<PAGE> 1
As filed with the Securities and Exchange Commission on April 27, 2000
Registration No. 33-48266
-------------------
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
-------------------
POST-EFFECTIVE AMENDMENT NO. 12
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.
- ---- ------------
-------------------
-------------------
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 SOLUTIONS(SM) LOGO]
- --------------------------------------------------------------------------------
PROSPECTUS SUPPLEMENT
MAY 1, 2000
FOR
HARMONY INVESTMENT LIFE
FORTIS WALL STREET SERIES VUL220
FORTIS WALL STREET SERIES VUL500
- --------------------------------------------------------------------------------
MAILING ADDRESS: STREET ADDRESS:
P.O. BOX 64284 500 BIELENBERG DRIVE
ST. PAUL, MINNESOTA 55164 WOODBURY, MINNESOTA 55125
98374N (5/00)
<PAGE> 3
PROSPECTUS SUPPLEMENT DATED MAY 1, 2000
This Supplement updates certain information contained in the following
prospectus for product issued by Fortis Benefits Insurance Company:
- Harmony Investment Life dated May 1, 1995 as previously supplemented
- Fortis Wall Street Series VUL220 dated May 1, 1999
- Fortis Wall Street Series VUL500 dated May 1, 1999
Please read this Supplement carefully. You should attach this Supplement to the
Prospectus and retain them for future reference.
FORTIS SERIES FUND, INC.
There are five new portfolios available for investment on May 1, 2000 as
follows:
- Federated--American Leader Series
- MFS--Capital Opportunities Series
- MFS--Investors Growth Series
- MFS--Global Equity Series
- AIM--Blue Chip Stock Series II
In addition, the name of the Global Bond Series has changed to Multisector Bond
Series. The subadviser of this portfolio is now AIM Advisors, Inc.
FORTIS SERIES FUND, INC. ANNUAL EXPENSES(a)
Each Portfolio has a different investment objective and is managed by Fortis
Advisors, Inc. For providing investment management services to the Portfolios,
Fortis Advisors, Inc. currently receives a fee from the Funds. Fortis Series
Fund annual expenses, as a percentage of average net assets based on 1999
historical data, are as set out in the following table:
<TABLE>
<CAPTION>
U.S. MULTI GLOBAL
MONEY GOVERNMENT DIVERSIFIED SECTOR HIGH ASSET
MARKET SECURITIES INCOME BOND YIELD ALLOCATION
SERIES SERIES SERIES SERIES (B) SERIES SERIES
------ ---------- ----------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory and Management Fee..... 0.30% 0.47% 0.47% 0.75% 0.50% 0.90%
Other Expenses............................. 0.05% 0.05% 0.07% 0.15% 0.07% 0.12%
Total Fortis Series Operating Expenses..... 0.35% 0.52% 0.54% 0.90% 0.57% 1.02%
</TABLE>
<TABLE>
<CAPTION>
GROWTH
ASSET AMERICAN CAPITAL & S&P 500
ALLOCATION LEADERS VALUE OPPORTUNITIES INCOME INDEX
SERIES SERIES (C) SERIES SERIES (C) SERIES SERIES
---------- ---------- ------ ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Investment Advisory and Management Fee.... 0.47% 0.90% 0.70% 0.90% 0.63% 0.40%
Other Expenses............................ 0.05% 0.35% 0.06% 0.35% 0.06% 0.06%
Total Fortis Series Operating Expenses.... 0.52% 1.25% 0.78% 1.25% 0.69% 0.46%
</TABLE>
<TABLE>
<CAPTION>
BLUE MID SMALL
CHIP BLUE CHIP INTERNATIONAL CAP CAP
STOCK STOCK STOCK STOCK VALUE
SERIES SERIES II (C) SERIES SERIES SERIES
------ ------------- ------------- ------ ------
<S> <C> <C> <C> <C> <C>
Investment and Management Fee.......................... 0.87% 0.95% 0.84% 0.90% 0.90%
Other Expenses......................................... 0.05% 0.35% 0.10% 0.28% 0.14%
Total Fortis Series Operating Expenses................. 0.92% 1.30% 0.94% 1.18% 1.04%
</TABLE>
S-1
<PAGE> 4
<TABLE>
<CAPTION>
LARGE
GLOBAL GLOBAL CAP INVESTORS GROWTH AGGRESSIVE
GROWTH EQUITY GROWTH GROWTH STOCK GROWTH
SERIES SERIES (C) SERIES SERIES (C) SERIES SERIES
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Investment and Management Fee................ 0.70% 1.00% 0.90% 0.90% 0.61% 0.66%
Other Expenses............................... 0.07% 0.35% 0.07% 0.35% 0.05% 0.06%
Total Fortis Series Operating Expenses....... 0.77% 1.35% 0.97% 1.25% 0.66% 0.72%
</TABLE>
- ------------------------------
(a) As a percentage of portfolio average net assets based on 1999 historical
data, except that for American Leaders, Capital Opportunities, Blue Chip
Stock Series II, Global Equity and Investors Growth, these amounts are based
upon estimates after reimbursement for the current fiscal year. The
estimated expenses for those portfolios prior to reimbursement are as
follows; Global Equity 1.40%, Investors Growth 1.30%, Capital Opportunities
1.30%, American Leaders 1.30% and Blue Chip II 1.30%.
(b) The Multi Sector Bond Series will be sub-advised by AIM and is the same
shell and assets as the Global Bond Series.
(c) Expense estimate for current year.
MANAGEMENT
The directors and executive officers, to the extent responsible for variable
life insurance operations, of Fortis Benefits are listed below, together with
their principal occupations and business experience for the past five years:
<TABLE>
<S> <C>
OFFICER-DIRECTORS
Robert Brian Pollock (4) President and Chief Executive Officer; Vice President and
Treasurer of Fortis, Inc.
Dean C. Kopperud (1) President, Fortis Financial Group; Senior Vice President;
also officer of affiliated companies.
Michael John Peninger (4) Executive Vice President--President (Non medical).
OTHER DIRECTORS
Allen Royal Freedman (2) Chairman and Chief Executive Officer of Fortis, Inc.
J. Kerry Clayton (2) President and Chief Operating Officer of Fortis, Inc.;
before then Executive Vice President of Fortis, Inc.
Arie Aristide Fakkert (3) General Manager of Fortis International N.V.
Alan W. Feagin (5) Executive Vice President; (President--Fortis Family)
EXECUTIVE OFFICERS
Peggy Ettestad (1) Senior Vice President--Operations; before then Vice
President, General Electric Company
Rhonda J. Schwartz (1) Senior Vice President and General Counsel--Life and
Investment Products; before then Secretary and General
Counsel of Fortis, Inc.; before then Norris, McLaughlin,
Marcus--attorneys.
Jon H. Nicholson (1) Senior Vice President--Custom Solutions Group.
Melinda S. Urion (1) Senior Vice President--Chief Financial Officer Fortis
Financial Group; before then Senior Vice President-Finance &
CFO of American Express Financial Corporation.
Dickson W. Lewis (1) Senior Vice President--Distribution and Marketing; before
then President of Hedstrom/Blessing Marketing.
</TABLE>
- ------------------------------
(1) Address: Fortis Benefits Insurance Company, P. O. Box 64271, St. Paul, MN
55164. Fortis Benefits is a wholly-owned subsidiary of Interfinancial, Inc.,
which is itself wholly-owned by Fortis, Inc.
(2) Address: Fortis, Inc., One Chase Manhattan Plaza, New York, NY 10005.
Fortis, Inc. is wholly owned by Fortis International, N.V., which is itself
wholly owned by AMEV/VSB 1990 N.V. The latter two
S-2
<PAGE> 5
companies share the same address as N.V. AMEV. AMEV/VSB 1990 N.V. is 50%
owned by Fortis (NL) N.V. and 50% owned by Fortis (B), Boulevard Emile
Jacqmain 53, Brussels, Belgium.
(3) Address: Fortis (NL) N.V., Archimedeslaan 10, 3584 BA Utrecht, The
Netherlands.
(4) Address: 2323 Grand Avenue, Kansas City, MO 64108.
(5) Address: 10 Glenlake Parkway NE, Suite 500, Atlanta GA 30328
THE FOLLOWING INFORMATION APPLIES SOLELY TO THE FORTIS WALL STREET SERIES VUL220
AND
THE FORTIS WALL STREET SERIES VUL500
Dollar Cost Averaging
The minimum amount requirements to begin dollar cost averaging are waived by
Fortis Benefits.
Automatic Rebalancing
The minimum amount requirements to begin automatic rebalancing (Privileged
Account Service) are waived by Fortis Benefits.
Transfers of Existing Policy Value
Unless you are transferring the entire amount you have in an investment option,
each transfer must be at least $250. We reserve the right to raise this minimum
transfer amount up to $1,000. You may make transfers at any time, except that
transfers out of the general account option are limited to one transfer per
year, and may not be for more than 50% of the policy value in the general
account.
Partial withdrawal
Between the first and second Policy year, you may make a partial withdrawal only
if your total premiums to date equal or exceed the sum of 12 recommended monthly
minimum premiums for the initial face amount of your Policy.
Policy loans
If you have specified the investment options from which monthly charges will be
taken, then the loan amount will be taken from those same investment options.
Policy Date, Policy months and years
This paragraph found on page 27 of the prospectus is hereby deleted and replaced
with the following:
Policy Date, Policy months and years. After we approve an application for
a Policy and assign an appropriate insurance risk class, we prepare the Policy.
The day we begin to deduct charges will appear on your Policy schedule and is
called the "Policy date." The Policy date will ordinarily be within three days
after the date the application is approved. Policy months and years are measured
from the Policy date. In order to preserve a younger age at issue for the
insured person, we may assign a Policy date to a Policy that is up to 6 months
earlier than would otherwise apply.
Commencement of investment performance
This paragraph, found on page 27 of the prospectus is deleted and replaced with
the following:
Commencement of investment performance. The first premium payment will be
allocated automatically to the general account as of the later of the policy
date or the date the payment is received, and assuming the Policy goes into
effect will earn a rate of return. These payments will be held in the general
account generally until the twentieth day after the Policy is issued and
insurance coverage commences.
S-3
<PAGE> 6
INDEPENDENT AUDITORS
Ernst & Young LLP, independent auditors, have audited the financial statements
of Fortis at December 31, 1999 and 1998, and for each of the three years in the
period ended December 31, 1999, and the statements of net assets of Variable
Account C at December 31, 1999, and the related statements of changes in net
assets for each of the two years in the period ended December 31, 1999, as set
forth in their report. We've included the financial statements in the prospectus
and elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
FINANCIAL STATEMENTS
The financial statements of Fortis Benefits and Variable Account C included in
the Supplement should be considered only as bearing upon the ability of Fortis
Benefits to meet its obligations under the Policies. Fortis generally reinsures
risks for non-group insurance in excess of $500,000 per insured with other
insurance companies. See Notes to Fortis Financial Statements.
S-4
<PAGE> 7
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying balance sheets of Fortis Benefits Insurance
Company, an indirect, wholly-owned subsidiary of Fortis (B) and Fortis (NL)
N.V., as of December 31, 1999 and 1998, and the related statements of income,
changes in shareholder's equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fortis Benefits Insurance
Company at December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
[/s/ ERNST & YOUNG]
February 17, 2000
Minneapolis, Minnesota
F-1
<PAGE> 8
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost
1999--$2,802,697; 1998--$2,315,904).................... $2,706,372 $2,402,343
Equity securities, at fair value (cost 1999--$81,554;
1998--$141,947)........................................ 85,021 157,851
Mortgage loans on real estate, less allowance for possible
losses (1999 and 1998--$11,085)........................ 754,514 610,131
Policy loans.............................................. 83,439 74,950
Short-term investments.................................... 115,527 31,868
Real estate and other investments......................... 47,502 36,156
---------- ----------
3,792,375 3,313,299
Cash and cash equivalents................................... 18,670 668
Receivables:
Uncollected premiums...................................... 62,938 61,883
Reinsurance recoverable on unpaid and paid losses......... 23,471 14,853
Other..................................................... 19,406 17,641
---------- ----------
105,815 94,377
Accrued investment income................................... 55,464 42,831
Deferred policy acquisition costs........................... 430,192 331,938
Property and equipment at cost, less accumulated
depreciation.............................................. 25,118 30,712
Deferred federal income taxes............................... 52,467 17,904
Other assets................................................ 1,582 3,923
Due from affiliates......................................... 8,304 --
Assets held in separate accounts............................ 5,120,152 3,742,403
---------- ----------
Total assets................................................ $9,610,139 $7,578,055
========== ==========
</TABLE>
F-2
<PAGE> 9
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1999 1998
---------- ----------
<S> <C> <C>
POLICY RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
Policy reserves and liabilities:
Future policy benefit reserves:
Traditional and pre-need life insurance................ $1,106,269 $ 450,776
Interest sensitive and investment products............. 1,147,657 1,238,125
Accident and health.................................... 940,865 861,334
---------- ----------
3,194,791 2,550,235
Unearned revenues......................................... 28,673 13,393
Other policy claims and benefits payable.................. 265,486 255,350
Policyholder dividends payable............................ 7,939 8,189
---------- ----------
3,496,889 2,827,167
Accrued expenses.......................................... 59,409 57,860
Current income taxes payable.............................. 1,838 4,168
Other liabilities......................................... 120,110 86,226
Due to affiliates......................................... -- 9,479
Liabilities related to separate accounts.................. 5,082,341 3,707,687
---------- ----------
Total policy reserves and liabilities....................... 8,760,587 6,692,587
Commitments and contingencies
Shareholder's equity:
Common Stock, $5 par value:
Authorized, issued and outstanding shares--1,000,000... 5,000 5,000
Additional paid-in capital................................ 468,000 468,000
Retained earnings......................................... 427,811 344,605
Accumulated other comprehensive (loss) income............. (51,259) 67,863
---------- ----------
Total shareholder's equity.................................. 849,552 885,468
---------- ----------
Total policy reserves, liabilities and shareholder's
equity.................................................... $9,610,139 $7,578,055
========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 10
STATEMENTS OF INCOME
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Insurance operations:
Traditional life insurance premiums....................... $ 301,377 $ 260,567 $ 269,540
Interest sensitive and investment product policy
charges................................................ 99,047 85,551 77,429
Accident and health insurance premiums.................... 1,002,867 953,652 891,037
---------- ---------- ----------
1,403,291 1,299,770 1,238,006
Net investment income....................................... 238,698 234,043 228,724
Net realized gains on investments........................... 25,962 52,404 41,101
Other income................................................ 53,848 44,671 36,458
---------- ---------- ----------
Total revenues.............................................. 1,721,799 1,630,888 1,544,289
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance................................ 218,993 189,337 204,497
Interest sensitive investment products.................... 93,668 96,178 103,077
Accident and health claims................................ 812,149 798,036 707,113
---------- ---------- ----------
1,124,810 1,083,551 1,014,687
Policyholder dividends...................................... 3,114 3,486 2,935
Amortization of deferred policy acquisition costs........... 43,078 33,365 43,931
Insurance commissions....................................... 124,601 118,710 107,378
General and administrative expenses......................... 302,663 299,492 273,128
---------- ---------- ----------
Total benefits and expenses................................. 1,598,266 1,538,604 1,442,059
---------- ---------- ----------
Income before federal income taxes.......................... 123,533 92,284 102,230
Federal income taxes........................................ 40,327 30,402 35,120
---------- ---------- ----------
Net income.................................................. $ 83,206 $ 61,882 $ 67,110
========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 11
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
TOTAL STOCK CAPITAL EARNINGS (LOSS) INCOME
--------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997.................. $ 780,673 $5,000 $468,000 $265,613 $ 42,060
Comprehensive income:
Net income........................... 67,110 -- -- 67,110 --
Change in unrealized gains (losses)
on investments, net................ 32,323 -- -- -- 32,323
---------
Total Comprehensive income.............. 99,433
--------- ------ -------- -------- ---------
Balance, December 31, 1997................ 880,106 5,000 468,000 332,723 74,383
Comprehensive income:
Net income........................... 61,882 -- -- 61,882 --
Change in unrealized gains (losses)
on investments, net................ (6,520) -- -- -- (6,520)
---------
Total Comprehensive income.............. 55,362
Dividend................................ (50,000) -- -- (50,000) --
--------- ------ -------- -------- ---------
Balance, December 31, 1998................ 885,468 5,000 468,000 344,605 67,863
Comprehensive income:
Net income........................... 83,206 -- -- 83,206 --
Change in unrealized gains (losses)
on investments, net................ (119,122) -- -- -- (119,122)
---------
Total Comprehensive income.............. (35,916)
--------- ------ -------- -------- ---------
Balance, December 31, 1999................ $ 849,552 $5,000 $468,000 $427,811 $ (51,259)
========= ====== ======== ======== =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 12
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................... $ 83,206 $ 61,882 $ 67,110
Adjustments to reconcile net income to net cash provided
by operating activities:
Increase (decrease) in future policy benefit
reserves for traditional, interest sensitive and
accident and health policies...................... 97,931 106,135 (2,496)
Increase (decrease) in other policy claims and
benefits and policyholder dividends payable....... 5,012 (2,514) 68,070
Provision for deferred federal income taxes......... 29,454 417 (6,449)
Decrease in income taxes payable.................... (2,330) (6,381) (6,875)
Amortization of deferred policy acquisition costs... 43,078 33,365 43,931
Policy acquisition costs deferred................... (96,308) (73,147) (69,694)
Provision for mortgage loan losses.................. -- -- 1,388
Provision for depreciation.......................... 12,807 12,409 14,351
Write-off of investment............................. -- -- 3,000
Amortization of investment (discounts) premiums,
net............................................... 1,930 (3,200) (466)
Change in receivables, accrued investment income,
unearned premiums, accrued expenses and other
liabilities....................................... 27,227 (4,455) (2,720)
Net realized gains on sold investments.............. (25,962) (52,404) (41,101)
Other............................................... -- 169 (12,496)
----------- ----------- -----------
Net cash provided by operating activities................ 176,045 72,276 55,553
INVESTING ACTIVITIES
Purchases of fixed maturity investments.................. (1,654,104) (2,380,511) (3,611,770)
Sales and repayments of fixed maturity investments....... 1,675,488 2,428,207 3,378,898
(Increase) decrease in short-term investments............ (83,659) 38,669 112,280
Purchases of other investments........................... (305,889) (408,998) (209,771)
Sales of other investments............................... 353,267 352,873 205,084
Purchases of property and equipment...................... (7,213) (356) (4,242)
Cash received pursuant to reinsurance assumption
agreement.............................................. 3,374 -- --
Other.................................................... -- -- (617)
----------- ----------- -----------
Net cash (used in) provided by investing activities...... (18,736) 29,884 (130,138)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received................................ 237,375 215,693 200,760
Surrenders and death benefits.......................... (416,537) (326,457) (190,361)
Interest credited to policyholders..................... 39,855 49,371 53,613
Dividend................................................. -- (50,000) --
----------- ----------- -----------
Net cash (used in) provided by financing activities...... (139,307) (111,393) 64,012
Increase (decrease) in cash and cash equivalents......... 18,002 (9,233) (10,573)
Cash and cash equivalents at beginning of year........... 668 9,901 20,474
----------- ----------- -----------
Cash and cash equivalents at end of year................. $ 18,670 $ 668 $ 9,901
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 13
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Assets and liabilities transferred in reinsurance transactions (Note 8):
<TABLE>
<S> <C>
Non-Cash Assets Received:
Fixed maturities.......................................... $ 517,091
Other Investments......................................... 121,696
Other Assets.............................................. 12,763
Deferred Acquisition Costs................................ 35,882
---------
Total value of assets received.............................. $ 687,432
=========
Non-Cash Liabilities Assumed:
Future policy benefit reserves............................ $(685,932)
Claim reserves............................................ (4,874)
---------
Total Liabilities Assumed................................... $(690,806)
=========
</TABLE>
F-7
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Fortis Benefits Insurance Company (the Company) is an indirect wholly-owned
subsidiary of Fortis, Inc. (Fortis), which itself is an indirect, wholly-owned
subsidiary of Fortis (B) and Fortis (NL) N.V. The Company is incorporated in
Minnesota and distributes its products in all states except New York. The
Company's revenues are derived principally from group employee benefits products
and from individual life and annuity products.
Effective October 1, 1999, the Company assumed pre-need life insurance business
from an affiliate on a 100% co-insurance basis. These life insurance and annuity
products are marketed in connection with the advance funding of funeral
expenses. (See Note 8 "Reinsurance" for more information on this reinsurance
transaction.)
BASIS OF STATEMENT PRESENTATION
During 1998, the Company adopted Statement of Financial Accounting Standards
Board (SFAS) 130, Reporting Comprehensive Income. SFAS 130 establishes new rules
for the reporting and display of comprehensive income and its components;
however, the adoption of this SFAS had no impact on the Company's net income or
shareholder's equity. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities, which prior to adoption were reported
separately in shareholder's equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified to conform to the
requirements of SFAS 130.
Effective January 1, 1999, the Company adopted SOP 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments". SOP 97-3
requires the estimation and recording of certain insurance-related assessments.
Because the Company previously recorded insurance-related assessments on this
basis, the adoption of SOP 97-3 had no impact on the results of operations or
financial position.
In June 1999, the Financial Accounting Standards Board issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FAS 133", which deferred to January 1, 2001 the effective date
of the accounting and reporting requirements of SFAS 133. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
The adoption of SFAS 133 is not expected to have a material effect on the
Company's results of operations or financial position.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company follows accounting principles generally accepted in the United
States which differ in certain respects from statutory accounting practices
prescribed or permitted by regulatory authorities. The more significant of these
principles are set forth below:
REVENUE RECOGNITION AND FUTURE POLICY BENEFIT RESERVES
Premiums for traditional life insurance and pre-need life products are
recognized as revenues when due over the premium-paying period. Reserves for
future policy benefits are computed using the net level method and include
investment yield, mortality, withdrawal, and other assumptions based on the
Company's experience, modified as necessary to reflect anticipated trends and to
include provisions for possible unfavorable deviations.
Revenues for interest sensitive and investment products consist of charges
assessed against policy account balances during the period for the cost of
insurance, policy administration, and surrender charges. Future policy benefit
reserves are computed under the retrospective deposit method and consist of
policy account balances before applicable surrender charges. Policy benefits
charged to expense during the period include amounts paid in excess of policy
account balances and interest credited to policy account balances. Interest
crediting rates for universal life and investment products ranged from 3.5% to
12% in 1999, and 2.5% to 8.75% in 1998 and 1997.
F-8
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
A portion of the Company's pre-need life products provide an increasing future
benefit tied typically to the U.S. Consumer Price Index or a targeted growth
rate established at management's discretion. All pre-need life products that
have death benefit increases made at management's discretion are accounted for
as interest-sensitive life products.
Premiums for accident and health insurance products, including medical, long and
short-term disability and dental insurance products, are recognized as revenues
ratably over the contract period in proportion to the risk insured. Reserves for
future disability benefits are based on the 1987 Commissioners Group Disability
Table. The valuation interest rate is the Single Premium Immediate Annuity
valuation rate less 100 basis points. Claims in the first five years' are
modified based on the Company's actual experience.
CLAIMS AND BENEFITS PAYABLE
Other policy claims and benefits payable for reported and incurred but not
reported claims and related claims adjustment expenses are determined using
case-basis estimates and past experience. The methods of making such estimates
and establishing the related liabilities are continually reviewed and updated.
Any adjustments resulting therefrom are reflected in income currently.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, which vary with and are directly related to
the production of new business, are deferred to the extent recoverable and
amortized. For traditional and pre-need life insurance and long-term care
products (included as accident and health products), such costs are amortized
over the premium paying period. For interest sensitive and investment products,
such costs are amortized in relation to expected future gross profits.
Estimation of future gross profits requires significant management judgment and
are reviewed periodically. As excess amounts of deferred costs over future
premiums or gross profits are identified, such excess amounts are expensed.
INVESTMENTS
The Company's investment strategy is developed based on many factors including
insurance liability matching, rate of return, maturity, credit risk, tax
considerations and regulatory requirements.
All fixed maturity investments and all marketable equity securities are
classified as available-for-sale and carried at fair value.
Changes in fair values of available for sale securities, after related deferred
income taxes and after adjustment for the changes in the pattern of amortization
of deferred policy acquisition costs and participating policyholder dividends,
are reported directly in shareholder's equity as accumulated other comprehensive
income and, accordingly, have no effect on net income. The unrealized
appreciation or depreciation is net of deferred policy acquisition cost
amortization and taxes that would have been required as a charge or credit to
income had such unrealized amounts been realized.
Mortgage loans constitute first liens on commercial real estate and other income
producing properties. The insurance statutes in Minnesota generally require that
the initial principal loaned not exceed 80% of the appraised value of the
property securing the loan. The Company's policy fully complies with this
statute. Mortgage loans on real estate are reported at amortized cost, less
allowance for possible losses. The change in the allowance for possible losses
is recorded with realized gains and losses on investments.
Policy loans are reported at their unpaid balance. Short term investments are at
cost which approximates fair value.
