FORTIS BENEFITS INSURANCE CO, 10-K405, 1999-03-30

FORTIS BENEFITS INSURANCE CO
10-K405, 1999-03-30

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

------------------------

FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

FOR THE FISCAL YEAR ENDED:
DECEMBER 31, 1998

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE TRANSITION PERIOD FROM: COMMISSION FILE NUMBER:
33-46620

------------------------

FORTIS BENEFITS INSURANCE COMPANY
(Exact name of registrant as specified in its charter)

MINNESOTA 81-0170040
State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)

500 BIELENBERG DRIVE, WOODBURY, MN 55125
(Address of principal executive offices)

Registrant's telephone number: (612) 738-4000

------------------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

------------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

/X/ Yes / / No

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Form S-1 Amended Registration Statement to be filed by the
Registrant are incorporated by reference into Parts I, II, III.

PART I

ITEM 1. BUSINESS

"Fortis Benefits/Fortis Financial Group Member" on page 10, and Further
Information About Fortis Benefits" on pages 23 through 24 of the prospectus
attached hereto as Exhibit No. 99 are incorporated herein.

Fortis Benefits seeks to compete primarily on the basis of customer service,
product design, and, in the case of variable products, the investment results
achieved. Many other insurance companies compete with Fortis Benefits in each of
its markets, including on the basis of price. Many of these companies, which
include some of the largest and best known insurance companies, have
considerably greater resources than Fortis Benefits.

The Company is subject to regulation and supervision by the insurance
departments of the states in which it is licensed to do business. This
regulation covers a variety of areas, including benefit reserve requirements,
adequacy of insurance company capital and surplus, various operational
standards, and accounting and financial reporting procedures. Fortis Benefits'
operations and accounts are subject to periodic examination by insurance
regulatory authorities.

Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed up to prescribed limits for insurance contract losses,
if covered, incurred by insolvent companies. The amount of any future
assessments of Fortis Benefits under these laws cannot be reasonably estimated.
Most of these laws do provide, however, that an assessment may be excused or
deferred if it would threaten an insurer's own financial strength.

Although the federal government generally does not directly regulate the
business of insurance, federal initiatives often have an impact on the business
in a variety of ways. Federal measures that may adversely affect the insurance
business include health care reform, employee benefit regulation, controls on
medicare costs and medical entitlement programs, tax law changes affecting the
taxation of insurance companies or of insurance products, changes in the
relative desirability of various personal investment vehicles, and removal of
impediments on the entry of banking institutions into the business of insurance.

Pursuant to state insurance laws and regulations, Fortis Benefits is
obligated to carry on its books, as liabilities, reserves to meet its
obligations under outstanding insurance contracts. These reserves are based on
assumptions about, among other things, future claims experience and investment
returns. Neither the reserve requirements nor the other aspects of state
insurance regulation provide absolute protection to holders of insurance
contracts, if Fortis Benefits were to incur claims or expenses at rates
significantly higher than expected or significant unexpected losses on its
investments.

ITEM 2. PROPERTIES

Fortis Benefits has approximately 2,200 employees and considers its employee
relations to be excellent; Fortis Benefits owns its Home Office building,
consisting of 295,000 square feet in Woodbury, Minnesota. It also has
administrative offices in Kansas City, Missouri. Fortis Benefits leases a
portion of that building consisting of 297,000 square feet. In addition Fortis
Benefits has several regional claims and sales offices throughout the United
States. Fortis Benefits occupies approximately 100% of its home office and 70%
of its administration building, which it expects will be adequate for its
purposes for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

The Company is a defendant in various lawsuits, none of which, in the
opinion of the Company counsel, will result in a material liability.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.
<PAGE>
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Not applicable.

ITEM 6. SELECTED FINANCIAL DATA

"Selected Financial Data" from page 23 of the prospectus attached hereto as
Exhibit No. 99, is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 23 through 25 of the prospectus attached hereto as Exhibit
No. 99 is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The matters set forth under the caption "Market Risk and Risk Management" in
Management's Discussion and Analysis of Results of Operations (Item 7 of this
report) are incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

"FORTIS BENEFITS Financial Statements" contained in the prospectus attached
hereto as Exhibit No. 99 is incorporated by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.
<PAGE>
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth is information concerning the Company's directors and executive
officers, to the extent responsible for its variable annuity operations,
together with their business experience and principal occupations for the past
five years:

<TABLE>
<S> <C>
OFFICER-DIRECTORS
Dean C. Kopperud, 46 Senior Vice President--Marketing and Sales; also
Director since 1995 officer of affiliated companies.
Robert Brian Pollock, 44 President and Chief Executive Officer; before then
Director Since 1988 Senior Vice President--Life and Disability.
Michael John Peninger, 44 Executive Vice President--Operations and Finance and
Director since 1998 Chief Financial Officer
OTHER DIRECTORS
Allen Royal Freedman, 58 Chairman and Chief Executive Officer of Fortis, Inc.
Chairman of the Board
since 1995
J. Kerry Clayton, 53 Executive Vice President of Fortis, Inc.
Director Since 1997
Arie Aristide Fakkert, 55 Assistant General Manager of Fortis International
Director Since 1987 N.V.
Alan W. Feagin President and CEO of United Family Life Insurance
Director since 1998 Company
EXECUTIVE OFFICERS
Rhonda Schwartz, 40 Senior Vice President and General Counsel--Life and
Investment Products; before then secretary and
General Counsel of Fortis Inc.
Jon H. Nicholson, 49 Senior Vice President--Custom Solutions Group.
Peggy L. Ettestad, 41 Senior Vice President--Life Operations; before that
Vice President of General Electric Company.
Melinda S. Urion, 45 Senior Vice President--Chief Financial Officer since
1997; before then Senior Vice President--Finance &
CFO of American Express Financial Corporation.
Dickson W. Lewis, 50 Senior Vice President--Distribution and Marketing
since 1997; before then President of
Hedstrom/Blessing Marketing.
</TABLE>

Fortis Benefits' officers serve at the pleasure of the board of directors,
and members of the board serve without compensation (except for expenses of
attending board meetings), until their successors are duly elected and
qualified.

Mr. Freedman is a director of Systems and Computer Technology Corporation
and Genesis Health Ventures. Mr. Freedman is also a director of the following
registered investment companies: Fortis Equity Portfolios, Inc.; Fortis Growth
Fund, Inc.; Fortis Fiduciary Fund, Inc., Fortis Income Portfolios, Inc.; Fortis
Securities, Inc.; Fortis Tax-Free Portfolios, Inc.; Fortis Money Portfolios,
Inc.; Fortis Advantage Portfolios, Inc.; Fortis World Wide Portfolios, Inc.;
Fortis Series Fund, Inc.; Special Portfolios, Inc.

ITEM 11. EXECUTIVE COMPENSATION

Set forth below is certain information concerning the compensation of the
executive officers of Fortis Benefits.
<PAGE>
SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- --------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION LTIP PAYOUTS COMPENSATION(1)
- ----------------------------------------- --------- --------- --------- ------------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Pollock 1998 $ 300,000 $ 126,225 $ 0 $ 0 $ 16,439
President and Chief Executive Officer 1997 275,000 56,817 0 0 15,762
1996 215,000 69,660 0 0 15,318
- ---------------------------------------------------------------------------------------------------------------------------------
Francis J. Guthrie 1998 250,000 91,650 0 0 19,699
Executive Vice President 1997 235,000 140,388 0 0 15,762
1996 88,125 0 0 0 12,279
- ---------------------------------------------------------------------------------------------------------------------------------
Clifford S. Korte 1998 150,000 60,840 41,796 13,050
Sr. Vice President-- 1997 144,000 26,133 10,208
Underwriting 1996 130,000 39,975 10,198
- ---------------------------------------------------------------------------------------------------------------------------------
William D. Greiter 1998 195,000 50,490 0 0 15,129
Senior Vice President-- 1997 187,000 48,195 0 0 14,112
Provider Markets 1996 178,500 48,195 0 0 12,829
- ---------------------------------------------------------------------------------------------------------------------------------
Michael John Peninger 1998 230,000 78,000 0 0 16,439
Executive Vice President and 1997 200,000 31,194 0 0 13,872
Chief Financial Officer 1996 165,000 51,975 0 0 13,018
</TABLE>

- ------------------------------
(1) This column includes contributions made by Fortis Benefits for the year for
the benefit for the named individual to a defined contribution retirement
plan.

LONG-TERM INCENTIVE PLAN AWARDS TABLE
(LONG-TERM INCENTIVE PLAN(1) AWARDS IN LAST FISCAL YEAR)

<TABLE>
<CAPTION>
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF SHARES, OTHER PERIOD NON-STOCK PRICE BASED PLANS
UNITS OR OTHER UNTIL MATURATION ---------------------------------------
NAME RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
- ----------------------------------- ----------------- ---------------- --------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Robert B. Pollock.................. 525 Units 3 years 0 Units 525 Units 1,575 Units
Francis J. Guthrie................. 292 Units 3 years 0 Units 292 Units 876 Units
Clifford S. Korte.................. 88 Units 3 years 0 Units 88 Units 264 Units
William D. Greiter................. 152 Units 3 years 0 Units 152 Units 456 Units
Michael John Peninger.............. 268 Units 3 years 0 Units 268 Units 804 Units
</TABLE>

- ------------------------
(1) Units shown in this table represent performance units granted pursuant to an
Executive Incentive Compensation Plan in which officers and managers of
Fortis Benefits participate. Awards are made pursuant to this plan based on
the employee's position with Fortis Benefits and salary level and the extent
to which the employee and Fortis Benefits meet certain performance
objectives over 1- and 3-year periods. Employees may elect to defer awards
payable to them under this plan.

As additional compensation to its employees and executive officers, Fortis
Benefits has an Employees' Uniform Retirement Plan and an Executive Retirement
Plan which generally provide an annual annuity benefit upon retirement at age 65
(or a reduced benefit upon early retirement) equal to: .9% of the employee's
Average Annual compensation up to the employee's social security covered
compensation, plus 1.3% of compensation above the social security covered
compensation, up to $255,300, as adjusted by an index, multiplied by the
employee's years of credited services.

In addition, Fortis Benefits provides an unfunded Supplemental Executive
Retirement Plan for certain executives of Fortis Benefits. Mr. Pollock is the
only named executive currently covered by the Plan. Under the Supplemental
Executive Retirement Plan, the annual benefit is calculated by subtracting the
benefit payable under the Employees' Uniform Retirement Plan and the estimated
Social Security benefit from the "Target Benefit." The "Target Benefit" is equal
to 50% of Final Average Salary (average salary over the final 36 consecutive
months of employment) reduced for less than 20 years of service at retirement.
Upon retirement prior to age 65 and after attaining age 55 with 10 years of
service, special early retirement rules apply. The salary used to calculate the
Final Average Salary
<PAGE>
consists of regular compensation and the annual target incentive bonus of the
participant. The estimated annual benefit of Mr. Pollock, based on current
compensation levels, under this plan is $187,572.

The following table illustrates the COMBINED estimated life annuity benefit
payable from the Employees' Uniform Retirement Plan and Executive Retirement
Plan to employees with the specified Final Average Salary and years of service
upon retirement.

PENSION PLAN TABLE*

<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------------------------
FINAL AVERAGE SALARY 10 15 20 25 30 35
- --------------------------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
$125,000................... $15,005 $ 22,507 $ 30,010 $ 37,512 $ 45,015 $ 52,517
150,000................... 18,255 27,382 36,510 45,637 54,765 63,892
175,000................... 21,505 32,257 43,010 53,762 64,515 75,267
200,000................... 24,755 37,132 49,510 61,887 74,265 86,642
225,000................... 28,005 42,007 56,010 70,012 84,015 98,017
250,000................... 30,990 46,485 61,980 77,475 92,970 108,465
275,000+.................. 31,908 47,862 63,816 79,770 95,724 111,678
</TABLE>

- ------------------------
* The table excludes social security benefits. In general, for the purposes of
these plans, compensation includes salary and bonuses. The credited years of
service with Fortis Benefits for these individuals named in the Summary
Compensation Table above are as follows: 19, 5, 28, 15 and 14, respectively.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES VOTING SHARES
- ------------------------------------------------- ----------- ------------------
<S> <C> <C>
Fortis, Inc. 1,000,000 100%
One World Trade Center
Suite 5001
New York, NY 10048
</TABLE>

- ------------------------

(1) All of Fortis Benefits' outstanding shares are owned by Fortis Insurance
Company, 515 West Wells, Milwaukee, WI, 53201, which is itself wholly owned
by Fortis, Inc., One World Trade Center, Suite 5001, New York, NY 10048.
Fortis, Inc. in turn is wholly owned by Fortis International, Inc., which is
wholly owned by AMEV/VSB 1990 N.B. both of which share the same address with
Fortisl(NL) N.V., Archimiedeslaan 10, 3584 BA, Utrecht, The Netherlands.
AMEV/VSB 1990 N.V. is 50% owned by Fortis(NL) N.V. and 50% owned, through
certain subsidiaries, by Fortis(B), Boulevard Emile Jacqmain 53, 1000
Brussels, Belgium.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.
<PAGE>
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1)The following financial statements of Fortis Benefits Insurance Company
are included in Item 8:

Report of Independent Auditors

Balance Sheets at December 31, 1998 and 1997

Statements of Income for the years ended December 31, 1998, 1997 and 1996

Statements of Changes in Shareholder's Equity for the years ended December
31, 1998, 1997 and 1996

Statements of Cash Flows for the years ended December 31, 1998, 1997 and
1996.

Notes to Financial Statements

(a)(2)The information required by the following financial statement schedules of
Fortis Benefits Insurance Company are included in Item 8:

I. Summary of Investments--Other than investments in Related
Parties--Contained in the Notes to Financial Statements.

II. Condensed Financial Information of Registrant--Contained in
non-financial statement part of prospectus.

III. Supplementary Insurance Information--Contained in Financial
Statements and Notes to Financial Statements.

IV. Reinsurance--Contained in the Notes to Financial Statements.

V. Valuation and Qualifying Accounts--Contained in Financial Statements
and Notes to Financial Statements.

All other schedules to the financial statements required by Article 7 of the
Regulation S-X are not required under the related instructions or are
inapplicable and therefore have been omitted.

(3) Listing of Exhibits

3.(a) Articles of Incorporation of Fortis Benefits Insurance Company
(incorporated by reference from Form S-6 Registration Statement of Fortis
Benefits and its Variable Account C filed on March 17, 1986, File No.
33-03919);

(b) By-laws of Fortis Benefits Insurance Company (incorporated by
reference from Form S-6 Registration Statement of Fortis Benefits and its
Variable Account C filed on March 17, 1986, File No. 33-03919);

(c) Amendments to Articles of Incorporation and By-laws dated November
21, 1991 (incorporated by reference from Post-Effective Amendment No. 1 to
the Form N-4 Registration Statement of Fortis Benefits and its Variable
Account D filed on March 2, 1992, File No. 33-37577).

