FORTIS")
<TABLE>
<CAPTION>
HOME OFFICE:
<S> <C> <C>
Mailing Address: Street Address: Telephone:
P.O. Box 64284 500 Bielenberg Drive (800) 800-2000
St. Paul, MN 55164 Woodbury, MN 55125 Ext. 3028
</TABLE>
The flexible premium Survivorship variable life insurance Policies offered by
this Prospectus are issued by Fortis Benefits Insurance Company. The Policies
are designed to
- - provide lifetime insurance coverage on the joint lives of the insureds named
in the Policies
- - allow flexibility in premium payments and death benefits
- - give you several variable investment options from which to choose
The Policy provides for a death benefit payable upon the death of the
second to die of the two insureds (the "surviving insured"). There is no benefit
payable on the death of the first insured to die.
Other choices you have. During the lifetime of the surviving insured, you
can also (1) change the amount of insurance, (2) borrow or withdraw amounts you
have in our investment options, (3) choose, within limits, when and how much you
invest, and (4) choose whether the amounts you have in our investment options
will, upon the death of the surviving insured, be added to the insurance
proceeds we otherwise will pay to the beneficiary.
Charges and Expenses. We deduct charges and expenses from the amounts you
invest. These are described beginning on page 6.
Right to Return. If for any reason you are not satisfied with your Policy,
you may return it to us for a full refund. To exercise your right to return your
Policy, you must mail it directly to the Home Office address shown above or
return it to the Fortis representative through whom you purchased the Policy
within 10 days after you receive it. In a few states, this period may be longer.
Because you have this right, we will invest your initial premium payment in the
Fortis general account for 20 days following the date the Policy is mailed to
you. Then we will automatically allocate your investment among the investment
options shown on page 3, as you have chosen. Any additional premium we receive
during the 20-day period will also be invested in the general account option and
allocated to your chosen investment options at the same time as your initial
premium.
THE POLICIES ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE NOT
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED. THEY ARE
SUBJECT TO INVESTMENT RISKS AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS BOOKLET IS CALLED A "PROSPECTUS." ITS DATE IS MAY 1, 2000.
[FORTIS LOGO] and Fortis(SM) are registered servicemarks of Fortis (NL) NV and
Fortis (B).
98350 (5/00)
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Guide to this Prospectus.................................... 3
Basic Questions You May Have................................ 4
- What are my investment options?...................... 4
- How can I invest money in a Policy?.................. 4
- How will the value of my investment in a Policy
change over time?..................................... 5
- What is the basic amount of insurance ("death
benefit") that Fortis pays
when the insured dies?............................... 6
- What charges will Fortis deduct from my investment in
the Policy?........................................... 7
- What charges and expenses will the Funds deduct from
amounts I invest
through my Policy?................................... 9
- Must I invest any minimum amount in a Policy?........ 10
- How can I change my Policy's investment options?..... 11
- How can I change my Policy's insurance coverage?..... 11
- What additional rider benefits might I select?....... 12
- How can I access my policy value?.................... 13
- Can I choose the form in which Fortis pays out the
proceeds from my Policy?.............................. 14
- To what extent can Fortis vary the terms and
conditions of the Policies in particular cases?....... 15
- How will my Policy be treated for income tax
purposes?............................................. 15
- How do I communicate with Fortis?.................... 16
Illustrations of Hypothetical Policy Benefits............... 17
Additional Information...................................... 22
- Fortis Benefits/Fortis Financial Group............... 22
- The Separate Account................................. 22
- Tax Effects.......................................... 22
- Voting Privileges.................................... 26
- Your Beneficiary..................................... 26
- Assigning Your Policy................................ 26
- More About Policy Charges............................ 27
- Effective Date of Policy and Related Transactions.... 28
- More About Our General Account Option................ 29
- Distribution of the Policies......................... 29
- Payment of Policy Proceeds........................... 30
- Adjustments to Death Benefit......................... 31
- Additional Rights That We Have....................... 31
- Performance Information.............................. 31
- Our Reports to Policy Owners......................... 32
- Fortis Management.................................... 32
- Legal Matters........................................ 33
- Independent Auditors................................. 33
- Actuarial Experts.................................... 33
- Financial Statements................................. 33
Index of Words and Phrases.................................. 34
</TABLE>
<PAGE> 4
GUIDE TO THIS PROSPECTUS
Basic Information. This prospectus contains information that you should
know before you purchase a survivorship variable universal life policy
("Policy") or exercise any of your rights under a Policy.
Illustrations of a hypothetical policy. Starting on page 16, we have
included some illustrations of how the values of a hypothetical Policy would
change over time, based on certain assumptions we have made. Because your
circumstances may vary considerably from our assumptions, your Fortis
representative will also provide you with a similar hypothetical illustration
that is more tailored to your own circumstances and wishes.
Additional information. You may find the answers to other questions you
have under "Additional Information" beginning on page 21, or in the forms of our
Policy and riders. A table of contents for the "Additional Information" portion
of this prospectus also appears on page 21. You can obtain copies of our Policy
and rider forms from (and direct any other questions to) your Fortis
representative or our Home Office (see page 1).
Fortis' financial statements. We have included our financial statements in
this prospectus. These begin on page 32.
Special words and phrases. If you want more information about any words or
phrases that you read in this prospectus, you may wish to refer to the Index of
Words and Phrases that appears at the end of this prospectus (page 33). That
index will tell you on what page you can read more about many of the words and
phrases that we use.
3
<PAGE> 5
BASIC QUESTIONS YOU MAY HAVE
WHAT ARE MY INVESTMENT OPTIONS?
You can invest in any of the following variable investment options. You may
change your selections from time to time:
<TABLE>
<CAPTION>
DOMESTIC STOCK
--------------
<S> <C>
Small Cap Fortis-Aggressive Growth Series
Berger-Small Cap Value Series
Mid Cap Fortis-Growth Stock Series
Dreyfus-Mid Cap Stock Series
MFS-Investors Growth Series
Large Cap Alliance-Large Cap Growth Series
T. Rowe Price-Blue Chip Stock
Series
Dreyfus-S&P 500 Index Series
Fortis-Growth & Income Series
Fortis-Value Series
Fortis-Asset Allocation Series
Federated-American Lenders Series
MFS-Capital Opportunities Series
AIM-Blue Chip Stock Series II
<CAPTION>
INTERNATIONAL STOCK
-------------------
Lazard Freres-International Stock Series
Fortis-Global Growth Series
Morgan Stanley-Global Asset Allocation
Series
MFS-Global Equity Series
<CAPTION>
DOMESTIC BONDS
--------------
<S> <C>
Fortis-High Yield Series
Fortis-Diversified Income Series
Fortis-U.S. Gov't Securities Series
<CAPTION>
CASH
----
<S> <C>
Fortis-Money Market Series
<CAPTION>
INTERNATIONAL BONDS
-------------------
<S> <C>
<S> <C>
AIM-Multisector Bond Series
</TABLE>
The FBIC general account is the fixed rate investment option for these Policies.
A SEPARATE PROSPECTUS CONTAINS MORE INFORMATION ABOUT THE FORTIS SERIES FUND,
INC. ("FUND" OR "FUNDS") IN WHICH WE INVEST THE AMOUNT THAT YOU ALLOCATE TO ANY
OF THE ABOVE-LISTED VARIABLE INVESTMENT OPTIONS. YOUR INVESTMENT RESULTS IN ANY
SUCH OPTION WILL DEPEND ON THOSE OF THE RELATED FUND. THEREFORE, YOU SHOULD BE
SURE YOU ALSO READ THE FUND PROSPECTUS FOR ANY SUCH INVESTMENT OPTION YOU MAY BE
INTERESTED IN.
HOW CAN I INVEST MONEY IN A POLICY?
Premium payments. We call the investments you make in a Policy "premiums."
The amount we recommend as your first premium varies depending on the specifics
of your Policy and the insureds. We can refuse to accept a subsequent premium
payment that is less than $25.00. (Policies issued in some states or automatic
premium payment plans may have different minimums.) Otherwise, with a few
exceptions mentioned below, you can make premium payments at any time and in any
amount.
Recommended monthly minimum premium. We will recommend a monthly minimum
premium to you in your Policy. This monthly minimum premium is the estimated
monthly premium payment which would keep your Policy (or benefit change) in
force for the period of the death benefit guarantee period. We base our estimate
on (1) the insureds' age, sex, and smoking habits and (2) reasonable assumptions
for interest, cost of insurance, and other charges.
Limits of premium payments. Federal tax law limits your ability to make
certain very large amounts of premium payments (relative to the amount of your
Policy's insurance coverage) and may impose penalties on amounts you take out of
your Policy if you do not observe certain additional requirements. These tax law
requirements are summarized further under "Tax Effects" beginning on page 21. We
will monitor your premium payments to be sure that you do not exceed permitted
amounts or inadvertently incur any tax penalties. We reserve the right to impose
additional limits on the number or amount of premium payments. We currently have
no intention of imposing such limits, except when the persons insured do not
provide us with adequate evidence that they continue to meet our requirements
for issuing insurance.
Ways to pay premiums. Premiums must be by check or money order drawn on a
U.S. bank in U.S. dollars and made payable to "Fortis Benefits Insurance
Company." Premiums after the first premium must be sent directly to our Home
Office at the appropriate address shown on page 1. We also accept premium
payments by bank draft, wire, or by exchange from another insurance company. You
may obtain further information about how to make premium payments by any of
these methods from your Fortis representative or from our Home Office. Premium
payments from salary deduction plans may be made only if we agree.
4
<PAGE> 6
Dollar cost averaging. Dollar cost averaging is an investment strategy
designed to reduce the risks that result from market fluctuations. The strategy
spreads the allocation of your policy value over a period of time. This allows
you to reduce the risk of investing most of your funds at a time when prices are
high. The success of this strategy depends on market trends and your fund
choices, and is not guaranteed.
Under dollar cost averaging, we automatically make regular, periodic
transfers of your policy value from one investment option to one or more of the
other investment options that you choose. We make these transfers at the end of
the first day of each month. You cannot participate in dollar cost averaging
while also using automatic rebalancing (discussed below). Dollar cost averaging
ceases upon your request, or if your policy value in the option being
transferred from becomes exhausted.
Automatic rebalancing (Privileged Account Service). Privileged Account
Service is an investment strategy which recognizes that different investment
sectors perform relatively better at different times. The strategy periodically
examines your investment mix and adjusts it to maintain proportions you specify.
This is intended to increase your chance of realizing a gain on a fund that
shows a sudden improvement in performance. The success of this strategy depends
on market trends (and your fund choices) and is not guaranteed.
Under Privileged Account Service, we automatically rebalance the proportion
of your policy value in each investment option you specify. You tell us whether
you want us to do the rebalancing quarterly, semi-annually, or annually. We
rebalance on a calendar year basis. Over time, the differing investment results
of each investment option will shift the percentage allocations of your policy
value. The rebalancing feature will automatically transfer your policy value
among the subaccounts back to the preset percentages you have selected. You
cannot participate in this program while also participating in dollar cost
averaging (discussed above). Rebalancing terminates upon your request.
HOW WILL THE VALUE OF MY INVESTMENT IN A POLICY CHANGE OVER TIME?
Your policy value. From each premium payment you make, we may deduct the
charges that we describe beginning on page 6, under "Deductions from each
premium payment." We invest the rest in one or more of the investment options
listed on page 3 according to your instructions. We call the amount that is at
any time invested under your Policy, your "policy value."
Premium Based Bonuses and Policy Value Bonuses. Where allowed by state law
requirements, bonus amounts will be paid by Fortis into your policy value as
follows:
A premium based bonus will be paid on the last day of the seventh and each
year following the date the Policy is issued. The amount of the bonus is a
percentage of the lesser of (a) or (b), the result divided by the number of
years the Policy has been in force where:
(a) is the sum of all premiums paid less any withdrawals and loans; and
(b) is the sum of all maximum bonus premiums to date. The "Annual Maximum
Bonus Premium" is set out in the Policy schedule pages.
The current percentages are as follows:
Current Premium Based Bonus Percentages
<TABLE>
<CAPTION>
END OF POLICY
YEAR 9 AND LATER TO
----------------- ORIGINAL MATURITY
AGE OF YOUNGER INSURED AT ISSUE 0-6 7 8 DATE OF POLICY
- ------------------------------- --- - - -----------------
<S> <C> <C> <C> <C>
18-50...................... 0% 2% 2% 4%
51-60...................... 0 2 4 7
61-70...................... 0 5 7 10
71-85...................... 0 5 5 5
</TABLE>
5
<PAGE> 7
A policy value based bonus will be paid into the policy on each monthly
anniversary after all
charges are deducted, at an annual rate, as set forth below:
ANNUAL RATE OF POLICY VALUE BONUSES AS A PERCENT OF CASH VALUE
<TABLE>
<CAPTION>
OPTION A ANNUAL BONUSES OPTION B ANNUAL BONUSES
------------------------------------ ------------------------------------
SURRENDER VALUE BAND 1 BAND 2 BAND 3 BAND 4 BAND 1 BAND 2 BAND 3 BAND 4
--------------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0-$9,999................................... 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
$10,000-$49,999............................. 0.00% 0.00% 0.05% 0.05% 0.30% 0.30% 0.35% 0.35%
$50,000-$99,999............................. 0.05% 0.05% 0.10% 0.10% 0.35% 0.35% 0.40% 0.40%
$100,000 +.................................. 0.10% 0.10% 0.15% 0.20% 0.40% 0.40% 0.45% 0.50%
</TABLE>
If the death benefit option is changed the rate is computed using the
weighted average of the rates based on the number of months each death benefit
option has been in effect.