Real estate and other investments consist principally of property acquired in
satisfaction of debt and limited partnerships, respectively. Real estate is
recorded at cost less allowances for depreciation. The Company provides for
depreciation on a straight-line basis over the estimated useful lives. Other
investments are accounted for using the equity method of accounting.
Realized gains and losses on sales of investments, and declines in value judged
to be other-than-temporary, are recognized on the specific identification basis.
Investment income is recorded as earned.
F-9
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation. The
Company provides for depreciation principally on the straight-line method over
the estimated useful lives of the related property. Depreciation expense was
$12,807,000, $12,409,000 and $14,351,000 for the year ended December 31, 1999,
1998 and 1997, respectively.
INCOME TAXES
Income taxes have been provided using the liability method. Deferred tax assets
and liabilities are determined based on the temporary differences between the
financial reporting and the tax bases and are measured using the enacted tax
rates.
SEPARATE ACCOUNTS
Revenues and expenses related to the separate account assets and liabilities are
excluded from the amounts reported in the accompanying statements of income.
Assets and liabilities associated with the separate accounts relate to deposits
and annuity considerations for variable life and variable annuity products for
which the contract holder, rather than the Company, bears the investment risk.
Separate account assets are reported at fair value and represent funds held for
the exclusive benefit of the variable annuity and variable life insurance
contract owners.
The Company receives mortality and expense risk fees from the separate accounts.
The Company also deducts monthly cost of insurance charges, and receives minimum
death benefit guarantee fees and issue and administrative fees from the variable
life insurance separate accounts.
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of the
annuitants and beneficiaries from the mortality assumptions implicit in the
annuity contracts. The Company makes periodic fund transfers to, or withdrawals
from, the separate account assets for such actuarial adjustments for variable
annuities that are in the benefit payment period. The Company also guarantees
that the rates at which administrative fees are deducted from contract funds
will not exceed contractual maximums.
For variable life insurance, the Company guarantees that the rates at which
insurance charges and administrative fees are deducted from contract funds will
not exceed contractual maximums. The Company also guarantees that the death
benefit will continue payable at the initial level regardless of investment
performance so long as minimum premium payments are made.
GUARANTY FUND ASSESSMENTS
There are a number of insurance companies that are currently under regulatory
supervision. This may result in future assessments by state guaranty fund
associations to cover losses to policyholders of insolvent or rehabilitated
companies. These assessments can be partially recovered through a reduction in
future premium taxes in some states. The Company believes it has adequately
provided for the impact of future assessments relating to current insolvencies.
STATEMENTS OF CASH FLOWS
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These securities are
carried principally at amortized cost which approximates fair value.
COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and other comprehensive income
which includes unrealized gains and losses on securities classified as
available-for-sale, net of the effect on deferred policy acquisition costs,
taxes and reclassification adjustment.
F-10
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1998 and 1997 financial statements have been reclassified
to conform to the 1999 presentation.
2. INVESTMENTS
AVAILABLE-FOR-SALE SECURITIES
The following is a summary of the available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Fixed maturities:
Governments................................ $ 309,402 $ 46 $ 8,934 $ 300,514
Public utilities........................... 237,579 341 10,375 227,545
Industrial and miscellaneous............... 2,208,281 7,020 81,412 2,133,889
Other...................................... 47,435 184 3,195 44,424
---------- -------- -------- ----------
Total fixed maturities....................... 2,802,697 7,591 103,916 2,706,372
Equity securities............................ 81,554 5,825 2,358 85,021
---------- -------- -------- ----------
Total........................................ $2,884,251 $ 13,416 $106,274 $2,791,393
========== ======== ======== ==========
DECEMBER 31, 1998
Fixed maturities:
Governments................................ $ 321,047 $ 5,994 $ 436 $ 326,605
Public utilities........................... 190,792 7,769 1,704 196,857
Industrial and miscellaneous............... 1,723,183 79,137 6,451 1,795,869
Other...................................... 80,882 2,181 51 83,012
---------- -------- -------- ----------
Total fixed maturities....................... 2,315,904 95,081 8,642 2,402,343
Equity securities............................ 141,947 18,238 2,334 157,851
---------- -------- -------- ----------
Total........................................ $2,457,851 $113,319 $ 10,976 $2,560,194
========== ======== ======== ==========
</TABLE>
The amortized cost and fair value of available-for-sale investments in fixed
maturities at December 31, 1999, by contractual maturity, are shown below (in
thousands).
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due in one year or less..................................... $ 62,675 $ 62,547
Due after one year through five years....................... 681,595 671,472
Due after five years through ten years...................... 912,713 881,953
Due after ten years......................................... 1,145,714 1,090,400
---------- ----------
Total....................................................... $2,802,697 $2,706,372
========== ==========
</TABLE>
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
F-11
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
2. INVESTMENTS (CONTINUED)
MORTGAGE LOANS
The Company has issued commercial mortgage loans on properties located
throughout the United States. Approximately 38% and 36% of outstanding principal
is concentrated in the states of New York, California and Florida, at December
31, 1999 and 1998, respectively. Loan commitments outstanding totaled
$12,350,000 at December 31, 1999.
INVESTMENTS ON DEPOSIT
The Company had fixed maturities carried at $17,061,000 and $19,978,000 at
December 31, 1999 and 1998, respectively, on deposit with various governmental
authorities as required by law.
INVESTMENT IN MANAGED DENTAL INITIATIVE
In 1997, the Company acquired a 99% ownership in a managed dental initiative
called Dental Health Alliance, Inc. (DHA). Based on an analysis of future DHA
profitability, the entire investment of $8,132,000 was written-off at December
31, 1997.
NET UNREALIZED GAINS (LOSSES)
The adjusted net unrealized gains (losses) on investments recorded in
accumulated other comprehensive income for the year ended December 31, are set
forth below (in thousands):
<TABLE>
<CAPTION>
TAX
BEFORE-TAX (EXPENSE) NET-OF-TAX
AMOUNT BENEFIT AMOUNT
---------- --------- ----------
<S> <C> <C> <C>
DECEMBER 31, 1999
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $(168,542) $ 58,990 $(109,552)
Decrease in amortization of deferred policy acquisition
costs................................................. 9,142 (3,200) 5,942
Reclassification adjustment for gains (losses) realized
in net income......................................... (23,864) 8,352 (15,512)
--------- -------- ---------
Other comprehensive loss................................... $(183,264) $ 64,142 $(119,122)
========= ======== =========
DECEMBER 31, 1998
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $ 32,614 $(11,562) $ 21,052
Decrease in amortization of deferred policy acquisition
costs................................................. 414 (145) 269
Reclassification adjustment for gains (losses) realized
in net income......................................... (42,832) 14,991 (27,841)
--------- -------- ---------
Other comprehensive loss................................... $ (9,804) $ 3,284 $ (6,520)
========= ======== =========
DECEMBER 31, 1997
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments........................................... $ 93,826 $(33,796) $ 60,030
Increase in amortization of deferred policy acquisition
costs................................................. (2,096) 771 (1,325)
Reclassification adjustment for gains (losses) realized
in net income......................................... (40,587) 14,205 (26,382)
--------- -------- ---------
Other comprehensive income................................. $ 51,143 $(18,820) $ 32,323
========= ======== =========
</TABLE>
F-12
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
2. INVESTMENTS (CONTINUED)
NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Major categories of net investment income and realized gains (losses) on
investments for each year were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET INVESTMENT INCOME
Fixed maturities............................................ $167,027 $160,163 $160,444
Equity securities........................................... 7,320 8,656 9,306
Mortgage loans on real estate............................... 57,684 57,031 54,662
Policy loans................................................ 5,272 4,653 4,144
Short-term investments...................................... 844 1,701 2,851
Real estate and other investments........................... 6,375 8,194 4,635
-------- -------- --------
244,522 240,398 236,042
Expenses.................................................... (5,824) (6,355) (7,318)
-------- -------- --------
$238,698 $234,043 $228,724
======== ======== ========
NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Fixed maturities............................................ $ (9,750) $ 34,320 $ 13,827
Equity securities........................................... 33,613 8,512 26,760
Mortgage loans on real estate............................... -- (198) 301
Short-term investments...................................... -- 5 --
Real estate and other investments........................... 2,099 9,765 213
-------- -------- --------
$ 25,962 $ 52,404 $ 41,101
======== ======== ========
</TABLE>
Proceeds from sales of investments in fixed maturities were $1,627,450,000,
$2,460,316,000 and $3,360,682,000 in 1999, 1998 and 1997, respectively. Gross
gains of $11,996,000, $44,360,000 and $30,860,000 and gross losses of
$21,746,000, $10,040,000 and $17,033,000 were realized on the sales in 1999,
1998 and 1997, respectively.
F-13
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
3. DEFERRED POLICY ACQUISITION COSTS
The changes in deferred policy acquisition costs by product were as follows (in
thousands):
<TABLE>
<CAPTION>
INTEREST
TRADITIONAL SENSITIVE AND
AND PRE-NEED INVESTMENT ACCIDENT AND
LIFE PRODUCTS HEALTH TOTAL
------------ ------------- ------------ --------
<S> <C> <C> <C> <C>
Balance, January 1, 1998.................... $22,169 $264,383 $ 5,190 $291,742
Acquisition costs deferred................ -- 69,921 3,226 73,147
Acquisition costs amortized............... (7,609) (20,256) (5,500) (33,365)
Decreased amortization of deferred
acquisition costs from unrealized gains
on available-for-sale securities....... -- 414 -- 414
------- -------- ------- --------
Balance, December 31, 1998.................. 14,560 314,462 2,916 331,938
Acquisition costs deferred................ 33,783 81,016 17,391 132,190
Acquisition costs amortized............... (2,438) (38,831) (1,809) (43,078)
Decreased amortization of deferred
acquisition costs from unrealized gains
on available-for-sale securities....... -- 9,142 -- 9,142
------- -------- ------- --------
Balance, December 31, 1999.................. $45,905 $365,789 $18,498 $430,192
======= ======== ======= ========
</TABLE>
Included in total policy acquisition costs deferred in 1999 is $35,882,000 of
present value of future profits (PVP) and $1,416,000 of subsequent acquisition
costs resulting from the reinsurance assumption agreement with United Family
Life Insurance Company, an affiliate, which became effective October 1, 1999.
PVP is being amortized against the expected premium revenue of the pre-need life
insurance business assumed. See Note 8 "Reinsurance" for more information on
this reinsurance transaction.
During 1999, 1998 and 1997, the Company sold portions of its investment
portfolio and in accordance with FASB Statement 97, the recognition of the
realized net capital gains resulted in increased (decreased) amortization of
deferred acquisition costs of $(224,000), $3,357,000 and $732,000, respectively.
4. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31 for each year follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land........................................................ $ 1,900 $ 1,900
Building and improvements................................... 26,383 24,319
Furniture and equipment..................................... 76,604 87,714
-------- --------
104,887 113,933
Less accumulated depreciation............................... (79,769) (83,221)
-------- --------
Net property and equipment.................................. $ 25,118 $ 30,712
======== ========
</TABLE>
F-14
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
5. ACCIDENT AND HEALTH RESERVES
Activity for the liability for unpaid accident and health claims is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance recoverables.... $1,061,883 $ 988,036 $947,711
Add: Incurred losses related to:
Current year.............................................. 824,949 826,009 773,316
Prior years............................................... (12,800) (27,973) (59,634)
---------- ---------- --------
Total incurred losses....................................... 812,149 798,036 713,682
Deduct: Paid losses related to:
Current year.............................................. 468,404 469,881 437,405
Prior years............................................... 266,025 254,308 235,952
---------- ---------- --------
Total paid losses........................................... 734,429 724,189 673,357
---------- ---------- --------
Balance as of December 31, net of reinsurance
recoverables.............................................. $1,139,603 $1,061,883 $988,036
========== ========== ========
</TABLE>
The table above compares to the amounts reported on the balance sheet in the
following respects: (1) the table above is presented net of ceded reinsurance
and the accident and health reserves reported on the balance sheet are gross of
ceded reinsurance; and (2) the table above includes accident and health benefits
payable which are included with other policy claims and benefits payable
reported on the balance sheet.
In each of the years presented above, the accident and health insurance line of
business experienced overall favorable development on claims reserves
established as of the previous year end. The favorable development was a result
of lower medical costs and a reduction of loss reserves due to lower than
anticipated inflation in medical costs.
The liability for unpaid accident and health claims includes $994,651,000,
$915,368,000 and $854,940,000 of total disability income reserves as of December
31, 1999, 1998 and 1997, respectively, which were discounted for anticipated
interest earnings using a rate which varies by incurral year.
6. FEDERAL INCOME TAXES
The Company reports its taxable income in a consolidated federal income tax
return along with other affiliated subsidiaries of Fortis. Income tax expense or
credits are allocated among the affiliated subsidiaries by applying corporate
income tax rates to taxable income or loss determined on a separate return basis
according to a Tax Allocation Agreement.
Deferred income taxes reflect the net tax effects of temporary differences
between the basis of assets and liabilities for financial statement purposes and
for income tax purposes.
F-15
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
6. FEDERAL INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Separate account assets/liabilities....................... $ 60,716 $ 87,300
Reserves.................................................. 35,843 27,586
Claims and benefits payable............................... 7,964 8,089
Accrued liabilities....................................... 6,973 10,113
Unrealized Losses......................................... 32,500 --
Investments............................................... 4,549 3,861
Other..................................................... 6,755 2,723
-------- --------
Total deferred tax assets................................... 155,300 139,672
Deferred tax liabilities:
Deferred policy acquisition costs......................... 98,539 82,031
Unrealized gains.......................................... -- 35,591
Fixed assets.............................................. 2,963 3,150
Investments............................................... 1,171 982
Other..................................................... 160 14
-------- --------
Total deferred tax liabilities.............................. 102,833 121,768
-------- --------
Net deferred tax asset...................................... $ 52,467 $ 17,904
======== ========
</TABLE>
The Company is required to establish a valuation allowance for any portion of
the deferred tax asset that management believes will not be realized. In the
opinion of management, it is more likely than not that the Company will realize
the benefit of the deferred tax assets, and, therefore, no such valuation
allowance has been established.
The Company's tax expense (benefit) for the year ended December 31 is shown as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current..................................................... $10,873 $30,232 $41,569
Deferred.................................................... 29,454 170 (6,449)
------- ------- -------
$40,327 $30,402 $35,120
======= ======= =======
</TABLE>
Federal income tax payments and refunds resulted in net payments of $13,203,000,
$36,367,000 and $58,859,000 in 1999, 1998 and 1997, respectively.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate................................... 35.0% 35.0% 35.0%
Other, net.................................................. (2.4) (2.1) (.6)
---- ---- ----
32.6% 32.9% 34.4%
==== ==== ====
</TABLE>
F-16
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
7. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets at December 31 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Premium and annuity considerations for the variable annuity
products and variable universal life products for which
the contract holder, rather than the Company, bears the
investment risk........................................... $5,082,341 $3,707,687
Assets of the separate accounts owned by the Company, at
fair value................................................ 37,811 34,716
---------- ----------
$5,120,152 $3,742,403
========== ==========
</TABLE>
8. REINSURANCE
In the second quarter of 1996, First Fortis Life Insurance Company (First
Fortis), an affiliate, received approval from the New York State Insurance
Department for a reinsurance agreement with the Company. The agreement, which
became effective as of January 1, 1996, decreased First Fortis' long-term
disability reinsurance retention from a $10,000 net monthly benefit to a $2,000
net monthly benefit for claims incurred on and after January 1, 1996. The
Company has assumed $6,580,000, $5,601,000 and $5,742,000 of premium from First
Fortis in 1999, 1998 and 1997, respectively. The Company has assumed
$11,047,000, $9,315,000 and $5,452,000 of reserves in 1999, 1998 and 1997,
respectively, from First Fortis.
In the fourth quarter of 1999, United Family Life Insurance Company (UFL), an
affiliate, received approval from the state of Georgia for a reinsurance
agreement with the Company. The agreement, which became effective October 1,
1999, provided for the cession of substantially all of UFL's pre-need life
insurance business on a 100% co-insurance basis. The Company assumed
approximately $690,806,000 of reserves and received approximately $654,924,000
of cash, investments (primarily fixed maturities and mortgages) and other assets
as of October 1, 1999. The $35,882,000 ceding commission was capitalized as an
acquisition cost (as described in Note 3). During the period October 1, 1999 to
December 31, 1999, the Company assumed $31,523,000 of premium under the
contract.
The maximum amount that the Company retains on any one life is $1,000,000 of
life insurance including accidental death. Amounts in excess of $1,000,000 are
reinsured with other life insurance companies on a yearly renewable term basis.
Ceded reinsurance premiums for the year ended December 31 were as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Life insurance.............................................. $ 6,246 $ 6,983 $ 8,159
Accident and health insurance............................... 17,803 13,862 13,712
------- ------- -------
$24,049 $20,845 $21,871
======= ======= =======
</TABLE>
Recoveries under reinsurance contracts for the year ended December 31 were as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Life insurance.............................................. $ 478 $ 4,549 $ 2,973
Accident and health insurance............................... 13,669 9,465 14,781
------- ------- -------
$14,147 $14,014 $17,754
======= ======= =======
</TABLE>
Reinsurance ceded would become a liability of the Company in the event the
reinsurers are unable to meet the obligations assumed under the reinsurance
agreement. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk arising from similar geographic
regions, activities or economic characteristics of the reinsurers.
F-17
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
9. DIVIDEND RESTRICTIONS
Dividend distributions to the parent are restricted as to the amount by state
regulatory requirements. The Company had $49,286,000 free from such restrictions
as of December 31, 1999. Distributions in excess of this amount would require
regulatory approval.
10. REGULATORY ACCOUNTING REQUIREMENTS
Statutory-basis financial statements are prepared in accordance with accounting
practices prescribed or permitted by the Minnesota Department of Commerce.
Prescribed statutory accounting practices include a variety of publications of
the National Association of Insurance Commissioners ("NAIC"), as well as state
laws, regulations and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so prescribed; such
practices may differ from state to state, may differ from company to company
within a state, and may change in the future.
In 1998, the NAIC adopted codified statutory accounting principles
("Codification") effective January 1, 2001. Codification will likely change, to
some extent, prescribed statutory accounting practices and may result in changes
to the accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification requires adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Minnesota has adopted Codification
effective January 1, 2001. Management has not yet determined the impact of
Codification to the Company's statutory-basis financial statements.
Insurance enterprises are required by State Insurance Departments to adhere to
minimum risk-based capital ("RBC") requirements developed by the NAIC. The
Company exceeds the minimum RBC requirements.
Reconciliations of net income and shareholder's equity on the basis of statutory
accounting to the related amounts presented in the accompanying statements were
as follows (in thousands):
<TABLE>
<CAPTION>
SHAREHOLDER'S
NET INCOME EQUITY
----------------------------- ---------------------
1999 1998 1997 1999 1998
-------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Based on statutory accounting practices........... $ 9,387 $14,841 $ 62,593 $ 497,858 $ 478,405
Deferred policy acquisition costs................. 54,049 39,782 25,763 430,192 331,938
Investment valuation differences.................. 953 745 (497) (103,361) 100,165
Deferred and uncollected premiums................. (4,637) 511 2,064 (13,188) (7,246)
Policy reserves................................... (20,070) (7,041) (19,363) (127,766) (156,889)
Commissions....................................... 79,067 -- (3,171) -- --
Current income taxes payable...................... (8,882) 925 6,450 (9,000) (10,920)
Deferred income taxes............................. (18,650) (417) 6,449 52,467 17,904
Realized gains on investments..................... 9 356 251 -- --
Realized gains (losses) transferred to the
Interest Maintenance Reserve (IMR), net of
tax............................................. (6,163) 22,748 9,644 -- --
Amortization of IMR, net of tax................... (8,565) (7,128) (6,315) -- --
Write-off of investment........................... -- (11,705) -- --
Pension expense................................... (1,475) 81 (4,153) (8,235) (6,440)
Property and equipment............................ -- -- -- 591 5,951
Interest maintenance reserve...................... -- -- -- 55,117 68,968
Asset valuation reserve........................... -- -- -- 72,940 90,986
Mortgage loans on real estate..................... -- -- -- -- (20,141)
Other, net........................................ 8,183 (3,521) (900) 1,937 (7,213)
-------- ------- -------- --------- ---------
As reported herein................................ $ 83,206 $61,882 $ 67,110 $ 849,552 $ 885,468
======== ======= ======== ========= =========
</TABLE>
F-18
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
11. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company receives various services from Fortis and its affiliates. These
services include assistance in benefit plan administration, corporate insurance,
accounting, tax, auditing, investment and other administrative functions. The
fees paid to Fortis, Inc. for these services for years ended December 31, 1999,
1998 and 1997, were $11,661,000, $13,077,000 and $12,015,000, respectively.
During 1997, Fortis, Inc. began providing information technology services to the
Company. Information technology expenses were $59,390,000, $55,910,000 and
$28,525,000 for years ended December 31, 1999, 1998 and 1997, respectively.
In conjunction with the marketing of its variable annuity products, the Company
paid $79,413,000, $72,638,000 and $72,105,000 in commissions to its affiliate,
Fortis Investors, Inc., for the years ended December 31, 1999, 1998 and 1997,
respectively.
Administrative expenses allocated for the Company may be greater or less than
the expenses that would be incurred if the Company were operating on a separate
company basis.
12. FAIR VALUE DISCLOSURES
VALUATION METHODS AND ASSUMPTIONS
The fair values for fixed maturity securities and equity securities are based on
quoted market prices, where available. For fixed maturity securities not
actively traded, fair values are estimated using values obtained from
independent pricing services or, in the case of private placements, are
estimated by discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
Mortgage loans are reported at unpaid principal balance less allowances for
possible losses. The fair values of mortgage loans are estimated using
discounted cash flow analyses, using interest rates currently being offered for
similar loans to borrowers with similar credit ratings. Mortgage loans with
similar characteristics are aggregated for purposes of the calculations. The
carrying amount of policy loans reported in the Balance Sheet approximates fair
value. For short-term investments, the carrying amount is a reasonable estimate
of fair value. The fair values for the Company's policy reserves under the
investment products are determined using cash surrender value. Separate account
assets and liabilities are reported at their estimated fair values in the
Balance Sheet.
The fair values under all insurance contracts are taken into consideration in
the Company's overall management of interest rate risk, such that the Company's
exposure to changing interest rates is minimized through the matching of
investment maturities with amounts due under insurance contracts.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturities.............................. $2,706,372 $2,706,372 $2,402,343 $2,402,343
Equity securities............................. 85,021 85,021 157,851 157,851
Mortgage loans on real estate...................... 754,514 741,397 610,131 662,984
Policy loans....................................... 83,439 83,439 74,950 74,950
Short-term investments............................. 115,527 115,527 31,868 31,868
Assets held in separate accounts................... 5,120,152 5,120,152 3,742,403 3,742,403
Liabilities:
Individual and group annuities (subject to
discretionary withdrawal)....................... $ 789,002 $ 763,861 $ 923,102 $ 894,019
Liabilities related to Separate Accounts........... 5,082,341 5,082,341 3,707,687 3,707,687
</TABLE>
F-19
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
The Company is named as a defendant in a number of legal actions arising
primarily from claims made under insurance policies. These actions have been
considered in establishing policy benefit and loss reserves. Management and its
legal counsel are of the opinion that the settlement of these actions will not
have a material adverse effect on the Company's financial position or results of
operations.
14. RETIREMENT AND OTHER EMPLOYEE BENEFITS
The Company is an indirect wholly-owned subsidiary of Fortis, which sponsors a
defined benefit pension plan covering employees and certain agents who meet
eligibility requirements as to age and length of service. The benefits are based
on years of service and career compensation. Fortis Inc.'s funding policy is to
contribute annually the maximum amount that can be deducted for federal income
tax purposes, and to charge each subsidiary an allocable amount based on its
employee census. Pension cost allocated to the Company amounted to approximately
$2,225,000, $1,627,000 and $1,594,000 for 1999, 1998 and 1997, respectively.
The Company participates in a contributory profit sharing plan, sponsored by
Fortis, covering employees and certain agents who meet eligibility requirements
as to age and length of service. Benefits are payable to participants on
retirement or disability and to the beneficiaries of participants in the event
of death. The first three percent of an employee's contribution is matched 200%
by the Company. The amount expensed was approximately $3,711,000, $3,610,000 and
$3,926,000 for 1999, 1998 and 1997, respectively.
In addition to retirement benefits, the Company participates in other health
care and life insurance benefit plans ("postretirement benefits") for retired
employees, sponsored by Fortis. Health care benefits, either through a Fortis
sponsored retiree plan for retirees under age 65 or through a cost offset for
individually purchased Medigap policies for retirees over age 65, are available
to employees who retire on or after January 1, 1993, at age 55 or older, with 15
years or more service. Life insurance, on a retiree pay all basis, is available
to those who retire on or after January 1, 1993.
There were no net postretirement benefit costs allocated to the Company for the
years ended December 31, 1999 and 1998. Costs allocated to the Company for the
year ended December 31, 1997 were $304,000, which includes the expected cost of
such benefits for newly eligible or vested employees, interest cost, gains and
losses arising from differences between actuarial assumptions and actual
experience, and amortization of the transition obligation. The Company made
contributions to the plans of approximately $19,000, $(5,200) and $20,000 in
1999, 1998 and 1997, respectively, as claims were incurred.