4.(a) Form of Combination Fixed and Variable Group Annuity Contract
(incorporated by reference from Post-Effective Amendment No. 1 to the Form
N-4 Registration Statement of Fortis Benefits and its Variable Account D
filed on March 2, 1992, File No. 33-37577);

(b) Form of Certificate to be used in connection with Contract filed as
Exhibit 4(a) (incorporated by reference from the Post-Effective Amendment
No. 1 to the Form N-4 Registration Statement of Fortis Benefits and its
Variable Account D filed on March 2, 1992, File No. 33-37577);
<PAGE>
(c) Form of Application to be used in connection with Certificate filed
as Exhibit 4(b) (incorporated by reference from Post-Effective Amendment
No. 1 to the Form N-4 Registration Statement of Fortis Benefits and its
Variable Account D filed on March 2, 1992, File No. 33-37577);

(d) Form of IRA Endorsement (incorporated by reference from
Pre-Effective Amendment No. 1 to Form N-4 Registration Statement of Fortis
Benefits and its Variable Account D filed on March 28, 1991, File No.
33-37577);

(e) Form of Section 403(b) Annuity Endorsement (incorporated by
reference from Post-Effective Amendment No. 3 to the Form N-4 Registration
Statement of Fortis Benefits and its Variable Account D filed on March 1,
1990, File No. 33-19421);

(f) Annuity Contract Exchange Form (incorporated by reference from
Pre-Effective Amendment No. 1 to the Form N-4 Registration Statement of
Fortis Benefits and its Variable Account D filed on April 19, 1988, File
No. 33-19421).

10. Fortis, Inc. Executive Incentive Compensation Plan (incorporated by
reference from Amendment No. 1 to Form S-1 Registration Statement of
Fortis Benefits filed on March 28, 1991, File No. 33-37576).

24. Power of Attorney for Messrs. Freedman, Gaddy, Mackin, Meler, Mahoney,
Clancy, Keller, Greiter and Clayton (incorporated by reference from
Exhibit 11 to Form S-6 registration statement of Fortis Benefits, File No.
33-73138 filed on December 17, 1993).

99. Form of prospectus to be filed as part of Form S-1 Amended
Registration Statement of Fortis Benefits.

(b) Reports on Form 8-K filed in the fourth quarter of 1998

None

Included in 14 (a)(3) above

(d) Financial Statements Schedules

Included in 14 (a)(2) above
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

FORTIS BENEFITS INSURANCE COMPANY
Registrant

March 27, 1999 By /s/ ROBERT B. POLLOCK
-----------------------------------------
Robert B. Pollock,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER

March 27, 1999 By /s/ MICHAEL J. PENINGER
-----------------------------------------
Michael J. Peninger,
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. The following
persons represent a majority of the Board of Directors of Fortis Benefits
Insurance Company:

By* Chairman of the March 27, 1999
------------------------------------- Board
Allen Royal Freedman

By /s/ ROBERT B. POLLOCK President and Chief March 27, 1999
------------------------------------- Executive Officer
Robert B. Pollock

By /s/ DEAN C. KOPPERUD Director March 27, 1999
-------------------------------------
Dean C. Kopperud

By* Director March 27, 1999
-------------------------------------
J. Kenny Clayton

By /s/ MICHAEL J. PENINGER Director March 27, 1999
-------------------------------------
Michael J. Peninger

*By /s/ ROBERT B. POLLOCK
-------------------------------------
Robert B. Pollock,
ATTORNEY-IN-FACT

<PAGE>

FORTIS BENEFITS INSURANCE COMPANY
MAILING ADDRESS: STREET ADDRESS: PHONE: 1-800-800-2000
P.O. BOX 64272 500 BIELENBERG DRIVE EXTENSION 3057
ST. PAUL WOODBURY
MINNESOTA 55164 MINNESOTA 55125

This prospectus describes interests under flexible premium, deferred combination
variable and fixed annuity contracts issued by Fortis Benefits Insurance Company
("Fortis Benefits").

These contracts allow you to accumulate funds on a tax-deferred basis. You may
elect a guaranteed interest accumulation option through a fixed account, or a
variable return accumulation option through a variable account, or a combination
of these two options. You can choose among 10 different guarantee periods under
the guaranteed interest accumulation option, each of which has its own interest
rate which is guaranteed for the entire guarantee period.

Under the variable return accumulation option, you can choose among the
following investment portfolios:

<TABLE>
<S> <C>
Money Market Series S&P 500 Index Series
U.S. Government Securities Series Blue Chip Stock Series
Diversified Income Series Global Growth Series
Global Bond Series Growth Stock Series
High Yield Series International Stock Series
Asset Allocation Series Aggressive Growth Series
Global Asset Allocation Series Small Cap Value Series
Value Series Mid Cap Stock Series
Growth & Income Series Large Cap Growth Series
</TABLE>

The accompanying prospectus for these investment
portfolios describes the investment objectives, policies,
and risks of each of the portfolios.

This prospectus gives you information about the contracts
that you should know before investing. This prospectus
must be accompanied by a current prospectus of the
available investment portfolios. These prospectuses
should be read carefully and kept for future reference.

A Statement of Additional Information, dated May 1, 1999,
about certain aspects of the contracts has been filed
with the Securities and Exchange Commission and is
available, without charge, from Fortis Benefits at the
address and phone number printed above. The Table of
Contents for the Statement of Additional Information
appears on page 26 of this prospectus.

THESE CONTRACTS ARE NOT OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, CREDIT UNION, BROKER-DEALER, OR
OTHER FINANCIAL INSTITUTION. THEY ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. THEY
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.

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.

FORTIS
MASTERS
VARIABLE
ANNUITY

Contracts Under Flexible
Premium Deferred

Combination Variable and
Fixed Annuity Contracts

PROSPECTUS DATED
May 1, 1999

[LOGO]

95961 (Ed. 5/98)
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Special Terms Used in this Prospectus................................. 2
Information Concerning Fees and Charges............................... 3
Summary of Contract Features.......................................... 5
- Fortis Benefits/Fortis Financial Group Member................... 10
The Variable Account.................................................. 10
Series Fund........................................................... 10
The Fixed Account..................................................... 11
- Guaranteed Interest Rates/Guarantee Periods..................... 11
- Market Value Adjustment......................................... 11
- Investments by Fortis Benefits.................................. 12
Accumulation Period................................................... 13
- Issuance of a Contract and Purchase Payments.................... 13
- Contract Value.................................................. 13
- Allocation of Purchase Payments and Contract Value.............. 14
- Total and Partial Surrenders.................................... 14
- Telephone Transactions.......................................... 15
- Benefit Payable on Death of Annuitant or Owner.................. 15
The Annuity Period.................................................... 16
- Annuity Commencement Date....................................... 16
- Commencement of Annuity Payments................................ 16
- Relationship Between Subaccount Investment Performance and
Amount of Variable Annuity Payments............................ 17
- Annuity Options................................................. 17
- Death of Annuitant or Other Payee............................... 17
Charges and Deductions................................................ 17
- Premium Taxes................................................... 17
- Charges Against the Variable Account............................ 17
- Tax Charge...................................................... 18
- Surrender Charge................................................ 18
- Miscellaneous................................................... 19
- Reduction of Charges............................................ 19
General Provisions.................................................... 19
- The Contracts................................................... 19
- Postponement of Payment......................................... 19
- Misstatement of Age or Sex and Other Errors..................... 19
- Assignment...................................................... 19
- Beneficiary..................................................... 19
- Reports......................................................... 20
Rights Reserved By Fortis Benefits.................................... 20
Distribution.......................................................... 20
Federal Tax Matters................................................... 21
Further Information about Fortis Benefits............................. 23
- General......................................................... 23
- Ownership of Securities......................................... 23
- Selected Financial Data......................................... 23
- Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 23
- Market Risk..................................................... 25
Voting Privileges..................................................... 25
Legal Matters......................................................... 26
Other Information..................................................... 26
Contents of Statement of Additional Information....................... 26
Fortis Benefits Financial Statements.................................. 26
Appendix A--Sample Market Value Adjustment Calculations............... A-1
Appendix B--Sample Death Benefit Calculations......................... B-1
Appendix C--Explanation of Expense Calculations....................... C-1
</TABLE>

THE CONTRACTS 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, THE RELATED STATEMENT OF ADDITIONAL INFORMATION, OR
ANY SUPPLEMENTS THERETO OR IN ANY SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY
FORTIS BENEFITS.
<PAGE>
SPECIAL TERMS USED IN THIS PROSPECTUS

<TABLE>
<S> <C>
Accumulation The time period under a contract between the contract issue date and the annuity commencement
Period date.
Accumulation A unit of measure used to calculate the owners' interest in the Variable Account during the
Unit Accumulation Period.
Annuitant A person during whose life annuity payments are to be made by Fortis Benefits under the
contract.
Annuity Period The time period following the Accumulation Period, during which annuity payments are made by
Fortis Benefits.
Annuity Unit A unit of measurement used to calculate variable annuity payments.
Fixed Annuity An annuity option under which Fortis Benefits promises to pay the Annuitant or any other payee
Option that you designate one or more fixed payments.
Market Value Positive or negative adjustment in fixed account value that we make if such value is paid out
Adjustment more than fifteen days before or after the end of a guarantee period in which it was being
held.
Non-Qualified Contracts that do not qualify for the special federal income tax treatment applicable in
Contracts connection with certain retirement plans.
Qualified Contracts that do qualify for the special federal income tax treatment applicable in
Contracts connection with certain retirement plans.
Series Fund Fortis Series Fund, Inc., a diversified, open-end management investment company in which the
Variable Account invests.
Seven Year The seventh anniversary of a contract issue date, and each subsequent seventh anniversary of
Anniversary that date.
Valuation Date All business days except, with respect to any subaccount, days on which the related portfolio
does not value its shares. Generally, the portfolios value their shares on each day the New
York Stock Exchange is open.
Valuation The period that starts at the close of regular trading on the New York Stock Exchange on a
Period Valuation Date and ends at the close of regular trading on the exchange on the next succeeding
Valuation Date.
Variable The segregated asset account referred to as Variable Account D of Fortis Benefits Insurance
Account Company established to receive and invest purchase payments under contracts.
Variable An annuity option under which Fortis Benefits promises to pay the Annuitant or any other payee
Annuity Option chosen by you one or more payments which vary in amount in accordance with the net investment
experience of the subaccounts selected by the Annuitant.
</TABLE>

2
<PAGE>
INFORMATION CONCERNING FEES AND CHARGES

OWNER TRANSACTION CHARGES

<TABLE>
<S> <C>
Front-End Sales Charge Imposed on
Purchases................................... 0%
Maximum Surrender Charge for Sales
Expenses.................................... 7%(1)
</TABLE>

<TABLE>
<CAPTION>
NUMBER OF YEARS SURRENDER CHARGE AS A
SINCE PURCHASE PERCENTAGE OF PURCHASE
PAYMENT WAS CREDITED PAYMENT
- -------------------- -------------------------
<S> <C>
Less than 1 7%
At least 1 but less
than 2 6%
At least 2 but less
than 3 5%
At least 3 but less
than 4 4%
At least 4 but less
than 5 3%
At least 5 but less
than 6 2%
At least 6 but less
than 7 1%
7 or more 0%
</TABLE>

<TABLE>
<S> <C>
Other Surrender Fees....................... 0%
Exchange Fee............................... 0%
ANNUAL CONTRACT ADMINISTRATION CHARGE............. $0
</TABLE>

<TABLE>
<S> <C>
VARIABLE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
Mortality and Expense Risk Charge............... 1.25%
Variable Account Administrative Charge.......... .10%
---
Total Variable Account Annual Expenses........ 1.35%
</TABLE>

- ------------------------
(1) This charge does not apply in certain cases such as partial surrenders each
year of up to 10% of "new purchase payments" as defined under the heading
"Surrender Charge," or payment of a death benefit.

MARKET VALUE ADJUSTMENT WITH RESPECT TO FIXED ACCOUNT

Surrenders and other withdrawals from the fixed account more than fifteen days
from the end of a guarantee period are subject to a Market Value Adjustment. The
Market Value Adjustment may increase or reduce the fixed account value. We
compute this adjustment according to a formula that we describe in more detail
under "Market Value Adjustment".

PORTFOLIO ANNUAL EXPENSES (A)
<TABLE>
<CAPTION>
U.S. GOVERNMENT
MONEY MARKET SECURITIES DIVERSIFIED GLOBAL HIGH YIELD
SERIES SERIES INCOME SERIES BOND SERIES SERIES
------------- --------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Investment Advisory and Management Fee................
Other Expenses........................................
Total Series Fund Operating Expenses..................

<CAPTION>
GLOBAL ASSET
ALLOCATION
SERIES
---------------
<S> <C>
Investment Advisory and Management Fee................
Other Expenses........................................
Total Series Fund Operating Expenses..................
</TABLE>
<TABLE>
<CAPTION>
ASSET S&P 500
ALLOCATION VALUE GROWTH & INDEX BLUE CHIP
SERIES SERIES INCOME SERIES SERIES STOCK SERIES
--------------- --------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Investment Advisory and Management Fee................
Other Expenses........................................
Total Series Fund Operating Expenses..................

<CAPTION>
INTERNATIONAL
STOCK SERIES
-------------
<S> <C>
Investment Advisory and Management Fee................
Other Expenses........................................
Total Series Fund Operating Expenses..................
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP
MID CAP VALUE GLOBAL GROWTH LARGE CAP GROWTH STOCK
STOCK SERIES SERIES SERIES GROWTH SERIES SERIES
------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Investment Advisory and Management Fee................
Other Expenses........................................
Total Series Fund Operating Expenses..................

<CAPTION>
AGGRESSIVE
GROWTH SERIES
-------------
<S> <C>
Investment Advisory and Management Fee................
Other Expenses........................................
Total Series Fund Operating Expenses..................
</TABLE>

- ------------------------
(a) As a percentage of Series average net assets based on 1998 historical data.

3
<PAGE>
EXAMPLES*

If you SURRENDER your contract in full at the end of any of the time periods
shown below, you would pay the following cumulative expenses on a $1,000
investment, assuming a 5% annual return on assets:

<TABLE>
<CAPTION>
IF ALL AMOUNTS ARE INVESTED IN ONE PORTFOLIO: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------ ------- ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Series.........................................
U.S. Government Securities Series...........................
Diversified Income Series...................................
Global Bond Series..........................................
High Yield Series...........................................
Global Asset Allocation Series..............................
Asset Allocation Series.....................................
Value Series................................................
Growth & Income Series......................................
S&P 500 Index Series........................................
Blue Chip Stock Series......................................
International Stock Series..................................
Mid Cap Stock Series........................................
Small Cap Value Series......................................
Global Growth Series........................................
Large Cap Growth Series.....................................
Growth Stock Series.........................................
Aggressive Growth Series....................................
</TABLE>

If you COMMENCE AN ANNUITY payment option, or do NOT surrender your contract,
you would pay the following cumulative expenses on a $1,000 investment, assuming
a 5% annual return on assets:

- ------------------------
* Does not include the effect of any Market Value Adjustment.

THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

------------------------

We have included the foregoing tables and examples to help you understand the
transaction and operating expenses we directly or indirectly impose under the
contracts and under the Series Fund. Please note, we will also deduct amounts
for state premium taxes or similar assessments where these deductions are
applicable.

See Appendix C for an explanation of the calculation of the amounts set forth
above.

4
<PAGE>
SUMMARY OF CONTRACT FEATURES

The following summary should be read in conjunction with the detailed
information in this prospectus. Variations from the information appearing in
this prospectus due to requirements particular to your state are described in
supplements which are attached to this prospectus, or in endorsements to the
contract as appropriate.

The contracts are designed to provide individuals with retirement benefits
through the accumulation of purchase payments on a fixed or variable basis, and
by the application of such accumulations to provide fixed or variable annuity
payments.

Depending on the state that you live in, the contract that is issued to you may
be as a part of a group contract or as an individual contract. Participation in
a group contract will be evidenced by the issuance of a certificate showing your
interest under the group contract. In other states, an individual contract will
be issued to you. Both the certificate and the contract are referred to as a
"contract" in this prospectus.