The policy band is determined by the face amount of the Policy as follows:
<TABLE>
<CAPTION>
FACE AMOUNT OF POLICY POLICY BAND
--------------------- -----------
<S> <C>
$5 million or more.......................... Band 4
$1 million up to $5 million................. Band 3
$500,000 up to $1 million................... Band 2
Less than $500,000.......................... Band 1
</TABLE>
For purposes of calculating the policy value bonus percentage, the band
will be determined using the average face amount of the policy from the time it
was issued to the time of the bonus. For example, if the Policy had a face
amount of $1 million for 18 months, $500,000 for 60 months, and $2 million for 6
months, the Policy has an average face amount of (18 X $1,000,000) + (60 X
$500,000) + (6 X $2,000,000) / 84 = $714,285, a Band 2 Policy.
We also intend to add .35% to the annual rates shown above for policy value
bonuses after the 19th Policy year. This increase is not guaranteed. If paid,
however, it would substantially offset any daily charge for premium taxes and
sales charges that is then being made.
Your investment options. We invest the policy value that you have
allocated to any investment option (except our general account option) in shares
of a Fund that follows investment practices, policies and objectives that are
appropriate to that option. Over time, your policy value in any investment
option will increase or decrease by the same amount as if you had invested in
the related Fund's shares directly (and reinvested all dividends and
distributions from the Fund in additional Fund shares); except that your policy
value will be reduced by certain charges that we deduct. We describe these
charges beginning on page 6, under "What charges will Fortis deduct from my
investment in the Policy?"
Other important information about the Funds that you can choose is included
in the separate prospectus for those Funds. This includes information about the
investment performance that each Fund's investment manager has achieved.
Additional free copies of the Fund prospectus are available from your Fortis
representative or from our Home Office.
We invest any value you have allocated to our general account option as
part of our general assets. We credit a fixed rate of interest on that policy
value, which we declare from time to time. We guarantee that this will be at an
effective annual rate of at least 4%. Although this interest increases the
amount of any policy value that you have in our general account option, such
policy value will also be reduced by any charges that are allocated to this
option under the procedures described under "Allocation of charges" on page 8.
Policies are "non-participating." The Policies are not "participating."
Therefore, you will not be entitled to any dividends from Fortis.
WHAT IS THE BASIC AMOUNT OF INSURANCE ("DEATH BENEFIT") THAT FORTIS PAYS WHEN
THE SURVIVING INSURED PERSON DIES?
Your face amount of insurance. In your application to buy a Policy, you
will tell us how much life insurance coverage you want. We call this the "face
amount" of insurance. The minimum face amount of insurance is $100,000.
Your death benefit. The basic death benefit we will pay is reduced by any
outstanding loans. You choose whether the basic death benefit is
6
<PAGE> 8
- Option A - The face amount on the date of the surviving insured's death
- Option B - The face amount plus the policy value on the date of death of
the surviving insured.
Under Option B, your death benefit will tend to be higher than under Option A.
However, the monthly insurance charge we deduct will also be higher to
compensate us for our additional risk. Because of this, your policy value will
tend to be higher under Option A than under Option B. Please read "How can I
change my Policy's insurance coverage" on page 11 of this prospectus to learn
about how to change your death option.
We will automatically pay an alternative basic death benefit, if it is
higher than the basic Option A or Option B death benefit (whichever you have
selected).
The alternative basic death benefit is computed by multiplying your policy
value on the date of death of the surviving insured by the applicable percentage
shown below:
<TABLE>
<CAPTION>
AGE OF
SURVIVING INSURED APPLICABLE PERCENTAGE OF
AT DEATH POLICY VALUE
- ----------------- ------------------------
<S> <C>
40 or less 250%
45 215%
50 185%
55 150%
60 130%
65 120%
70 115%
75 105%
80 105%
85 105%
90 105%
95+ 100%
</TABLE>
For ages not listed, the progression between the listed ages is constant.
We reserve the right to increase the death benefit, limit a face decrease,
return premium or send you a withdrawal of policy value, to make sure the Policy
qualifies as life insurance.
Benefit at Maturity. The Policy matures on the date the younger insured
reaches, or would have reached age 100. When the Policy matures, the policy
value, less the amount of any loan, will be paid to you and the Policy will
terminate.
If allowed by the state in which the Policy is issued, you may request a
later maturity date. This request must be made in writing within 60 days prior
to the current maturity date. If a later maturity date is established, the
following limitations are imposed:
1) No further premium payments are allowed except to prevent lapse of the
Policy;
2) All supplemental riders except the Accelerated Benefit rider terminate;
3) No further premium-based bonuses or policy value bonuses are credited,
and outstanding policy loans will be charged the reduced interest rate
of 3.85%;
4) The death benefit becomes the alternative death benefit described above;
5) No face amount increases or death benefit option changes will be
allowed; and
6) No partial withdrawal will be allowed if it would reduce the policy
value below $2,000.
Extension of the maturity date beyond the younger insured's age 100 may
result in current taxation of increases in your policy value. You should consult
a qualified tax adviser before making such an extension.
WHAT CHARGES WILL FORTIS DEDUCT FROM MY INVESTMENT IN A POLICY?
Premium tax and sales expense charges. There is currently a premium tax
charge of 2.2% of all premium payments. We reserve the right to raise this
charge to 3.0%. There is also a sales charge of 9% of all premium payments.
These charges are assessed through monthly and daily charges as follows: We make
a monthly deduction of $4.00 per Policy, and a daily deduction at an annual rate
of .35% of the policy value that is then invested in any of the investment
options (other than the general account option).
These monthly and daily deductions, however, will be waived to the extent
that the cumulative amount of all such deductions would exceed 11.2% of premiums
paid (or 12% if the premium tax charge was raised to its 3% maximum).
Any premium tax and sales expense charges not recovered through periodic
deductions or premium charges are deducted, if at all, only as part of the
surrender charge discussed below.
7
<PAGE> 9
Deductions from each premium payments. While we don't currently have plans
to do so, we reserve the right to deduct up to 5% as a sales charge and up to
2.5% as a premium tax charge directly from premium payments rather than through
periodic deductions. In that case, the charges recoverable through periodic
deductions would be reduced by at least the amount deducted directly from
premiums.
Daily charge for mortality and expense risks we assume. We make a daily
deduction at an annual effective rate of 1.00% of your policy value that is then
invested in any of the investment options (other than the general account).
Monthly Policy issuance expense charges. We will make a monthly deduction
at the rates set out below for the first ten years after the Policy is issued.
<TABLE>
<CAPTION>
MONTHLY RATE PER
$1,000 OF FACE AMOUNT
---------------------
<S> <C>
Band 1 .10
Band 2 .08
Band 3 .05
Band 4 .03
</TABLE>
The band is determined by the face amount of the Policy. See "Premium Based
Bonuses and Policy Value Bonuses" on page 5.
This charge will also be imposed for ten years following any requested
increase in face amount. The charge will be based on the dollar amount of the
face increase and the Policy's band immediately following the increase.
If a Policy is surrendered or lapses within ten years after issuance or a
face amount increase, any remaining Policy issuance expense charge will be
deducted as part of the surrender charge.
Monthly Administrative Charge. We will deduct $6.00 per month from your
policy value. Also, we have the right to raise this charge at any time to not
more than $7.50 per month. While we do not currently do so, we also reserve the
right to impose an additional monthly charge of up to $.13 per thousand dollars
of face amount then in force. This charge is designed to compensate us for the
continuing administrative functions we perform in connection with the Policies.
Monthly insurance charge. Every month we will deduct from your policy
value a charge based on the cost of insurance rates applicable to your Policy on
the date of the deduction and our "amount at risk" on that date. Our amount at
risk is the difference between (a) the death benefit divided by 1.00327374, at
the beginning of the Policy month and (b) the total policy value at the
beginning of the Policy month. For otherwise identical Policies, a greater
amount at risk results in a higher monthly insurance charge.
For otherwise identical Policies, a higher cost of insurance rate also
results in a higher monthly insurance charge. Our cost of insurance rates are
guaranteed not to exceed those specified in your Policy. Our current rates are
lower for insured persons in most age and risk classes, although we have the
right at any time to raise these rates to not more than the guaranteed maximum.
In general, our cost of insurance rates increase with the age of each joint
insured. Therefore, the longer you own your Policy, the higher the cost of
insurance rate will be.
Similarly, our current cost of insurance rates are generally lower for
non-smokers than smokers. Insured persons who present particular health,
occupational or avocational risks may be charged higher cost of insurance rates.
Additional level amounts per thousand dollars of face amount may be charged in
such cases.
Guarantee death benefit charge. There is no charge for the first 10 years
of the guaranteed death benefit. If you select a longer guarantee period there
is a monthly charge for the rest of the guarantee period as follows:
1) $.02 per thousand of face amount in effect under the Policy and any
riders for the 20 year guarantee period.
2) $.04 per thousand of face amount in effect under the Policy and any
riders for the guarantee period which lasts until age 85 of the younger
insured.
See "Recommended monthly minimum premiums for the Guaranteed Death Benefit"
on page 10 for further information about the guaranteed death benefit.
Additional benefit riders charge. We will deduct charges monthly from your
policy value, if you select certain additional benefit riders. These are
described beginning on page 11, under "What additional rider benefits might I
select?"
Surrender charge. The Policies have a surrender charge that applies for
the first 10 Policy years (and the first 10 years after any
8
<PAGE> 10
requested increase in the Policy's face amount).
This charge is imposed when the Policy is surrendered or lapsed.
The surrender charge is (1) any of the Policy issuance expense charge that
has not yet been recovered, and (2) any of the premium tax and sales expense
charges that have not deducted through periodic deductions or deductions from
premiums.
The entire surrender charge is subject to an overall upper limit as set
forth in the table below. The table also shows the amount by which the limit is
increased by a face amount increase which you request. The amount of the
surrender charge limit depends on the face amount and the adjusted age of the
insureds as follows.
<TABLE>
<CAPTION>
OVERALL "CAP" AS
SURRENDER CHARGE (PER
ADJUSTED AGE AT TIME THOUSAND DOLLARS OF
OF POLICY ISSUANCE OR FACE AMOUNT OR
FACE AMOUNT INCREASE FACE AMOUNT INCREASE)
--------------------- ---------------------
<S> <C>
18-24 1.90
25-29 3.30
30-34 4.50
35-39 6.00
40-44 8.25
45-49 10.75
50-54 14.25
55-59 19.00
60-64 25.20
65-69 33.60
70-85 41.00
</TABLE>
The adjusted age is the age of the younger joint insured plus 1/3 of the
lesser of (a) the difference in age between the younger and older insured or (b)
20. If both insureds are over age 80, the cap per thousand is $33.
Any amount of surrender charge decreases automatically by a constant amount
each year of its 10 year period referred to above until, in the eleventh year,
it is zero.
Transaction fee. We reserve the right to charge transaction fee of up to
$25 for each partial withdrawal and transfer of policy value, although we have
no current plans to do so.
Charge for taxes. We can charge you in the future for taxes we incur or
reserves we set aside for taxes in connection with your Policy. This charge
would reduce the investment experience of your policy value.
Allocation of charges. You may choose from which of your investment
options we deduct all monthly charges. If you do not specify a choice, or if you
do not have enough policy value in any investment option to comply with your
selection, we will deduct these charges in proportion to the amount of value you
then have in each investment option. Daily asset-based charges will always be
taken in proportion to the values in your variable investment options.
WHAT CHARGES AND EXPENSES WILL THE FUNDS DEDUCT FROM AMOUNTS I INVEST THROUGH MY
POLICY?
The Fund pays its investment management fees and other operating expenses.
Because they reduce the investment return of a Fund, these fees and expenses
also will reduce indirectly the return you will earn on any value that you have
invested in that Fund. These charges and expenses for 1999 were as follows:
PORTFOLIO ANNUAL EXPENSES (a)
<TABLE>
<CAPTION>
U.S.