15. YEAR 2000 (UNAUDITED)
The Company utilizes Fortis and its computer systems to process Company
businesses. Fortis created a Year 2000 Project Office which was dedicated to
ensuring that all of the systems for Fortis and its subsidiaries and affiliates
were ready for year 2000. The estimated total cost of the Fortis Year 2000
Project was approximately $85 million. This cost reflects the total cost to the
Fortis U.S. companies (excluding the recent American Bankers Insurance Group
acquisition). The cost of the Company's portion is estimated at $26.9 million.
Approximately, $11.4 million was expensed by the Company in 1999.
As of December 20, 1999, 100% of the Mission Critical and non-Mission Critical
computer system lines of code that had been identified were renovated and tested
and were ready for year 2000. Although there have been several minor matters, as
of the date of this publication, no significant disruptions resulting from the
century date change have been detected in any of the mission critical systems.
The Company will continue to monitor the status of and exposure to any potential
Year 2000 issues.
F-20
<PAGE> 27
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying individual and combined statement of net assets
of the segregated subaccounts of Fortis Benefits Insurance Company Variable
Account C (comprised of, the Fortis Series Fund, Inc.'s Growth Stock, U.S.
Government Securities, Money Market, Asset Allocation, Diversified Income,
Global Growth, Aggressive Growth, Growth & Income, High Yield, Global Asset
Allocation, Global Bond, International Stock, Value, S & P 500, Blue Chip Stock,
Mid Cap Stock, Large Cap Growth and Small Cap Value Subaccounts) as of December
31, 1999, and the related statements of changes in net assets for each of the
two years in the periods indicated therein. These financial statements are the
responsibility of the management of Fortis Benefits Insurance Company. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1999 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each individual and combined
portfolio of subaccounts of Fortis Benefits Insurance Company Variable Account C
at December 31, 1999, and the changes in their net assets for the periods
described above, in conformity with accounting principles generally accepted in
the United States.
[/s/ ERNST & YOUNG]
March 29, 2000
Minneapolis, Minnesota
F-21
<PAGE> 28
STATEMENT OF NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------------------------------------------------
ATTRIBUTABLE TO ATTRIBUTABLE TO ACCUMULATION
NET ASSETS AT FORTIS BENEFITS VARIABLE LIFE UNITS
SHARES COST MARKET VALUE INSURANCE COMPANY INSURANCE POLICIES OUTSTANDING
--------- ------------ ------------- ----------------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investments in Fortis Series Fund, Inc.:
Growth Stock.................. 7,246,443 $205,294,123 $327,093,612 $ -- $327,093,612 7,332,436
U.S. Government Securities.... 958,418 10,594,034 9,705,128 -- 9,705,128 582,441
Money Market.................. 1,343,404 15,023,657 15,048,137 -- 15,048,137 1,089,603
Asset Allocation.............. 3,021,565 51,543,851 68,835,169 -- 68,835,169 2,272,923
Diversified Income............ 731,596 8,674,652 7,980,030 -- 7,980,030 463,045
Global Growth................. 3,798,038 64,347,095 131,875,104 -- 131,875,104 3,959,418
Aggressive Growth............. 3,258,540 47,958,221 110,105,427 -- 110,105,427 3,414,056
Growth & Income............... 2,082,105 35,998,406 45,681,790 -- 45,681,790 1,962,103
High Yield.................... 691,525 7,019,614 6,288,178 -- 6,288,178 491,818
Global Asset Allocation....... 672,543 8,825,916 8,857,591 -- 8,857,591 561,574
Global Bond................... 229,585 2,551,570 2,356,272 -- 2,356,272 195,221
International Stock........... 1,859,868 25,788,128 33,356,732 -- 33,356,732 1,717,579
Value......................... 1,045,799 14,418,182 16,368,213 -- 16,368,213 1,038,750
S & P 500..................... 3,445,450 60,400,026 78,077,353 -- 78,077,353 3,676,577
Blue Chip Stock............... 2,409,751 38,983,902 52,856,921 3,065,402 49,791,519 2,384,651
Mid Cap Stock................. 345,082 3,273,302 3,685,861 907,957 2,777,904 261,203
Large Cap Growth.............. 877,299 11,018,436 13,206,335 1,280,385 11,925,950 834,470
Small Cap Value............... 610,734 5,885,835 6,232,237 868,030 5,364,207 501,815
------------ ------------ ---------- ------------ ----------
Net Assets...................... $617,598,950 $937,610,090 $6,121,774 $931,488,316 32,739,683
============ ============ ========== ============ ==========
<CAPTION>
DECEMBER 31, 1999
-----------------------
NET ASSET VALUE FOR
VARIABLE LIFE INSURANCE
POLICIES PER
ACCUMULATION UNIT
-----------------------
<S> <C>
Investments in Fortis Series Fun
Growth Stock.................. $44.61
U.S. Government Securities.... 16.66
Money Market.................. 13.81
Asset Allocation.............. 30.28
Diversified Income............ 17.23
Global Growth................. 33.31
Aggressive Growth............. 32.25
Growth & Income............... 23.28
High Yield.................... 12.79
Global Asset Allocation....... 15.77
Global Bond................... 12.07
International Stock........... 19.42
Value......................... 15.76
S & P 500..................... 21.24
Blue Chip Stock............... 20.88
Mid Cap Stock................. 10.64
Large Cap Growth.............. 14.29
Small Cap Value............... 10.69
Net Assets......................
</TABLE>
See accompanying notes.
F-22
<PAGE> 29
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------------------------------------------------
FORTIS FORTIS U.S. FORTIS FORTIS FORTIS FORTIS FORTIS
GROWTH GOVERNMENT MONEY ASSET DIVERSIFIED GLOBAL AGGRESSIVE
STOCK SECURITIES MARKET ALLOCATION INCOME GROWTH GROWTH
------------ ----------- ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income............. $ 68,600,729 $ 545,626 $ 455,198 $ 5,702,124 $ 537,176 $ 2,343,557 $ 2,188,207
Mortality and expense and
policy advance charges.... (2,617,454) (114,406) (135,023) (661,177) (94,686) (1,101,815) (721,499)
Net realized gain (loss) on
investments............... 6,854,503 32,363 52,720 884,820 3,490 3,569,955 2,263,220
Net unrealized appreciation
(depreciation) of
investments............... 41,309,025 (778,023) 67,654 4,467,472 (678,120) 42,471,612 51,764,386
------------ ----------- ------------ ----------- ----------- ------------ ------------
Net increase (decrease) in
net assets resulting from
operations................ 114,146,803 (314,440) 440,549 10,393,239 (232,140) 47,283,309 55,494,314
CAPITAL TRANSACTIONS
Purchase of variable account
units..................... 15,064,905 1,668,767 25,347,642 7,693,019 1,720,635 6,699,253 12,534,699
Redemption of variable
account units............. (20,847,428) (2,283,527) (20,672,836) (3,510,989) (2,275,162) (10,761,442) (6,563,882)
Redemptions for mortality
and expense charges....... 2,617,454 114,406 135,023 661,177 94,686 1,101,815 721,499
Redemption of Fortis
Benefits Insurance Company
investment in
subaccount................ -- -- -- -- -- -- --
Dividend income distribution
to Fortis Benefits
Insurance Company......... -- -- -- -- -- -- --
------------ ----------- ------------ ----------- ----------- ------------ ------------
Increase (decrease) from
capital transactions...... (3,165,069) (500,354) 4,809,829 4,843,207 (459,841) (2,960,374) 6,692,316
Net assets at beginning of
year...................... 216,111,878 10,519,922 9,797,759 53,598,723 8,672,011 87,552,169 47,918,797
------------ ----------- ------------ ----------- ----------- ------------ ------------
Net assets at end of year... $327,093,612 $9,705,128 $ 15,048,137 $68,835,169 $ 7,980,030 $131,875,104 $110,105,427
============ =========== ============ =========== =========== ============ ============
</TABLE>
See accompanying notes.
F-23
<PAGE> 30
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------------------------
FORTIS FORTIS FORTIS
GROWTH & FORTIS GLOBAL ASSET FORTIS INTERNATIONAL
INCOME HIGH YIELD ALLOCATION GLOBAL BOND STOCK FORTIS VALUE
----------- ---------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income........................... $ 2,745,445 $ 549,436 $ 633,679 $ 91,276 $ 36,464 $ 10,774
Mortality and expense and policy advance
charges................................. (487,348) (68,287) (99,596) (26,971) (310,866) (167,133)
Net realized gain (loss) on investments... 890,490 (37,098) 94,445 (14,256) 548,594 126,282
Net unrealized appreciation (depreciation)
of investments.......................... 717,105 (446,229) (792,067) (259,018) 5,561,066 1,094,508
----------- ---------- ----------- ---------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations............... 3,865,692 (2,178) (163,539) (208,969) 5,835,258 1,064,431
CAPITAL TRANSACTIONS
Purchase of variable account units........ 5,696,466 1,711,503 2,227,173 926,447 7,847,729 3,580,517
Redemption of variable account units...... (4,111,216) (929,543) (1,381,437) (609,351) (3,994,737) (1,467,073)
Redemptions for mortality and expense
charges................................. 487,348 68,287 99,596 26,971 310,866 167,133
Redemption of Fortis Benefits Insurance
Company investment in subaccount........ -- -- -- -- -- --
Dividend income distribution to Fortis
Benefits Insurance Company.............. -- -- -- -- -- --
----------- ---------- ----------- ---------- ----------- -----------
Increase (decrease) from capital
transactions............................ 2,072,598 850,247 945,332 344,067 4,163,858 2,280,577
Net assets at beginning of year........... 39,743,500 5,440,109 8,075,798 2,221,174 23,357,616 13,023,205
----------- ---------- ----------- ---------- ----------- -----------
Net assets at end of year................. $45,681,790 $6,288,178 $ 8,857,591 $2,356,272 $33,356,732 $16,368,213
=========== ========== =========== ========== =========== ===========
</TABLE>
See accompanying notes.
F-24
<PAGE> 31
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------------
FORTIS FORTIS FORTIS FORTIS COMBINED
FORTIS BLUE CHIP MID CAP LARGE CAP SMALL CAP VARIABLE
S & P 500 STOCK STOCK GROWTH VALUE ACCOUNT
------------ ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income........................ $ 10,913 $ 746,163 $ 3,735 $ 214,165 $ 249,092 $ 85,663,759
Mortality and expense and policy
advance charges...................... (706,715) (449,554) (18,162) (74,802) (38,640) (7,894,134)
Net realized gain (loss) on
investments.......................... 1,981,345 264,388 17,080 110,890 21,104 17,664,335
Net unrealized appreciation
(depreciation) of investments........ 9,732,465 7,059,117 362,883 1,753,501 352,079 163,759,416
------------ ----------- ---------- ----------- ---------- ------------
Net increase (decrease) in net assets
resulting from operations............ 11,018,008 7,620,114 365,536 2,003,754 583,635 259,193,376
CAPITAL TRANSACTIONS
Purchase of variable account units..... 32,401,571 14,660,904 1,936,256 8,885,494 3,769,879 154,372,859
Redemption of variable account units... (10,760,728) (1,256,278) (192,002) (876,762) (370,648) (92,865,041)
Redemptions for mortality and expense
charges.............................. 706,715 449,554 18,162 74,802 38,640 7,894,134
Redemption of Fortis Benefits Insurance
Company investment in subaccount..... -- -- -- -- -- --
Dividend income distribution to Fortis
Benefits Insurance Company........... -- (44,596) (952) (21,701) (28,521) (95,770)
------------ ----------- ---------- ----------- ---------- ------------
Increase (decrease) from capital
transactions......................... 22,347,558 13,809,584 1,761,464 8,061,833 3,409,350 69,306,182
Net assets at beginning of year........ 44,711,787 31,427,223 1,558,861 3,140,748 2,239,252 609,110,532
------------ ----------- ---------- ----------- ---------- ------------
Net assets at end of year.............. $ 78,077,353 $52,856,921 $3,685,861 $13,206,335 $6,232,237 $937,610,090
============ =========== ========== =========== ========== ============
</TABLE>
See accompanying notes.
F-25
<PAGE> 32
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------------------------------
FORTIS FORTIS U.S. FORTIS FORTIS FORTIS FORTIS FORTIS
GROWTH GOVERNMENT MONEY ASSET DIVERSIFIED GLOBAL AGGRESSIVE
STOCK SECURITIES MARKET ALLOCATION INCOME GROWTH GROWTH
------------ ----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income............... $ 10,011,623 $ 604,612 $ 417,836 $ 95,130 $ 516,581 $ 92,908 $ 78,258
Mortality and expense and
policy advance charges...... (2,172,350) (108,978) (97,182) (532,382) (89,921) (965,714) (457,512)
Net realized gain (loss) on
investments................. 5,194,040 198,574 47,621 555,821 77,069 1,873,640 452,032
Net unrealized appreciation
(depreciation) of
investments................. 19,387,059 (18,374) (24,618) 8,022,659 (130,599) 6,899,076 7,815,700
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations.................. 32,420,372 675,834 343,657 8,141,228 373,130 7,899,910 7,888,478
CAPITAL TRANSACTIONS
Purchase of variable account
units....................... 16,114,322 4,401,606 15,648,521 6,247,649 2,923,619 7,934,991 8,656,071
Redemption of variable account
units....................... (14,790,719) (3,465,915) (14,377,114) (2,713,046) (1,482,876) (7,198,093) (4,140,981)
Redemptions for mortality and
expense charges............. 2,172,350 108,978 97,182 532,382 89,921 965,714 457,512
Funding of subaccount by
Fortis Benefits Insurance
Company..................... -- -- -- -- -- -- --
Redemption of Fortis Benefits
Insurance Company investment
in subaccount............... -- -- -- -- -- -- --
Dividend income distribution
to Fortis Benefits Insurance
Company..................... -- -- -- -- -- -- --
------------ ----------- ------------ ----------- ----------- ----------- -----------
Increase from capital
transactions................ 3,495,953 1,044,669 1,368,589 4,066,985 1,530,664 1,702,612 4,972,602
Net assets at beginning of
year........................ 180,195,553 8,799,419 8,085,513 41,390,510 6,768,217 77,949,647 35,057,717
------------ ----------- ------------ ----------- ----------- ----------- -----------
Net assets at end of year..... $216,111,878 $10,519,922 $ 9,797,759 $53,598,723 $ 8,672,011 $87,552,169 $47,918,797
============ =========== ============ =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-26
<PAGE> 33
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------------------
FORTIS FORTIS FORTIS
GROWTH & FORTIS GLOBAL ASSET FORTIS INTERNATIONAL
INCOME HIGH YIELD ALLOCATION GLOBAL BOND STOCK FORTIS VALUE
----------- ----------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income.......................... $ 10,771 $ 428,836 $ 561,799 $ 94,052 $ 1,605,384 $ 283,540
Mortality and expense and policy advance
charges................................ (399,394) (61,285) (83,639) (22,737) (234,715) (119,375)
Net realized gain (loss) on
investments............................ 459,331 47,340 151,193 11,737 346,030 205,629
Net unrealized appreciation
(depreciation) of investments.......... 3,655,009 (463,439) 347,862 145,597 815,560 401,780
----------- ----------- ----------- ---------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations.............. 3,725,717 (48,548) 977,215 228,649 2,532,259 771,574
CAPITAL TRANSACTIONS
Purchase of variable account units....... 10,810,093 2,313,861 2,107,553 646,464 7,684,870 6,707,673
Redemption of variable account units..... (2,405,271) (1,552,255) (1,150,806) (456,482) (2,727,690) (914,596)
Redemptions for mortality and expense
charges................................ 399,394 61,285 83,639 22,737 234,715 119,375
Funding of subaccount by Fortis Benefits
Insurance Company...................... -- -- -- -- -- --
Redemption of Fortis Benefits Insurance
Company investment in subaccount....... -- -- -- -- -- (453,865)
Dividend income distribution to Fortis
Benefits Insurance Company............. -- -- -- -- -- --
----------- ----------- ----------- ---------- ----------- -----------
Increase from capital transactions....... 8,804,216 822,891 1,040,386 212,719 5,191,895 5,458,587
Net assets at beginning of year.......... 27,213,567 4,665,766 6,058,197 1,779,806 15,633,462 6,793,044
----------- ----------- ----------- ---------- ----------- -----------
Net assets at end of year................ $39,743,500 $ 5,440,109 $ 8,075,798 $2,221,174 $23,357,616 $13,023,205
=========== =========== =========== ========== =========== ===========
</TABLE>
See accompanying notes.
F-27
<PAGE> 34
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
VARIABLE ACCOUNT C
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------------------
FORTIS FORTIS FORTIS FORTIS COMBINED
FORTIS BLUE CHIP MID CAP LARGE CAP SMALL CAP VARIABLE
S & P 500 STOCK STOCK* GROWTH* VALUE* ACCOUNT
----------- ----------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income.......................... $ 661,349 $ 526,017 $ 2,654 $ 803 $ 29,147 $ 16,021,300
Mortality and expense and policy advance
charges................................ (353,094) (226,004) (1,146) (3,149) (2,269) (5,930,846)
Net realized gain (loss) on
investments............................ 1,417,959 163,987 (551) (599) (2,161) 11,198,692
Net unrealized appreciation
(depreciation) of investments.......... 5,641,705 4,970,502 49,677 434,398 (5,675) 57,943,879
----------- ----------- ---------- ---------- ---------- ------------
Net increase (decrease) in net assets
resulting from operations.............. 7,367,919 5,434,502 50,634 431,453 19,042 79,233,025
CAPITAL TRANSACTIONS
Purchase of variable account units....... 24,567,864 14,173,614 697,126 1,909,786 1,405,053 134,950,736
Redemption of variable account units..... (4,191,140) (856,152) (38,634) (53,376) (26,427) (62,541,573)
Redemptions for mortality and expense
charges................................ 353,094 226,004 1,146 3,149 2,269 5,930,846
Funding of subaccount by Fortis Benefits
Insurance Company...................... -- -- 850,000 850,000 850,000 2,550,000
Redemption of Fortis Benefits Insurance
Company investment in subaccount....... (2,506,810) (74,424) -- -- -- (3,035,099)
Dividend income distribution to Fortis
Benefits Insurance Company............. -- (43,474) (1,411) (264) (10,685) (55,834)
----------- ----------- ---------- ---------- ---------- ------------
Increase from capital transactions....... 18,223,008 13,425,568 1,508,227 2,709,295 2,220,210 77,799,076
Net assets at beginning of year.......... 19,120,860 12,567,153 -- -- -- 452,078,431
----------- ----------- ---------- ---------- ---------- ------------
Net assets at end of year................ $44,711,787 $31,427,223 $1,558,861 $3,140,748 $2,239,252 $609,110,532
=========== =========== ========== ========== ========== ============
</TABLE>
* For the period from May 1, 1998 to December 31, 1998.
See accompanying notes.
F-28
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
DECEMBER 31, 1999
1. GENERAL
FORTIS BENEFITS INSURANCE COMPANY
Variable Account C (the "Account") was established as a segregated asset account
of Fortis Benefits Insurance Company ("Fortis Benefits") on March 13, 1986 under
Minnesota law. The Account is registered under the Investment Company Act of
1940 as a unit investment trust. Fortis Benefits serves as distributor of
Harmony Investment Life and Wall Street Series policies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The assets of the Account are segregated from Fortis Benefits' other assets. The
operations of the Account are part of Fortis Benefits. The following is a
summary of significant accounting policies consistently followed by the Account
in the preparation of its financial statements.
INVESTMENT TRANSACTIONS
Capital gain distributions from subaccounts are recorded on the ex-dividend date
and reinvested upon receipt.
INVESTMENT INCOME
Dividend income from subaccounts is recorded on the ex-dividend date and
reinvested upon receipt.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of net assets at the date of
the financial statements and the reported amounts of net increase and decrease
in net assets from operations during the reporting period. Actual results could
differ from these estimates.
3. INVESTMENTS
There are eighteen subaccounts within the Account, each of which invests only in
a corresponding portfolio of Fortis Series Fund, Inc. (the Series). Investments
in shares of the Series are stated at market value, which is based on the
percentage owned by the Account of the net asset value of the respective
portfolios of these Series. The Series' net asset value is based on market
quotations of the securities held in the portfolio.
The cost of investments sold and redeemed is determined using the average cost
method. Unrealized appreciation or depreciation of investments represents the
Account's share of the subaccount's undistributed net investment income,
undistributed realized gains and losses and unrealized appreciation or
depreciation.
Purchases and sales of shares of the Funds are recorded on the trade date. The
number of shares and aggregate cost of purchases, including reinvested dividends
and realized capital gains, and aggregate cost of investments sold or redeemed
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------
SHARES
---------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock.......................... 2,512,076 525,378 $83,665,633 $13,992,925
U.S. Government Securities............ 211,520 215,751 2,214,393 2,251,164
Money Market.......................... 2,302,851 1,845,033 25,802,840 20,620,116
Asset Allocation...................... 646,220 165,710 13,395,143 2,626,169
Diversified Income.................... 199,861 196,143 2,257,811 2,271,672
Global Growth......................... 361,442 442,904 9,042,810 7,191,487
</TABLE>
F-29
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
VARIABLE ACCOUNT C
DECEMBER 31, 1999
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------
SHARES
---------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Aggressive Growth..................... 704,802 315,547 $14,722,906 $ 4,300,662
Growth & Income....................... 401,616 191,812 8,441,911 3,220,726
High Yield............................ 238,168 95,826 2,260,939 966,641
Global Asset Allocation............... 207,822 99,180 2,549,922 1,286,992
Global Bond........................... 94,115 56,663 792,845 623,607
International Stock................... 503,248 256,163 7,884,193 3,446,143
Value................................. 238,790 98,941 3,591,291 1,340,791
S&P 500............................... 1,590,474 518,948 32,412,484 8,779,383
Blue Chip Stock....................... 783,478 65,509 15,541,663 1,036,486
Mid Cap Stock......................... 202,776 19,461 1,940,943 175,874
Large Cap Growth...................... 680,882 64,360 9,121,360 787,573
Small Cap Value....................... 409,800 40,373 4,047,492 378,065
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------
SHARES
---------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock.......................... 729,677 388,040 $26,125,945 $ 9,596,679
U.S. Government Securities............ 456,835 318,071 5,006,218 3,267,341
Money Market.......................... 1,455,023 1,287,790 16,066,357 14,329,493
Asset Allocation...................... 334,518 142,687 6,342,779 2,157,225
Diversified Income.................... 285,468 122,389 3,440,200 1,405,807
Global Growth......................... 376,880 339,005 8,027,899 5,324,453
Aggressive Growth..................... 615,389 283,998 8,734,329 3,688,949
Growth & Income....................... 541,513 120,216 10,820,864 1,945,940
High Yield............................ 263,774 147,833 2,742,697 1,504,915
Global Asset Allocation............... 188,040 80,102 2,669,352 999,613
Global Bond........................... 65,856 40,879 740,516 444,745
International Stock................... 627,164 184,515 9,290,254 2,381,660
Value................................. 494,519 94,739 6,991,213 1,162,832
S&P 500............................... 1,494,482 401,256 25,229,213 5,279,991
Blue Chip Stock....................... 896,941 57,169 14,699,631 810,063
Mid Cap Stock......................... 166,528 4,760 1,549,780 40,596
Large Cap Growth...................... 266,175 5,412 2,760,589 54,239
Small Cap Value....................... 245,700 4,393 2,284,200 39,273
</TABLE>
F-30
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
VARIABLE ACCOUNT C
DECEMBER 31, 1999
3. INVESTMENTS (CONTINUED)
Fortis Benefits' investment in the subaccounts represented the following number
of shares of the Funds held and aggregate cost of amounts invested at December
31, 1999:
<TABLE>
<CAPTION>
NUMBER COST OF
OF SHARES SHARES
--------- ----------
<S> <C> <C>
Fortis Series Fund, Inc.:
Blue Chip Stock........................................... 139,751 $1,443,162
Mid Cap Stock............................................. 85,006 849,946
Large Cap Growth.......................................... 85,056 856,963
Small Cap Value........................................... 85,063 848,510
</TABLE>
4. ACCOUNT CHARGES
PREMIUM EXPENSE CHARGE
For Wall Street Series VUL, VUL 100, VUL 220, VUL 500 and Survivor policies,
there currently is no premium expense charge; however, Fortis Benefits reserves
the right to impose a charge up to 2.5% of each premium payment, for the VUL,
VUL 100, VUL 220, VUL 500 and a charge up to 3.0% of each premium payment for
the Survivor, to be reimbursed for premium taxes or similar charges it expects
to pay.
For Harmony Investment Life policies, a 5% sales charge and a 2.2% state premium
tax are deducted from each premium payment received by Fortis Benefits. The
resulting net premiums are allocated to the subaccounts of the Account and/or to
the Fortis Benefits general account.
MONTHLY DEDUCTIONS FROM POLICY VALUE
Monthly deductions from the net assets attributed to each policy are as follows:
- - Monthly cost of insurance.
- - Monthly cost of any optional insurance benefits added by rider.