FREE LOOK

You have the right to examine a contract during a "free look" period after you
receive the contract and return it for a refund of the amount of the then
current contract value. However, in certain states where required by state law
the refund will be in the amount of all purchase payments that have been made,
without interest appreciation or depreciation. The "free look' period is
generally 10 days unless a longer time is specified on the face page of your
contract.

PURCHASE PAYMENTS

The initial purchase payment under a contract must be at least $5,000 ($2,000
for a contract which is a part of a qualified plan). Additional purchase
payments under a contract must be at least $50. See "Issuance of a Contract and
Purchase Payments".

ALLOCATION OF PURCHASE PAYMENTS

On the date that the contract is issued, the initial purchase payment is
allocated, as specified by you in the contract application, among one or more of
the portfolios, or to one or more of the guarantee periods in the fixed account,
or to a combination thereof. Subsequent purchase payments are allocated in the
same way, or pursuant to different allocation percentages that the you may
request in writing.

VARIABLE ACCOUNT INVESTMENT OPTIONS

Each of the subaccounts of the Variable Account invests in shares of a
corresponding portfolio of Series Fund. Contract value in each of the
subaccounts of the Variable Account will vary to reflect the investment
experience of each of the corresponding portfolios, as well as deductions for
certain charges.

Each portfolio has a separate and distinct investment objective and is managed
by Fortis Advisers, Inc. or a subadviser of Fortis Advisers, Inc. A full
description of the portfolios and their investment objectives, policies, risks
and expenses can be found in the current prospectus for Series Fund, which
accompanies this prospectus, and Series Fund Statement of Additional Information
which is available upon request from Fortis Benefits at the address and phone
number on the cover of this prospectus.

FIXED ACCOUNT INVESTMENT OPTIONS

Any amount allocated by the owner to the fixed account earns a guaranteed
interest rate. The level of the guaranteed interest rate depends on the length
of the guarantee period selected by the owner. We currently make available ten
different guarantee periods, ranging from one to ten years.

If amounts are transferred, surrendered or otherwise paid out more than fifteen
days before or after the end of the applicable guarantee period, a Market Value
Adjustment will be applied to increase or decrease the amount of fixed account
value that is paid out. Accordingly, the Market Value Adjustment can result in
gains or losses to you.

THE FIXED ACCOUNT INVESTMENT OPTION IS NOT AVAILABLE FOR CONTRACTS ISSUED IN THE
STATES OF PENNSYLVANIA AND NEVADA.

For a more complete discussion of the fixed account investment options and the
Market Value Adjustment, see "The Fixed Account".

TRANSFERS

During the Accumulation Period, you can transfer all or part of your contract
value from one subaccount to another or into the fixed account and, subject to
any Market Value Adjustment, from one guarantee period to another or into a
subaccount. There is currently no charge for these transfers. We reserve the
right to restrict the frequency of or otherwise condition, terminate, or impose
charges upon, transfers from a subaccount during the Accumulation Period. During
the Annuity Period the person receiving annuity payments may make up to four
transfers (but not from a Fixed Annuity Option) during each year of the Annuity
Period. For a description of certain limitations on transfer rights, see
"Allocations of Purchase Payments and Contract Value--Transfers".

TOTAL OR PARTIAL SURRENDERS

Subject to certain conditions, all or part of the contract value may be
surrendered by you before the earlier of the Annuitant's death or the annuity
commencement date. Amounts surrendered may be subject to a surrender charge and,
in addition, amounts surrendered from the fixed account may be subject to a
Market Value Adjustment. See "Total and Partial Surrenders," "Surrender Charge"
and "Market Value Adjustment". Particular attention should be paid to the tax
implications of any surrender, including possible penalties for premature
distributions. See "Federal Tax Matters".

ANNUITY PAYMENTS

The contract provides several types of annuity benefits to you or to other
persons you properly designate to receive such payments, including Fixed and
Variable Annuity Options. The owner has considerable flexibility in choosing the
annuity commencement date. However, the tax implications of an annuity
commencement date must be

5
<PAGE>
carefully considered, including the possibility of penalties for commencing
benefits either too soon or too late. See "Annuity Commencement Date," "Annuity
Options" and "Federal Tax Matters" in this prospectus and "Taxation Under
Certain Retirement Plans" in the Statement of Additional Information.

DEATH BENEFIT

In the event that the Annuitant or owner dies prior to the annuity commencement
date, a death benefit is payable to the beneficiary. See "Benefit Payable on
Death of Annuitant or Owner".

LIMITATIONS IMPOSED BY RETIREMENT PLANS AND EMPLOYERS

Certain rights you would otherwise have under a contract may be limited by the
terms of any applicable employee benefit plan. These limitations may restrict
such things as total and partial surrenders, the amount or timing of purchase
payments that may be made, when annuity payments must start and the type of
annuity options that may be selected. Accordingly, you should familiarize
yourself with these and all other aspects of any retirement plan in connection
with which a contract is issued.

The record owner of the group variable annuity contract pursuant to which group
certificates will be issued will be a bank trustee whose sole function is to
hold record ownership of the contract or an employer (or the employer's
designee) in connection with an employee benefit plan. In the latter cases,
certain rights that an owner otherwise would have under a contract may be
reserved instead by the employer.

TAX IMPLICATIONS

The tax implications for you or any other persons who may receive payments under
a contract, and those of any related employee benefit plan can be quite
important. A brief discussion of some of these is set out under "Federal Tax
Matters" in this prospectus and "Taxation Under Certain Retirement Plans" in the
Statement of Additional Information, but such discussion is not comprehensive.
Therefore, you should consider these matters carefully and consult a qualified
tax adviser before making purchase payments or taking any other action in
connection with a contract or any related employee benefit plan. Failure to do
so could result in serious adverse tax consequences which might otherwise have
been avoided.

QUESTIONS AND OTHER COMMUNICATIONS

Any question about procedures of the contract should be directed to your sales
representative, or Fortis Benefits' home office:
P.O. Box 64272, St. Paul, Minnesota, 55164: 1-800-800-2000, extension 3057.
Purchase payments and written requests should be mailed or delivered to the same
home office address. All communications should include the contract number, the
owner's name and, if different, the Annuitant's name. The number for telephone
transfers is 1-800-800-2000 (extension 3057).

Any purchase payment or other communication, except a 10-day cancellation
notice, is deemed received at Fortis Benefit's home office on the actual date of
receipt there in proper form unless received (1) after the close of regular
trading on The New York Stock Exchange, or (2) on a date that is not a Valuation
Date. In either of these two cases, the date of receipt will be deemed to be the
next Valuation Date.

6
<PAGE>
This page left blank intentionally.

7
<PAGE>
FINANCIAL AND PERFORMANCE INFORMATION

The information presented below reflects the Accumulation Unit information for
subaccounts of the Variable Account through December 31, 1998.

<TABLE>
<CAPTION>
U.S. GOV'T GLOBAL ASSET
MONEY MARKET SECURITIES DIVERSIFIED INCOME GLOBAL BOND HIGH YIELD ALLOCATION
------------- ------------- ------------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
Accumulation Units in
Force..................
Accumulation Unit
Values................. $ $ $ $ $ $
DECEMBER 31, 1997
Accumulation Units in
Force.................. 31,491,629 7,743,923 49,942,498 1,123,401 4,194,544 2,918,483
Accumulation Unit
Values................. $ 1.474617 $ 17.149938 $ 1.963344 $ 11.837281 $ 12.917282 $ 14.433538
DECEMBER 31, 1996
Accumulation Units in
Force.................. 36,220,947 9,635,092 55,653,680 1,088,043 3,337,604 2,330,884
Accumulation Unit
Values................. 1.418 15.935 1.801 11.961 11.928 12.884
JANUARY 1, 1996*
Accumulation Unit
Values................. -- -- -- -- -- --
DECEMBER 31, 1995
Accumulation Units in
Force.................. 26,915,975 10,989,914 59,213,865 574,142 2,321,419 1,117,596
Accumulation Unit
Value.................. $ 1.367 $ 15.805 $ 1.753 $ 11.743 $ 10.941 $ 11.590
JANUARY 2, 1995*
Accumulation Unit
Value.................. -- -- -- 10.000 -- 10.000
DECEMBER 31, 1994
Accumulation Units in
Force.................. 30,697,754 12,271,738 62,744,615 -- 1,216,957 --
Accumulation Unit
Value.................. $ 1.311 $ 13.483 $ 1.515 -- $ 9.834 --
MAY 1, 1994*
Accumulation Unit
Value.................. -- -- -- -- 10.0000 --
DECEMBER 31, 1993
Accumulation Units in
Force.................. 21,315,022 15,601,818 56,005,709 -- -- --
Accumulation Unit
Value.................. $ 1.278 $ 14.609 $ 1.621 -- -- --
DECEMBER 31, 1992
Accumulation Units in
Force.................. 20,674,556 9,505,984 19,353,521 -- -- --
Accumulation Unit
Value.................. $ 1.261 $ 13.529 $ 1.457 -- -- --
MAY 1, 1992*
Accumulation Unit
Value.................. -- -- -- -- -- --
DECEMBER 31, 1991
Accumulation Units in
Force.................. 7,235,168.03 3,595,759.23 6,056,976.03 -- -- --
Accumulation Unit
Value.................. $ 1.237 $ 12.921 $ 1.379 -- -- --
DECEMBER 31, 1990
Accumulation Units in
Force.................. 5,632,146.27 747,992.12 2,352,517.74 -- -- --
Accumulation Unit
Value.................. $ 1.183 $ 11.450 $ 1.219 -- -- --
DECEMBER 31, 1989
Accumulation Units in
Force.................. 754,306.35 70,701.23 1,306,717.80 -- -- --
Accumulation Unit
Value.................. $ 1.112 $ 10.756 $ 1.135 -- -- --
</TABLE>

- ------------------------

* Accumulation Unit value at date of initial registration statement
effectiveness

8
<PAGE>
<TABLE>
<CAPTION>
S&P BLUE INTERNATIONAL
ASSET ALLOCATION VALUE GROWTH & INCOME 500 CHIP STOCK
----------------- ----------- ------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
Accumulation Units in
Force..................
Accumulation Unit
Values................. $ $ $ $ $ $
DECEMBER 31, 1997
Accumulation Units in
Force.................. 156,035,843 3,402,217 11,003,248 5,491,818 4,149,587 4,239,821
Accumulation Unit
Values................. $ 2.809839 $ 13.651572 $ 19.487584 $ 14.786540 $ 14.429421 $14.021796
DECEMBER 31, 1996
Accumulation Units in
Force.................. 154,525,474 1,071,648 7,892,683 1,259,758 915,358 3,137,348
Accumulation Unit
Values................. 2.368 11.048 15.468 11.326 11.520 12.690
JANUARY 1, 1996*
Accumulation Unit
Values................. -- 10.000 10.000 10.000 --
DECEMBER 31, 1995
Accumulation Units in
Force.................. 148,700,081 4,204,164 1,157,064
Accumulation Unit
Value.................. $ 2.134 $ 12.904 $ 11.271 $ 15.754
JANUARY 2, 1995*
Accumulation Unit
Value.................. -- -- 10.000
DECEMBER 31, 1994
Accumulation Units in
Force.................. 137,642,102 1,489,517 --
Accumulation Unit
Value.................. $ 1.773 $ 10.083 --
MAY 1, 1994*
Accumulation Unit
Value.................. -- 10.0000 --
DECEMBER 31, 1993
Accumulation Units in
Force.................. 106,834,367 -- --
Accumulation Unit
Value.................. $ 1.797 -- --
DECEMBER 31, 1992
Accumulation Units in
Force.................. 49,688,937 -- --
Accumulation Unit
Value.................. $ 1.664 -- --
MAY 1, 1992*
Accumulation Unit
Value.................. -- -- --
DECEMBER 31, 1991
Accumulation Units in
Force.................. 17,772,322.83 -- --
Accumulation Unit
Value.................. $ 1.577 -- --
DECEMBER 31, 1990
Accumulation Units in
Force.................. 8,249,373.75 -- --
Accumulation Unit
Value.................. $ 1.252 -- -- $ 1.298 --
DECEMBER 31, 1989
Accumulation Units in
Force.................. 2,760,936.67 -- --
Accumulation Unit
Value.................. $ 1.245 -- --

<CAPTION>
AGGRESSIVE
GLOBAL GROWTH GROWTH STOCK GROWTH
-------------- --------------- -----------
<S> <C> <C> <C>
DECEMBER 31, 1998
Accumulation Units in
Force..................
Accumulation Unit
Values................. $ $ $
DECEMBER 31, 1997
Accumulation Units in
Force.................. 13,725,612 156,975,866 6,551,677
Accumulation Unit
Values................. $ 19.507894 $ 3.296005 $ 13.241215
DECEMBER 31, 1996
Accumulation Units in
Force.................. 13,713,860 169,095,500 5,706,895
Accumulation Unit
Values................. 18.510 2.971 13.232
JANUARY 1, 1996*
Accumulation Unit
Values................. -- --
DECEMBER 31, 1995
Accumulation Units in
Force.................. 10,769,830 160,247,280 3,033,587
Accumulation Unit
Value.................. $ 2.587 $ 12.461
JANUARY 2, 1995*
Accumulation Unit
Value.................. -- -- --
DECEMBER 31, 1994
Accumulation Units in
Force.................. 10,055,959 148,657,108 1,115,647
Accumulation Unit
Value.................. $ 12.236 $ 2.054 $ 9.723
MAY 1, 1994*
Accumulation Unit
Value.................. -- -- 10.0000
DECEMBER 31, 1993
Accumulation Units in
Force.................. 5,108,957 118,720,649 --
Accumulation Unit
Value.................. $ 12.784 $ 2.142 --
DECEMBER 31, 1992
Accumulation Units in
Force.................. 698,720 79,582,321 --
Accumulation Unit
Value.................. $ 10.988 $ 1.996 --
MAY 1, 1992*
Accumulation Unit
Value.................. 10.0000 -- --
DECEMBER 31, 1991
Accumulation Units in
Force.................. -- 42,946,178.33 --
Accumulation Unit
Value.................. -- $ 1.965 --
DECEMBER 31, 1990
Accumulation Units in
Force.................. -- 14,690,313.64 --
Accumulation Unit
Value..................
DECEMBER 31, 1989
Accumulation Units in
Force.................. -- 3,507,971.91 --
Accumulation Unit
Value.................. -- $ 1.357 --
</TABLE>

- ------------------------

* Accumulation Unit value at date of initial registration statement
effectiveness

9
<PAGE>
Audited financial statements of the Variable Account are included in the
Statement of Additional Information.

Advertising and other sales materials may include yield and total return figures
for the subaccounts of the Variable Account. These figures are based on
historical results and are not intended to indicate future performance. "Yield"
is the income generated by an investment in the subaccount over a period of time
specified in the advertisement. This rate of return is assumed to be earned over
a full year and is shown as a percentage of the investment. "Total Return" is
the total change in value of an investment in the subaccount over a period of
time specified in the advertisement. The rate of return shown would produce that
change in value over the specified period, if compounded annually. Yield figures
do not reflect the surrender charge and yield and total return figures do not
reflect premium tax charges. This makes the performance shown more favorable.

Financial information concerning Fortis Benefits is included in this prospectus
under "Additional Information About Fortis Benefits" and "Fortis Benefits
Financial Statements".

FORTIS BENEFITS/FORTIS FINANCIAL GROUP MEMBER

Fortis Benefits Insurance Company is the issuer of the contracts. At the end of
1997, Fortis Benefits had approximately $99 billion of total life insurance in
force. Fortis Benefits is a Minnesota corporation founded in 1910. It is
qualified to sell life insurance and annuity contracts in the District of
Columbia and in all states except New York. Fortis Benefits is an indirectly
wholly-owned subsidiary of Fortis, Inc., which is itself indirectly owned 50% by
Fortis (NL)N.V. and 50% by Fortis (B). Fortis, Inc. manages the United States
operations for these two companies.