MONEY GOVERNMENT DIVERSIFIED MULTI SECTOR GLOBAL ASSET ASSET AMERICAN
MARKET SECURITIES INCOME BOND HIGH YIELD ALLOCATION ALLOCATION LEADERS
SERIES SERIES SERIES SERIES(B) SERIES SERIES SERIES SERIES(C)
------ ---------- ----------- ------------ ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment and
Management
Fee................ 0.30% 0.47% 0.47% 0.75% 0.50% 0.90% 0.47% 0.90%
Other Expenses....... 0.05% 0.05% 0.07% 0.15% 0.07% 0.12% 0.05% 0.35%
Total Fortis Series
Operating
Expenses........... 0.35% 0.52% 0.54% 0.90% 0.57% 1.02% 0.52% 1.25%
<CAPTION>
CAPITAL GROWTH & S&P 500
VALUE OPPORTUNITIES INCOME INDEX
SERIES SERIES(C) SERIES SERIES
------ ------------- -------- -------
<S> <C> <C> <C> <C>
Investment and
Management
Fee................ 0.70% 0.90% 0.63% 0.40%
Other Expenses....... 0.08% 0.35% 0.06% 0.06%
Total Fortis Series
Operating
Expenses........... 0.78% 1.25% 0.69% 0.46%
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
LARGE
BLUE CHIP INTERNATIONAL GLOBAL GLOBAL CAP
BLUE CHIP STOCK STOCK MID CAP SMALL CAP GROWTH EQUITY GROWTH
STOCK SERIES SERIES II(C) SERIES STOCK SERIES VALUE SERIES SERIES SERIES(C) SERIES
------------ ------------ ------------- ------------ ------------ ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment and
Management Fee...... 0.87% 0.95% 0.84% 0.90% 0.90% 0.70% 1.00% 0.90%
Other Expenses........ 0.05% 0.35% 0.10% 0.28% 0.14% 0.07% 0.35% 0.07%
Total Fortis Series
Operating
Expenses............ 0.92% 1.30% 0.94% 1.18% 1.04% 0.77% 1.35% 0.97%
<CAPTION>
INVESTORS GROWTH AGGRESSIVE
GROWTH STOCK GROWTH
SERIES(C) SERIES SERIES
--------- ------ ----------
<S> <C> <C> <C>
Investment and
Management Fee...... 0.90% 0.61% 0.66%
Other Expenses........ 0.35% 0.05% 0.06%
Total Fortis Series
Operating
Expenses............ 1.25% 0.66% 0.72%
</TABLE>
- ------------------------------
(a) As a percentage of Series average net assets based on 1999 historical data,
except for that American Leaders, Capital Opportunities, Blue Chip Stock
Series II, Global Equity and Investors Growth, the 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
shall and assets as the Global Bond Series.
(c) Expense estimate for current year.
MUST I INVEST ANY MINIMUM AMOUNT IN A POLICY?
Planned periodic premiums. Your Policy will specify a "Planned Periodic
Premium." This is the amount that you (within limits) choose to have us bill
you. Our current practice is to bill quarterly, semi-annually or annually. You
may also set up a monthly automatic bank draft. However, payment of these or any
other specific amounts of premiums is not mandatory. You need to invest only
enough to ensure either that your Policy's cash value stays above zero ("cash
value" is the policy value less any outstanding loans, plus any loan interest
paid for future periods). The less you invest, the more likely it is that your
Policy's cash value could fall to zero, as a result of the deductions we
periodically make from your policy value.
Policy lapse and reinstatement. If your cash value does fall to zero, we
will notify you and give you a grace period of 61 days to pay at least the
amount we estimate is necessary to keep your Policy in force until the end of
the grace period. If we don't receive your payment by the end of the grace
period, your Policy and all riders will terminate without value, and all
coverage under your Policy will cease. (The only exception is if the guarantee
is in effect that is described below under "Recommended monthly minimum premiums
for the Guaranteed Death Benefit." Although you can apply to have your Policy
"reinstated" you must do this within 5 years, and you must present evidence that
the insured person still meets our requirements for issuing coverage. Also, you
would have to pay a premium sufficient to (a) pay any due and unpaid charges
through the end of the grace period and (b) keep the Policy in force for two
months following the date of reinstatement. The amount required would include
any increase in the surrender charge attributable to such premium. In the Policy
form itself, you will find additional information about the values and terms of
a Policy after it is reinstated.
Recommended monthly minimum premiums for the guaranteed death benefit. The
Policy specifies an "Initial Monthly Minimum Premium." This monthly minimum
premium increases each year by the increase in the cost of insurance for all
riders forming part of the Policy. The Policy also describes a death benefit
guarantee period. On each monthly anniversary of the Policy during the guarantee
period, we check to see if the cumulative amount of premiums actually paid is at
least equal to the sum of the recommended monthly minimum premiums for all
Policy months to date, including the Policy month then starting. For purposes of
this calculation, premiums paid in any Policy year, recommended monthly minimum
premiums and partial withdrawals are assumed to accumulate interest at an
effective annual rate of 4%. For this purpose premiums and recommended monthly
minimum premiums for any Policy year are assumed to commence accumulating
interest at the beginning of the Policy year in which they are paid. Partial
withdrawals are assumed to be taken at the end of the year, or at the end of the
current monthly anniversary, if earlier. So long as this test is met the Policy
will not terminate (lapse) during the guarantee period, even if the cash value
is not sufficient to pay the monthly deduction.
If the test is not met we will send you a notice of the minimum amount
required to be paid. If this amount is not paid prior to the next monthly
anniversary the guaranteed death benefit will terminate and cannot be
reinvested.
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<PAGE> 12
At issue you can choose one of 3 options for a guarantee period: (a) 10
years; (b) 20 years; or (c) to age 85 of the younger insured.
However, if the younger insured is age 65 or older when the Policy is
issued, the guarantee period will be the lesser of 10 years or until the younger
insured is age 75. If the younger insured is age 71 or more when the Policy is
issued, the guarantee period will be for 5 years. The guarantee period if either
insured is rated for higher mortality is for 5 years. The choice cannot be
changed after the Policy is issued. The guaranteed death benefit is not
available in all states, and the guarantee period may be shorter in some states
due to state limitations.
The amount of premiums that must be paid to maintain the guaranteed death
benefit will be increased by the cumulative amount of any loans and partial
withdrawals you have taken from your Policy. The recommended monthly minimum
premiums also will be higher following any requested increase in face amount of
your Policy or following the addition of (or increase in) certain rider
benefits. On the other hand, the recommended monthly minimum premium will be
lower following any requested face amount decrease, or the termination of (or
decrease in) certain riders. We will send you an amended schedule page that will
tell you the amount of your new recommended monthly minimum premium is. None of
the above-mentioned changes extends the guaranteed death benefit or establishes
a new benefit period.
Regardless of which option is chosen, there is no charge for the benefit
during the first 10 years. After 10 years, the monthly charge for the option (b)
guarantee period is $.02 per thousand dollars of face amount in effect under the
Policy or under any supplemental term insurance riders, and $.04 per thousand of
such face amount for the option (c) guarantee period.
Although we will bill you for planned premiums, we will not send any
specific bills for the amount of any recommended monthly minimum premium that is
due.
HOW CAN I CHANGE MY POLICY'S INVESTMENT OPTIONS?
Future premium payments. You may at any time change the investment options
in which future premiums you pay will be invested. Your allocation must,
however, be in whole percentages that total 100%.
Transfers of existing policy value. You may also transfer your existing
policy value from one investment option under the Policy to another. We reserve
the right to limit the number and amount of transfers, or to impose charges upon
transfers. If we limit the number of transfers, the limit will never be less
than four transfers per Policy year. 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. See
"Additional Rights That We Have" beginning on page 30.
You may make transfers at any time, except that transfers out of our
general account option are limited to one transfer per year, and may not be for
more than 50% of the general account policy value.
In any event you may transfer all of your policy value to the general
account (1) at any time during the first 2 Policy years, (2) within the first 2
years after a face amount increase, or (3) within 60 days after you receive a
notice of any material change in the investment options.
Maximum number of investment options. We can at any time limit the number
of investment options you may use. Our current rule is that you cannot use more
than 19 different options over the life of your Policy.
HOW CAN I CHANGE MY POLICY'S INSURANCE COVERAGE?
Increase in coverage. You may at any time request an increase in the face
amount of coverage under your Policy. The minimum requested face amount increase
is currently $5,000. You must, however, provide us with satisfactory evidence
that the insured person continues to meet our requirements for issuing insurance
coverage.
We treat an increase in face amount in many respects as if it were the
issuance of a new Policy. For example, the monthly insurance charge for the
increase will be based in part on the age and risk class of the insured person
at the time of the increase. Also, an additional surrender charge and
11
<PAGE> 13
recommended monthly minimum premium apply to the face amount increase.
Decrease in coverage. After the third Policy year, you may request a
reduction in the face amount of coverage. The minimum remaining face amount must
be $100,000 after the third Policy year (or, if greater, the minimum amount that
the tax law requires.)
Change of death benefit option. Once each year after the third Policy year
you may request us to change your coverage from death benefit Option A to B or
vice-versa. If you change from Option A to B, we automatically reduce your
Policy's face amount of insurance by the amount of your policy value (but not
below the minimum face amount) at the time of the change. Generally, you must
provide us with satisfactory evidence that the insured person continues to meet
our requirements for issuing insurance coverage. If you change from Option B to
A, we automatically increase your Policy's face amount by the amount of your
Policy's policy value.
Tax consequences of changes in insurance coverage. Please read "Tax
Effects" starting on page 21 of this prospectus to learn about possible tax
consequences of changing your insurance coverage under your Policy.
Policy split option. You can elect to split the Policy and purchase two
individual Fortis VUL policies, one on the life of each insured if any of the
following events occur:
1) a final decree of divorce between the joint insureds is issued;
2) a change in the federal estate tax laws that reduces or eliminates the
unlimited martial deduction; or
3) a business partnership or closely held corporation in which the joint
insureds are partners or shareholders is formally dissolved.
There is a 60 day waiting period after divorce or business dissolution
before you can elect to split the Policy. You must provide written notice of the
election within 180 days of the triggering event.
The Policy split option is not available if:
1) Either insured is decreased or uninsurable according to our underwriting
guidelines;
2) The combined rating of the insureds is more than Table 4, as shown in
the Policy schedule;
3) Either insured is older than the maximum issue age allowed in the new
policy;
4) The Policy is in the grace period, or you are receiving benefits from
any disability rider.
The new policies will be issued subject to the following terms:
1) The face amount of the Policy, excluding riders, will be split equally
unless a different percentage is shown in the Policy schedule. The
combined death benefits of the new policy may not exceed that provided
under the Policy;
2) The new policies will be based on each insured's current age and the
rate class reflected in the Policy. No new evidence of insurability is
required;
3) Any contestable or suicide period remaining under the Policy will
continue under the new policies;
4) Policy loans must be repaid;
5) Riders on the new policies at our discretion, and only with evidence of
insurability
Electing this option will cause a taxable event. You should consult with a
tax adviser before electing this option.
WHAT ADDITIONAL RIDER BENEFITS MIGHT I SELECT?
You can request that your Policy include the additional rider benefits
described below. For most of the riders that you choose, a charge, which will be
shown in the Policy schedule, will be deducted from your policy value on each
monthly deduction date. These charges increase from year to year. We may change
the rates of these charges, but not above the guaranteed maximum charges for the
riders set forth in the Policy schedule. Eligibility for and changes in
12
<PAGE> 14
these benefits are subject to our rules and procedures then in effect. More
details are included in the rider itself, which we suggest that you review if
you choose any of these benefits. Availability and features may vary by state.
Disability riders. There are four disability benefit riders available. You
can select either an individual rider which insures only one of the joint
insureds, or a joint insured rider which provides coverage on either or both of
the joint insureds. You can choose either a Waiver of Selected Amount rider
which provides for a monthly payment to the policy value during disability, or a
Waiver of Monthly Deductions rider which waives the monthly deduction during
disability. You can choose only one of these four riders.
Joint term life insurance riders. There are three different term life
insurance riders available to provide coverage on the lives of the joint
insureds.
The Second-To-Die rider provides a benefit upon the death of the last of
the joint insureds to die. Any time before the end of the tenth year after it is
issued, or the younger insured's 65th birthday, you may exchange the coverage
under this rider for a face amount increase in the same amount under the Policy.
The First-To-Die rider is payable upon the death of the first joint
insured. The Estate Protection rider pays a benefit if both joint insureds die
during the first four years after the rider is issued. Neither of these riders
can be converted.
The maximum combined coverage on the life of any one of the joint insureds
under these term riders is 7.25 times the face amount of the Policy. The maximum
coverage under the Second-To-Die and the First-To-Die riders is 6.0 times the
Policy face amount. The maximum coverage under the Estate Protection rider is
1.25 times the Policy face amount.
Individual term life insurance riders. There are two different term life
riders available to provide coverage on the lives of individual insureds you
select.
The additional Insured rider provides term life insurance on the life of
the insured person or on the life of one or more of the immediate family members
of the insured person. This rider is convertible to a variable universal life
policy available for conversions, under our published rules at the time of
conversion.
- - The Primary Insured Rider provides term life insurance on the life of the
insured person. This rider is available only when the Policy is first issued.
This rider is not convertible to another policy. However, you may exchange
the coverage under the rider for a face amount increase in the same amount
under the Policy.
- - Accelerated Benefit Rider. This rider provides for a benefit to be requested
if the Policy's insured person is diagnosed as having a terminal illness (as
defined in the rider) and less than 12 months to live. The maximum amount you
may receive under this rider prior to the insured person's death is $500,000.
The accelerated payment will be discounted for twelve months' interest, and
will be reduced by any outstanding policy loans. The interest rate discount
will be equal to the lesser of (1) the rate set out by the Internal Revenue
Code; (2) the statutory adjustable Policy loan interest rate; or (3) 10%.
There is no charge for this rider, but an administrative fee (not to exceed
$300) will be charged at the time the benefit is paid.