For Wall Street Series VUL policies:
- - Monthly administrative charge of $5.00 per policy. Fortis Benefits reserves
the right to change this administrative charge, but it will never exceed
$11.50 per month. Fortis Benefits also reserves the right to impose an
additional monthly administrative charge of up to $.13 per thousand dollars
of face amount in force.
- - Asset-based charge (mortality and expense risk charge) deducted from the
policy value invested in any of the investment options (other than the
general account option). The charge is based on annual percentage rates as
follows:
<TABLE>
<CAPTION>
YEARS 1 - 9 YEARS 10+
----------- ---------
<S> <C> <C>
Unloaned policy value:
In variable subaccounts:
$0 - $25,000........................................... 1.10% 70%
$25,001 - $250,000..................................... .70% 30%
$250,001 or more....................................... .35% 10%
</TABLE>
F-31
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
VARIABLE ACCOUNT C
DECEMBER 31, 1999
4. ACCOUNT CHARGES (CONTINUED)
For Wall Street Series VUL 100, VUL 220, VUL 500 and Survivor Policies:
- - For Wall Street Series VUL 100, VUL 220 and VUL 500, a monthly
administrative charge of $4.50 per policy. For Wall Street Series Survivor,
a monthly administrative charge of $6.00 per policy. Fortis Benefits
reserves the right to change this administrative charge, but it will never
exceed $7.50 per month for VUL 100, VUL 220, VUL 500 and Survivor.
- - For VUL 220 and VUL 500, a monthly sales, premium tax and policy advance
charge of $4.00 per policy.
For Harmony Investment Life Policies:
- - Monthly administrative charge of $5.00 per policy ($3.00 for policies
applied for prior to July 1, 1988).
- - For policies issued subsequent to July 1, 1988, Fortis Benefits reserves the
right to impose an expense charge of not more than $15.00 per month and an
additional per-thousand-of-face amount of insurance expense charge of not
more than $.08 per month for insureds age 29 or less and $.25 per month for
insureds age 30 and over during the first 12 policy months. Fortis Benefits
currently does not impose any of the expense charges described in the
preceding sentence.
- - For policies issued prior to July 1, 1988, Fortis Benefits currently imposes
an expense charge of $10.00 per month and an additional per-thousand-of-face
amount of insurance expense charge of $0.06 per month for insureds age 29 or
less and $0.20 per month for insureds age 30 and over during the first 12
policy months.
MORTALITY AND EXPENSE RISK AND POLICY ADVANCE CHARGES
Fortis Benefits deducts a daily mortality and expense risk charge from the
Account at an annual rate of 0.75% of the net assets of Harmony Investment Life
policyholders, 0.90% of the net assets of Wall Street Series VUL 100, VUL 220
and VUL 500 policyholders, and 1.00% of the net assets of Wall Street Survivor
policyholders. These charges will be deducted by Fortis Benefits in return for
its assumption of expenses arising from adverse mortality experience or excess
administrative expenses in connection with policies issued. Fortis Benefits also
deducts a sales, premium tax and policy advance charge from the Account at an
annual rate of 0.27% of net assets of Wall Street Series VUL 220 and VUL 500
policyholders, and 0.35% of net assets of Wall Street Series Survivor
policyholders.
5. SURRENDER CHARGES
Policies surrendered within the first 14 years of issuance for Wall Street
Series VUL and the first 11 years of issuance for the Wall Street Series VUL
100, VUL 220 and VUL 500, and the first 10 years of issuance for the Wall Street
Survivor, Fortis Benefits assesses a surrender charge. For Wall Street Series
VUL, the charge is based on the face amount and the insured person's age at
issuance of the policy. For Wall Street VUL 100, VUL 220 and VUL 500, the charge
is the sum of any sales, premium tax and policy advance charges not previously
deducted on a monthly or daily basis. For VUL 220 and VUL 500, there is an
additional surrender charge of $5.00 per thousand of the policy's initial face
amount plus a maximum percentage of the annualized net minimum premiums. The
percentage is 12% for VUL 220 and 22% for VUL 500. The surrender charge for the
Wall Street Series VUL 100, VUL 220 and VUL 500 is limited to certain maximums
based on the insured person's age at the time of issuance and decreases at a
constant rate on the fifth and subsequent anniversaries until it reaches zero on
the eleventh policy anniversary.
The surrender charge for the Wall Street Survivor is limited to a certain
maximum based on the insured person's age at the time of issuance and decreases
at a constant rate on subsequent anniversaries until it reaches zero on the
tenth policy anniversary.
For Harmony Investment Life policies surrendered within the first nine years of
issuance of the policy or face increase, a surrender charge is assessed. The
charge is a maximum of 25% of the annualized net premium and decreases at a
constant rate on the fifth and subsequent anniversaries until it reaches zero on
the ninth policy anniversary.
F-32
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY (CONTINUED)
VARIABLE ACCOUNT C
DECEMBER 31, 1999
5. SURRENDER CHARGES (CONTINUED)
Surrender charges are included in redemptions and are paid directly to Fortis
Benefits. Surrender charges collected by Fortis Benefits were $6,308,174 and
$5,034,170 in 1999 and 1998, respectively.
6. FEDERAL INCOME TAXES
The operations of the Account form a part of, and are taxed with, the operations
of Fortis Benefits, which is taxed as a life insurance company under the
Internal Revenue Code. As a result, the net asset values of the subaccounts are
not affected by federal income taxes on income distributions received by the
subaccounts.
7. RELATED PARTY TRANSACTIONS
Fortis Advisers, Inc. (a wholly-owned subsidiary of Fortis, Inc.) provides
investment management services to Fortis Series Fund, Inc. in exchange for
investment advisory and management fees. Investment advisory and management fees
are based on each portfolio's daily net assets and decrease in reduced
percentages as average daily net assets increase. The fees represent an
investment expense to Fortis Series Fund, Inc. which reduces the portfolios' net
assets. These fees charged by Fortis Advisers, Inc. are not available on an
individual variable account basis. Fees for all variable accounts to which
Fortis Advisers, Inc. provided investment management services amounted to
$21,779,394 and $17,790,513 in 1999 and 1998, respectively.
8. YEAR 2000 (UNAUDITED)
The Account has no computer systems of its own and is, therefore, dependent upon
the systems of its affiliates, including Fortis Benefits Insurance Company
(Fortis Benefits), Fortis Advisers (Advisers) and certain other third parties.
Fortis Benefits and Advisers utilize Fortis Inc. (Fortis) to process their
businesses. Fortis created a Year 2000 Project which was dedicated to ensuring
that all systems for Fortis and subsidiaries and affiliates were Year 2000
ready. The estimated total cost of Fortis Year 2000 Project was approximately
$85 million. There were no costs allocated to the Account, as amounts are only
allocated to the affiliated companies.
As of December 20, 1999, 100% of the Mission Critical and non-Mission Critical
computer system lines of code that had been identified were renovated and tested
and were Year 2000 ready. Although there have been several matters as of the
date of this publication, no significant disruptions resulting from the century
date change have been detected in any of its Mission Critical systems. Fortis
will continue to monitor the status of and respond to any potential Year 2000
issue.
F-33
<PAGE> 40
APPENDIX
ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES, SURRENDER VALUES, AND
ACCUMULATED PREMIUMS
As a result of slight increases in the assumed investment advisory fees and
other expenses from an annual rate of .78% to .87%, Policy Values, Death
Benefits, and Surrender Values would be slightly lower than those shown in the
Prospectus. In the absence of a voluntary agreement to reimburse certain
expenses, the total fund operating expenses assumed would have been .88%. The
revised illustrations are as follows:
HARMONY INVESTMENT LIFE
<TABLE>
<CAPTION>
TABLE PAGE
----- ----
<S> <C>
Death Benefit Option A
Current Charges........................................... A-2
Guaranteed Maximum Charges................................ A-3
Death Benefit Option B
Current Charges........................................... A-4
Guaranteed Maximum Charges................................ A-5
</TABLE>
WALL STREET SERIES VUL220
<TABLE>
<CAPTION>
TABLE PAGE
----- ----
<S> <C>
Death Benefit Option A
Current Charges........................................... A-6
Guaranteed Maximum Charges................................ A-7
Death Benefit Option B
Current Charges........................................... A-8
Guaranteed Maximum Charges................................ A-9
</TABLE>
WALL STREET SERIES VUL500
<TABLE>
<CAPTION>
TABLE PAGE
----- ----
<S> <C>
Death Benefit Option A
Current Charges........................................... A-10
Guaranteed Maximum Charges................................ A-11
Death Benefit Option B
Current Charges........................................... A-12
Guaranteed Maximum Charges................................ A-13
</TABLE>
A-1
<PAGE> 41
HARMONY
MALE ISSUE AGE 35
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000--DEATH BENEFIT OPTION A
CURRENT CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
------------------------------------------------------------------------------------------------
PREMIUMS 0%(1)(2) 6%(1)(2) 12%(1)(2)(3)
END OF ACCUMULATED ----------------------------- ------------------------------ -------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR(1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 945 $100,000 $ 613 $ 417 $100,000 $ 657 $ 461 $100,000 $ 700 $ 504
2 1,937 100,000 1,208 1,012 100,000 1,333 1,137 100,000 1,463 1,267
3 2,979 100,000 1,783 1,588 100,000 2,030 1,834 100,000 2,297 2,101
4 4,073 100,000 2,339 2,144 100,000 2,746 2,550 100,000 3,206 3,010
5 5,222 100,000 2,875 2,679 100,000 3,483 3,287 100,000 4,198 4,003
6 6,428 100,000 3,389 3,233 100,000 4,239 4,083 100,000 5,282 5,125
7 7,694 100,000 3,881 3,764 100,000 5,015 4,898 100,000 6,464 6,347
8 9,024 100,000 4,349 4,271 100,000 5,809 5,731 100,000 7,754 7,676
9 10,420 100,000 4,792 4,753 100,000 6,621 6,582 100,000 9,163 9,124
10 11,886 100,000 5,207 5,207 100,000 7,449 7,449 100,000 10,700 10,700
15 20,392 100,000 6,777 6,777 100,000 11,753 11,753 100,000 20,761 20,761
20 31,247 100,000 7,336 7,336 100,000 16,205 16,205 100,000 36,604 36,604
25 45,102 100,000 6,514 6,514 100,000 20,516 20,516 100,000 62,318 62,318
40 114,156 0 0 0 100,000 23,490 23,490 314,789 286,250 286,250
</TABLE>
(1) Assumes annual premium payments of $900 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
(3) Alternative Death Benefit applies.
A-2
<PAGE> 42
HARMONY
MALE ISSUE AGE 35
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000--DEATH BENEFIT OPTION A
GUARANTEED CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
------------------------------------------------------------------------------------------------
PREMIUMS 0%(1)(2) 6%(1)(2) 12%(1)(2)(3)
END OF ACCUMULATED ----------------------------- ------------------------------ -------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR(1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 945 $100,000 $ 80 $ 0 $100,000 $ 105 $ 0 $100,000 $ 131 $ 0
2 1,937 100,000 626 430 100,000 697 502 100,000 773 577
3 2,979 100,000 1,152 956 100,000 1,305 1,109 100,000 1,470 1,274
4 4,073 100,000 1,658 1,463 100,000 1,927 1,731 100,000 2,228 2,032
5 5,222 100,000 2,144 1,948 100,000 2,564 2,368 100,000 3,052 2,857
6 6,428 100,000 2,606 2,450 100,000 3,213 3,057 100,000 3,947 3,790
7 7,694 100,000 3,045 2,928 100,000 3,875 3,758 100,000 4,919 4,801
8 9,024 100,000 3,460 3,382 100,000 4,549 4,471 100,000 5,975 5,897
9 10,420 100,000 3,849 3,810 100,000 5,235 5,196 100,000 7,124 7,085
10 11,886 100,000 4,210 4,210 100,000 5,929 5,929 100,000 8,373 8,373
15 20,392 100,000 5,549 5,549 100,000 9,495 9,495 100,000 16,485 16,485
20 31,247 100,000 5,824 5,824 100,000 12,940 12,940 100,000 28,983 28,983
25 45,102 100,000 4,312 4,312 100,000 15,501 15,501 100,000 48,574 48,574
40 114,156 0 0 0 0 0 0 241,801 219,569 219,569
</TABLE>
(1) Assumes annual premium payments of $900 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
(3) Alternative Death Benefit applies.
A-3
<PAGE> 43
HARMONY
MALE ISSUE AGE 35
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000--DEATH BENEFIT OPTION B
CURRENT CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
------------------------------------------------------------------------------------------------
PREMIUMS 0%(1)(2) 6%(1)(2) 12%(1)(2)
END OF ACCUMULATED ----------------------------- ------------------------------ -------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR(1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 945 $100,612 $ 612 $ 416 $100,655 $ 655 $ 460 $100,699 $ 699 $ 503
2 1,937 101,205 1,205 1,009 101,329 1,329 1,134 101,460 1,460 1,264
3 2,979 101,777 1,777 1,582 102,023 2,023 1,827 102,289 2,289 2,093
4 4,073 102,329 2,329 2,134 102,734 2,734 2,538 103,192 3,192 2,996
5 5,222 102,859 2,859 2,664 103,463 3,463 3,268 104,174 4,174 3,979
6 6,428 103,367 3,367 3,210 104,210 4,210 4,054 105,245 5,245 5,088
7 7,694 103,851 3,851 3,733 104,974 4,974 4,856 106,409 6,409 6,291
8 9,024 104,309 4,309 4,230 105,752 5,752 5,674 107,675 7,675 7,597
9 10,420 104,740 4,740 4,700 106,545 6,545 6,505 109,052 9,052 9,013
10 11,886 105,141 5,141 5,141 107,348 7,348 7,348 110,548 10,548 10,548
15 20,392 106,600 6,600 6,600 111,423 11,423 11,423 120,144 20,144 20,144
20 31,247 106,963 6,963 6,963 115,339 15,339 15,339 134,562 34,562 34,562
25 45,102 105,857 5,857 5,857 118,530 18,530 18,530 156,278 56,278 56,278
40 114,156 0 0 0 109,036 9,036 9,036 311,521 211,521 211,521
</TABLE>
(1) Assumes annual premium payments of $900 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
A-4
<PAGE> 44
HARMONY
MALE ISSUE AGE 35
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $100,000--DEATH BENEFIT OPTION B
GUARANTEED CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
------------------------------------------------------------------------------------------------
PREMIUMS 0%(1)(2) 6%(1)(2) 12%(1)(2)
END OF ACCUMULATED ----------------------------- ------------------------------ -------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR(1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.. $ 945 $100,079 $ 79 $ 0 $100,104 $ 104 $ 0 $100,130 $ 130 $ 0
2... 1,937 100,623 623 428 100,695 695 499 100,770 770 574
3... 2,979 101,147 1,147 952 101,299 1,299 1,104 101,464 1,464 1,268
4... 4,073 101,650 1,650 1,454 101,917 1,917 1,721 102,217 2,217 2,021
5... 5,222 102,131 2,131 1,935 102,548 2,548 2,352 103,032 3,032 2,837
6... 6,428 102,587 2,587 2,430 103,188 3,188 3,032 103,915 3,915 3,759
7... 7,694 103,018 3,018 2,900 103,839 3,839 3,721 104,871 4,871 4,753
8... 9,024 103,423 3,423 3,345 104,498 4,498 4,420 105,905 5,905 5,827
9... 10,420 103,801 3,801 3,762 105,166 5,166 5,126 107,025 7,025 6,986
10.. 11,886 104,149 4,149 4,149 105,838 5,838 5,838 108,236 8,236 8,236
15.. 20,392 105,387 5,387 5,387 109,198 9,198 9,198 115,939 15,939 15,939
20.. 31,247 105,488 5,488 5,488 112,168 12,168 12,168 127,194 27,194 27,194
25.. 45,102 103,729 3,729 3,729 113,719 13,719 13,719 143,192 43,192 43,192
40.. 114,156 0 0 0 0 0 0 230,585 130,585 130,585
</TABLE>
(1) Assumes annual premium payments of $900 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
A-5
<PAGE> 45
VUL220
MALE ISSUE AGE 35
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $150,000--DEATH BENEFIT OPTION A
CURRENT CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
-------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2) 12% (1)(2)(3)
END OF ACCUMULATED ------------------------------ ------------------------------ -------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,575 $150,000 $ 1,118 $ 157 $150,000 $ 1,196 $ 236 $150,000 $ 1,275 $ 315
2 3,229 150,000 2,181 1,130 150,000 2,408 1,357 150,000 2,644 1,593
3 4,965 150,000 3,208 2,068 150,000 3,651 2,513 150,000 4,134 2,997
4 6,788 150,000 4,203 2,978 150,000 4,935 3,713 150,000 5,763 4,544
5 8,703 150,000 5,202 3,894 150,000 6,294 4,992 150,000 7,580 6,284
6 10,713 150,000 6,208 4,943 150,000 7,736 6,481 150,000 9,609 8,364
7 12,824 150,000 7,234 6,163 150,000 9,277 8,205 150,000 11,883 10,812
8 15,040 150,000 8,284 7,427 150,000 10,924 10,067 150,000 14,431 13,574
9 17,367 150,000 9,333 8,690 150,000 12,659 12,016 150,000 17,256 16,613
10 19,810 150,000 10,308 9,879 150,000 14,410 13,981 150,000 20,313 19,884
15 33,986 150,000 14,506 14,506 150,000 23,891 23,891 150,000 40,676 40,676
20 52,079 150,000 17,291 17,291 150,000 34,640 34,640 150,000 73,098 73,098
25 75,170 150,000 18,056 18,056 150,000 46,337 46,337 171,607 126,131 126,131
40 190,260 0 0 0 150,000 83,007 83,007 644,009 586,511 586,511
</TABLE>
(1) Assumes annual premium payments of $1,500 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
(3) Alternative Death Benefit applies.
A-6
<PAGE> 46
VUL220
MALE ISSUE AGE 35
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $150,000--DEATH BENEFIT OPTION A
GUARANTEED CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2) 12% (1)(2)(3)
END OF ACCUMULATED ----------------------------- ------------------------------ -------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,575 $150,000 $ 793 $ 0 $150,000 $ 860 $ 0 $150,000 $ 927 $ 0
2 3,229 150,000 1,559 496 150,000 1,743 680 150,000 1,935 873
3 4,965 150,000 2,293 1,135 150,000 2,643 1,487 150,000 3,027 1,872
4 6,788 150,000 2,994 1,743 150,000 3,563 2,315 150,000 4,209 2,964
5 8,703 150,000 3,662 2,321 150,000 4,499 3,162 150,000 5,491 4,159
6 10,713 150,000 4,294 3,008 150,000 5,450 4,165 150,000 6,879 5,593
7 12,824 150,000 4,908 3,837 150,000 6,435 5,363 150,000 8,400 7,329
8 15,040 150,000 5,523 4,666 150,000 7,472 6,615 150,000 10,089 9,232
9 17,367 150,000 6,137 5,494 150,000 8,562 7,919 150,000 11,959 11,316
10 19,810 150,000 6,706 6,277 150,000 9,664 9,235 150,000 13,987 13,559
15 33,986 150,000 8,868 8,868 150,000 15,349 15,349 150,000 27,158 27,158
20 52,079 150,000 9,437 9,437 150,000 20,875 20,875 150,000 47,484 47,484
25 75,170 150,000 7,349 7,349 150,000 25,122 25,122 150,000 79,206 79,206
40 190,260 0 0 0 0 0 0 388,633 352,867 352,867
</TABLE>
(1) Assumes annual premium payments of $1,500 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
(3) Alternative Death Benefit applies.
A-7
<PAGE> 47
VUL220
MALE ISSUE AGE 35
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $150,000--DEATH BENEFIT OPTION B
CURRENT CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
-------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2) 12% (1)(2)(3)
END OF ACCUMULATED ------------------------------ ------------------------------ -------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,575 $151,116 $ 1,116 $ 155 $151,194 $ 1,194 $ 234 $151,273 $ 1,273 $ 313
2 3,229 152,175 2,175 1,123 152,401 2,401 1,350 152,636 2,636 1,586
3 4,965 153,195 3,195 2,055 153,637 3,637 2,498 154,117 4,117 2,980
4 6,788 154,182 4,182 2,956 154,909 4,909 3,687 155,732 5,732 4,513
5 8,703 155,171 5,171 3,863 156,255 6,255 4,952 157,532 7,532 6,235
6 10,713 156,167 6,167 4,902 157,682 7,682 6,426 159,539 9,539 8,294
7 12,824 157,182 7,182 6,111 159,206 9,206 8,135 161,788 11,788 10,717
8 15,040 158,220 8,220 7,363 160,834 10,834 9,997 164,304 14,304 13,447
9 17,367 159,255 9,255 8,612 162,544 12,544 11,901 167,088 17,088 16,445
10 19,810 160,210 10,210 9,782 164,260 14,260 13,832 170,087 20,087 19,658
15 33,986 164,241 14,241 14,241 173,408 23,408 23,408 189,781 39,781 39,781
20 52,079 166,693 16,693 16,693 183,312 33,312 33,312 220,070 70,070 70,070
25 75,170 166,865 16,865 16,865 193,050 43,050 43,050 266,642 116,642 116,642
40 190,260 0 0 0 199,675 49,675 49,675 631,145 481,145 481,145
</TABLE>
(1) Assumes annual premium payments of $1,500 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
A-8
<PAGE> 48
VUL220
MALE ISSUE AGE 35
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $150,000--DEATH BENEFIT OPTION B
CURRENT CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
-------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2) 12% (1)(2)
END OF ACCUMULATED ------------------------------ ------------------------------ -------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 1,575 $150,791 $ 791 $ 0 $150,858 $ 858 $ 0 $150,925 $ 925 $ 0
2 3,229 151,553 1,553 491 151,736 1,736 674 151,928 1,928 867
3 4,965 152,282 2,282 1,124 152,631 2,631 1,475 153,013 3,013 1,858
4 6,788 152,977 2,977 1,726 153,542 3,542 2,294 154,185 4,185 2,939
5 8,703 153,636 3,636 2,295 154,467 4,467 3,130 155,451 5,451 4,119
6 10,713 154,258 4,258 2,972 155,403 5,403 4,117 156,817 6,817 5,531
7 12,824 154,859 4,859 3,788 156,368 6,368 5,297 158,310 8,310 7,239
8 15,040 155,459 5,459 4,602 157,381 7,381 6,524 159,961 9,961 9,104
9 17,367 156,055 6,055 5,412 158,441 8,441 7,798 161,782 11,782 11,139
10 19,810 156,603 6,603 6,174 159,507 9,507 9,078 163,747 13,747 13,319
15 33,986 158,607 8,607 8,607 164,863 14,863 14,863 176,241 26,241 26,241
20 52,079 158,904 8,904 8,904 169,637 19,637 19,637 194,544 44,544 44,544
25 75,170 156,421 6,421 6,421 172,270 22,270 22,270 220,472 70,472 70,472
40 190,260 0 0 0 0 0 0 364,032 214,032 214,032
</TABLE>
(1) Assumes annual premium payments of $1,500 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
A-9
<PAGE> 49
VUL500
MALE ISSUE AGE 45
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $800,000--DEATH BENEFIT OPTION A
CURRENT CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2)(3) 12% (1)(2)(3)
END OF ACCUMULATED ------------------------------- ------------------------------------ -----------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,750 $800,000 $ 12,099 $ 4,854 $ 800,000 $ 12,915 $ 5,671 $ 800,000 $ 13,733
2 32,288 800,000 23,630 15,045 800,000 26,014 17,436 800,000 28,500
3 49,652 800,000 34,781 25,181 800,000 39,491 29,891 800,000 44,603
4 67,884 800,000 45,551 35,951 800,000 53,355 43,755 800,000 62,171
5 87,029 800,000 56,177 46,577 800,000 67,859 58,259 800,000 81,602
6 107,130 800,000 66,663 58,434 800,000 83,034 74,806 800,000 103,089
7 128,237 800,000 77,159 70,302 800,000 99,057 92,199 800,000 126,995
8 150,308 800,000 87,706 82,220 800,000 116,003 110,518 800,000 153,612
9 173,668 800,000 98,271 94,156 800,000 133,925 129,810 800,000 183,289
10 198,102 800,000 108,205 105,463 800,000 152,198 149,455 800,000 215,668
15 339,868 800,000 150,376 150,376 800,000 251,710 251,710 800,000 438,380
20 520,789 800,000 176,809 176,809 800,000 370,713 370,713 996,896 817,128
25 751,702 800,000 181,927 181,927 800,000 518,722 518,722 1,684,166 1,451,867
40 1,902,596 0 0 0 1,382,281 1,316,458 1,316,458 7,668,089 7,302,942
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
----------
12% (1)(2)(3)
END OF ----------
POLICY SURRENDER
YEAR VALUE
- ------ ---------
<S> <C>
1 $ 6,490
2 19,928
3 35,003
4 52,571
5 72,002
6 94,861
7 120,138
8 148,126
9 179,174
10 212,925
15 438,380
20 817,128
25 1,451,867
40 7,302,942
</TABLE>
(1) Assumes annual premium payments of $15,000 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
(3) Alternative Death Benefit applies.