Fortis Benefits is a member of the Fortis Financial Group. This group is a joint
effort by Fortis Benefits, Fortis Advisers, Inc., Fortis Investors, Inc., and
Fortis Insurance Company, to offer financial products through the management,
marketing, and servicing of mutual funds, annuities, and life insurance.

Fortis (NL)N.V. is a diversified financial services company headquartered in
Utrecht, The Netherlands, where its insurance operations began in 1847. Fortis
(B) is a diversified financial services company headquartered in Brussels,
Belgium, where its insurance operations began in 1824. Fortis (NL)N.V. and
Fortis (B) have merged their operating companies under the trade name of Fortis.
The Fortis group of companies is active in insurance, banking and financial
services, and real estate development in The Netherlands, Belgium, the United
States, Western Europe, and the Pacific Rim. The Fortis group of companies had
approximately billion in assets at the end of 1998.

All of the guarantees and commitments under the contracts are general
obligations of Fortis Benefits regardless of whether you have allocated the
contract value to the Variable Account or to the fixed account. None of Fortis
Benefits' affiliated companies has any legal obligation to back Fortis Benefits'
obligations under the contracts.

THE VARIABLE ACCOUNT

The Variable Account is a segregated investment account of Fortis Benefits.
Fortis Benefits established Variable Account D under Minnesota insurance law as
of October 14, 1987. The Variable Account is an integral part of Fortis
Benefits. However, the Variable Account is registered with the Securities and
Exchange Commission as a unit investment trust under the Investment Company Act
of 1940. Assets in the Variable Account representing reserves and liabilities
under these contracts and other variable annuity contracts issued by Fortis
Benefits will not be chargeable with liabilities arising out of any other
business of Fortis Benefits.

The Variable Account has subaccounts. The assets in each subaccount are invested
exclusively in a distinct class (or series) of stock issued by Series Fund, each
of which represents a separate investment portfolio within Series Fund. Income
and both realized and unrealized gains or losses from the assets of each
subaccount of the Variable Account are credited to or charged against that
subaccount without regard to income, gains or losses from any other subaccount
of the Variable Account or arising out of any other business we may conduct. We
may add or eliminate new subaccounts as new portfolios are added or are
eliminated.

SERIES FUND

Series Fund is a "series" type of mutual fund. Series Fund is registered with
the Securities and Exchange Commission under the Investment Company Act of 1940.
Series Fund has served as the investment medium for the Variable Account since
the Variable Account began operations. Series Fund is also the investment medium
for the variable account of Fortis Benefits through which variable life
insurance policies are issued by Fortis Benefits. We do not foresee any conflict
between your interests and the interests of life insurance policy owners.
However, Series Fund's Board of Directors will monitor to identify any material,
irreconcilable conflicts which may develop. Series Fund's Board of Directors
will determine what action, if any, should be taken in response. If it becomes
necessary for any separate account to replace shares of any portfolio with
another investment, the portfolio may have to liquidate securities on a
disadvantageous basis.

Fortis Benefits purchases and redeems Series Fund shares for the Variable
Account at their net asset value without any sales or redemption charges. These
shares are interests in the portfolios of Series Fund available for investment
by the Variable Account. Each portfolio corresponds to one of the subaccounts of
the Variable Account. The assets of each portfolio are separate from the assets
of other portfolios. In addition, each portfolio operates as a separate
investment portfolio whose investment performance has no effect on the
investment performance of any other portfolio.

We automatically reinvest dividends or capital gain distributions attributable
to contracts in shares of the portfolio from which they are received at the
portfolio's net asset value on the date paid. These dividends and distributions
will have the effect of reducing the net asset value of each share of the
corresponding portfolio and

10
<PAGE>
increasing, by an equivalent value, the number of shares outstanding of the
portfolio. However, the value of your interest in the corresponding subaccount
will not change as a result of any of these dividends and distributions.

The portfolios of Series Fund available for investment by the Variable Account
are listed on the cover page of this prospectus.

A full description of the portfolios, their investment policies and
restrictions, the charges, the risks associated with investing in them, and
other aspects of their operations is contained in the prospectus for Series Fund
accompanying this prospectus and in the Statement of Additional Information for
Series Fund. Additional copies of these documents may be obtained from your
sales representative or from our home office. The complete risk disclosure in
the prospectus for the Diversified Income Series, High Yield Series, Asset
Allocation Series, and Global Asset Allocation Series should be read before
selection of them for investment.

THE FIXED ACCOUNT
GUARANTEED INTEREST RATES/GUARANTEE PERIODS

Any amount you allocate to the fixed account earns a guaranteed interest rate
beginning on the date you make the allocation. The guaranteed interest rate
continues for the number of years you select, up to a maximum of TEN years. At
the end of your guarantee period, your contract value, including accrued
interest, will be allocated to a new guarantee period of equal length. However,
you may reallocate your contract value to a different guarantee period (or
periods) or to one (or more) of the subaccounts of the Variable Account. If you
decide to reallocate your contract value, you must do so by sending us a WRITTEN
REQUEST. We must receive your written request AT LEAST three business days
before the end of your guarantee period. The first day of your new guarantee
period (or other reallocation) will be the day after the end of your previous
guarantee period. We will notify you AT LEAST 45 days and NOT MORE than 75 days
before the end of your guarantee period.

We currently offer ten different guarantee periods. These guarantee periods
range in length from one to ten years. Each guarantee period has its own
guaranteed interest rate, which may differ from those for other guarantee
periods. From time to time we will, at our discretion, change the guaranteed
interest rate for FUTURE guarantee periods. These changes will NOT affect the
guaranteed interest rates we are paying on CURRENT guarantee periods. Please
note, when you allocate or transfer an amount to a guarantee period, a new
guarantee period begins running with respect to that amount. Therefore, the
amount you allocate will earn a guaranteed interest rate that will not change
until the end of that period. In addition, the guaranteed interest rate will
never be less than an effective annual rate of 4%.

We declare the guaranteed interest rates from time to time as market conditions
dictate. We advise you of the guaranteed interest rate for a chosen guarantee
period at the time we receive a purchase payment from you, or at the time we
execute a transfer you have requested, or at the time a guarantee period is
renewed.

We do not have a specific formula for establishing the guaranteed interest rates
for the guarantee periods. Guaranteed interest rates may be INFLUENCED by the
available interest rates on the investments we acquire with the amounts you
allocate for a particular guarantee period. Guaranteed interest rates do not
necessarily CORRESPOND to the available interest rates on the investments we
acquire with the amounts you allocate for a particular guarantee period. See
"Investments by Fortis Benefits". In addition, when we determine guaranteed
interest rates, we may consider: (1) the duration of a guarantee period, (2)
regulatory and tax requirements, (3) sales and administrative expenses we bear,
(4) risks we assume, (5) our profitability objectives, and (6) general economic
trends.

FORTIS BENEFITS' MANAGEMENT MAKES THE FINAL DETERMINATION OF THE GUARANTEED
INTEREST RATES WE DECLARE. WE CANNOT PREDICT OR ASSURE THE LEVEL OF ANY FUTURE
GUARANTEED INTEREST RATES IN EXCESS OF AN EFFECTIVE ANNUAL RATE OF 4%.

THE FIXED ACCOUNT INVESTMENT OPTION IS NOT AVAILABLE FOR CONTRACTS ISSUED IN THE
STATES OF PENNSYLVANIA AND NEVADA.

You may obtain information concerning the guaranteed interest rates that apply
to the various guarantee periods. You may obtain this information from our home
office or from your sales representative at any time.

MARKET VALUE ADJUSTMENT

Except as described below, we will apply a Market Value Adjustment to any fixed
account value that is:

- surrendered,

- transferred, or

- otherwise paid out

BEFORE the end of the guarantee period in which it is being held.

For example, we will apply a Market Value Adjustment to fixed account value that
we pay:

- as a death benefit pursuant to a contract,

- as an amount applied to an annuity option, and

- as an amount paid as a single sum in lieu of an annuity.

The Market Value Adjustment we apply may increase or decrease the fixed account
value that is withdrawn or transferred. We determine whether the fixed account
value is increased or decreased by performing a comparison of two guaranteed
interest rates.

The first rate we compare is the guaranteed interest rate for the fixed account
value that is withdrawn or transferred from the existing

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guarantee period. The second rate we compare is the guaranteed interest rate we
are then offering for new guarantee periods with durations equal to the number
of years remaining in the existing guarantee period. After comparing these two
rates, we determine whether the fixed account value is increased or decreased as
follows:

- If the first rate exceeds the second rate by more than 1/2%, the Market
Value Adjustment produces an INCREASE in the fixed account value withdrawn
or transferred.

- If the first rate does not exceed the second rate by at least 1/2%, the
Market Value Adjustment produces a DECREASE in the fixed account value
withdrawn or transferred.

We will determine the Market Value Adjustment by multiplying the fixed account
value that is withdrawn or transferred from the existing guarantee period
(before deduction of any applicable surrender charge) by the following factor:

1 + I n / 12
( ----------) - 1
1 + J + .005

where,

- I is the guaranteed interest rate we credit to the fixed account value
that is withdrawn or transferred from the existing guarantee period.

- J is the guaranteed interest rate we are then offering for new guarantee
periods with durations equal to the number of years remaining in the
existing guarantee period (rounded up to the next higher number of years).

- N is the number of months remaining in the existing guarantee period
(rounded up to the next higher number of months).

You will find sample Market Value Adjustment calculations in Appendix A.

We do not apply a Market Value Adjustment to withdrawals and transfers of fixed
account value under two exceptions. We describe these exceptions below.

We will NOT apply a Market Value Adjustment to fixed account value that we pay
out during a 30 DAY period that:

- BEGINS 15 DAYS BEFORE the end date of the guarantee period in which the
fixed account value was being held, and that:

- ENDS 15 DAYS AFTER the end date of the guarantee period in which the fixed
account value was being held.

In addition, we will NOT apply a Market Value Adjustment to fixed account value
that is withdrawn or transferred from a guarantee period on a PERIODIC,
AUTOMATIC BASIS. This exception only applies to such withdrawals or transfers
under a FORMAL Fortis Benefits program for the withdrawal or transfer of fixed
account value.

We may impose CONDITIONS AND LIMITATIONS on any formal Fortis Benefits program
for the withdrawal or transfer of fixed account value. Ask your Fortis Benefits
representative about the availability of such a program in your state. In
addition, if such a program is available in your state, your Fortis Benefits
representative can inform you about the conditions and limitations that may
apply to that program.

INVESTMENTS BY FORTIS BENEFITS

Fortis Benefits' legal obligations with respect to the fixed account are
supported by our general account assets. These general account assets also
support our obligations under other insurance and annuity contracts. Investments
purchased with amounts allocated to the fixed account are the property of Fortis
Benefits, and you have no legal rights in such investments. Subject to
applicable law, we have sole discretion over the investment of assets in our
general account and in the fixed account. Neither our general account nor the
fixed account is subject to registration under the Investment Company Act of
1940.

We will invest amounts in our general account, and amounts in the fixed account,
in compliance with applicable state insurance laws and regulations concerning
the nature and quality of investments for the general account. Within specified
limits and subject to certain standards and limitations, these laws generally
permit investment in:

- federal, state and municipal obligations,

- preferred and common stocks,

- corporate bonds,

- real estate mortgages,

- real estate, and

- certain other investments.

See "Fortis Benefits' Financial Statements" for information on our investments.
Investment management for amounts in our general account and in the fixed
account is provided to us by Fortis Advisors, Inc.

When we establish guaranteed interest rates, we will consider the available
return on the instruments in which we invest amounts allocated to the fixed
account. However, this return is only one of many factors we consider when we
establish the guaranteed interest rates. See "Guaranteed Interest
Rates/Guarantee Periods".

Generally, we expect to invest amounts allocated to the fixed account in debt
instruments. We expect that these debt instruments will approximately match our
liabilities with regard to the guarantee periods. We also expect that these debt
instruments will primarily include:

(1) securities issued by the United States Government or its
agencies or instrumentalities. These securities may or may not be guaranteed by
the United States Government;

(2) debt securities that, at the time of purchase, have an
investment grade within the four highest grades assigned by Moody's

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Investors Services, Inc. ("Moody's"), Standard & Poor's Corporation
("Standard & Poor's"), or any other nationally recognized rating service.
Moody's four highest grades are: Aaa, Aa, A, and Baa. Standard & Poor's
four highest grades are: AAA, AA, A, and BBB;

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<PAGE>
(3) other debt instruments including, but not limited to, issues of,
or guaranteed by, banks or bank holding companies and corporations.
Although not rated by Moody's or Standard & Poor's, we deem these
obligations to have an investment quality comparable to securities that may
be purchased as stated above;

(4) other evidences of indebtedness secured by mortgages or deeds
of trust representing liens upon real estate.

Except as required by applicable state insurance laws and regulations, we are
not obligated to invest amounts allocated to the fixed account according to any
particular strategy, See "Regulation and Reserves".

ACCUMULATION PERIOD

ISSUANCE OF A CONTRACT AND PURCHASE PAYMENTS

We reserve the right to reject any application for a contract or any purchase
payment for any reason. If we accept your issuing instructions in the form
received, we will credit the initial purchase payment within two Valuation Dates
after the later of (1) receipt of the issuing instructions or (2) receipt of the
initial purchase payment at our home office. If we cannot apply the initial
purchase payment within five Valuation Dates after receipt because the issuing
instructions are incomplete, we will return the initial purchase payment unless
you consent to our retaining the initial purchase payment and applying it as of
the end of the Valuation Period in which the necessary requirements are
fulfilled. The initial purchase payment must be at least $5,000 ($2,000 for a
contract issued pursuant to a qualified plan).

The date that we apply the initial purchase payment to the purchase of the
contract is also the contract issue date. The contract issue date is the date
used to determine contract years, regardless of when we deliver the contract.
Our crediting of investment experience in the Variable Account, or a fixed rate
of return in the fixed account, generally begins as of the contract issue date.

We will accept additional purchase payments at any time after the contract issue
date and prior to the annuity commencement date, as long as the Annuitant is
living. You must transmit purchase payments (together with any required
information identifying the proper contracts and account to be credited with
purchase payments) to our home office. We apply additional purchase payments to
the contract, and add to the contract value as of the end of the Valuation
Period in which we receive the payments.

Each additional purchase payment under a contract must be at least $50. The
total of all purchase payments for all Fortis Benefits annuities having the same
owner or Annuitant, may not exceed $1 million (not more than $500,000 allocated
to the fixed account) without our prior approval. We reserve the right to modify
this limitation at any time.

You may make purchase payments in excess of the initial minimum by monthly draft
against a bank account if you have completed and returned to us a special
authorization form. You may get the form from your sales representative or from
our home office. We can also arrange for you to make purchase payments by wire
transfer, payroll deduction, military allotment, direct deposit and billing.
Purchase payments by check should be made payable to Fortis Benefits Insurance
Company.

If the contract value is less than $1,000, we may cancel the contract on any
Valuation Date. We will notify you of our intention to cancel the contract at
least 90 days in advance of the cancellation date. If we do cancel your
contract, we consider such cancellation a full surrender of the contract.

CONTRACT VALUE

Contract value is the total of any Variable Account value in all the subaccounts
of the Variable Account, plus any fixed account value in all the guarantee
periods.

The contract does not guarantee a minimum Variable Account value. You bear the
entire investment risk for the contract value that you allocate to the Variable
Account.