The accelerated benefit rider which forms a part of the Policy should be
consulted for details regarding eligibility for, and the terms and
limitations of, the benefit. Fortis Benefits can also furnish further
information about the amount of the benefit available to you under your
Policy.
Tax consequences of additional rider benefits. Adding or deleting riders,
or increasing or decreasing coverage under existing riders can have tax
consequences. See "Tax Effects" starting on page 21. You should consult a
qualified tax adviser.
HOW CAN I ACCESS MY POLICY VALUE?
Full surrender. You may at any time surrender your Policy in full. If you
do, we will pay you the policy value, less any Policy loans and interest, and
less any surrender charge that then applies. We call this your "surrender
value."
13
<PAGE> 15
Because of the surrender charge, it is unlikely
that a Policy will have any surrender value during at least the first year
unless you pay significantly more than the recommended monthly minimum premiums.
Partial withdrawal. Once each year after the first Policy year, you may
make a partial withdrawal of your Policy's surrender value. If the Option A
death benefit is then in effect, we will also automatically reduce your Policy's
face amount of insurance by the amount of your withdrawal.
We will not permit a partial withdrawal if it would cause your Policy to
fail to qualify as life insurance under the tax laws or if it would cause your
face amount to fall below the minimum allowed.
You may choose the investment option or options from which money that you
withdraw will be taken. Otherwise, we will allocate the withdrawal in proportion
to the amount of policy value you then have in each investment option.
Policy loans. You may at any time borrow from us an amount equal to 90% of
your policy value less surrender charges. In addition, our current practice is
that after the later of 10 years or the younger insured's age 70, you may borrow
100% of the surrender value.
We will remove from your investment options an amount equal to your loan
and hold that amount as collateral for the loan. We will credit your Policy with
interest on this collateral amount at an effective annual rate of 4% (rather
than any amount you could otherwise earn in one of our investment options), and
we will charge you interest on your loan at an effective annual rate of not more
than 5.66%. Loan interest is payable annually, on the Policy anniversary, in
advance. Any amount not paid by its due date will automatically be added to the
loan balance as an additional loan. In most cases interest you pay on Policy
loans will not be deductible on your tax returns.
You may choose which of your investment options the loan will be taken
from. If you do not so specify, we will take the loan pro-rata from each
investment option that you then are using. If you have specified the investment
options from which monthly charges will be taken (see "Allocation of Charges" on
page 8 of the prospectus), then the loan amount will be taken from those
investment options.
You may repay all or part of your loan at any time. You must designate any
loan repayment as such. Otherwise, we will treat it as a premium payment
instead. We will invest any loan repayments you make in the investment options
you request. In the absence of such a request we will invest the repayment in
the same proportion as you then have selected for premium payments that we
receive from you. Any unpaid loan will be deducted from the proceeds we pay
following the insured person's death.
Reduced interest rate for Policy loans. After the Policy has been in force
for two years we will charge interest at a reduced rate of 3.85%, payable in
advance, on one Policy loan of up to 10% of the surrender value in each Policy
year if (1) the surrender value is at least $10,000 or (2) the Policy has been
in force for 10 years. The 10% limitation is raised to 15% for such loans
obtained in Policy years in which the insured is 59 1/2 or older.
CAN I CHOOSE THE FORM IN WHICH FORTIS PAYS OUT THE PROCEEDS FROM MY POLICY?
Choosing a payment option. You may choose to receive the full proceeds
from the Policy (and any riders) as a single sum. This includes proceeds that
become payable upon the death of the insured person, or upon full surrender of
the policy. Alternatively, you may elect that all or part of such proceeds be
applied to one or more of the following payment options:
Option 1. Interest Payments
We will pay interest for a period of time that you select. At the end of the
time selected we will pay the proceeds in a single sum or under another option
selected when this option is chosen.
Option 2. Payments of a Fixed Amount or for a Fixed Period
(1) We will make equal periodic payments for a period of time you select;
or
(2) We will make equal periodic payments in an amount you select until all
proceeds are paid out.
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<PAGE> 16
Option 3. Life Income Payments
(1) Life Annuity: A monthly income during the life of the payee; or
(2) Life Annuity with a guaranteed Period: A monthly income with payments
guaranteed for either 10 or 20 years, as you choose, continuing during
the payee's lifetime.
(3) Refund Life annuity: A monthly income with payments guaranteed for the
number of months determined by dividing the proceeds by the first
monthly payment. The payments continue during the payee's lifetime.
Option 4. Joint Life Income Payments
You may name two payees to whom we will pay a joint monthly income during
their joint lifetime. After either payee's death, we will make monthly
payments equal to 2/3 of the joint monthly payment during the survivor's
lifetime.
For options 3 and 4 the amount of the monthly payments depends on the type of
income selected, the ages of the payees and the amount of the proceeds.
Additional payment options may also be available with our consent. We have the
right to veto any payment option, if the payee is a corporation or other entity.
You can read more about each of these options in the Policy and in the separate
form of payment contract that we issue when any such option takes effect.
Interest rates that we credit under each option will be at least 3 1/2%.
Change of payment option. You may change any payment option you have
elected at any time while the Policy is in force. Additional payment options may
also be available with our consent. We have the right to veto any payment
option, if the payee is a corporation or other entity. You can read more about
each of these options in the Policy and in the separate form of payment contract
that we issue when any such option takes effect.
Tax impact. If a payment option is chosen you or your beneficiary may have
tax consequences. You therefore should consult with a qualified tax adviser
before deciding whether to elect one or more payment options.
TO WHAT EXTENT CAN FORTIS VARY THE TERMS AND CONDITIONS OF THE POLICIES IN
PARTICULAR CASES?
Listed below are some variations we may make in the terms of a Policy. Any
variations will be made only in accordance with uniform rules that we establish
from time to time and apply evenly to all our customers. See "Additional Rights
That We Have" on page 30.
Policies purchased through "internal rollovers." We maintain published
rules that describe the procedures necessary to replace the other life insurance
we issue with one of the Policies. Not all types of other insurance we issue are
eligible to be replaced with one of the Policies.
Policies purchased through term life conversions. Also, we maintain rules
about how to convert term insurance to a Policy. This is referred to as a term
conversion. Term conversions are available to owners of term life insurance we
have issued. Any right to a term conversion is stated in the term life insurance
policy.
State Law requirements. Fortis is subject to the insurance laws and
regulations in every jurisdiction in which the Policies are sold. As a result,
various time periods and other terms and conditions described in this prospectus
may vary depending on where you reside. These variations will be reflected in
your Policy and riders, or related endorsements.
Variations in expenses or risks. Fortis may vary the charges and other
terms of the Policies where special circumstances result in sales or
administrative expenses, mortality risks, or other risks that are different from
those normally associated with the Policies. These variations will not be
unfairly discriminatory to the interests of other Policy owners. Any increase in
fees will not exceed the maximums set out in this prospectus.
HOW WILL MY POLICY BE TREATED FOR INCOME TAX PURPOSES?
Generally, death benefits paid under a Policy are not subject to income
tax, and earnings on
15
<PAGE> 17
your policy value are not subject to income tax as long as we do not pay them
out to you. If we do pay any amount of your policy value upon surrender or
partial withdrawal, all or part of that distribution may be treated as a return
of the premiums you paid, and therefore not subject to income tax.
Amounts you receive as Policy loans are not taxable to you, unless you have
paid such a large amount of premiums that your Policy becomes what the tax law
calls a "modified endowment contract." In that case, the loan will be taxed as
if it were a partial withdrawal. Furthermore, loans, partial withdrawals and
other distributions from a modified endowment contract may require you to pay
additional taxes and penalties that otherwise would not apply.
For further information about the tax consequences of owning a Policy,
please read "Tax Effects" starting on page 21.
HOW DO I COMMUNICATE WITH FORTIS?
When we refer to "you" we mean the person who is duly authorized to take
any contemplated action with respect to a Policy. Generally, this is the owner
named in the Policy. Where a Policy has more than one owner, each owner
generally must join in any requested action, except for transfers and changes in
the allocation of future premiums or charges among the investment options.
General. You should mail or express checks and money orders for premium
payments and loan repayments directly to our Home Office at the appropriate
address shown on page 1.
The following requests must be made in writing, signed and dated by you:
transfer of policy value; loan; full surrender; partial withdrawal, change of
beneficiary or contingent beneficiary; change of allocation percentages for
premium payments, loan repayments or charges; change of death benefit option or
manner of death benefit payment; increase or decrease in face insurance amount;
addition or cancellation of, or other action with respect to, any rider
benefits; election of a payment option for Policy proceeds; tax withholding
elections; and telephone transaction privileges. You should mail these requests
to our Home Office. You should also communicate notice of the insured person's
death, and related documentation, to our Home Office.
We have special forms which should be used for loans, assignments, partial
withdrawal and surrenders, changes of owner or beneficiary, and all other
contractual changes. A Service Request form covering many of these transactions
is attached to the back of this prospectus. You will be asked to return your
Policy when you request a full surrender. You may also obtain these forms from
our Home Office or from your Fortis representative. Each communication must
include your name, Policy number and, if you are not the insured person, that
person's name. We cannot process any requested action that does not include all
required information.
Telephone transactions. If you have a completed telephone authorization
form on file with us, you may make transfers, or change the allocation of future
premium payments or deduction of charges, by telephone, subject to the terms of
the form. We will honor telephone instructions from any person who provides the
correct information, so there is a risk of possible loss to you if unauthorized
persons use this service in your name. Our current procedure is that only the
owner or your Fortis representative may make a transfer request by phone. We are
not liable for any acts or omissions based upon instructions that we reasonably
believe to be genuine. Our procedures include verification of the Policy number,
the identity of the caller, both the insured person's and owner's names, and a
form of personal identification from the caller. We will mail you a prompt
written confirmation of the transaction. If many people seek to make telephone
requests at or about the same time, or if our telephone equipment malfunctions,
it may be impossible for you to make a telephone request at the time you wish.
If this occurs, you should submit a written request. The phone number for
telephone requests is 1-800-800-2000, Ext. 3028.
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<PAGE> 18
ILLUSTRATIONS OF HYPOTHETICAL
POLICY BENEFITS
To help clarify how our Policies work, we have prepared the following
tables:
<TABLE>
<CAPTION>
PAGE TO SEE IN
TABLE THIS PROSPECTUS
----- ---------------
<S> <C>
Death benefit Option A
Current charges........................ 18
Guaranteed Maximum Charges............. 19
Death Benefit Option B
Current Charges........................ 20
Guaranteed Maximum Charges............. 21
</TABLE>
The tables show how death benefits, policy values and surrender values
("the Policy benefits") of the Policy would vary over time if the investment
options had constant hypothetical gross investment returns of 0%, 6% or 12% over
the years covered by the table.
The tables are based on a face amount of $825,000 for a 55 year-old male
and a 53 year-old female who are non-smokers, and are standard mortality risks.
Planned premium payments of $15,000 are assumed to be paid at the beginning of
each Policy year. The illustrations assume no Policy loan has been taken. The
difference in the tables between policy values and surrender values during the
first ten Policy years is the amount of surrender charges.
Separate tables are included to illustrate both current and guaranteed
maximum charges for the Policy. The charges assumed in the current charge tables
include the premium tax and sales expense charges, current monthly insurance
charges, the current monthly administrative charge, the monthly policy issuance
expense charge, and the charge for mortality and expense risks. The guaranteed
maximum charge tables assume that these charges will be (1) a monthly deduction
of $4.00 and a daily deduction at an annual rate of .35% to pay for a premium
tax charge in the amount of 3.0% of all premium payments a sales charge in the
amount of 9% of all premium payments; (2) guaranteed maximum insurance charges;
(3) a monthly insurance charge of $7.50 plus $.13 per thousand of face amount;
(4) a policy issuance expense charge; and a mortality and expense risks charge
at an annual effective rate of 1.00%.
The charges assumed by both the current and guaranteed maximum charge
tables also include .87% for the expenses of the Funds, which is the average of
the advisory fees payable with respect to each Fund, after all reimbursements,
plus the average of all other operating expenses of each such Fund after all
reimbursements. In the absence of a voluntary agreement to waive a portion of
the fees and reimburse certain expenses the total fund operating expenses
assumed would have been .88%. Although voluntary, it is unlikely that this
voluntary agreement will be terminated prior to the point where actual operating
expenses do not exceed the voluntary limits. If this agreement were to be
discontinued the values would be lower in the illustrations that follow.
The second column of each table shows the effect of an amount equal to the
premiums invested to earn interest, after taxes, of 5% compounded annually.
Individual illustrations. On request, we will send you a comparable
illustration based on your Policy's features.