A-10
<PAGE> 50
VUL500
MALE ISSUE AGE 45
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $800,000--DEATH BENEFIT OPTION A
GUARANTEED CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
--------------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2) 12% (1)(2)
END OF ACCUMULATED ------------------------------- ------------------------------- ------------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,750 $800,000 $ 10,176 $ 2,882 $800,000 $ 10,919 $ 3,626 $ 800,000 $ 11,664 $ 4,373
2 32,288 800,000 19,963 11,278 800,000 22,087 13,407 800,000 24,306 15,630
3 49,652 800,000 29,360 19,760 800,000 33,508 23,908 800,000 38,018 28,418
4 67,884 800,000 38,355 28,755 800,000 45,175 35,575 800,000 52,899 43,299
5 87,029 800,000 46,938 37,338 800,000 57,085 47,485 800,000 69,056 59,456
6 107,130 800,000 55,087 46,858 800,000 69,221 60,993 800,000 86,598 78,370
7 128,237 800,000 62,932 56,075 800,000 81,722 74,864 800,000 105,806 98,948
8 150,308 800,000 70,615 65,129 800,000 94,743 89,258 800,000 127,001 121,516
9 173,668 800,000 78,162 74,047 800,000 108,371 104,257 800,000 150,512 146,398
10 198,102 800,000 85,121 82,378 800,000 122,166 119,423 800,000 176,103 173,360
15 339,868 800,000 110,166 110,166 800,000 193,250 193,250 800,000 347,659 347,659
20 520,789 800,000 112,637 112,637 800,000 264,172 264,172 800,000 638,679 638,679
25 751,702 800,000 76,513 76,513 800,000 331,111 331,111 1,319,654 1,137,632 1,137,632
40 1,902,596 0 0 0 800,000 220,557 220,557 5,785,567 5,510,063 5,510,063
</TABLE>
(1) Assumes annual premium payments of $15,000 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
(3) Alternative Death Benefit applies.
A-11
<PAGE> 51
VUL500
MALE ISSUE AGE 45
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $800,000--DEATH BENEFIT OPTION B
CURRENT CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
----------------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2) 12% (1)(2)
END OF ACCUMULATED ------------------------------- --------------------------------- ------------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,750 $812,057 $ 12,057 $ 4,812 $ 812,871 $ 12,871 $ 5,627 $ 813,686 $ 13,686 $ 6,443
2 32,288 823,499 23,499 14,915 825,870 25,870 17,291 828,342 28,342 19,769
3 40,652 834,515 34,515 24,915 839,185 39,185 29,585 844,252 44,252 34,652
4 67,884 845,098 45,098 35,498 852,812 52,812 43,212 861,526 61,526 51,926
5 87,029 855,501 55,501 45,901 867,016 67,016 57,416 880,558 80,558 70,958
6 107,130 865,730 65,730 57,501 881,822 81,822 73,594 901,526 101,526 93,298
7 128,237 875,935 75,935 69,078 897,399 97,399 90,542 924,769 124,769 117,912
8 150,308 886,140 86,140 80,655 913,798 113,798 108,313 950,527 150,527 145,042
9 173,668 896,293 96,293 92,179 931,028 131,028 126,913 979,071 179,071 174,957
10 198,102 905,702 105,702 102,959 948,393 148,393 145,650 1,009,908 209,908 207,165
15 339,868 943,472 143,472 143,472 1,039,045 239,045 239,045 1,214,642 414,642 414,642
20 520,789 961,146 161,146 161,146 1,133,594 333,594 333,594 1,535,960 735,960 735,960
25 751,702 951,373 151,373 151,373 1,225,748 425,748 425,748 2,045,866 1,245,866 1,245,866
40 1,902,596 0 0 0 1,252,105 452,105 452,105 6,260,248 5,460,248 5,460,248
</TABLE>
(1) Assumes annual premium payments of $15,000 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
A-12
<PAGE> 52
VUL500
MALE ISSUE AGE 45
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $800,000--DEATH BENEFIT OPTION B
GUARANTEED CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
----------------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2) 12% (1)(2)
END OF ACCUMULATED ------------------------------- --------------------------------- ------------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,750 $810,133 $ 10,133 $ 2,839 $ 810,873 $ 10,873 $ 3,581 $ 811,615 $ 11,615 $ 4,324
2 32,288 819,838 19,838 11,152 821,948 21,948 13,268 824,153 24,153 15,477
3 49,652 829,109 29,109 19,509 833,218 33,218 23,618 837,687 37,687 28,087
4 67,884 837,931 37,931 28,331 844,666 44,666 35,066 852,292 52,292 42,692
5 87,029 846,289 46,289 36,689 856,274 56,274 46,674 868,050 68,050 58,450
6 107,130 854,154 54,154 45,926 868,009 68,009 59,781 885,034 85,034 76,806
7 128,237 861,650 61,650 54,793 879,987 79,987 73,130 903,477 103,477 96,620
8 150,308 868,909 68,909 63,423 892,342 92,342 86,856 923,645 123,645 118,159
9 173,668 875,943 75,943 71,829 905,123 105,123 101,008 945,784 145,784 141,669
10 198,102 882,290 82,290 79,548 917,855 117,855 115,112 969,566 169,566 166,823
15 339,868 902,431 102,431 102,431 978,796 178,796 178,796 1,118,885 318,885 318,885
20 520,789 896,017 96,017 96,017 1,024,872 224,872 224,872 1,339,579 539,579 539,579
25 751,702 847,532 47,532 47,532 1,032,062 232,062 232,062 1,656,738 856,738 856,738
40 1,902,596 0 0 0 0 0 0 3,349,296 2,549,296 2,549,296
</TABLE>
(1) Assumes annual premium payments of $15,000 paid in full at beginning of each
Policy year. The values would vary from those shown if the amount or
frequency of payments varies.
(2) Assumes that no Policy loan or partial withdrawal has been made and no
optional insurance riders have been selected. Zero values in the Death
Benefit column indicate Policy lapse in the absence of sufficient additional
premium payments.
A-13
<PAGE> 53
[FORTIS Solid partners, flexible solutionsSM LOGO]
FORTIS WALL STREET SERIES VUL 500 PROSPECTUS
FLEXIBLE PREMIUM 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 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 insureds named in the Policies
- - allow flexibility in premium payments and death benefits
- - give you several variable investment options from which to choose
Other choices you have. During the insured person's lifetime, 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 insured person's death, 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 .
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 , 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, 1999.
[FORTIS LOGO] and Fortis(SM) are registered servicemarks of Fortis (NL) N.V. and
Fortis (B).
96390 (5/99)
<PAGE> 54
GUIDE TO THIS PROSPECTUS
Basic Information. This prospectus contains information that you should
know before you purchase a variable universal life policy ("Policy") or exercise
any of your rights under a Policy.
Here are the page numbers in this prospectus where you may find answers to
most of your questions:
<TABLE>
<CAPTION>
PAGES TO SEE IN
BASIC QUESTIONS YOU MAY HAVE THIS PROSPECTUS
- ------------------------------------- ---------------
<S> <C> <C>
- - What are my investment
options?...................... 3
- - How can I invest money in a
Policy?....................... 3
- - How will the value of my
investment in a Policy change
over time?.................... 4
- - What is the basic amount of
insurance ("death benefit")
that Fortis pays when the
insured person dies?.......... 5
- - What charges will Fortis
deduct from my investment in
the Policy?................... 6
- - What charges and expenses will
the Funds deduct from amounts
invested through my Policy?... 8
- - Must I invest any minimum
amount in a Policy?........... 9
- - How can I change my Policy's
investment options?........... 10
- - How can I change my Policy's
insurance coverage?........... 10
- - What additional rider benefits
might I select?............... 11
- - How can I access my policy
value?........................ 12
- - Can I choose the form in which
Fortis pays out the proceeds
from my Policy?............... 13
</TABLE>
<TABLE>
<CAPTION>
PAGES TO SEE IN
BASIC QUESTIONS YOU MAY HAVE THIS PROSPECTUS
- ------------------------------------- ---------------
<S> <C> <C>
- - To what extent can Fortis vary
the terms and conditions of
the Policies in particular
cases?........................ 13
- - How will my Policy be treated
for income tax purposes?...... 14
- - How do I communicate with
Fortis?....................... 14
</TABLE>
Illustrations of a hypothetical policy. Starting on page 15, 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 31.
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 32). That
index will tell you on what page you can read more about many of the words and
phrases that we use.
2
<PAGE> 55
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
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
<CAPTION>
INTERNATIONAL STOCK
-------------------
Lazard Freres-International Stock Series
Fortis-Global Growth Series
Morgan Stanley-Global Asset Allocation
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>
Mercury-Global 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."
Policies issued in some states or automatic premium payment plans may specify
minimum premiums. 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 until the insured person reaches age 65 or for 5 Policy years if the
insured person is older than age 60. We base our estimate on (1) the insured
person's 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 insured person does not
provide us with adequate evidence that he/she continues 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.
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
3
<PAGE> 56
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 must have at least $5,000 of policy value to
start dollar cost averaging. Each transfer under the program must be at least
$50. 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. You must have a total accumulation value of
at least $2,000 to begin automatic rebalancing. 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 7, 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."
Policy value advances. If you have met certain premium payment
requirements, we will pay you policy value advances at the end of the seventh
Policy year, and at the end of each subsequent year, until the insured person
reaches the age of 95. If you no longer meet the premium payment requirements,
we will stop paying you policy value advances. You will meet the premium payment
requirements if your total premiums paid to date (less Policy loans and partial
withdrawals) equal the total recommended monthly minimum premiums to date. For
purposes of meeting the premium payment requirement at the end of the seventh
Policy year, premium payments made during that year in excess of 36 times the
recommended monthly minimum premium at that time will be disregarded.
At the end of each Policy year, we will allocate the policy value advances
among the general account and your investment options on a pro rata basis unless
you provide us with other instructions. We reserve the right to recover these
policy value advances. The policy value advances are a percentage of the average
recommended monthly minimum premium to date under the Policy times 12.
Current Policy Value Advance Percentages
<TABLE>
<CAPTION>
POLICY YEARS 9
AGE OF INSURED AND LATER
PERSON AT ISSUE POLICY YEAR 7 POLICY YEAR 8 TO AGE 95
- --------------- ------------- ------------- --------------
<S> <C> <C> <C>
0-60 2% 6% 10%
61-70 5% 7% 10%
71-80 6% 6% 6%
</TABLE>
We also reserve the right to reduce the policy value advances. If we intend
to reduce the policy value advances, we will give you one year's notice. We will
not reduce the policy value
4
<PAGE> 57
advance percentages below the following guaranteed percentages:
Guaranteed Policy Value Advance Percentages
<TABLE>
<CAPTION>
POLICY YEARS 9
AGE OF INSURED AND LATER
PERSON AT ISSUE POLICY YEAR 7 POLICY YEAR 8 TO AGE 95
- --------------- ------------- ------------- --------------
<S> <C> <C> <C>
0-60 2% 6% 10%
61-70 2% 6% 7%
71-80 2% 5% 6%
</TABLE>
Some states mandate how policy value advances are offered and guaranteed. Policy
value advances on policies issued in those states may differ from the policy
value advances described above.
Cash value bonuses. We will pay you a cash value bonus at the end of the
ninth Policy year, and at the end of each subsequent Policy year until the
insured person reaches the age of 95. We will allocate the cash value bonuses
among the general account and your investment options on a pro rata basis unless
you provide us with different instructions. The following table shows how the
cash value bonuses are calculated:
<TABLE>
<CAPTION>
BONUS AS A BONUS AS A
PERCENT OF SURRENDER PERCENT OF SURRENDER
VALUE AT END OF VALUE AT END OF
SURRENDER VALUE POLICY YEARS 9 POLICY YEARS 20 AND
ON DATE OF BONUS THROUGH 19 LATER TO AGE 95
---------------- -------------------- --------------------
<S> <C> <C>
Less than $50,000...... .00% .00%
$50,000 to $299,000.... .10% .10%
$300,000 to $499,000... .55% .55%
$500,000 or more....... .55% .80%
</TABLE>
Some states mandate the conditions, limitations and guarantees for cash
value bonuses. Cash value bonuses on policies issued in those states may differ
from the cash value bonuses described above.
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 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 on the life of the
insured person. We call this the "face amount" of insurance. The minimum face
amount of insurance is $500,000.
Your death benefit. The basic death benefit we will pay is reduced by any
outstanding loans. You choose whether the basic death benefit is
- Option A - The face amount on the date of the insured person's death; or
- Option B - The face amount plus the policy value on the date of death.
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 10 of this
5
<PAGE> 58
prospectus to learn about how to change your death benefit option.
We will automatically pay an alternative basic death benefit as described
below, 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 insured by the applicable percentage shown
below:
<TABLE>
<CAPTION>
AGE OF INSURED APPLICABLE PERCENTAGE
AT DEATH OF 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.
Maturity of your Policy. The maturity date of the Policy is when the
insured person reaches age 95, unless you exercise your option to extend the
maturity date. This option is subject to individual state laws. If your policy
value is at least $2,000, you may request in writing within six months prior to
the maturity date that the maturity date be extended. If you extend the maturity
date, you may not make any changes in the face amount or death benefit of the
Policy. You also may not make partial withdrawals that would reduce your policy
value below $2,000. Additionally, you may only make premium payments if
necessary to prevent your Policy from lapsing.
If you extend the maturity date of your Policy, the following occurs as of
the original maturity date: (1) the guaranteed death benefit lapses and your
death benefit will become the alternative death benefit; (2) no further policy
value advances or cash value bonuses are given to you; (3) all riders except the
accelerated benefit rider terminate; and (4) you will be charged interest at an
effective annual rate of 3.85% on any Policy loans.
WHAT CHARGES WILL FORTIS DEDUCT FROM MY INVESTMENT IN THE POLICY?
Premium tax and sales charges. There is currently a premium tax charge of
2.2% of all premium payments. We reserve the right to raise this charge to 2.5%.
There is also a sales charge of 7.5% of all premiums. 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 .27% 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 9.7% of all
premium payments (or 10% if the premium tax charge was raised to its 2.5%
maximum). Also, we will temporarily stop these periodic deductions if we are
making a similar deduction to recover policy value advances made to you. Once we
have recovered the policy value advances, we will resume these periodic
deductions until the premium tax charge and sales charge are fully paid. Any
premium tax and sales charges not recovered through periodic deductions or
premium charges are deducted, if at all, only as part of the surrender charge
discussed below.
Monthly administrative charge. We will deduct $4.50 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
6
<PAGE> 59
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 insured person's
age. Therefore, the longer you own your Policy, the higher the cost of insurance
rate will be. Also, our cost of insurance rates will generally be lower if the
insured person is a female than if a male (except if the Policy is unisex).
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.
Deductions from each premium payment. While we don't currently have plans
to do so, we reserve the right to impose an additional charge of up to 2.5% that
would be deducted from each payment to more fully reimburse us for premium and
other taxes that may be payable and are attributable to the Policies.
Guaranteed death benefit charge. The monthly charge for the guarantee
period is $.01 per thousand dollars of face amount in effect under the Policy or
under any supplemental term insurance riders.
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?"
Mortality and expense risks charge. We will charge you a daily charge for
mortality and expense risks. The charge is at an annual rate of .90% of the
average daily value of the net assets of your Policy in the variable investment
options.
Surrender charge. The Policies have a surrender charge that applies for
the first 11 Policy years (and the first 11 years after any requested increase
in the Policy's face amount). This charge is imposed when the Policy is
surrendered or lapsed. The surrender charge is the sum of:
- Any portion of the premium tax and sales expense charges that have not
yet been collected through periodic deductions;
- The other contingent deferred sales charges described below; and
- The charge for other Policy (or increase) issuance expenses described
below.
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 age of the insured person as follows:
<TABLE>
<CAPTION>
OVERALL LIMIT
INSURED PERSON'S AGE SURRENDER CHARGE PER
AT TIME OF POLICY THOUSAND DOLLARS
ISSUANCE OR OF FACE AMOUNT OR
FACE AMOUNT INCREASE FACE AMOUNT INCREASE
- -------------------- --------------------
<S> <C>
25-30 $ 9.00
31-40 $10.00
41-45 $12.00
46-50 $14.00
51-55 $16.00
56-60 $21.00
61-65 $28.00
66-and above $40.00
</TABLE>
Any amount of surrender charge decreases automatically by a constant amount each
year beginning in the sixth year of its 11 year period referred to above until,
in the twelfth year, it is zero.
Contingent deferred sales charge. If your Policy is surrendered or lapsed,
we will impose a contingent deferred sales charge of 22% of the premiums that
you paid in the first 2 Policy years that do not exceed the sum of 12
recommended monthly minimum premiums. The contingent deferred sales charge is
part of the surrender charge. If we increase the face amount of your Policy upon
your request, we will charge you an additional contingent deferred sales charge.
If we decrease the face amount of your Policy upon your request, we may decrease
the contingent deferred sales charge. The contingent deferred sales charge will
decrease beginning in the sixth
7
<PAGE> 60
year of its 11 year period and will be eliminated after the eleventh year.
If your Policy is surrendered or lapsed following an increase in the face
amount of your Policy upon your request, you will pay an additional contingent
deferred sales charge. The maximum additional contingent deferred sales charge
will be 22% of the lesser of (1) the sum of 12 recommended monthly minimum
premiums for the face amount increase or (2) the amount of actual premiums
payments for the face amount increase for 2 years following the increase. The
additional contingent deferred sales charge will decrease beginning in the sixth
year of its 11 year period and will be eliminated after the eleventh year.
Other Policy issuance expenses charge. We will charge you $5.00 per
thousand dollars of your Policy's initial face value if your Policy is
surrendered or lapsed before your eleventh Policy year. The charge for other
Policy expenses is part of the surrender charge. If we increase the face amount
of your Policy upon your request, we will charge you an additional $5.00 per
thousand dollars of the Policy increase. This charge will decrease beginning in
the sixth year of its 11 year period and will be eliminated after the eleventh
year.
Policy value advances recovery charge. Starting at the end of your seventh
Policy year, you generally will receive credits to your account called policy
value advances. While we currently do not do so, we reserve the right to recover
the policy value advances that we paid into your account. If we chose to recover
these advances, we would deduct $4.00 per month plus a daily deduction at an
annual rate of .27% of your Policy's net assets in the separate account. We
would continue to make these deductions until we recovered the total policy
value advances paid to your account.
Transaction fee. We reserve the right to charge a transaction fee of up to
$25.00 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 except for the daily deductions for
premium tax and sales charges, and the mortality and expense risk charge. 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. The
daily deductions for premium tax and sales charges, and the mortality and
expense risks charge are always 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 1998 were as follows:
<TABLE>
<CAPTION>
FORTIS SERIES FUND ANNUAL
EXPENSES AFTER EXPENSE
LIMITATIONS (A)
------------------------------------
OTHER TOTAL
FUND FUND FUND
MANAGEMENT OPERATING OPERATING
NAME OF FUND FEES EXPENSE EXPENSE
------------ ---------- --------- ---------
<S> <C> <C> <C>
Money Market Series...... .30% .05% .35%
U.S. Government
Securities Series...... .47% .04% .51%
Diversified Income
Series................. .47% .05% .52%
Global Bond Series....... .75% .13% .88%
High Yield Series........ .50% .06% .56%
Global Asset Allocation
Series................. .90% .11% 1.01%
Asset Allocation
Series................. .47% .04% .51%
Value Series............. .70% .06% .76%
Growth & Income Series... .64% .03% .67%
S&P 500 Index Series..... .40% .06% .46%
Blue Chip Stock Series... .89% .05% .94%
International Stock
Series................. .85% .09% .94%
Mid Cap Stock Series..... .90% .35% 1.25%
Small Cap Value Series... .90% .34% 1.24%
Global Growth Series..... .70% .05% .75%
Large Cap Growth
Series................. .90% .35% 1.25%
Growth Stock Series...... .61% .04% .65%
Aggressive Growth
Series................. .68% .04% .72%
</TABLE>
- ------------------------------
(a) For the Mid Cap Stock and Large Cap Growth Series there was a voluntary
undertaking to limit management fees to .90% and other fund expenses to
.35%. Had the waiver and reimbursement of expenses not been in effect the
other fund expenses would have been .50% for Mid Cap Stock Series, and .37%
for Large Cap Growth Series.
8
<PAGE> 61
Each of the investment options has a different investment objective and is
managed by Fortis Advisers, Inc. For several of the investment options Fortis
Advisers, Inc. has retained a sub-adviser to provide investment research, advice
and supervision. From its management fee, Fortis Advisers, Inc. pays the
sub-advisers a fee as follows:
<TABLE>
<CAPTION>
ANNUAL SUB-
NAME OF FUND SUB-ADVISER AVERAGE NET ASSETS ADVISORY FEE
------------ ----------- ------------------ ------------
<S> <C> <C> <C>
Global Bond Series................... Mercury Asset Management For the first $100 million .350%
International Ltd. For assets over $100 million .225%
Global Asset Allocation.............. Morgan Stanley Asset For the first $100 million .500%
Management Limited For assets over $100 million .400%
S&P 500 Index Series................. The Dreyfus Corporation All levels of assets .170%
Blue Chip Stock Series............... T. Rowe Price For the first $100,000,000 .500%
For assets over $100,000,000 .450%
International Stock Series........... Lazard Asset Management For the first $100 million .450%
For assets over $100 million .375%
Mid Cap Stock Series................. The Dreyfus Corporation For the first $100 million .500%
For the next $150 million .450%
For assets over $250 million .400%
Small Cap Value Series............... Berger Associates, Inc. For the first $50 million .500%
For assets over $50 million .450%
Large Cap Growth Series.............. Alliance Capital For the first $100 million .500%
Management L.P. For the next $100 million .450%
For assets over $200 million .400%
</TABLE>
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. In your first Policy year, the annualized Planned Periodic Premium must be
at least the greater of (1) $10,000 or (2) twelve recommended monthly minimum
premiums. Our current practice is to bill quarterly, semi-annually or annually.
You may also set up a monthly automatic bank draft. However, except in the first
Policy year, 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
net cash value stays above zero. Your net cash value is your policy value less:
- any outstanding policy loan, plus any loan interest paid for future
periods; and
- the portion of the surrender charge that decreases to zero in your
twelfth Policy year regardless of the surrender charge cap.
The less you invest, the more likely it is that your Policy's net 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 net 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 that 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
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<PAGE> 62
specifies an "Initial Monthly Minimum Premium." This recommended 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. So long as this
test is met the Policy will not terminate (lapse) during the guarantee period,
even if the net 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
reinstated.
If the insured person is younger than 60 years old at the time your Policy
is issued, the guarantee period is the lesser of 12 years or until age 65. If
the insured person is between the ages of 60 to 70 at the time your Policy is
issued, the guarantee period is for five years. If the insured person is older
than 70 years old from the date your Policy is issued, the guarantee is for the
greater of two years or until age 75. 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. None of the
above-mentioned changes extends the guaranteed death benefit or establishes a
new benefit period.
The monthly charge for the guarantee period is $.01 per thousand dollars of
face amount in effect under the Policy or under any supplemental term insurance
riders.
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.
In an 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.
You may make a transfer out of our general account option once per year,
and currently the transfer may not be for more than 50% of the general account
policy value.
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
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<PAGE> 63
$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
recommended monthly minimum premium apply to the face amount increase.
Decrease in coverage. After the first Policy year, you may request a
reduction in the face amount of coverage. The minimum remaining face amount must
be $500,000 (or, if greater, the minimum amount that the tax law requires.)
Change of death benefit option. Once each 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.
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. Charges for the disability and term life riders 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 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.
- - Waiver of Selected Amount Rider, under which we will pay a monthly premium in
an amount you select, so long as the insured person is totally disabled (as
defined in the rider). The minimum amount you can select is $25. The maximum
amount is described in the rider, but is at least equal to the recommended
monthly minimum premium for your Policy (capped at the monthly recommended
minimum premium for a $2 million dollar Policy). See the rider for further
details.
- - Waiver of Monthly Deductions Rider, under which we will waive all monthly
charges under your Policy and riders that we otherwise would deduct from your
policy value, so long as the insured person is totally disabled (as defined
in the rider). While we are paying benefits under this rider, we will not
permit you to request any increase in the face amount of your Policy's
coverage. Loan interest will not be paid for you under this rider, and the
Policy could, under certain circumstances, lapse for nonpayment of loan
interest.
You may not select both a Waiver of Selected Amount Rider and a Waiver of
Monthly Deductions Rider on the same Policy.
- - Additional Insured Rider, which 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.
- - Primary Insured Rider, which 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.
- - Child Insurance Rider, which provides term life insurance coverage on the
eligible
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<PAGE> 64
children of the insured person under the Policy. This rider is convertible to
individual life policies (except for term coverage) available for
conversions, under our published rules at the time of conversion.
- - Accelerated Benefit Rider, which 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). The maximum amount you may accelerate 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 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 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." 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.
Between your first Policy year and your second Policy year, you may only
make a partial withdrawal if your total premium payments to date equal the sum
of 12 recommended monthly minimum premiums for the initial face amount of your
Policy. We will not permit a partial withdrawal if it would cause your Policy to
fail to qualify as life insurance under the tax laws. We also will not allow you
to make a partial withdrawal if it would reduce the face amount of your Policy
below $400,000.