DETERMINATION OF VARIABLE ACCOUNT VALUE. A contract's Variable Account value is
based on the number of Accumulation Units and on Accumulation Unit values, which
are determined on each Valuation Date. The value of an Accumulation Unit for a
subaccount on any Valuation Date is equal to the previous value of that
subaccount's Accumulation Unit multiplied by that subaccount's net investment
factor (discussed directly below) for the Valuation Period ending on that
Valuation Date. At the end of any Valuation Period, a contract's Variable
Account value in a subaccount is equal to the number of Accumulation Units in
the subaccount times the value of one Accumulation Unit for that subaccount.

The number of Accumulation Units in each subaccount is equal to

- Accumulation Units purchased at the time that any purchase payments or
transferred amounts are allocated to the subaccount; less

- Accumulation Units redeemed to pay for the portion of any transfers from
or partial surrenders allocated to the subaccount; less

- Accumulation Units redeemed to pay charges under the contract.

NET INVESTMENT FACTOR. The net investment factor for a subaccount is determined
by dividing (1) the net asset value per share of the portfolio shares held by
the subaccount, determined at the end of the current Valuation Period, plus the
per share amount of any dividend or capital gains distribution made with respect
to the portfolio shares held by the subaccount during the current Valuation
Period, minus a per share charge for the increase, plus a per share credit for
the decrease, in any income taxes assessed which we determine to have resulted
from the investment operation of the subaccount or any other taxes which are
attributable to this contract, by (2) the net asset value per share of the
portfolio shares held in the subaccount as determined at the end of the previous
Valuation Period, and subtracting from that result a factor representing the
mortality risk, expense risk and administrative expense charge.

If a subaccount's net investment factor is GREATER THAN ONE, the subaccount's
Accumulation Unit value has INCREASED. If a subaccount's net investment factor
is LESS THAN ONE, the subaccount's Accumulation Unit value has DECREASED.

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DETERMINATION OF FIXED ACCOUNT VALUE. A contract's fixed account value is
guaranteed by Fortis Benefits. Therefore, we bear the investment risk with
respect to amounts allocated to the fixed account, except to the extent that (1)
we may vary the guaranteed interest rate for future guarantee periods (subject
to the 4% effective annual minimum) and (2) the Market Value Adjustment imposes
investment risks on you.

The contract's fixed account value on any Valuation Date is the sum of its fixed
account values in each guarantee period on that date. The fixed account value in
a guarantee period is equal to the following amounts, in each case increased by
accrued interest at the applicable guaranteed interest rate:

- The amount of purchase payments or transferred amounts allocated to the
guarantee period; less

- The amount of any transfers or surrenders out of the guarantee period.

ALLOCATION OF PURCHASE PAYMENTS AND CONTRACT VALUE

ALLOCATION OF PURCHASE PAYMENTS. In your application for a contract, you may
allocate purchase payments, or portions of payments, to the:

- available subaccounts of the Variable Account, or

- to the guarantee periods in the fixed account, or

- to a combination of the two previous options.

Percentages must be in whole numbers and the total allocation must equal 100%.
The percentage allocations for future purchase payments may be changed, without
charge, at any time by sending a written request to Fortis Benefits' home
office. Changes in the allocation of future purchase payments will be effective
on the date we receive your written request.

TRANSFERS. You may transfer contract value:

- from one available subaccount to another available subaccount, or

- from one available subaccount to the fixed account, or

- from one guarantee period to another guarantee period, or

- from one guarantee period to an available subaccount

You must request transfers by (1) a written request to Fortis Benefits' home
office, or by (2) a telephone transfer as described below. Currently, we do not
charge for any transfer. However, transfers from a guarantee period that are (1)
more than 15 days before or 15 days after the expiration of the existing
guarantee period, or are (2) not a part of a formal Fortis Benefits program for
the transfer of fixed account value are subject to a Market Value Adjustment.
See "Market Value Adjustment".

The MINIMUM transfer from a subaccount or guarantee period is the LESSER of:

- $1,000, or

- all of the contract value in the subaccount or guarantee period.

However, we may permit a continuing request for transfers of lesser specified
amounts automatically on a periodic basis. We reserve the right to restrict the
frequency of transfers or to otherwise condition, terminate, or impose charges
(not to exceed $25 per transfer) upon transfers. Where you make all your
transfer requests at the same time, as part of one request, we will count all
transfers between and among the subaccounts of the Variable Account and the
fixed account as one transfer. We will execute the transfers, and determine all
values in connection with the transfers, at of the end of the Valuation Period
in which we receive the transfer request. The amount of any positive or negative
Market Value Adjustment will be added to or deducted from the transferred
amount.

Certain restrictions on very substantial allocations to any one subaccount are
set forth under "Limitations on Allocations" in the Statement of Additional
Information.

TOTAL AND PARTIAL SURRENDERS

TOTAL SURRENDERS. You may surrender all of the cash surrender value at any time
during the life of the Annuitant and prior to the annuity commencement date. If
you choose to make a total surrender, you must do so by written request sent to
our home office. We reserve the right to require that the contract be returned
to us prior to making payment, although this will not affect our determination
of the amount of the cash surrender value. Cash surrender value is:

- the contract value at the end of the Valuation Period during which we
receive the written request for the total surrender at our home office,
less

- any applicable surrender charge, and

- after we have applied any Market Value Adjustment.

See "Surrender Charge" and "Market Value Adjustment".

We must receive written consent of all collateral assignees and irrevocable
beneficiaries prior to any total surrender. We will generally pay surrenders
from the Variable Account within seven days of the date of receipt by our home
office of the written request. However, we may postpone payments in certain
circumstances. See "Postponement of Payment".

The amount we pay upon total surrender of the cash surrender value (taking into
account any prior partial surrenders) may be more or less than the total
purchase payments you made. After a surrender of the cash surrender value or at
any time the contract value is zero, all rights of the owner, Annuitant, or any
other person will terminate.

PARTIAL SURRENDERS. At any during the life of the Annuitant and prior to the
annuity commencement date, you may surrender a portion of the fixed account
and/or the Variable Account. You must request partial surrender by a written
request sent to Fortis Benefits' home office. We will not accept a partial
surrender request from you unless the net proceeds payable to you, as a result
of the request, are at least

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<PAGE>
$1,000. We will surrender the entire cash surrender value under the contract if
the total contract value in both the Variable Account and fixed account would be
less than $1,000 after the partial surrender.

You should specify the subaccounts of the Variable Account or guarantee periods
of the fixed account that you wish to partially surrender. If you do not
specify, we take the partial surrender from the subaccounts and from the
guarantee periods of the fixed account on a pro rata basis.

We will surrender Accumulation Units from the Variable Account and/ or dollar
amounts from the fixed account so that the total amount of the partial surrender
equals the dollar amount of the partial surrender request. We will reduce the
partial surrender by the amount of any applicable surrender charge. In addition,
if the surrender is from a guarantee period, we will reduce the amount payable
to you by any negative Market Value Adjustment, or we will increase the amount
payable to you by any positive Market Value Adjustment UNLESS the surrender is
(1) within 15 days before or 15 days after the expiration of a guarantee period,
or (2) is a part of a formal Fortis Benefits program for the transfer or
withdrawal of fixed account value. The partial surrender will be effective at
the end of the Valuation Period in which we receive the written request for
partial surrender at our home office. Payments will generally be made within
seven days of the effective date of such request, although certain delays are
permitted. See "Postponement of Payment".

The Internal Revenue Code provides that a penalty tax will be imposed on certain
premature surrenders. For a discussion of this and other tax implications of
total and partial surrenders, including withholding requirements, see "Federal
Tax Matters". Also, under tax deferred annuity contracts pursuant to Section
403(b) of the Internal Revenue Code, no distributions of voluntary salary
reduction amounts will be permitted prior to one of the following events:
attainment of age 59 1/2 by the employee or the employee's separation from
service, death, disability or hardship. (Hardship distributions will be limited
to the lesser of the amount of the hardship or the amount of salary reduction
contributions, exclusive of earnings thereon.)

TELEPHONE TRANSACTIONS

You or your representative may make certain requests under the contract by
telephone if we have a written telephone authorization on file. These include
requests for (1) transfers, (2) withdrawals, and (3) changes in purchase payment
allocation instructions, dollar-cost averaging, portfolio rebalancing programs,
and systematic withdrawals. Our home office will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures may include, among others, (1) requiring some form of personal
identification such as your address and social security number prior to acting
upon instructions received by telephone, (2) providing written confirmation of
such transactions, and/or (3) tape recording of telephone instructions. Your
request for telephone transactions authorizes us to record telephone calls. We
may be liable for any losses due to unauthorized or fraudulent instructions if
we do not employ reasonable procedures. If we do employ reasonable procedures,
we will not be liable for any losses due to unauthorized or fraudulent
instructions. We reserve the right to place limits, including dollar limits, on
telephone transactions.

BENEFIT PAYABLE ON DEATH OF ANNUITANT OR OWNER

If the owner or Annuitant dies prior to the annuity commencement date, we will
pay a death benefit to the beneficiary. If more than one Annuitant has been
named, we will pay the death benefit payable upon the death of an Annuitant only
upon the death of the last survivor of the persons so named.

If the contract is issued on or after May 1, 1997 and in a state that has
approved the Enhanced Death Benefit Rider (check with your representative as to
its availability in your state), the death benefit will be equal to the greater
of (1), (2), or (3) as follows:

(1)(a) If an owner or the Annuitant dies before the date any owner or Annuitant
first reaches age 75, the accumulation of purchase payments made less
all prior surrenders and less any applicable prior negative Market Value
Adjustments less previously imposed surrender charges at an effective
annual rate of 3.0%. This amount may not exceed a maximum of two times
the following: purchase payments made less all prior surrenders and less
any applicable prior negative Market Value Adjustments less previously
imposed surrender charges. This amount is referred to as the "roll-up
amount".

(1)(b) If the Annuitant or owner dies on or after the date any owner or
Annuitant first reaches age 75, the roll-up amount as of the date that
an owner or Annuitant first reaches age 75, plus subsequent purchase
payments made, less subsequent surrenders and any subsequent negative
Market Value Adjustments less subsequently imposed surrender charges.

(2) The contract value adjusted by any applicable Market Value Adjustment as
of the date used for valuing the death benefit.

(3) The contract value adjusted by any Market Value Adjustment (less the
amount of any subsequent surrenders and surrender charges and negative
Market Value Adjustments in connection therewith), as of the contract's
Seven Year Anniversary immediately preceding the earlier of:

(a) the date of death of either the owner or Annuitant, or

(b) the date either first reaches his or her 75th birthday.

See Appendix B for Sample Death Benefit Calculations.

If the contract is issued prior to May 1, 1997, or on or after that date in a
state that has not approved the Enhanced Death Benefit rider, the death benefit
will be equal to the greater of (1), (2), or (3) as follows:

(1) The sum of all purchase payments made (less all prior surrenders and
previously-imposed surrender charges and prior negative Market Value
Adjustments);

(2) The contract value adjusted by any Market Value Adjustment, as of the
date used for valuing the death benefit; or

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<PAGE>
(3) The contract value adjusted by any Market Value Adjustment (less the
amount of any subsequent surrenders and surrender charges and negative
Market Value Adjustments in connection therewith), as of the contract's
Seven Year Anniversary immediately preceding the earlier of:

(a) the date of death of either the owner or Annuitant, or

(b) the date either first reaches his or her 75th birthday.

The value of the death benefit is determined as of the end of the Valuation
Period in which we receive, at our home office, proof of death and the written
request as to the manner of payment. Upon receipt of these items, the death
benefit generally will be paid within seven days. Under certain circumstances,
payment of the death benefit may be postponed. See "Postponement of Payment". If
we do not receive a written request for a settlement method, we will pay the
death benefit in a single sum, based on values determined at that time.

The beneficiary may (1) receive a single sum payment, which terminates the
contract, or (2) select an annuity option. If the beneficiary selects an annuity
option, he or she will have all the rights and privileges of a payee under the
contract. If the beneficiary desires an Annuity option, the election should be
made within 60 days of the date the death benefit becomes payable. Failure to
make a timely election can result in unfavorable tax consequences. For further
information, see "Federal Tax Matters".

We accept any of the following as proof of death: (1) a copy of a certified
death certificate; (2) a copy of a certified decree of a court of competent
jurisdiction as to the finding of death; or (3) a written statement by a medical
doctor who attended the deceased at the time of death.

The Internal Revenue Code requires that a Non-Qualified Contract contain certain
provisions about an owner's death. We discuss these provisions below under
"Federal Tax Matters--Required Distributions for Non-Qualified Contracts". It is
imperative that written notice of the death of the owner be promptly transmitted
to us at our home office, so that we can make arrangements for distribution of
the entire interest in the contract to the beneficiary in a manner that
satisfies the Internal Revenue Code requirements. Failure to satisfy these
requirements may result in the contract not being treated as an annuity contract
for federal income tax purposes with possible adverse tax consequences.

THE ANNUITY PERIOD

ANNUITY COMMENCEMENT DATE

You may specify an annuity commencement date in your application. The annuity
commencement date marks the beginning of the period during which an Annuitant or
other payee designated by the owner receives annuity payments under the
contract. The annuity commencement date must be at least two years after the
contract issue date. You should consult your sales representative in this
regard.

The Internal Revenue Code may impose penalty taxes on amounts distributed either
too soon or too late depending on the type of retirement arrangement involved.
See "Federal Tax Matters". You should consider this carefully in selecting or
changing an annuity commencement date.

You must submit a written request in order to advance or defer the annuity
commencement date. Moreover, you must submit a written request during the
Annuitant's lifetime. We must receive the request at our home office at least 30
days before the then-scheduled annuity commencement date. The new annuity
commencement date must also be at least 30 days after we receive the written
request. You have no right to make any total or partial surrender during the
Annuity Period.

COMMENCEMENT OF ANNUITY PAYMENTS

We may pay the entire contract value, rather than apply the amount to an annuity
option if the contract value at the end of the Valuation Period which contains
the annuity commencement date is less than $1,000. We would make the payment in
a single sum to the Annuitant or other payee chosen by the owner and cancel the
contract. We would not impose any charge other than the premium tax charge.

Otherwise, we will apply (1) the fixed account value to provide a Fixed Annuity
Option and (2) the Variable Account value in any subaccount to provide a
Variable Annuity Option using the same subaccount, unless you have notified us
by written request to apply the fixed account value and Variable Account value
in different proportions. We must receive written request at our home office at
least 30 days before the annuity commencement date.

We will make annuity payments under a Fixed or Variable Annuity Option on a
monthly basis to the Annuitant or other properly-designated payee, unless we
agree to a different payment schedule. If you name more than one person as an
Annuitant, you may elect to name one of such persons to be the sole Annuitant as
of the annuity commencement date. We reserve the right to change the frequency
of any annuity payment so that each payment will be at least $50 ($20 in Texas).

The amount of each annuity payment will depend on (1) the amount of contract
value applied to an annuity option, (2) the form of annuity selected, and (3)
the age of the Annuitant. For information concerning the relationship between
the Annuitant's sex and the amount of annuity payments, including special
requirements in connection with employee benefits plans, see "Calculations of
Annuity Payments" in the Statement of Additional Information. The Statement of
Additional Information also contains detailed information about how the amount
of each annuity payment is computed.

The dollar amount of any fixed annuity payments is specified during the entire
period of annuity payments according to the provisions of the annuity option
selected. The dollar amount of variable annuity payments varies during the
Annuity Period based on changes in Annuity Unit values for the subaccounts that
you choose to use in connection with your payments.