17
<PAGE> 19
MALE ISSUE AGE 55, FEMALE ISSUE AGE 53
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $825,000--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 $825,000 $ 13,750 $ 5,040 $ 825,000 $ 14,620 $ 5,912 $ 825,000 $ 15,490
2 32,288 825,000 27,148 17,696 825,000 29,744 20,300 825,000 32,446
3 49,652 825,000 40,196 30,791 825,000 45,386 35,981 825,000 51,005
4 67,884 825,000 52,895 44,665 825,000 61,590 53,361 825,000 71,354
5 87,029 825,000 65,273 58,219 825,000 78,343 71,290 825,000 93,632
6 107,130 825,000 77,306 71,428 825,000 95,663 89,784 825,000 118,087
7 128,237 825,000 89,247 84,545 825,000 113,875 109,173 825,000 145,137
8 150,398 825,000 101,097 97,570 825,000 132,958 129,432 825,000 175,035
9 173,668 825,000 113,001 110,650 825,000 153,055 150,704 825,000 208,177
10 188,102 825,000 124,504 123,329 825,000 173,798 172,623 825,000 244,486
15 339,862 825,000 179,127 179,127 825,000 291,874 291,874 825,000 490,889
20 520,789 825,000 219,834 219,834 825,000 429,697 429,697 998,223 889,356
25 751,702 825,000 242,859 242,859 825,000 595,740 595,740 1,651,515 1,550,450
40 1,902,596 0 0 0 1,398,789 1,358,047 1,358,047 7,310,985 6,921,407
<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 $ 6,784
2 23,010
3 41,600
4 63,124
5 86,578
6 112,209
7 140,435
8 171,508
9 205,825
10 243,310
15 490,889
20 889,356
25 1,550,450
40 6,921,407
</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
18
<PAGE> 20
MALE ISSUE AGE 55, FEMALE AGE 53
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $825,000--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 $ 15,750 $825,000 $ 11,345 $ 2,509 $825,000 $ 12,104 $ 3,270 $ 825,000 $ 12,865 $ 4,032
2 3,229 825,000 22,351 12,638 825,000 24,577 14,871 825,000 26,897 17,198
3 49,652 825,000 33,014 23,609 825,000 37,420 28,015 825,000 42,197 32,792
4 67,884 825,000 43,320 35,091 825,000 50,625 42,396 825,000 58,871 50,642
5 87,029 825,000 53,258 46,204 825,000 64,221 57,168 825,000 77,072 70,018
6 107,130 825,000 62,841 56,963 825,000 78,173 72,295 825,000 96,898 91,020
7 128,237 825,000 72,276 67,573 825,000 92,722 88,019 825,000 118,803 114,101
8 150,398 825,000 81,535 78,008 825,000 107,918 104,391 825,000 142,923 139,396
9 173,668 825,000 90,698 88,347 825,000 123,822 121,471 825,000 169,570 167,219
10 198,102 825,000 99,342 98,166 825,000 140,019 138,843 825,000 198,568 197,392
15 339,862 825,000 135,823 135,823 825,000 227,802 227,802 825,000 391,883 391,883
20 520,789 825,000 144,295 144,295 825,000 313,551 313,551 825,000 695,731 695,731
25 751,702 825,000 120,020 120,020 825,000 376,381 376,381 1,252,649 1,192,999 1,192,999
40 1,902,596 0 0 0 0 0 0 4,874,706 4,874,706 4,874,706
</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
19
<PAGE> 21
MALE ISSUE AGE 55, FEMALE AGE 53
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $825,000--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
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ -------------- ------- ------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,750 $ 838,750 $ 13,750 $ 5,040 $ 839,620 $ 14,620 $ 5,911 $ 840,490
2 32,288 852,228 27,228 17,776 854,832 29,832 20,388 857,542
3 49,652 865,390 40,390 30,985 870,609 45,609 36,204 876,257
4 67,884 878,234 53,234 45,005 886,994 61,994 53,765 896,831
5 87,029 890,782 65,782 58,728 903,975 78,975 71,921 919,410
6 107,130 903,005 78,005 72,126 921,567 96,567 90,689 944,248
7 128,237 915,151 90,151 85,449 940,096 115,096 110,393 971,772
8 150,398 927,232 102,232 98,705 959,535 134,535 131,008 1,002,237
9 173,668 939,352 114,352 112,000 980,018 155,018 152,666 1,036,039
10 198,102 951,062 126,062 124,887 1,001,167 176,167 174,991 1,073,097
15 339,862 1,006,124 181,124 181,124 1,120,803 295,803 295,803 1,323,581
20 520,789 1,044,087 219,087 219,087 1,254,414 429,414 429,414 1,717,303
25 751,702 1,070,641 245,641 245,641 1,413,919 588,919 588,919 2,366,054
40 1,902,596 0 0 0 1,699,720 874,720 874,720 7,501,945
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
-----------------------
12% (1)(2)
END OF -----------------------
POLICY POLICY SURRENDER
YEAR VALUE VALUE
- ------ ------ ---------
<S> <C> <C>
1 $ 15,490 $ 6,784
2 35,542 23,106
3 51,257 41,852
4 71,831 63,602
5 94,410 87,356
6 119,248 113,370
7 146,772 142,069
8 177,237 173,710
9 211,039 208,688
10 248,097 246,921
15 498,581 498,581
20 892,303 892,303
25 1,541,054 1,541,054
40 6,676,945 6,676,945
</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.
20
<PAGE> 22
MALE ISSUE AGE 55, FEMALE AGE 53
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $825,000--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 $836,344 $ 11,344 $ 2,508 $ 837,104 $ 12,104 $ 3,269 $ 837,865 $ 12,865 $ 4,031
2 32,288 847,418 22,418 12,704 849,650 24,650 14,944 851,976 26,976 17,277
3 49,652 858,172 33,172 23,767 862,600 37,600 28,195 867,402 42,402 32,997
4 67,884 868,589 43,589 35,360 875,946 50,946 42,716 884,256 59,256 51,027
5 87,029 878,653 53,653 46,599 889,711 64,711 57,657 902,681 77,681 70,628
6 107,130 888,366 63,366 57,488 903,853 78,853 72,975 922,780 97,780 91,902
7 128,237 897,928 72,928 68,226 918,605 93,605 88,903 944,999 119,999 115,297
8 150,398 907,301 82,301 78,774 934,005 109,005 105,478 969,462 144,462 140,935
9 173,668 916,553 91,553 89,201 950,095 125,095 122,743 996,458 171,458 169,107
10 188,102 925,250 100,250 99,074 966,431 141,431 140,255 1,025,771 200,771 199,596
15 339,862 960,444 135,444 135,444 1,052,491 227,491 227,491 1,216,923 391,923 391,923
20 520,789 961,983 136,983 136,983 1,123,318 298,318 298,318 1,488,132 663,132 663,132
25 751,702 940,388 115,388 115,388 1,183,744 358,744 358,744 1,898,640 1,073,640 1,073,640
40 1,902,596 0 0 0 0 0 0 4,230,866 3,405,866 3,405,866
</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.
21
<PAGE> 23
ADDITIONAL INFORMATION
A general overview of the Policies appears at pages 1 through 20. The
additional information that follows gives more details, but generally does not
repeat what is set forth above.
<TABLE>
<CAPTION>
PAGE TO SEE
CONTENTS OF ADDITIONAL INFORMATION IN THIS PROSPECTUS
- ---------------------------------- ------------------
<S> <C>
Fortis Benefits/Fortis Financial
Group............................ 22
The Separate Account............... 22
Tax Effects........................ 22
Voting Privileges.................. 26
Your Beneficiary................... 26
Assigning Your Policy.............. 26
More About Policy Charges.......... 27
Effective Date of Policy and
Related Transactions............. 28
More about Our General Account
Option........................... 29
Distribution of the Policies....... 29
Payment of Policy Proceeds......... 30
Adjustments to Death Benefit....... 31
Additional Rights That We Have..... 31
Performance Information............ 31
Our Reports to Policy Owners....... 32
Fortis Management.................. 32
Legal Matters...................... 33
Independent Auditors............... 33
Actuarial Experts.................. 33
Year 2000 Issues................... 33
Financial Statements............... 33
</TABLE>
Special words and phrases. If you want more information about any words or
phrases that you read in this prospectus, you may wish to refer to the Index of
words and Phrases that appears at the end of this prospectus (page 33). That
index will tell you on what page you can read more about many of the words and
phrases that we use.
FORTIS BENEFITS/FORTIS FINANCIAL GROUP
We are Fortis Benefits Insurance Company ("Fortis"), a stock life insurance
company that was founded in 1910. Fortis is a Minnesota corporation and is
qualified to sell life insurance and annuity contracts in all states except New
York. Fortis is an indirect, wholly-owned subsidiary of Fortis, Inc. which is
itself indirectly owned 50% by Fortis (NL) N.V. and 50% by Fortis (B). Fortis,
Inc. manages the United States operations for these two companies.
Fortis is a member of the Fortis Financial Group, a joint effort of Fortis
Benefits, Fortis Advisers, Inc., Fortis Investors, Inc. and Fortis Insurance
Company, offering mutual funds, annuities and life insurance products.
Fortis (NL) N.V. of the Netherlands and Fortis (B) of Belgium, are
diversified financial services companies which began operations in the early
1800's. Fortis (NL) N.V. and Fortis (B) have merged their operating companies
under the trade name of Fortis.
THE SEPARATE ACCOUNT
We hold the Mutual Fund shares in which any of your policy value is
invested in our Variable Account C. Variable Account C is a "separate account,"
as defined by the SEC and is registered as a unit investment trust with the SEC
under the Investment Company Act of 1940. We created the separate account on
March 16, 1986 under Minnesota law.
For record keeping and financial reporting purposes, Variable Account C is
divided into separate subaccounts each corresponding to one of the available
investment options (other than our general account option). We hold the Fund
shares in which we invest your policy value for an investment option in its
corresponding subaccount.
The assets in the separate account are our property. Nevertheless, the
assets in the separate account would be available only to satisfy the claims of
owners of the Policies, to the extent they have allocated their policy value to
the separate account. Our other creditors could reach only those separate
account assets (if any) that are in excess of the amount of our reserves and
liabilities under the Policies with respect to the separate account.
TAX EFFECTS
This discussion is based on current federal income tax law and
interpretations. It assumes that the Policy owner is a natural person who is a
U.S. citizen and resident. The tax effects on corporate taxpayers, non-U.S.
residents or non-U.S. citizens, may be different. This discussion is general in
nature, and should not be considered tax advice, for which you should consult a
qualified tax adviser.
22
<PAGE> 24
General. A Policy will be treated as "life insurance" for federal income
tax purposes if (a) it meets the definition of life insurance under Section 7702
of the Internal Revenue Code of 1986 ("the Code"), and (b) for as long as the
investments made by the underlying Funds satisfy certain investment
diversification requirements under Section 817(h) of the Code. We believe it is
reasonable to conclude that the Policies will meet these requirements and that:
- - the death benefit received by the beneficiary under your Policy will not be
subject to federal income tax; and
- - increases in your policy value as a result of interest or investment
experience will not be subject to federal income tax unless and until there
are certain distributions from your Policy, such as a surrender or a partial
withdrawal.
The federal income tax consequences of a distribution from your Policy can be
affected by whether your Policy is determined to be a "modified endowment
contract" (which is discussed below). In all cases, however, the character of
all income that is described below as taxable to the payee will be ordinary
income (as opposed to capital gain).
Definition of life insurance. The manner in which the Section 7702
definition of life insurance test should be applied to certain features of the
Policy is not directly addressed by the Code, nor has guidance been issued to
date under Section 7702. In the absence of such guidance there is necessarily
some uncertainty as to whether a Policy will meet the definition of life
insurance, especially if it insures a substandard risk. In such an event, we
reserve the right to modify the Policy, to the extent possible and appropriate,
to qualify it as a life insurance contract under Section 7702. If a Policy were
determined not to be a life insurance contract, the Policy would not provide
most of the tax advantages normally provided by a life policy.
Diversification. Under Section 817(h) of the Code, the Treasury Department
has issued regulations that implement investment diversification requirements.
Failure by us to comply with these regulations would disqualify, your Policy as
a life insurance policy under Section 7702 of the Code. If this were to occur,
you would be subject to federal income tax on the income under the Policy for
the period of the disqualification and for subsequent periods. Our separate
account, through the Funds, intends to comply with these requirements.
In connection with the issuance of the temporary diversification
regulations, the Treasury Department stated that it anticipated the issuance of
guidelines prescribing the circumstances in which the ability of a policy owner
to direct his or her investment to particular Funds within a separate account
may cause the policy owner, rather than the insurance company, to be treated as
the owner of the assets in the account. If you were considered the owner of the
assets of the separate account, income and gains from the account would be
included in your gross income for federal income tax purposes. Under current
law, however, we believe that Fortis, and not the owner of a Policy, would be
considered the owner of the assets of our separate account.
Modified endowment contract status. Your Policy will be a "modified
endowment contract" if, at any time during the first seven Policy years, you
have paid a cumulative amount of premiums that exceeds the premiums that would
have been paid by that time under a similar fixed-benefit insurance policy that
was designed (based on certain assumptions mandated under the Code) to provide
for paid-up future benefits after the payment of seven level annual premiums.
This is called the "seven-pay" test.
Whenever there is a "material change" under a Policy, the Policy will
generally be (a) treated as a new contract for purposes of determining whether
the Policy is a modified endowment contract, and (b) subjected to a new
seven-pay period and a new seven-pay limit. The new seven-pay limit would be
determined taking into account, under a prescribed formula, the policy value at
the time of such change. A materially changed Policy would be considered a
modified endowment if it failed to satisfy the new seven-pay limit. A material
change for these purposes could occur as a result of a change in death benefit
option, the selection of additional rider benefits, an increase in your Policy's
face amount of coverage, and certain other changes.