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 12 years or the insured person's reaching age 70, you
may borrow 100% of the policy value less surrender charges. If you reside in
Texas, you may also borrow up to 100% of your policy value in the general
account, less a pro-rata portion of the surrender charges.
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 6.10%. Loan interest is payable annually 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.
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
12
<PAGE> 65
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 you a reduced interest rate of 3.85% on one Policy
loan of up to 10% of the surrender value in each Policy year if (1) the
surrender value is at least $50,000 or (2) the Policy has been in force for 12
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.
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. Within 60 days after the
insured person's death, any payee entitled to receive proceeds as a single sum
may generally elect one or more payment options. We reserve the right to pay the
proceeds to the payee in a single sum if (1) the proceeds payable are less than
$2,000; or (2) payments under the chosen payment option would be less than $20
each.
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
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<PAGE> 66
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 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
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<PAGE> 67
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.
ILLUSTRATIONS OF HYPOTHETICAL
POLICY BENEFITS
To help clarify how our Policies work, we have prepared the following
tables:
<TABLE>
<CAPTION>
PAGE TO SEE
TABLE IN THIS PROSPECTUS
----- ------------------
<S> <C>
Death benefit Option A
Current charges...................... 17
Guaranteed Maximum Charges........... 18
Death Benefit Option B
Current Charges...................... 19
Guaranteed Maximum Charges........... 20
</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 $800,000 for a 45 year-old male
non-smoker who is a standard mortality risk. 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 eleven 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 charges, current monthly insurance charges,
the monthly administrative 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 .27%
to pay for a premium tax charge in the amount of 2.5% of all premium payments
and a sales charge in the amount of 7.5% of all premium payments; (2) guaranteed
maximum insurance charges; (3) a monthly administrative charge of $7.50 plus
$.13 per thousand of face amount; and (4) a mortality and expense risks charge
at an annual effective rate of .90%.
The charges assumed by both the current and guaranteed maximum charge
tables also include .78% 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 an agreement to waive a portion of the fees
and reimburse certain expenses, the assumed expenses would have been .79%.
Although voluntary, it is unlikely that this 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. Please read "What charges and expenses will the Funds
deduct from amounts I invest through my
15
<PAGE> 68
Policy?" on page 6 of this prospectus to learn about the waiver of management
fees and other expenses.
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.
16
<PAGE> 69
MALE ISSUE AGE 45
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $800,000--DEATH BENEFIT OPTION A
CURRENT CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
-----------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2)(3) 12% (1)(2)(3)
END OF ACCUMULATED ----------------------------- --------------------------------- ---------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,750 800,000 12,111 4,866 800,000 12,927 5,683 800,000 13,745 6,502
2 32,288 800,000 23,665 15,081 800,000 26,051 17,472 800,000 28,538 19,966
3 49,652 800,000 34,849 25,249 800,000 39,565 29,965 800,000 44,682 35,082
4 67,884 800,000 45,661 36,061 800,000 53,479 43,879 800,000 62,311 52,711
5 87,029 800,000 56,338 46,738 800,000 68,049 58,449 800,000 81,825 72,225
6 107,130 800,000 66,884 58,656 800,000 83,306 75,078 800,000 103,421 95,193
7 128,237 800,000 77,449 70,592 800,000 99,428 92,571 800,000 127,467 120,610
8 150,308 800,000 88,073 82,587 800,000 116,493 111,007 800,000 154,260 148,775
9 173,668 800,000 98,724 94,610 800,000 134,553 130,438 800,000 184,157 180,043
10 198,102 800,000 108,753 106,010 800,000 152,989 150,246 800,000 216,807 214,064
15 339,868 800,000 151,505 151,505 800,000 253,720 253,720 800,000 442,024 442,024
20 520,789 800,000 178,675 178,675 800,000 374,921 374,921 1,008,406 826,562 826,562
25 751,702 800,000 184,651 184,651 800,000 526,786 526,786 1,708,970 1,473,250 1,473,250
40 1,902,596 0 0 0 1,418,960 1,351,391 1,351,391 7,867,904 7,493,242 7,493,242
</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
17
<PAGE> 70
MALE ISSUE AGE 45
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $800,000--DEATH BENEFIT OPTION A
GUARANTEED CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
-------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2) 12% (1)(2)
END OF ACCUMULATED ----------------------------- ----------------------------- ---------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,750 800,000 10,187 2,893 800,000 10,930 3,637 800,000 11,675 4,384
2 32,288 800,000 19,995 11,309 800,000 22,120 13,439 800,000 24,340 15,665
3 49,652 800,000 29,420 19,820 800,000 33,573 23,973 800,000 38,089 28,489
4 67,884 800,000 38,451 28,851 800,000 45,284 35,684 800,000 53,022 43,422
5 87,029 800,000 47,078 37,478 800,000 57,251 47,651 800,000 69,250 59,650
6 107,130 800,000 55,277 47,049 800,000 69,456 61,228 800,000 86,886 78,658
7 128,237 800,000 63,181 56,323 800,000 82,041 75,183 800,000 106,213 99,356
8 150,308 800,000 70,927 65,441 800,000 95,161 89,676 800,000 127,559 122,074
9 173,668 800,000 78,544 74,429 800,000 108,905 104,791 800,000 151,256 147,141
10 198,102 800,000 85,580 82,837 800,000 122,835 120,092 800,000 177,075 174,332
15 339,868 800,000 111,081 111,081 800,000 194,914 194,914 800,000 350,717 350,717
20 520,789 800,000 114,093 114,093 800,000 267,564 267,564 800,000 646,851 646,851
25 751,702 800,000 78,530 78,530 800,000 337,533 337,533 1,340,504 1,155,607 1,155,607
40 1,902,596 0 0 0 800,000 283,153 283,153 5,941,424 5,658,499 5,658,499
</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
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<PAGE> 71
MALE ISSUE AGE 45
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $800,000--DEATH BENEFIT OPTION B
CURRENT CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
---------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2) 12% (1)(2)
END OF ACCUMULATED ----------------------------- ------------------------------- ---------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,750 812,069 12,069 4,824 812,883 12,883 5,639 813,698 13,698 6,455
2 32,288 823,534 23,534 14,950 825,906 25,906 17,328 828,379 28,379 19,807
3 40,652 834,583 34,583 24,983 839,258 39,258 29,658 844,331 44,331 34,731
4 67,884 845,207 45,207 35,607 852,935 52,935 43,335 861,664 61,664 52,064
5 87,029 855,660 55,660 46,060 867,204 67,204 57,604 880,778 80,778 71,178
6 107,130 865,947 65,947 57,719 882,089 82,089 73,861 901,852 101,852 93,624
7 128,237 876,219 76,219 69,362 897,763 97,763 90,906 925,232 125,232 118,374
8 150,308 886,500 86,500 81,014 914,276 114,276 108,791 951,160 151,160 145,675
9 173,668 896,735 96,735 92,620 931,640 131,640 127,525 979,916 179,916 175,802
10 198,102 906,233 106,233 103,491 949,159 149,159 146,417 1,011,011 211,011 208,268
15 339,868 944,540 144,540 144,540 1,040,939 240,939 240,939 1,218,065 418,065 418,065
20 520,789 962,824 162,824 162,824 1,137,341 337,341 337,341 1,544,626 744,626 744,626
25 751,702 953,626 153,626 153,626 1,232,318 432,318 432,318 2,065,558 1,265,558 1,265,558
40 1,902,596 0 0 0 1,278,032 478,032 478,032 6,430,453 5,630,453 5,630,453
</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.
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<PAGE> 72
MALE ISSUE AGE 45
STANDARD NONSMOKER UNDERWRITING RISK
FACE AMOUNT: $800,000--DEATH BENEFIT OPTION B
GUARANTEED CHARGES
<TABLE>
<CAPTION>
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
---------------------------------------------------------------------------------------------------
PREMIUMS 0% (1)(2) 6% (1)(2) 12% (1)(2)
END OF ACCUMULATED ----------------------------- ------------------------------- ---------------------------------
POLICY AT 5% INTEREST DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER
YEAR PER YEAR (1) BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE
- ------ -------------- ------- ------ --------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,750 810,144 10,144 2,850 810,884 10,884 3,592 811,627 11,627 4,335
2 32,288 819,869 19,869 11,183 821,981 21,981 13,300 824,186 24,186 15,511
3 49,652 829,168 29,168 19,568 833,283 33,283 23,683 837,757 37,757 28,157
4 67,884 838,026 38,026 28,426 844,774 44,774 35,174 852,414 52,414 42,814
5 87,029 846,427 46,427 36,827 856,437 56,437 46,837 868,242 68,242 58,642
6 107,130 854,341 54,341 46,113 868,239 68,239 60,011 885,316 85,316 77,088
7 128,237 861,893 61,893 55,035 880,299 80,299 73,441 903,875 103,875 97,017
8 150,308 869,212 69,212 63,727 892,748 92,748 87,262 924,186 124,186 118,700
9 173,668 876,313 76,313 72,198 905,639 105,639 101,524 946,501 146,501 142,387
10 198,102 882,731 82,731 79,988 918,496 118,496 115,754 970,497 170,497 167,754
15 339,868 903,274 103,274 103,274 980,324 180,324 180,324 1,121,671 321,671 321,671
20 520,789 897,258 97,258 97,258 1,027,750 227,750 227,750 1,346,453 546,453 546,453
25 751,702 849,019 49,019 49,019 1,036,736 236,736 236,736 1,671,946 871,946 871,946
40 1,902,596 0 0 0 0 0 0 3,465,522 2,665,522 2,665,522
</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.
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<PAGE> 73
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........................... 21
The Separate Account.............. 21
Tax Effects....................... 21
Voting Privileges................. 25
Your Beneficiary.................. 25
Assigning Your Policy............. 25
More About Policy Charges......... 26
Effective Date of Policy and
Related Transactions............ 27
More about Our General Account
Option.......................... 28
Distribution of the Policies...... 28
Payment of Policy proceeds........ 29
Adjustments to Death Benefit...... 30
Additional Rights That We Have.... 30
Performance Information........... 30
Our Reports to Policy owners...... 31
Fortis Management................. 31
Legal Matters..................... 32
Independent Auditors.............. 32
Actuarial Experts................. 32
Year 2000 Issues.................. 32
Financial Statements.............. 32
</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 32). 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
21
<PAGE> 74
tax advice, for which you should consult a qualified tax adviser.
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 Section 7702 definition
of life insurance should be applied to the Policy is not directly addressed by
the Code. 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, 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.
22
<PAGE> 75
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
23
<PAGE> 76
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> 77
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
that 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
25
<PAGE> 78
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 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 mortality and expense risks charge and the premium tax and
sales charges, are primarily intended (a) to defray other expenses in connection
with the Policies (such as the costs of processing applications for Policies and
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 with counsel, the impact of Title VII of the Civil Rights Act of
1964 on the purchase of a policy in
26
<PAGE> 79
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 6.
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 generally will issue you
a Policy if the insured is age 25-80 and supplies us with satisfactory evidence
of insurability. 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." When temporary insurance has been provided, the Policy
date will ordinarily be the date of Part 1 of the insurance application. When no
temporary insurance has been provided, the Policy date will ordinarily be 3 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 mailed for
delivery. 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
27
<PAGE> 80
are generally effected at the end of the valuation period in which we receive
the payment, request 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;
- - Reinstatements of Policies that have lapsed take effect on the Policy's
monthly anniversary on or next following our approval of the transaction;
- - 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 on 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
28
<PAGE> 81
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 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 ($5,241,700 for calendar year 1998) 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 this 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 the portion of your policy value that
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
at an annual rate 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
insured person's
29
<PAGE> 82
lifetime, 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.)
- - 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 insured person's lifetime.
- - 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 the 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 the 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 the 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
30
<PAGE> 83
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 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>
<S> <C>
OFFICER-DIRECTORS
- --------------------------
Robert Brian Pollock
(4)..................... President and Chief
Executive Officer.
Dean C. Kopperud (1)...... Executive Vice President;
also officer of affiliated
companies.
Michael John Peninger
(4)..................... Executive Vice President--
Operations and Finance,
and Chief Financial
Officer
OTHER DIRECTORS
- --------------------------
Allen Royal Freedman
(2)..................... Chairman and Chief
Executive Officer of
Fortis, Inc.
J. Kerry Clayton (2)...... Executive Vice President
of Fortis, Inc.
Arie Aristide Fakkert
(3)..................... Assistant General Manager
of Fortis International
N.V.
Alan W. Feagin (5)........ President and CEO of
United Family Life
Insurance Company
EXECUTIVE OFFICERS
- --------------------------
Peggy Ettestad (1)........ Senior Vice President--
Operations; before then
Vice President, General
Electric Company
Rhonda J. Schwartz (1).... Senior Vice President and
General Counsel, 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 Fortis Insurance
Company, 501 West Michigan, Milwaukee, WI 53201, 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 Fortis (NL) N.V. AMEV/VSB 1990 N.V. is 50% owned by Fortis (NL)
N.V. and 50% owned by Fortis (B), Boulevard Emile Jacqmain 53, Brussels,
Belgium.
31
<PAGE> 84
(3) Address: Fortis (NL) N.V., Archimedeslaan 10, 3584 BA Utrecht, The
Netherlands.
(4) Address: 2323 Grand Avenue, Kansas City, MO 64108.
(5) Address: 230 John Wesley Dobbs Avenue, Atlanta, GA 30303
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, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998, and the statements of net assets of
Variable Account C at December 31, 1998, and the related statements of changes
in net assets for each of the two years in the period ended December 31, 1998,
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 Note 17 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 Note 9 to Fortis'
financial statements.
32
<PAGE> 85
The Board of Directors
REPORT OF INDEPENDENT AUDITORS
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, 1998 and 1997, 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, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fortis Benefits Insurance
Company at December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young, LLP
February 19, 1999
Minneapolis, MN
F-1
<PAGE> 86
BALANCE SHEETS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION> DECEMBER 31
----------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost
1998--$2,315,904; 1997--$2,325,589)................ $ 2,402,343 $ 2,415,915
Equity securities, at fair value
(cost 1998--$141,947; 1997--$88,719).............. 157,851 109,832
Mortgage loans on real estate, less allowance
for possible losses (1998 and 1997--$11,085)...... 610,131 602,064
Policy loans........................................ 74,950 68,566
Short-term investments.............................. 31,868 70,537
Real estate and other investments................... 56,297 55,035
----------- -----------
3,333,440 3,321,949
Cash and cash equivalents............................. 668 9,901
Receivables:
Uncollected premiums................................ 61,883 74,220
Reinsurance recoverable on unpaid and paid losses... 14,853 13,852
Other............................................... 17,641 19,762
----------- -----------
94,377 107,834
Accrued investment income............................. 42,831 47,376
Deferred policy acquisition costs..................... 331,938 291,742
Property and equipment at cost, less
accumulated depreciation............................. 30,712 42,773
Deferred federal income taxes......................... 17,904 15,037
Other assets.......................................... 3,923 4,250
Assets held in separate accounts...................... 3,742,403 2,978,622
----------- -----------
TOTAL ASSETS.......................................... $ 7,598,196 $ 6,819,484
=========== ===========
</TABLE>
See accompanying notes.
F-2
<PAGE> 87
BALANCE SHEETS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
POLICY RESERVES, LIABILITIES AND SHAREHOLDER'S EQUITY
POLICY RESERVES AND LIABILITIES:
Future policy benefit reserves:
Traditional life insurance......................... $ 450,776 $ 449,017
Interest sensitive and investment products......... 1,238,125 1,264,227
Accident and health................................ 861,334 792,249
---------- ----------
2,550,235 2,505,493
Unearned revenues................................... 13,393 10,653
Other policy claims and benefits payable............ 255,350 260,596
Policyholder dividends payable...................... 8,189 8,197
---------- ----------
2,827,167 2,784,939
Debt................................................ 20,141 26,433
Accrued expenses.................................... 57,860 49,909
Current income taxes payable........................ 4,168 10,549
Other liabilities................................... 86,226 113,222
Due to affiliates................................... 9,479 6,925
Liabilities related to separate accounts............ 3,707,687 2,947,401
---------- ----------
TOTAL POLICY RESERVES AND LIABILITIES................. 6,712,728 5,939,378
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................................. 344,605 332,723
Accumulated other comprehensive income............ 67,863 74,383
---------- ----------
TOTAL SHAREHOLDER'S EQUITY............................ 885,468 880,106
---------- ----------
TOTAL POLICY RESERVES, LIABILITIES AND SHAREHOLDER'S
EQUITY.............................................. $7,598,196 $6,819,484
========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 88
FORTIS BENEFITS INSURANCE COMPANY
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
REVENUES
Insurance operations:
Traditional life insurance premiums............... $ 260,567 $ 269,540 $ 258,496
Interest sensitive and investment
product policy charges.......................... 85,551 77,429 63,336
Accident and health insurance premiums............ 953,652 891,037 974,046
---------- ---------- ----------
1,299,770 1,238,006 1,295,878
Net investment income............................. 234,043 228,724 206,023
Net realized gains on investments................. 52,404 41,101 25,731
Other income...................................... 44,671 36,458 31,725
---------- ---------- ----------
TOTAL REVENUES.................................. 1,630,888 1,544,289 1,559,357
BENEFITS AND EXPENSES
Benefits to policyholders:
Traditional life insurance....................... 189,337 204,497 220,227
Interest sensitive investment products........... 96,178 103,077 90,358
Accident and health claims....................... 798,036 707,113 778,439
---------- ---------- ----------
1,083,551 1,014,687 1,089,024
Policyholder dividends.............................. 3,486 2,935 4,169
Amortization of deferred policy acquisition costs... 33,365 43,931 39,325
Insurance commissions............................... 118,710 107,378 94,723
General and administrative expenses................. 299,492 273,128 242,825
---------- ---------- ----------
TOTAL BENEFITS AND EXPENSES..................... 1,538,604 1,442,059 1,470,066
---------- ---------- ----------
Income before federal income taxes.................. 92,284 102,230 89,291
Federal income taxes................................ 30,402 35,120 31,099
---------- ---------- ----------
NET INCOME........................................... $ 61,882 $ 67,110 $ 58,192
========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 89
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, 1996............... $711,098 $5,000 $408,000 $207,421 $ 90,677
Comprehensive income (loss):
Net income........................... 58,192 -- -- 58,192 --
Change in unrealized gains (losses)
on investments, net.................. (48,617) -- -- -- (48,617)
--------
Total Comprehensive income (loss)..... 9,575
Additional paid-in capital............ 60,000 -- 60,000 -- --
-------- ------ -------- -------- --------
Balance, December 31, 1996............. 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 (loss):
Net income........................... 61,882 -- -- 61,882 --
Change in unrealized gains (losses)
on investments, net................. (6,520) -- -- -- (6,520)
-------
Total Comprehensive income (loss)..... 55,362
Dividend.............................. (50,000) -- -- (50,000) --
-------- ------ -------- -------- --------
Balance, December 31, 1998............. $885,468 $5,000 $468,000 $344,605 $ 67,863
======== ====== ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 90
STATEMENTS OF CASH FLOWS
FORTIS BENEFITS INSURANCE COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............ ................................................... $ 61,882 $ 67,110 $ 58,192
Adjustments to reconcile net income to net cash provided by operating
activities:
Increase (decrease) in future policy benefit reserves for traditional,
interest sensitive and acc and health policies.......................... 106,135 (2,496) 26,193
(Decrease) increase in other policy claims and benefits and policyholder
dividends payable....................................................... (2,514) 68,070 18,638
Provision for deferred federal income taxes............................... 417 (6,449) (1,094)
(Decrease) increase in income taxes payable............................... (6,381) (6,875) 12,049
Amortization of deferred policy acquisition costs......................... 33,365 43,931 39,325
Policy acquisition costs deferred......................................... (73,147) (69,694) (66,515)
Provision for mortgage loan losses........................................ -- 1,388 1,344
Provision for depreciation................................................ 12,409 14,351 17,312
Write-off of investment................................................... -- 3,000 --
Amortization of investment (discounts) premiums, net...................... (3,200) (466) 1,821
Change in receivables, accrued investment income, unearned premiums,
accrued expenses and other liabilities.................................. (4,455) (2,720) 38,614
Net realized gains on investments......................................... (52,404) (41,101) (25,731)
Other..................................................................... 169 (12,496) (261)
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............................. 72,276 55,553 119,887
INVESTING ACTIVITIES
Purchases of fixed maturity investments................................... (2,380,511) (3,611,770) (2,778,352)
Sales and repayments of fixed maturity investments........................ 2,428,207 3,378,898 2,652,887
Decrease (increase) in short-term investments............................. 38,669 112,280 (29,318)
Purchases of other investments............................................ (408,998) (209,771) (210,182)
Sales of other investments................................................ 352,873 205,084 163,569
Purchases of property and equipment....................................... (356) (4,242) (10,992)
Other..................................................................... -- (617) --
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.................... 29,884 (130,138) (212,388)
FINANCING ACTIVITIES
Activities related to investment products:
Considerations received................................................. 215,693 200,760 128,446
Surrenders and death benefits........................................... (326,457) (190,361) (125,274)
Interest credited to policyholders...................................... 49,371 53,613 49,802
Dividend.................................................................. (50,000) -- --
Additional paid-in capital from shareholder............................... -- -- 60,000
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES.................... (111,393) 64,012 112,974
----------- ----------- -----------
(Decrease) increase in cash and cash equivalents............................ (9,233) (10,573) 20,473
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......................... 9,901 20,474 1
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................... $ 668 $ 9,901 $ 20,474
=========== =========== ===========
NON CASH ACTIVITY
Investment acquired through issuance of debt.............................. $ 11,948 $ 18,100 --
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE> 91
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
DECEMBER 31, 1998
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 (B) and Fortis (NL) N.V. The Company is incorporated in
Minnesota and distributes its products in all states except New York. To date,
the majority of the Company's revenues have been derived from group employee
benefits products and the remainder from individual life and annuity products.
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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
The Company follows generally accepted accounting principles which differ in
certain respects from statutory accounting practices prescribed or permitted by
regulatory authorities. The more significant of these principles are:
REVENUE RECOGNITION AND FUTURE POLICY BENEFIT RESERVES
Premiums for traditional life insurance are recognized as revenues when due over
the premium-paying period. Reserves for future policy benefits are computed
using the net level method and include investment yield, mortality, withdrawal,
and other assumptions based on the Company's experience, modified as necessary
to reflect anticipated trends and to include provisions for possible unfavorable
deviations.
Revenues for interest sensitive and investment products consist of charges
assessed against policy account balances during the period for the cost of
insurance, policy administration, and surrender charges. Future policy benefit
reserves are computed under the retrospective deposit method and consist of
policy account balances before applicable surrender charges. Policy benefits
charged to expense during the period include amounts paid in excess of policy
account balances and interest credited to policy account balances. Interest
crediting rates for universal life and investment products ranged from 2.5% to
8.75% in 1998, 1997 and 1996.
Premiums for accident and health insurance products, including medical, long and
short-term disability and dental insurance products, are recognized as revenues
ratably over the contract period in proportion to the risk insured. Reserves for
future disability benefits are based on the 1964 Commissioners Disability Table
at 6% interest. Calculated reserves are modified based on the Company's actual
experience.
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 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. For accident and health
(excluding long-term care) and group life insurance products, these costs
represent the present value at the acquisition of these lines in the October 1,
1991 purchase (see Note 2) of future profits which are amortized against the
expected premium revenues of the lines acquired. 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 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.
F-7
<PAGE> 92
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Mortgage loans constitute first liens on commercial real estate and other income
producing properties. The insurance statutes in Minnesota generally require that
the initial principal loaned not exceed 80% of the appraised value of the
property securing the loan. The Company's policy fully complies with this
statute. Mortgage loans on real estate are reported at unpaid balance, adjusted
for amortization of premium or discount, less allowance for possible losses. The
change in the allowance for possible losses is recorded with realized gains and
losses on investments.
Policy loans are reported at their unpaid balance. Short term investments are at
cost which approximates fair value.
Real estate and other investments consists 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 basis 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.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation. The
Company provides for depreciation principally on the straight-line method over
the estimated useful lives of the related property.
INCOME TAXES
Income taxes have been provided using the liability method. 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 operations.
Assets and liabilities associated with the separate accounts relate to deposits
and annuity considerations for variable life and annuity products for which the
contract holder, rather than the Company, bears the investment risk. Separate
account assets are reported at fair value 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.
RECLASSIFICATIONS
Certain amounts in the 1997 and 1996 financial statements have been reclassified
to conform to the 1998 presentation.
2. ACQUIRED BUSINESS
In 1991, the Company purchased certain assets and assumed certain
liabilities from The Mutual Benefit Life Insurance Company in Rehabilitation
(MBL). The seller transferred to the Company, the assets and liabilities
relating to the group life, accident and health, disability and dental insurance
business of MBL. The acquisition was accounted for as a purchase. The original
purchase price of the acquisition was $318,000,000. Subsequent additional
payments of $20,850,000 were made in 1994. These additional payments, as well as
$126,515,000 of the original purchase price represent the estimated present
value of future profits on the lines of business acquired at the date of
acquisition and have been accounted for as deferred policy acquisition costs
(see Note 4).