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RELATIONSHIP BETWEEN SUBACCOUNT INVESTMENT PERFORMANCE AND AMOUNT OF VARIABLE
ANNUITY PAYMENTS

The amount of an annuity payment depends on the average effective net investment
return of a subaccount during the period since the preceding payment as follows:

- if the return is HIGHER than 4% annually, the Annuity Unit value will
INCREASE, and the second payment will be HIGHER than the first; and

- if the return is LOWER than 4% annually, the Annuity Unit value will
DECREASE, and the second payment will be LOWER than the first.

"Net investment return," for this purpose, refers to the subaccount's overall
investment performance after deduction of the mortality and expense risk and
administrative expense charges, which are assessed at an annual rate of 1.35%.

We guarantee that the amount of each variable annuity payment after the first
payment will not be affected by variations in our mortality experience or our
expenses.

TRANSFERS. A person receiving annuity payments may make up to four transfers a
year among subaccounts. The current procedures for and conditions on these
transfers are the same as we describe above under "Allocation of Purchase
Payments and Contract Value--Transfers". We do not permit transfers from a Fixed
Annuity Option during the Annuity Period.

ANNUITY OPTIONS

You may select an annuity option or change a previous selection by written
request. We must receive your request at least 30 days before the annuity
commencement date. You may select one annuity form, although payments under that
form may be on a combination fixed and variable basis. If no annuity form
selection is in effect on the annuity commencement date, we usually
automatically apply Option B (described below), with payments guaranteed for ten
years. However, federal pension law may require that we make default payments
under certain retirement plans pursuant to plan provisions and/or federal law.
Tax laws and regulations may impose further restrictions to assure that the
primary purpose of the plan is distribution of the accumulated funds to the
employee.

Your contract offers the following options for fixed and variable annuity
payments. Under each of the options, we make payments as of the first Valuation
Date of each monthly period, starting with the annuity commencement date.

OPTION A, LIFE ANNUITY. We do not make payments after the annuitant dies. It is
possible for the annuitant to receive only one payment under this option, if the
annuitant dies before the second payment is due.

OPTION B, LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS
TO 20 YEARS. We continue payments as long as the annuitant lives. If the
annuitant dies before we have made all of the guaranteed payments, we continue
installments of the guaranteed payments to the beneficiary.

OPTION C, JOINT AND FULL SURVIVOR ANNUITY. We continue payments as long as
either the annuitant or the joint annuitant is alive. We stop payments when both
the annuitant and the joint annuitant have died. It is possible for the payee or
payees to receive only one payment under this option if both annuitants die
before the second payment is due.

OPTION D, JOINT AND ONE-HALF CONTINGENT SURVIVOR ANNUITY. We continue payments
as long as either the annuitant or the joint annuitant is alive. If the
annuitant dies first, we continue payments to the joint annuitant at one-half
the original amount. If the joint annuitant dies first, we continue payments to
the annuitant at the original full amount. We stop payments when both the
annuitant and the joint annuitant have died. It is possible for the payee or
payees to receive only one payment under this option if both annuitants die
before the second payment is due.

We also have other annuity options available. You can get information about them
from your sales representative or by calling or writing to our home office.

DEATH OF ANNUITANT OR OTHER PAYEE

Under most annuity forms offered by us, the amounts, if any, payable on the
death of the Annuitant during the Annuity Period are the continuation of annuity
payments for any remaining guarantee period or for the life of any joint
Annuitant. In all such cases, the person entitled to receive payments also
receives any rights and privileges under the annuity form in effect.

Additional rules applicable to such distributions under Non-Qualified Contracts
are described under "Federal Tax Matters--Required Distributions for
Non-Qualified Contracts". Though the rules there described do not apply to
contracts issued in connection with qualified plans, similar rules apply to the
plans themselves.

CHARGES AND DEDUCTIONS

PREMIUM TAXES

We deduct state premium taxes as follows:

- when imposed on purchase payments, we pay the amount on your behalf and
deduct the amount from your contract value upon (1) our payment of
surrender proceeds or death benefit or (2) annuitization of a contract, or

- when imposed at the time annuity payments begin, we deduct the amount from
your contract value.

Applicable premium tax rates depend upon your place of residence. Rates can
change by legislation, administrative interpretations, or judicial acts.

CHARGES AGAINST THE VARIABLE ACCOUNT

MORTALITY AND EXPENSE RISK CHARGE. We assess each subaccount of the Variable
Account with a daily charge for mortality and expense risk. This charge is a
nominal annual rate of 1.25% of the average daily net assets of the Variable
Account. It consists of approximately .8% for mortality risk and approximately
.45% for expense risk. We guarantee

17
<PAGE>
not to increase this charge for the duration of the contract. This charge is
assessed during both the Accumulation Period and the Annuity Period.

The mortality risk borne by us arises from our obligation to make annuity
payments (determined in accordance with the annuity tables and other provisions
contained in the contract) for the full life of all Annuitants regardless of how
long all Annuitants or any individual Annuitant might live. In addition, we bear
a mortality risk in that we guarantee to pay a death benefit upon the death of
an Annuitant or owner prior to the annuity commencement date. We do not impose a
surrender charge upon payment of a death benefit. This places a further
mortality risk on us.

The expense risk we assume is that actual expenses incurred in connection with
issuing and administering the contract will exceed the limits on administrative
charges set in the contract.

We bear the loss if the administrative charges and the mortality and expense
risk charge are insufficient to cover the expenses and costs assumed.
Conversely, we profit if the amount deducted proves more than sufficient.

ADMINISTRATIVE EXPENSE CHARGE. We assess each subaccount of the Variable Account
with a daily charge at an annual rate of .10% of the average daily net assets of
the subaccount. We assess this charge during both the Accumulation Period and
the Annuity Period. This charge helps cover administrative costs such as those
incurred in issuing contracts, establishing and maintaining the records relating
to contracts, making regulatory filings and furnishing confirmation notices,
voting materials and other communications, providing computer, actuarial and
accounting services, and processing contract transactions. There is no necessary
relationship between the amount of administrative charges assessed on a given
contract and the amount of expenses actually incurred for that contract.

TAX CHARGE

We currently impose no charge for taxes payable by us in connection with the
contract, other than for applicable premium taxes. We reserve the right to
impose a charge for any other taxes that may become payable by us in the future
for the contracts or the Variable Account.

The annual administrative charge and charges against the Variable Account
described above are for the purposes described. We may receive a profit as a
result of these charges.

SURRENDER CHARGE

We do not deduct a sales charge from purchase payments. We deduct surrender
charges on certain total or partial surrenders. We use the revenues from
surrender charges to partially pay our expenses in the sale of the contracts,
including (1) commissions, (2) promotional, distribution and marketing expenses,
and (3) costs of printing and distribution of prospectuses and sales material.

FREE SURRENDERS. You can withdraw the following amounts from the contract
without a surrender charge:

- Any purchase payments that we received more than seven years before the
surrender date and that you have not previously surrendered;

- Any earnings that you have not previously surrendered;

- In any contract year, up to 10% of the purchase payments that we received
less than seven years before the surrender date (whether or not you have
previously surrendered the purchase payments).

Earnings are deemed to be withdrawn first. After all earnings have been
withdrawn, all purchase payments not subject to a surrender charge are deemed to
be withdrawn. After all purchase payments not subject to a surrender charge have
been withdrawn, all purchase payments subject to a surrender charge are deemed
to be withdrawn.

We do not impose a surrender charge on (1) annuitization or (2) payment of a
single sum because less than the minimum required contract value is available to
provide an annuity at the annuity commencement date or (3) payment of any death
benefit.

In addition, we have an administrative policy to waive surrender charges for
full surrenders of contracts that have been in force for at least ten years if
the amount then subject to the surrender charge is less than 25% of the contract
value. We have offered these contracts since 1991. Therefore, we have made no
waivers. We reserve the right to change or terminate this practice at any time,
both for new and for previously issued contracts.

AMOUNT OF SURRENDER CHARGE. We only apply surrender charges if the amount being
withdrawn exceeds the sum of the amounts listed above under "Free Surrenders"
(that is, if the amount being withdrawn includes purchase payments made less
than seven years prior to the surrender date). The surrender charges are:

<TABLE>
<CAPTION>
NUMBER OF YEARS SURRENDER CHARGE
SINCE PURCHASE AS A PERCENTAGE OF
PAYMENT WAS CREDITED PURCHASE PAYMENT
- ----------------------- ---------------------
<S> <C>
Less than 1 7%
At least 1 but less
than 2 6%
At least 2 but less
than 3 5%
At least 3 but less
than 4 4%
At least 4 but less
than 5 3%
At least 5 but less
than 6 2%
At least 6 but less
than 7 1%
7 or more 0%
</TABLE>

We anticipate the surrender charge will not be sufficient to cover our
distribution expenses. To the extent that the surrender charge is insufficient,
we will pay such costs from our general account assets. These assets will
include any profit that we derive from the mortality and expense risk charge.

18
<PAGE>
NURSING CARE/HOSPITALIZATION WAIVER OF SURRENDER CHARGES. We do not deduct
surrender charges for a total or partial withdrawal:

- after a covered person has been confined in a hospital or skilled health
care facility for at least 60 consecutive days and the covered person
continues to be confined in the hospital or skilled care facility when the
request is made, or

- within 60 days following a covered person's discharge from a hospital or
skilled health care facility after confinement of at least 60 consecutive
days.

Confinement must begin after the effective date of this provision.

Covered persons are the contract owner or owners and the spouse of any contract
owner if the spouse is the Annuitant. We will not waive surrender charges when a
confinement is due to (1) substance abuse, or (2) mental or personality
disorders without a demonstrable organic disease. We consider a degenerative
brain disease such as Alzheimer's Disease an organic disease.

We provide this nursing care/hospitalization waiver of surrender charges by
means of a rider to the contract. This rider has not been approved in all
states. When you apply for a contract, you should check with your Fortis
Benefits representative to determine if this rider is available in your state.

MISCELLANEOUS

The Variable Account invests in shares of the portfolios. Therefore, the net
assets of the Variable Account will reflect the investment advisory fees and
certain other expenses incurred by the portfolios and described in their
prospectus.

REDUCTION OF CHARGES

We will not impose a surrender charge under any contract owned by:

(A) Fortis, Inc. or its subsidiaries, and the following persons associated with
such companies, if at the contract issue date they are:

(1) officers and directors;

(2) employees; or

(3) spouses of any such persons or any of such persons'
children, grandchildren, parents, grandparents, or siblings--or spouses of any
of these persons;

(B) Series Fund directors, officers, or their spouses (or such persons'
children, grandchildren, parents or grandparents--or spouses of any such
persons); and

(C) representatives or employees (or their spouses) of Fortis Investors
(including agencies) or of other broker-dealers having a sales agreement
with Fortis Investors (or such persons' children, grandchildren, parents,
or grandparents--or spouses of any such persons).

GENERAL PROVISIONS

THE CONTRACTS

The entire contract includes any application, amendment, rider, endorsement, and
revised contract pages. Only an officer of Fortis Benefits can agree to change
or waive any provision of a contract. Any change or waiver must be in writing
and signed by an officer of Fortis Benefits.

The contracts are non-participating and do not share in dividends or earnings of
Fortis Benefits.

POSTPONEMENT OF PAYMENT

We may defer for up to 15 days the payment of any amount attributable to a
purchase payment made by check to allow the check reasonable time to clear. For
a description of other circumstances in which amounts payable out of Variable
Account assets could be deferred, see "Postponement of Payments" in the
Statement of Additional Information. We may also defer payment of surrender
proceeds payable out of the fixed account for a period of up to 6 months.

MISSTATEMENT OF AGE OR SEX AND OTHER ERRORS

If the Annuitant's age or sex was misstated, we pay the amount that the purchase
payments paid would have purchased at the correct age and sex. If we make any
overpayment because of incorrect information about age or sex, or any other
miscalculation, we deduct the overpayment from the next payment due. We add
underpayments to the next payment. We credit or charge the amount of any
adjustment with interest at the rate of 4% annually.

ASSIGNMENT

Owners and payees may assign their rights and interests under a Qualified
Contract only in certain narrow circumstances referred to in the contract.
Owners and other payees may assign their rights and interests under
Non-Qualified Contracts, including their ownership rights.

We take no responsibility for the validity of any assignment. Owners and payees
must make a change in ownership rights in writing and send it to our home
office. The change will be effective on the date made, although we are not bound
by a change until the date we record it.

The rights under a contract are subject to any assignment of record at our home
office. An assignment or pledge of a contract may have adverse tax consequences.
See below under "Federal Tax Matters".

BENEFICIARY

You may name or change a beneficiary or a contingent beneficiary before the
annuity commencement date. You must send a written request of the change to
Fortis Benefits. Certain retirement programs may require spousal consent to name
or change a beneficiary. Applicable tax laws and regulations may limit the right
to name a beneficiary other than the spouse. We are not responsible for the
validity of any change. A change will take effect as of the date it is signed
but will not affect any payment we make or action we take before receiving the
written request. We also need the consent of any irrevocably named person before
making a requested change.

Upon the death of an owner or Annuitant prior to the annuity commencement date
the beneficiary will be deemed to be as follows:

- If there is any surviving owner, the surviving owner will be the
beneficiary (this overrides any other beneficiary designation).

19
<PAGE>
- If there is no surviving owner, the beneficiary will be the beneficiary
designated by the owner.

- If there is no surviving owner and no surviving beneficiary who has been
designated by the owner, then the estate of the last surviving owner will
be the beneficiary.

REPORTS

We will mail to the owner (or to the person receiving payments during the
Annuity Period), at the last known address of record, any report and
communication required by applicable law or regulation. You should therefore
give us prompt written notice of any address change. This will include annual
audited financial statements of the Series Fund, but not necessarily of the
Variable Account or Fortis Benefits.

RIGHTS RESERVED BY FORTIS BENEFITS

We reserve the right to make certain changes if, in our judgment, they would
best serve the interests of owners and Annuitants or would be appropriate in
carrying out the purposes of the contracts. We will make any change only as
permitted by applicable laws. We will obtain your approval of the changes and
approval from any appropriate regulatory authority if required by law. Examples
of the changes we may make include:

- To operate the Variable Account in any form permitted under the Investment
Company Act of 1940 or in any other form permitted by law.

- To transfer any assets in any subaccount to another subaccount, or to one
or more separate accounts, or to the fixed account; or to add, combine, or
remove subaccounts in the Variable Account.

- To substitute, for the portfolio shares held in any subaccount, the shares
of another portfolio of Series Fund or the shares of another investment
company or any other investment permitted by law.

- To make any changes required by the Internal Revenue Code or by any other
applicable law in order to continue treatment of the contract as an
annuity.

- To change the time or time of day at which a Valuation Date is deemed to
have ended.

- To make any other necessary technical changes in the contract in order to
conform with any action the above provisions permit us to take, including
to change the way we assess charges, but without increasing as to any then
outstanding contract the aggregate amount of the types of charges that we
have guaranteed.

DISTRIBUTION

Fortis Investors, Inc. ("Fortis Investors") is the principal underwriter of the
contracts. The contracts will be sold by individuals who are licensed by state
insurance authorities to sell the contracts of Fortis Benefits, and (1) are
registered representatives of Fortis Investors, or (2) are registered
representatives of other broker-dealer firms or (3) are representatives of other
firms that are exempt from broker dealer regulation. Fortis Investors and any
other broker-dealer firms are (1) registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 as broker-dealers, and (2)
members of the National Association of Securities Dealers, Inc.

Fortis Investors will pay an allowance to its registered representatives and
selling brokers in varying amounts. Fortis Investors does not expect the
allowances under normal circumstances to exceed 6.25% of purchase payments plus
a servicing fee of .25% of contract value per year, starting in the first
contract year.