23
<PAGE> 25
If your Policy's benefits are reduced during the first seven Policy years
(or within seven years after a material change), the calculated seven-pay
premium limit will be redetermined based on the reduced level of benefits and
applied retroactively for purposes of the seven-pay test. (Such a reduction in
benefits could include, for example, a decrease in face amount you request or,
in some cases, a partial withdrawal or termination of additional benefits under
a rider.) If the premiums previously paid are greater than the recalculated
seven-payment premium level limit, the Policy will become a modified endowment
contract. A life insurance policy that is received in tax-free exchange for a
modified endowment contract will also be considered a modified endowment
contract.
Other effects of Policy changes. Changes made to your Policy (for example,
a decrease in benefits or a lapse or reinstatement of your Policy) may also have
other effects on your Policy. Such effects may include impacting the maximum
amount of premiums that can be paid under your Policy, as well as the maximum
amount of policy value that may be maintained under your Policy.
Taxation of pre-death distribution if your Policy is not a modified
endowment contract. As long as your Policy remains in force during the insured
person's lifetime, as a non-modified endowment contract, a Policy loan will be
treated as indebtedness, and no part of the loan proceeds will be subject to
current federal income tax. Interest paid on the loan generally will not be tax
deductible.
After the first 15 Policy years, the proceeds from a partial withdrawal
will not be subject to federal income tax except to the extent such proceeds
exceed your "basis" in your Policy. Your basis generally will equal the premiums
you have paid, less the amount of any previous distributions from your Policy
that were not taxable. During the first 15 Policy years, the proceeds from a
partial withdrawal could be subject to federal income tax, under a complex
formula, to the extent that your policy value exceeds your basis in your Policy.
Upon full surrender, any excess in the amount of proceeds we pay (including
amounts we use to discharge any Policy loan) over your basis in the Policy, will
be subject to federal income tax. In addition, if a Policy terminates after a
grace period while there is a policy loan, the cancellation of such loan and
accrued loan interest will be treated as a distribution and could be subject to
tax under the above rules. Finally, If you make an assignment of rights or
benefits under your Policy you may be deemed to have received a distribution
from your Policy, all or part of which may be taxable.
Taxation of pre-death distributions if your Policy is a modified endowment
contract. If your Policy is a modified endowment contract, any distribution
from your Policy during the insured person's lifetime will be taxed on an
"income-first" basis. Distributions for this purpose include a loan (including
any increase in the loan amount to pay interest on an existing loan or an
assignment or a pledge to secure a loan) or partial withdrawal. Any such
distributions will be considered taxable income to you to the extent your policy
value exceeds your basis in the Policy. For modified endowment contracts, your
basis is similar to the basis described above for other Policies, except that it
also would be increased by the amount of any prior loan under your Policy that
was considered taxable income to you. For purposes of determining the taxable
portion of any distribution, all modified endowment contracts issued by the same
insurer (or its affiliate) to the same owner (excluding certain qualified plans)
during any calendar year are aggregated. The U.S. Treasury Department has
authority to prescribe additional rules to prevent avoidance of "income-first"
taxation on distributions from modified endowment contracts.
A 10% penalty tax also will apply to the taxable portion of most
distributions from a Policy that is a modified endowment contract. The penalty
tax will not, however, apply to distributions (i) to taxpayers 59 1/2 years of
age or older, (ii) in the case of a disability (as defined in the Code) or (iii)
received as part of a series of substantially equal periodic annuity payments
for the life (or life expectancy) of the taxpayer or the joint lives (or joint
life expectancies) of the taxpayer and his or her beneficiary. If your Policy
terminates after a grace period while there is a Policy loan, the cancellation
of such loan will be treated as a distribution to the extent not previously
treated as such and could be subject to
24
<PAGE> 26
tax, including the 10% penalty tax, as described above. In addition, upon a full
surrender any excess of the proceeds we pay (including any amounts we use to
discharge any loan) over your basis in the Policy, will be subject to federal
income tax and, unless an exception applies, the 10% penalty tax.
Distributions that occur during a Policy year in which your Policy becomes
a modified endowment contract, and during any subsequent Policy years, will be
taxed as described in the two preceding paragraphs. In addition, distributions
from a Policy within two years before it becomes a modified endowment contract
also will be subject to tax in this manner. This means that a distribution made
from a Policy that is not a modified endowment contract could later become
taxable as a distribution from a modified endowment contract. The Treasury
Department has been authorized to prescribe rules which would treat similarly
other distributions made in anticipation of a policy becoming a modified
endowment contract.
Policy lapses and reinstatements. A Policy which has lapsed may have the
tax consequences described above, even though you may be able to reinstate that
Policy. For tax purposes, some reinstatements may be treated as the purchase of
a new insurance contract.
Accelerated benefit rider. Amounts received under an insurance policy on
the life of an individual who is terminally ill, as defined by the Code, are
generally excludable from the payee's gross income. We believe that the benefits
provided under our accelerated benefit rider meet the Code's definition of
terminally ill and can qualify for this income tax exclusion. This exclusion
does not apply, however, to amounts paid to someone other than the insured
person, if the payee has an insurable interest in the insured person's life
because the insured is a director, officer or employee of the payee or by reason
of the insured person being financially interested in any trade or business
carried on by the payee.
Estate and generation skipping taxes. If the insured person is the
Policy's owner, the death benefit under a Policy will generally be includable in
the owner's estate for purposes of federal estate tax. If the owner is not the
insured person, under certain conditions, only an amount approximately equal to
the surrender value of the Policy would be includable. Federal estate tax is
integrated with federal gift tax under a unified rate schedule. In general,
estates less than $625,000 (or larger amounts specified in the Code to commence
in certain future years) will not incur a federal estate tax liability. In
addition, an unlimited marital deduction may be available for federal estate tax
purposes.
As a general rule, if a "transfer" is made to a person two or more
generations younger than the Policy's owner, a generation skipping tax may be
payable at rates similar to the maximum estate tax rate in effect at the time.
The generation skipping tax provisions generally apply to "transfers" that would
be subject to the gift and estate tax rules. Individuals are generally allowed
an aggregate generation skipping tax exemption of $1 million. Because these
rules are complex, you should consult with a qualified tax adviser for specific
information, especially where benefits are passing to younger generations.
The particular situation of each Policy owner, insured person or
beneficiary will determine how ownership or receipt of Policy proceeds will be
treated for purposes of federal estate and generation skipping taxes, as well as
state and local estate, inheritance and other taxes.
Employee benefit programs. Complex rules may apply when a Policy is held
by an employer or a trust, or acquired by an employee, in connection with the
provision of employee benefits. These Policy owners must consider whether the
Policy was applied for by or issued to a person having an insurable interest
under applicable state law and with the insured person's consent. The lack of an
insurable interest or consent may, among other things, affect the qualification
of the Policy as life insurance for federal income tax purposes and the right of
the beneficiary to receive a death benefit.
ERISA. Employers and employer-created trusts may be subject to reporting,
disclosure and fiduciary obligations under the Employee Retirement Income
Security Act of 1974. You should consult a qualified legal adviser.
Our Taxes. The operations of our Variable Account C are reported in our
federal income tax return, but we currently pay no income tax on
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<PAGE> 27
the separate account's investment income and capital gains, because these items
are, for tax purposes, reflected in our variable life insurance policy reserves.
Therefore, no charge is currently being made to the separate account for taxes.
We reserve the right to make a charge in the future for taxes incurred; for
example, a charge to the separate account for income taxes incurred by us that
are attributable to the Policies.
We may have to pay state, local or other taxes in addition to applicable
taxes based on premiums. At present, these taxes are not substantial. If they
increase, charges may be made for such taxes when they are attributable to our
separate account or to the Policies.
The Funds in which your policy value is invested may elect to pass through
to Fortis taxes withheld by foreign taxing jurisdictions on foreign source
income. Such an election will result in additional taxable income and income tax
to Fortis. The amount of additional income tax, however, may be more than offset
by credits for the foreign taxes withheld which are also passed through. These
credits may provide a benefit to Fortis.
When we withhold income taxes. Generally, unless you provide us with an
election to the contrary before we make the distribution, we are required to
withhold income tax from any proceeds we distribute as part of a taxable
transaction under your Policy. In some cases, where generation skipping taxes
may apply, we may also be required to withhold for such taxes unless we are
provided satisfactory written notification that no such taxes are due.
Tax changes. The U.S. Congress frequently considers legislation that, if
enacted, could change the tax treatment of life insurance policies. In addition,
the Treasury Department may amend existing regulations, issue regulations on the
qualification of life insurance and modified endowment contracts, or adopt new
interpretations of existing law. State and local tax law or, If you are not a
U.S. citizen and resident, foreign tax law, may also affect the tax consequences
to you, the insured person or your beneficiary, and are subject to change. Any
changes in federal state, local or foreign tax law or interpretation could have
a retroactive effect. We suggest you consult a qualified tax adviser.
VOTING PRIVILEGES
You will be entitled to instruct us how to vote the Fund shares held in the
subaccounts of Variable Account C and attributable to your Policy at meetings of
shareholders of the Funds. The number of votes for which you may give directions
will be determined as of the record date for the meeting. The number of votes
you are entitled to direct with respect to a particular subaccount is equal to
one vote for each $100 in policy value in that subaccount. Fractional votes will
be recognized. Variable Account C will vote all shares of each Fund that it
holds of record in the same proportions as those shares for which we have
received instructions from owners participating in that Fund through the
separate account.
If you are entitled to give us voting instructions, we will send you proxy
material and a form for providing such instructions. In certain cases, we may
disregard instructions relating to changes in a Fund's investment manager or its
investment policies. We will advise you if we do and detail the reasons in our
next report to Policy owners.
Fortis reserves the right to modify these procedures in any manner
consistent with applicable legal requirements and interpretations as in effect
from time to time.
YOUR BENEFICIARY
You name your beneficiary when you apply for a Policy. The beneficiary is
entitled to the insurance benefits of the Policy. You may change the beneficiary
during the insured person's lifetime. We also require the consent of any
irrevocably named beneficiary. A new beneficiary designation is effective as of
the date you sign it, but will not affect any payments we may make before we
receive it. If no beneficiary is living when the insured person dies, we will
pay the insurance proceeds to the owner or the owner's estate.
ASSIGNING YOUR POLICY
You may assign (transfer) your rights in a Policy to someone else as
collateral for a loan or for some other reason, if we agree. Two copies of the
assignment must be forwarded to us. We are not responsible for any payment we
make or any
26
<PAGE> 28
action taken before we receive due and complete notice of the assignment in good
order. Nor are we responsible for the validity of the assignment. An absolute
assignment is a change of ownership. All collateral assignees of record must
consent to any full surrender, partial withdrawal, loan or payment from a Policy
under an accelerated benefit rider. Because there may be unfavorable tax
consequences, including recognition of taxable income and the loss of income
tax-free treatment for any death benefit payable to the beneficiary, you should
consult a qualified tax adviser prior to making an assignment.
MORE ABOUT POLICY CHARGES
Purpose of our charges. The charges under the Policies are designed to
cover, in the aggregate, our direct and indirect costs of selling, administering
and providing benefits under the Policies. They are also designed, in the
aggregate, to compensate us for the risks we assume and services that we provide
under the Policies. These include mortality risks (such as the risk that insured
persons will, on average, die before we expect, thereby increasing the amount of
claims we must pay); investment risks (such as the risk that adverse investment
performance will make it more costly for us to provide the guaranteed death
benefit or reduce the amount of our charge fee revenues below what we
anticipate); sales risks (such as the risk that the number of Policies we sell
and the premiums we receive, net of withdrawals, are less than we expect thereby
depriving us of expected economies of scale); regulatory risks (such as the risk
that tax or other regulations may be changed in ways adverse to issuers of
variable life insurance policies); and expense risks (such as the risk that the
costs of administrative services that the Policies require us to provide will
exceed what we currently project).
If the charges that we collect from the Policies exceed our total costs in
connection with the Policies, we will earn a profit. Otherwise we will incur a
loss.
The monthly Policy issuance expense charge is primarily intended to defray
expenses incurred in underwriting and processing applications, and in issuing
the Policies. The monthly administrative charge that we deduct has been designed
primarily to compensate us for the continuing administrative functions we
perform in connection with the Policies. The current monthly insurance charge
has been designed primarily to provide funds out of which we can make payments
of death benefits under the Policies as insured persons die.
Any excess from the charges discussed in the preceding paragraph, as well
as revenues from the premium tax and sales expense charge, and from the daily
charge for mortality and expense risks, are primarily intended (a) to defray
other unreimbursed administrative expenses, costs of paying sales commissions
and other marketing expenses for the Policies, and costs of paying death claims
if the mortality experience of insured persons is worse than we expect), (b) to
compensate us for the risks we assume under the Policies, or (c) to compensate
us for state and local taxes we have to pay when we receive a premium from you,
as well as similar federal taxes we incur as a result of premium payments or (d)
otherwise to be retained by us as profit. The surrender charge has also been
designed primarily for these purposes.
Although the preceding paragraphs describe the primary purposes for which
charges under the Policies have been designed, these distinctions are imprecise
and subject to considerable change over the life of a Policy. We have full
discretion to retain or use the revenues from any charge or charge increase for
any purpose, whether or not related to the Policies.