F-8
<PAGE> 93
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
3. INVESTMENTS
AVAILABLE-FOR-SALE SECURITIES
The following is a summary of the available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
December 31, 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
========== ======== ======= ==========
December 31, 1997
Fixed maturities:
Governments.......................... $ 228,856 $ 8,698 $ 30 $ 237,524
Public utilities..................... 121,128 4,217 13 125,332
Industrial and miscellaneous......... 1,932,894 77,442 1,625 2,008,711
Other................................ 42,711 1,637 -- 44,348
---------- -------- -------- ----------
Total fixed maturities............... 2,325,589 91,994 1,668 2,415,915
Equity securities.................... 88,719 24,769 3,656 109,832
---------- -------- ------- ----------
Total............................. $2,414,308 $116,763 $ 5,324 $2,525,747
========== ======== ======= ==========
</TABLE>
The amortized cost and fair value of available-for-sale investments in fixed
maturities at December 31, 1998, by contractual maturity, are shown below (in
thousands).
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- -----------
<S> <C> <C>
Due in one year or less................................. $ 89,349 $ 89,935
Due after one year through five years................... 759,046 775,131
Due after five years through ten years.................. 614,280 640,042
Due after ten years..................................... 853,229 897,235
---------- -----------
Total................................................... $2,315,904 $ 2,402,343
========== ===========
</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.
MORTGAGE LOANS
The Company has issued commercial mortgage loans on properties located
throughout the United States. Approximately 36% and 37% of outstanding principal
is concentrated in the states of New York, California and Florida, at December
31, 1998 and 1997, respectively. Loan commitments outstanding totaled
$11,590,000 at December 31, 1998.
INVESTMENTS ON DEPOSIT
The Company had fixed maturities carried at $19,978,000 and $2,548,000 at
December 31, 1998 and 1997, 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.
F-9
<PAGE> 94
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
3. INVESTMENTS (CONTINUED)
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 (BENEFIT) NET-OF-TAX
AMOUNT EXPENSE AMOUNT
---------- ----------- -----------
<S> <C> <C> <C>
December 31, 1998
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments................................... $ 32,614 $(11,562) $ 21,052
Decrease (increase) in amortization of deferred
policy acquisition costses.................... 414 (145) 269
Reclassification adjustment for gains realized
in net income................................. (42,832) 14,991 (27,841)
-------- -------- --------
Other comprehensive income (loss)................ $ (8,804) $ 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
Decrease (increase) in amortization of deferred
policy acquisition costs..................... (2,096) 771 (1,325)
Reclassification adjustment for gains realized
in net income................................. (40,587) 14,205 (26,382)
-------- -------- --------
Other comprehensive income...................... $ 51,143 $(18,820) $ 32,323
======== ======== ========
December 31, 1996
Unrealized gains (losses) on investments:
Unrealized gains (losses) on available-for-sale
investments.................................. $(61,450) $ 24,823 $(36,627)
Decrease (increase) in amortization of deferred
policy acquisition costs..................... 3,376 (1,316) 2,060
Reclassification adjustment for gains realized
in net income............................... (21,615) 7,565 (14,050)
-------- -------- --------
Other comprehensive loss........................ $(79,689) $ 31,072 $(48,617)
======== ======== ========
</TABLE>
NET INVESTMENT INCOME AND NET REALIZED GAINS ON INVESTMENTS
Major categories of net investment income and realized gains on investments for
each year were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
NET INVESTMENT INCOME
Fixed maturities..................................... $160,163 $160,444 $141,973
Equity securities.................................... 8,656 9,306 6,682
Mortgage loans on real estate........................ 57,031 54,662 52,949
Policy loans......................................... 4,653 4,144 3,195
Short-term investments............................... 1,701 2,851 5,175
Real estate and other investments.................... 8,194 4,635 5,358
-------- -------- --------
240,398 236,042 215,332
Expenses............................................. (6,355) (7,318) (9,309)
-------- -------- --------
$234,043 $228,724 $206,023
======== ======== ========
NET REALIZED GAINS ON INVESTMENTS
Fixed maturities.................................... $ 34,320 $ 13,827 $ 3,334
Equity securities................................... 8,512 26,760 18,281
Mortgage loans on real estate....................... (198) 301 (144)
Short-term investments.............................. 5 -- 57
Real estate and other investments................... 9,765 213 4,203
-------- -------- --------
$ 52,404 $ 41,101 $ 25,731
======== ======== ========
</TABLE>
Proceeds from sales of investments in fixed maturities were $2,460,316,000,
$3,360,682,000 and $2,652,887,000 in 1998, 1997 and 1996, respectively. Gross
gains of $44,360,000, $30,860,000 and $28,606,000 and gross losses of
$10,040,000, $17,033,000 and $25,272,000 were realized on the sales in 1998,
1997 and 1996, respectively.
F-10
<PAGE> 95
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
4. DEFERRED POLICY ACQUISITION COSTS
The changes in deferred policy acquisition costs by product were as follows
(in thousands):
<TABLE>
<CAPTION>
INTEREST
SENSITIVE AND ACCIDENT
TRADITIONAL INVESTMENT AND
LIFE PRODUCTS HEALTH TOTAL
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Balance January 1, 1997..................... $ 33,157 $221,036 $13,882 $268,075
Acquisition costs deferred.................. -- 69,694 -- 69,694
Acquisition costs amortized................. (10,988) (24,251) (8,692) (43,931)
Increased amortization of deferred
acquisition costs from unrealized gains on
available-for-sale securities............. -- (2,096) -- (2,096)
-------- -------- ------- --------
Balance, December 31, 1997.................. 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
======== ======== ======= ========
</TABLE>
Included within total deferred policy acquisition costs at December 31, 1997 is
$10,434,000 of present value of future profits (PVP) resulting from acquisitions
accounted for as a purchase. All remaining PVP was amortized in 1998.
During 1998, 1997 and 1996, 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 additional amortization of deferred
acquisition costs of $3,357,000, $732,000 and $1,894,000, respectively.
5. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31 for each year follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Land..................................................................... $ 1,900 $ 1,900
Building and improvements................................................ 24,319 24,148
Furniture and equipment.................................................. 87,714 87,537
-------- --------
113,933 113,585
Less accumulated depreciation............................................ (83,221) (70,812)
-------- --------
Net property and equipment............................................... $ 30,712 $ 42,773
======== ========
</TABLE>
6. 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
---------------------------------
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance recoverables....... $ 988,036 $947,711 $928,832
Add: Incurred losses related to:
Current year................................................. 826,009 773,316 865,907
Prior years.................................................. (27,973) (59,634) (64,094)
---------- -------- --------
Total incurred losses..................................... 798,036 713,682 801,813
Deduct: Paid losses related to:
Current year................................................. 469,881 437,405 549,144
Prior years.................................................. 254,308 235,952 233,790
---------- -------- --------
Total paid losses......................................... 724,189 673,357 782,934
---------- -------- --------
Balance as of December 31, net of reinsurance recoverables..... $1,061,883 $988,036 $947,711
========== ======== ========
</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.
The liability for unpaid accident and health claims includes $915,368,000,
$854,940,000 and $805,510,000 of total disability income reserves as of December
31, 1998, 1997 and 1996, respectively, which were discounted for anticipated
interest earnings assuming a 6.0% interest rate.
F-11
<PAGE> 96
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
6. ACCIDENT AND HEALTH RESERVES (CONTINUED)
In each of the years presented above, the accident and health insurance line of
business experienced overall favorable development on claims reserves
established as of the previous year end. The favorable development was a result
of lower medical costs due to less uncertainty in the health business and a
reduction of loss reserves due to lower than anticipated inflation in medical
costs.
7. FEDERAL INCOME TAXES
The Company reports its taxable income in a consolidated federal income tax
return along with other affiliated subsidiaries of Fortis, Inc. (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.
The significant components of the Company's deferred tax liabilities and assets
as of December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
----- ----
<S> <C> <C>
Deferred tax assets:
Separate account assets/liabilities....................... $ 87,300 $ 56,620
Reserves.................................................. 27,586 43,143
Claims and benefits payable............................... 8,089 15,238
Accrued liabilities....................................... 10,113 8,785
Investments............................................... 3,861 4,795
Other..................................................... 2,723 3,042
-------- --------
Total deferred tax assets.............................. 139,672 131,623
Deferred tax liabilities:
Deferred policy acquisition costs......................... 82,031 72,369
Unrealized gains.......................................... 35,591 39,015
Fixed assets.............................................. 3,150 3,914
Investments............................................... 982 1,220
Other..................................................... 14 68
-------- --------
Total deferred tax liabilities......................... 121,768 116,586
-------- --------
Net deferred tax asset................................. $ 17,904 $ 15,037
======== ========
</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>
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Current.......................................... $ 30,232 $ 41,569 $ 32,193
Deferred......................................... 170 (6,449) (1,094)
-------- --------- --------
$ 30,402 $ 35,120 $ 31,099
======== ========= ========
</TABLE>
Federal income tax payments and refunds resulted in net payments of $36,367,000,
$58,859,000 and $16,434,000 in 1998, 1997 and 1996, respectively.
The Company's effective income tax rate varied from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate........................ 35.0% 35.0% 35.0%
Other, net....................................... (2.1) (.6) (.2)
---- ---- ----
32.9% 34.4% 34.8%
==== ==== ====
</TABLE>
F-12
<PAGE> 97
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
8. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets at December 31 were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<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................... $3,707,687 $2,947,401
Assets of the separate accounts owned by the Company, at fair value.... 34,716 31,221
---------- ----------
$3,742,403 $2,978,622
========== ==========
</TABLE>
9. 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 $5,601,000, $5,742,000 and $6,144,000 of premium from First
Fortis in 1998, 1997 and 1996, respectively. The Company has assumed $9,315,000,
$5,452,000 and $3,599,000 of reserves in 1998, 1997 and 1996, respectively, from
First Fortis.
The maximum amount that the Company retains on any one life is $500,000 of life
insurance including accidental death. Amounts in excess of $500,000 are
reinsured with other life insurance companies on a yearly renewable term basis.
Ceded reinsurance premiums for the year ended December 31 were as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Life insurance..................................................... $ 6,983 $ 8,159 $ 8,680
Accident and health insurance...................................... 13,862 13,712 6,793
------- ------- -------
$20,845 $21,871 15,473
======= ======= =======
</TABLE>
Recoveries under reinsurance contracts for the year ended December 31 were as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Life insurance..................................................... $ 4,549 $ 2,973 $ 7,225
Accident and health insurance...................................... 9,465 14,781 5,993
------- ------- -------
$14,014 $17,754 $13,218
======= ======= =======
</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.
10. DIVIDEND RESTRICTIONS
Dividend distributions to parent are restricted as to amount by state
regulatory requirements. The Company had $47,341,000 free from such restrictions
as December 31, 1998. Distributions in excess of this amount would require
regulatory approval.
11. 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. While the NAIC
has recently completed a project to codify statutory accounting practices, which
may result in changes to the accounting practices that insurance enterprises use
to prepare their statutory-basis financial statements, adoption by Minnesota is
not anticipated before 2001.
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.
F-13
<PAGE> 98
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
11. REGULATORY ACCOUNTING REQUIREMENTS (CONTINUED)
Reconciliations of net income and shareholder's equity on the basis of statutory
accounting to the related amounts presented in the accompanying statements were
as follows (in thousands):
<TABLE>
<CAPTION>
NET INCOME (LOSS) SHAREHOLDER'S EQUITY
--------------------------------- ---------------------
1998 1997 1996 1998 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Based on statutory accounting practices.... $ 14,841 $ 62,593 $ 55,046 $ 478,405 $ 528,671
Deferred policy acquisition costs.......... 39,782 25,763 27,190 331,938 291,742
Investment valuation differences........... 745 (497) (2,219) 100,165 80,245
Deferred and uncollected premiums.......... (103,982) (107,194) (4,096) (7,246) (7,453)
Policy reserves............................ 97,452 89,895 (19,873) (156,889) (150,649)
Commissions................................ -- (3,171) (1,639) -- --
Current income taxes payable............... 925 6,450 2,386 (10,920) 3,712
Deferred income taxes...................... (417) 6,449 (1,094) 17,904 (520)
Realized gains on investments.............. 356 251 2,599 -- --
Realized gains transferred to the Interest
Maintenance Reserve (IMR), net of tax..... 22,748 9,644 2,335 -- --
Amortization of IMR, net of tax............ (7,128) (6,315) (6,130) -- --
Write-off of investment.................... -- (11,705) -- -- --
Pension expense............................ 81 (4,153) -- (6,440) (6,137)
Guaranty Funds............................. -- -- 3,023 -- --
Property and equipment..................... -- -- -- 5,951 15,520
Interest maintenance reserve............... -- -- -- 68,968 53,348
Asset valuation reserve.................... -- -- -- 90,986 75,939
Mortgage loans on real estate.............. -- -- -- (20,141) --
Other, net................................. (3,521) (900) 664 (7,213) (4,312)
--------- --------- -------- --------- ---------
As reported herein......................... $ 61,882 $ 67,110 $ 58,192 $ 885,468 $ 880,106
========= ========= ======== ========= =========
</TABLE>
12. 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, 1998,
1997 and 1996, were $13,077,000, $12,015,000 and $13,319,000, respectively.
During 1997 Fortis, Inc. began providing information technology services to the
Company. Information technology expenses were $55,910,000 and $28,525,000 for
years ended December 31, 1998 and 1997, respectively.
In conjunction with the marketing of its variable annuity products, the Company
paid $72,638,000, $72,105,000 and $68,616,000 in commissions to its affiliate,
Fortis Investors, Inc., for the years ended December 31, 1998, 1997 and 1996,
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.
13. 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. As the debt was
underwritten in 1998 and 1997, the outstanding balance is considered a
reasonable estimate of fair value. Separate account assets and liabilities are
reported at their estimated fair values in the Balance Sheet.
F-14
<PAGE> 99
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
13. FAIR VALUE DISCLOSURES (CONTINUED)
The fair values under all insurance contracts are taken into consideration
in the Company's overall management of interest rate risk, such that the
Company's exposure to changing interest rates is minimized through the matching
of investment maturities with amounts due under insurance contracts.
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31
-----------------------------------------------------
1998 1997
------------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Assets:
Investments:
Securities available-for-sale:
Fixed maturities........................ $2,402,343 $2,402,343 $2,415,915 $2,415,915
Equity securities....................... 187,851 157,851 109,832 109,832
Mortgage loans on real estate............... 610,131 662,984 602,064 661,055
Policy loans................................ 74,950 74,950 68,566 68,566
Short-term investments...................... 31,868 31,868 70,537 70,537
Assets held in separate accounts............ 3,742,403 3,742,403 2,978,622 2,978,622
Liabilities:
Individual and group annuities (subject
to discretionary withdrawal)............. $ 923,102 $ 894,019 $ 977,495 $ 945,558
Debt........................................ 20,141 20,141 26,433 26,433
Liabilities related to Separate Accounts.... 3,707,687 3,707,687 2,947,401 2,947,401
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
The Company is named as a defendant in a number of legal actions arising
primarily from claims made under insurance policies. These actions have been
considered in establishing policy benefit and loss reserves. Management and its
legal counsel are of the opinion that the settlement of these actions will not
have a material adverse effect on the Company's financial position or results of
operations.
15. RETIREMENT AND OTHER EMPLOYEE BENEFITS
The Company 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' 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 $1,627,000, $1,594,000 and $1,354,000 for 1998, 1997 and 1996,
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 $3,610,000, $3,926,000 and
$3,913,000 for 1998, 1997 and 1996, 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.
Net postretirement benefit costs allocated to the Company for the years ended
December 31, 1998, 1997 and 1996 were $0, $304,000 and $290,000, respectively,
and 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
$(5,200), $20,000 and $8,000 in 1998, 1997 and 1996, respectively, as claims
were incurred.
F-15
<PAGE> 100
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORTIS BENEFITS INSURANCE COMPANY
16. DEBT
A summary of debt at December 31 for each year follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Mortgage note bearing a floating interest rate of 200 basis points over LIBOR,
(5.07% at December 31, 1998 and 5.84% at December 31, 1997) adjustable every
six months, principal and interest due monthly, matures
July 2001................................................................. $ 3,088 $ 3,150
Mortgage note bearing fixed interest at 7.6% principal and interest due
monthly, matures October 2002............................................. 5,105 5,183
Mortgage note bearing fixed interest at 6.52%, principal and interest due
monthly, matures July 2009................................................ 5,000 --
Mortgage note bearing fixed interest at 7.14%, principal and interest due
monthly, matures April 2008............................................... 6,948 --
Mortgage note bearing a floating interest rate of 225 basis points over
LIBOR..................................................................... -- 18,100
------- -------
$20,141 $26,433
======= =======
</TABLE>
Maturities of the debt as of December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1998............................................................................... $ 280
1999............................................................................... 344
2000............................................................................... 3,328
2001............................................................................... 5,030
2002............................................................................... 251
Thereafter......................................................................... 10,908
-------
$20,141
=======
</TABLE>
These mortgage notes are collateralized by certain real estate investments
included in real estate and other investments in the balance sheet.
Interest expense paid by the Company during 1998 and 1997 on this debt was
approximately $1,362,000 and $1,075,000, respectively.
17. YEAR 2000 (UNAUDITED)
INTRODUCTION. The Company relies heavily on information technology ("IT")
systems to conduct its business. These IT systems include both internally
developed and vendor-supplied systems. The Company also has business
relationships with numerous entities including but not limited to financial
institutions, financial intermediaries, third party administrators and other
critical vendors as well as regulators and customers. These entities are
themselves reliant on their IT systems to conduct their businesses. Therefore,
there is a supply chain of dependency among and between all involved entities.
STATE OF READINESS. In 1997, the Fortis parent company organized a
multi-disciplinary Year 2000 Project Team ("Team"). The Company is a part of the
Team. The Team consists of employees at each subsidiary, audit, legal and
outside consultants. The Team has developed and is currently executing a
comprehensive plan designed to make the Company's IT systems Year 2000 ready.
The plan covers four stages including (i) inventory, (ii) assessment, (iii)
programming, and (iv) testing and certification. The Company has completed the
inventory stage for its internal hardware, software and telecommunications
systems (mainframe and client/server applications). The assessment process is
also complete and the Company is utilizing both internal and external resources
to reprogram or replace the systems where necessary, and testing the
applications for Year 2000 readiness. Programming, testing and certification of
these systems and applications are targeted for completion by the end of 1999.
COSTS. The cost of the Company portion of the Year 2000 project is estimated at
$27.7 million (pre-tax) and is being funded through operating cash flows. Total
Year 2000 project costs are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans and other
factors. Costs to upgrade and replace systems in the normal course of business
are not included in this estimate. As of December 31, 1998, approximately $15.5
million (pre-tax) had already been expensed. The Company believes that its Year
2000 project generally is on schedule.
RISKS. The Company is attempting to limit the potential impact of the Year 2000
by monitoring the progress of its own Year 2000 project and those of its
critical external relationships and by developing contingency/recovery plans.
The Company cannot guarantee that it will be able to identify and/or resolve all
of its Year 2000 issues. Any critical unresolved Year 2000 issues at the Company
or its external relationships, however, could have a material adverse effect on
the Company's results of operations, liquidity or financial condition. If the
Company's Year 2000 issues were unresolved, potential consequence would include,
among other possibilities, the inability to accurately and timely process
benefit claims, update customer's accounts, process financial transactions, bill
customers, assess exposure to risks, determine liquidity requirements or report
accurate data to management, shareholders, customers, regulators and others as
well as business interruptions or shutdowns, financial losses, harm to its
reputation, increased scrutiny by regulators and litigation related to Year 2000
issues.
CONTINGENCY PLANS. Consistent with prudent due diligence efforts, the Company
has defined contingency plans aimed at ensuring the continuity of critical
business functions before and after December 31, 1999, should there be an
unexpected system failure. The Company has developed plans that are designed to
reduce the negative impact on Fortis, and provide methods of returning to normal
operations, if failure occurs.
F-16
<PAGE> 101
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Fortis Benefits Insurance Company
We have audited the accompanying individual and combined statements of net
assets of the segregated asset 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, 1998, and the related statements of changes in net assets for each of the
two years in the periods then ended, except for the Fortis Mid Cap Stock, Large
Cap Growth and Small Cap Value Subaccounts which are for the period May 1, 1998
(commencement of operations) to December 31, 1998. These financial statements
are the responsibility of the management of Fortis Benefits Insurance Company.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998 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 individual and combined financial position of the
segregated asset subaccounts of Fortis Benefits Insurance Company Variable
Account C at December 31, 1998, and the individual and combined changes in its
net assets for the periods described above, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Minneapolis, Minnesota
March 19, 1999
F-17
<PAGE> 102
STATEMENTS OF NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ATTRIBUTABLE TO FORTIS
NET ASSETS AT BENEFITS INSURANCE
SHARES COST MARKET VALUE COMPANY
--------- ------------- ------------- ----------------------
<S> <C> <C> <C> <C>
INVESTMENTS IN FORTIS SERIES FUND, INC.:
Growth Stock.............................. 5,259,745 $ 135,621,415 $216,111,878 $ --
U.S. Government Securities................ 962,649 10,630,806 10,519,922 --
Money Market.............................. 885,585 9,840,933 9,797,759 --
Asset Allocation.......................... 2,541,055 40,774,876 53,598,723 --
Diversified Income........................ 727,878 8,688,513 8,672,011 --
Global Growth............................. 3,879,500 62,495,772 87,552,169 --
Aggressive Growth......................... 2,869,286 37,535,977 47,918,797 --
Growth & Income........................... 1,872,300 30,777,221 39,743,500 --
High Yield................................ 549,184 5,725,316 5,440,109 --
Global Asset Allocation................... 563,901 7,252,056 8,075,798 --
Global Bond............................... 192,133 2,157,453 2,221,174 --
International Stock....................... 1,612,783 21,350,078 23,357,616 --
Value..................................... 905,950 12,167,683 13,023,205 --
S & P 500................................. 2,373,943 36,766,925 44,711,787 --
Blue Chip Stock........................... 1,691,782 24,613,320 31,427,223 2,594,665
Mid Cap Stock............................. 161,768 1,509,185 1,558,861 819,116
Large Cap Growth.......................... 260,764 2,706,350 3,140,748 1,023,777
Small Cap Value........................... 241,306 2,244,928 2,239,252 788,842
------------- ------------ ----------
Net assets.................................. $ 452,858,807 $609,110,532 $5,226,400
============= ============ ==========
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE FOR
ATTRIBUTABLE TO ACCUMULATION VARIABLE LIFE
VARIABLE LIFE UNITS INSURANCE POLICIES PER
INSURANCE POLICIES OUTSTANDING ACCUMULATION UNIT
------------------ --------------- ----------------------
<S> <C> <C> <C>
INVESTMENTS IN FORTIS SERIES FUND, INC.:
Growth Stock............................... $216,111,878 7,307,257 $29.57
U.S. Government Securities................. 10,519,922 597,089 17.62
Money Market............................... 9,797,759 698,712 14.02
Asset Allocation........................... 53,598,723 1,970,079 27.21
Diversified Income......................... 8,672,011 477,587 18.16
Global Growth.............................. 87,552,169 4,062,037 21.55
Aggressive Growth.......................... 47,918,797 3,022,456 15.85
Growth & Income............................ 39,743,500 1,827,004 21.75
High Yield................................. 5,440,109 422,237 12.88
Global Asset Allocation.................... 8,075,798 494,405 16.33
Global Bond................................ 2,221,174 167,453 13.26
International Stock........................ 23,357,616 1,447,501 16.14
Value...................................... 13,023,205 877,605 14.84
S & P 500.................................. 44,711,787 2,381,279 18.78
Blue Chip Stock............................ 28,832,558 1,571,906 18.34
Mid Cap Stock.............................. 739,745 76,735 9.64
Large Cap Growth........................... 2,116,971 179,900 11.77
Small Cap Value............................ 1,450,410 154,731 9.37
------------ ----------
Net assets................................... $603,884,132 27,735,973
============ ==========
</TABLE>
See accompanying notes.