We and Fortis Investors may, under certain flexible compensation arrangements,
pay lesser or greater selling allowances and larger or smaller service fees to
its registered representatives and other broker dealer firms than as set forth
above. However, in such case, such flexible compensation arrangements will have
actuarial present values that are approximately equivalent to the amounts of the
selling allowances and service fees set forth above. Additionally, registered
representatives, broker-dealer firms and exempt firms may qualify for additional
compensation based upon meeting certain production standards. Fortis Investors
may charge back commissions paid to others if the contract upon which the
commission was paid is surrendered or cancelled within certain specified time
periods.

Fortis Benefits paid a total of $29,918,620, $30,567,607 and $37,024,997 to
Fortis Investors for annuity contract distribution services during 1995, 1996
and 1997, respectively, $3,925,959 of which in 1995, $7,531,629 in 1996 and
$5,091,431 in 1997 was not reallowed to other broker-dealers or exempt firms. In
the distribution agreement, Fortis Benefits has agreed to indemnify Fortis
Investors (and its agents, employees, and controlling persons) for certain
damages and expenses, including those arising under federal securities laws.

Fortis Benefits or Fortis Investors may also provide additional compensation to
broker-dealers in connection with sales of contracts. Compensation may include
financial assistance to broker-dealers in connection with (1) conferences, (2)
sales or training programs for their employees, (3) seminars for the public,
advertising, (4) sales campaigns regarding contracts, and (5) other
broker-dealer sponsored programs or events. Compensation may also include trips
taken by invited sales representatives and their family members to locations
within or without the United States for business meetings or seminars. Fortis
Benefits or Fortis Investors may pay travel expenses that arise from these
trips.

See Note 12 to the Notes to Fortis Benefits' Financial Statements as to amounts
it has paid to Fortis, Inc. for various services.

Fortis Investors is an indirect subsidiary of Fortis (NL)N.V. and Fortis (B).
Fortis Investors is under common control with Fortis Benefits. Fortis Investors'
principal business address is the same as that of our home office. Fortis
Investors is not obligated to sell any specific amount of interests under the
contracts. $110,000,000 of interests in the fixed account and an indefinite
amount of interests in the Variable Account have been registered with the
Securities and Exchange Commission.

20
<PAGE>
FEDERAL TAX MATTERS

The following description is a general summary of the tax rules, primarily
related to federal income taxes. These rules are based on laws, regulations and
interpretations that are subject to change at any time. This summary is not
comprehensive. We do not intend it as tax advice. Federal estate and gift tax
considerations, as well as state and local taxes, may also be material. You
should consult a qualified tax adviser as to the tax implications of taking any
action under a contract or related retirement plan.

NON-QUALIFIED CONTRACTS

Section 72 of the Internal Revenue Code ("Code") governs the taxation of
annuities in general. Neither you nor any other person may exclude or deduct
purchase payments under Non-Qualified Contracts from gross income. However, you
are not currently taxed, until receipt, on any increase in the accumulated value
of a Non-Qualified Contract that results from (1) the investment performance of
the Variable Account, or (2) interest credited to the fixed account. Owners who
are not natural persons ARE taxed annually on any increase in the contract value
subject to exceptions. You may wish to discuss this with your tax adviser.

The following discussion applies generally to contracts owned by natural
persons.

In general, surrenders or partial withdrawals under contracts are taxed as
ordinary income to the extent of the accumulated income or gain under the
contract. If you assign or pledge any part of the value of a contract, you pay
on the value so pledged or assigned to the same extent as a partial withdrawal.

With respect to annuity payment options, the tax consequences may vary depending
on the option elected under the contract. Until the "investment in the contract"
is recovered, generally only the portion of the annuity payment that represents
the amount by which the contract value exceeds the "investment in the contract"
will be taxed. In general, "investment in the contract" is the aggregate amount
of purchase payments made. After recovery of an Annuitant's or other payee's
"investment in the contract," the full amount of any additional annuity payments
is taxable.

For variable annuity payments, in general, the taxable portion of each annuity
payment (prior to recovery of the "investment in the contract") is the amount of
the payment less the nontaxable portion. The nontaxable portion of each payment
is the "investment in the contract" divided by the total number of expected
annuity payments.

For fixed annuity payments, in general, prior to recovery of the "investment in
the contract," there is no tax on the amount of each payment that bears the same
ratio to that payment as the "investment in the contract" bears to the total
expected value of the annuity payments for the term of the payments. However,
the remainder of each annuity payment is taxable. The taxable portion of a
distribution (in the form of an annuity or a single sum payment) is taxed as
ordinary income.

For purposes of determining the amount of taxable income resulting from
distributions, all contracts and other annuity contracts we or our affiliates
issue to you within the same calendar year will be treated as if they were a
single contract.

You, or any other payee, will pay a 10% penalty on the taxable portion of a
"premature distribution." Generally, an amount is a "premature distribution"
unless the distribution is:

- made on or after you or another payee reach age 59 1/2, or is

- made to a beneficiary on or after your death, or is

- made upon your disability or that of another payee, or is

- part of a series of substantially equal annuity payments for your life or
life expectancy, or is

- part of a series of substantially equal annuity payments for the life or
life expectancy of you and your beneficiary.

Premature distributions may result, for example, from:

- an early annuity commencement date

- an early surrender or partial surrender of a contract

- an assignment of a contract

- the early death of an Annuitant other than you or another person receiving
annuity payments under the contract

If you transfer ownership of a contract, or designate an Annuitant or payee
other than yourself, you may have certain income or gift tax consequences that
are beyond the scope of this discussion. If you are contemplating any transfer
or assignment of a contract, you should contact a competent tax adviser.

REQUIRED DISTRIBUTIONS FOR NON-QUALIFIED CONTRACTS

In order that a Non-Qualified Contract be treated as an annuity contract for
federal income tax purposes, Section 72(s) of the Code requires:

- if any person receiving annuity payments dies on or after the annuity
commencement date but prior to the time the entire interest in the
contract has been distributed, the remaining portion of such interest will
be distributed at least as rapidly as under the method of distribution
being used as of the date of the person's death; and

- if you die prior to the annuity commencement date, the entire interest in
the contract will be distributed:

- within five years after your death, or

- as annuity payments that will begin within one year of your death and
will be made over your designated beneficiary's life or over a period
not extending beyond the life expectancy of that beneficiary.

However, if the owner's designated beneficiary is the surviving spouse, the
surviving spouse may continue the contract as the new contract owner. Where the
owner or other person receiving payments is not a natural person, the required
distributions under Section 72(A) apply on the death of the primary Annuitant.

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<PAGE>
The Internal Revenue Service has not issued regulations interpreting the
requirements of Section 72(s) (although it has issued proposed regulations
interpreting similar requirements for qualified plans). We intend to review and
modify the contract if necessary to ensure that it complies with the
requirements of Section 72(s) when clarified by regulation or otherwise.

Generally, the above requirements will be satisfied with a single sum payment
where the death occurs prior to the annuity commencement date. A single sum
payment will be subject to proof of the owner's death. The beneficiary, however,
may elect by written request to receive an annuity option instead of a lump sum
payment. However, if the election is not made within 60 days of the date the
single sum death benefit otherwise becomes payable, the IRS may disregard the
election for tax purposes and tax the beneficiary as if a single sum payment had
been made.

QUALIFIED CONTRACTS

The contracts may be used with several types of tax-qualified plans. The tax
rules applicable to owners, Annuitants, and other payees vary according to the
type of plan and the terms and conditions of the plan itself. In general,
purchase payments made under a tax qualified plan on your behalf are excludable
from your gross income during the Accumulation Period. The portion, if any, of
any purchase payment that is not excluded from your gross income during the
Accumulation Period constitutes your "investment in the contract".

When annuity payments begin, you will receive back your "investment in the
contract" if any, as a tax-free return of capital. The Code provides which
portion of each payment is taxable and which portion is tax free. These rules
may vary depending on the type of tax qualified plan.

The contracts are available in connection with the following types of retirement
plans:

- Section 403(b) annuity plans for employees of certain tax-exempt
organizations and public education institutions;

- Section 401 or 403(a) qualified pension, profit-sharing, or annuity plans;

- Individual retirement annuities ("IRAs") under Section 408(b);

- Simplified employee pension plans ("SEPs") under Section 408(k);

- SIMPLE IRA Plans under Section 408(p); and

- Section 457 unfunded deferred compensation plans of tax-exempt
organizations and private employer unfunded deferred compensation plans.
The tax implications of these plans are further discussed in the Statement
of Additional Information under the heading "Taxation Under Certain
Retirement Plans".

WITHHOLDING

Annuity payments and other amounts received under contracts are subject to
income tax withholding unless the recipient elects not to have taxes withheld.
The amounts withheld will vary among recipients depending on the tax status of
the individual and the type of payments from which taxes are withheld.

Despite the recipient's election, the Code may require withholding from certain
payments outside the United States. The Code may also require withholding from
certain distributions from certain types of qualified retirement plans, unless
the proceeds are transferred directly from the qualified plan to another
qualified retirement plan. Moreover, special "backup withholding" rules may
require us to disregard the recipient's election if the recipient fails to
supply us with a "TIN" or taxpayer identification number (social security number
for individuals), or if the Internal Revenue Service notifies us that the TIN
provided by the recipient is incorrect.

PORTFOLIO DIVERSIFICATION

The United States Treasury Department has adopted regulations under Section
817(h) of the Code that set forth diversification requirements for investments
underlying Non-Qualified Contracts. We believe that the investments will satisfy
these requirements. Failure to do so would result in immediate taxation to you
or another person of all income credited to Non-Qualified Contracts. Also,
current regulations do not provide guidance as to any circumstances in which
control over allocation of values among different investment alternatives may
cause you or another person receiving annuity payments to be treated as the
owners of Variable Account assets for tax purposes. We reserve the right to
amend the contracts in any way necessary to avoid any such result. The Treasury
Department may establish standards in this regard through regulations or
rulings. Such standards may apply only prospectively, although retroactive
application is possible if the Treasury Department considered such standards not
to embody a new position.

CERTAIN EXCHANGES

Section 1035 of the Code provides generally that no gain or loss will be
recognized under the exchange of a life insurance or annuity contract for an
annuity contract. Thus, a properly completed exchange pursuant to the special
annuity contract exchange form we provide for this purpose is not generally a
taxable event under the Code. Moreover, your investment in the contract will be
the same as your investment in the product you exchanged out of.

Because of the complexity of these and other tax aspects in connection with an
exchange, you should consult a tax adviser before making any exchange.

TAX LAW RESTRICTIONS AFFECTING SECTION 403(b) PLANS

Section 403(b)(11) of the Internal Revenue Code restricts the distribution
under Section 403(b) annuity contracts of:

(1) elective contributions made for years beginning after December 31, 1988;

(2) earnings on those contributions; and

(3) earnings on amounts held as of December 31, 1988.

Distribution of these amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, we may not distribute income attributable to elective
contributions made after December 31, 1988.

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<PAGE>
FURTHER INFORMATION ABOUT FORTIS BENEFITS

GENERAL

We offer and sell insurance products, including fixed and variable life
insurance policies, fixed and variable annuity contracts, and group life,
accident and health insurance policies. We market our products to small business
and individuals through a national network of independent agents, brokers, and
financial institutions.

OWNERSHIP OF SECURITIES

All of Fortis Benefits' outstanding shares are owned by Fortis Insurance, 515
West Wells, Milwaukee, Wisc. 53201, which is itself wholly owned by Fortis,
Inc., One Chase Manhattan Plaza, New York, N.Y. 10005. Fortis, Inc., in turn, is
wholly owned by Fortis International, Inc., which is wholly owned by AMEV/VSB
1990 N.V., both of which share the same address with Fortis (NL) N.V.,
Archimedeslaan 10, 3584 BA, Utrecht, The Netherlands. AMEV/VSB 1990 N.V. is 50%
owned by Fortis (NL)N.V. and 50% owned, through certain subsidiaries, by Fortis
(B), Boulevard Emile Jacqmain 53, 1000 Brussels, Belgium.

SELECTED FINANCIAL DATA

The following is a summary of certain financial data of Fortis Benefits. This
summary has been derived in part from the financial statements of Fortis
Benefits included elsewhere in this prospectus. You should read the following
along with these financial statements.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
(IN THOUSANDS) 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Premiums and policy charges.............................. $1,299,770 $1,238,006 $1,295,878 $1,232,329 $1,022,446
Net investment income.................................... 234,043 228,724 206,023 203,537 162,514
Net realized gains (losses) on investment................ 52,404 41,101 25,731 55,080 (28,815)
Other income............................................. 44,671 36,458 31,725 33,085 35,958
---------- ---------- ---------- ---------- ----------
TOTAL REVENUES......................................... $1,630,888 $1,544,289 $1,559,357 $1,524,031 $1,192,103
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total benefits and expenses.............................. $1,538,604 $1,442,059 $1,470,066 $1,442,270 $1,157,651
Federal Income taxes..................................... 30,402 35,120 31,099 27,891 11,595
Net income............................................... 61,882 67,110 58,192 53,870 22,857

BALANCE SHEET DATA
Total assets............................................. $7,598,196 $6,819,484 $5,951,876 $5,143,012 $4,043,914
Total liabilities........................................ 6,712,728 5,939,378 5,171,203 4,431,914 3,569,717
Total shareholder's equity............................... 885,468 880,106 780,673 711,098 474,197
</TABLE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

1998 COMPARED TO 1997

REVENUES

The Company's major products are group disability and dental, group medical,
group life, and annuity and individual life insurance coverages sold through a
network of independent agents and brokers. 1998 total group disability and
dental, group medical, group life, and annuity and individual life premiums
represented 38%, 36%, 19% and 7% respectively of total premium in 1998 and 34%,
38%, 21% and 7% respectively in 1997. Strong group sales over the last three
quarters of 1997 and throughout 1998, in both the long term disability and
dental products is the primary reason for the increase in group disability and
dental premium. Additionally, short term disability products had a larger than
usual upswing in sales during the second and third quarters of 1998. The
decrease in group medical premium is the result of a decision in 1996 to
discontinue new sales of certain medical products coupled with higher than
normal lapses of current medical business.

The Company continues to match investment portfolio composition to liquidity
needs and capital requirements. Changes in interest rates during 1998 and 1997
resulted in recognition of realized gains and losses.

BENEFITS

The total year-to-date policyholder benefit to premium ratio remained relatively
flat increasing to 83% in 1998 from 82% in 1997. The group disability and
dental, group medical, group life, and annuity and individual life benefit to
premium ratios for the year ended December 31, were 83%, 85%, 73% and 108%
respectively in 1998 and 82%, 77%, 76% and 124% respectively in 1997. The group
medical business experienced a higher premium to benefit ratio due to higher
incurred benefits than anticipated. Group life experienced favorable year-to-
date experience in 1998 compared to 1997. The annuity and individual life
business also experienced lower mortality experience in 1998

23
<PAGE>
compared to 1997, in addition to higher interest crediting on the Company's
steadily increasing policy base of interest sensitive and investment products.

EXPENSES

The Company's general and administrative expense to premium ratio has increased
slightly to 23% in 1998, up from 22% in 1997. Commission rates remained level
from 1997 to 1998.

YEAR 2000

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.

1997 COMPARED TO 1996

FINANCIAL POSITION

Total invested assets of Fortis Benefits Insurance Company (the "Company")
increased to $3.3 billion in 1997 compared to $3.1 billion in 1996. As of
December 31, 1997, 96% of the Company's fixed maturity securities consisted of
investment grade bonds. Mortgage loans represent 18.1% of total invested assets
compared to 18.9% in 1996. The Company believes that adequate reserves have been
established for potential delinquencies and foreclosures. The mortgage loan
portfolio consists generally of small loans on commercial properties, dispersed
throughout the United States. The Company's delinquency and foreclosure rate are
well below industry averages.