Change of smoker status. If the person insured under your Policy is a
smoker, you may apply to us for an improved risk class if the insured person
meets our then applicable requirements for demonstrating that he or she has
ceased smoking for a sufficient period. Any change from smoker to non-smoker
risk class will take effect on the next monthly anniversary, and the non-smoker
rates for the coverage under the Policy will be applied retroactively for the 12
months prior to the date of the change.
Gender neutral Policies. Congress and the legislatures of various states
have from time to time considered legislation that would require insurance rates
to be the same for males and females of the same age, rating class and smoker
status. In addition, employers and employee organizations should consider, in
consultation
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<PAGE> 29
with counsel, the impact of Title VII of the Civil Rights Act of 1964 on the
purchase of a policy in connection with an employment-related insurance or
benefit plan. In a 1983 decision, the United States Supreme Court held that,
under Title VII, optional annuity benefits under a deferred compensation plan
could not vary on the basis of sex.
Cost of insurance rates. Because of face amount increases, different cost
of insurance rates may apply to different increments of face amount under your
Policy. If so, we attribute your policy value in proportion to the increments of
face amount in order to compute our net amount at risk at each cost of insurance
rate. See "Monthly Insurance Charge" beginning on page 7.
EFFECTIVE DATE OF POLICY AND RELATED TRANSACTIONS
Valuation dates, times, and periods. We generally compute values under
Policies on each day that we are open for business except, with respect to any
investment option, days on which the related Fund does not value its shares. We
call each such day a "valuation date."
We compute policy values as of 3:00 p.m., Central time, on each valuation
date. We call this our "close of business." We call the time from the close of
business on one valuation date to the close of business of the next valuation
date a "valuation period."
Date of receipt. Generally we consider that we have received a premium
payment or another communication from you on the day we actually receive it in
full and proper order at our Home Office. If we receive it after the close of
business on any valuation date, however, we consider that we have received it on
the day following that valuation date.
Commencement of insurance coverage. After you apply for a Policy, it can
sometimes take up to several weeks for us to gather and evaluate all the
information we need to decide whether to issue a Policy to you and if so, what
the insured person's insurance risk class should be. We will not pay a death
benefit under a Policy unless (a) it has been delivered to and accepted by the
owner and at least the first premium has been paid, and (b) at the time of such
delivery and payment, there have been no adverse developments in the insured
person's health or risk of death. However, if you pay at least the minimum first
premium payment with your application for a Policy, we will provide temporary
coverage of up to $300,000 if the insured person meets certain medical and risk
requirements. The terms and conditions of this coverage are described in our
"Temporary Insurance Agreement." You can obtain a copy from our Home Office by
writing to the address shown on the first page of this prospectus or from your
Fortis representative.
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 otherwise would apply.
Monthly anniversaries. Each charge that we deduct monthly is assessed
against your policy value at the close of business on the date of issue and at
the end of each subsequent valuation period that includes the first day of a
Policy month. We call these "monthly anniversaries."
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. Then, all premiums plus any earnings will be
re-allocated among the general account and the variable investment options
according to the selections you have made.
Effective date of other premium payments and requests that you
make. Premium payments (after the first) and transactions implemented in
response to requests and elections made by you are generally effected at the end
of the valuation period in which we receive the payment, request
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<PAGE> 30
or election and based on prices and values computed as of that same time.
Exceptions to this general rule are as follows:
- - Increases or decreases you request in the face amount of insurance or changes
in the death benefit option take effect on the Policy's monthly anniversary
on or next following (1) the date we receive your request or (2) if we
require evidence of insurability, the date we approve your request;
- - We may return premium payments if we determine that such premiums would cause
your Policy to become a modified endowment contract or to cease to qualify as
life insurance under federal income tax law;
- - If you exercise the right to return your Policy described on the first page
of this prospectus, your coverage will end when you mail us your Policy or
deliver it to your Fortis representative; and
- - If you pay a premium in connection with a request which requires our
approval, your payment will be applied when received rather than following
the effective date of the change requested so long as your coverage is in
force and the amount paid will not cause you to exceed premium limitations
under the Code. If we do not approve your request, no premium will be
refunded to you except to the extent necessary to cure any violation of the
maximum premium limitations under the Code. This procedure will not apply to
premiums remitted in connection with reinstatement requests.
MORE ABOUT OUR GENERAL ACCOUNT OPTION
Our general account. Our general account assets are all of our assets that
we do not hold in legally segregated separate accounts. Our general account
supports our obligations to you under your Policy's general account option.
Because of applicable exemptive provisions, no interest in this option has been
registered under the Securities Act of 1933; nor is our general account an
investment company under the Investment Company Act of 1940. We have been
advised that the staff of the SEC has not reviewed the disclosures that are
included in this prospectus for your information about our general account
option. Those disclosures, however, may be subject to certain generally
applicable provisions of the federal securities laws relating to the accuracy
and completeness of statements made in prospectuses.
How we declare interest. We can at any time change the rate of interest we
are paying on any policy value allocated to our general account option, but it
will always be at an effective annual rate of at least 4%.
Under these procedures, it is likely that at any time different interest
rates will apply to different portions of your policy value, depending on when
each portion was allocated to our general account option. Any charges, partial
withdrawals, or loans that we take from any policy value that you have in our
account option will be taken from each portion in reverse chronological order
based on the date that policy value was allocated to this option.
DISTRIBUTION OF THE POLICIES
Fortis Investors, Inc. ("Investors") is the principal underwriter of the
Policies. Its principal office is 500 Bielenberg Drive, Woodbury, MN 55125.
Investors is a Minnesota Corporation organized March 15, 1968. It is registered
with the SEC as a broker-dealer under the Securities Exchange Act of 1934 ("1934
Act") and is a member of the National Association of Securities Dealers, Inc.
("NASD"). Investors is also the principal underwriter for Variable Account D of
Fortis Benefits, First Fortis Life Insurance Company's Separate Account A and
Variable Account C, Fortis Advantage Portfolios, Inc., Fortis Capital Fund,
Inc., Fortis Growth Fund, Inc., Fortis Tax-Free Portfolios, Inc., Fortis Money
Fund, Inc., Fortis Income Portfolios, Inc., Fortis Worldwide Portfolios, Inc.,
and Special Portfolios, Inc.
Fortis has an agreement with Investors for promotion and distribution of
the Policies. Investors has sales agreements with its registered
representatives, as well as various broker-dealers and banks under which the
Policies will be sold by registered representatives of the broker-dealers or
employees of the banks. These registered representatives and employees are also
required to be authorized under applicable state regulations as life insurance
agents to sell variable life insurance. The broker-dealers are ordinarily
29
<PAGE> 31
required to be registered with the SEC and must be members of the NASD.
As compensation for selling the Policies, Fortis will pay Investors 110.5%
of the premiums paid up to the first twelve recommended monthly minimum
premiums, 4% of all other premiums paid during the first six years of the Policy
and 2% of all premiums in excess of the target amount paid in Policy years seven
through ten. We also pay Investors .25% of unloaned policy value annually as a
service fee from the eleventh Policy year. We also pay a general marketing
allowance to Investors not to exceed an amount agreed to in advance by Fortis
and Investors ($8,663,361 for calendar year 1999) for all variable universal
life policies issued by Fortis.
Investors pays compensation not in excess of these amounts to other
broker-dealers and banks who sell the Policies. Fortis may pay alternative
amounts for sales of the Policies under a flexible compensation plan, but the
maximum value of any alternative amounts we pay is expected to be equivalent
over time to the amounts described above.
We pay a comparable amount of compensation for any increase of $25,000 or
more in the face amount of coverage that you request. In addition, we may pay
expense allowances, bonuses, wholesaler fees and training allowances.
We pay the compensation from our own resources. These payments do not
result in any additional charge to you that is not described in the prospectus.
Each broker-dealer firm or bank, in turn compensates its registered
representative or employee who acts as agent in selling you a Policy.
PAYMENT OF POLICY PROCEEDS
General. We will pay any death benefit, surrender value or loan proceeds
within seven days after we receive the last required form or request (and any
other documents that may be required for payment of death benefit). If we do not
have information about the desired manner of payment within 60 days after the
date we receive notification of the insured person's death, we will pay the
proceeds as a single sum, normally within seven days thereafter.
Delay of general account option proceeds. We have the right, however, to
defer death benefit payments derived from that portion of your policy value this
is allocated to the general account for up to two months; and all other payments
or transfers of amounts out of our general account option for up to six months.
If we delay more than 30 days in paying you such amounts, we will pay interest
of at least 3.5% a year from the date we receive all items we require to make
the payment.
Delay for check clearance. We reserve the right to defer payment of that
portion of your policy value that is attributable to a premium payment made by
check for a reasonable period of time (not to exceed 15 days) to allow the check
to clear the banking system.
Delay of separate account proceeds. We reserve the right to defer payment
of any death benefit, loan or other distribution that is derived from that
portion of your policy value that is allocated to Variable Account C, if (a) the
New York Stock Exchange is closed other than customary weekend and holiday
closings, or trading on the New York Stock Exchange is restricted; (b) an
emergency exists, as a result of which disposal of securities is not reasonably
practicable or it is not reasonably practicable to fairly determine the policy
value; or (c) the SEC by order permits the delay for the protection of owners.
Transfers and allocations of policy value among the investment options may also
be postponed under these circumstances. If we need to defer calculation of
separate account values for any of the foregoing reasons, all delayed
transactions will be processed at the next values that we do compute.
Delay to challenge coverage. We may challenge the validity of your
insurance Policy based on any material misstatements in your application and any
application for a change in coverage. However,
- - We cannot challenge the Policy after it has been in effect, during the
lifetime of the insureds, for two years from the date the Policy was issued
or reinstated. (Some states may require that we measure this time in some
other way.)
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<PAGE> 32
- - We cannot challenge any Policy change that requires evidence of insurability
(such as an increase in face amount) after the change has been in effect for
two years during the lifetime of the insureds.
- - We cannot challenge an additional benefit rider that provides benefits in the
event that the insured person becomes totally disabled, after two years from
the later of the Policy's date of issue or the date as of which the
additional benefit rider becomes effective.
ADJUSTMENTS TO DEATH BENEFIT
Suicide. If either insured person commits suicide within two years after
the date on which the Policy was issued, the death benefit will be limited to
the total of all premiums that have been paid to the time of death minus any
outstanding Policy loan and any partial withdrawals. If either insured person
commits suicide within two years after the effective date of an increase in face
amount that you requested, we will pay the death benefit based on the face
amount which was in effect before the increase, plus the monthly insurance
deductions for the increase. Some states require that we compute differently
these periods for non-contestability following a suicide.
Wrong age or sex. If the age or gender of either insured person was
misstated on your application for a Policy (or for any increase in benefits), we
will adjust any death benefit to be what the monthly insurance charge deducted
for the current month would have purchased based on the correct information.
Death during grace period. If the insured person dies during the Policy's
grace period, we will deduct any overdue monthly charges from the insurance
proceeds.
ADDITIONAL RIGHTS THAT WE HAVE
We have the right at any time to:
- - terminate the automatic rebalancing feature if your policy value falls below
$2,000;
- - change the underlying Fund that any investment option uses;
- - add or delete investment options, combine two or more investment options, or
withdraw assets relating to the Policy from one investment option and put
them into another;
- - operate Variable Account C under the direction of a committee or discharge
such a committee at any time;
- - operate the separate account, or one or more investment options, in any other
form the law allows, including a form that allows us to make direct
investments. Our separate account may be charged an advisory fee if its
investments are made directly rather than through another investment company.
In that case, we may make any legal investments we wish;
- - do any of the following, if in our judgment necessary or appropriate to
ensure that the Policies continue to qualify for tax treatment as life
insurance: decline to change death benefit options or the face amount of
insurance, refuse a partial withdrawal request, require you to pay additional
premiums, make distributions from your Policy (which could require payment of
taxes and penalties), or make any other changes in your Policy; or
- - make other changes in the Policies that do not reduce any surrender value,
death benefit, policy value, or other accrued rights or benefits.
PERFORMANCE INFORMATION
From time to time, we may quote performance information for the subaccounts
of the Variable Account C in advertisements, sales literature, or reports to
owners or prospective investors.
We may quote performance information in any manner permitted under
applicable law. We may, for example, present such information as a change in a
hypothetical owner's policy value or death benefit. We also may present the
yield or total return of the subaccount based on a hypothetical investment in a
Policy. The performance information shown may cover various periods of time;
including periods beginning with the commencement of the operations of the
subaccount or the Fund in which it invests. The performance information shown
may reflect the deduction of one or more charges. We generally expect to exclude
cost of
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<PAGE> 33
insurance charges because of the individual nature of these charges.
We may compare a subaccount's performance to that of other variable life
separate accounts or investment products, as well as to generally accepted
indices or analyses, such as those provided by research firms and rating
services. In addition, we may use performance ratings that may be reported
periodically in financial publications, such as Money Magazine, Forbes, Business
Week, Fortune, Financial Rating, and The Wall Street Journal. We also may
advertise ratings of Fortis' financial strength or claims-paying ability as
determined by firms that analyze and rate insurance companies and by nationally
recognized statistical rating organizations.