F-18
<PAGE> 103
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FORTIS U.S. FORTIS
FORTIS GROWTH GOVERNMENT FORTIS MONEY FORTIS ASSET DIVERSIFIED
STOCK SECURITIES MARKET ALLOCATION INCOME
------------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income.............................. $ 10,011,623 $ 604,612 $ 417,836 $ 95,130 $ 516,581
Mortality and expense and policy advance
charges..................................... (2,172,350) (108,978) (97,182) (532,382) (89,921)
Net realized gain (loss) on investments...... 5,194,040 198,574 47,621 555,821 77,069
Net unrealized appreciation (depreciation)
of investments.............................. 19,387,059 (18,374) (24,618) 8,022,659 (130,599)
------------ ---------- ----------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations................... 32,420,372 675,834 343,657 8,141,228 373,130
CAPITAL TRANSACTIONS
Purchase of variable account units........... 16,114,322 4,401,606 15,648,521 6,247,649 2,923,619
Redemption of variable account units......... (14,790,719) (3,465,915) (14,377,114) (2,713,046) (1,482,876)
Mortality and expense charges redeemed....... 2,172,350 108,978 97,182 532,382 89,921
Funding of suaccount 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
Net assets at beginning of year.............. 180,195,553 8,799,419 8,085,513 41,390,510 6,768,217
------------ ---------- ----------- ----------- ----------
Net assets at end of year.................... $216,111,878 $10,519,922 $ 9,797,759 $53,598,723 $ 8,672,011
============ =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FORTIS FORTIS
GLOBAL AGGRESSIVE
GROWTH GROWTH
----------- ----------
<S> <C> <C>
OPERATIONS
Dividend income.............................. $ 92,908 $ 78,258
Mortality and expense and policy advance
charges..................................... (965,714) (457,512)
Net realized gain (loss) on investments...... 1,873,640 452,032
Net unrealized appreciation (depreciation) of
investments................................. 6,899,076 7,815,700
----------- ----------
Net increase (decrease) in net assets
resulting from operations................... 7,899,910 7,888,478
CAPITAL TRANSACTIONS
Purchase of variable account units........... 7,934,991 8,656,071
Redemption of variable account units......... (7,198,093) (4,140,981)
Mortality and expense charges redeemed....... 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........... 1,702,612 4,972,602
Net assets at beginning of year.............. 77,949,647 35,057,717
----------- ----------
Net assets at end of year.................... $87,552,169 $47,918,797
=========== ===========
</TABLE>
See accompanying notes.
F-19
<PAGE> 104
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FORTIS FORTIS FORTIS
GROWTH & FORTIS HIGH GLOBAL ASSET FORTIS INTERNATIONAL
INCOME 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)
Mortality and expense charges
redeemed............................... 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-20
<PAGE> 105
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FORTIS FORTIS FORTIS COMBINED
FORTIS S & P FORTIS BLUE MID CAP LARGE CAP SMALL CAP VARIABLE
500 CHIP 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)
Mortality and expense charges
redeemed.......................... 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>
See accompanying notes.
F-21
<PAGE> 106
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FORTIS U.S. FORTIS
FORTIS GROWTH GOVERNMENT FORTIS MONEY FORTIS ASSET DIVERSIFIED
STOCK SECURITIES MARKET ALLOCATION INCOME
------------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income.............................. $ 16,536 $ 600,561 $ 318,907 $ 5,630,084 $ 458,290
Mortality and expense and policy advance
charges.................................... (1,928,584) (91,178) (89,913) (435,946) (71,161)
Net realized gain (loss) on investments...... 3,421,669 173,173 (22,812) 526,622 56,634
Net unrealized appreciation (depreciation) of
investments................................ 16,067,592 (74,889) 117,253 496,493 101,815
------------ ---------- ---------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations.................. 17,577,213 607,667 323,435 6,217,253 545,578
CAPITAL TRANSACTIONS
Purchase of variable account units........... 18,101,571 2,337,630 11,107,675 5,874,956 1,770,902
Redemption of variable account units......... (10,430,951) (2,340,875) (10,678,593) (2,133,574) (1,053,700)
Mortality and expense charges redeemed....... 1,928,584 91,178 89,913 435,946 71,161
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........... 9,599,204 87,933 518,995 4,177,328 788,363
Net assets at beginning of year.............. 153,019,136 8,103,819 7,243,083 30,995,929 5,434,276
------------ ---------- ---------- ----------- ----------
Net assets at end of year.................... $180,195,553 $8,799,419 $8,085,513 $41,390,510 $6,768,217
=========== ========== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
FORTIS FORTIS FORTIS
GLOBAL AGGRESSIVE GROWTH &
GROWTH GROWTH INCOME
----------- ----------- -----------
<S> <C> <C> <C>
OPERATIONS
Dividend income.............................. $ -- $ 473 $ 836,584
Mortality and expense and policy advance
charges.................................... (840,959) (325,707) (219,629)
Net realized gain (loss) on investments...... 1,027,708 28,215 145,502
Net unrealized appreciation (depreciation) of
investments................................ 3,834,048 1,389,881 3,656,481
----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations.................. 4,020,797 1,092,862 4,418,938
CAPITAL TRANSACTIONS
Purchase of variable account units........... 15,303,244 12,628,674 11,389,955
Redemption of variable account units......... (4,139,111) (1,470,664) (743,822)
Mortality and expense charges redeemed....... 840,959 325,707 219,629
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........... 12,005,092 11,483,717 10,865,762
Net assets at beginning of year.............. 61,923,758 22,481,138 11,928,867
----------- ----------- -----------
Net assets at end of year.................... $77,949,647 $35,057,717 $27,213,567
=========== =========== ===========
</TABLE>
See accompanying notes.
F-22
<PAGE> 107
STATEMENTS OF CHANGES IN NET ASSETS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FORTIS
GLOBAL FORTIS
FORTIS HIGH ASSET FORTIS INTERNATIONAL FORTIS
YIELD ALLOCATION GLOBAL BOND STOCK VALUE
------------ ----------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
OPERATIONS
Dividend income.............................. $ 6,334 $ 308,250 $ 74,264 $ 625,067 $ 374,828
Mortality and expense and policy advance
charges..................................... (43,646) (55,228) (19,097) (139,293) (37,738)
Net realized gain (loss) on investments...... 84,353 47,142 (1,793) 134,574 56,719
Net unrealized appreciation (depreciation) of
investments................................. 260,719 259,453 (62,340) 524,447 361,973
----------- ---------- ---------- ----------- ----------
Net increase (decrease) in net assets
resulting from operations................... 307,760 559,617 (8,966) 1,144,795 755,782
CAPITAL TRANSACTIONS
Purchase of variable account units........... 2,950,385 2,349,695 752,268 6,913,720 5,531,019
Redemption of variable account units......... (1,371,034) (472,728) (623,679) (1,225,184) (734,522)
Mortality and expense charges redeemed....... 43,646 55,228 19,097 139,293 37,738
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.................. -- -- -- -- (8,848)
----------- ---------- ---------- ----------- ----------
Increase from capital transactions........... 1,622,997 1,932,195 147,686 5,827,829 4,825,387
Net assets at beginning of year.............. 2,735,009 3,566,385 1,641,086 8,660,838 1,211,875
----------- ---------- ---------- ----------- ----------
Net assets at end of year.................... $ 4,665,766 $6,058,197 $1,779,806 $15,633,462 $6,793,044
----------- ---------- ---------- ----------- ----------
----------- ---------- ---------- ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
COMBINED
FORTIS S & P FORTIS BLUE VARIABLE
500 CHIP STOCK ACCOUNT
------------ ------------ ------------
<S> <C> <C> <C>
OPERATIONS
Dividend income.............................. $ 294,610 $ 52,416 $ 9,597,204
Mortality and expense and policy advance
charges..................................... (100,810) (57,714) (4,456,603)
Net realized gain (loss) on investments...... 200,711 16,021 5,894,438
Net unrealized appreciation (depreciation) of
investments................................. 1,996,353 1,516,126 30,445,405
----------- ----------- ------------
Net increase (decrease) in net assets
resulting from operations................... 2,390,864 1,526,849 41,480,444
CAPITAL TRANSACTIONS
Purchase of variable account units........... 16,661,529 8,266,243 121,939,466
Redemption of variable account units......... (3,472,986) (109,173) (41,000,596)
Mortality and expense charges redeemed....... 100,810 57,714 4,456,603
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.................. (32,520) (23,901) (65,269)
----------- ----------- ------------
Increase from capital transactions........... 13,256,833 8,190,883 85,330,204
Net assets at beginning of year.............. 3,473,163 2,849,421 325,267,783
----------- ----------- ------------
Net assets at end of year.................... $19,120,860 $12,567,153 $452,078,431
----------- ----------- ------------
----------- ---------- ------------
</TABLE>
See accompanying notes.
F-23
<PAGE> 108
NOTES TO FINANCIAL STATEMENTS
FORTIS BENEFITS INSURANCE COMPANY
VARIABLE ACCOUNT C
DECEMBER 31, 1998
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 the
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 distributions from subaccounts are recorded on the ex-dividend
date and reinvested upon receipt.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the 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, 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
</TABLE>
F-24
<PAGE> 109
3. INVESTMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998: (CONTINUED)
<TABLE>
<CAPTION>
SHARES
---------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
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>
YEAR ENDED DECEMBER 31, 1997:
<TABLE>
<CAPTION>
SHARES
---------------------- COST OF COST OF SALES/
PURCHASED SOLD PURCHASES REDEMPTIONS
--------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
Fortis Series Fund, Inc.:
Growth Stock................ 523,134 299,772 $18,118,107 $ 7,009,282
U.S. Government
Securities................. 276,469 218,751 2,938,191 2,167,703
Money Market................ 1,034,680 963,476 11,426,582 10,701,404
Asset Allocation............ 649,160 113,966 11,505,040 1,606,952
Diversified Income.......... 189,118 88,862 2,229,192 997,065
Global Growth............... 787,179 205,436 5,303,244 3,111,402
Aggressive Growth........... 1,000,432 113,159 12,629,147 1,442,450
Growth & Income............. 706,056 41,743 12,226,539 598,320
High Yield.................. 286,488 131,597 2,956,719 1,286,680
Global Asset Allocation..... 203,227 36,183 2,657,945 425,586
Global Bond................. 76,577 57,378 826,532 625,473
International Stock......... 564,562 90,535 7,538,787 1,090,609
Value....................... 453,158 55,272 5,905,847 686,651
S&P 500..................... 1,245,489 270,028 16,956,139 3,304,795
Blue Chip Stock............. 617,149 9,949 8,318,659 117,053
</TABLE>
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, 1998:
<TABLE>
<CAPTION>
NUMBER OF COST OF
SHARES SHARES
--------- -----------
<S> <C> <C>
Fortis Series Fund, Inc.:
Blue Chip Stock........................... 139,675 $ 1,419,801
Mid Cap Stock............................. 85,002 849,908
Large Cap Growth.......................... 85,000 850,044
Small Cap Value........................... 85,007 848,864
</TABLE>
F-25
<PAGE> 110
4. ORGANIZATIONAL EXPENSES AND OTHER CHARGES
ORGANIZATIONAL EXPENSES
Fortis Benefits assumes all organizational expenses of the Account.
PREMIUM EXPENSE CHARGE
For Wall Street Series VUL 100, VUL 220, VUL 500 and Survivor policies, there is
currently no premium expense charge to reimburse Fortis Benefits for premium
taxes or similar expenses it may have to pay. However, Fortis Benefits reserves
the right to impose a charge of 3.0% of premium for the Wall Street Series
Survivor and a charge of 2.5% for all other Wall Street Series Policies.
For Harmony Investment Life policies, a 5% sales charge and a 2.2% state premium
tax is deducted from each premium payment received by Fortis Benefits. The
resulting net premiums are allocated to the subaccounts of the Account and/or to
the Fortis Benefits general 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 100, VUL 220, VUL 500 and Survivor policies, the
monthly deductions from policy value are as follows:
- 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 220 and VUL 500, a monthly sales, premium tax and policy advance
charge of $4.00 per policy.
For Harmony Investment Life policies, the monthly deductions from policy value
are as follows:
- 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 twelve
policy months. Fortis Benefits currently does not impose any of the
expense charges described in the preceding sentence.
- For policies issued prior to July 1, 1988, Fortis Benefits currently
imposes an expense charge of $10.00 per month and an additional
per-thousand-of-face 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 twelve policy months.
ACCOUNT VALUE BASED 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 Series
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
For Wall Street Series VUL 100, VUL 220 and VUL 500 policies surrendered within
the first eleven years of issuance, Fortis Benefits assesses a surrender charge.
The charge is the sum of any sales, premium tax, and policy advance charges not
F-26
<PAGE> 111
5. SURRENDER CHARGES (CONTINUED)
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
all Wall Street policies is limited to certain maximums based on the insured
person's age at the time of issuance and decreases at a constant rate on the
fifth and subsequent anniversary until it reaches zero on the eleventh policy
anniversary. A similar schedule of surrender charges is imposed on face amount
increases.
For Harmony Investment Life policies surrendered within the first nine years of
issuance of the policy or face increase, a surrender charge is assessed. The
charge is a maximum of 25% of the annualized net premium and decreases at a
constant rate on the fifth and subsequent anniversary until it reaches zero on
the ninth policy anniversary.
Surrender charges are included in redemptions and are paid directly to Fortis
Benefits. Surrender charges collected by Fortis Benefits were $5,034,170 and
$4,221,397 in 1998 and 1997, 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. (an affiliate of Fortis Benefits) 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 $17,790,513 and $14,415,172
in 1998 and 1997, respectively.
8. YEAR 2000 ISSUE (UNAUDITED)
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of the Account. The Account
has no computer systems of its own but is dependent upon the systems of Fortis
Benefits, Fortis Advisers and certain other third parties.
A comprehensive review of Fortis Benefits' and Fortis Advisers' computer systems
and business processes has been conducted to identify the major systems that
could be affected by the Year 2000 issue. Steps are being taken to resolve any
potential problems including modification to existing software and the purchase
of new software. These measures are scheduled to be completed and tested on a
timely basis. Fortis Benefits' and Fortis Advisers' goal is to complete internal
remediation and testing of each system by mid 1999.
The costs related to the Year 2000 issue are not expected to have a material
impact on Fortis Benefits' and Fortis Advisers' results of operations or
financial condition. This expectation is subject to the uncertainties that could
cause actual results to differ materially.
Factors that could influence the total costs to be incurred by Fortis Benefits
and Fortis Advisers in connection with the Year 2000 issue include the ability
of Fortis Benefits and Fortis Advisers to successfully identify systems
containing two-digit year codes, the nature and amount of programming required
to fix the affected programs, the related labor and consulting costs for such
remediation, and the ability of third parties that interface with Fortis
Benefits and Fortis Advisers to successfully address their Year 2000 issues.
F-27
<PAGE> 112
8. YEAR 2000 ISSUE (UNAUDITED) (CONTINUED)
Fortis Benefits and Fortis Advisers are evaluating the Year 2000 readiness of
advisors and other third parties whose system failures could have an impact on
Fortis Benefits' and Fortis Advisers' operations. The potential materiality of
any such impact is not entirely known at this time. Fortis Benefits and Fortis
Advisers are closely monitoring these entities to avoid any unforeseen
circumstances.
Fortis Benefits' and Fortis Advisers' Year 2000 project includes establishing
Year 2000 contingency plans for all key business units. These plans are being
developed and are expected to be substantially complete by the end of the first
quarter of 1999. These plans will continue to be refined throughout 1999 as
additional information related to potential Year 2000 exposure is gathered.
F-28
<PAGE> 113
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........ 5
amount at risk................... 6
automatic rebalancing............ 4
basis............................ 22
beneficiary...................... 24
cash value bonus................. 5
close of business................ 26
Code............................. 21
contingent deferred sales
charge......................... 7
cost of insurance rates.......... 6
death benefit.................... 5
dollar cost averaging............ 3
face amount...................... 5
Fortis........................... 20
full surrender................... 12
Fund............................. 3
general account option........... 27
grace period..................... 9
guaranteed death benefit......... 10
guaranteed death benefit
charge......................... 10
insured person................... 5
investment option................ 3
lapse............................ 9
maturity, maturity date.......... 6
modified endowment contract...... 14
monthly anniversary.............. 26
monthly insurance charge......... 6
mortality and expense charge..... 7
net cash value................... 9
owner............................ 14
partial withdrawal............... 12
</TABLE>
<TABLE>
<CAPTION>
PAGE TO SEE IN
DEFINED TERM THIS PROSPECTUS
------------ ---------------
<S> <C>
payment option................... 13
planned periodic premium......... 9
Policy anniversary............... 26
Policy date...................... 26
Policy loan...................... 12
policy value..................... 4
policy value advance............. 4
policy value advance recovery
charge......................... 8
premium payments................. 3
premiums......................... 3
premium tax and sales charges.... 6
prospectus....................... 2
recommended monthly minimum
premiums....................... 10
reduced interest rate for
Policy loans................... 13
reinstate, reinstatement......... 9
rider............................ 11
separate account................. 20
Separate Account C............... 20
seven-pay test................... 21
subaccounts...................... 20
surrender........................ 12
surrender charge................. 7
surrender value.................. 12
telephone transfers.............. 14
transfers........................ 10
valuation date, period........... 26
we............................... 20
you, your........................ 14
</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.
33
<PAGE> 114
PART II
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
Facing Sheet.
Cross-Reference Table. (Filed as a part of the initial filing of this
Form S-6 Registration Statement filed on June 5, 1992.)
Prospectus dated May 1, 1999 and Prospectus Supplement dated May 1, 2000.
Undertaking to File Reports. (Filed as a part of the initial filing of this
Form S-6 Registration Statement filed on June 5, 1992.)
Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933.
(Filed as a part of the initial filing of this Form S-6 Registration
Statement filed on June 5, 1992.)
Reasonableness Representation. Fortis Benefits Insurance Company represents
that the fees and charges deducted under the Policies described in this
Registration Statement, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks
assumed by Fortis Benefits under the Policies. Fortis Benefits bases its
representation on its assessment of all of the facts and circumstances,
including such relevant factors as: the nature and extent of such services,
expenses and risks; the need for Fortis Benefits to make a profit; the
degree to which the Policies include innovative features; and the
regulatory standards for exemptive relief under the Investment Company Act
of 1940 used prior to October 1996, including the range of industry
practice.
Signatures.
Written Consents of the following persons:
Kay M. Doughty, ASA, MAAA (Filed with Exhibit 6 below).
David A. Peterson, Esq. (Filed with Exhibit 3 below).
Ernst & Young LLP, Independent Auditors
The following exhibits:
1A. (1) --Resolution of Board of Directors of Fortis Benefits (under
its prior name, Western Life Insurance Company) effecting the
establishment of Variable Account C (Incorporated by reference
from Exhibit 1.A(1) to registrant's Form S-6 Registration
Statement, File No. 33-28551, filed on May 5, 1989).
(2) --Not applicable
(3) --(a) Distribution Agreement between Fortis Benefits and Fortis
Investors, Inc. (Incorporated by reference from Exhibit No. 3(a)
to Post-Effective Amendment No. 9 to registrant's Form S-6
registration statement, File No. 33-28551, filed April 29, 1994.)
--(b) Form of Dealer Sales Agreement. (Incorporated by reference
from Post-Effective Amendment No. 12 to registrant's Form N-4
registration statement, File No. 33-19421, filed December 22,
1994.)
--(c) Schedule of sales commissions (Incorporated by reference
from "Distribution of the Policies" in the attached prospectus).
(4) --Not applicable
(5) --(a) Specimen Flexible Premium Variable Life Insurance Policy
(Filed as part of Post-Effective Amendment No. 8 to this Form S-6
registration statement filed on April 29, 1996).
--(b) Form of Child Insurance Rider (Incorporated by reference
from Exhibit 1.A(5) to Pre-Effective Amendment No. 1 to
registrant's Form S-6 Registration Statement, File No. 33-03919,
filed on November 5, 1986).
--(c) Forms of Waiver of Monthly Deductions Rider, Additional
Insured Rider and Primary Insured Rider (Incorporated by
reference from Exhibit 1.A(5)(c) to Pre-Effective Amendment No. 1
to registrant's Form S-6 Registration Statement, File No.
33-28551, filed on August 18, 1989).
--(d) Forms of Waiver of Selected Amount Rider, Exchange of
Policy Rider, Extend Maturity Date Rider and Accelerated Death
Benefit Rider. (Incorporated by reference from Exhibit 5(d) to
Post-Effective Amendment No. 33-28551, filed April 29, 1994.)
--(e) Forms of Additional Insured Rider Plus and Primary
Insured Rider Plus. (Filed as part of Post-Effective Amendment
No. 7 to this Form S-6 registration statement filed on April 28,
1995.)
<PAGE> 115
(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 filing, No. 33-46620,
filed March 29, 2000).
(7) --Not applicable.
(8) --Not applicable.
(9) --Not applicable.
(10) --(a) Application Form for Flexible Premium Variable Life
Insurance Policy and Form of Temporary Insurance Agreement.
(Incorporated by reference from Exhibit No. 10(a) to
Post-Effective Amendment No. 9 to registrant's Form S-6
registration statement, File No. 33-28551, filed April 29, 1994.)
--(b) Policy Change Application, Transfer Request Form, and
Change of Premium Allocation Form (Incorporated by reference from
Exhibit 1.A(10)(b) to registrant's Post-Effective Amendment No. 4
to Form S-6 Registration Statement, File 33-28851, filed on March
2, 1992).
2. --See Exhibit 1.A(5) above.
3. --Opinion and consent of counsel as to the legality of Securities
being registered. (Filed as a part of the initial filing of this
Form S-6 Registration Statement filed on June 5, 1992.)
4. --Not applicable.
5. --Not applicable.
6. --(a) Opinion and consent of actuary. (Filed as a part of the
initial filing of this Form S-6 Registration Statement filed on
June 5, 1992.)
--(b) Supplemental Opinion and Consent of Actuary.
7. --Forms of Notice of Cancellation Right and Request for
Cancellation pursuant to Rule 6e-3(T)(b)(13)(viii) under the
Investment Company Act of 1940. (Filed as a part of the initial
filing of this Form S-6 Registration Statement filed on June 5,
1992.)
8. --Method of computing exchange pursuant to Rule 6e-3(T)(b)(13)
(v)(B) under the Investment Company Act of 1940 (Not required
because there will be no cash value adjustments in connection
with the right to transfer Policy Value to the General Account,
which registrant intends to satisfy the requirements of said
provision).
9. --Not Applicable
10. --(a) Memorandum of Certain Procedures with Respect to Pricing
and Processing of Transactions Pursuant to Rule 6e-3(T)(b)(12)
(iii) (Incorporated by reference from Exhibit 10 to
Post-Effective Amendment No. 6 to registrant's Form S-6
Registration Statement, File No. 33-03919, filed on April 28,
1989).
--(b) Supplemental Memorandum in connection with Exhibit 10(a)
(Incorporated by reference from Exhibit 10(b) to Post-Effective
Amendment No. 1 to registrant's Form S-6 Registration, File No.
33-28551, on April 30, 1990).
--(c) Second Supplemental Memorandum in connection with
Exhibit 10(a). (Filed as part of Post-Effective Amendment No. 2
to this Form S-6 Registration Statement filed April 29, 1993).
--(d) Third Supplemental Memorandum in connection with Exhibit
10(a). (Filed as part of Post-Effective Amendment No. 3 to this
Form S-6 Registration Statement filed February 28, 1994.)
11. --Power of Attorney for Messrs, Freedman, Gaddy, Mackin, Keller,
Clayton, Mahoney, Clancy, Meler and Greiter (Incorporated by
reference from Exhibit 11 to registrant's Form S-6 Registration
Statement, File No. 33-73138, filed on December 17, 1993).
12. --Not Applicable
<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, FORTIS BENEFITS
INSURANCE COMPANY has duly caused this amended Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized, and its seal
to be hereunto affixed and attested all in the City of St. Paul, Minnesota, this
17th day of April, 2000. Fortis Benefits Insurance Company hereby makes the
representation required by Rule 485(b)(4) under the Securities Act of 1933, and
further represents that the amended registration statement contains no
information that would render Rule 485(b) unavailable.
FORTIS BENEFITS INSURANCE COMPANY
By: /s/ Robert Brian Pollock
------------------------------------
Robert Brian Pollock, President
Attest: /s/ Douglas R. Lowe
-----------------------------
Douglas R. Lowe
Associate General Counsel --
Life and Investment Products
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following persons in the
capacities indicated on April 17, 2000.
/s/ Robert Brian Pollock
- --------------------------------------------------
Robert Brian Pollock, President and Director
(Chief Executive Officer)
/s/ Larry M. Cains
- --------------------------------------------------
Larry M. Cains, Treasurer
/s/ Dean Conrad Kopperud
- --------------------------------------------------
Dean Conrad Kopperud, Director
*
- --------------------------------------------------
Allen Royal Freedman, Chairman of the Board
*
- --------------------------------------------------
J. Kerry Clayton, Director
*
- --------------------------------------------------
Arie Aristide Fakkert, Director
* By: /s/ Robert Brian Pollock
---------------------------------------------
Robert Brian Pollock, Attorney-in-Fact
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> 117
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 and February 19, 1999 on
the financial statements of Fortis Benefits Insurance Company and our report
dated March 29, 2000 and March 19, 1999 on the financial statements of Fortis
Benefits Insurance Company Variable Account C (Account C) in Post-Effective
Amendment No. 11 to the Registration Statement (Form S-6 No. 33-48266) 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> 118
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 a prospective purchaser of a
Policy for a standard risk non-smoker male age 45, than to a
prospective purchaser of Policies for males of other ages or
underwriting classes, or for females. Nor have the particular
examples set forth in the illustrations been selected for the purpose
of making this relationship appear more favorable.
I hereby consent to the use of this opinion as an exhibit to the amended
registration statement and to the use of my name under the heading of "Experts"
in the prospectus.
Sincerely,
/s/ Kay Doughty
Kay M. Doughty, ASA, MAAA
Staff Actuary
Fortis Benefits Insurance Company