RESULTS OF OPERATIONS

REVENUES

The Company's major products are group medical, group disability and dental,
group life, and annuity and individual life insurance coverages sold through a
network of independent agents and brokers. Total group medical, group disability
and dental, group life, and annuity and individual life premiums represented
37%, 35%, 21% and 7% respectively of total premium in 1997 and 45%, 30%, 19% and
6% respectively in 1996. The decrease in group medical premium is the result of
a decision in 1996 to discontinue new sales of certain medical products.

The Company continues to match investment portfolio composition to liquidity
needs and capital requirements. Changes in interest rates during 1997, 1996, and
1995 resulted in recognition of realized gains and losses.

BENEFITS

Policyholder benefit to premium ratio decreased from 84% in 1996 to 82% in 1997,
as a result of general improved experience. The primary improvement was in the
group life business which experienced these mortality declines consistently
throughout 1997. Annuity and individual life also experienced lower mortality
experience in 1997 in addition to higher interest crediting on the Company's
steadily increasing

24
<PAGE>
policy base of interest sensitive and investment products. Group medical, group
disability and dental, group life, and annuity and individual life benefit to
premium ratio was 77%, 82%, 76% and 124% respectively in 1997 and 78%, 84%, 86%,
and 131% respectively in 1996.

EXPENSES

The Company's general and administrative expense to premium ratio has increased
in 1997 to 22% from 19% in 1996. Enabling the application systems to be Year
2000 compliant and managed dental initiatives are the primary reasons for this
increase. Included in the managed dental initiative expense is an $13.5 million
write-off of the expenses incurred on behalf of a company that provides the
managed care services.

Commission rates have increased from the levels in 1996. This is primarily due
to changes in the mix of business by product lines as well as the change in
first year versus renewal premiums.

LIQUIDITY AND CAPITAL RESOURCES

The market value of cash, short-term investments and publicly traded bonds and
stocks is at least equal to all policyholder reserves and liabilities. The
Company's portfolio is readily marketable and convertible to cash to a degree
sufficient to provide for short-term needs. The Company consistently monitors
its liability durations and invests assets accordingly. The Company has no
material commitments or off-balance sheet financing arrangements which would
reduce sources of funds in the upcoming year.

The National Association of Insurance Commissioners has implemented risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards require
the computation of a risk-based capital amount which is then compared to a
company s actual total adjusted capital. Based upon current calculation using
these risk-based capital standards, the Company's percentage of total adjusted
capital is in excess of ratios which would require regulatory attention.

The Company's fixed maturity investments consisted of 96% investment grade bonds
as of December 31, 1998 and the Company does not expect this percentage to
change significantly in the future.

MARKET RISK

Interest rate risk is the Company's primary market risk exposure. Substantial
and sustained increases and decreases in market interest rates can affect the
profitability of insurance products and market value of investments. The yield
realized on new investments generally increases or decreases in direct
relationship with interest rate changes. The market value of the Company's fixed
maturity and mortgage loan portfolios generally increases when interest rates
decrease, and decreases when interest rates increase.

Interest rate risk is monitored and controlled through asset/liability
management. As part of the risk management process, different economic scenarios
are modeled, including cash flow testing required for insurance regulatory
purposes, to determine that existing assets are adequate to meet projected
liability cash flows. A major component of the Company's asset/liability
management program is structuring the investment portfolio with cash flow
characteristics consistent with the cash flow characteristics of the Company's
insurance liabilities.

The Company uses computer models to perform simulations of the cash flow
generated from existing insurance policies under various interest rate
scenarios. Information from these models is used in the determination of
interest crediting strategies and investment strategies. The asset/liability
management discipline includes strategies to minimize exposure to loss as market
interest rates change. On the basis of these analyses, management believes there
is no material solvency risk to the Company with respect to interest rate
movements up or down of 100 basis points from year end levels.

Equity market risk exposure is not significant. Equity investments in the
general account are not material enough to threaten solvency and contractowners
bear the investment risk related to the variable products. Therefore, the risks
associated with the investments supporting the variable separate accounts are
assumed by contractowners, not by the Company. The Company provides certain
minimum death benefits that depend on the performance of the variable separate
accounts. Currently the majority of these death benefit risks are reinsured
which then protects the Company from adverse mortality experience and prolonged
capital market decline.

VOTING PRIVILEGES

In accordance with our view of current applicable law, We will vote shares of
each of the portfolios attributable to a contract at regular and special
meetings of the shareholders of the portfolios. We will vote those shares in
proportion to instructions we receive from the persons having the voting
interest in the contract as of the record date for the corresponding portfolio
shareholders meeting. Owners have the voting interest during the Accumulation
Period, persons receiving annuity payments have the voting interest during the
Annuity Period, and beneficiaries have the voting interest after the death of
the Annuitant or owner. However, if the Investment Company Act of 1940 or any
rules thereunder should be amended or if the present interpretation thereof
should change, and as a result we determine that we are permitted to vote shares
of the portfolios in our own right, we may elect to do so.

We determine the number of shares of a portfolio attributable to a contract as
follows:

- During the Accumulation Period, we divide the amount of contract value in
a subaccount by the net asset value of one share of the portfolio
corresponding to that subaccount. We make this calculation as of the
record date for the applicable portfolio.

- During the Annuity Period, or after the death of the Annuitant or owner,
we make a similar calculation. However, for subaccount value we use the
liability for future variable annuity payments allocable to that
subaccount as of the record date for the applicable portfolio. We
calculate the liability for future variable annuity payments on the basis
of the following on the record date:

- - mortality assumptions,

25
<PAGE>
- - the assumed interest rate used in determining the number
of Annuity Units under the contract, and

- - the applicable Annuity Unit value

During the Annuity Period, the number of votes attributable to a contract will
generally decrease since funds set aside to make the annuity payments will
decrease.

We will vote shares for which we have not received timely instructions, and any
shares attributable to excess amounts we have accumulated in the related
subaccount, in proportion to the voting instructions which we receive for all
contracts and other variable annuity contracts participating in a portfolio. To
the extent that we or any affiliated company holds any shares of a portfolio,
those shares will be voted in the same proportion as instructions for that
portfolio from all our policy holders holding voting interests in that
portfolio. Shares held by separate accounts other than the Variable Account will
in general be voted in accordance with instructions of owners in such other
separate accounts. This diminishes the relative voting influence of the
contracts.

Each person having a voting interest in a subaccount of the Variable Account
will receive proxy material, reports and other materials relating to the
appropriate portfolio. Under the procedures described above, these persons may
give instructions regarding:

- the election of the Board of Directors of the portfolios,

- ratification of the selection of a portfolio's independent auditors,

- the approval of the investment managers of a portfolio,

- changes in fundamental investment policies of a portfolio, and

- all other matters that are put to a vote of portfolio shareholders

LEGAL MATTERS

David A. Peterson, Esquire, Vice President and Assistant General Counsel with
our legal department has passed on the legality of the contracts described in
this prospectus. Messrs. Freedman, Levy, Kroll & Simonds, Washington, D.C., have
advised Fortis Benefits on certain federal securities law matters.

OTHER INFORMATION

We have filed Registration Statements with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
contracts discussed in this prospectus. We have not included in the prospectus
all of the information set forth in the Registration Statement, amendments, and
exhibits thereto. We intend statements contained in this prospectus about the
content of the contracts and other legal instruments to be summaries. For a
complete statement of the terms of these documents, you should refer to the
instruments filed with the Securities and Exchange Commission.

A Statement of Additional Information is available upon request. Its contents
are as follows:

CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<S> <C>
Fortis Benefits and the Variable Account..............................
Calculation of Annuity Payments.......................................
Postponement of Payments..............................................
Services..............................................................
- -Safekeeping of Variable Account Assets...............................
- -Experts..............................................................
- -Principal Underwriter................................................
Taxation Under Certain Retirement Plans...............................
Withholding...........................................................
Other Information.....................................................
Variable Account Financial Statements.................................
APPENDIX A--Performance Information...................................
</TABLE>

FORTIS BENEFITS FINANCIAL STATEMENTS

The financial statements of Fortis Benefits that are included in this prospectus
should be considered primarily as bearing on our ability to meet our obligations
under the contracts. The contracts are not entitled to participate in our
earnings, dividends, or surplus.

26
<PAGE>
APPENDIX A--SAMPLE MARKET VALUE ADJUSTMENT CALCULATIONS

The formula which will be used to determine the Market Value Adjustment is:

1 + I n/12
( ---------) - 1
1 + J + .005

Sample Calculation 1: Positive Adjustment

Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing
Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for
new 5-year guarantee (J) 7%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment

1 + .08 60/12
$10,000 x [( ----------) - 1] = $234.73
1 + .07 + .005

Amount transferred or withdrawn (adjusted for Market Value
Adjustment): $10,234.73

Sample Calculation 2: Negative Adjustment

Amount withdrawn or transferred $10,000
Existing Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing
Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for
new 5-year guarantee (J) 9%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment:

1 + .08 60/12
$10,000 x [( ----------) - 1] = - $666.42
1 + .09 + .005

Amount transferred or withdrawn (adjusted for Market Value
Adjustment): $9,333.58

Sample Calculation 3: Negative Adjustment

Amount withdrawn or transferred $10,000
Guarantee Period 7 years
Time of withdrawal or transfer beginning of 3rd year of Existing
Guarantee Period
Guaranteed Interest Rate (I) 8%*
Guaranteed Interest Rate for
new 5-year guarantee (J) 7.75%*
Remaining Guarantee Period (N) 60 months
Market Value Adjustment:

1 + .08 60/12
$10,000 x [( ------------)] - 1] = - $114.94
1 + .0775 + .005

Amount transferred or withdrawn (adjusted for Market Value
Adjustment): $9,885.06
- ------------------------
* Assumed for illustrative purposes only.

A-1
<PAGE>
APPENDIX B--SAMPLE DEATH BENEFIT CALCULATIONS

(FOR CONTRACTS ISSUED ON AND AFTER MAY 1, 1997 WITH ENHANCED DEATH BENEFIT
RIDER)

<TABLE>
<CAPTION>
Date of Death is the 3rd Contract Anniversary Example 1 Example 2
----------- -----------
<S> <C> <C>
a. Purchase Payments Made Prior to Date of Death, with 3% accumulation $ 20,000 $ 20,000
b. Contract Value on Date of Death $ 17,000 $ 25,000
Death Benefit is larger of a, and b $ 20,000 $ 25,000
</TABLE>

<TABLE>
<CAPTION>
Date of Death is the 8th Contract Anniversary Example 3 Example 4 Example 5
----------- ----------- -----------
<S> <C> <C> <C>
a. Purchase Payments Made Prior to Date of Death, with 3% accumulation $ 20,000 $ 20,000 $ 20,000
b. Contract Value on 7th Contract Anniversary $ 15,000 $ 30,000 $ 30,000
c. Contract Value on Date of Death $ 17,000 $ 25,000 $ 35,000
Death Benefit is larger of a, b, and c $ 20,000 $ 30,000 $ 35,000
</TABLE>

<TABLE>
<CAPTION>
Date of Death is the 15th Contract Anniversary Example 6 Example 7 Example 8
----------- ----------- -----------
<S> <C> <C> <C>
a. Purchase Payments Made Prior to Date of Death, with 3% accumulation $ 20,000 $ 20,000 $ 20,000
b. Contract Value on 14th Contract Anniversary $ 15,000 $ 40,000 $ 40,000
c. Contract Value on Date of Death $ 17,000 $ 30,000 $ 50,000
Death Benefit is larger of a, b, and c $ 20,000 $ 40,000 $ 50,000
</TABLE>

The numbers do not include any Market Value Adjustments which might be
applicable to the death benefit amount.

B-1
<PAGE>
APPENDIX C--EXPLANATION OF EXPENSE CALCULATIONS

The expense for a given year is calculated by multiplying the projected
beginning of the year policy value by the total expense rate. The total expense
rate is the sum of the Variable Account expense rate plus the total Series Fund
expense rate plus the annual administrative charge rate.

The policy values are projected by assuming a single payment of $1,000 grows at
an annual rate equal to 5% reduced by the total expense rate described above.

For example, the 3 year expense for the Growth Stock Series is calculated as
follows:

<TABLE>
<S> <C> <C>
Total Variable Account Annual Expenses 1.35%
+ Total Series Fund Operating Expenses
= Total Expense Rate
</TABLE>

Year 1 Beginning Policy Value = $1000.00
Year 1 Expense = 1000.00 X = $

Year 2 Beginning Policy Value = $
Year 2 Expense = 1029.90 X = $

Year 3 Beginning Policy Value = $
Year 3 Expense = 1060.70 X = $

So the cumulative expenses for years 1-3 for the Growth Stock Series are equal
to:
$ + $ + $ = $

If the contract is surrendered, the surrender charge is the surrender charge
percentage times the purchase payment minus the 10% free withdrawal amount:

Surrender Charge Percentage X (Initial Premium - 10% Free Withdrawal) =
Surrender Charge

0.05 X ($1000.00 - $100.00) = $45.00

So the total expense if surrendered is $ + $45.00 = $

C-1
<PAGE>

<TABLE>
<S> <C>
BULK RATE
U.S. POSTAGE
</TABLE>

FORTIS-R-
<TABLE>
<S> <C>
PAID
PERMIT NO. 3794
</TABLE>

FORTIS FINANCIAL GROUP
<TABLE>
<S> <C>
MINNEAPOLIS, MN
</TABLE>

P.O. BOX 64284
ST. PAUL, MN 55164

PROSPECTUS
MAY 1, 1999
<PAGE>
REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Fortis Benefits Insurance Company

We have audited the accompanying balance sheets of Fortis Benefits Insurance
Company, an indirect, wholly-owned subsidiary of Fortis (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>
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>
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>
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>
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>
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>
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>
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>
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>
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).......................... $ (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
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>
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>
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>
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>
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>
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..................................... 157,851 157,851 109,832 109,832
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>
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)

F-16

<PAGE>
<ARTICLE> 7
<CIK> 0000823533
<NAME> FORTIS BENEFITS INSURANCE COMPANY
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 2,402,343
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 157,851
<MORTGAGE> 610,131
<REAL-ESTATE> 56,297
<TOTAL-INVEST> 3,333,440
<CASH> 668
<RECOVER-REINSURE> 14,853
<DEFERRED-ACQUISITION> 331,938
<TOTAL-ASSETS> 7,598,196
<POLICY-LOSSES> 2,550,235
<UNEARNED-PREMIUMS> 13,393
<POLICY-OTHER> 255,350
<POLICY-HOLDER-FUNDS> 8,189
<NOTES-PAYABLE> 0
<COMMON> 5,000
0
0
<OTHER-SE> 880,468
<TOTAL-LIABILITY-AND-EQUITY> 7,598,196
1,299,770
<INVESTMENT-INCOME> 234,043
<INVESTMENT-GAINS> 52,404
<OTHER-INCOME> 44,671
<BENEFITS> 1,083,551
<UNDERWRITING-AMORTIZATION> 33,366
<UNDERWRITING-OTHER> 421,687
<INCOME-PRETAX> 92,284
<INCOME-TAX> 30,402
<INCOME-CONTINUING> 61,882
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,882
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 988,036
<PROVISION-CURRENT> 826,009
<PROVISION-PRIOR> (27,973)
<PAYMENTS-CURRENT> 469,881
<PAYMENTS-PRIOR> 254,308
<RESERVE-CLOSE> 1,061,883
<CUMULATIVE-DEFICIENCY> 0

</TABLE>