Performance information for any subaccount reflects the performance of a
hypothetical Policy and are not illustrative of how actual investment
performance would affect the benefits under your Policy. Therefore, you should
not consider such performance information to be an estimate or guarantee of
future performance.
If there are any significant changes in the underlying investments of an
investment option that you are using, you will be notified as required by law.
We intend to comply with applicable law in making any changes and, if necessary,
we will seek Policy owner approval.
OUR REPORTS TO POLICY OWNERS
We will mail you a report annually that includes information about your
Policy's current death benefit, policy value, surrender value and policy loans.
Notices will be sent to you to confirm premium payments, transfers and certain
other Policy transactions. We will mail to you at your last known address of
record, these and any other reports and communications required by law. You
should therefore give us prompt written notice of any address change.
FORTIS MANAGEMENT
The directors and executive officers, to the extent responsible for
variable life insurance operations, of Fortis Benefits are listed below,
together with their principal occupations and business experience for the past
five years:
<TABLE>
<CAPTION>
OFFICER-DIRECTORS
-----------------
<S> <C>
Robert Brian Pollock
(4)..................... President and Chief
Executive Officer; Vice
President and Treasurer of
Fortis, Inc.
Dean C. Kopperud (1)...... President--Fortis
Financial Group; Executive
Vice President.
Michael John Peninger
(4)..................... Executive Vice President;
President (Non medical).
</TABLE>
<TABLE>
<CAPTION>
OTHER DIRECTORS
---------------
<S> <C>
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)
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
------------------
<S> <C>
Peggy Ettestad (1)..... Senior Vice President--
Operations; before then Vice
President, General Electric
Company
Rhonda J. Schwartz Senior Vice President and
(1).................. General Counsel, Fortis
Financial Group; before then
Secretary and General Counsel
of Fortis, Inc.
Jon H. Nicholson (1)... Senior Vice President--Custom
Solutions Group
Melinda S. Urion (1)... Senior Vice President and
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 companies share the same
address as N.V. AMEV. AMEV/VSB 1900 N.V. is 50%
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<PAGE> 34
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.
LEGAL MATTERS
We are not involved in any legal proceedings that would be considered
material with respect to a Policy owner's interest in Variable Account C.
Douglas R. Lowe, Associate General Counsel, has opined as to the validity of the
Policies. Freedman, Levy, Kroll & Simonds, Washington, D.C., has advised Fortis
about certain federal securities and tax law matters in connection with the
Policies.
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.
ACTUARIAL EXPERTS
Actuarial matters in this prospectus have been examined by Kay M. Doughty,
ASA, MAAA, Staff Actuary. Her opinion on actuarial matters is filed as an
exhibit to the registration statement we have filed with the SEC in connection
with the Policies.
YEAR 2000 ISSUES
The computer systems we use to process Policy transactions and valuations
need to be adjusted to be able to continue to administer the Policies after Year
2000. Fortis is devoting all resources necessary to make these systems
modifications and expects that the necessary changes will be completed on time
and in a way that will result in no disruption to its policy servicing
operations. However, as is the case with most system conversion projects, risks
and uncertainties exist, due in part to reliance on third party vendors.
Nonperformance by any of these entities, or other unforeseen circumstances,
could have a material adverse impact on Fortis' ability to perform its policy
servicing operations. We are closely monitoring these entities to avoid any
unforeseen circumstances. See Notes to Fortis' financial statements.
FINANCIAL STATEMENTS
The financial statements of Fortis and Variable Account C included in this
Prospectus should be considered only as bearing upon the ability of Fortis 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.
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<PAGE> 35
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> 36
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> 37
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> 38
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> 39
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> 40
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> 41
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> 42
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> 43
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> 44
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> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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> 52
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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
INDEX OF WORDS AND PHRASES
This index should help you to locate more information about some of the
terms and phrases used in this prospectus.
<TABLE>
<CAPTION>
PAGE TO SEE IN
DEFINED TERM THIS PROSPECTUS
------------ ---------------
<S> <C>
alternative death benefit..... 7
amount at risk................ 8
automatic rebalancing......... 5
basis......................... 24
beneficiary................... 26
cash value.................... 10
close of business............. 28
Code.......................... 23
cost of insurance rates....... 8
death benefit................. 6
dollar cost averaging......... 5
face amount................... 6
Fortis........................ 22
full surrender................ 13
Fund.......................... 4
general account option........ 29
grace period.................. 10
guaranteed death benefit...... 10
guaranteed death benefit
charge...................... 8
insured person................ 1
investment option............. 6
lapse......................... 10
maturity, maturity date....... 7
modified endowment contract... 23
monthly administrative
charge...................... 8
monthly anniversary........... 28
monthly insurance charge...... 8
monthly deduction............. 7
owner......................... 16
</TABLE>
<TABLE>
<CAPTION>
PAGE TO SEE IN
DEFINED TERM THIS PROSPECTUS
------------ ---------------
<S> <C>
partial withdrawal............ 14
payment option................ 14
planned periodic premium...... 10
Policy anniversary............ 28
policy date................... 28
Policy loan................... 14
policy value.................. 5
premium payments.............. 4
premiums...................... 4
prospectus.................... 1
recommended monthly minimum
premiums.................... 4
reduced interest rate for
policy loans................ 14
reinstate, reinstatement...... 10
rider......................... 12
separate account.............. 22
Separate Account C............ 22
seven-pay test................ 23
subaccounts................... 22
surrender..................... 13
surrender charge.............. 8
surrender value............... 13
surviving insured............. 1
telephone transfers........... 16
transfers..................... 11
valuation date, period........ 28
we............................ 22
you, your..................... 16
</TABLE>
We have filed a registration statement relating to Variable Account C and
the Policies with the SEC. The registration statement, which is required by the
Securities Act of 1933, includes additional information that is not required in
this prospectus. If you would like the additional information, you may obtain it
from the SEC's main office in Washington, D.C. You will have to pay a fee for
the material.
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 SUPPLEMENTS THERETO OR IN ANY SUPPLEMENTAL
SALES MATERIAL AUTHORIZED BY FORTIS BENEFITS.
34
<PAGE> 69
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
Facing Sheet.
Cross-Reference Table. (Filed as a part of the initial Form S-6
Registration Statement on December 21, 1995).
Prospectus, consisting of 67 pages.
Undertaking to File Reports. (Filed as a part of the initial Form S-6
Registration Statement on December 21, 1995).
Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933.
(Filed as a part of the initial Form S-6 Registration Statement on
December 21, 1995).
Reasonableness Representation. Fortis Benefits Insurance Company
represents that the fees and charges deducted under the Policies described
in this Registration Statement, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred,
and the risks assumed by Fortis Benefits under the Policies. Fortis
Benefits bases its representation on its assessment of all of the facts
and circumstances, including such relevant factors as: the nature and
extent of such services, expenses and risks; the need for Fortis Benefits
to make a profit; the degree to which the Policies include innovative
features; and the regulatory standards for exemptive relief under the
Investment Company Act of 1940 used prior to October 1996, including the
range of industry practice.
Signatures.
Written Consents of the following persons:
Renee C. West, FSA, MAAA (filed with Exhibit 6 below).
Douglas R. Lowe, Esq. (filed with Exhibit 3 below).
Ernst & Young LLP, Independent Auditors.
The following exhibits:
1A. (1) --Resolution of Board of Directors of Fortis
Benefits (under its prior name, Western Life
Insurance Company) effecting the establishment of
Variable Account C (incorporated by reference from
Exhibit 1.A(1) to registrant's Form S-6
Registration Statement, File No. 33-28551, filed
on May 5, 1989).
(2) --Not applicable
(3) --(a) Distribution Agreement between Fortis
Benefits and Fortis Investors, Inc. (incorporated
by reference from Exhibit No. 3(a) to Post-
Effective Amendment No. 9 to registrant's Form S-6
registration statement, File No. 33-28551, filed
April 29, 1994).
--(b) Form of Dealer Sales Agreement (incorporated
by reference from Post-Effective Amendment No. 12
to registrant's Form N-4 registration statement,
File No. 33-19421, filed December 22, 1994).
--(c) Schedule of sales commissions (incorporated by reference
from "Distribution of the Policies" in the attached
prospectus).
(4) --Not applicable
(5) --(a) Specimen Flexible Premium Survivorship Variable Life
Insurance Policy. (Filed as part of Pre-Effective Amendment
No. 2 to this Form S-6 Registration Statement filed May 29,
1996).
--(b) Form of Guaranteed Benefit Rider, Joint Insured Waiver
of Monthly Deductions Rider, Joint Insured Waiver of Selected
Amount Rider, Second-To-Die Rider, First-To-Die Rider, Estate
Protector Rider, Extended Maturity Option Endorsement, Joint
Aviation Exclusion Rider, Accelerated Benefit Rider,
Additional Insured Rider, and Primary Insured Rider. (Filed as
part of Pre-Effective Amendment No. 2 to this Form S-6
Registration Statement filed May 29, 1996).
--(c) Form of Waiver of Monthly Deductions Rider
(incorporated by reference from Exhibit 1.A(5)(c)
to Pre-Effective Amendment No. 1 to registrant's
Form S-6 Registration Statement, File No. 33-
28551, filed on August 18, 1989).
<PAGE> 70
--(d) Form of Waiver of Selected Amount Rider
(incorporated by reference from Exhibit 5(d) to
Post-Effective Amendment No. 9 to the registrant's
Form S-6 Registration Statement, File No. 33-28551,
filed April 29, 1994).
(6) --(a) Articles of Incorporation of Fortis Benefits
(incorporated by reference from Exhibit 1.A(6)(a) to the
initial filing of registrant's Form S-6 Registration
Statement, File No. 33-03919, filed on March 17, 1986).
--(b) Bylaws of Fortis Benefits (incorporated by reference
from Exhibit 1.A(6)(b) to the initial filing of registrant's
Form S-6 Registration Statement, File No. 33-03919, filed on
March 17, 1986).
--(c) Amendment to Articles of Incorporation and
Bylaws dated November 21, 1991 (incorporated by
reference from Exhibit 1.A(6)(c) to registrant's
Post-Effective Amendment No. 4 to Form S-6
Registration Statement, File No. 33-28551, filed
on March 2, 1992).
--(d) Amendment to ByLaws dated May 1, 1999 (incorporated by
reference from Exhibit 3(d) to Form 10-K, File No. 33-46620,
filed March 29, 2000).
(7) --Not applicable.
(8) --Not applicable.
(9) --Not applicable.
(10) --(a) Application Form for Flexible Premium Survivorship
Variable Life Insurance Policy and Form of Temporary Insurance
Agreement. (Filed as part of Pre-Effective Amendment No. 2 to
this Form S-6 Registration Statement filed May 29, 1996).
--(b) Policy Change Application, Transfer Request
Form, and Change of Premium Allocation Form (incorporated by
reference from Exhibit 1.A(10)(b) to registrant's
Post-Effective Amendment No. 4 to Form S-6 Registration
Statement, File 33-28851, filed on March 2, 1992).
2. --See Exhibit 1.A(5) above.
3. --Opinion and consent of counsel as to the legality of Securities
being registered. (Filed as part of Pre-Effective Amendment No. 1 to
this Form S-6 Registration Statement on February 16, 1996).
4. --Not applicable.
5. --Not applicable.
6. --(a) Opinion and consent of actuary (Filed as part of the initial
filing of this Form S-6 Registration Statement on December 21,
1995).
--(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 Pre-Effective Amendment No. 2 to this
Form S-6 Registration Statement filed May 29, 1996).
8. --Method of computing exchange pursuant to Rule 6e-3(T)(b)(13)
(v)(B) under the Investment Company Act of 1940. (Not required
because there will be no cash value adjustments in connection with
the right to transfer Policy Value to the General Account, which
registrant intends to satisfy the requirements of said provision.)
9. Not Applicable
10. --Memorandum of Certain Procedures with Respect to
Pricing and Processing of Transactions Pursuant to Rule
6e-3(T)(b)(12) (iii). (Filed as part of Pre-Effective
Amendment No. 2 to this Form S-6 Registration Statement
filed May 29, 1996).
11. --Power of Attorney for Messrs, Freedman, Gaddy, Mackin, Keller,
Clayton, Mahoney, Clancy, Meler and Greiter (incorporated by
reference from Exhibit 11 to registrant's Form S-6 Registration
Statement, File No. 33-73138, filed on December 17, 1993).
12. Not applicable
<PAGE> 71
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, State of
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 17th, 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
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> 72
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our report dated February 17, 2000 on the financial statements
of Fortis Benefits Insurance Company and our report dated March 29, 2000 on the
financial statements of Fortis Benefits Insurance Company Variable Account C
(Account C) in Post-Effective Amendment No. 4 to the Registration Statement
(Form S-6 No. 33-65243) and related Prospectus of Fortis Benefits Insurance
Company for the registration of flexible premium variable life insurance
policies.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 27, 2000
<PAGE> 73
INDEX TO EXHIBITS
6(b). Supplemental Opinion and Consent of Actuary
<PAGE> 1
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 prospective purchasers of a
Policy for a standard risk non-smoker male age 55 and standard risk
non-smoker female age 53, than to prospective purchasers of Policies
for other combinations of sexes or underwriting classes. 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,
Kay M. Doughty, ASA, MAAA
Staff Actuary
Fortis Benefits Insurance Company
